What is the RCEP and what does this agreement foresee in Asia in 2024

30/06/2022

On January 1, 2022, the Regional Comprehensive Economic Partenership (RCEP) entered into force for Australia, Brunei Darussalam, Cambodia, China, Japan, Laos, New Zealand, Singapore, Thailand, and Vietnam, paving the way for the creation of the largest free trade area in the world.

East Asian countries have thriving trade and economic relations wth each other through free trade agreements.

The Association of Southeast Asian Nations (ASEAN) has free trade agreements with six partners: People's Republic of China (ACFTA), Republic of Korea (AKFTA), Japan (AJCEP), India (AIFTA), as well as Australia and New Zealand (AANZFTA).

To broaden and deepen the commitment between the parties and improve the participation of the parties in the economic development of the region, the leaders of the 16 participating countries have established the Regional Comprehensive Economic Partenership (RCEP).

The RCEP was built on the basis of existing ASEAN+1 Free Trade Agreements with the spirit of strengthening economic links and improving commercial and investment activities, as well as elping to minimize the development gap between the parties. But what is the RCEP? What does it foresee?

RCEP
RCEP Members. Source: Wikipedia

What is the RCEP?

The Regional Comprehensive Economic Partenership (RCEP) is a free trade agreement in the Asia Pacific region between the ten ASEAN states, the Association of Southeast Asian Nations, and five of their free partners: Australia, China, Japan, Nw Zealand and South Korea.

On November 15, 2020, 15 Southeast Asian and Pacific countries signed the Regional Comprehensive Economic Partenership (RCEP), the regional Global Economic Partnership agreement that creates the largest free trade zone in the world.

The RCEP is part of a network built by the many bilateral agreements already existing between the 15 countries, large enough to cover 83% of internal trade.

When was the RCEP introduced?

The Regional Comprehensive Economic Partenership was introduced during the 19th ASEAN meeting, held in November 2011.

Members of the Association of Southeast Asian Nations (ASEAN), including Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam, initiated trade deal talks.

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RCEP negotiations were launched during the 21st ASEAN Summit in Cambodia in November 2012. After more than eight years of negotiations, ASEAN members reached an agreement with China, Japan, South Korea, as well as Australia and New Zealand.

To date, the trading bloc covers 28% of global GDP, 28% of world trade and 29% of the world population. Such an agreement is unbelievable, given the impressive size that is unprecedented in history.

The origins of the RCEP: the link with ASEAN

ASEAN was established on August 8, 1967 in Bangkok, Thailand, with the signing of the ASEAN Declaration (Bangkok Declaration) by the Founding Fathers of ASEAN, namely Indonesia, Malaysia, Philippines, Singapore and Thailand.

Brunei Darussalam then joined on 7 January 1984, Vietnam on 28 July 1995, Laos PDR and Myanmar on 23 July 1997 and Cambodia on 30 April 1999, forming what are now the ten member states of ASEAN.

The five foreign ministers who signed the Declaration, such as Adam Malik of Indonesia, Narciso R. Ramos of the Philippines, Tun Abdul Razak of Malaysia, S. Rajaratnam of Singapore, and Thanat Khoman of Thailand, were later hailed as the Founding Fathers probably the most successful intergovernmental organization in the developing world.

RCEP

ASEAN covers not only topics in trade policy, but also other economic issues such as investment promotion, intellectual property rights, compliance with labor standards, as well as environmental and security issues.

In 1990, the idea of a trade agreement between ASEAN members and China, Japan and South Korea began to emerge, leading to the creation of a sort of ASEAN +3 agreement. Either way, it took 22 years for the plan to start taking shape.

In fact, the negotiations on the RCEP, in which India, Australia and New Zealand also participated, began in 2012. Eight years later, on November 15, 2020, the agreement was finally signed, but without India, which decided not to join before the finalization of the RCEP, due to problems related to internal politics.

The difficulties and efforts to reach agreement

The short duration of the negotiations is a remarkable result, also due to the adverse conditions with which they began. The historical rivalries and conflicts already present between the various parties have made the speeches rather complicated.

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Furthermore, the large heterogeneity among the 15 participating countries also represented a great challenge: alongside high-income countries such as Japan, Singapore, South Korea, Australia and New Zealand and the giant China, several emerging countries, as well as two of the poorest countries in the world, Laos and Cambodia, were involved in the negotiation talks.

In fact, such a high degree of heterogeneity is generally hard to manage, since when there are different interests, it is difficult to reconcile them.

What prompted these countries to reach an agreement, despite these difficulties, are firstly the fact that the RCEP is China's response to the failure of the Trans-Pacific Partnership (TPP) and secondly, the fact that the economic ties between the RCEP countries are deep and have increased in recent years.

The goal of the RCEP

The goal of the RCEP is to create an integrated market with the 16 participating countries, making it easier for each of them to make their products and services available.

The Regional Global Economic Partnership Agreement (RCEP) is an agreement designed to broaden and deepen ASEAN's engagement with Australia, China, Japan, Korea and New Zealand. Together, these countries participating in the RCEP represent approximately 30% of the total world GDP and 30% of the world population.

RCEP

The goal of the RCEP agreement is to establish a modern, comprehensive, high-quality and mutually beneficial economic partnership that will facilitate the expansion of regional trade and investment and that will contribute to the growth and development of the global economy.

Consequently, it will create market and employment opportunities for businesses and people in the area. The function of the RCEP agreement will be to complement and support an open, inclusive and rules-based multilateral trading system.

However, the implementation of common rules is largely at the discretion of each country. The RCEP is also seen as a first generation commercial agreement, still focused on tariffs.

But also for tariff reductions, which are foreseen on 91% of products, each country has advanced its reservations and set conditions.

The key features of the RCEP

The intent of the RCEP is to establish an economic agreement that is modern, comprehensive, of high quality and mutually beneficial. But what does this mean?

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Modern. The RCEP updates the coverage of the ASEAN Free Trade Agreements plus one existing (ASEAN FTA with the five dialogue partners) and takes into account change and emerging trade realities, including the era of e-commerce, the potential of micro, small and medium-sized enterprises, the deepening of the regional value chain and the complexity of market competition.

Full. The RCEP agreement comprises 20 chapters and includes many areas that were not previously covered by the ASEAN Plus One free trade agreements.

The agreement contains specific provisions concerning trade in goods, including rules of origin, customs procedures, sanitary and phytosanitary measures, standard technical regulations and conformity assessment procedures, commercial remedies.

It also covers trade in services, including specific provisions on financial, telecommunications and professional services, as well as investment, intellectual property, e-commerce, competition, small and medium-sized enterprises (SMEs), economic and technical cooperation, legal and institutional areas, including dispute resolution.

RCEP

High quality. The RCEP agreement contains provisions that go beyond the current ASEAN Plus One. The RCEP agreement addresses issues to support the parties' engagement in the global and regional supply chain.

The agreement aims to stimulate competition in a way that stimulates productivity, which is sustainable, responsible and constructive. Furthermore, the RCEP agreement has the added value of bringing together a single regulation to facilitate the development and expansion of regional supply chains between the Parties.

Mutually beneficial. The RCEP agreement brings together countries with different levels of development. Therefore, the parties have recognized that its success will be determined by its ability to bring mutual benefits.

This agreement is designed to achieve the objective in various ways, including through adequate flexibility and provisions that ensure special and differential treatment, in particular in Cambodia, Laos, Myanmar and Vietnam.

The role of China in the RCEP

The Regional Cpmprehensive Economic Partnership (RCEP) agreement was strongly supported by Beijing in 2012 to counter another free trade agreement, which was already planned and in progress, such as the Trans-Pacific Partnership (TPP).

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The TPP was at the time led by the United States, it was the latter who refused China's entry, excluding it from participation. However, US President Donald Trump withdrew his country from the TPP in 2016.

Since then, the RCEP has become an important tool for China to thwart US efforts to prevent trade with Beijing.

China, having a considerable weight on the economy of the area (about 60%), will be able to influence the effects of the agreement, despite the fact that the RCEP was born within ASEAN and its secretary is where ASEAN is based, therefore to Jakarta.

The dominant position and weight of China would have been mitigated with the participation of India, which, however, despite participating in the negotiations since the beginning of the negotiations, withdrew at the time of signing.

In fact, India has decided to no longer join the RCEP after evaluating the high risks for its agriculture, industry and the low opportunities for its services. Many see this choice as a consequence of the friction with China and the historical competitiveness between the 2 countries.

RCEP

RCEP: The advantages of importing from China

This agreement strengthens relations between several Asian countries and at the same time allows them to be more competitive globally, strengthening the supply chain. China certainly plays a very important role, being the first world manufacture.

Importing from China requires organization and skills to avoid unpleasant surprises in preparing and presenting the documents necessary for the entry of the purchased goods.

Relying on on-site facilities is essential to verify the reliability of factories and suppliers, verify if the certifications are authentic and if the products can be legally sold in Europe.

Companies like Noziroh Hub are essential for importing products from China and successfully managing production processes. With a single reference it is possible to manage all the procurement phases, from supplier research to production, from certification to storage and shipment of goods from China.

Our team also follows customers during the delicate stages of importing goods and customs clearance. The company is structured with a logistics office in China capable of storing, inspecting and shipping goods from suppliers.

To talk to an expert on how to import from China without the unexpected, you can book a free consultation by clicking here.

Author: Ilaria Golino

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