15 countries in the Asia-Pacific region sign the world’s largest trade deal
RCEP is set to strengthen trade in the Asia-Pacific region. The agreement is expected to have far-reaching economic consequences for countries within RCEP and beyond.
After eight years of negotiations, the world’s largest trade agreement was signed on 15 November 2020. The Regional Comprehensive Economic Partnership (RCEP) includes 15 countries that cover almost a third of global economic output, population and trade. In addition to China, Japan, South Korea, Australia and New Zealand, the 10 member countries of the Association of South-East Asian Nations (ASEAN) signed the agreement. RCEP includes countries at very different levels of economic development. For example, Singapore’s income per person is almost 50 times that of Myanmar.
India withdrew from the negotiations in 2019 over various concerns, including India’s hopes for greater service trade liberalisation that RCEP did not fulfil. However, there is a fast-track accession process in place should India wish to re-join the RCEP in the future. Before RCEP enters into force, six ASEAN countries and three other nations must ratify it. It is therefore not yet clear, when RCEP will start to take effect.
Harmonisation of existing trade agreements
One of RCEP’s largest benefits for companies is the harmonisation of the rules of origin that are part of the members’ existing free trade agreements (FTA). These rules are used to define the national source of a product. To qualify for tariff reductions under an FTA, generally a certain share of a product’s value needs to be added in the exporting country. The rules of origin vary widely between the signatories’ bilateral FTAs. RCEP reduces bureaucratic efforts and enables companies to rely on a common set of rules. It also enhances legal protection for foreign investors. This increases the attractiveness of foreign direct investment (FDI) in a region that accounts for a quarter of global FDI flows.
The scope of RCEP in terms of tariff reductions is limited, because most of the signatories have already trade deals in place with each other. It is, however, the first trade agreement between China, Japan and South Korea. Those three countries are also expected to benefit most economically.
The agreement also covers standards, technical regulations and conformity assessment procedures. It ensures consistency with the Technical Barriers to Trade (TBT) Agreement of the World Trade Organization (WTO) and aims to enhance cooperation between countries, for example by establishing contact points in each country. It also seeks to strengthen the mutual acceptance of other countries’ technical regulations and conformity assessment procedures. However, the provisions are not binding and their impact will depend on the member countries’ commitment to comply.
RCEP highlights the importance of international cooperation on quality infrastructure (QI). The Global Project Quality Infrastructure (GPQI) collaborates with the RCEP members China and Indonesia, as well as India, Mexico and Brazil, to strengthen international standardisation, and international recognition of conformity assessment results.
A changed competitive landscape for German companies
Together, the RCEP members are the largest export and import partner for German companies, right after the EU. More than 5000 German companies are active in these countries. Those producing in the region will benefit from lower bureaucratic burdens. However, the agreement will also change the competitive landscape for German companies. In the automotive sector, for instance, shifts in sales volumes are possible as manufacturers from Japan, South Korea and China will benefit from improved mutual market access.