On January 1, 2022, the Regional Comprehensive Economic Partnership (RCEP) will take effect and is envisioned to serve as a key engine of trade and investment and, and promote a more inclusive economic recovery for the entire region.
As of December, 11 countries have ratified the RCEP. These include six ASEAN member countries, namely Brunei, Cambodia, Laos, Singapore, Thailand and Vietnam, as well as five non-ASEAN signatory countries, namely Australia, China, Japan, New Zealand, and South Korea.
RCEP negotiations were formally launched at the 2012 ASEAN Summit in Cambodia and the agreement was signed on November 15, 2020. The RCEP agreement will enter into force 60 days after six ASEAN member states and three ASEAN FTA Partners have deposited their instrument of ratification, acceptance or approval with the depositary. The RCEP will aim at progressively eliminating tariff and non-tariff barriers on substantially all trade in goods in order to establish a free trade area among the member countries. Tariff negotiations will be conducted on a comprehensive basis.
Brunei ratified the RCEP in October this year, almost one year after signing the pact. The Ministry of Finance and Economy (MoFE) said Brunei’s timely ratification of the RCEP agreement signals the country’s strong commitment to support the region’s post-pandemic recovery efforts, strengthening our economic and trade linkages, creating new opportunities for businesses as well as support for an open, inclusive, rules-based multilateral trading system.
The 15-member nations of the RCEP account for about 30 per cent of the world’s population and 30 per cent of global gross domestic product (GDP) at USD 26.2 trillion, making it the biggest trade bloc in history.
MoFE said RCEP will provide new opportunities for Bruneian producers and businesses, especially in terms of market access given the level of liberalisation for trade in goods, services and investment. According to a recent United Nations Conference on Trade and Development (UNCTAD) study, the pact is set to become a new “centre of gravity” for global trade. The RCEP will become the largest trade agreement in the world as measured by the GDP of its members – almost one third of the world’s GDP.
By comparison, other major regional trade agreements by share of global GDP are the South American trade bloc Mercosur (2.4 per cent), Africa’s continental free trade area (2.9 per cent), the European Union (17.9 per cent) and the United States-Mexico-Canada agreement (28 per cent).
The agreement encompasses several areas of cooperation, with tariff concessions a central principle, which will eliminate 90 per cent of tariffs within the bloc. Sharing her thoughts on the mega regional trade pact, Lead Advisor, Southeast Asia Region at the Economic Research Institute for ASEAN and East Asia (ERIA) Lili Yan Ing said that even without India, the countries in the RCEP account for 30 per cent of the world’s population, 29 per cent of global GDP, 27 per cent of global trade, and 29 per cent of foreign direct investment (FDI).
“By comparison, the Trans-Pacific Partnership (TPP) without the United States (US) – now called the CPTPP – represents only seven per cent of the world’s population, 13 per cent of global GDP, 15 per cent of trade, and 20 per cent of FDI,” she said.
She further pointed out that the good thing about the RCEP is that even though it doesn’t call for liberalisation at the same level, scope, or depth of commitment as the CTPP, its impact on the economies of member countries, and indeed on the world economy, will be massive.
“The RCEP will incentivise supply chains in the region while also being sensitive to the different political conditions and levels of development in member countries.”
Here’s a look at how businesses will benefit from the RCEP:
The RCEP aims to reduce or eliminate customs duties imposed by each member state on originating goods by approximately 92 per cent over 20 years. In particular, businesses with supply chains involving Japan, China and South Korea may take note that RCEP establishes a free trade relationship between the three nations for the first time.
RCEP stipulates trade facilitation and transparency measures, including procedures for approved exporters to make declarations of origin; transparency around import, export and licensing procedures; issuance of advance rulings; prompt customs clearance and expedited clearance of express consignments; use of IT infrastructure to support customs operations; and trade facilitation measures for authorised operators.
FURTHER OPTIMISATION OF SUPPLY CHAIN
As RCEP consolidates members of the existing ASEAN +1 agreements with the five non-ASEAN member states, this provides greater ease in meeting the regional value content requirements.
Businesses may enjoy greater sourcing options as well as have more flexibility in optimising their manufacturing processes within the member states.
Non-tariff measures on importation or exportation between member states are prohibited under RCEP, except in accordance with the rights and obligations under the World Trade Orghanisation (WTO) Agreement or RCEP.
Quantitative restrictions made effective through quotas or licensing restrictions are generally to be eliminated.
According to the UNCTAD study, overall, the tariff concessions of RCEP result in gains for the entire region.
“Most of these gains come from trade diverted away from non-members. As the process of integration of RCEP members goes further, these diversion effects could be magnified.”