On November 15th, fifteen counties joined together to form the Regional Comprehensive Economic Partnership (RCEP). The trade pact covers nearly one third of the global economy and is made of up of the following Asia – Pacific nations: China, Japan, South Korea, Australia, New Zealand and the 10 Association of Southeast Asian Nations (Asean) member states: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. The agreement is notable as the first free trade agreement between China, Japan, and South Korea.
While RCEP is not as comprehensive an agreement as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the vast size of the economies under the agreement will have significant impact on global supply chains. The agreement will eliminate various tariffs for a 20-year period for products produced in member countries and, similar to other recent global trade deals, provides protections covering e-commerce, professional services, financial services, intellectual property, telecommunications, and protections for small and medium sized enterprises. Unlike some other agreements, RCEP does not cover unified standards on labor and the environment or commit countries to open vulnerable areas of their economies. Seven nations are members of both RCEP and CPTPP: Australia, Brunei, Japan, Malaysia, New Zealand, Singapore, and Vietnam.
The agreement also provides for new rules of origin terms, which allow for easier movement of goods between member counties. Under the various free-trade agreements currently in place, global supply chains could still face tariffs based on their product’s components if produced elsewhere. Under RCEP, parts from any member nation would not be subject to additional tariffs. This could have a significant impact to US organizations as they design future supply chains.
The agreement is also expected to aid these economies in future recovery from the COVID-19 pandemic. The Peterson Institute for International Economics anticipates an annual increase to global income by $186 billion by 2030 and expects the agreement will add 0.2% to the RCEP member state economies. The deal now faces ratification by member countries, a process which is expected to take two years. The agreement is also open for other nations to join at a later date.
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