On January 1, 2021, the Regional Comprehensive Economic Partnership (RCEP), the world’s largest multilateral trade agreement, was ushered in. The RCEP comprises 15 countries, including 10 ASEAN members, China, Japan, the Republic of Korea, Australia and New Zealand. Their total population is about 2.3 billion people, about 30 percent of the world’s population, with a total GDP of $ 28.5 trillion.
“The economic size of the emerging bloc and its trade dynamics will make it a focal point for world trade,” stated the United Nations Conference on Trade and Development (UNCTAD) in a study published in mid-December. “In the current context of the pandemic, the entry into force of the RCEP can also serve another purpose: to make trade resilient.”
At the center of RCEP are tariff concessions, with which members are ultimately supposed to abolish taxes on more than 90 percent of the goods traded within the bloc. The three regional giants China, Japan and South Korea, which are now linked by a free trade agreement for the first time, benefit from this. For example, according to the Japanese Ministry of Commerce, tariffs on Japan’s exports of some electric vehicle components to China will be abolished. Japan is expected to be the biggest beneficiary, with the total export impact estimated at $ 20.2 billion, followed by China at $ 11.2 billion and South Korea at $ 6.7 billion.
The UNCTAD study estimates that tariff concessions by RCEP participants will increase exports within the region by two percent from 2019 levels, or about $ 41.8 billion, by diverting trade from third countries and new intra-bloc trade is cranked.
RCEP is expected to increase regional trade flows and deepen the cross-border production links between its 15 member countries. It is intended to help attract investment, offer companies a broad spectrum of production locations with different comparative advantages and the possibility of exporting at discounted tariffs to a wide economic area that encompasses both high-income consumers and a large and growing middle-income segment.
Ultimately, under the agreement, more than 90 percent of trade in goods between the members will be duty-free. The tariff cuts will decrease by an average of 0.7 percent by the 10th year and by 1 percent by the 20th year after the agreement comes into force. Tariff cuts vary widely by product and economy, with Cambodia, Laos and Vietnam allowing a more gradual pace of reduction to give these lower-income economies more time to adapt to increased competition.
The benefits extend to businesses of all sizes. With increasing connectivity, cross-border e-commerce between China and the ASEAN member states has developed rapidly and given new impulses for regional economic development.
Production in sectors such as textiles and clothing, leather, wood and paper will grow faster in the first 10 years of the agreement; while sectors such as agriculture, energy and mining, chemicals and electronics will expand faster in the longer term.
Philip Teoh is a practicing attorney and partner, leading the insurance, shipping, international trade and arbitration practice at Azmi & Associates Malaysia. He has practiced as a lawyer in Singapore and Malaysia for over 30 years and is an international arbitrator at several international arbitration centers of AIAC, ICC, SCMA, LMAA, KCAB, AABD, Brunei, CAAI Taiwan, LCIA.
The opinions expressed here are those of the author and not necessarily those of The Maritime Executive.