The Regional Comprehensive Economic Partnership (RCEP) came into force in early 2022. Investment Monitor looks at the countries and sectors that will benefit the most.
Following a decade of negotiation, 15 Asia-Pacific countries signed one of the biggest trade deals in history as 2020 drew to a close. Known as the RCEP, or the Regional Comprehensive Economic Partnership, it set out to reduce business barriers in an area covering one-third of the world’s population and economic output.
On the first day of 2022, said deal went live, making it officially the world’s largest trading bloc by economic size – representing 30.5% of the world’s GDP, according to a recent UN Conference on Trade and Development (UNCTAD) study. The only other blocs coming close to that are the US-Mexico-Canada agreement (28%) and the EU (17.9%).
The RCEP marks a major step forward for economic integration in the Asia-Pacific region, while flying in the face of the global rise of unilateralism and protectionism over the past few years, in ‘the West’ especially.
The agreement eliminates 90% of tariffs among its 15 members and is expected to boost intra-regional exports by $42bn, according to UNCTAD, while other economists have said the deal could add almost $200bn annually to the global economy by 2030. The bloc’s economic size and trade dynamism make it “a centre of gravity for global trade”, summarised UNCTAD’s report.
The economic winners and losers of the RCEP
The deal took the existing agreements signed by the members of the Association of South East Asian Nations (Asean) – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – and combined them into one multilateral pact with Australia, China, Japan, New Zealand and South Korea. The RCEP boasts specific provisions to support its least-developed countries, Laos, Cambodia and Myanmar, which are expected to benefit a lot from the deal. Proportionately speaking, Indonesia is likely to be one of the countries that benefits the most, given the diversity of its economy, according to Dr Yu Jie, a senior research fellow on China at the think tank Chatham House. Malaysia is another. In absolute terms, however, the bloc’s most advanced economies will gain the most, especially Japan, China and South Korea (in that order) when it comes to trade gains, according to modelling from UNCTAD. These dynamics are likely to be mimicked by foreign direct investment (FDI) trends within the bloc.
Based on data over the past two decades, intra-RCEP greenfield FDI already surpasses the EU as the largest investment area in the world. This is only set to grow since the RCEP allows investors in certain industries to better compete with the local investors, especially manufacturers.
Although the RCEP makes other specific provisions for FDI, especially with regards to intra-RCEP investment conferences and promotion, the deal remains highly focused on trade facilitation, especially physical trade, manufacturing and other more blue collar sectors – industries that unite the bloc’s economically diverse nations – says Yu.
In this regard, one of the deal’s greatest strengths is that it unifies rules of origin for all goods traded between its members. In other words, when a company manufactures a product for the RCEP it works for all 15 countries, meaning much less paperwork. This is one of the best examples of how the pact brings Asia a step closer to becoming a coherent trading zone like the EU or North America. It is also something that makes the region even more attractive for FDI, especially across large parts of the primary and secondary economies.