RCEP Ratification Will See World’s Biggest Trade Deal Become Reality in January
The Regional Comprehensive Economic Partnership (RCEP), the world’s biggest trade deal, will enter into force on January 1, 2022, now that six more members of the Association of Southeast Asian Nations (ASEAN) have submitted their ratification documents.
The ASEAN Secretariat has received instruments of ratification from Brunei, Cambodia, Laos, Singapore, Thailand, and Vietnam, as well as from four non-ASEAN signatory states—Australia, China, Japan, and New Zealand—that confirmed their participation in the trade accord. While China is party to several bilateral trade agreements, this is the first time it has signed up to a regional multilateral trade pact. Among the 15 RCEP signatory countries, 11 countries have now completed the process or entered the final stage.
As stipulated by the agreement, RCEP will come into effect 60 days after the minimum number of ratification documents has been received. In the meantime, the preparatory work for the entry into force of RCEP will continue. “The preparatory work undertaken by signatory states aims to lay a solid ground for the full and effective implementation of the agreement through finalization of the technical and institutional aspects of the agreement,” the ASEAN Secretariat said in a statement.
Signed on November 15, 2020, RCEP comprises 10 ASEAN member states together with Australia, China, Japan, South Korea, and New Zealand. The trade deal covers a market of 2.3 billion people and USD 2,600 billion in global output. This accounts for about 30% of the world’s population worldwide and more than a quarter of global exports.
With the removal of tariffs on 91% of goods and standardization of regulations on investment, intellectual property, and e-commerce, the accord is expected to improve the efficiency of supply chains in the region. Tariffs on other commodities will be gradually reduced to zero within 10 to 20 years.
ASEAN Secretary-General Dato Lim Jock Hoi said the “expeditious ratification process by signatory states is a true reflection of our strong commitment to a fair and open multilateral trading system for the benefit of the people in the region and the world.” He also said RCEP will give a “tremendous boost” to post-COVID-19 economic recovery measures.
RCEP is good news for investors operating across ASEAN, China, and other regions. Streamlined customs procedures, unified rules of origin, and improved market access will make investing in multiple locations a much more viable and attractive investment strategy and likely bring “China + 1” business models to the fore. The common rule of origin will lower costs for companies with supply chains that span across Asia and may draw multinationals to RCEP countries to establish supply chains across the bloc, beefing up the global value chain activity in the region.
Under the agreement, all member countries will be treated equally, which also gives investors incentives to look for suppliers within the trade bloc. For example, a product made in Vietnam but with parts from South Korea may face tariffs somewhere else in the ASEAN free trade zone today, but once RCEP is in effect, the product would qualify to meet rules of origin guidelines.
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