The Stumbling and Building of Noodle Bowl Effect of Convergence of Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP)

Abstract

The study focus on convergence in 12 countries TPP (Trans-Pacific Partnership) and 16 countries RCEP (Regional Comprehensive Economic Partnership) member countries, particularly in respect to total trade for the period 2000-2017. This study uses the non-linear approach model, transition Path, and log t-test by Philip and Sul. The Trans-Pacific Partnership’s overall convergence among member countries shows it is diverging, and clustered themselves into four convergence clubs. As for Regional Comprehensive Economic Partnership’s overall convergence reflects it is converging though could be interpreted as a weak convergence, and clustered themselves into four convergence clubs. The study concludes that it is keen towards RCEP, as it shows more similarities and unity among participating member as to compare with TPP. Keyword: Convergence, Trans-Pacific Partnership, Regional Economic Partnership, Noodle Bowl Effect Introduction Stated by the TPP Trade Minister Report to Leaders (2014), “TPP is a comprehensive, next generation regional agreement that liberalizes trade and investment and address new and traditional trade issues and 21st century challenges”. It’s framework is melded to be a comprehensive agreement that (1) demolish trade barriers in goods and services, (2) move even further than the ‘WTO-Plus’ trade rulebook on subjects not addressed by WTO disciples, (3) explore ways to develop a more effective regulatory policies in covering all sectors which have effect on trade and investment flows. In general, TPP is testing and maximizing their trade potential to be a better choice than the existing WTO as well as other FTAs, hence putting their benchmark for future trade negotiations. RCEP primary focus is more towards consolidating the smaller scale of FTAs goals and issues. It concerns on resolving the noodle bowl problems among ASEAN +6 FTAs. Besides, establishing a International Journal of Academic Research in Business and Social Sciences Vol. 1 1 , No. 14, Contemporary Business and Humanities Landscape Towards Sustainability. 2021, E-ISSN: 2222-6990 © 2021 HRMARS 166 comprehensive and mutually benefiting agreement, it also aim to have a deeper engagement and make-better existing ASEAN+1 FTAs towards the pursuit of extension in trade and investment within regions. Though, in such ways RCEP have no intention to tear down other corresponds FTAs, instead it will try to unified and harmonize rules and regulations that contributes to the divergence among countries in the region. As of 2016, there are 12 countries in the Asia-Pacific region that have joined in TPP. Other countries like, Thailand, Taiwan, Colombia, Costa Rica and Thailand have also taken interest and want to join in. The TPP membership procedure is very tedious, as it involves many bilateral discussions and endorsement from every existing member and a mutual decision. Interestingly, the United States withdrawal from the Trans-Pacific Partnership has brought about its reconfiguration by the other 11 countries that have decided to remain in it, creating another dimension of the former TPP, leading into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, CPTPP, or TPP-11. Whilst in RCEP, there are 16 countries, 10 of which are ASEAN members also 12 RCEP members are also APEC members. RCEP memberships are not ready to open for all, because any countries that have yet made any FTA with ASEAN cannot join RCEP, to date. As of now, it is still emphasizing on linkages among East Asia region only. Nevertheless, an important and unique feature offered by RCEP is the flexibility towards less developed countries, hence the special treatment. This approach is aligned with their stand on focusing towards developmental issues above others. In the recent years, Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP) has been a heated and debatable topic worldwide. Since it’s official debut, people have been paying close attention to the agreement’s agenda, negotiations, implications etc and with the new controversial issues of United Stated backing out from TPP (as of early 2017) as well as the trade war between two giant economies namely United States and China, many are starting to make speculations and predictions on TPP and RCEP’s future. On top of that, it is also very interesting to observe that some countries that are participating in TPP are also in RCEP, hence raising questions of opting for only one or both partnerships? The more intriguing debates are to identify the core group or countries that can ‘hold’ the partnership together. Therefore, there is always the need to go deeper and wider in investigating these free trade agreements, so that a more comprehensive outlook can be addressed. The study focus on total trade convergence of TPP and RCEP intends to give a general picture and a better understanding on what are TPP and RCEP. Besides reviewing their individual capabilities and drawbacks, it will also discuss on the possibilities that made these countries converge or diverge among each other as well as the advantages of certain countries participating in any particular agreement. Thus with a greater understanding of what both partnerships ‘brought to the table’, the country can decide more objectively. Furthermore, this study mainly focuses on finding and clustering all participating countries into their own standards and capabilities in terms of total trade. Hence, with this knowledge the authorities could put more effort in building economic integration that will eventually contribute to the convergence of these countries. Literature Review The study by Ben-David (1996), seeks to find the relationship between international trade and income convergence in groups of countries that have partnerships. The paper agrees that, there is a International Journal of Academic Research in Business and Social Sciences Vol. 1 1 , No. 14, Contemporary Business and Humanities Landscape Towards Sustainability. 2021, E-ISSN: 2222-6990 © 2021 HRMARS 167 higher possibility of income convergence among richer countries while for some other countries, they display lower or even no convergence at all (Baumol, 1986). Next, instead of the usual cross country regressions Ben-David uses the annual dispersion method to see the relations of convergence process and liberalization process timings. Noted here that, not only that he uses countries that have major trade partners, he also randomly compare it with different country groupings to see the extend of income convergence. Ultimately, results show that a more significant income convergence can be observed within the group that has trade partnerships than the ones that has been randomly grouped. Through the method of charting and explaining growth and trends of FTAs within the Asia Pacific region, Dent (2010), intends to search for more reliable options in terms of regional and plurilateral agreements. This is because, he claims that, an economically dependable and of high quality FTAs are ‘running out’ on top of the ones who after years turn inactive. Moreover, the author also acknowledges the convergences and harmonization of the countries he analyzed plus noting that some extended versions of FTAs have better and stronger prospects compared to the original. Apergis, Christou and Miller (2012), paper’s objective, is to find convergence club in respect to the nine development indicators via methods of Phillips and Sul. Generally, results does not backup the hypothesis that at a certain point all countries will converge in a equilibrium state. Beside, estimating the per capita output, they have also compare it with the nine development indicators mentioned. Findings shows, there were seven different convergence clubs in per capita output and also evidently, converging clubs in financial development and per capita output is significant and supportive of each other. Borsi and Metiu (2013); Andronnikova (2014) have applied the non-linear later factor method in order to find the economic convergence in real income per capita among the 27 EU countries between the year 1970 till 2010. To their analysis, there are no full panel convergence in EU, but found convergence clubs that converge into their own real income per capita steady states, plus regional linkages helps in determining the clustering. As studied by Petri, Plummer and Zhai (2014), they pursued on a study that quantifies the benefit gains received for every country that are involved in TPP, RCEP and also FTAAP. Estimations on benefits were made using the Computable General Equilibrium (CGE) model on top of that, the researchers have also included a new set of estimates to cater for China joining TPP, as of the year 2014. Petri and Abdul-Raheem (2014) did their research on a new FTAAP agreement that is perceived to complement TPP and RCEP if either one fail to enlarge and achieve region wide integration. Hence, their objective is to study all negotiating pathways and estimates their benefits. This has been done through reviewing TPP and RCEP strategy pathways, comparing TPP and RCEP objectives and lastly the application of advanced and Computable General Equilibrium (CGE) model. Findings suggest that, the deepening of economic integration in Asia-Pacific could generate large economic benefits and also help minimizing geopolitical issues. Basu Das and Jagtiani, explores in depth about RCEP especially on its issues and challenges it brings as well as the potential of expanding towards FTAAP (2014). Through analyzing RCEP’s rationale, economic sectors, developments gaps, tariffs elimination, benefits and implications, basically the authors have found that, RCEP have great potential to be a building block for the multilateral trading system. Battisti, Vaio and Zeira (2016), worked on a new method to calculate divergence of output across countries through measuring how closely output per worker, productivity and technology