On 15 November 2020, 15 countries signed the Regional Comprehensive Economic Partnership (RCEP), a regional trade agreement between Australia, China, Japan, New Zealand and South Korea, as well as the 10 Association of Southeast Asian Nations (ASEAN) member countries: Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Viet Nam. RCEP negotiations were launched in 2012 by the above 15 countries as well as India; however, India announced its withdrawal from RCEP in 2019 after the Indian Prime Minister said that some of the country’s concerns had not been considered in the agreement.
If implemented, RCEP would form the biggest free trade zone in terms of Gross Domestic Product (GDP), larger than the Canada–U.S.–Mexico Agreement and European Union (EU) Single Market zones.
The legal text of the RCEP agreement has 20 chapters, which cover such areas as trade in goods and services, investment, government procurement, intellectual property and electronic commerce.
The agreement is expected to eliminate approximately 90% of the tariffs on goods traded between its member countries after more than 20 years of liberalization. By comparison, the proportion of tariffs eliminated by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), of which Canada is a member, will be approximately 98% once it is fully implemented.
According to an analysis by the Asian Trade Centre, the tariff concessions in RCEP exclude several products considered sensitive, particularly in the agricultural sectors.
Since it includes countries at very different levels of economic development, the agreement provides its members with some flexibility in the implementation of certain provisions. This is the case, for example, for the timelines for date of entry into force for certain obligations, such as trade facilitation, which vary significantly depending on the signatory country.
Countries have also taken different approaches to their schedules of tariff concessions and their lists of services covered by the agreement: some, for example, propose a single tariff schedule applying to all members, while others grant variable, partner-specific tariff concessions. The resulting agreement text is therefore very large and complex.
There are free trade agreements (FTAs) already in place between several of RCEP signatories. For example, China has bilateral FTAs with several other RCEP countries. Seven countries that are signatories to the agreement are also signatories to the CPTPP, while FTAs exist between ASEAN and each of the other RCEP members under the “ASEAN+1” agreements. While the scope of the agreement may seem limited in some respects, observers point out that RCEP is particularly noteworthy in that it would help harmonize the rules governing the trade relationships of several Asia–Pacific countries.
Figure 1 – Parties to the Regional Comprehensive Economic Partnership Negotiations
Source: Map prepared by the Library of Parliament, Ottawa, 2021, using data from Natural Earth, 1:50m Cultural Vectors, version 4.1.0. The following software was used: Esri, ArcGIS PRO version 2.7.2.
Perhaps RCEP’s most important feature is its rules of origin, which are the criteria for establishing the origin of a product in order to determine whether it qualifies for preferential treatment under the agreement. The agreement establishes common rules of origin: a single certificate of origin could then be used throughout the RCEP zone, allowing businesses to reduce certain trade costs. As well, the agreement establishes flexible rules of origin: in most cases, these would allow a good to be considered as originating in the region if only 40% of the content originates from the region formed by the RCEP countries. This flexibility could allow companies to diversify and optimize their supply chains.
The agreement is considered less ambitious than other regional trade agreements, including the CPTPP. For example, it does not include a chapter on the environment, labour or state-owned enterprises. Also, its provisions on investment, intellectual property and electronic commerce are considered less extensive or in-depth than those in the CPTPP.
RCEP will enter into force 60 days after it is ratified by at least six of the 10 ASEAN member countries and at least three of the five other signatories to the agreement. To date, observers estimate that RCEP could enter into force by late 2021 or early 2022. Any additional countries or customs territories could be considered for membership as early as 18 months after entry into force, while India, identified by RCEP signatory countries as a key regional partner, could be considered for membership immediately after implementation of the agreement.
Economic and Geopolitical Significance
RCEP represents a significant development in terms of the global economy: its signatories represent about 30% of the world’s population and account for 29% of global GDP according to World Bank data. It would also be the first FTA to bring together Asia’s three largest economies: China, Japan and South Korea—the world’s 2nd, 3rd and 12th largest economies respectively.
The agreement brings together countries in a region that is experiencing rapid economic growth and where a significant segment of global value chains are already concentrated. Observers believe RCEP would strengthen the Asia–Pacific region’s position as a global trading hub and make it even more attractive to investors.
A simulation by economists shows that RCEP would significantly boost trade in goods and services among signatory countries and could add US$186–209 billion a year to global incomes by 2030. According to the same simulation, Asia’s three largest economies would benefit the most from the economic impact of RCEP.
RCEP could also have geopolitical implications. Some observers note, for example, that RCEP would provide China with a platform to expand its influence in the Asia–Pacific. It is worth noting that RCEP was negotiated at a time when the U.S. withdrew from the Trans-Pacific Partnership, an initiative that President Obama said was meant to ensure that the U.S. “writes” the trade rules in the Asia-Pacific, “as opposed to having China write those rules for us.”
However, some analysts believe that China’s role in RCEP negotiations should not be overstated or the role of ASEAN overlooked.
Potential Impact on Canada
Canada will need to consider RCEP as it seeks to strengthen its economic relations in the Asia–Pacific region.
Canada already has a bilateral agreement with South Korea, as well as an agreement with Australia, Brunei Darussalam, Japan, Malaysia, New Zealand, Singapore and Viet Nam under the CPTPP. However, Canada does not have a bilateral agreement with China, the third most important destination for Canadian exports after the U.S. and the EU, or with ASEAN, which many see as a key region for diversifying Canada’s trade relationships. In this regard, Canada announced in 2019 the conclusion of exploratory discussions for a possible Canada–ASEAN FTA, but announced in 2020 that it would abandon FTA negotiations with China. Figure 2 shows the major trade agreements in the Asia–Pacific region, as well as Canada’s trade agreements with their parties.
Figure 2 – Key Asia–Pacific Trade Agreements and Canada’s Agreements With Their Parties
Note: * indicates the countries that have not ratified the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) as of 25 March 2021.
Source: Figure prepared by the authors using information from: World Trade Organization, Regional Trade Agreements Database.
Some Canadian products exported to RCEP countries with which Canada does not have an FTA may be at a disadvantage compared to those from other RCEP countries. For example, the Canada West Foundation released a preliminary analysis suggesting that Canadian exports may face increased competition in some RCEP markets from Australia and New Zealand, as they may benefit from improved market access conditions as a result of their membership in the agreement.
Association of South-East Asian Nations. “Summary of the Regional Comprehensive Economic Partnership Agreement,” 15 November 2020.
Sofia Baliño, “With RCEP Agreement Signed, Eyes Turn to Interactions Among Trade Deals in the Asia-Pacific Region,” International Institute for Sustainable Development, 25 November 2020.
United Nations Conference on Trade and Development, Key Statistics and Trends in Trade Policy 2020: The Regional Comprehensive Economic Partnership, 20 January 2021.
Deborah K. Elms, “Getting RCEP across the Line,” World Trade Review, 19 February 2021.
Michael Joseph Ferrantino, Maryla Maliszewska and Svitlana Taran, “Actual and Potential Trade Agreements in the Asia-Pacific: Estimated Effects,” Working Paper No. 9496, World Bank, December 2020.
Patrick Leblond, “Digital Trade: Is RCEP the WTO’s Future?,” Centre for International Governance Innovation, 23 November 2020.
Suzie Park, “The Rise of Asia-Pacific Regionalism in Trade Agreements Following the U.S. Withdrawal from the Trans-Pacific Partnership,” Journal of International Law And Politics, Vol. 53, 6 December 2020.
Emmanuel Véron and Emmanuel Lincot, “La Chine au cœur de la plus grande zone de libre-échange de la planète,” The Conversation, 18 November 2020 [in French].
Authors: Anne-Marie Therrien-Tremblay and Pascal Tremblay, Library of Parliament
Categories: Business, industry and trade