How Non-Member Nations Can Access the January 1 RCEP Free Trade Agreement Through the Back Door

December 28, 2021 Posted by China Briefing Reading Time: 5 minutes

20 countries, including Great Britain, Canada, India, the United States, and Turkey, can all tap into RCEP advantages by leveraging free trade agreements they already have in place with RCEP member nations.

By Chris Devonshire-Ellis

The Regional Comprehensive Economic Partnership (RCEP) free trade agreement comes into effect from January 1, 2021, when all member nations can embark on duty free trade with each other – provided they meet certain quality standards and rules of origin requirements.

The RCEP bloc is the world’s largest, both in terms of population and GDP, roughly accounting for 30 percent of the global total for each. The RCEP member countries are Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, Philippines, Singapore, South Korea, Thailand, and Vietnam. This equates to a market value of close to US$25 trillion and a total consumer base of about 2.5 billion, of whom an estimated one billion are middle-class consumers.

The primary aim of the RCEP is to establish a comprehensive economic partnership – building on existing bilateral ASEAN agreements within the region with its FTA partners. It will be guided by a common set of rules and standards, including lowered trade barriers, streamlined processes, and improved market access. For investors, RCEP delivers substantial new trade and investment opportunities within the participating countries and forms Asia’s largest trade bloc to date.

The RCEP agreement includes 20 chapters covering many of the articles typically found in a free trade agreement. Notably, it makes significant strides by harmonizing the rules of origin and strengthening IP measures. We can examine some of the primary issues below.

Common rules of origin

One of the most significant aspects under RCEP is that the rules of origin will be unified for the entire bloc. This will mean that investors will only require one certificate of origin for trading in the region and can bypass the tedious processes of checking and adjusting to the specific rule of origin criteria in each country. When implemented, investors can expect lower costs, added flexibility, and regional supply chains streamlined.

Trade in goods – reduced tariffs

Under RCEP, tariffs will be eliminated on around 92 percent of goods implemented progressively over the next 20 years, in accordance with each party’s Schedule of Tariff Commitments. This will allow participating countries to gain preferential market access with each other. However, some agricultural and sensitive goods will be excluded from these tariff reductions.

Trade in goods – simplified customs procedures

Simplified customs procedures and enhanced trade facilitation provisions will allow efficient administration of procedures and expeditious clearance of goods, including the release of express consignments and perishable goods within six hours of arrival.

Trade in services

Under RCEP, at least 65 percent of the services sectors will be fully open to foreign investors, with commitments to raise the ceiling for foreign shareholding limits in various industries, such as professional services, telecommunications, financial services, computer services, and distribution and logistics services.

Not unlike the negative list system in China, RCEP will also take on a ‘negative-list’ approach where the market will be fully open to foreign service suppliers unless it appears on the list. This ensures transparency of regulations and measures which will allow greater certainty for businesses.

Investment

RCEP eases the process required of investors entering, expanding, or operating in RCEP countries. It also prevents the adoption of further restrictive measures and includes a built-in investor-state dispute settlement mechanism that can be revoked by the member states.

Intellectual protection

RCEP raises the standards of IP protection and enforcement in all participating countries. Aside from securing the protection rights for copyright, and trademark in the normal sense, it also goes further to protect non-traditional trademarks (sound marks, wider range of industrial designs) and forms of digital copyright, which goes beyond what was included in the CPTPP.

E-commerce

The agreement covers areas, such as online consumer protection, online personal information protection, transparency, paperless trading, and acceptance of electronic signatures. It also includes commitments on cross-border data flows. This provides a more conducive digital trade environment for businesses and provides for greater access to RCEP markets.

Government procurement

Participating RCEP countries have committed to publishing laws, regulations, and procedures regarding government procurement, as well as tender opportunities if available. This allows greater transparency for businesses to pursue government procurement market opportunities in the region. RCEP has also committed to a review aimed at improving this in the future.

Access to RCEP can be obtained through smart investments carried out by businesses of countries not part of this bloc by establishing a manufacturing or production facility in one of the RCEP nations. Providing the non-member country has a Free Trade Agreement of its own with an RCEP member, this can be leveraged, if in compliance with rules of origin criteria, to access the entire bloc.

Sourcing from within RCEP nations, for example from Cambodia or Vietnam, where products are less expensive, or where finishing techniques can be carried out, can be matched with permitted non-RCEP manufactured components such as from the UK or United States, with the combined mix being worked into a finished product assembled for example in Australia, China, or South Korea. Attention to detail needs to be paid on structuring such supply and production chains, however access to a market the size of RCEP – and elsewhere – is a significant prize. Clever sourcing and application of RCEP rules may provide both larger profit margins and consumer market access to invested businesses willing to examine the issue.

We have written about RCEP in some detail over the past year; I recommend that sourcing managers, buyers, and supply chain managers read up on the subject to examine where corporate advantages may be procured.

RCEP Trading Opportunities and Beneficial Provisions

An overview of RCEP and its impact on Asian trade and tariffs.

How British Businesses May Access the RCEP

A description of how UK businesses can access RCEP through existing trade agreements with Australia, Singapore, and Vietnam.

Developing Your China Trade with Japan and South Korea Under RCEP

Expanding existing China production facilities to target the wealthy Japanese and South Korean consumer markets.

How Russian and EAEU Businesses May Access RCEP

The Eurasian Economic Union (Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia) has FTA with Vietnam and is close to finalizing with Singapore and South Korea. These can be used to access RCEP.

How U.S. Businesses May Access RCEP

The United States has FTAs with Australia, Singapore, and South Korea and can leverage these.

Uzbekistan Prizes Open the RCEP Door by Moving Along a South Korea FTA

The Uzbekistan-South Korea FTA is not a done deal yet but is being expedited and when completed will give Central Asia’s Uzbekistan access to East Asia.

RCEP and Vietnam: Key Opportunities

Vietnam is an RCEP member, and along with Cambodia and Laos, is well-positioned as an attractive lower cost production center to service certain aspects of finishing for higher-end brands. We examine how relocating part of the production process from more expensive RCEP nations could save on costs.

Other countries that may access RCEP via Free Trade Agreements with RCEP members are as follows:

Canada (FTA with South Korea)

Chile (FTA with Australia)

Colombia (FTA with South Korea)

Costa Rica (FTA with China)

Georgia (FTA with China)

Iceland (FTA with South Korea)

India (FTA with Japan)

Liechtenstein (FTA with South Korea)

Maldives (FTA with China)

Mauritius (FTA with China)

Mexico (FTA with Japan)

Mongolia (FTA with Japan)

Norway (FTA with South Korea)

Pakistan (FTA with China)

Peru (FTA with Australia)

Switzerland (FTA with Japan)

Turkey (FTA with Malaysia)

Businesses looking at accessing RCEP via the back door need professional advice in working out the applicable Free Trade Agreements, Rules of Origin, and other criteria to enable them to do so. Our firm has an extensive Asia-wide presence and 30-year experience in this market. Please contact us at asia@dezshira.com or visit www.dezshira.com for assistance.

This article originally appeared on Silk Road Briefing on December 22, 2021 and has been updated to include additional countries with FTA agreements with RCEP members.