Guide to the Regional Comprehensive Economic Partnership
October 28, 2022 Uncategorized
Free trade agreements (or FTAs) are crucial mechanisms that enable smooth trade between countries. Fortunately, Australia is one of those countries benefitting a great deal from these economic pacts.
At the start of 2022, the Regional Comprehensive Economic Partnership (RECP) came into force. This is a comprehensive agreement between several countries, consisting of 20 chapters and becoming the world’s largest free trade deal.
Below, this article will guide you on what RCEP is all about, how it came into existence, and what effects there may be on Australian businesses and international trade.
What is the RCEP?
The Regional Comprehensive Economic Partnership (or RCEP) is a free trade agreement between the ASEAN member states and its partners, covering the trade of goods, services, and intellectual properties.
The RCEP is an agreement between the following 15 countries:
- South Korea
- New Zealand
What this means for the 15 countries is an open market, which will aim to promote a seamless flow of products and services across the region. The agreement took effect on 1 January 2022 for 10 countries, including Australia, and entered into force in Korea last February, Malaysia in March, and others to follow.
The RCEP will now play a pivotal role in the global economy. It comprises one-third of the world’s gross domestic product (GDP) and around half of the world’s population. Five of the RCEP countries are members of the G20 (being Indonesia, Japan, South Korea, Australia and China). India had indicated in 2019 that was not in a position to sign the agreement. They do have a Comprehensive Strategic Partnership with Australia since 2020, however.
Background of the RCEP
The Regional Comprehensive Economic Partnership had its beginnings over ten years ago in November 2011 when it was introduced during the 19th ASEAN Summit in Bali, Indonesia. After a year, the initial negotiations between ASEAN nations (Association of Southeast Asian Nations) took place. The members of the ASEAN included Cambodia, Brunei Darussalam, Laos, Indonesia, Philippines, Myanmar, Vietnam, Singapore, and Thailand.
From 2013 to 2020, this free trade agreement underwent numerous rounds of negotiations and continued through video conferences despite the COVID-19 pandemic. In November 2020, it was formally signed by the 15 Asia-Pacific nations. The free trade agreement came into full effect on the 1st of January 2022.
Effects of the RCEP on international trade
Below, we’ve outlined some of the effects that the new Partnership will have on international trade.
1. Improved trade between member states
Put in perspective, the RCEP is very likely to streamline international trade operations by significantly reducing lead times. The RCEP has the potential to diversify supply chain networks and thereby greatly improve business operations. Consequently, this will improve their bottom line and will boost national economies.
Based on a study by the Asian Development Bank published in October 2021, the RCEP has the potential to generate a global income that will double that of the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP).
2. Elimination of tariffs
The RCEP contains a mixture of low, middle, and high-income countries. In around 20 years, it’s expected to remove 90% of the import tariffs between the signatory countries and create common rules of origin for trade, intellectual property, and e-commerce.
3. Post-pandemic economic recovery
For ASEAN nations, particularly those considered as least-developed countries, this free trade agreement will play an important role in their post-pandemic recovery. The services trade alone is expected to grow significantly because 65% of services in signatory nations will open for trade and investment.
A policy brief published by the Economic Research Institute for ASEAN and East Asia stressed the importance of China, Japan and South Korea’s involvement. This is the first free trade agreement between these countries, which “could have a positive impact on ASEAN and ASEAN least developed countries (LDCs) in terms of greater flows of goods and services in the region”.
4. Alignment of Best Practices
Members of the RCEP can benefit from this free trade agreement by encouraging one another to apply best practices in their domestic rule-making and economic and trading activities, thereby avoiding policies that create trade barriers.
Even small and medium-sized enterprises (SMEs) may be motivated to participate in international trade. With the ongoing rise of digitalization, SMEs can invest in digital technologies and be more equipped for e-commerce operations.
Effects of RCEP on Australian Businesses
Looking closer to Australia, here are some of the effects the RCEP may have on Australian importers and exporters.
1. Increased opportunities to trade goods
Since the implementation of RCEP is regional, there will very likely be more opportunities for Australian businesses to establish regional value chains, reducing the burden of complying with rules of origin.
Among the countries involved in the RCEP, 9 of them belong to Australia’s top 15 trading partners. They account for 67% of Australia’s exports and 58% of its total two-way trade.
Around 89% of exporters will benefit from the free trade agreement through immediate duty-free exports to the region. This number will rise to 94% upon full implementation.
On the other hand, 76% of importers from the region can enjoy duty-free access, and 93% when fully implemented.
Summarised below are the effect of RCEP on goods:
- A single set of rules
- Immediate duty-free access
- Modern and liberalized rules of origin
- Regional rules of origin
- Compliance with single rules of origin
- Modern customs procedures
2. Increased opportunities for services and investment
The RCEP will likely improve the services trade and promote investment across the region. In specific terms, the RCEP is expected to accomplish the following:
- Create more opportunities for Australian service suppliers and investors, which include commitments from other countries for the following services:
- Professional services
- Education services
- Healthcare services
- Other business services (e.g. advertising, specialty design, etc.)
- Industries (e.g. agricultural, mining, forestry, etc.)
- Construction and Engineering services
- Transport Services
- Provide greater investment protection
- Enhance rules for financial services
- Capitalise on Information and Communications Technology (ICT)
- Support mobility of business persons across borders in the region.
3. Improving the business environment
The free trade agreement will also likely provide ways in which Australian exporters can operate across the region smoothly.
- Intellectual Property – the RCEP will establish a strong platform for developing uniform Intellectual Property (IP) rights across the region
- Competition – the RCEP will provide obligations to ensure that parties will abide by competition laws and regulations that outline a range of anti-competitive practices
- Government Procurement – will promote transparency, cooperation, and economic integration among member states of the RCEP
- Small and Medium Enterprises – the RCEP will create a platform that enhances the capability of SMEs to take part in opportunities created by the RCEP.
4. Economic cooperation and institutional mechanisms
By being a member of the free trade agreement, Australia will be in a better position to participate in the development of the Indo-Pacific’s economic architecture.
The RCEP will create a chapter called the Economic and Technical Cooperation, which will facilitate the effective implementation of the RCEP agreement through economic and technical cooperation activities.
5. Electronic commerce
Digital trade is a vital part of Australia’s economy. With the recent pandemic, it’s expected to even grow exponentially as people have invested heavily online. In effect, businesses have also expanded online because of their great potential.
The trade agreement will help Australia’s e-commerce through the following:
- Promote the seamless flow of information
- Address data localisation constraints
- Protect the privacy data of consumers
- Greater collaboration for cybersecurity
- No duties on electronic transmissions
- Digital transparency
The Regional Comprehensive Economic Partnership is a free trade agreement that can significantly benefit Australia and other states.
The newly formed trade region shows that so much can be done when nations work together and cooperate.
If you are trading with any of the RCEP countries, speak to our experienced team at ICE about how you can take advantage of this free trade agreement.Request A Quote
or call us on 1300 227 461
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