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KPMG report: Initial impressions of RCEP free trade agreement

Initial impressions of RCEP free trade agreement

Representatives of 15 countries on 15 November 2020 signed a free trade agreement—the Regional Comprehensive Economic Partnership (RCEP) agreement. The RCEP agreement is the culmination of eight years of negotiations and was signed by certain ASEAN member nations (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) and by ASEAN’s free trade agreement partners (Australia, China, Japan, New Zealand, and Republic of Korea).

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Key features of RCEP

  • In formal terms, RCEP comes into force when at least six ASEAN Member States and three non-ASEAN signatories ratify it into domestic law. The primary purpose of RCEP is to serve as an overarching mechanism for free trade among the 15 countries with a single set of rules and procedures for accessing preferential tariffs across the region.
  • In a practical sense, a key achievement of RCEP is that it harmonises disparate rules of origin concepts, thereby providing greater levels of certainty and consistency for business in managing their supply chains across the region. More specifically, RCEP provides:
    • Standardised rules of origin for all participating countries—rather than examining individual rules of multiple bilateral agreements
    • Standardised direct shipment (consignment rules), but in some instances, these rules are more restrictive than existing bilateral agreement consignment rules which may impact existing regional distribution hub arrangements
    • An opportunity to include multiple countries in the calculation of origin rules and access to preferential duty rates 
    • Standardised documentation requirements that may be more prohibitive than some bilateral agreement documentation requirements
  • The benefits of harmonisation are not to be under-estimated given the complexities of trade within the Asia Pacific region, especially as the trend for manufacturing shifts to less developed economies.
  • A key practical breakthrough with RCEP is the establishment of free trade for the first time between China and Japan, and between Japan and South Korea.
  • In seeking to achieve consensus among such a politically and economically diverse group of nations, certain compromises were made. For example, RCEP does not remove tariffs on 39% of ASEAN’s food exports, and in particular, many of Japan’s agricultural tariffs still remain in place.
  • The scope of RCEP is broad and in many respects, seeks to cover more ground than many traditional bilateral free trade agreements. In addition to trade-in goods (including customs procedures, trade facilitation and standards, and trade dispute remedies), RCEP also covers trade-in services including sectors such as financial services, telecommunications, professional services, and the temporary movement of business people. RCEP also addresses investment, intellectual property, e-commerce, government procurement, and competition (among others).
  • Although the immediate benefits of RCEP for the services sector are more modest, the framework of RCEP provides a platform through which foreign service providers are expected to be granted greater levels of market access. This would be achieved through a transition from a “positive list” approach (i.e., when certain services are permissible in a given country) to a “negative list” approach (i.e., when services are permissible unless specifically excluded).
  • RCEP contains only limited changes in the area of intellectual property protection and enforcement. However, in terms of e-commerce, RCEP contains new provisions that are intended to support small to medium enterprise engagement with e-commerce and the flow of data, that promote privacy and consumer protection, and that enable electronic authentication and electronic signature. The financial services sector is generally excluded from these measures.  
  • RCEP does not cover areas such as environmental protection, government subsidies, and the use of labor unions.

KPMG observation

While not removing the complexities of free trade agreement access and benefits in the short term, the intention 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 possibly eligible organizations would be to examine the benefits (including phased preferential duty rates, documentation and direct shipment requirements) to determine if and when RCEP, once available, would be most advantageous to implement in place of the existing bilateral or multilateral free trade agreements they are currently applying. 

In summary, it remains to be seen whether the benefits of RCEP will be realised, with much of this being dependent on future decisions by countries to adhere not only to the “letter” of the agreements, but also to the “spirit” and intent of RCEP. While the countries that are parties to RCEP may now account for approximately 30% of global GDP, this is anticipated to rise to nearly 50% by 2030. Thus, there is a potential for RCEP to serve as a major platform for global trade, but as the major global platform. 

Read a November 2020 report [PDF 280 KB] prepared by the KPMG member firm in Vietnam


For more information on this topic or to learn more about KPMG’s Trade & Customs Services, contact:

Doug Zuvich
Partner and Global Practice Leader
T: 312-665-1022
E: dzuvich@kpmg.com

John L. McLoughlin
Principal and East Coast Leader
T: 267-256-2614
E: jlmcloughlin@kpmg.com

Andy Siciliano
Partner and National Practice Leader
T: 631-425-6057
E: asiciliano@kpmg.com

Steve Brotherton
Principal and Global Export and Sanctions Leader
T: 415-963-7861
E: sbrotherton@kpmg.com

Luis (Lou) Abad
Principal, Washington National Tax
T: 212-954-3094
E: labad@kpmg.com

Irina Vaysfeld
Principal
T: 212-872-2973
E: ivaysfeld@kpmg.com

Amie Ahanchian
Principal
T: 202-533-3247
E: aahanchian@kpmg.com

Christopher Young
Principal
T: 312-665-3229
E: christopheryoung@kpmg.com

Gisele Belotto
Managing Director
T: 305-913-2779
E: gbelotto@kpmg.com

George Zaharatos
Principal
T: 404-222-3292
E: gzaharatos@kpmg.com

Andy Doornaert
Managing Director
T: 313-230-3080
E: adoornaert@kpmg.com

Jessica Libby
Managing Director
T: 612-305-5533
E: jlibby@kpmg.com

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