New era for China and ASEAN relations: RCEP

20/08/2022    53

The Regional Comprehensive Economic Partnership (RCEP) is a historic agreement that brings together 15 Asia-Pacific countries that generate almost one-third of the global economy with more than a 2.2 billion-strong population and a total gross domestic product (GDP) of $26 trillion. The members are 10 Association of Southeast Asian Nations (ASEAN) countries along with five other countries, namely Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam, China, Australia, New Zealand, South Korea and Japan.

The RCEP was proposed in 2011 at the 19th ASEAN Summit after 10 years of negotiations. It officially launched on Jan. 1, 2022.

The agreement itself is quite detailed and spread across 20 chapters. Some of the important chapters of the agreement are Trade in Goods; Rules of Origin; Customs Procedures and Trade Facilitation; Sanitary and Phytosanitary Measures; Technical Regulations and Conformity Assessment Procedures; Trade in Services; Investment; Intellectual Property; Electronic Commerce; Competition Rules; Small and Medium Enterprises; Economic and Technical Cooperation; and Government Procurement.

The RCEP agreement aims to reduce tariffs, unite trade rules and strengthen the supply chain between the member states. Under the RCEP, trade and customs procedures have been simplified with convenient certification that reduces custom clearance time. For example, Japan and South Korea do not have a trade deal, but under the RCEP they have free access to each other's markets. This is also the first common trade agreement between South Korea, Japan and China. This situation is the same for the rest of the member states. It shows that the RCEP has great potential to create tangible benefits for all its members.

The RCEP’s "Rule of Origin" chapter is one of the most important parts of the agreement. For example's sake, let's use the terms Country A, Country B and Country C. Country A uses material from Country B to produce semi-finished products to use in Country C. In this scenario, the product can be classified as originating in the final production country. This example demonstrates that the RCEP also is expected to reduce the cost of production so that there will be no need to import equipment and materials within the RCEP with tax and other additional expenses. Furthermore, countries like China, Japan and South Korea will enjoy the same kind of benefits when it comes to their infrastructure projects across the region. At this point, China’s advantage would be its Belt and Road Initiative (BRI) and financial support for projects under BRI.

According to the Asian Development Bank data, the RCEP will increase its members’ incomes by 0.6%, adding $245 billion annually to regional income. It is also expected to create nearly 3 million jobs by 2030. The population of the region is young and the countries have huge potential for startups and small and medium-sized enterprises (SMEs). Therefore, it is very important for enterprises and startups to reach the larger economic marketplaces.

China, as the world’s second-largest economy, plays a leading role in this agreement. Therefore, the future of the agreement mostly depends on China’s economic policies for the rest of the 14 countries.

RCEP and China

The RCEP is a very important agreement that will help to establish economic integration in the Asia Pacific region. In this context, it will help China have more integrated economic relations with the region.

ASEAN became China’s largest trading partner in 2020. China has been ASEAN’s largest trading partner since 2009. China’s trade totaled 1.35 trillion yuan ($212 billion) in the first quarter of 2022, an increase of 8.4% with ASEAN. China’s trade with RCEP countries has already increased 6.9% to 2.86 trillion yuan in the first quarter of this year. This number is equal to 30.4% of China’s total foreign trade.

Source: Daily Sabah