Unleashing RCEP

Although the pact has greatly bolstered regional economic integration and strengthened value chain cooperation, there is still room for further improvement

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The global economic recovery lacks momentum and trade protectionism is prevalent globally. The Regional Comprehensive Economic Partnership is currently the largest free trade agreement in the world, having come into effect in all its 15 member states. The implementation of this agreement can further deepen the economic bonds between Asian economies, enhance the resilience of industry and supply chains within the RCEP region, effectively boost the confidence about trade and investment in Asia, stimulate the vitality of regional economic cooperation, and inject strong momentum into the region's economic growth in the post-pandemic era.

The significance of the RCEP lies in the integration of 27 trade arrangements and 44 investment treaties signed and implemented among the 15 member countries, in the context of wide diversity in the development stage, scale and volume of these countries' economies. From an institutional perspective, the RCEP mitigates the "spaghetti bowl effect" by simplifying and harmonizing the rules of origin and different preferential treatment under preferential trade agreements, promoting trade and investment activities for intermediate products within the region, and helping further develop the regional value chain and industry chains.

In the past year, intra-regional trade relations have further deepened, and the vast majority of the RCEP members have shown a high-growth trend in intra-regional trade. Statistics from China's customs authorities show the country's trade with other RCEP signatory countries grew by 7.5 percent year-on-year to hit 12.95 trillion yuan ($1.88 trillion) in 2022.

The Republic of Korea, Vietnam, New Zealand, Japan, and Thailand saw their trade with other RCEP members grow by 10.4 percent, 10.1 percent, 8.4 percent, 7.1 percent and 6.0 percent, respectively. This is faster than the growth rate of their trade with other parts of the world, indicating that the regional economic integration of the RCEP has given an effective boost to trade growth within the region.

The RCEP has effectively boosted trade and investment between China and other member economies, becoming an important platform for China to further open up its economy in the new era. In 2022, the total volume of imports and exports between China and other RCEP members reached 12.95 trillion yuan ($1.89 trillion), accounting for 30.8 percent of its total foreign trade. In 2022, China witnessed double-digit year-on-year growth of trade with eight RCEP member countries, while its trade with Indonesia, Singapore, Myanmar, Cambodia and Laos grew by over 20 percent on a yearly basis. At the same time, China's non-financial direct investment in other RCEP members in 2022 increased by 18.9 percent year-on-year to reach $17.96 billion, and it attracted direct investment of $23.53 billion, up 23.1 percent, from other RCEP members.

After the RCEP came into effect, Chinese enterprises actively utilized platforms such as the Silk Road International Exposition, the China International Import Expo and the China-ASEAN Expo to promote economic and trade cooperation with enterprises in the RCEP members. The regional rules of origin in the RCEP region allow enterprises to optimize their supply chain, make flexible industrial layout, reduce the production cost of end products, and promote deep integration of regional value chains. In 2022, a total of 673,000 certificates of origin and statements of origin were applied by and issued to Chinese exporters under the RCEP agreement, benefiting 235.3 billion yuan-worth of exports through FTA preferential tariff and exempting 1.58 billion yuan in tariff concessions from importing countries. The value of imported goods of Chinese enterprises enjoying preferential tariff rates reached 65.3 billion yuan, and the tariff exemption was 1.55 billion yuan.

Although the RCEP has greatly bolstered regional economic integration and strengthened regional value chain cooperation, there is still room for further upgrading and improvement.

First of all, there is still room to improve trade and investment rules. Given the diversity of the region, the RCEP agreement has not set up separate chapters on the environment, regulatory coherence, transparency, and other aspects as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership has done, and the chapter on government procurement has not yet explicitly addressed the commitments of market access. The e-commerce chapter does not mention rules related to e-commerce such as source code, cross-border data flow in financial services, and online dispute resolution. With the implementation of the RCEP and the development of the regional value chain, it is necessary for the RCEP members to timely consider upgrading the RCEP on the above behind-the-border issues to better promote the development of the global value chain.

Second, the agreement stipulates a relatively long transition period for some important rules. For example, in terms of service trade, member countries such as New Zealand, China, Thailand, Vietnam, the Philippines, Cambodia, Laos and Myanmar are committed to opening up their market through a positive list approach. However, Cambodia, Laos and Myanmar need to submit their negative list commitments within 12 years and shift their positive list commitments to negative lists within 15 years after the agreement coming into force.

Third, it is necessary to further enhance enterprises' utilization of free trade agreement. Currently, the utilization rate of preferential tariffs in FTAs implemented in the Asian region is generally lower compared to other FTAs in developed countries, indicating that FTAs of the Asian region have not given full play to their due effectiveness. According to a 2018 report by the Japan External Trade Organization, Philippine enterprises' utilization rate on imports under the FTA between Japan and the Philippines was only 16.6 percent, while the utilization rate of imports under the ROK-ASEAN Free Trade Agreement was only 31.2 percent. Therefore, the region still needs to continuously optimize the procedures of handling certificate of origin and improve efficiency, help enterprises reduce the cost on it, provide enterprises with information on relevant free trade rules in a timely manner, and constantly improve the utilization of FTA.

In the future, the RCEP members should further strengthen their capacity building and achieve connectivity of data of origin within and among the 15 RCEP member countries as soon as possible. Relevant upgrading negotiations shall be launched in time to explore new rules for international trade and economic cooperation. It is also necessary for the RCEP to expand its members while maintaining ASEAN's "centrality" under the framework of the regional FTA.

As a key RCEP member, China should steadily expand institutional openness in terms of rules, regulations, management, and standards, implement the agreement with high standards, and fully unleash the benefits from the RCEP. A sound and comprehensive service system should be launched to better utilize the free trade agreement. In the meantime, by relying on the pilot free trade zones, China should take the lead in exploring more high-standard economic and trade rules, and guide its central and western regions to combine the RCEP with their economic development strategies and construction plans. It should also speed up the pace of adjusting its regional industry chain layout, promote the integration of manufacturing industry chain and innovation chain, implement the 701 binding obligations with high quality, and actively explore the implementation of 170 non-binding commitments, further improve the trade and investment environment and stimulate enterprises' vitality.

Shen Minghui is a research fellow of the National Institute of International Strategy at the Chinese Academy of Social Sciences and a research fellow of the National Institute of Global Strategy at the CASS. Li Tianguo is an associate research fellow of the NIIS and NIGS at the CASS. The authors contributed this article to China Watch, a think tank powered by China Daily.

Contact the editor at editor@chinawatch.cn.