In this article, we’re going to discuss what RCEP is, which countries are part of it, including the impact it has on the regional free trade and economy once it comes into force. We will also highlight what benefits it provides for cross-border B2B sellers, and the effect this trade agreement can have on small to medium-sized businesses.
We will also shed some light on how RCEP will impact COVID-19 recovery, and what it means for international trade relations.
Whether you already have a business, or are thinking of starting an ecommerce business, this article will give you all the important information about RCEP and its impact and importance for the coming years. Plus, we will also assist you on how you can set up an online seller account on one of the renowned and popular Chinese e-commerce companies – Alibaba, which will help you reach millions of B2B buyers globally.
Let’s get started by discussing what RCEP is.
Table of Contents
The Regional Comprehensive Economic Partnership (RCEP) is a proposed agreement between the Association of Southeast Asian Nations (ASEAN) member states and its free trade agreement (FTA) partners. The negotiations are focused on the following: Trade in goods and services, investment, intellectual property, dispute settlement, e-commerce, small and medium enterprises, and economic cooperation. It is the world’s largest FTA, and this Trans-Pacific Partnership comprises about 30% of global GDP and about a third of the world’s population.1
This free trade agreement is between 15 countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam, Australia, China, Japan, South Korea, and New Zealand.
The RCEP discussions formally began in Cambodia during the 2012 ASEAN Summit, and the Agreement was signed on November 15, 2020. In November 2021, the quorum for entrance into force was met.
For ten member countries, the RCEP Agreement went into effect on January 1, 2022. (Australia, Brunei, Cambodia, China, Japan, Laos, New Zealand, Singapore, Thailand and Vietnam). It will take effect 60 days after the other participating nations have submitted their instrument of ratification with the Depositary.
China was the first country to ratify the Regional Comprehensive Economic Partnership (RCEP) in April of last year, after it was signed in November 2020 in a virtual summit of its 15 member nations. Indonesia, Malaysia, and the Philippines have not yet ratified the agreement, although they are expected to do so shortly. Myanmar, whose government was deposed by the military on February 1, approved it, but other members have yet to accept it.2
The rise of global value chains (GVCs) offers a good indicator of interdependencies between RCEP states. GVCs are a special form of production that relies heavily on international trade, as the production of a final good may require that intermediate inputs or intermediate goods cross a national border several times.
Businesses should consider whether they are able to take advantage of any benefits offered by RCEP, which include:
With the above advantages, it’s a great time to think about B2B e-commerce. B2B e-commerce is a great way to get digital.
RCEP is particularly vital in the post-COVID era because trade routes must remain accessible – and this is a trade-dependent area. However, new sources of economic development are also required. It appears that we'll have an uneven recovery after COVID, so you'll want to be able to use a variety of engines to drive recovery. Having a progressive agreement that is Asian, with Asian powerhouse economies in it is really beneficial. It's beneficial not just to those economies and large international corporations, but it's also beneficial to smaller enterprises, because growth must begin somewhere.
Jack Lee, chief executive officer and founder of online market Smile Shop in Cambodia, states that RCEP will promote cross-border e-commerce and narrow the development gap between developed and developing countries.
The pact will eliminate as much as 90 percent of the tariffs on goods traded among its signatories over the next 20 years.
The implementation of the RCEP will prompt the governments to improve their internal investment environment, promote economic diversification, and increase the certainty and reliability of economic recovery in the post-Covid-19 pandemic era.
The RCEP will also urge the governments to further transparentize legal frameworks, protect the interests of investors, attract more foreign investment, and achieve economic development goals.
The pact simplifies customs clearance procedures and improves customs clearance efficiency that will result in trade convenience, cross-border logistics timeliness, and trade cost reduction.
The benefits expected from the implementation of the RCEP are tremendous, and the pact will attract more venture capital investment in cross-border e-commerce.
The RCEP will also help narrow the development gap between developed and developing countries, and it will promote free trade and economic globalization in the post-Covid-19 pandemic era.
A great benefit will be the establishment of a common origin rule. Rules of origin are criteria used in international trade to define a product's national source, which has ramifications for the duties and restrictions imposed on that product. Companies had to follow distinct rules of origin for each of the five ASEAN-plus-one FTAs prior to RCEP. In practice, this meant that enterprises had to think of the Asia-Pacific as five separate markets, because items made to the ASEAN-New Zealand FTA's standards did not necessarily qualify for the ASEAN-Japan FTA, for example. The RCEP corrects this by establishing standard origin criteria for the whole bloc.
Companies can readily export items manufactured in accordance with the agreement's origin requirements between all RCEP members. As a result, global corporations with supply chains that cross Asia will have lower costs, which will likely encourage businesses to establish supply chains throughout the bloc.
Members of the RCEP are likely to benefit to varying degrees from the deal, as with any other trade pact. Tariff concessions are projected to result in stronger trade impacts for the bloc's major economies, owing to the already low tariffs between many of the other RCEP members. Indeed, the patterns of tariff reductions in the RCEP demonstrate a level of collaboration in the negotiation process.
RCEP countries trade intensely with each other but also play a crucial role in exports to the rest of the world. It is worth stressing that the significance of RCEP in global exports is significantly larger in volumes than in the real value. Thus, the RCEP plays and will play an increasingly influential role in global transport networks, in particular maritime transports.
RCEP aims to strengthen the position of states within global value chains but also to build stronger and deeper regional value chains. Simultaneously RCEP aims to boost responsible and constructive competition between parties involved to drive overall productivity which is key to long-term competitiveness and economic growth.
The fact is that Regional Comprehensive Economic Partnership (RCEP), brings beneficial improvements and, in the end, will result in an RCEP zone with more market access, fewer trade deal obstacles, and more export prospects, even if it is more constrained than the optimists predict.
The rolling out of a unified general market under the RCEP agreement will effectively offset the negative impact brought about by the pandemic on the economy and increase the confidence of industries and enterprises to carry out trade and investment.
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References:
1: https://www.business-standard.com/about/what-is-rcep
2: https://www.business-standard.com/article/international/rcep-promise-of-enhanced-trade-will-be-challenged-by-geopolitics-report-122010300414_1.html
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