The Regional Comprehensive Economic Partnership, or RCEP, is now in its second year of operation. While it remains to be seen how it will impact trade across east Asia in the long term, it has already started showing benefits thanks to reduced barriers to trade and the promise of more closely integrated supply chains.
However, there is still plenty of potential for the 15-nation pact to grow. One key next step may be to add new members, and among those seeking to join the agreement is Hong Kong.
Unlike the rest of China, the special administrative region is not included in the deal as it maintains its own trade policy. However, the local government is looking to change this and has submitted an application to join RCEP, which remains in progress.
But what could the addition of Hong Kong to RCEP offer? One new study suggests that businesses in the region are already increasing their activities in and around the city due to RCEP, so what could the next steps be for the agreement?
Why could Hong Kong benefit from closer integration?
Despite the fact the territory is not a formal member of RCEP, Hong Kong is already enjoying some of the benefits of the deal thanks to its position as a regional trade and shipping hub. This makes it a key part of the supply chain - especially for goods manufactured in mainland China - and the city is already closely integrated with many RCEP members.
Indeed, it was noted by the Hong Kong Trade Development Council (HKTDC) that 71 percent of the territory's merchandise trade is with RCEP countries, while the territory has also improved its status as a hub for trade.
For example, one Hong Kong-based company, OneAsia, told the South China Morning Post earlier this year that it has already seen business increase by 40 percent over the past 12 months of the RCEP due to greater demand for its digital infrastructure and support services.
Chief executive and founder of the firm Charles Lee said he anticipates business growth to continue for the next five years, adding: "With the tariff reduction, manufacturers will build inventory facilities at different spots under RCEP to increase competitiveness by moving closer to their customers."
Japanese firms keen to expand operations
A recent survey by HKTDC focused on Japanese firms found there is already strong interest in Hong Kong as a base for international operations, and this would only increase if the city is accepted into RCEP.
It noted that 60 percent of respondents plan to expand their RCEP activities through their Hong Kong office in the next three years, making use of the region's strong logistics and commercial networks. The same number stated Hong Kong is "important" or "very important" in helping them take advantage of new business opportunities in the RCEP region.
More than half of the Hong Kong-based Japanese respondents said they had already enjoyed RCEP benefits, including unified rules of origin, lower tariffs and streamlined customs procedures. Almost four out of five (79.5 percent) also anticipate this will improve further if the city's application to join the bloc is accepted.
Among the main advantages of operating in the city included Hong Kong's business networks with mainland China (cited by 88.8 percent of respondents), freedom of capital flows and currency exchange (79.7 percent), and its efficiency as a trans-shipment and distribution hub (72 percent).
HKTDC director of research Irina Fan commented: "Once approved, the city will become the first new member of the bloc, enjoying a wide range of benefits, such as tariff concessions. It will also help Hong Kong further integrate into regional supply chains and strengthen trade and investment with other members in the bloc, especially Japan and Korea, which have yet to sign free trade agreements with the city."
