After 8 years of negotiation, the Regional Comprehensive Economic Partnership (RCEP), a free trade agreement was signed on 15 November 2020 at the virtual 37th ASEAN Summit hosted by Vietnam, between the 10-member ASEAN and five of its major trade partners.
Unifying the pre-existing bilateral agreements between the Asia-Pacific nations of Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam, the RCEP will take effect 60 days after it has been ratified by at least six ASEAN and three non-ASEAN signatories
While India exited from the trade pact due to the concern about lower tariffs could hurt local producers, it is anticipated the pact could help strengthen China’s influence in the region with USA’s leadership absent from Asia’s regional economic integration for the past four years.
This FTA is hailed as the world’s largest trading bloc with an aim to create a competitive investment environment in the Asia Pacific region. This pact covers 2.2 billion people and accounts for 30 percent of global economy. The endorsers of the trade pact have agreed to facilitate India’s entry to join the RCEP, in the future.
- The RCEP will eliminate as much as 90 per cent of the tariffs on imports between its signatories within 10 years of coming into effect. Automotive, food and agriculture and consumer electronic sectors that has higher rates of custom tariffs, are to benefit the most.
- Diagram of how RCEP works –
EG: Automotive : Finished product will come from Japan, Korea or Thailand but components / subassemblies will come from all over.
- Lower Customs Tariffs
- With Singapore functioning as a free port, benefits to SG companies potentially significant.
- SG already has agreements with most of the participants within RCEP through various FTAs but linking these together under RCEP will help those companies with multi-country supply chains.
- SG also benefits in that liberalizing trade generally brings about increased volumes, so SG as an entrepôt economy should see more throughput.