What is the RCEP trade agreement in simple terms? (15 nations, $26 tril)

If you want to know what RCEP is, in simple terms, you have come to the right place!

In this article we will clearly describe RCEP and briefly explain some of the benefits of this free trade agreement.

What is the RCEP trade agreement in simple terms?
RCEP stands for Regional Comprehensive Economic Partnership and is a multilateral free trade agreement (FTA). This agreement is between 15 member nations representing 30% of the worlds population. These countries include: Cambodia, Myanmar, Brunei-Darussalam, Vietnam, Laos, Thailand, Malaysia, Singapore, Indonesia, Philippines, South Korea, New Zealand, Japan, Australia, China.

RCEP aims to strengthen trade ties and boost economic growth in the member countries. 

Like other multilateral free trade agreements, the RCEP focuses on trade in services, e-commerce, investment, goods, competition, procurement and intellectual property. And similar to the updated USMCA free trade agreement, (formerly NAFTA) RCEP places emphasis on small and medium-sized enterprises (SMEs).

Let’s now explore the member nations and the benefits of RCEP. 

4 key benefits of the RCEP free trade agreement

One of the leading countries with the largest economies in RCEP is China. China played a significant role in the formation of the RCEP. 

China is the biggest beneficiary of RCEP, as its membership has cushioned the country from any volatility of the ongoing trade with the US. 

RCEP is a significant player in world trade as the member countries account for a whopping 30% of worldwide GDP and population, making it the largest trading bloc in history. 

Although discussions on the RCEP free trade agreement started in November 2012, member states signed it on November 15, 2020, and it came into effect on January 1, 2022.

ASEAN.org reports some impressive benefits, including:

According to data by the World Bank, the agreement would cover 2.3 billion people or 30% of the world’s population, contribute US$ 25.8 trillion about 30% of global GDP, and account for US$ 12.7 trillion, over a quarter of global trade in goods and services, and 31% of global FDI inflows.

Let’s now dig into some key benefits of RCEP include:

1. RCEP is vital for national strategies

RCEP is an incredible multilateral trade agreement. It enabled economic activities between the member state regions, providing for similar frameworks, thus minimizing trade and coordination costs. China’s semiconductor industry is an excellent example of the national strategic importance of the RCEP. 

The RCEP has deepened the cooperation between China, South Korea, and Japan’s tech industry. 

China hopes the collaboration with Japan and South Korea will ease the supply chain and R&D issues, easing the thirst of the Chinese semiconductor chips market. 

As China is a great consumer of high-end chips, supplying that market with competent chips will raise the profile of the semiconductor industry in Japan and South Korea.

It’s also difficult to ignore the impact of RCEP on the fortunes of China in the region, considering the trade war it’s embroiled in with the US. China has assumed the market leader position in the region while the influence of the US continues to fade. India’s withdrawal from the FTA handed China the leadership role on a silver platter.

2. RCEP boosts regional economic growth

By easing the availability of products across the member countries, RCEP has enabled market integration, which will enhance the region’s economic growth. 

According to research done by China, it expects that by 2035 RCEP will lead to an increase in the region to the tune of:

• Imports and exports by $983.7 billion.
• Regional economic welfare by $162.8 billion.
• The growth rate of the regional investment by 1.47%.

3. RCEP minimizes trade barriers

The RCEP’s main aim is to facilitate trade relations in member countries by minimizing or eliminating international trade restrictions, especially non-tariff barriers. 

RCEP expects member states to eliminate up to 90% of tariffs on imported goods within 20 years.

Further, member countries must institute common trade, e-commerce, and intellectual property legislation. This is a significant move as RCEP brings together members from low, mid, and high-income countries. 

To help abolish the trade barriers, the RCEP has brought the member countries under the same production chain. This not only helps reduce the trade barriers but also helps attract a large share of the global value chains. 

4. RCEP truly helps to reduce poverty

The World Bank notes that international trade typically reduces poverty in a specific region. 

Since RCEP covers such a large demographic of people and involves a lot of trade between the member states, there’s plenty of reason to believe it will spur poverty reduction in most regions. 

How many countries are in the RCEP?

RCEP consists of 15 member nations, coincidentally some of the world’s most highly populated countries. Most of its members also top the list of countries engaging in most trade globally. 

The members of RCEP consist mainly of countries under the Association of Southeast Asian Nations (ASEAN):

• Cambodia
• Myanmar
• Brunei-Darussalam
• Vietnam
• Laos
• Thailand
• Malaysia
• Singapore
• Indonesia
• Philippines

Apart from these 10, RCEP also consists of 5 countries that are also members of the Group of 20 (G-20): 

• South Korea
• New Zealand
• Japan
• Australia
• China

India was an original member, but it opted out in November 2019. 

Since the countries recognize the importance of India, the FTA left the door open for the country to join at any moment.

RCEP allows any country to join the FTA within the first 18 months after the commencement of the agreement. As of September 2022, Bangladesh and Hong Kong have applied to join the partnership.

The World Bank found that the number of people under the RCEP trade agreement is about 2.2 billion, or a third of the world’s population. 

It further notes that the RCEP population consists of 1.1 billion people who have attained at least a middle-class status and will see the most significant wage gains as this number is likely to grow by 27 million by the year 2035. 

Which countries Signed RCEP

The relevant ministers of all the 15 member countries signed the RCEP on November 15, 2020, during the virtual ASEAN meeting hosted by Vietnam. This set the ball running for the final approval of the FTA two years later.  

After completion of the preparation phase, RCEP came into force in January 2022 in the following 10 countries: Vietnam, Japan, Australia, China, New Zealand, Singapore, Lao PDR, Brunei Darussalam, Thailand, and Cambodia.

That was in line with the provisions of the RCEP that stated it would come into force in 60 days after at least six members of ASEAN and three non-members ratified the agreement. In February 2022, South Korea enforced the RCEP agreement, while Malaysia did the same on March 18, 2022.

So far, seven of the 10 ASEAN members have ratified RCEP, while all five non-members have ratified it.

Final word about the RCEP free trade agreement

RCEP is the largest FTA ever signed, bringing together members of ASEAN and five non-members led by China, Australia, and New Zealand. 

The FTA came into effect in January 2022 and aims to bolster trade relations on e-commerce, investment, and intellectual property.

References

1. RCEP takes effect! What benefits will it bring to China? (January 13, 2022). CEIBS KNOWLEDGE.
2. The significance of the Regional Economic Partnership Agreement. (November 20, 2020). Brookings. 
3. RCEP to benefit China and the world. (January 1, 2022). The People’s Republic of China.
4. Asia, already highly open to trade, will likely reap benefits from further liberalization. (February 16, 2022). World Bank. 
5. Regional Comprehensive Economic Partnership. (November 2020). New Zealand Foreign affairs and trade. 
6. The RCEP minus India: Reasons and Implications. (February 19, 2020). John Hopkins University.
7. RCEP: A new trade agreement that will shape global economics and politics. (November 2020). The Brookings Institution; Washington.
8. RCEP Agreement enters into force. (January 1, 2022). Association of South East Asian Nations.