What is the RCEP?
The Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement (FTA) between the ten member states of the Association of Southeast Asian Nations (ASEAN) and its partners – Australia, China, Japan, Korea, and New Zealand. The agreement has been signed by the member countries on 15 November 2020 and is currently pending ratification by 6 ASEAN and 3 non-ASEAN countries before it will be in force.
These members of the RCEP make up nearly a third of the world’s population (2.2 billion) and account for almost 30% of global gross domestic product. This also means that the new free trade zone under the RCEP is even bigger than the European Union and the US-Mexico-Canada Agreement.
While initially part of the discussions, India had indicated in November 2019 that it will pull out of the agreement. Concerns it cited include how lower tariffs from the RCEP could hurt local producers.
The RCEP is expected to eliminate a range of tariffs on imports within 20 years. It includes specific provisions covering trade in goods, including:
- Rules of origin
- Customs procedures and trade facilitation
- Sanitary and phytosanitary measures
- Standards, technical regulations and conformity assessment procedures
- Trade remedies
It also includes provisions on intellectual property, telecommunications, financial services, ecommerce, and professional services.
TMX Asia Viewpoints
James Christopher – Opening Up New Growth Markets
This is the first FTA to connect China and Japan, as well as Japan and Korea, providing a good foundation for greater cooperation between the three countries in the future.
Industries with traditionally higher rates of customs duties, such as food and agriculture, automotive, and consumer electronics, stand to benefit the most. Relevant sectors committed for opening under the partnership’s investment chapter are also likely to attract increased investments from overseas sources. With increased commitments around freer capital flows, we can also expect to see more companies having the confidence to venture abroad into other markets that are part of the RCEP.
The RCEP also allows for broader sourcing of inputs from any of the other members. However, businesses will need to conduct specific research and checks to determine the exact benefits, which tend to be product-specific and not industry-specific.
While it is not in force yet, businesses can prepare for it by reviewing their existing processes. This includes current supply sources, production processes, value-adding and other ancillary activities along the supply chain. At the same time, businesses can also start considering entering new markets. To further capitalise on the benefits of the RCEP, businesses will also need to advance their digital transformation. This will enhance their human capital, increase productivity and efficiency and ultimately, improve their overall business competitiveness.
Holger Schaurig – A Boost for ASEAN
The RCEP will see member countries committing to lower tariffs, open markets and reduced barriers to trade. This will effectively improve market access by eliminating as much as 90% of the tariffs on goods traded. As for trade in services, at least 65% of all services sectors will be fully opened with increased foreign shareholdings limits.
The common rules of origin and transparent regulations will also make business more predictable. Additionally, the single set of rules and procedures increases opportunities for businesses to access and be a part of regional value chains. Overall, there will be greater trade connectivity and integration of businesses operating with the member countries.
Compared to existing FTAs, the RCEP expands the scope to include horizontal provisions on ecommerce, assistance to small and medium enterprises (SMEs) and additional cooperation on the economic and technological front, among others. Once in effect, the partnership will bolster ASEAN’s position as a long-term, stable production and export market in the context of risk and uncertain global supply chains. This will encourage firms to invest more in the region, including building supply chains and services, and to generate jobs.
Chau Turner – Opportunities for Vietnam
The pact will help businesses access large consumer markets, including China, and will make it easier for businesses to expand into new markets and play a greater role in regional supply chains.
Particularly for Vietnam, this means increased connectivity and growth opportunities for the country’s logistics sector and beyond. With more manufacturers looking to diversify their supply chains and shift operations to Vietnam, local players in the logistics sector are expected to be the biggest winners.
In addition, by facilitating supply chains involved in the export of electronic chips and other materials from Japan, South Korea, and China, Vietnam has an increased opportunity to produce goods domestically for export to other countries. This will further enable businesses in Vietnam to take advantage of the preferential tariff provided under the RCEP. Other sectors also expected to benefit from the RCEP, including the automotive, textiles, and agriculture sectors.
Mitch Bittermann – Cross-Border ecommerce Advantages
The rules on intellectual property and ecommerce will help create an enabling environment for businesses to trade digitally in the region and support consumer confidence in the online environment2. The RCEP will encourage a more conducive environment for cross-border trade by facilitating aspects such as paperless trading, electronic signatures and authentication, as well as online personal information and consumer protection. This is a welcome move as the digital economy still presents major cross-border trade barriers for small and medium enterprises (SMEs)3.
The RCEP is likely to offer new advantages in online payments, customs clearance, and tariff reductions for cross-border ecommerce. It will also provide a boost to ecommerce platform operators selling to customers in the region.
Businesses in services trade have the opportunity to gain a competitive advantage in this fast-growing trade bloc.2 They can start by taking a critical look at the RCEP’s more liberal market access commitments, ecommerce provisions and IP protection clauses to identify such opportunities.
Additional information and updates
- 28 Apr 2021, South China Morning Post – Japan approves world’s biggest free-trade deal after China’s call to boost Asian economy
- 19 Apr 2021, Asia Business Law Journal – What can business expect from RCEP?
- 22 Dec 2020, ANZ News, What the world’s largest trade agreement means for NZ
- December 2020, Asian Development Bank – Regional Comprehensive Economic Partnership: Overview and Economic Impact
- 16 Nov 2020, The Conversation Australia, We’ve just signed the world’s biggest trade deal, but what exactly is the RCEP?