AFTER eight years of negotiations, 15 countries of the Asia-Pacific region signed a free trade agreement on the Regional Comprehensive Economic Partnership (RCEP) on November 15, 2020, which was initiated by the Association of Southeast Asian Nations (ASEAN) in 2012. Thus the world’s largest free trade area came into being. In the midst of the COVID-19 pandemic, the signing of this agreement gives a strong impetus to Asia-Pacific regional economic integration and injects a powerful new stimulus to the global economic recovery.
High-Level Openness on All Fronts
The RCEP will promote the flow and exchange of goods, services, capital, and personnel between signatory countries, forging a modern, comprehensive, high-quality, and mutually beneficial regional economic partnership.
After the RCEP agreement comes into effect, more than 90 percent of goods within the areas it covers will be traded duty free, some immediately and others over a 10-year period. The RCEP, above all else, enables the elimination of China-Japan and China-Republic of Korea tariffs, achieving a historic breakthrough.
The agreement’s provisions on certificate of origin, e-commerce, government procurement, intellectual property rights, and small and medium-sized enterprises (SMEs) not only speed up the clearance of goods, but also strengthen economic and trade cooperation within the regional market, helping to further integrate industrial and supply chains in the region, increasing their level of modernization, and facilitating trade and investment for each of the 15 signatory countries.
RCEP helps to strengthen trade in services by liberalizing and facilitating them. The 15 participating countries have all pledged to achieve a level of openness in this field higher than that of the original “10+1” free trade agreements. China has committed to liberalizing its trade in services at the highest level in history. China has added 22 new service sectors such as research and development, management consulting, manufacturing services, and air transport to the 100 sectors which were part of its original commitment to join the WTO, and raising the level of openness of 37 sectors such as finance, law, construction, and maritime transport. The other signatories have also made high-level openness pledges, including in the construction, medicine, real estate, finance, and transportation sectors, which China considers a priority. On an individual level, more opportunities in medical, real estate and financial investment will be created.
Adopting a negative list approach, the 15 signatories further made high-level openness commitments for investment in the five non-service sectors, namely manufacturing, agriculture, forestry, fishing and mining, creating a free, convenient and competitive investment environment in order to increase investment opportunities among all parties and individuals, and to promote the facilitation and liberalization of investment while stimulating and protecting them.
The Regional Comprehensive Economic Partnership (RCEP) agreement is officially signed on November 15, 2020 at the 4th RCEP Summit held via video link.
Highlights for Labor and Capital
RCEP covers a market of 2.2 billion people (almost 30 percent of the world’s population), with a GDP of US $26.2 trillion (around 30 percent of global GDP) and nearly 28 percent of world trade (based on 2019 data). After its signing, regional trade exports are expected to increase by 10 percent in 2025. This will accelerate the regional economic integration of East Asia and Oceania, promote trade in goods and services, and give new impetus to regional economic and trade growth.
The creation of this vast free trade area will accelerate the flow of capital. In terms of the size of net foreign direct investment (FDI) inflows, this area will become one of the world’s major destinations for industrial transfer, boosting the regionalization and internationalization of local currencies, including China’s RMB.
In addition to cultural comparative advantages, RCEP has demographic advantages in terms of both quantity and structure. Until 2018, the population of RCEP participating countries exceeded that of the European Union, with an active population aged 15 to 64 representing 32 percent of the global labor force, 25 percentage points higher than that of the EU. The agreement will also help promote the flow of people and strengthen the effect of trade and economic innovation in the region.
The signatories also promised that investors, staff assigned to companies, contract service providers, as well as spouses and dependents who meet the necessary conditions will be able to obtain a residence permit with visa convenience, to facilitate their trade and investment activities.
Optimizing and Integrating Existing Cooperation Mechanisms
The volume of trade between China and other RCEP countries represents one third of China’s total foreign trade, and the real investments from these countries represent more than 10 percent of FDI in China. The RCEP agreement will help promote China’s dual-circulation economic development strategy, promote international trade and investment exchanges between China and other RCEP countries, which will make China’s opening-up more complete and diversified, and help the building of a new system of open economy at a higher level.
On the one hand, the signing and implementation of the RCEP free trade agreement integrates the multiple “10+1” free trade agreements between ASEAN and China, Japan, the Republic of Korea, Australia and New Zealand, as well as the existing agreements between these five countries. The RCEP builds new free trade partnerships between China and Japan, and between Japan and the Republic of Korea.
RCEP will deepen industrial and value chains in the region and strengthen regional economic integration by adopting regional cumulative rules of origin; it will promote the facilitation of customs clearance and the development of cross-border e-commerce and new cross-border logistics using new technologies. This will help stabilize the status of RCEP signatories in global industrial and supply chains and make them more modern. By adopting the negative list method, it will stimulate investment liberalization and enhance the transparency of investment policies. All these provisions will promote the optimization and integration of economic and trade rules in the region.
On the other hand, RCEP will help strengthen China’s influence in global economic and trade rulemaking. With the signing of the RCEP, the number of China’s free trade agreements rose to 19, and that of its partners to 26, which allows China to progress in the building of a high-level global network of free trade areas with the neighboring countries as the basis, radiating to countries along the Belt and Road, and open to the whole world.
The agreement will also help advance negotiations on the China-Japan-Republic of Korea free trade area, accelerate the implementation of negotiations on the China-EU investment treaty, and start negotiations on the China-EU free trade agreement as soon as possible. This will finally contribute to the realization of the long-term goals of international trade development marked by zero taxes, zero barriers, and zero subsidies.
LIU YING is a researcher and director of Cooperation Research Department at Chongyang Institute for Financial Studies of Renmin University of China.