15 countries have joined together to sign the largest ever free trade agreement, known as the Regional Comprehensive Economic Partnership (“RCEP”) on 15 November 2020. RCEP may be considered as a framework for facilitating free and more streamlined trade arrangements between RCEP countries.
15 November 2020, and after a reported 8 year period of negotiations, 15 countries have joined together to sign the largest ever free trade agreement, known as the Regional Comprehensive Economic Partnership (“RCEP”). In its simplest form, RCEP may be considered as a framework for facilitating free and more streamlined trade arrangements between RCEP countries, recognising that the countries comprising RCEP consist of both developed and developing countries. It is also highly symbolic, coming at a time of recent trade tensions and tariffs.
RCEP brings together the 10 ASEAN states (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam) with 5 other partner countries (Australia, China, Japan, New Zealand and South Korea). According to the Joint Leaders statement signed on 15 November 2020, RCEP will “cover a market of 2.2 billion people, or almost 30% of the world’s population, with a combined GDP of US$ 26.2 trillion or about 30% of global GDP, and accounts for nearly 28% of global trade (based on 2019 figures).”
At an earlier stage of the negotiating process, India had been a party though it later withdrew, but could potentially re-engage with RCEP in the near future. Interestingly, Hong Kong as a member of the World Trade Organisation is not a party in its own right to RCEP as of now, but has expressed a desire to join RCEP as its first new member economy. (Source: Comments attributed to the Acting Secretary for Commerce and Economic Development, Dr Bernard Chan, in the Legislative Council, 11 December 2019).
The global pandemic has heightened the need for many businesses to reconsider their supply chains, with a number of key trends emerging such as regionalisation, digitalisation, near-shoring, reshoring, and rebasing of manufacturing all being evident features. Customs and tariffs, government subsidies, the changing costs of and access to labor, and taxation are all having an impact on these decisions. RCEP will play a critical role in this assessment process, and even act as a trigger for supply chain reorganisations.
Whilst not removing the complexities of free trade agreement access and benefits in the short term, the hope is that RCEP will provide organisations greater long term certainty on the various rules of origin required to satisfy access to preferential duties, allowing them to streamline processes and procedures to qualify for a single agreement across multiple countries. The immediate priorities for organisations should be to examine the benefits (including phased preferential duty rates, documentation and direct shipment requirements) to determine if and when RCEP, once available, will be most advantageous to implement in place of the existing bilateral or multilateral free trade agreements they are currently utilising.
In summary, it remains to be seen whether the benefits of RCEP will truly be realised, with much of this being dependent on future decisions being taken by countries to adhere not only to the ‘letter’ of the agreements, but also to the ‘spirit’ and intent of RCEP. While the countries which are parties to RCEP may now account for around 30% of global GDP, this is anticipated to rise to nearly 50% by 2030. There is thus the potential for RCEP to serve as a major platform for global trade, but the major global platform. Perhaps most of all, the timing of RCEP could not have been more perfect, delivering a message of hope amidst a tide of challenges surrounding global trade cooperation.