Beyond the roll-out of vaccination programmes or new economic stimulus measures across the Asia-Pacific region, the Regional Comprehensive Economic Partnership (RCEP) agreement stands to be a great catalyst for the region’s path to post-pandemic recovery.
For businesses in Asia-Pacific, the ratification and implementation of the RCEP is likely to open new doors and serve as a much welcome reboot for global trade, bringing the following potential impact:
- RCEP is likely to facilitate a more multilaterally integrated Asia-Pacific.
- It effectively creates an unprecedented framework for pan-Asian trade.
- Under the pact, the creation of a common rule of origin certificate will unify information requirements and local content standards.
- It incentivizes relocation and shift of supply chains within the trade zone.
- RCEP is also expected to reduce trade costs for businesses and bring huge economic benefits by adding US$209 billion annually to world incomes and US$500 billion to world trade by 2030, according to economic projections.
A driving force for regional connectivity
Pegged as the largest-ever trade bloc, even without buy-in from India, RCEP’s implications for Asia Pacific are vast. For one, the pact looks to facilitate tariff-free trade for some 65% of goods traded within the region, targeting to move closer to 90% over the next two decades.
As a trade bloc, the RCEP essentially quells any lingering sentiments of trade protectionism that have arisen over the past few years. Whether navigating rising tariffs of the trade war or disruptions from the pandemic, many global companies have recently shifted or rerouted their supply chains. However, the RCEP is likely to facilitate a more multilaterally integrated Asia-Pacific, with connectivity between the region’s top producers and buyers being elevated to new levels.
RCEP effectively creates an unprecedented framework for pan-Asian trade that surpasses even the terms provided by the World Trade Organization. By covering vast, growing segments of the global population, this framework supports regional integration, engaging both emerging markets and developed economies alike, while also establishing trade standards across the region in areas such as intellectual property and labour rights.
On a base level, new trade flows and new foreign investment will help uplift less developed rural Asia into an interconnected and modern metropolis, yielding new infrastructure, better standards of living and reduced trade costs for businesses. According to economic projections, the RCEP could add US$209 billion annually to world incomes and US$500 billion to world trade by 2030 . Notably, the developed powerhouse economies of China, Japan and South Korea are brought together in one trade agreement for the first time ever, and they are also joined by key emerging economies in Asean, such as Malaysia, Thailand and Vietnam.
Expansion of pan-Asian trade networks and supply chains
While global trade continues to face waves of uncertainty amid the pandemic and geopolitical tensions, the RCEP serves as a symbol for a pan-Asian trade network, embracing the belief that enhanced market openness will lead to greater economic prosperity. The RCEP almost makes certain that intra-Asian trade, which is already larger than Asia’s trade with North America and Europe combined, will continue to be a growth engine for the global economy – pulling economic gravity east towards the Asia-Pacific region.
The biggest victory for the RCEP lies in the creation of a common rule of origin certificate, which unifies information requirements and local content standards for businesses within the RCEP member countries. Effectively, this means that parts and products originating from any member nation would be treated equally, a modification that is expected to boost merchandise exports among the signatories by approximately US$90 billion a year on average.
The expected windfall of the RCEP offers global companies a distinctive incentive to relocate and shift their supply chains within the trade zone, likely leading to a further amplification of intra-regional trade between the signatories. Intra-regional trade between signatories already accounts for nearly three-fifths of total trade activity throughout the Asia-Pacific region. The RCEP ensures this number will continue to rise as global companies explore options of keeping supply chains within the bloc.
It is still early days for the RCEP as it awaits to undergo the full ratification process in 2021 before being put into full motion by mid-year, expectedly. However, the long-term implications are certainly profound, with the landmark pact deeply shaping the future of trade in Asia and beyond.
Lennard Yong is the group chief executive officer of Tricor Group.