Against the backdrop of an untamed pandemic, a relatively stable, reasonable, and effective economic and trade mechanism is undoubtedly a key condition for economic recovery. The Regional Comprehensive Economic Partnership (RCEP), which came into force on January 1, is expected to play the important role of such a mechanism given the huge economic size and development potential of its members as a whole. 

A Boost to Economy 

The RCEP has 15 members, namely the 10 member states of the Association of Southeast Asian Nations (ASEAN), China, Japan, the Republic of Korea, Australia, and New Zealand. In 2020, ASEAN’s GDP was about US $3 trillion, and the combined GDP of RCEP members was about US $25.9 trillion, accounting for 30.2 percent of the global total. As the free trade deal came into effect, the region will have an even greater economic impact on the world. 

Taking 2020 as an example, due to drastically shrinking regional and domestic demand, all ASEAN members except Vietnam and Brunei saw a decline in GDP. With the promise of mutually beneficial cooperation and a clear commitment to lowering tariffs across the board, RCEP creates a universal market with a huge coverage, which could generate robust demand and mitigate the disruptive impact brought about by weak local markets on the production capacity of businesses. 

More importantly, the huge economic size will present opportunities for businesses in various member countries to upgrade their products and services based on differentiated demands and attain greater value. 

In addition, the RCEP members’ joint efforts to bring the agreement into force as scheduled have sent a strong signal to the world that they all stand against unilateralism and protectionism, and are supporters of free trade and multilateral trading systems. This will further boost their confidence and determination to work together to realize post-COVID-19 economic recovery, and inject strong impetus to regional and global economic growth. 

Official statistics showed that in the first 11 months of 2021, China’s trade with the other 14 RCEP members was worth RMB 10.96 trillion, accounting for 31 percent of its total foreign trade. After the agreement came into effect, tariffs on mechanical equipment, plastic products, and electrical equipment exported to China, as well as on textiles, bags, plastic products, and other products imported from China will be significantly reduced. This will largely boost trade among RCEP members. 

Optimizing Regional Supply Chains 

Trade protectionism and COVID-19 have strained global supply chains, exerting a severe negative impact on international economies and trade relations. However, the decline in total global supply is not as big a factor as to take the major responsibility for the strain – excessive government intervention in the markets in some countries is the leading cause. The beggar-thy-neighbor policy makes it difficult to sustain international trade activities, and enterprises accordingly make short-term decisions due to fear of supply chain ruptures, which in turn aggravates the instability of the supply chain. 

In terms of trade in goods and services, cross-border investment, rules, and other areas, RCEP is more open than what China has promised when acceding to the World Trade Organization. As the trade deal took effect, more than 65 percent of goods traded between China and ASEAN countries, Australia and New Zealand will be exempted from tariffs. In around 10 years, zero-tariff policy is expected to cover 90 percent of all imports and exports among RCEP members. 

China has increased the number of sectors open to trade in services to 122. In terms of investment, RCEP members agreed to welcome foreign investment in non-service sectors off a negative list. E-commerce, government procurement, and competition, among other topics, were included in trade rules. Members of the trade deal also made greater promise for protecting intellectual property rights. 

RCEP is expected to become an important platform for optimizing and restructuring regional supply chains. Rules of origin covering 15 countries in the region ensure businesses can enjoy preferential tariffs and face lower non-tariff barriers. In this way, businesses, with stable development expectation, are able to make investment and production plans more rationally. In turn, the adverse impact of the supply and demand gap on the supply chain will be mitigated, and drastic fluctuations of commodity prices will be avoided. 

RCEP members have different industrial advantages. Some are exporters of energy and natural resources, some excel in manufacturing capabilities, and others boast a big consumer market. Under a relatively flexible trade agreement, RCEP members aim to achieve high-quality and balanced development through opening up in a way that is suitable for themselves. 

In fact, with the development of economic globalization and technologies, enterprises are embracing more cooperation opportunities in an increasingly wider range of fields. In addition to coordination with others along the industrial chain, manufacturing enterprises can expand cross-sectoral cooperation with service businesses, which is conducive to stabilizing the market, improving efficiency, and reducing costs. A trade deal involving goods, services and investment, RCEP has created a more favorable and unified institutional environment for such coordination and cooperation. 

Boosting Digital Trade 

Digital trade has been thriving since the outbreak of COVID-19. There is a special chapter on e-commerce in the RCEP agreement, reflecting the consensus of all parties on exploring relevant international economic and trade rules and supporting the development of e-commerce. 

While encouraging e-commerce innovation, RCEP also fully respects the rights of all parties to achieve essential legitimate public policy objectives and protect basic security interests. There are escape clauses to ensure rights and interests of member countries in this regard. 

In addition to the chapter on e-commerce, opportunities for the development of digital trade can be found in RCEP’s chapters on trade in services, investment, and intellectual property. 

Historical experience shows that trade in services grows faster than trade in goods. Driven by the advancement of technology, new market segments are emerging, which are changing people’s lives profoundly. Among RCEP members, both service providers and recipients will benefit from the development of trade in services. 

Only a free trade deal that is suitable for signatory countries’ development level and demands could spur market entities to fully unleash their potential. Since negotiations for RCEP were concluded, member countries have been ready for further improvements of the free trade deal. They pledged to replace the current positive list for services that can be exported with a negative list within six years after RCEP went into effect. Other than this, various mechanisms have been put in place to ensure the consensus of opening up is translated into concrete actions. 

Given its wide coverage, RCEP will play a significant role in spurring business vitalities particularly in East Asia and Southeast Asia regions. 

In the following years, RCEP will generate more development dividends for member countries. It should be noted that RCEP is not exclusive. All countries or separate customs territories that agree with the basic principles of the agreement and are willing to undertake the obligations of opening up and enjoying the right to development are welcome to apply for accession starting on July 1, 2023.

ZHOU MI is deputy director of the Institute of American and Oceanian Studies, Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce.