The RCEP agreement marks a significant milestone for Asia-Pacific trade, being the largest regional trade deal ever signed. After eight years of negotiations, the RCEP was finalized in November 2020, reshaping the future of Asia-Pacific trade by promoting economic cooperation and reducing tariffs across member nations.
Regional Comprehensive Economic Partnership
1.Introduction
RCEP’s members include the 10 members of the Association of Southeast Asian Nations (ASEAN) (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Thailand, Vietnam, and Singapore) along with Australia, China, Japan, South Korea, and New Zealand.
Many have underestimated RCEP’s benefits, but experts expect it to significantly impact regional trade. The RCEP deal lowers tariffs, expands services trade, harmonizes rules of origin, and promotes intraregional trade and sourcing. RCEP will encompass 30% of the global population (2.2 billion) and $38 trillion in GDP, a third of global output. The goal is for the agreement to take effect on January 1, 2022, though some participants prefer earlier implementation. India, a major roadblock, dropped out, which partly led to the signing of the agreement this year.
Experts expect RCEP to stimulate regional Asian trade. Brookings Institution estimates RCEP will add $209 billion to global incomes and $500 billion to world trade by 2030. Here is a summary of RCEP’s benefits and limitations, especially compared to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
2.Tariff reductions
RCEP will eliminate more than 90 percent of import tariffs within 20 years of coming into force. RCEP’s tariff reductions are more limited in coverage than CPTPP and TPP-12, however. The exact extent and timing of RCEP’s tariffs cuts requires sorting through lengthy country schedules and exclusions. RCEP appears to cover about 90 percent of tariff lines, whereas CPTPP covers around 99 percent. RCEP includes exclusions for sensitive agricultural imports and 20-year transition periods for some tariff cuts to take effect. While some members (e.g., Australia, Brunei, Cambodia, Malaysia, Myanmar, New Zealand, Singapore, and Thailand) will apply a single tariff schedule to all other RCEP members, the remaining members have elected to phase out their tariffs at different rates for different RCEP members. This approach allows RCEP members to set varying tariffs on imports until they fully implement the cuts.
Moreover, the agreement represents the first time China, Japan, and South Korea have entered a free trade agreement together. These countries represent the largest, second-largest, and fourth-largest economies in the region, respectively. The bloc members stated the deal will help build resilience through an inclusive, sustainable post-pandemic economic recovery process.
