On January 1, the Regional Comprehensive Economic Partnership (RCEP) began to operate, and its establishment can boost the performance of the Chinese economy, especially at a time when the Chinese government has stressed the importance of dual circulations – internal and external.
After 32 rounds of negotiations and discussions in eight years, the RCEP composed of 15 member states was signed on November 15, 2020. On January 1, 2022, the RCEP became effective for 10 signatory states, including Brunei, Cambodia, Laos , Singapore, Thailand, Vietnam, China, Japan, New Zealand and Australia. South Korea will soon join on February 1. Other states like Malaysia, Indonesia, Philippines and Myanmar will complete their national approval first before full participation in the trade organization.
RCEP is described as the largest trading bloc occupying 30% of the world’s GDP, benefiting from exports and imports that amount to $42 billion. All the countries involved in the RCEP have a total population of 2.27 billion. Ninety percent or more of trade goods involving all member states will enjoy zero tariffs.
Chinese government customs statistics showed that in the first eleven months of 2021, China’s imports and exports involving all 14 other RCEP member states accounted for 31 percent of the mainland’s foreign trade.
ASEAN remained very important for China’s trade relations; the two parties increased their total trade volume eighty-five times. From China’s perspective, ASEAN plays a crucial role in its Belt and Road Initiative, especially since the China-Laos Railway was completed in December 2021. Even the ASEAN secretariat ASEAN has admitted that RCEP will boost regional trade and investment, propelling economic development, recovery and growth amid the spread of the new variant of Covid-19.
RCEP is particularly important for small and medium-sized enterprises in the region, stimulating e-commerce and promoting their participation in international trade. RCEP can incentivize member states to raise the standards of their industrial production. For example, the electronics industry in Southeast Asia will be more high-tech than labor-intensive mode, while service trade and innovative technology sectors will need to further upgrade in within the framework of the regional economic integration process.
Japan, South Korea and China, the three East Asian states, are participating in a regional trade organization in the Asia-Pacific region for the first time. The liberalizing push in the development of free trade benefits the three East Asian states collectively and individually. Since China and South Korea are Japan’s largest and third largest trading partners respectively, the participation of the three East Asian states in RCEP can and will stimulate mutual economic recovery under the new diffusion of Omicron. Japanese media have estimated that RCEP can and will help Japan increase its exports by 5.5% in the short term. The Japanese auto industry, which has been deeply affected by the emergence of Covid-19, can and will benefit from RCEP as its supply chain and demand can be consolidated and stimulated respectively.
South Korea’s exports to RCEP member states account for half of its exports. South Korea’s automotive industry, vehicle parts and its steel industry can and will benefit from zero tariffs, especially in the areas of seat belts and safety bags produced by the Korean automotive industry. As Indonesia, Thailand and the Philippines will apply zero tariffs on these security devices, South Korea stands to benefit quickly from RCEP economically.
Currently, North Korea remains a relatively closed economy in terms of regional economic integration; nevertheless, if North Korea wants to liberalize its economy and international trade, its participation in the RCEP will be likely. After all, RCEP encompasses other Asian socialist states such as China, Vietnam, Laos and Myanmar. If socialist states can join RCEP in the era of economic interdependence and mutual benefit, any further economic modernization in North Korea might push Pyongyang to consider its possible participation in RCEP. Economic pragmatism could eventually prevail over the ideology of economic self-sufficiency and prudence.
India’s reluctance to join RCEP in 2019 was due to its strategic calculations and concerns about possible shocks to India’s agricultural sector. There were also concerns in the Indian political arena that by joining RCEP, Indian relations with China would be economically and politically improved. However, India will be an observer participating in RCEP meetings. Hopefully India’s business decision makers and political leaders will reconsider the benefits of joining RCEP in the long run. It can be said that in the era of economic interdependence and liberalization in the Asia-Pacific region, states that do not join RCEP are missing the golden opportunity to increase their exports through the agreement. zero rights.
Although Hong Kong is not an RCEP member state, its re-exports are expected to benefit from China’s participation in the regional trading bloc. Hong Kong exports are expected to be boosted by 8% – an expected boost benefiting directly or indirectly from China’s participation in RCEP.
China still sees Hong Kong as a main platform for its internationalization of the renminbi (RCEP can accelerate the process of internationalization of the renminbi), apart from the city’s role as an international financial and monetary center. As such, the homeland is likely to help Hong Kong join RCEP in the years to come. In fact, the Hong Kong government is trying to liaise with RCEP member states, attempting to start negotiations as part of the process to join the huge trading bloc. The sheer size of trade volumes involving RCEP member states, the expansive coverage of RCEP content (ranging from traditional trade goods to intellectual property rights and e-commerce), and the degree of economic openness (encompassing customs duties and public procurement) would benefit Hong Kong enormously if the city’s participation in RCEP would be a realistic possibility. Hong Kong has already signed free trade agreements with 13 RCEP-affiliated member states; in 2020, Hong Kong’s trade volume with them was $770 billion, occupying 73% of the city’s total trade amount.
Immediately after the establishment of RCEP, mainland cities have already produced the first batch of certificates on the manufacturing origins of various products. On Jan. 1, China’s trade promotion authorities issued 158 certificates, involving 69 companies in 12 provinces and cities. Guangzhou trade authorities have helped local enterprises to prepare all administrative documents, including informational registration, product documentation and certification of product manufacturing origins. Other commercial authorities in mainland provinces and cities are busy processing manufacturing certificates of origin, including Zhejiang, Xuzhou and Shenzhen.
All these administrative steps are necessary and can encourage all provinces and cities to internationalize their products in accordance with the rules and regulations of RCEP.
Regional economic integration and interdependence can obviously trigger the internal administrative and economic modernization of member states, creating a win-win situation for each of them.
A major East Asian tiger, namely Taiwan, cannot join RCEP due to the special political circumstances between Taipei and Beijing. Some mainland observers have pointed out that Taiwan authorities need to improve cross-strait relations, as the creation and operation of RCEP has already “challenged” Taiwan’s economy. At present, around 70% of Taiwan’s exports to RCEP-affiliated member states are tax-exempt, but 30% of its products still face higher customs taxes. However, Taiwan’s economy remains vibrant, resilient and adaptive in an era of intense regional competition and regional economic integration. The first step in Taiwan’s economic recovery amid the lingering Covid-19 may be to cement its existing trade partnerships with Southeast Asian states, while ideally gradually improving its relationship with China. continental. In fact, the Economic Cooperation Framework Agreement signed between Mainland China and Taiwan in September 2010 has benefited Taiwan economically by reducing customs duties which amount to US$6.3 billion. If so, Taiwan would surely benefit economically from joining RCEP. Yet political obstacles persist.
In conclusion, the establishment of RCEP marks the beginning of a new era of economic integration and economic interdependence in the Asia-Pacific region. Ideally, all other Asian states can and will join the huge economic bloc, regardless of their ideological and political differences, including North Korea and India. Hong Kong would surely gain from joining RCEP, as would Taiwan. However, while Hong Kong’s participation in RCEP would easily win the blessing of its motherland, mainland China, the Taiwanese case would remain far more difficult politically due to ongoing tensions between the two straits.