The past month has marked the first anniversary of the implementation of one of the largest multilateral trade deals of recent times, the RCEP.
More formally known as the Regional Comprehensive Economic Partnership, the agreement came into force on January 1st 2022 and covers trade between 15 nations in the Asia-Pacific region, including China, Japan, South Korea, Australia, New Zealand and the ten members of the ASEAN group.
Intended to stimulate growth and lower trade barriers across east Asia, the long-term agreement is still in its infancy. But trade figures and industry sentiment for the 12 months of operation suggest it is off to a good start. So how is the pact faring so far and what could its potential be for the years to come?
RCEP one year after implementation
One of the key aspects of the RCEP pact is its size. Its 15 member nations account for over two billion people and around 30 percent of the world’s gross domestic product. This is expected to rise to 50 percent of global GDP by 2030, making it the biggest trade bloc in the world in terms of both population and economic power.
Chinese media provider Xinhua noted that over the last 12 months, the agreement has lowered the cost of trade, facilitated the integration of supply chains, and offered more affordable products to consumers in the region.
Its implementation has come at an opportune time for key economies such as China, which has been struggling to recover from the disruption caused by its zero-Covid policy, while high interest rates and global upheaval as a result of the war in Ukraine have also acted to slow global demand.
Despite these headwinds, however, RCEP has been credited for ensuring continued robust trade between participating nations. With key economies such as China and Japan under the same framework for the first time, trade in key products has boomed throughout the region.
Trade figures show strong growth
The success of RCEP can be seen in boosts to imports and exports in the region in 2022. Japan, for example, has reported a 24.5 percent increase in exports of food, agricultural, forestry, and fishery products to China compared with the previous year. Meanwhile, Thailand recorded $300 billion in trade with other RCEP member countries in the last 12 months, up by 7.11 percent year-on-year.
Thai deputy minister of commerce Sinit Lertkrai noted that in addition to the benefits provided by the elimination of tariffs, the RCEP deal has also introduced a range of facilitation measures to speed up customs clearance procedures. This has been especially beneficial for imports of perishable items, providing more options for food exports in the country.
As for China, which last month reported its biggest overall fall in imports and exports since the start of the Covid pandemic, the RCEP deal appears to be helping offset faltering trade relations with the West.
Official figures showed that trade between China and ASEAN nations increased by 15 percent year-on-year in 2022, totalling 6.52 trillion yuan ($970 billion).
Spokesperson for the General Administration of Customs in Beijing Lu Daliang attributed this strong growth to the stable trading environment created by the RCEP, in particular how it has helped integrate industrial supply chains.
Looking to the future
Eventually, more than 90 percent of all goods traded in the region will be free from tariffs, while there remains the potential for more nations to join the group in the coming years. Bangladesh and Hong Kong have already put in applications to join the RCEP
However, another factor that may drive the future success of the deal is whether it succeeds in shifting economic power in the region away from the US. Several commentators have suggested this is a key goal for Beijing to recenter trade in the region around China.
The nation is also keen to highlight the benefits of RCEP as an opportunity to deal in yuan rather than US dollars for intra-Asia trade. Elsewhere, reductions in tariffs are also expected to encourage more manufacturers to build facilities within the bloc's borders in the coming years.
Charles Lee, chief executive and founder of Hong Kong-based digital infrastructure firm OneAsia, for example, told the South China Morning Post: "With the tariff reduction, manufacturers will build inventory facilities at different spots under RCEP to increase competitiveness by moving closer to their customers."
However, there do remain concerns. It will be important for member nations not to turn too far inwards at a time of global uncertainty while there are also worries that the removal of trade barriers could allow some markets to be flooded with goods from cheaper neighbors.
Many small and medium-sized firms are also still having problems taking full advantage of the RCEP due to its complicated rules. These issues will need to be addressed in the coming years if the trade bloc is to reach its full potential.
