SINGAPORE — An Asia-Pacific agreement to create the world’s largest trade bloc entered into force on Saturday, ushering in a new phase of regional economic integration.
The launch of the Regional Comprehensive Economic Partnership comes as countries seek to escape the pandemic malaise and shore up supply chains while China, the group’s largest member, strives to raise its profile in Asia’s mechanisms for integration. How Beijing opens its economy through the pact will be closely watched as the U.S. — not party to the deal — prepares a response of its own.
RCEP encompasses 15 Asia-Pacific countries covering about 30% of the world’s gross domestic product and population. Initially, it takes effect among 10 members that completed ratification earlier: China, Japan, Australia, New Zealand, Brunei, Cambodia, Laos, Singapore, Thailand and Vietnam. South Korea will follow on Feb. 1. The remaining four signatories are Indonesia, Malaysia, Myanmar and the Philippines.
One practical effect of RCEP coming into force is that businesses and supply chain partners “will be able to enjoy preferential treatment for exports to, and investments in [the first 10 countries] from Jan. 1, and South Korea from Feb. 1,” said Locknie Hsu, a professor at Singapore Management University. “This can significantly enhance regional economic connectivity.”
RCEP will have a “significant impact” on international trade, the United Nations Conference on Trade and Development (UNCTAD) noted in a study published in mid-December. “The economic size of the emerging bloc and its trade dynamism will make it a center of gravity for global trade.”
“In the current context of the pandemic, the entry into force of RCEP can also serve an additional purpose: trade resilience,” UNCTAD added. It observed that trade within existing agreements has proved more resilient against the COVID-19 downturn.
At the core of RCEP are tariff concessions, with the members due to eventually eliminate levies on more than 90% of goods traded within the bloc. This will particularly benefit China, Japan and South Korea — Asia’s biggest economies, which are now connected by a free trade agreement for the first time. Tariffs on Japan’s exports of some electric vehicle components to China, for example, will be removed, according to Japan’s trade ministry.
The UNCTAD study estimated that tariff concessions by RCEP participants will increase exports within the region by 2% compared with the 2019 level, or about $41.8 billion, by diverting trade away from non-member economies and spurring new trade inside the bloc.
Japan is expected to be the biggest beneficiary, with overall effects on exports estimated at $20.2 billion, followed by China at $11.2 billion and South Korea at $6.7 billion.
On the other hand, Vietnam and Indonesia are likely to see adverse effects — minus $1.5 billion and minus $0.3 billion, respectively — due to trade diversion within the region. Some of China’s imports from Vietnam, for instance, are expected to be replaced by imports from Japan because of the stronger tariff liberalization between the region’s two largest economies.