The Regional Comprehensive Economic Partnership (RCEP), thought to be the world’s largest trade agreement, came into effect January 1, 2022. RCEP is made up of the 10 members of the Association of Southeast Asian Nations (ASEAN) – Indonesia, Malaysia, the Philippines, Brunei, Singapore, Vietnam, Cambodia, Laos, Thailand and Myanmar – and five of their largest trading partners China, Japan, South Korea, Australia and New Zealand. The RCEP covers 2.3bn people and economies with $26 trillion in output, representing around 30% of world GDP. It is expected to accelerate the region’s economic recovery and make the region ‘a new centre of gravity for global trade’, as stated by the UNCTAD.
RCEP will eliminate tariffs on more than 90% of goods over the next 10 to 15 years. The trade deal marks the first time China, Japan and South Korea have been brought together under a single trade agreement.
The RCEP overlaps with the CPTPP (the Comprehensive and Progressive Trans-Pacific Partnership) and although it is seen as less comprehensive than the CPTPP its market size is nearly five times greater than that of the CPTPP, with almost double its annual trade value and combined gross domestic product, according to Reuters. Another advantage of the RCEP is that it is the only multilateral trade pact that includes China.
According to some estimates, the RCEP is expected to raise trade among its members by US$428bn and deliver significant economic benefits to its signatories. Trade between China and members of the RCEP has seen steady growth since the trade agreement entered into force at the beginning of this year. According to data by the General Administration of Customs (GAC), China’s trade with the other 14 member states of the trade deal expanded 6.9% year on year to about US$448.6bn in the first quarter of 2022. How much of this trade growth can be attributed to the RCEP is however uncertain.
Japan is also expected to reap significant benefits from the agreement as it now has preferential access to South Korea and China, which it did not have previously. The Japanese government expects the agreement to increase its own GDP by 2.7%. Japanese manufacturers of electronic products, machinery, automobile components, and some agricultural and food products will benefit from tariff concessions when exporting to China.
Indonesia’ participation in the trade bloc is forecast to raise GDP growth by 0.7pp and increase exports by $5bn and imports by $4bn annually, according to government data. Exporters in several of Indonesia’s manufacturing sectors including chemicals, steel, rubber, minerals and agriculture are expected to see increased demand under the RCEP agreement.
According to a report by the World Bank, Vietnam and Malaysia are the countries to make the highest gains from the deal. This is because the deal would help Vietnam access large consumer markets double the size of those included in the CPTPP, including China, South Korea, and Japan.
The trade agreement should also benefit multinational organisations which could see the RCEP as an incentive to invest in the signatory countries. It should allow them to export tariff-free to markets like China, South Korea, and Japan while manufacturing in other RCEP countries with relatively cheaper labour.
According to DHL, without an existing free trade deal with ASEAN, the absence of the U.S. from the bloc will limit its trade opportunities in Asia Pacific. Collectively, non-members could lose as much as $48bn a year from reduced trade with RCEP members.
It remains to be seen whether the potential and benefits of the RCEP will be realized and who the winners and losers will be. This will mainly depend on whether the signatories adhere to the agreements made.
Source: Transport Intelligence, April 21, 2021
Author: Viki Keckarovska