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RCEP — Fifteen Asia-Pacific nations sign world’s largest trade agreement

2020-11-17 (updated 2020-11-26) 16 minute read Asia-Pacific

Signatories to the Regional Comprehensive Economic Partnership (RCEP) - world map

The Regional Comprehensive Economic Partnership (RCEP) integrates 15 economies in the Asia-Pacific: 10 ASEAN member states, and China, Japan, South Korea, Australia, and New Zealand. Together, the member states account for about 30% of the world’s population and 30% of global GDP.

The agreement is intended to deepen economic integration in Asia-Pacific, open markets, reduce regulatory barriers in trade, services and investments, as well as reduce or eliminate tariffs.

The Regional Comprehensive Economic Partnership free-trade agreement (RCEP), nine years in the making, was signed on 15 November 2020 in a virtual ceremony with the 15 member countries participating via video link due to the COVID-19 pandemic.

ASEAN (ASEAN+3, and ASEAN+6 Countries and the Regional Comprehensive Economic Partnership (RCEP) Signatories (©ACOLINK.COM)

RCPE brings together fifteen nations in the Asia-Pacific, covering nearly 2.3 billion population, with a total GDP exceeding USD $26 trillion — nearly 30 percent of global GDP. In terms of GDP, this is on par to the North American Free Trade Area (USMCA, which replaced NAFTA): The United States, Canada, Mexico, and is significantly larger than the EU Customs Union.

Visual comparison of the three trade agreements as of November 2020: Europe’s EU Customs Union, RCEP in Asia-Pacific, USMCA in North America (©ACOLINK.COM)

Once RCEP is ratified, by at least six ASEAN and three non-ASEAN signatories, it will take effect and create world’s largest integrated market.

Background

The initiative was launched by 10 member ASEAN (Association of Southeast Asian Nations) countries and aimed at improving market integration with their local trading partners across Asia-Pacific.

ASEAN, a regional intergovernmental organization comprising ten countries in Southeast Asia, promotes intergovernmental cooperation and facilitates economic, political, security, military, educational, and sociocultural integration among its members and other countries in Asia.

Nine years in the making — first drafted on 19 November 2011 — negotiations commenced in early 2013, culminating in a virtual signing ceremony hosted in Vietnam, Hanoi, on 15 November 2020, with the 15 member countries participating via video link.

RCEP was built on ASEAN free trade agreements (FTAs) with their key six trading partners, namely People’s Republic of China (ACFTA), Republic of Korea (AKFTA), Japan (AJCEP), India (AIFTA) as well as Australia and New Zealand (AANZFTA). India withdrew from the RCEP negotiations on reluctance to reduce its tariff rates. RCEP goes beyond those individual agreements, with the objective of achieving a modern, comprehensive and mutually beneficial economic partnership through enhancing trade and investment related activities, and bridging the development gap among the parties.

RCEP Signatories

Regional Comprehensive Economic Partnership (RCEP) Member Countries – map of Asia-Pacific (©ACOLINK.COM)

The agreement has been signed by the following member countries: the 10 ASEAN member countries: 🇧🇳 Brunei, 🇮🇩 Indonesia, 🇰🇭 Cambodia, 🇱🇦 Laos, 🇲🇲 Myanmar, 🇲🇾 Malaysia, 🇵🇭 The Philippines, 🇸🇬 Singapore, 🇹🇭 Thailand, 🇻🇳 Vietnam; their three largest trading partners in East Asia: 🇨🇳 China, 🇯🇵 Japan, 🇰🇷 South Korea; and two in Oceania: 🇦🇺 Australia, and 🇳🇿 New Zealand.

Special privileges for least developed nations

The signatories agreed to secure special privileges for Cambodia, Laos, and Myanmar, the least developed participants. RCEP member states are required to abolish tariffs on 65 percent of goods once the agreement takes effect (with the aim to cover 80 percent within 10 years), the 3 countries are only required to eliminate tariffs on 30 percent of goods (with the transition period extended to 15 years) due to their development status. Under the agreement, these nations will also enjoy longer transition period in the areas of e-commerce, intellectual property and competition policy.

RCEP & China — the largest trading partner

China is the largest trading partner of the 10 ASEAN countries with its GDP accounting for over a half of the block’s total GDP. Its foreign exchange reserves stand at USD $3.128 trillion as of October (PBOC). China’s population account for about 65 percent of the nearly 2.3 billion.

Up to 2018, China invested USD $16 billion in other 14 countries, attracting $14 billion of foreign investment in the region, whilst supporting less developing countries in the region with infrastructure building.

Although RCEP does offer some advantages to China, it is not necessarily at the cost of other member countries.

RCEP creates the first free trade agreement for Japan with China and South Korea. Since China and Japan do not have a bilateral free trade agreement, RCEP is likely to remove tariffs on 86% of Japan’s industrial goods exports to China.

Under the agreement tariffs will be removed from about 61 percent of food products from ASEAN nations, Australia, and New Zealand; about 56 percent from China, and 49 percent from South Korea.

Key areas covered

The main negotiating issues involved were trade in goods and services, investment, economic and technical cooperation and dispute settlement.

The agreement offers incremental improvement in the following key areas:

  • Trade in goods
  • Trade in services
  • Investment
  • Economic and technical cooperation
  • Intellectual property
  • Competition
  • Dispute settlement
  • E-commerce
  • Small and medium enterprises (SMEs)

What does RCEP mean for businesses

RCEP is set to greatly improve business environment within this dynamic region and help realise its vast development potentialT. Long, ACOLINK

One of the notable developments is the Rules of Origin aspect which may motivate manufacturing investment in terms of finishing operations in countries with lower-cost and less skilled workforce such as Cambodia, Laos, and Myanmar. This could spur regional manufacturing investment interest from Australia, New Zealand, Japan, South Korea, and Singapore, especially for garments finishing.

Participation of China and Japan in the agreement is set to be beneficial for smaller ASEAN economies. It can improve two-way flows in both trade in goods and trade in services, as well as encourage better investment regimen from China and Japan.

RCEP signatories also agreed to mutually recognize each others professional qualification, this could open up RCEP market opportunities for professionals (e.g. lawyers, medical doctors, dentists, and others).

RCEP also seeks to regulate common tax incentives available across the member states, which together with other measures aimed at SMEs will provide further incremental improvements that businesses should look out for.

ACOLINK’s CTOO, Thomas Long, commented "we at ACOLINK welcome this important development and are looking forward to its (RCEP) ratification; RCEP is set to greatly improve business environment within this dynamic region and help realise its vast development potential, the agreement comes at an important time since it can help boost recovery from the pandemic-induced global plunge — Asia is already showing signs of faster recovery than the rest of the world".

“Furthermore, with our already well established networks within the region, RCEP will allow us to accelerate expansion of our planned business development in the area so that we can help open up further opportunities for our clients, initially we’re likely to see quick wins especially in the sourcing area”, he added.

Another positive development is the dispute settlement aspect — improvements to the international arbitration environment are always welcomed, ISDS (investor-state dispute settlement) in particular. Since both Hong Kong and Singapore are already important, world-class arbitration centres on the international scene, it will be interesting to see how their role evolves as the agreement is being implemented.

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