By Dr Eric Balan

In 1994, Indonesia hosted the APEC leaders’ summit in Bogor. It was then when the Bogor Declaration was agreed upon. This was a long-term standing agreement to adopt free and open trade investments around the Asia-Pacific region. The outcome of the summit then had inspired member economies to implement unilateral policies, regional bilateral and multilateral agreements, and to reduce economic tariffs from 17% then to 5% today. 2020 was the deadline that members and the region were to achieve what has been stipulated 26 years ago.

Based on past Bogor reports, it was made known that APEC has progressed towards the objectives set out on sustainable development and equitable growth. The success of the Bogor Declaration has seen tariff rates drop significantly, the services sector has become more open and transparent, manufacturing investment barriers have fallen, custom logistics, regulations, and procedures have improved, and these have made conducting business in the region to be cost effective.

Although APEC members have experienced significant economic growth, but growth has been uneven with many pressing issues still at hand. More work in tethering economic growth with environmental sustainability is needed. Kuala Lumpur hosted the recent APEC meeting to reaffirm members’ voluntary commitment, its non-binding, and consensus-building principles of the 1994 declaration and have launched the Putrajaya Vision 2040, an economic roadmap for a more open, resilient, and peaceful Asia Pacific community driven by trade and investment, innovation and digitalization, and sustainable inclusive growth.

Putrajaya Vision 2040

For the next 20 years, Asia Pacific will advance the goals of Putrajaya Vision 2040 with a spirit of equal partnership, shared responsibility, mutual respect, common interest, and common benefit, which are the same goals of the newly agreed Regional Comprehensive Economic Partnership (RCEP).

Signed among the ASEAN members together with Australia, China, Japan, New Zealand, and South Korea, it underpins ASEAN’s role in leading multilateral trade agreements. The RCEP was put forth by ASEAN and was deliberated and negotiated over the last eight years. The RCEP is now the largest free trade agreement in the world consisting of a market size of 2.2 billion people and accounting for a third of the world’s gross domestic product trade flow.

The RCEP will improve market access with tariffs eliminated for 65% of goods trades and it allows for businesses to trade with clearer regulations and this helps in job creation, direct investments, and establishing supply chains in the larger region.

SMEs are to benefit from the RCEP coupled with the Putrajaya Vision 2040. It is a 20-year run that would allow SMEs to penetrate into markets that were once difficult to enter. A wide range of goods and services sectors will see clear benefits but there are sectors that are now open to intense competition because of low-cost producers, and this shifts economic supply.

The benefits of the RCEP actually do outweigh the cost. This would allow SMEs to relook into their strategies and to become more competitive in their offerings. By just being part of a RCEP supply chain would already boost SMEs position in the region. With the supply chain now extending globally, SMEs risk can be mitigated. Participating SMEs will now have opportunities to attract investments from the world over. SMEs are now to re-evaluate the use of their technology or investments in technology to capture potential market share and growth interest.

Market research

It is also timely that SMEs carry out market research to diversify their goods and services from the existing ones, to carve out new segments they want to serve, and they need to shift their organisation thinking towards the goals of the RCEP. Cross-regional SME trade pacts in technical and manufacturing cooperation are highly mooted, as this allows SMEs to learn, source, integrate, distribute, and penetrate into the growing consumer markets, especially in China.

Prof Dr Mohar Yusof, professor of entrepreneurship and founder of BinaPavo, a leading family business advisory firm, posits that, “SMEs must understand and must know where they stand in the entire supply chain. SMEs must be aware of their exposure and take measures to compete or to protect themselves. The RCEP facilitates SMEs to continuously engage in learning. SMEs which are rigid to change will definitely lose out from the benefits. The RCEP is only a month old. It is uncertain how this whole trade agreement will pan out”.

As trade excitement rings through the pandemic and into 2021, SMEs are still vulnerable to the changes tuned by the region’s geopolitics and also of that in the US and Europe. Having China in the RCEP agreement does not necessary guarantee granted market access. Global economic and political strains outside of the ASEAN region will also have an impact on the RCEP endeavours. Although the RCEP is deemed to be collective, and it is, this is still about sovereign self-interest and sovereign alliances that will surely dictate the rules of the RCEP trade exercises.

It is then vital for SMEs to have an acute sense of change of the region’s pulse for this will assist in market capitalisation and business contractions. With the signing of the RCEP, it has forced China, Japan, and South Korea into a trade agreement that harmonises tariff concessions. This is a big advantage to SMEs when prior to the RCEP, preferential tariffs were granted only when multiple sets of business engagements and rules were complied with.

This now helps SMEs to build a flexible supply chain that suits business demands.

Protect the investment environment

Appreciating that SMEs are the backbone and are the largest employment provider of a nation, it is crucial that operations are not disrupted. With open markets and uninterrupted supply chain, the RCEP protects and secures the SME sectors from being immobilised. The shock of COVID-19 crumbled major parts of the economy. A key feature of the RCEP is to promote and protect the investment environment, and this in turn helps in the operationalability of SMEs.

SMEs increased trade would lead to regional political and economic stability. The value chain that SME integrations would create from the RCEP would normalise the internal political strives of vulnerable countries prone to political disruptions that could harm production of domestic and foreign demands. The RCEP assures prosperity and resilience in the region. SMEs success for the next two decades begins now in the initiative of internationalising expansion strategies, driving innovations, and providing the strength required for the new markets.

“We are embarking on further research in this area to be able to advice, develop and support SMEs, particularly family businesses, which account for approximately 70% of total establishments in this country,” reiterates Prof Dr Mohar.

-- BERNAMA

Dr Eric Balan is Consultant & Research Fellow of BinaPavo @ kCommerce (M) Sdn Bhd.