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Home / Blogs / Regional Comprehensive Economic Partnership (RCEP): A big deal or much ado about little?

Home / Regional Comprehensive Economic Partnership (RCEP): A big deal or much ado about little?

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Regional Comprehensive Economic Partnership (RCEP): A big deal or much ado about little?

Jan 04, 2021

Resilinc Editorial Team

Supply Chain Risk Management, Tariffs and Trade

“Massive,” “mammoth,” and “world’s largest,” are some of the adjectives and phrases being used to describe the new Regional Comprehensive Economic Partnership (RCEP) signed in November 2020 by China, S. Korea, Australia, Japan, New Zealand and the 10 members of the Association of Southeast Asian Nations (ASEAN).

But analysts caution that the trade deal will have a relatively muted impact on trade flows in the near term. Many categories of goods covered by the agreement already qualify for tariff exemptions under existing free trade agreements (FTAs), including the ASEAN Economic Community and bilateral FTAs between ASEAN members, according to the Economist Intelligence Unit (EIU). “The tariff reductions between China, Japan and South Korea are more significant, although these schedules will be introduced gradually and will extend into the late 2020s,” writes the EIU.

Rules of Origin a Boost or Asian Trade

The EIU and other analysts agree, however, that a major benefit of the RCEP for Asian supply chains is the agreement’s creation of common rules of origin (ROO) for the entire 15-nation trading bloc. The common ROO “will allow companies to easily ship products between RCEP countries without needing to worry about specific rule of origin criteria in each country or for each manufacturing step,” according to the Center for Strategic & International Studies. “A common rule of origin for the RCEP bloc will lower costs for companies with supply chains that stretch throughout Asia and may encourage multinationals that export to RCEP countries to establish supply chains across the bloc.”

Economic researchers for trade credit insurance firm Euler Hermes forecast that the resulting reduction in export costs will boost “merchandise exports among [RCEP] signatories by around USD90bn on average annually (4% of 2019 intra-zone merchandise trade and 0.5% of global merchandise trade).”

And the EIU predicts that the common ROO will incentivize firms seeking to avoid U.S. tariffs on Chinese goods to keep more of their production in RCEP signatory countries instead of moving it to non-Asian countries.

Driving investment to smaller ASEAN countries

Another point to note: the RCEP’s focus on modernizing and integrating customs procedures among the 15 countries could “help to drive foreign investment into smaller ASEAN markets, such as Myanmar, Laos and Cambodia,” according to the EIU. “This will be positive for firms that are seeking to take advantage of such low-cost environments but have hesitated to invest because of regulatory uncertainty.”

Eight years in the making, the RCEP lost a major trading partner in 2019 when India dropped out of the negotiations. India was already running high trade deficits with most of the RCEP countries, and the Modi Administration and business leaders feared the agreement would open the floodgates to even more imports, undercutting Indian producers. According to Foreign Policy, India’s negotiators sought to include measures in the RCEP that would automatically “snap back” tariffs if certain import thresholds were surpassed, but found little support for this among the other countries.

On the other side of the coin, the RCEP is positioned to grow to include more countries. “Accession countries can submit expressions of interest just 18 months into the agreement,” according to Asian Trade Centre.

Also looming on the horizon for Asian trade: possible expansion of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (formerly Trans-Pacific Partnership). Japan’s new Prime Minister Yoshihide Suga recently affirmed his nation’s interest in expanding membership in the CPTPP. Analysts expect one of the first candidates for accession to be the United Kingdom, which recently signed a bilateral FTA with Japan. And in late November, Chinese Prime Minister Xi Jinping stated that China will “favorably consider” joining the CPTPP.

With so many moving parts and variables (and acronyms!), visibility into and planning for the impact these agreements will have on your supply chain is extremely important. Resilinc offers a suite of services and products to help companies mitigate and proactively address supply chain risk. This includes our Multi-Tier Mapping solution that enables you to visualize your entire supplier network across the globe; down multiple tiers.

 

Ready for a more resilient supply chain? Contact us today.

 

 

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