The Regional Comprehensive Economic Partnership (RCEP AR-sep) is a free trade agreement among the Asia-Pacific countries of Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. The 15 member countries account for about 30% of the world's population (2.2 billion people) and 30% of global GDP ($29.7 trillion), making it the largest trade bloc in history. Signed in November 2020, RCEP is the first free trade agreement among the largest economies in Asia (excluding India), including China, Indonesia, Japan, and South Korea.
The RCEP was conceived at the 2011 ASEAN Summit in Bali, Indonesia, while negotiations formally launched during the 2012 ASEAN Summit in Cambodia. India, which took part in the initial negotiations but later decided to opt out, was invited to join the bloc at any time. Any other country or separate customs territory in the region can accede to the pact from 1 July 2023 onward. The treaty was formally signed on 15 November 2020 at the virtual ASEAN Summit hosted by Vietnam. For the first ten ratifying countries, the trade pact took effect on 1 January 2022.
The RCEP includes a mix of high-, middle-, and low-income countries. It is expected to eliminate about 90% of the tariffs on imports between its signatories within 20 years of coming into force, and establish common rules for e-commerce, trade, and intellectual property. Several analysts predicted that it would offer significant economic gains for signatory states, boost post-pandemic economic recovery, as well as "pull the economic centre of gravity back towards Asia, with China poised to take the lead in writing trade rules for the region," leaving the United States behind in economic and political affairs in the region. Reactions from others were neutral or negative, with some analysts saying that the economic gains from the trade deal would be modest.
Membership
Signatories
Ratifications
1 There were concerns expressed by the ASEAN Secretariat on the legitimacy of ratification by the then-Burmese parliament. A Thai secretary also pointed that while the Myanmar government have ratified, the Thai government is concerned about the legitimacy of the Myanmar government after the 2021 coup d'état, and whether it could meet the five-point agreement with ASEAN. Due to these concerns, Myanmar's instrument of ratification did not show on the ASEAN official website; instead Myanmar trade officials suggest that the other ASEAN members should determine whether they can accept Myanmar's ratification by themselves, and then announce their decision to the ASEAN Secretariat. Neverless, the China General Administration of Customs announced that the RCEP would enter into force between China and Myanmar on 1 May 2022.
Applicants
The trade agreement is open for new members 18 months after the partnership came into force. The following countries have applied for accession into the partnership:
- Bangladesh
- Chile: The Republic of Chile has formally requested accession to the RCEP. Claudia Sanhueza, Undersecretary of International Economic Relations, delivered the request letter to Satvinder Singh, Assistant Secretary General for the ASEAN Economic Community.
- Hong Kong (delayed)
- Sri Lanka
Potential applicants:
The following countries have been subject to media attention surrounding their potential involvement in the RCEP:
Contents
RCEP aims to lower tariffs, increase investment, and facilitate freer movement of goods around the region. It includes unified rules of origin throughout the bloc, which may facilitate international supply chains and trade within the region. It also prohibits certain tariffs. It does not focus on labour unions, environmental protection, or government subsidies.
The RCEP contains 20 chapters discussing trade within many sectors, including (but not restricted to):
- Goods and services
- Investment
- Government Procurement
- Standards and Technical Regulations
- Intellectual Property Rights
- E-Commerce
The RCEP contains tariff schedules that intend to eliminate tariffs by 92 percent over a course of 20 years. The tariff schedules include the complete elimination of tariffs and quotas on over 65% of the goods trade within the RCEP bloc. Tariff concessions included within the document will have varying effects based on different members political and economic context. For members that are already heavily liberalized, concessions will be lower than those with higher existing tariffs.
Under the RCEP there is a high level of protection within the agricultural sectors. Crops and meat products experience the highest level of protection, especially when compared to global trade dynamics outside of the RCEP. Although agriculture will still experience high levels of protection, the RCEP will have significant contributions, with a current tariff reduction of 12.8 percent occurring within 8.4% of agricultural products.
Within the manufacturing sector, motor vehicles, apparel and leather, non metallic minerals, and textiles experience the highest levels of tariff protection. Conversely, extractive products and natural resources will experience little to no protection, facing zero or near zero tariff rates.
The RCEP is not as comprehensive as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, another free trade agreement in the region that includes some of the same countries. The RCEP "does not establish unified standards on labour and the environment, or commit countries to open services and other vulnerable areas of their economies."
The tariffs schedule just for Japan is 1,334 pages long.
Projected value
The combined GDP of potential RCEP members surpassed the combined GDP of Trans-Pacific Partnership (TPP) members in 2007. It was suggested that continued economic growth, particularly in China and Indonesia, could see total GDP in the original RCEP membership grow to over US$100 trillion by 2050, roughly double the project size of TPP economies. On 23 January 2017, President Donald Trump signed a memorandum withdrawing the United States from the TPP, a move which was seen to improve the chances of success for RCEP.
According to a 2020 projection, the agreement is expected to enlarge the global economy by US$186 billion. According to Peter Petri and Michael Plummer of the Brookings Institution, the RCEP could add $209 billion annually to world incomes, and $500 billion to world trade by 2030, and that "new agreements will make the economies of North and Southeast Asia more efficient, linking their strengths in technology, manufacturing, agriculture, and natural resources." According to computer simulations in a related paper also by Petri and Plummer published by the Peterson Institute for International Economics (PIIE), the RCEP will raise global national incomes in 2030 by an annual $147 billion and $186 billion respectively, "yield especially large benefits for China, Japan, and South Korea and losses for the United States and India", and "will be especially valuable because it strengthens East Asian interdependence, raising trade among members by $428 billion and reducing trade among nonmembers by $48 billion".
The simulations in Petri and Plummer's PIIE paper showed that the RCEP and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) would together more than offset the global negative economic effects of the China-United States trade war, but not the individual losses of China and the United States. Moreover, the incremental value of the CPTPP will be reduced by the trade war (from $147 billion to $121 billion) while the value of RCEP will be increased (from $186 billion to $209 billion). The PIIE working paper also stated that "RCEP will be economically significant with or without India, and indeed more significant than the CPTPP, with especially important benefits for China, Japan, and Korea" and that "RCEP will reorient trade and economic ties away from global linkages toward regionally focused relationships in East Asia."
According to the Asian Development Bank (ADB), the RCEP is "relatively comprehensive in coverage" and combines existing deals, which brings Asia a step closer to a region-wide trading bloc. The agreement further liberalises goods and services trade, establishes common rules of origin for all goods traded, establishes commitments regarding government procurement, and aims to establish open and competitive markets. Though the degree of liberalisation within RCEP is not as deep as in the CPTPP, RCEP members are projected to gain $174 billion in real income by 2030, equivalent to 0.4% of the members' aggregate GDP. China, Korea and Japan will benefit the most, with likely gains of $85 billion for China, $48 billion for Japan, and $23 billion for Korea. Other significant RCEP gains will accrue to Indonesia, Malaysia, Thailand, and Vietnam. Due to their RCEP membership, Japan and Korea would accrue gains amounting to 1% of their GDP while Malaysia, Thailand, Vietnam and Brunei would all accrue gains of 0.5% of GDP or higher.
New Zealand's Ministry of Foreign Affairs and Trade stated that the RCEP is projected to add $186 billion to the world economy and increase New Zealand's GDP by around $2.0 billion. The RCEP members took 56% of New Zealand's total exports, representing 61% of New Zealand's goods exports (worth $36.6 billion) and 45% of New Zealand's services exports (worth $11.8 billion). According to the ministry, "RCEP delivers improved market access for New Zealand services exporters and investors in some RCEP markets that go beyond existing FTAs. Under RCEP, New Zealand services exporters and investors will, for the first time, benefit from market access commitments from China and ASEAN countries that are not party to the CPTPP". Following the signing of the RCEP, New Zealand and China signed a deal to further expand their existing free-trade agreement. The expanded deal provides for tariffs to be either removed or cut on many of New Zealand's mostly commodities-based exports, ranging from dairy to timber and seafood, while compliance costs will also be reduced. The deal also opens up sectors such as aviation, education and finance.
Huang Qifan, former mayor of Chongqing, stated that with the implementation of RCEP, China and RCEP countries will form an increasingly close industrial chain and supply chain connection, and in the future, there will be a variety of production and marketing models such as "in China, for China", "in China, for RCEP", "in RCEP, for the world". At that time, China's large market superimposed RCEP large market, China's dual circulation superimposed RCEP great circulation, "will profoundly change the world industrial chain supply chain layout".
RCEP and COVID-19
Impacts of COVID-19 on RCEP members
The COVID-19 pandemic impacted virtually every economy, happening right as the RCEP trade deal was meant to start. The pandemic caused trade costs to increase at borders, creating barriers on trade to goods and services. According to the World Bank, issues of high fiscal debt, supply chain bottlenecks, the widening skill gap, an increase in poverty, and global supply value chain resilience were challenges in economic recovery.
Trends in pandemic responses within RCEP members mirrored global ones, with RCEP members with more developed markets having both a quicker response and recovery from economic shocks than emerging markets. This was found to be due to emerging markets lack of risk resistance, which is predicted to strengthen under regional integration under the RCEP agreement.
RCEP mitigation of economic shocks
The regional integration of RCEP will result from the contents of the agreement, including rules based trade and investment, open market access, increased economic cooperation, and having ASEAN members central to the agreement. These measures have worked to alleviate the economic shocks of the pandemic, and are expected to assist in mitigating effects of the US-China trade war on East Asia. An analysis conducted by Itakura (2022) shows positive trends in growth of GDP for all RCEP members through the 2030s.
Asia Global Institute report: RCEP Trade 2022
Trade between RCEP members in 2022 revealed post-pandemic trade dynamics and reflected the increasing integration that the RCEP intended to create. The Asia Global Institute reports that in 2022, trade between RCEP members increased by 8 percent, lagging behind trade between RCEP members and non-RCEP members with an increased 8.6% growth in trade. All members experienced a rebound in trade post COVID-19, arriving at pre-Covid trade levels by 2023.
Raw materials, such as salt, nickel, and chemicals, significantly increased in trade between RCEP members. This could be a result of both China and Indonesia being members, with China being the lead importer of nickel and Indonesia being the lead global exporter. This is also representative of the Electric Vehicle industry prevalent within RCEP members. There was a dramatic increase in tobacco exports within RCEP members of 150% in 2022, with China individually experiencing a 900% growth of exports.