ASEAN community and six ASEAN FTA partners' leaders have engaged in strengthening economic development within the region by establishing RCEP. ASEAN had signed trade agreements with all the other six FTA partners. The other six ASEAN trading partners within RCEP have no free trade agreements yet among them. Therefore, the RCEP is involved in tough negotiation among the six non-ASEAN member countries. RCEP commitment is established through ASEAN as a catalyst. This study will examine the total saving potential of free trade agreement by using ex-ante FTA analysis and the political implication of RCEP for non-ASEAN member countries, especially Japan and China. The impact of RCEP will be insignificant without China and Japan existence. These two countries are essential to be maintained in the RCEP initiatives. The six non-ASEAN members in RCEP are finding ways to exploit the balance benefit among them. China-Japan relations will be embedded in the RCEP association if RCEP is concluded. From an economic perspective, Japan and China seem to have strong economic interdependence. From a political perspective, both countries have long history relations, distrust, and mistrust. Therefore, economic interdependence could be the way forward for both countries to have a harmonious relationship. Japan and China need ASEAN and other RCEP members to tighten the economic and political relations among them.

The conventional mandates of the central banks on meeting stability objectives and maintaining a growth-maximizing inflation rate have come under some criticism since the global financial crises. Maintaining adequate foreign reserves is seen as a viable solution to foreign exchange liquidity needs during crisis periods. Since the end of 2011, many Asian economies, including China and Japan, led from the forefront in central bank-led reserves build-up. However, reserves build-up remains challenging and sensitive for small open economies. Such policies help create ‘risk-neutral’ buffers for monetary and fiscal authorities to absorb transitory current account shocks and foreign exchange stress to smoothen the balance of payments. This study is motivated by the importance of identifying the inflation–foreign reserves nexus that may affect inflation in a manner counterproductive to the central bank mandate of maintaining price stability. It probes the debate of the sustainability of reserves build-up in the long and the short term. The outcome of the study poses several vital questions for fiscal and monetary policymakers concerning their respective mandates. The reserves–inflation nexus and its magnitude is determined using monthly data spanning two decades, through engaging an autoregressive distributed lag (ARDL) model and relevant bounds-testing techniques proposed by Pesaran et al. The vector autoregression (VAR), error correction and Johansen cointegration methods supplement the robustness checks. Exchange rate is introduced to enrich the discussion on the reserves–inflation nexus and shows a cointegration relationship in the long run. The study provides an insight into the influence of exchange rate on reserves and inflation. The variance decomposition shows the presence of a lukewarm response from foreign reserves and exchange rate on inflation. Policymakers concerned with inflationary expectations in the medium-to-long term need to consider these signals, as reserves build-up is one of the important policy-driven objectives for a number of economies.

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The ASEAN community as an international institution has proposed to strengthen economic development by widening cooperation with other countries through regionalism. ASEAN has proposed RCEP with six ASEAN FTA partners within the region. There is no FTA yet between some of the non-ASEAN member countries such as India and China. This condition has influenced the conclusion of RCEP because of different interest among the major power countries. This paper has examined the FTA saving potential analysis between India and China as two of the major power countries in the RCEP negotiations. The FTA saving potential of India and China will be analyzed by using exante analysis. India and China are having the different interests of the preferential agreement on the tariff. India has high tariffs barrier to protect its domestic market. Furthermore, India has demanded the other members to liberalize their services market through RCEP negotiation. India and China have been seen as a rivalry from the political point of view. Both countries have the biggest GDP among RCEP member countries. Therefore, India and China participation in RCEP development are essential to be maintained. The economic interdependence between India and China could lead to cooperation through RCEP. The savings potential analysis shows the tariffs that could be negotiated between India and China. India has proposed to dismantle tariff up to 20 years. This paper has calculated the projection of maximum saving potential that includes three scenarios in the calculation: 20 years of dismantling tariff, export growth and utilization rate. RCEP has been developed to build a comprehensive mutual agreement and economic benefit among the members through cooperation.

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