The Regional Comprehensive Economic Partnership (RCEP) was launched on 1 January 2022 and is a trade agreement between its 15 member nations. It’s being touted as the largest free trade deal in the world that is made up of nearly a half of the entire world’s population and approximately a third of its GDP.
The countries taking part in this monumental trade deal are Japan, China, Laos, Thailand, New Zealand, Cambodia, Australia, Singapore, Brunei, and Vietnam. The cornerstone of the RCEP is its concessions on tariffs to eliminate levies on goods traded within the group up to around 90%. The agreement is set to massively benefit the economies of countries such as Japan, China, and South Korea, which are all the largest Asian economies. These giants will now be bound together in a free trade deal for the first time in history. Japan’s export tariffs on electric vehicle parts into China will now be removed.
The RCEP is expected to draft some common rules pertaining to trade, e-commerce, and intellectual property (IP) while becoming more competitive against other major markets. The United Nations already accepts that the Asia-Pacific region is the global commerce “center of gravity”.
Because the RCEP will now have a massive market share of the world economy, which includes the majority of East Asian trading nations, it is now more than double the size of the CPTPP for its scale and trade volume. But it’s not at the same standard and still knows this very well. The RECP is much more than a trade deal and is more akin to an economic collaboration to deepen and strengthen the economies of all parties involved in the agreement. It will also aid clear cohesion and integration across the member states.
The RECP doesn’t currently have the same disciplines in place that some other major trade deals across the world have, but it’s a commitment to making that happen across East Asia in the coming years. It’s a step in the right direction of economic liberalization across East Asia, giving chances to growing/developing economies throughout the region to get larger and more robust, and competitive. They are planning to phase their liberalization, which is a stark contrast to the majority of FTAs. The deal can help to ensure that developing members also enjoy economic liberalization to become competitive across a wide range of sectors by using cooperation via a commitment to the greater economic good of the region.
What Makes the RCEP so Important?
Because this is an economic alliance between 15 nations that when added together make up almost half of the world’s population and a third of the world’s GDP. If you wanted to combine the GDP of China and India, they make up almost half of that amount. It’s being reported that the RECP’s share of the entire world economy could be around $0.5 quadrillion (GDP, PPP) by the time we reach 2050.
What Are the Goals of the RCEP?
It’s all about creating an integrated market for East Asia and its 15 member countries. The goal is to make it much simpler to move products and sell services around these nations by removing the majority of tariffs and regulatory red tape. The focus will largely be on investment, trade of goods and services, dispute settlements, e-commerce, intellectual property rights, economic cohesion, and growing small and medium scale enterprises.
What’s China’s Role in the RCEP Agreement?
This RECP deal was originally pushed by Beijing back in 2012 in a bid to compete with another FTA that was in the planning stage at the time called The Trans-Pacific Partnership (TPP). This was a plan in place by the US, and they excluded China from the deal. But back in 2016, the then US President Donald Trump pulled out of the TPP deal. And since then, the RCEP has quickly become the trade avenue for the region and a major tool for China to counter America’s moves in the Pacific region.
China is one of the nations that will benefit most from the RECP because there will be increased access to their goods across the region, giving them a chance to gain more investment support. China is already the largest trading partner in ASEAN, and this agreement will solidify its position and make them almost unsurmountable.
What Does This Mean for Business?
Reducing tariffs on trading goods through the RECP members will bolster supply chains and will naturally create common laws for the nations. The shipping of products throughout the RECP nations will become easier and devoid of the majority of red tape. The members will not have to worry about breaking trade rules like before. For example, any companies that manufacture products in the RECP will be able to ship to other member countries with no certificate of origin needed. Trade costs will be massively reduced among the 15 member states which will encourage more trade between them all. This will establish new supply chains and can even change the demand and their input costs A greater integration across the RECP in terms of business while taking fewer risks and less financial outlay is a major plus factor.
The strained relationship between China and the US in regard to global trade has caused a trade war between these two economic giants. These tensions only heighten during the COVID- 19 pandemic, which means having a reliable local trade model such as the RCEP was a stroke of genius.
The trade volume between China and RECP members during the first 11 months of 2021 was around 10.9 trillion yuan, which is approximately $1.72 trillion. This is 31% of the foreign trade in China, as stated by the General Administration of Customs. China is now making a point of encouraging other RECP members to take advantage of the zero trade tariffs to promote their goods and services across the region.
They are also encouraging member nations to improve their business and service efficiency across the board. China recently encouraged ports to start using expedited procedures for any RECP goods so that customs clearance of the said goods is down to around 6 hours. This is a positive move for most Chinese businesses who are already getting surges of new orders because of the reduced costs for members.
The East Asian economy is now becoming fully integrated with RCEP at the helm, and businesses are expected to see a boost in investment and an improved economic environment all around.
But it’s not just China that is benefiting from the trade agreement. Consumers across Asia are also massively benefitting because of the RECP as they get higher quality goods for a cheaper price tag. Fruit exporters from South-East-Asian nations such as Thailand can also be another beneficiary of the deal. The fruit will get to the customers more quickly from the farms to the supermarket shelves, so the supply chain across the region will become clearer and smoother in its adoption.
Businesses across the RECP are about to get more opportunities to share their goods and services across the region with minimal red tape will improve efficiency. Just make sure you do not miss out on the party.