Deborah Elms is executive director of the Asian Trade Centre in Singapore.
After talks between the ten-member Association of Southeast Asian Nations plus Australia, China, Japan, New Zealand and South Korea were first launched in 2012, the 15 countries on Sunday finally signed the Regional Comprehensive Economic Partnership on trade.
The original intention was to allow more seamless trade in Asia for Asian companies, and this massive deal, with a 500+ page rule book and thousands of pages of country-specific commitments, now provides new opportunities for unleashing economic growth in Asia.
While RCEP members are export-powerhouses, most of the final production for goods has been sent outside the region -- to the United States or Europe, in particular. The total trade flows in finished goods and services within Asia have always been more modest, but RCEP promises to transform traditional patterns of trade: in Asia for Asia.
The economic benefits of RCEP come from several different factors. First, while Asia is already lined with trade deals, the net result has been a confusing "noodle bowl" of mismatched commitments. Companies have had to work hard to figure out what benefits might be on offer between any two markets in the region. The rules and procedures between agreements often differ, making them challenging to use.
Second, the agreement marks the first time that some of the world's largest economies have been connected through a trade agreement. China, Japan and South Korea, especially, now have new commitments to one another for a wide range of tariff reductions and other market access opening.
Third, while many were expecting a shallow trade agreement, the final document is quite impressive. Members spent eight years working on a range of promises in goods, services, investment, intellectual property rights, competition policy, e-commerce, customs and trade facilitation, and more.
Many of the commitments contained within the document are set to deliver important economic benefits for companies in the region. For example, tariffs are set to fall on most products into most markets. Many of these tariff reductions will happen when the agreement enters into force and a surprisingly large percentage will be eliminated completely.
RCEP includes a critical technical element that will make a significant difference for companies -- it has one rule of origin that applies to all of Asia. In other words, products that are manufactured to meet RCEP originating criteria can now be shipped to all 15 markets without the need for any adjustments in suppliers, raw materials, parts or components.
To see how this works in practice, imagine a company trying to create a toaster to be exported from Japan. Without RCEP, the Japanese company would not have received any possible tariff benefits from sending the toaster to China or South Korea as there was no trade agreement between them. If the company tried to sell the product into ASEAN, it would have needed to ensure sufficient Japanese and ASEAN parts and components were included in the final toaster, unless it was being sent to Singapore or Vietnam, where the Japanese company could use the rules of origin found in the Comprehensive and Progressive Trans-Pacific Partnership, or CPTPP. If the Japanese company decided to ship the item to Australia, it would need to include enough content to meet either the existing bilateral trade rules or switch to using the CPTPP. New Zealand-bound toasters could be sent under CPTPP as there is no existing bilateral in place with Japan.
If this sounds complicated, that is because it is. But RCEP now makes it possible to design a toaster in Japan to meet RCEP rules and ship it straight to 14 other markets in Asia without redesign or remanufacturing. As an added bonus, the company only has to use one certificate of origin, rather than grapple with dozens of different forms.
Asia has tended to limit trade in services, but RCEP contains a wide range of commitments that will start to loosen restrictions and allow companies across the region to deliver services ranging from graphic design to back-office processing, engineering, and education more easily.
The investment provisions are also important and sweeping, encouraging the continued inward investment that has helped power many of the economies in the region in the past. Other chapters provide new benefits in important areas such as intellectual property rights protections and enforcement or e-commerce. Most of the agreement will be legally binding and the RCEP member countries have agreed to create a secretariat to help manage the implementation and future changes to the trade deal.
In all, RCEP agreement does provide significant new benefits for stimulating trade in the region. In a post-pandemic economy, such continued integration is more important than ever. Finally, RCEP has an impact that goes beyond the specifics of the agreement. The deal includes regular meetings between officials, ministers and even leaders. As the 15 members gather across the year, RCEP is poised to become a critical platform for the discussion of trade and economic issues.
In the future, Asia could craft product standards for new and innovative technologies such as 3D printing or Artificial Intelligence or to create new trade rules for evolving industries or sectors using RCEP.