Fifteen Asia-Pacific countries signed the world’s largest free trade agreement on Sunday, the Regional Comprehensive Economic Partnership (RCEP) – a China-backed deal that excludes the United States.
Member countries include the Philippines, Singapore, Malaysia, Indonesia, Brunei, Vietnam, Laos, Cambodia, Thailand and Myanmar — as well as China, Japan, South Korea, Australia and New Zealand.
RCEP members accounted for a third of the world’s population and about 30% of the global economy and 2.2 billion consumers.
The agreement signing at a regional summit in Hanoi is seen as a move that will expand the regional supply chains among countries. Below are the key benefits ASEAN countries will get from RCEP.
The partnership focuses on progressively eliminating tariff and non-tariff barriers to establish free trade and strengthen economic cooperation among parties. Tariff liberalization under RCEP will support the liberalization levels from the existing free trade agreement established among ASEAN countries.
RCEP aims to “abolish some 92% of traded goods tariffs,” Lavanya Venkateswaran, an economist at Mizuho Bank’s Asia & Oceania Treasury Department, said in a note. It “would be critical in deepening supply-chain linkages, with a reach into the service sector with ambitions of 65% of service sector being fully open under the RCEP.
RCEP is particularly significant for Japan because it has not built any free trade agreement with its major trading partners – China and South Korea. The liberalized tariff will generate trade flows between Japan, South Korea, and China. Nikkei reported that tariff will likely be removed on 86% of industrial goods exported from Japan to China as a result of the partnership.
However, trade expansion to dialogue partners – Australia, China, Japan, South Korea and New Zealand – would reduce preferential market access among ASEAN countries.
The partnership among RCEP members will improve competition in a way that drives productivity and sustainability. The agreement reaffirms ASEAN commitment to the World Trade Organization on export competition including the elimination of scheduled export subsidy entitlements for agricultural products, as export subsidy creates unfair competition with local producers in many developing countries.
Simplified customs and trade processes
Streamlined customs procedure is expected from RCEP. The agreement aims to achieve efficiency in customs administration marked by improved consistency, predictability, and transparency in applying customs procedures. Expedited releasing of goods from customs is one area this partnership will provide. For example, perishable products are expected to be cleared from customs within six hours from arrival and submission of documents.
Enhanced trade facilitation provisions are also embedded in RCEP including advance ruling based on tariff classification, rules of origin, customs valuation, and a risk management approach for customs control and post-clearance audit.
The partnership brought together China, Japan and South Korea for the first time under a single trade agreement – countries that have historical and diplomatic issues.
RCEP is a modern, comprehensive, and mutually beneficial among partners, a move that integrates the trade and supply chain across Asia Pacific.