RCEP: What you need to know about the world's biggest free trade deal
November 19, 2020 | Joyce Ibrahim
After nearly a decade in the making, the Regional Comprehensive Economic Partnership (RCEP) was finally sealed on Sunday November 15, spanning 15 countries and 2.2 billion people. The RCEP comes at a time when cross-border exchanges of goods were hindered by COVID-19, and is expected to improve relations among its member-states by creating economic interdependence.
What is the RCEP?
The Regional Comprehensive Economic Partnership was initiated during the 2012 ASEAN Summit in Cambodia. This multilateral agreement counts 15 signatories, including all ten members of ASEAN in addition to China, South Korea, Japan, Australia, and New Zealand, making it one of the largest free trade deals in history. India, which was originally involved in early discussions, opted out of the agreement in 2019 fearing that a large influx of cheap Chinese goods and agricultural and dairy products from Australia and New Zealand could harm local industry and farmers.
The RCEP aims to promote fewer tariffs on trade in goods, better rules for trade in services, and sets the terms for cross-border investments among member states in areas such as electronic commerce and intellectual property. Apart from eliminating tariffs and quotas on 65% of the goods traded in the region, the RCEP is also expected to remove 90% of the tariffs on imports between signatories within 20 years of coming into force.
Why is it important?
The RCEP is the first multilateral free trade agreement China takes part in, and the first trade agreement in which China, South Korea, and Japan join forces, seemingly setting their historical and diplomatic disputes aside. In fact, the deal is believed by many to be “China-led” as a means to bolster the country’s diplomatic and political influence in the region amid its trade war with the US.
Furthermore, RCEP’s economic significance is comparable to that of the EU, with its members accounting for 29% of global gross domestic product in 2020. It is also projected that the RCEP’s share of the world economy could amount to half of the estimated $0.5 quadrillion global (GDP, PPP) by 2050. In addition to this, economists believe that the Pan-Asian pact, which covers a third of the world’s population and economic output, could add around $200bn annually to the global economy by 2030.
However, the agreement will have to be ratified by six countries before coming into force, and not all its provisions will be immediately implemented. For instance, Cambodia and Indonesia, among others, have requested a certain timeframe to alter domestic rules and regulations, in order to better align with the requirements of the RCEP.
Would you like to know how trade agreements could affect your business? Get in touch with Brakket Consult.