RCEP: Singapore among 15 nations to sign world's largest trade pact

By Charmaine Ng, The Straits Times, 16 Nov 2020

The world's largest trade pact was inked yesterday by ministers from 15 countries including Singapore, in a move likely to spur the region's economy as it battles its worst crisis in decades.

Building on existing free trade deals among members, the Regional Comprehensive Economic Partnership (RCEP) will broaden and deepen economic linkages across the Asia-Pacific, ease trade in goods and services, facilitate the flow of foreign investments, and enhance protections in areas such as e-commerce and intellectual property.

RCEP members account for 30 per cent of the world's economy and one-third of its population. They comprise all 10 Asean members and key partners Australia, China, Japan, South Korea and New Zealand.

At a leaders' summit yesterday, Prime Minister Lee Hsien Loong described the signing of the pact as a "major step forward for the world, at a time when multilateralism is losing ground, and global growth is slowing".

"It signals our collective commitment to maintaining open and connected supply chains, and to promoting freer trade and closer interdependence especially in the face of Covid-19 when countries are turning inwards and are under protectionist pressures," he said.

The pact also gives its members larger stakes in one another's success and prosperity, while helping to strengthen regional peace and security, he added.

PM Lee noted that the diversity of the participating RCEP countries shows how economies at different stages of development can come together and contribute to one another's development, as well as to the multilateral trading system.

"This diversity, and the strong links that the participating countries have with the US, Europe and the rest of the world, also reflects the inclusiveness and openness of the agreement," he added.

PM Lee joined several leaders in expressing the hope that India will be able to sign on in future, so that "participation in the RCEP will fully reflect the emerging patterns of integration and regional cooperation in Asia".

New Delhi pulled out of talks last November after seven years of negotiations following concerns over trade imbalances. Yesterday, the RCEP leaders reiterated that the door remains open for India.

Some have raised concerns that China stands to benefit the most as the group's largest economy, but ministers noted that the RCEP gives members' businesses greater access to the vast Chinese market.

Chinese Premier Li Keqiang said the signing was a victory for multilateralism and free trade, adding: "Let people choose unity and cooperation in the face of challenges, rather than conflict and confrontation."

The pact will enter into force once six Asean countries and three partners have ratified it. RCEP leaders say they will expedite their domestic processes to ratify the pact.

It will eliminate tariffs for at least 92 per cent of goods, with additional preferential market access for exports. The flow of goods will also be faster.

More companies will be able to provide services in the region, with foreign shareholding limits raised for at least 50 sub-sectors including professional services, telecommunications and financial services.

Businesses will also find it easier to navigate and integrate into regional value chains.

Asean secretary-general Lim Jock Hoi told The Straits Times yesterday that the RCEP will ensure markets are kept open, and provide much needed certainty and stability for businesses as they cope with the Covid-19 crisis. "The signing of the RCEP agreement at this time... is a demonstration of the region's strong commitment to open, inclusive and rules-based multilateralism, and confidence of the contribution of trade to post-pandemic recovery efforts," he said.

Trade and Industry Minister Chan Chun Sing, who signed the RCEP with fellow trade ministers, added about the pact: "Beyond its economic value, it is also a statement of our strategic intent to have a shared interest in each other's prosperity and success. This bodes well for the security of the region."

By Charmaine Ng, The Straits Times, 16 Nov 2020

Singapore firms will find it easier and cheaper to do business in the region when the newly inked region-wide free trade pact takes effect, said Trade and Industry Minister Chan Chun Sing yesterday.

Speaking to reporters after signing the Regional Comprehensive Economic Partnership (RCEP), Mr Chan said the agreement provides businesses with better intellectual property protection and enables them to consolidate their production across participating countries, leading to savings in cost and time.

"We expect the RCEP countries to offer themselves as an integrated market for investment, especially at a time when the global supply chains and global production chains are being reshuffled because of technology and geopolitics," he added.

Consumers, too, will see benefits with a more competitive range of products to choose from, as well as cost savings passed down from the elimination of tariffs on most goods among members, he said.

The RCEP was signed virtually by all 10 Asean members and key partners Australia, China, Japan, South Korea and New Zealand on the last day of the annual year-end Asean Summit hosted by Vietnam, which also handed over the rotating Asean chairmanship to Brunei.

Together, the RCEP countries account for 30 per cent of the global economy and one-third of the world's population. Singapore's trade value with the 14 other RCEP members has grown steadily over the years, reaching 50.4 per cent, or $515.2 billion, of the Republic's global trade last year.

The agreement's key benefits include tariff elimination for at least 92 per cent of goods traded among members, and allowing businesses to invest in fellow RCEP countries without having to meet conditional performance requirements.

As a result, businesses handling chemicals, plastics and processed food could see cost savings for their exports, especially to China, Japan and South Korea.

Express consignments and perishable goods also have to be cleared by Customs within six hours of arrival.

Non-traditional areas which are not in some existing trade pacts, such as e-commerce, competition policy and intellectual property, are also included in the RCEP.

Meanwhile, consumers' personal data will be protected when shopping or carrying out activities online, and cross-border electronic signatures and transactions more widely accepted.

The pact also provides for enhanced intellectual property protection and enforcement. For example, Singapore companies need only file a single patent or trademark application that would apply in other RCEP member countries.

There will also be greater clarity and transparency for firms seeking government projects, with members agreeing to publish laws, regulations and procedures on such opportunities.

RCEP members are also obliged to share information that may be relevant to small and medium-sized enterprises so that they can benefit from the agreement.

As for concerns some have raised about benefits being tilted in favour of larger economies, like China, Mr Chan said the RCEP will bring about mutual benefits for both Chinese companies venturing beyond the domestic market, as well as for non-Chinese companies who want to enter China.

It will also allow for both the Chinese and regional markets to be seen as an integrated market, making the grouping more attractive to global investors, and boost the competitiveness of its exports to the rest of the world, he added.

Mr Chan described the RCEP as an important geostrategic initiative that will further regional economic integration, adding that its signing is a timely boost to the region's longer-term prospects.

"It will place the region at the forefront of the global economic recovery and remain as an attractive investment destination during and post-Covid-19," he said.

He also urged members to accelerate efforts to ratify the RCEP, and keep the agreement relevant in line with changing realities and evolving business needs.

Singapore Business Federation (SBF) chief executive Ho Meng Kit said the RCEP will enhance regional trade, which is key for Singapore's open export-oriented economy. "Singapore companies will be able to make use of regional cumulation to enjoy greater flexibility in sourcing from a larger pool of suppliers in the region," he said.

The pact's regional cumulation provisions allow businesses to include the use of raw materials and parts sourced from any of the other 14 RCEP markets as content originating here.

"Manufacturers will benefit from being able to qualify for preferential tariffs more easily," said the SBF in a statement. "This will boost opportunities for supply chain diversification in the region."

In a joint leaders' statement yesterday, the RCEP countries said they are expediting their domestic processes so that they can ratify the agreement, and will develop the RCEP as a platform for dialogue and cooperation on trade and economic issues affecting the region.

The RCEP will come into force once six Asean countries and three partners have ratified the pact.

The full text of the agreement is available at rcepsec.org/legal-text

By Ravi Velloor, Associate Editor, The Straits Times, 16 Nov 2020

And so, Asean has got it done, finally.

By the standards of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership with which the RCEP will inevitably be compared, the agreement inked yesterday between Asean and five of its key trading partners - China, Japan, South Korea, Australia and New Zealand - may look less ambitious.

Yet, given the complexity of the deal, the diversity and the different stages of development that Regional Comprehensive Economic Partnership (RCEP) economies are at, and its potential, this is one huge achievement. It makes a big statement at a time when multilateralism is under threat from trade wars and nationalistic pulls.

Indeed, it could well turn out to be a turning point for both East Asia's, and South-east Asia's, tricky relationship with China - one marked by both dazzlement over the prospects of embracing and being embraced by the world's No. 2 economy, and nervousness about its implications.

In North-east Asia, key economies like Japan and South Korea have testy ties between themselves, and with China. Talks of a free trade agreement (FTA) linking them up have not made much apparent progress since the 16th round was held in Seoul a year ago. Now, the three - and Asean states - have to deal with one another from a single rule book written that encompasses a third of the global population and 30 per cent of world gross domestic product.

"Some Asean countries got a little nervous because their dialogue partners' economies are a lot bigger than their own," said Ms Deborah Elms, executive director of the Asian Trade Centre in Singapore. "It is not the most ambitious trade deal ever signed, nor the worst. The crucial part is that once it is in place, companies will start thinking of Asia as a reasonable, final market for them. They will start getting structured for RCEP."

What's more, there are plans for an RCEP secretariat that will monitor the progress of the agreement and settle disputes. While no venue has been chosen for this body, the fact that such plans are on the anvil suggests that this could in time prove to be a momentous move. It would come against the background of the trade frictions between the United States and China, and continuing questions about the World Trade Organisation.

Just having a platform for Asian economies to assemble with partners from Australia and New Zealand would in itself be a significant development.

The RCEP's implementation - it could take as much as a year while a minimum of six of the 10 Asean states and three of five trading partners ratify it before it can be considered live - will likely coincide with an updraught for regional economies as they emerge from Covid-19. That could set the stage for years of good growth. The surge, wisely used, should also provide the elbow room for Asean economies to swiftly improve their competitiveness to meet the inevitable manufacturing challenge from powerhouse China.

To get a sense of what was just achieved, look at the enormity of the RCEP document, produced after 31 rounds of negotiations, 15 trade negotiating committee meetings and 19 ministerial rounds over an eight-year period.

More than a mere free trade deal, this truly is a "comprehensive" agreement. It rests on a tripod of trade in goods, trade in services and electronic commerce and runs to more than 14,000 pages with 20 chapters, plus annexes and schedules. The signatories include advanced economies like Singapore, Japan and Australia, upper middle income economies such as Malaysia and Thailand, and less developed countries such as Laos and Cambodia.

Asean states first had to negotiate common positions between themselves, then take those consensus positions to the dialogue partners, some of whom wanted ambitious goalposts set for intellectual property, e-commerce and government procurement rules. The last would have been particularly tricky, especially for nations that run coalition governments, because ministerial portfolios are often sought and allotted based on the ability to hand contracts to key supporters.

During the lengthy negotiations, several participating states held elections and some saw government changes, with new leaders often stressing different priorities.

Last November, just when everyone thought a deal was in sight, India announced a stunning pullout. In part that was because of fear of being overrun by cheaper factory goods from China and farm produce from Australia and New Zealand but it was also because its demands on opening services trade, where it enjoys a measure of competitiveness, were not met to its satisfaction.

Shortly after that setback, Covid-19 began to blow through the world, disrupting economies and supply chains.

With all those headwinds to navigate, the RCEP still is a solid win for Asean. In terms of market access, it has won additional access in trade in goods from the giant economies of China, Japan and South Korea - beyond what Asean Plus One trade deals had offered thus far. The simplification and consolidation of rules garnered from multifarious FTAs that mark the RCEP is a gain for companies, which can choose whether they want to claim market access under RCEP, or continue using standalone host-country FTAs with partners as exist.

Needless to say, the urge to somehow paper over conflicting pulls has involved compromises. Where FTAs between some key economies do not exist, as between China and Japan, those economies seem to have been willing to give Asean more benefits than to each other - and South-east Asia is not complaining.

Likewise, negotiators on the e-commerce track have reportedly produced only what in diplomatic speak is called a "balanced outcome", meaning they wish they could have done better. While there is assurance that personal data will be protected when shopping online, there are questions over the validity and acceptance of electronic signatures in some countries.

This is a pity. According to a report last week from Google, Temasek and Bain & Co, South-east Asia's Internet sectors could reach US$100 billion (S$135 billion) in gross merchandise value (GMV) this year, with e-commerce registering 63 per cent growth while the online travel segment contracted almost as much. Overall, the region's Internet sectors remain on track to cross US$300 billion in GMV by 2025.

Still, there now is a chapter in the RCEP exclusively on e-commerce. That provides a landing zone for future negotiations on the subject as when the RCEP comes up for review in five years' time.

Likewise, in classic Asean style, negotiators seem to have sidestepped some sensitive issues by parking them in the "work agenda" - short for shelved for future discussions. One such topic was the issue of investments and disputes settlement, which helped clinch the investment chapter. The fear was that aggrieved companies may have been able to take governments to court far too easily. Still, RCEP countries are now committed to enhanced investment rules and disciplines.

India's last-mile decision to drop out also was a crushing disappointment, especially to Singapore, which had assiduously worked to keep Asia's third largest economy within the RCEP. It did so despite demands from New Delhi that would have rendered the agreement almost meaningless, including additional rules of origin for thousands of product lines. Still, the 15 signatories, China included, have told New Delhi that the door remains open for it to rejoin RCEP.

For trade-driven Singapore, the very act of 15 economies joining to push trade is in itself a huge victory, even if the benefits to it may not be immediately visible given that the Republic has its own quality deals with so many nations. Singaporeans who cast a wary eye on services agreements out of fear they will lead to an influx of foreign talent can rest assured that nothing in the RCEP allows that to happen. On the other hand, it opens up opportunities for a host of Singaporean services companies to move into East Asia. Some two-thirds of service sectors will be fully open with increased foreign shareholding limits, including in professional services, telecommunications, financial services and logistics.

Much of the RCEP's future will depend on how the 14 smaller economies adjust to China being front and centre in the grouping. Thus far, it appears to have taken a helpful posture in negotiations.

If China can hold that line post-implementation, the RCEP may undo much of the perception damage caused by its assertive military and often-flinty diplomacy. Make no mistake: This deal is as much about geostrategy as geoeconomics.