Effective Implementation of RCEP: Key to Promoting Regional Economic Integration

January 28, 2022
About the author:
Li ZemianResearch Assistant, Taihe Institute


Initiated by the ASEAN in 2012 to strengthen its ties with China and other Asian countries, the Regional Comprehensive Economic Partnership (RCEP) Agreement was signed by 15 Asia-Pacific states. On January 1, 2022, the RCEP came into force in ten countries—Brunei, Cambodia, Laos, Singapore, Thailand, Vietnam, China, Japan, New Zealand, and Australia. In the coming months, it is expected to be ratified by the other signatories.
The RCEP covers a market of 2.2 billion people and $26.2 trillion of global output. The Brookings Institution estimated that the RCEP could add $209 billion annually to world income and $500 billion to world trade by 2030.[1]
Amid the slowdown of economic globalization, the RCEP is to inject new momentum into the Asia-Pacific region in terms of economic integration. Given the rising trend of de-globalization and trade protectionism, the RCEP will improve market transparency and promote exports of services in multiple sectors, including professional services, computer services, commercial services, logistics, and distribution. Investors can benefit from the stability of host markets, and companies in member countries can enjoy tariff reductions up to 92%. In other words, the RCEP helps lower business costs and facilitates market access.
(Source: asia.nikkei.com)
The RCEP will also bring together member countries to explore how they can improve the resilience of the Asia-Pacific supply chains. For example, these countries may seek to simplify the customs processes and clearance terms to make logistics, distribution, and supply chains more resilient. In short, the RCEP will promote trade cooperation and integration between ASEAN members and other Asia-Pacific countries, giving a big boost to free trade, multilateral mechanisms, and confidence in regional and global trade.
The most notable feature of the RCEP is the flexible rules of origin. Within the RCEP framework, only 40% of the components of a product has to originate within the RCEP bloc to qualify for duty-free treatment. RCEP “provides a lot of opportunities for building and strengthening intra-Asian supply chains,” said Jeffrey Schott, Senior Fellow at the Peterson Institute for International Economics.[2]
As the first free-trade agreement that links China, Japan, and South Korea, the RCEP is expected to help boost trade between these nations significantly. Analysis shows that the RCEP has a fairly positive impact on Japan’s economic outlook, with tariffs to be eliminated on 86% of industrial goods exported from Japan to China, up from the current 8%. That, according to the Japanese government, includes the elimination of levies on 87% of auto parts exports. In addition, some 92% of Japanese industrial products will be exported to South Korea duty free, compared with the current 19%.
According to a recent report by the United Nations Conference on Trade and Development (UNCTAD), Japan will benefit the most from RCEP tariff concessions, largely because of the trade diversion effects. The RCEP will turn the Asia-Pacific, a region that includes China and South Korea, two of Japan’s main export destinations, into a “new center of gravity” for global trade.[3]
Japan’s annual exports are expected to rise by about $20 billion, an increase equivalent to about 5.5% relative to its exports to RCEP members in 2019. The Japanese government estimated that the RCEP will boost the country’s GDP by 2.7% and create around 570,000 jobs. Due to many reasons, negotiations on the China-Japan-South Korea Free Trade Zone have made little progress since it was proposed in 2002. The RCEP, however, has made the free trade vision partially come true, paving the way for further tripartite talks on this matter.
The series of economic reforms that RCEP triggers will contribute to the post-pandemic recovery of the Asia-Pacific economy in a sustainable way. Recently, the rapid spread of the Omicron variant of COVID-19 has added uncertainty to the regional economic recovery. The RCEP will not only help the afflicted areas with economic recovery, but also invigorate the regional and global economy in the post-pandemic era by promoting cooperation in e-commerce and other digital areas.
The RCEP will also have multiple positive impacts on China. As more than 90% of the merchandise trade between RCEP members will eventually be subject to zero tariffs, the economic and trade ties among these countries will become closer. Furthermore, the RCEP will promote the free flow of trade and circulation of commodities and deepen the integration of supply chains in the region, serving as a stabilizer for the industries, supply, and value chains.
Still, challenges remain for the effective implementation of the RCEP across the region. The biggest challenge lies in regional imbalance of development. Both developed countries like Japan, Australia, South Korea, and Singapore and the least developed countries (LDCs) such as Cambodia, Laos, and Myanmar can be found in the RCEP region. Given the striking differences in their interests, the RCEP’s implementation might turn out to be patchy. Moreover, the RCEP’s dispute settlement mechanism is less favorable for the LDCs, and provisions on extraordinary remedies are missing. Such problems might dampen the enthusiasm of the LDCs within the region to enforce the agreement.
The second challenge is that the RCEP covers an expansive region. The member countries have different political systems, ideologies, and cultures; their peoples belong to different races and believe in different religions. All these bring uncertainties to the implementation of the RCEP. And surely, the problems left over from history and the ongoing territorial disputes among some member countries threaten regional harmony required for RCEP’s implementation.
The third challenge is that the RCEP might clash with a U.S.-led Indo-Pacific economic framework. If so, some regional countries will have to take sides, which is bad news for regional economic integration.

[1] “U.S. on Sidelines as China and Other Asia-Pacific Nations Launch Trade Pact,” The Wall Street Journal. Jan. 1, 2022, accessed Jan. 19, 2022. https://www.wsj.com/articles/u-s-on-sidelines-as-china-and-other-asia-pacific-nations-launch-trade-pact-11641038401
[2] Ibid.
[3] “RCEP’s benefits come with challenge of keeping China in check,” thejapantimes. Dec. 31, 2021, last accessed Jan. 19, 2022. https://www.japantimes.co.jp/news/2021/12/31/business/economy-business/rcep-benefits-china-challenge/
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