RCEP Will Strongly Stimulate Global Economic Growth

By Guo Yan

On November 15th， 2020， during the fourth summit conference， trade ministers from China， ten ASEAN countries and Japan， South Korea， Australia and New Zealand jointly established the Regional Comprehensive Economic Partnership （RCEP）.

Member countries of RCEP， namely， the 10 ASEAN countries and China， Japan， South Korea， Australia， and New Zealand， represent nearly 30% of the worlds population， gross domestic product， and total trade volume. As such， the signing of RCEP will create the largest trading bloc in the world， with the largest population， the most diversified economic structures， and the greatest potential for development.

After eight years of hard negotiations， especially in 2020， when the COVID-19 pandemic disturbed normal international communications， the participating countries managed to fully complete the negotiations on market access， and signed the RCEP as scheduled. After the signing of the agreement， Wang Shouwen， Vice Minister of the Ministry of Commerce of China and deputy China international trade representative， described it as “one of the most important achievements in the past 20 years of East Asian economic integration”.

What are the key characteristics of RCEP？

The RCEP agreement covers 20 topics， including lowering market barriers for trade in goods and services and investment， as well as a large number of rules and regulations for trade facilitation， intellectual property， e-commerce， competition， government procurement， etc. In line with Wang Shouwens beliefs， as a whole， RCEP is not only the worlds largest free trade agreement， but is also a comprehensive， modern， high-quality and mutually beneficial FTA.

In the field of trade in goods， 15 RECP member countries will achieve the liberalization of trade in goods through bilateral bidding. After the RECP agreement comes into effect， more than 90% of the goods involved in regional trade will eventually be free of tariffs， and such tax reductions will be carried out immediately and at least within 10 years. In summary， the RCEP free trade zone is expected to realize the commitment to trade liberalization for all goods in a relatively short amount of time. It is foreseeable that， as a number of rules are implemented throughout the RECP region， including rules of origin， unified procedures for customs， inspection and quarantine， and technical standards， doubled by the effect of removing tariffs and non-tariff barriers， RCEP will gradually release its potential in terms of boosting trade， while also significantly reducing intra-regional trade costs and product prices， improving the competitiveness of products and benefiting all businesses and consumers in the region.

For trade in services， seven member countries including Japan， South Korea， Australia， Singapore， Brunei， Malaysia， and Indonesia have now adopted a negative list approach， while the other eight members， including China， have adopted a positive list approach， with these countries switching to negative lists within six years after the agreement takes effect. Moreover， all 15 members have made commitments to formulate opener policies for RECP partners instead of the existing “10+1” free trade agreements.

All 15 partners will have negative lists for investment in the five non-service sectors of manufacturing， agriculture， forestry， fishery， and mining， which will greatly improve the transparency of policies in RECP countries. The negative lists for investment in China will reflect the latest developments in domestic reforms， and it is the first time that China has made an investment commitment in the form of negative lists under a free trade agreement. As such， this is of great significance， as negative lists will both improve the foreign investment management system together with pre-established national treatments， and confirm the results of reforms in China by cutting short the negative lists and further opening up the market for foreign investors.

The RCEP agreement also involves modern issues such as intellectual property， e-commerce， competition， and government procurement. Meanwhile， it grants special and differential treatment for the least developed RCEP countries by considering the national conditions of the various member countries， and meets the actual demands of developing countries and the least developed countries by strengthening their economic and technological cooperation through regulations.

After signing the RCEP， each member country still needs to complete its own respective domestic approval procedures to make RCEP take effect. China has made it clear that its willing to work with all the other members to execute the agreement， and to benefit businesses and people in the region sooner rather than later.

What does RCEP mean？

According to Wang Shouwen，RCEP is a new milestone in regional economic integration in East Asia. The population， gross domestic product， and trade volume of the 15 RCEP countries account for approximately 30% of the global total， which means that around one-third of the worlds economies are forming an integrated market， which will effectively boost regional confidence in trade and investment， perfect the whole industrial and supply chain， enhance the ability to cooperatively fight the current pandemic， accelerate economic recovery， and promote the long-term prosperity and development of the region. Besides this， RCEP may also provide a route and a strong impetus to move towards the Free Trade Area of the Asia Pacific （FTAAP）.

RCEP is a practical progression towards trade and investment facilitation and liberalization， which will boost the confidence in the global economy. The signing of the RCEP agreement means that all members have agreed to reduce tariffs， open markets， and unify standards throughout the region， which may be seen as a strong signal against unilateralism and protectionism. They have also pledged to back free trade and the multilateral trading system， which will have a positive effect on the global economy and contribute to the post-pandemic global economic recovery. According to a well-known international think tank， by 2025， RCEP is expected to have boosted exports， foreign investment stocks， and the GDP of member countries to 10.4%， 2.6%， and 1.8% above the baseline， respectively.

Bambang Suryono， chairman of the Asia Innovation Study Center in Indonesia， remarked that the continuous development of the China-ASEAN Free Trade Area and the deepening 10+3 cooperation contributed greatly and substantially to the negotiation of the RCEP. RCEP will promote economic cooperation between member countries in several areas， such as trade in goods and services and investment， and will be helpful for balanced trade， industrial innovation and employment in the region. The establishment of RCEP will foster the regional value chain in Asia， and will encourage RCEP members to better integrate with the global economy.

Thanks to its openness and inclusiveness， RCEP negotiations have made breakthroughs. As for Indias concerns， the joint statement clarified that all RCEP members will cooperate to resolve any issues in a way which is deemed satisfactory for everyone. China also expressed its willingness to overcome disputes in negotiations with India through consultation and by upholding mutual understanding and mutual accommodation， and that China welcomes India to participate in the agreement as soon as possible.

Which industries will benefit from RCEP？

As regional trade becomes active in RCEP member countries， ports and the shipping industry， which have suffered from slow global economic growth and trade conflicts in the past few years， are expected to improve their performance. In addition to ports and shipping-related sectors， RCEP will also promote the regional exports of light industrial products from China， and will benefit industries including cross-border e-commerce， textiles and clothing， home appliances， and toys.

Cross-border e-commerce： The establishment of RCEP marks the construction of the beginnings of an East Asia Free Trade Zone. As the effect of favorable policies such as tariff reduction， cross-border logistics facilitation， and stable exchange rates gradually show， related industries such as cross-border export e-commerce are expected to benefit significantly. Analysts believe that RCEP will strongly strengthen the trade ties and the cooperation between China and other participating countries. Supported by various policies， Chinese goods will more efficiently pass through customs to the destination country， and will be delivered to customers with the help of overseas warehouses and local logistics companies， thereby greatly improving the efficiency of cross-border and local logistics and the shopping experience of consumers， so as to promote the development of trade related industries.

Textiles and clothing： Based on calculations carried out by Zhongtai Securities， since the establishment of RCEP， the industries which have benefited the most in China are textiles and clothing （with output up by 0.86%）， light industry （0.33%） and agricultural products （0.11%）. According to China Galaxy Securities， as the largest textile product exporter in the world， China has production advantages throughout the entire industry chain， and also has the advantages of industry research and devel- opment， a high added value， a high labor efficiency， fast and short delivery times， the capability to deal with complex product orders， port operation efficiency， etc.

Automobiles： Relevant research conducted by China International Capital Corporation （CICC） indicate that ASEAN countries have a different attitude towards imported parts and components， as they only plan to implement a small cut in import tariffs on parts. Japan will completely open its market， and China and South Korea will reduce tariffs on some parts and components， while maintaining higher tax rates on a small number of parts. Studies also showed that the establishment of RCEP will reduce the circulation cost of automobile parts， enhancing the competitiveness of finished vehicles and the whole industry throughout the RCEP region， and promoting the further aggregation of the automobile industrial chain.

Agriculture： Among the RCEP member countries， ASEAN， Japan and Australia are all important agricultural countries， and there is great potential for economic and trade cooperation in the field of agriculture between China and ASEAN， Japan and Australia. Implementing RCEP will bring about access to a much larger market for agricultural products and enterprises from China. At the same time， competition from overseas market players granted by RCEP will also encourage the high quality development of agriculture in China， help reshape the industrial chain and value chain of agriculture， and stimulate cooperation in terms of trade and investment between agricultural companies in the RCEP region.

Petrochemicals： According to industrial sources， RCEP is also beneficial to the petrochemical industry in three different aspects. First， continuously expanding the domestic chemical production capacity in China is leading to the overproduction of many products， and RCEP will help facilitate the export of chemicals from China. Second， there are many high-end fine chemicals and new chemical materials in China which are highly dependent on imports， with Japan and South Korea being the main suppliers. RCEP will also help Chinese downstream companies reduce their procurement costs. Third， RECP will also force Chinese enterprises to pay more attention to product R&D， quality， and domestic industrial upgrading.