Early Dividends of the RCEP

The Regional Comprehensive Economic Partnership has become a new force in building a unified regional market and fostering global prosperity and development

By Shen Xiaoning

January 1, 2023 marked the first anniversary of the entry into force of the Regional Comprehensive Economic Partnership (RCEP). Against the backdrop of a volatile global environment and sustained sluggish world economy last year, the RCEP released obvious dividends, enhanced the economic links between Asian economies, and boosted regional trade and investment confidence in Asia. Implementation of the agreement has also strengthened the resilience of the industrial and supply chains within the region, fostering construction of a unified regional market and promoting global prosperity and development. In the coming days and years, RCEP member states will unleash their full potential, complement each other’s strengths, and promote deep integration of regional value chains to enhance regional and global economic and trade development. 

A snapshot of the CAFTA & RCEP Gallery at the 19th China-ASEAN Expo (CAEXPO), September 17, 2022. (ZHOU HUA)

Sharing Development Opportunities

On January 1, 2022, the RCEP entered into force in the 10 countries of Brunei, Cambodia, Laos, Singapore, Thailand, Vietnam, China, Japan, New Zealand, and Australia before it came into effect in South Korea, Malaysia, and Myanmar successively. This January, the agreement also came into effect in Indonesia. As of now, the agreement has entered into force in 14 of 15 signatory member states. So far, member states have held several joint meetings in various fields to promote implementation of the agreement through consultation. Also, the RCEP Industrial Cooperation Committee has been established to promote trade, investment, and industrial cooperation among member states. 

It is worth noting that under the RCEP, free trade ties have been established between China and Japan and between South Korea and Japan for the first time in history. According to statistics from China’s Ministry of Commerce, from January to June 2022, the volume of China-Japan and South Korea-Japan bilateral trade reached 20.3 trillion yen (US$150 billion) and 5.5 trillion yen (US$40 billion) respectively, up 10.6 percent and 25.5 percent year on year respectively. From January to November 2022, the FDI from South Korea and Japan to China increased by 122.1 percent and 26.6 percent respectively. Under the RCEP framework, China, Japan, and South Korea have cooperated in machinery manufacturing, automobile manufacturing, and photoelectric equipment manufacturing, laying the foundation for regional value chain cooperation in high-end manufacturing industries such as new technologies and new energy.

“Since the RCEP came into force a year ago, it has brought great economic benefits and more social welfare to the member states,” commented Gao Lingyun, director of international investment research at the Institute of World Economics and Politics under the Chinese Academy of Social Sciences. In the trade sector, RCEP member states have successively adopted different tariff reduction measures which have promoted trade growth among them. In the investment sector, the agreement has introduced subjects such as investment promotion, investment protection, and investment facilitation and liberalization and prompted member states to adopt a negative list approach, which has enhanced the attractiveness of investment and the effectiveness of IPR protection. In the industrial chain and supply chain, the RCEP has expanded the regional network of the original industrial chain and supply chain while also enhancing the stickiness and stability of the industrial chain and supply chain. In terms of social welfare, RCEP member states can acquire more needed consumer goods without spending more, which has significantly improved their welfare situations. 

Since last year, shoppers at supermarkets in Beijing and other major Chinese cities have been pleasantly surprised with the variety and prices of imported goods including fruits from Southeast Asia, cosmetics from Japan and South Korea, healthcare products from Australia, and milk from New Zealand.

According to RCEP rules, zero tariff status has been granted to more than 90 percent of taxable goods traded among member states. Goods that benefit the most are those with high tax rates such as food, agricultural products, daily consumer goods, and automobiles.

Companies seeking to enjoy the RCEP tariff reductions must apply for a certificate of origin. Liu Chang, chief operating officer of a home furnishing company in Qingdao, Shandong Province, is applying for such a certificate in the RCEP Shandong Enterprise Service Center. The company’s annual exports exceed 1 billion yuan (US$155 million), with 90 percent of the goods exported to RCEP member states. Since the entry into force of the RCEP, the tariff on a quilted mat, the company’s main export to Japan, has dropped from 3.8 percent to 3.3 percent, and the tariff on some carpets has been reduced from 7.9 percent to 6.5 percent. This year, tariff reductions alone have saved the company 2.5 million yuan (US$400,000). And the tariff will gradually drop to zero over time.

Liu Junhong, director of globalization studies at the China Institute of Contemporary International Relations, thinks that a series of RCEP arrangements, represented by the rules of origin accumulation, are effectively reducing production costs within the region, improving trade efficiency and strengthening cooperation in the industrial chain and supply chain within the region.  

RCEP Implementation in China

“RCEP is not only a free trade agreement with the world’s largest population and largest economic and trade scale, but also a comprehensive, modern, high-quality and reciprocal free trade agreement,” said Gao Lingyun. Its official entry into force is the result of the joint efforts of all member states, demonstrating its comprehensive, advanced, and inclusive nature. 

China has always been an important participant and active promoter of the RCEP. Over the past year, China has been committed to the high-quality implementation of the RCEP including implementation of various systems. To that end, six government departments including the Ministry of Commerce jointly issued a set of guidelines on high-quality implementation of the RCEP to ensure commitment to open trade in services and to a negative list on investment while encouraging enterprises to make better use of policy dividends. From July to August 2022, the RCEP Industrial Cooperation Committee signed separate MoUs on strategic cooperation with more than 10 national business associations from China. They agreed to jointly facilitate further development of relevant industry cooperation between China and other RCEP member states.

“Over the last year, China has honored its commitments with major contributions to RCEP,” said Gao Lingyun. On the very first day that the RCEP came into effect, China began to fully implement the tariff reduction provisions. Then, with the help of multilateral cooperation platforms, China assisted other member states in familiarizing themselves with the preferential policies and facilitation rules and shared the development opportunities of the Chinese market with them. Next, China helped less developed member states with capacity building and provided them more technical and financial support. And, by advancing institutional opening up, China has constantly promoted upgrading of the RCEP. 

The Baiyun Airport in Guangzhou, south China’s Guangdong Province, welcomes cargo planes loaded with fresh fruit to land one after another. In 2022, the airport customs supervised the import of more than 440 million yuan (US$68 million) worth of tropical fruits including durian, nectarine, cherry, and mangosteen from other RCEP member states, 12.2 times more than the same period in 2021.

Ministry of Commerce data showed that from January to November 2022, the volume of China’s trade with other RCEP member states reached 11.8 trillion yuan (US$1.82 trillion), up 7.9 percent year on year, accounting for 30.7 percent of the country’s total volume of foreign trade.

The RCEP covers the most comprehensive and high-level multilateral e-commerce rules in the Asia-Pacific region. It’s also the e-commerce agreement with the highest level of Chinese participation. 

“Implementation of the RCEP has resulted in a series of facilitation measures for customs clearance and taxation which has significantly improved the efficiency of cross-border e-commerce and reduced costs,” said Zeng Yi, customs clearance manager of the Guangzhou Huigou Supply Chain Company. “Since 2022, we have averaged cross-border e-commerce retail exports of more than 3,000 tons of goods per month, which was unimaginable before.”

The data on cross-border e-commerce has evidenced the effects. During last year’s “Double 11” (November 11) online shopping festival, for example, sales of imported goods from other RCEP member states on Tmall Global, a large e-commerce platform in China, showed a significant growth trend, with Australia, New Zealand, Japan, and South Korea taking the lead. 

Not long ago, the Ministry of Commerce released a statement indicating that in the next step, China would sign free trade agreements with more trade partners under the RCEP framework and expand the network of high-standard free trade zones. China has also pledged to open its market wider to trade in goods, services, and investment, actively negotiate new rules for realms such as the digital economy and environmental protection, and steadily expand institutional opening up of rules, regulations, management, and standards to better foster a new development paradigm and pursue high-quality development. 

Alan Greenspan, secretary-general of the UN Conference on Trade and Development (UNCTAD), said that given the reality of declining global openness, rising trade costs, and supply chain bottlenecks, the RCEP has contributed greatly to world economic development. China is playing an increasingly important role in promoting global openness and cooperation and upholding the multilateral trading system.

Dividends for the World

On January 2, the RCEP officially went into effect in Indonesia. According to the agreement, China and Indonesia will designate RCEP tax rates for each other. Based on the ASEAN-China Free Trade Area (ACFTA), Indonesia granted China zero-tariff treatment for more than 700 taxable products including some auto parts, motorcycles, televisions, garments, footwear, and plastic products. Zero tariffs for some auto parts, motorcycles, and some garment products went into effect on January 2 while tariffs for other products are gradually reduced to zero during the transition period. Conversely, based on the ACFTA, China will reduce tariffs on Indonesian-made pineapple juice, canned fruit, coconut milk, pepper, diesel oil, paper products, and some chemicals and auto parts to open its market further.

Indonesia is now China’s third largest trading partner in ASEAN, while China is Indonesia’s largest export market and largest source of imports. Implementation of the RCEP will undoubtedly nudge the economic and trade relations between China and Indonesia even closer. The encouraging trend of economic and trade cooperation between China and Indonesia highlights the prospects of mutual benefits among RCEP member states.

Indonesian Consul General in Shanghai Deny W. Kurnia commented that the RCEP provides not only tariff reduction for goods, but also certainty and openness for services, standards, investment, e-commerce, movement of natural persons, sanitary and phytosanitary measures, and technical cooperation. The RCEP will cause greater motivation and determination among stakeholders, especially businesses. 

Gu Qingyang, associate professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore, commented that against the backdrop of a world economy beset with difficulties, RCEP has injected strong growth momentum into emerging markets. The latest report of the Asian Development Bank raised its forecast for Southeast Asia’s economic growth in 2022 from 5.1 percent to 5.5 percent, which reflected to some extent expectations for the RCEP to drive the economy of ASEAN countries.

Gao Lingyun has recognized the positive effects of the RCEP in multiple realms. First, its entry into force injected confidence into free trade, multilateralism, and regional economic integration. Second, the trade deal has released real dividends, fostered stability and certainty for regional and global economies, and eased the impact of unilateralism and trade protectionism. Third, it covers economies at different stages of development, resulting in tremendous development potential for member states to complement each other. Fourth, the RCEP has explored many innovative systems including rules of origin accumulation which could provide a new model for cooperation among countries at different stages of development and trade cooperation. Fifth, the solutions to a series of disputes contained within RCEP could provide an important reference for the global governance system.

Peter Drysdale, head of the East Asian Bureau of Economic Research at Australian National University, is bullish about the RCEP after it filled in gaps from other free trade agreements, boosted regional trade, and strengthened regional supply chains in its first year. He sees potential for the RCEP to spread Asian trade dividends across the whole world.

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