Client Alert: Overview – Regional Comprehensive Economic Partnership (RCEP)

The Regional Comprehensive Economic Partnership (“RCEP”) is a modern comprehensive free trade agreement in the Asia-Pacific region comprising 10 ASEAN countries and 5 Free Trade Agreement (“FTA”) partners (China, South Korea, Australia, and New Zealand).  Its 15 member countries consist of the largest trade bloc and penetrating 30% of the world’s population. This mega-deal signed on 15 November 2020, expected to take effect within two years after ratification by its member countries. With the COVID-19 crisis resulting in global uncertainties, this trading bloc will stimulate the economy by further promoting an open, inclusive, and rules-based multilateral trading system by bringing the market and employment opportunities between businesses and for the people within the region.

The agreement consists of 20 chapters, 20 Articles, and 4 annexures, covering those areas not previously, covered in the ASEAN – FTA. The key feature of this trade bloc is to achieve a modern, comprehensive, high-quality, and mutually beneficial economic partnership among the ASEAN member states and ASEAN’s FTA partners.

The negotiation is based on the principles of the World Trade Organization including General Agreements on Traffic and Trades (Article XXIV) and General Agreement on Trade in Services (Article V) and is an improvement over the existing ASEAN FTAs, without diminishing the terms and conditions as agreed either in the ASEAN -FTA or in the bilateral agreements, by the participating countries. It also promotes regional development by granting special and differential treatment to the least developed countries (e.g., Cambodian, Laos, and Myanmar). *

The key areas covered are, in relation to trade in goods, trade in services, investment, temporary movement of natural persons, rules of origin, customs procedures and trade facilitation, trade remedies, intellectual property, competition, government procurement, and institutional provisions. We have for your understanding summarized the key chapters of the RCEP agreement as follows:

• Trade-in Goods, Rules of Origin, Customs Procedures (Article 2 to Article 4)

It provides national treatment to the goods between the participating countries, to reduce or eliminate customs duties, provide temporary duty-free admission of goods based on the WTO principles, including the elimination of export subsidy for agricultural goods. It determines the tariff treatment in cases of different tariff preferences by the participating countries and for non-tariff it encourages tariff liberalization by the elimination of quantitative restrictions, import licensing procedure, fees, and formalities which will help least-developed ASEAN countries to grow by the participating countries.

Under this agreement, ROO applies to originating goods and provides them with preferential treatment by prescribing rules to determine the originating status of goods. If the goods are unable to obtain originating status on account of non-originating materials then based on its geographical location within the participating countries it can acquire its originating status or if due to the change in traffic classification, then by de minius rule it can obtain originating status. It applies to all packing and packaging materials, containers for transportation and shipment, the treatment of accessories, spare parts, and tools.

The agreement has simplified the customs procedure within participating countries based on the traffic classification, rules of origin, and customs valuation and period for clearance of goods also a -post-clearance audits along with prescribing procedures for authorized operators

• Trade-in Services (Article 8)

The principle concerning trade in services based on the General Agreement on Trade in Services (GATS) and by reducing restrictions and/or by eliminating discriminatory measures for trade in services between the member countries and to liberalize sectors and modes of supply between ASEAN- FTA partners. Under this article, any party making commitments for national treatment, market access, most favored nation treatment, or local presence must commit subject to non-conforming measures or specific commitments or any additional commitments as necessary. The trade-in services include sectors such as financial services, telecommunication, and professional services as described in the annexures.

• Temporary Movement of Natural Persons (MNP) (Article 9) 

The temporary entry and stay of natural persons apply to persons engaged in trade in goods, the supply of services, or the conduct of investment and includes business visitors; intra-corporate transferees; or other categories as may be specified in each schedule between the participating countries. It shall not apply to natural persons seeking access to the employment market, or nationality, citizenship, residence, or employment permanently.

• Investments (Article 10)

It aims in creating a liberal, facilitative, and competitive investment environment in the region through promotion, protection, facilitation. It defines investment as investors of another party and covered investments and excludes government procurement, subsidies or grants, services supplied in the exercise of governmental authority neither on a commercial basis nor in competition with one or more service suppliers, trade in services, and temporary movement of natural persons. Under this, it also includes the most favored nation clause (MFN) for the least developed countries and each participating country must treat investors of the other party equally as their investors. Under this chapter, it allows the use of any freely usable currency as determined by the IMF to a covered investment

• Intellectual property (Article 11)

It reduces the IP-related barriers to trade and investment by promoting economic integration and cooperation in the utilization, protection, and enforcement of intellectual property rights and by providing a mechanism for protection and enforcement of intellectual property rights in principles with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement).

• Electronic Commerce (Article 12)

It encourages the use of e-commerce between the parties and to improve trade administration and processes through electronic means by adopting or maintaining a standard legal framework to create a conducive environment for e-commerce development through protection of personal information of the user and provides protection to consumers using electronic commerce and issues relating to data, through the location of computing facilities and cross border transfer of information.

• Competition Law (Article 13)

It includes the provision of competition law to form the basis for the participating countries to cooperate in the promotion of fair competition, economic efficiency, consumer welfare, and the curtailment of anti-competitive practice.

• Dispute Settlement (Article 19)

Lastly, the agreement prescribes a mechanism for settlement of a standard dispute between its member states through the choice of forum, alternatives methods of resolving the dispute including protecting third party rights. It further also elaborates on the functions of panels, procedures, implementation of the panel’s final report, proceedings, compensation, and suspension of concessions or other obligations as deemed necessary. If at any stage it involves Least Developed Country Party, then the parties shall exercise a due restrain and consideration to the special situation of Least Developed Country Party.

Furthermore, the other key chapters in the agreement include government procurement, small and medium enterprises, economic and technical cooperation, and others.

While, it does boost investments in sectors like e-commerce and manufacturing sector, resulting in more investment to the least developed countries Cambodia, Laos, and Myanmar, from developed countries such as Australia, Japan, New Zealand, China, Singapore, and South Korea where production and the operating costs are higher. Also, it permits companies to export their products anywhere within the bloc, along with the reduction in the tariffs and an increase in market access, but the agreement is less comprehensive in comparison to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”).  Under RCEP, the reduction in tariffs may not take place immediately as the bloc needs to adapt to the common principles under its respective domestic laws. However, those participating countries members in both RCEP and CPTPP together will help in offsetting their global losses and pave a way for economic growth by strengthening its technology, manufacturing, and agriculture, by incentivizing the supply chains across the region.

*Article 1.2 (o) & Article 1.2 (p) Least Developed Country means any country designated as such by the United Nations and which has not obtained graduation from the least developed country category; and any Party that is a Least Developed Country. https://www.un.org/development/desa/dpad/least-developed-country-category/ldcs-at-a-glance.html