Viet Nam and Malaysia are the countries that are expected to benefit the most from RCEP, according to a latest World Bank (WB) report.

Implementation and expansion

As we highlighted earlier, RCEP was recently approved by Indonesia and is close to being ratified by the Philippines, two of the three biggest economies in ASEAN. Myanmar has approved the deal but New Zealand and the Philippines said that it won’t accept its ratification given the political situation in Myanmar. India refused to join the accord, and while the door remains open for it to join, HSBC thinks it is unlikely to try as India struck a bilateral deal with Australia recently and is pursuing negotiations with the UK.

Other economies will be able to join from 1 July 2023. For instance, Hong Kong has applied to join, as around 70% of its trade already takes place with RCEP members. A successful bid would be a natural extension for the economy given its openness to international trade and given the fact that it already has trade deals in place with 13 RCEP members (the 10 ASEAN economies, mainland China, Australia and New Zealand).

Joining the deal could help strengthen Hong Kong’s role as a professional services hub as members will fully open at least 65% of the services sector to foreign investors, and it could provide new opportunities for Hong Kong’s logistics sector (e.g. from handling more intra-regional trade flows) and for businesses located in the Greater Bay Area (GBA) that use Hong Kong as a springboard to go global and enter new markets.

Elsewhere, Bangladesh’s Trade and Tariff Commission has conducted preliminary analysis on the possible benefits of joining the deal and the costs of remaining outside the agreement. Sri Lanka could be another potential member further down the line. Note that the UK, mainland China, and Taiwan have meanwhile all applied to join the CPTPP.

Why is everyone so eager to come on board?

The biggest direct advantage for economies joining RCEP is the tariff concessions. Under the agreement, tariffs on more than 90% of the goods will be eliminated, although this will happen in stages, with an implementation period of 20 years (sensitive and strategic sectors are exempted). The broad scope of tariff elimination will promote investment, intellectual property provisions and electronic commerce within the bloc.

ADB’s estimates show that some markets, such as Japan and South Korea, will experience the largest jump in exports in 2030. This is mainly because it’s the first time Japan has entered into a free trade agreement with China. The result is that 86% of Japanese exports to China and 88% of Chinese exports to Japan will eventually be eligible to enter duty-free thanks to RCEP, up from 25% and 57%, respectively, on the first day when RCEP took effect.

Moreover, RCEP is the first free trade agreement that includes China, Japan and South Korea together, three of the more technically advanced economies in East Asia. Interestingly, ADB forecasts that the share of global exports in East Asia is going to drop over the coming decade, as companies diversify their manufacturing base into other developing markets. However, this should ultimately strengthen their remaining production base by tying producers more closely with regional supply chains, enabling them to take advantage of more cost-competitive component sourcing.

The effect on exports for ASEAN members before and after signing the agreement might not be as prominent as advanced markets (ASEAN and RCEP, 1 Dec 2020). Pre-existing ASEAN free trade agreements with RCEP members have already eliminated tariffs on 86% to 90% of goods. Regardless, as a whole, RCEP nations will contribute to 30% of global exports by 2030, according to ADB.