High hopes voiced as key trade pact takes effect
Members of business associations launch a proposal in Nanning, Guangxi Zhuang autonomous region, on Sept 11 to promote implementation of the Regional Comprehensive Economic Partnership, or RCEP. [Photo/Xinhua]
Regional partnership removes tariffs, reduces value-added taxes
The beginning of a new year is always associated with happiness and hope.
For John Yu, general manager of Vitabeez, an agricultural produce trader based in New Zealand, the start of 2022 brought even more glad tidings.
On New Year's Day, the Regional Comprehensive Economic Partnership agreement took effect in 10 of the 15 signatory countries, including China, Brunei, Singapore, Thailand, New Zealand and Japan.
The economic pact is also due to come into force on Feb 1 in South Korea, and in the other four countries 60 days after they officially deposit "instruments of ratification, acceptance, or approval" to the Secretariat of the Association of Southeast Asian Nations.
Yu said: "We used to pay about 15 percent of produce value to export fresh milk to China. Now, with the implementation of the RCEP, the tariff is removed and value-added taxes will also be reduced as a result."
The other key produce the company trades, including honey and fruit, has been treated with zero tariffs for several years, thanks to the free trade agreement between China and New Zealand.
The RCEP further reduces tariff and tax costs for the company, helping it offset rising airfreight charges as a result of the COVID-19 pandemic, Yu added.
"This partnership not only reduces tariffs for traders such as ourselves, but also saves us time and other expenses incurred during customs clearance procedures," he said.
"This is certain to boost our revenue, and we have become even more bullish about the prospects for trade."
Signed in November 2020 by 15 Asia-Pacific economies, including the 10 ASEAN member states, the agreement has created the world's largest free trade bloc by economic size.
The combined GDP of its members comprises nearly one-third the global total, according to the United Nations Conference on Trade and Development, or UNCTAD.
Trade, investment boost
The region covered by the RCEP boasts a population of some 2.27 billion, about one-third the global total. Exports from RCEP members totaled $5.2 trillion in 2019, or 30 percent of those globally, according to China's Ministry of Commerce.
Signing the FTA has been widely viewed as a big step forward for regional economic integration and a victory for multilateralism and free trade.
According to analysts, the partnership will inject more positive energy into the world economy, which is facing numerous challenges, such as the lingering impact of the pandemic and rising anti-globalization sentiment.
Research by UNCTAD shows that the RCEP will have a significant impact on international trade, and during the pandemic, it can also promote trade resilience.
Cui Fan, a professor at the School of International Trade and Economics at the University of International Business and Economics, or UIBE, said, "By significantly improving market access and reducing costs, the RCEP will boost trade and investment."
According to a report by the Chinese Academy of International Trade and Economic Cooperation in Beijing, the RCEP will add about $857 billion worth of exports and $984 billion of imports to the region by 2035－respective growth of about 18.3 percent and 9.6 percent.
By 2035, it will increase regional combined GDP growth by 0.86 percent, and for the global economy, it will raise GDP by 0.12 percent and trade by 2.91 percent.
Wei Jianguo, vice-chairman of the China Center for International Economic Exchanges, which is based in Beijing, said the RCEP free trade bloc will become the most diversified economic grouping in the world, with its members currently at various stages of development, following different political systems and having diverse social structures.
Up to 90 percent of the goods traded in the bloc will become tariff-free within 20 years, with many tariffs abolished immediately the agreement comes into effect.
To enjoy lower or zero tariffs, the RCEP's new rules of origin allow for products to have just 40 percent of their value added within the region. Rules of origin in a free trade area, or FTA, determine if a product originates from a member, so that related provisions can be applied.
In addition, while FTAs among countries in the RCEP mainly cover trade in goods, the partnership agreement extends to trade in services, investment and alignment of members' domestic rules with the agreement.
Wei said, "The RCEP is expected to help members build mutually beneficial industrial and supply chain partnerships, as well as stabilize these chains."
He added that the agreement can significantly lower trade costs in the region, enhance the competitiveness of products, create more business opportunities for enterprises, and provide additional choices and benefits for consumers.
Muara Port Co, a joint enterprise between China and Brunei, begins operations on Saturday, when the RCEP took effect. [Photo/Xinhua]
Economic integration
Wang Tuo, a researcher at the Institute of International Trade in Services, said the agreement will better allocate resources in the region－eventually creating more market potential for the partnership's members and strengthening regional economic and trade ties.
Cui, from UIBE, said, "The RCEP will strengthen integration of regional industrial, supply and value chains, and accelerate regional economic integration－injecting new impetus to regional and global economic recovery."
Chris Cai, general manager of Four Seas (Guangzhou) Food Import and Export Trading Co, said the pact will significantly benefit the company in at least two respects－reduced tariffs and increased market access.
A subsidiary of Four Seas Mercantile Holdings, an investment holding company based in Hong Kong mainly engaged in the food sector, Cai's business has food factories on the Chinese mainland and in Japan. It imports prepackaged snacks, and beverages and food materials from Japan and Southeast Asian countries such as Thailand and Indonesia, and exports food products to Japan.
Cai said, "As we both import and export, the reductions in tariffs are quite considerable for us, while the simplified customs procedures in the region after the pact takes effect mean reduced costs for the business."
She expects the company to increase its presence in the region, as it will be able to use its trade experience to introduce more products to China from Japan and ASEAN member states.
Thanks to the agreement, producers in the region will have more opportunities to sell products to each other, she added.
Moreover, Cai said strengthened cooperation on industrial and supply chains in the region will reduce costs for enterprises and improve productivity, adding that for consumers, this means more product options and cheaper prices.
Zhan Linchang, general manager of the purchasing department and new model propulsion at GAC Mitsubishi Motors Co in Changsha, Hunan province, said the company will save more than 2.73 million yuan ($429,000) this year due to reduced tariffs on imported components such as hydraulic valves and windshield washer motors. These tariffs will gradually be reduced to zero.
The RCEP rules of origin and other arrangements for trade liberalization and facilitation mean that regional industrial and supply chains will be deeply integrated, boosting exports and imports of related products such as raw materials, key components and completed products and devices, Zhan said.
An e-commerce platform operates in Phnom Penh, Cambodia, which is a member of the Association of Southeast Asian Nations. [Photo/Xinhua]
High-level opening-up
Analysts and business leaders also said the agreement will help China pursue all-around high-level opening-up and accelerate establishment of the new dual-circulation development pattern. This model takes the domestic market as the mainstay while allowing domestic and foreign markets to reinforce each other.
Wang, from the Institute of International Trade in Services, said, "As regional economic and trade cooperation will be continuously strengthened and enhanced under the agreement, China is expected to establish stronger and more comprehensive economic cooperation with other RCEP members."
He added that through wider opening-up in trade and investment, China will see improved performances by industrial and supply chains and better interplay between domestic and foreign markets, which will assist the new dual-circulation development pattern.
Hiroshi Hamaguchi, president of global pharmaceutical company Astellas' Greater China Commercial, said that since entering the country in 1994, the business has witnessed China's significant achievements in economic growth. It is even more confident about business prospects in China now that the RCEP has come into effect, he added.
"Implementation of the RCEP is another milestone for China opening up to the rest of the world, demonstrating the nation's determination to pursue high-quality development and all-around high-level opening-up," he said.
Astellas recently upgraded its corporate structure in China. Astellas China Investment Co and Beijing Astellas Medical Co have been established, based on the existing Astellas Pharma China Inc, to jointly promote robust development for the business overall in China.
"China's improving business environment and high-level opening-up will provide more opportunities for Astellas to turn innovative science into value for patients. We aim to become a leader in oncology and specialty medicine in China," Hamaguchi added.
Zhang Jianping, director of the Center for Regional Economic Cooperation at the Institute of International Trade in Services, said China has made strenuous efforts to create the conditions for implementation of the RCEP.
Compared with many other FTAs, the agreement, which requires a significant level of openness, has high-standard requirements in many new fields, such as government procurement, e-commerce, competition policy and intellectual property protection.
An e-commerce platform operates in Phnom Penh, Cambodia, which is a member of the Association of Southeast Asian Nations. [Photo/Xinhua]
Zhang said that over the years, China has carried out increased experiments with pilot free trade zones, significantly reduced negative lists for foreign investment, and continuously improved the business environment to align domestic regulations and laws to meet the partnership's requirements.
A negative list is a special administrative measure related to foreign investors' access to specific fields.
Gao Shiwang, director of the industry development department at the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, suggested that as the RCEP has taken effect, the nation should strengthen efforts to open up to the rest of the world and attract more foreign investment to technology-intensive, capital-intensive and emerging sectors.
"We need to expand international cooperation, while encouraging domestic enterprises to strengthen research and development on core technologies to increase industrial resilience," Gao said.
"Chinese enterprises are expected to make good use of the RCEP and adjust their development strategies and improve management of overseas business to better cope with the dual-circulation development pattern and play a better role in the international division of labor and the global value chain," he said.