Fifteen Asia-Pacific countries signed an agreement over the weekend to form the biggest trade group in history, the Regional Comprehensive Economic Partnership (RCEP), after nearly ten years of negotiations.
The RCEP comprises the ten ASEAN member states, Australia, China, Japan, New Zealand and South Korea, and covers about 30% of the world’s population and economic output. RCEP aims to promote trade in the region by eliminating 90% of tariffs and increasing market access.
With the U.S. not part of the agreement, the RCEP might further diminish the country’s economic influence in the region. In 2017, President Donald Trump withdrew the country from the negotiations of the proposed Trans-Pacific Partnership (TPP), which was later renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) with the remaining 11 members.
Although the RCEP is not as far-reaching in scope as the CPTPP, which also covers areas such as environment, labour standards and the role of state-owned enterprises, it is important in the sense that it is the first free trade deal that includes China, Japan and South Korea – the three manufacturing and technology powerhouses in the region.
In addition, it will offer favourable rules-of-origin terms for manufacturers participating in the regional supply chain. Under the RCEP, intermediate goods from any member countries will be treated equally, and thus can be sourced from any of them without facing tariffs.
According to a research paper by the Peterson Institute for International Economics, it is estimated the trade deal will raise global output in 2030 by an annual amount of US$186 billion, and its members’ GDP by 0.2% on a permanent basis.
The RCEP will enter into force 60 days after six ASEAN member states and three non-ASEAN countries have ratified the agreement.
The Hong Kong Government has indicated that it will seek Hong Kong’s accession to the RCEP. Given that the city has few domestic exports and has already signed bilateral free trade agreements with ASEAN and all other RCEP member states except Japan and South Korea, the potential direct economic benefit due to tariff reduction is unlikely to be significant.
Nevertheless, if Hong Kong is to maintain its role as an international business, logistics and trading hub, it must do more to contribute to any further economic integration in the region.
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