1st Anniversary of RCEP: Creating a Big Market in a Turbulent Environment
On January 1, 2023, the first anniversary of the entry into force of the Regional Comprehensive Economic Partnership Agreement (RCEP). According to data released by the General Administration of Customs and the Ministry of Commerce, from January to November 2022, the total import and export volume between China and other RCEP members was 11.8 trillion yuan, a year-on-year increase of 7.9%, accounting for 30.7% of China’s total foreign trade import and export. Among them, China’s exports to other RCEP members reached 6 trillion yuan, a year-on-year increase of 17.7%, exceeding the overall growth rate of China’s exports by 5.8 percentage points; the total import and export volume between China and ASEAN countries was nearly 5.9 trillion yuan, a year-on-year increase of 15.5%. The growth rate of trade volume with countries such as Malaysia, Singapore and Indonesia has exceeded 20%.
As the world’s largest free trade area, RCEP not only reduces the number of countries in China, Japan, South Korea, Australia, New Zealand, Thailand, Vietnam, Laos, Cambodia, Malaysia, Brunei, Singapore and Myanmar (Myanmar’s situation is more special, the current RCEP commitment between China and Myanmar The economic operation and business activities of the 13 member countries that have come into effect) have created a large market for enterprises in today’s increasingly turbulent international economic and trade environment, reducing the uncertainty of market expectations and promoting the supply of transnational industrial chains in related fields Chain network readjustment and optimization.
Reduce the cost of business activities
One of the important reasons for the formation of free trade agreements is to reduce trade costs between relevant parties, and tariff reduction is a common practice. Along with closer business ties, reducing non-tariff trade barriers and reducing obstacles to investment activities, capital and personnel flows have become new important issues. RCEP is a comprehensive trade agreement, and each party has made varying degrees of commitment to reduce the cost of commercial activities. The difference is that among RCEP contracting parties, some contracting parties that originally signed free trade agreements have already implemented tax reductions, which makes the tax reduction effect of RCEP relatively limited. In contrast, since China and Japan, and Japan and South Korea have not signed free trade agreements in the past, the implementation of RCEP has significantly reduced the tariffs between these parties. According to statistics, after RCEP takes effect in 2022, China will immediately reduce tariffs on products from Japan to zero, accounting for a quarter of the tariff lines, and Japan will also reduce tariffs to zero on 57% of products from China. Even among contracting parties that have already signed a free trade agreement, after RCEP takes effect, the tariff structure may be significantly different from the original free trade agreement, which will have different impacts on enterprises in different industries. This new difference under the RCEP framework will change the cost of business operations and is more likely to create new profit margins. The parties to RCEP have also formed a broad consensus on the opening of their domestic markets. In addition to making commitments higher than the WTO’s service industry market opening, they also adopt a negative list to restrain all parties in terms of foreign investment access, so as to minimize more Uncertainty brought about by the stringent restrictive measures for investors of the contracting parties.
Build a “firewall” for external risks
In 2022, the global economy will be greatly impacted by the Ukraine crisis. The price of bulk commodities in the international market has risen significantly, and the original global supply chain network has been forced to adjust. In order to reduce future losses, enterprises and individuals, as the main players in the market, have increased their inventories, which has further pushed up the demand, resulting in the coexistence of high commodity prices and insufficient supply, and the pressure of inflation has increased sharply. Since RCEP took effect, it has substantially reduced market volatility with clear rules and commitments, built a “firewall” for external risks, avoided the spread of worries to a certain extent, and stabilized the supply chain network and market expectations. According to the agreement, each party needs to continue to optimize the business environment, reduce the differential treatment for the development of enterprises of other parties in their own countries, and make the development environment more stable and sustainable. In addition to the clear commitments made by the parties, they have also reached a consensus on dealing with new business forms including e-commerce, making the large market among RCEP members more stable and attractive. The accumulative rules of regional origin have changed the synergy model among all parties. The value-added production of enterprises in different RCEP countries can be calculated in aggregate. While promoting the division of labor and cooperation among enterprises in the region, it also attracts the transfer of supply chains to RCEP member countries . The logistics distance between all parties in the supply chain is shortened, and it is possible for companies to respond quickly to market demand and avoid excessive inventory, thereby significantly improving market supply and demand conditions. Compared with other free trade agreements, RCEP is large in scale, involving not only a large number of countries but also obvious differences in economic development levels and natural endowments. If we can protect the effective use of resources and at the same time pay attention to the formation of good economic benefits, the quality of economic development will be significantly improved. Compared with traditional free trade agreements, RCEP has specially set up an e-commerce chapter, which regulates the behavior of enterprises and provides reference and guidance for enterprises to seek innovation and exploration. More importantly, with the sustainability of the economic growth momentum in the RCEP region, resource input has increased, which in turn has strengthened the support for the development of the regional market and improved the efficiency of factor allocation.
Accelerate cross-border industrial chain optimization
International trade has created conditions for all parties to play their own advantages and form complementarity and cooperation, while international investment has further responded to market demand. RCEP increases the transparency of government regulatory information and market information, reduces investment access restrictions, and creates better conditions for enterprises to improve resource allocation capabilities and use efficiency. After the agreement took effect, many enterprises began to consider or strengthen the adjustment of industrial layout driven by the market. The market played a more obvious and decisive role in the allocation of resources. Competition improved the efficiency of resource use. It has accelerated the optimization of the cross-border industrial chain and the improvement of resource utilization efficiency. As the most abundant chapter in the RCEP agreement, intellectual property rights not only guarantee the ownership of property rights owners, but also provide the necessary conditions for creating benefits through market cooperation. Under the RCEP framework, enterprises have a stronger motivation to strengthen technical cooperation, and innovation activities are more active. RCEP has created greater value for all parties involved in the cooperation, and also promoted the development of professional service markets including consulting, law, and accounting, and provided better conditions for the optimization of the supply chain in the region. It must be pointed out that RCEP and other regional economic and trade agreements are not mutually exclusive, but complementary and supportive. As the world’s largest free trade agreement, RCEP has effectively reduced the complexity of economic and trade agreements through relatively consistent rules and models, provided enterprises with a more friendly development environment, and reduced the impact of market segmentation on enterprises’ optimization of supply chain networks.
Since RCEP took effect one year ago, its scope and areas of influence have gradually expanded. Not only is the demand for multiple cooperation among enterprises increasing, consumers can enjoy more and higher-quality goods and services, but also the logistics and distribution network in the region is also being optimized, and the market attractiveness of RCEP continues to increase. Hong Kong, China’s application to join RCEP further demonstrates the inclusiveness and openness of regional economic and trade cooperation. The least developed countries (Cambodia, Laos, and Myanmar) in RCEP have enhanced their ability to participate in the global value chain network through capacity building, reducing the impact and negative impact of regional market integration on them. The people of each member agree to resolve disputes and conflicts through mutual cooperation rather than confrontation, and the overall atmosphere tends to be more open and inclusive.
In the new year, not only Indonesia’s commitment to RCEP has come into effect, but all parties have begun to launch a new round of tax cuts in accordance with the tax cut table for trade in goods. When the market is not optimistic about the world economy, RCEP is expected to form an economic “safe haven” and create new market demand through synergy rather than zero-sum game. At the same time, the desire of the parties to strengthen coordination and explore new areas of cooperation may promote the improvement and upgrading of the agreement, further optimize the content of the agreement, and convert more consensuses in the negotiations into binding new rules, providing opportunities for enterprises from all countries to participate. Economic and trade cooperation creates better conditions.
