Nearly a decade and 31 rounds of negotiations in the making, RCEP is touted as the world’s largest trade deal. Involving ASEAN, China, Japan, South Korea, Australia and New Zealand it accounts for 30% of the world’s population and 29% of global GDP.
Whilst the pact will smooth trade through 90% tariff removal and easier customs processing, clearly some provisions have been moderated to accommodate the concerns of such a diverse group. For example, it does not have unified standards on labour and the environment or commit countries to open services. But that doesn’t take away from what an incredible achievement in aligning a diverse group of countries.
It also the belies the wider benefits that this pact presents the region.
RCEP has the ability to be a counter-ballast to the emerging trade protectionism that has accelerated this year off suggestions that companies and countries will re-shore or near-shore their supply chains in the face of the pandemic and other trade tensions.
Not only does RCEP maintain trade openness, it can also deepen ASEAN’s connectivity with China, Korea and Japan who are the global heavyweights for the electronics, automobiles, textiles and garments industries, which the region is reliant on. Having each of these markets within the trade pact means ASEAN can retain its supply chain relevance across these sectors.
RCEP can also reignite ASEAN’s foreign investment which has been a key driver of the region’s manufacturing, infrastructure and export growth over the past 20 years, but which has tapered off in the past few and has almost ground to a halt this year with COVID-induced economic lockdowns. The combination of economic reopening and RCEP could be the panacea to renewed investment from the likes of China and Japan.
RCEP can also help drive important domestic regulatory reforms in areas like labour laws, investment liberalisation, cybersecurity, cross-border data rules and intellectual property protection. Such reforms create less visible but material commercial incentives for trade and investment from member partners, which will only accelerate as supply chain dynamics change.
Singapore’s situation is unique because of its free port status. Hence, every trade agreement that the city state signs means more market access for local firms and more commercial activity for Singapore’s ports.
Obviously, the clear sector winners for Singapore will be linked around the shipping and logistics ecosystem. However, the pact will also be a boon for the electronics sector. This is because of the protection the RCEP extends to intellectual property which safeguards Singapore as a high-end manufacturer.
Coupled with granting Singapore greater access to Japanese, Korean and Chinese markets and its emphasis on electronics and precision engineering, it could lead to larger trade volumes and a bump up in supply chain activity.
Whilst signing of RCEP is a positive move, there will be some time before it actually gets ratified and comes into force. But that shouldn’t stop businesses preparing now. As businesses assess the long-term implications of RCEP on their path to recovery, there are some immediate steps that can be taken to get ahead of the curve.
By reviewing their current commercial relationships, companies can identify gaps and understand where the greatest potential lies to forge new ties and tap into some of the fastest growing consumer markets.
They can also look at how their current supply chains – regional or global – map against RCEP. Those who work now to understand how the deal could impact their business model will reap the greatest benefits in the future. This is not only important to companies based in the member markets, but to any firms doing business in the region.
Finally, an in-depth understanding of RCEP and its impact on tariffs for each group of goods and services will be critical for firms to reassess their pricing strategies and maintain their competitive advantage.
In more precarious times, such as we have now, the choice is made clearer: either we recognise, accept and embrace change and put ourselves in a unified position to seize opportunities, or we face being left behind.
RCEP is by no means perfect, but it’s a step in the right direction towards Asia becoming a coherent trading zone, at a time when global economic prospects are quite dim. It may seem counterintuitive, but the current challenging economic outlook could actually be the perfect time for Southeast Asian countries to make strong and far-reaching economic and trade policy action. And that is what RCEP constitutes.
A contribution piece by Tony Cripps, CEO HSBC Singapore, was first published in The Business Times on 17th November 2020.