RCEP: Key Regional Trends for Multinational Companies

Editor and Lead Author: Toby Tanner (China) 

Regional contributors: Andrei Goldis & Kanako Noto (Japan), Harrison Linder (Singapore), Charinee Yuenamporn (Thailand), Thai Le (Vietnam), Anusha Sharma (India), Alva Putra (Indonesia), and Minju Kim (South Korea).

On November 15, 2020, after eight years of negotiations, the 10 ASEAN nations alongside Australia, China, Japan, New Zealand and South Korea signed the Regional Comprehensive Economic Partnership (RCEP). The deal is considered an enormous boost for advocates of multilateralism and free trade, considering the particularly challenging nature of negotiations, which included differing economic priorities, the external environment caused by tensions between the United States (US) and China, and weakened global demand from the COVID-19 pandemic.

RCEP signatories account for approximately 30% of the world’s GDP and the global population, as well as 28% of global trade. It aims to eradicate 90-93% of tariffs within 20 years and add $186bn annually to the global economy by 2030. The deal specifically has potential to increase trilateral trade between China, Japan and South Korea, with the Peterson Institute for International Economics (PIIE) estimating that these countries will gain $85 billion, $48 billion and $23 billion, respectively. Advocates also cite the advantageous changes to the region’s previously fragmented Rules of Origin (RoO) provisions. The new framework is expected to strengthen supply chains by enabling companies to produce and export products to any RCEP signatory with a single certificate of origin.

Despite the optimism, critics claim that the deal lacks ambition compared to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which reduces tariffs on 99% of tariff lines compared to RCEP’s 93%. They also point to the lack of provisions on the environment, labor, data localization, cross-border data flows and customs duties on electronic goods. A final shortcoming is the notable absence of India as a signatory, which withdrew from the agreement for reasons including a lack of adequate protection against import surges and lack of credible assurances on market access, among others.

Provisions aside, Western observers point to RCEP’s geopolitical implications. Specifically, despite the misconception that the deal was “China-led” when it was actually put forward by ASEAN, there are concerns about how the deal will provide China with enhanced political and economic clout to shape regional trade rules. This has, in turn, raised questions as to how Joe Biden’s administration will seek to re-engage with the Asia-Pacific region after four years of apathy for multilateralism under President Trump, with signs suggesting that Biden will prioritize the domestic issues of COVID-19, economic recovery, racism and climate action.

Although the effectiveness of RCEP has split opinion, it will inevitably cause a significant change in the regional trade environment for multinational companies. To help companies filter the noise, APCO’s analysts across China, Japan, Singapore, Thailand, India, Vietnam, Indonesia and South Korea have provided a summary of the reactions from their respective government, media and industry stakeholders (see full report below) identifying the following major trends:

  • The key message from all governments, with the exception of India, is that RCEP is a huge step towards a free and open international economic order as the world recovers from the COVID-19 pandemic;
  • There is a divide between Southeast Asian countries and Japan/Korea on what the deal means for relations with China. Stakeholders in Singapore, Indonesia and Vietnam view RCEP as an opportunity to develop further positive trade ties with China, whereas the same groups in Japan and Korea, while expressing optimism, also show concern about how to balance growing regional integration with their relations with the United States;
  • Voices in the Korean business community have questioned RCEP’s effectiveness for the country due to their existing free-trade agreements (FTA) with 14 of the 15 participatory countries;
  • In Thailand, there is slight concern that trade with the EU and the US might recede given the lack of support mechanisms for companies to market their products to these blocs compared with RCEP signatories;
  • While India’s government and media stakeholders reinforced the reasons for the country’s withdrawal, its business community has expressed some concern that the decision could cause market access issues to the wider APAC region;
  • Media and industry stakeholders in Japan and Korea see RCEP as a foundation for the conclusion of a future Korea-China-Japan FTA; and
  • The three most prevalent risks identified by the assessed countries are the potential for import surges, the need to protect domestic agricultural markets from increased competition, and the need to improve domestic market landscapes to take full advantage of the deal and avoid the risk of increasing competition among ASEAN exporters, especially for Small and Medium Enterprises (SMEs) in countries such as Thailand.

The 20-year tariff implementation period means that the impact of RCEP will not be felt for a while. This offers multinationals an opportunity to consider how the deal will alter the political and economic dynamics facing their company, especially how it could create new stakeholders across government and industry, as well as opportunities for new commercial partnerships.

Click here to read and download the full report, which includes country-specific analysis from APCO Worldwide’s consultants on the responses from China, Japan, Singapore, Thailand, Vietnam, India, Indonesia and South Korea.