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RCEP a shot in the arm for Singapore, Asean economies
SUNDAY'S milestone signing of the Regional Comprehensive Economic Partnership (RCEP) ushers in a new era of trade and investment openness, diversity and resilience to South-east Asia and its partners. Nearly a decade and 31 rounds of negotiations in the making, RCEP is touted as the world's largest trade deal. Involving Asean, China, Japan, South Korea, Australia and New Zealand, it accounts for 30 per cent of the world's population and 29 per cent of global gross domestic product (GDP).
While the pact will eliminate tariffs and quotas on 65 per cent of goods traded within the region (moving to 90 per cent over 20 years), clearly some provisions have been moderated to accommodate the concerns of such a diverse group. For example, it does not have unified standards on labour and the environment, nor does it commit countries to open services. But that does not take away from what is an incredible achievement in aligning a diverse group of countries.
It also the belies the wider benefits that this pact presents the region.
THE ASEAN OPPORTUNITY
RCEP has the ability to be a counter-ballast to the emerging trade protectionism that has accelerated this year, and suggestions that companies and countries will re-shore or near-shore their supply chains in the face of the pandemic and other trade tensions
Not only does RCEP maintain trade openness, it can also deepen Asean's connectivity with China, South Korea and Japan which are the global heavyweights for the electronics, cars, textiles and garments industries, upon which the region is reliant. Having each of these markets within the trade pact means Asean can retain its supply chain relevance across these sectors.
RCEP will reignite Asean's foreign investment which has been a key driver of the region's manufacturing, infrastructure and export growth over the past 20 years, but which has tapered off in the past few and has almost ground to a halt this year with Covid-induced economic lockdowns. The combination of economic reopening and RCEP could be the panacea to renewed investment from the likes of China and Japan.
RCEP can help drive important domestic regulatory reforms in areas such as labour laws, investment liberalisation, cyber security, cross-border data rules and intellectual property protection. Such reforms create less visible but material commercial incentives for trade and investment from member partners, which will only accelerate as supply chain dynamics change.
The new deal also aims to streamline the various overlapping preferential trading arrangements that most RCEP members already have with each other by establishing common trade rules. This should help to reduce trade costs for businesses.
THE SINGAPORE OPPORTUNITY
Singapore's situation is unique because of its free port status. Hence, every trade agreement that the city state signs means more market access for local firms and more commercial activity for Singapore's ports.
Obviously, the clear sector winners for Singapore will be linked around the shipping and logistics ecosystem. However, the pact will also be a boon for the electronics sector. This is because of the protection that RCEP extends to intellectual property which safeguards Singapore as a high-end manufacturer.
Coupled with granting Singapore greater access to Japanese, South Korean and Chinese markets and its emphasis on electronics and precision engineering, it could lead to larger trade volumes and a bump up in supply chain activity.
HOW BUSINESSES CAN PREPARE
While the signing of RCEP is a positive move, there will be some time before it actually gets ratified and comes into force. In terms of next steps, the deal is expected to take effect sometime next year once parties complete their domestic ratification procedures. RCEP will reportedly enter into force once it has been approved by either half the membership or by six Asean economies and half of the non-Asean parties
But that should not stop businesses from preparing now. As businesses assess the long-term implications of RCEP on their paths to recovery, there are some immediate steps that can be taken to get ahead of the curve.
By reviewing their current commercial relationships, companies can identify gaps and understand where the greatest potential lies to forge new ties and tap into some of the fastest growing consumer markets.
They can also look at how their current supply chains - regional or global - map against RCEP. Those who work now to understand how the deal could impact their business model will reap the greatest benefits in the future. This is not only important to companies based in the member markets, but to any firms doing business in the region.
Finally, an in-depth understanding of RCEP and its impact on tariffs for each group of goods and services will be critical for firms to re-assess their pricing strategies and maintain their competitive advantage.
PRAGMATISM OVER PERFECTION
In more precarious times, such as we have now, the choice is made clearer: either we recognise, accept and embrace change and put ourselves in a unified position to seize opportunities; or we face being left behind.
RCEP is by no means perfect, but it is a step in the right direction towards Asia becoming a coherent trading zone - at a time when global economic prospects are quite dim. It may seem counterintuitive, but the current challenging economic outlook could actually be the perfect time for South-east Asian countries to make strong and far-reaching economic and trade policy action. And that is what RCEP constitutes.
- The writer is CEO of HSBC Singapore