Dr Murat Ungor assesses the pros and cons of the Regional Comprehensive Economic Partnership, arguing NZ cannot afford to be protectionist
New Zealand and 14 other countries have agreed to form the world’s largest free trade bloc. The Regional Comprehensive Economic Partnership (RCEP) was signed virtually on November 15, 2020. Member countries will work towards ratification of the RCEP Agreement in 2021.
There are 15 countries involved in RCEP: the 10 members of the Association of Southeast Asian Nations (ASEAN) – Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – plus Australia, China, Japan, South Korea, and New Zealand. The 15 economies cover a market of more than two billion people and 30 percent of the world’s gross domestic product (GDP).
RCEP is a free trade agreement (FTA), covering trade in goods and services and aims to lower tariffs and reduce non-tariff barriers between member nations. In addition, RCEP includes chapters about investment, electronic commerce, small and medium enterprises, competition, government procurement, and economic and technical cooperation.
Does RCEP matter for New Zealand?
New Zealand has existing FTAs with all the RCEP countries. The accord will take already low tariffs on trade between member countries still lower, over time. The main advantage for Kiwi exporters will be the improved access to the emerging nations of Asia.
An analysis of such documents suggests that RCEP is expected to eliminate a range of tariffs on imports within 20 years. For Australian and Kiwi exporters, for example, the agreement means that the Philippines’ 10 percent tariff on several products belonging to the ‘glass and glassware’ category will be eliminated from year 15.
Good news for the primary industries.
RCEP achieves new market access for New Zealand goods exporters. One specific example is Indonesia. The schedule of tariff commitments of Indonesia for New Zealand is 337 pages long. This document shows that most of the tariffs imposed by Indonesia on a number of primary products exported from New Zealand are going to be eliminated immediately on the date of entry into force. Indonesia is the second most populated country among all the member countries, and RECP brings long-term business opportunities for beef and lamb exporters. The New Zealand red meat sector has welcomed signing the RCEP.
There are more gains.
RCEP will provide a single rulebook covering all 15 markets, which has the potential of reduced red tape. For example, customs authorities will release perishable goods such as seafood within six hours of arrival. In addition, RCEP countries must provide key trade-related documents in English. This will bring enhanced transparency for contracts.
Asia has one of the highest intra-industry trade – the trade of similar products belonging to the same industry – in the world. The simplified rules and procedures will reduce existing inefficiencies in the regional supply chains.
Is RCEP going to change regional dynamics in favour of China?
It is argued that the RCEP is putting China in a better position to shape the region’s trade rule. It is true that China is the largest economy in the RCEP, both in terms of population and the size of the economy. However, this will not give an authoritative power to China.
The expansion of China’s participation in international trade and global supply chains has been one of the most outstanding features of global economic activity since the 1990s. Covid-19 pandemic has disrupted international trade, investment and global supply chains. In addition, the Chinese economy was already showing the signs of slowing down, even before the outbreak of the Covid-19 pandemic. China’s GDP grew 6.1 percent in 2019, the slowest in three decades. Therefore, RCEP is a compromise rather than a confrontation for China.
RCEP is also the first trade agreement bringing together China, Japan and South Korea. It is expected these three countries will negotiate a trilateral pact in the upcoming years.
What is missing?
It is important to note that India is not the part of RCEP. India withdrew from the negotiations in November 2019. RCEP remains open for India to return to the negotiations and there is a fast track accession process in place should India wish to re-join RCEP in future. In addition, Bangladesh is not part of the RCEP. Bangladesh has been recording very high growth rates since 2004, and this success merits a closer look by Kiwi policymakers and investors. I see new opportunities.
RCEP is not a transfer of sovereignty.
RCEP includes a Treaty of Waitangi clause reflecting the constitutional significance of the Treaty of Waitangi to New Zealand. There are regulatory differences across the countries and some may have concerns whether RCEP will impose heavy restrictions on sovereignty. A schedule of reservations and non-conforming measures for investment are also available. For example, New Zealand reserves the right to control the activities of foreign fishing, including fishing landing, first landing of fish processed at sea, and access to New Zealand ports (port privileges), consistent with the provisions of the United Nations Convention on the Law of the Sea. Or, New Zealand reserves the right to adopt or maintain any measure with respect to services incidental to mining.