A preliminary Assessment of the Regional Comprehensive Economic Partnership (RCEP)

Disclaimer: The views expressed in this presentation are those of the author and do not necessarily reflect the views of the Asian Development Bank, its management, its Board of Directors, or its members. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms A preliminary Assessment of the Regional Comprehensive Economic Partnership (RCEP)


SPS/TBTs
• No WTO-plus provisions for RCEP and less coverage than CPTPP.
• Unlike CPTPP, no provision for the establishment of an SPS or a TBT Committee to bring forward the agenda • Lack of a built-in agenda cast doubts over the effectiveness of market access especially on agricultural and agro-processing products representing an important opportunity for LDCs and middle income RCEP partners

Customs procedures and trade facilitation
• Covers same areas as WTO's Trade Facilitation Agreement and CPTPP.
• Two ambitious WTO-plus issues using hortatory language: 1) Customs clearance of goods within 48 hours of arrival; within six hours for express consignments, 2) Time limit of 150 days for issuance of advance rulings.
• However, coordination on implementation of TFA provisions not included 4 Trade in Services (incl. financial and professional services, and telecommunications) • Scope and structure of RCEP's chapter on trade in services replicate those of ASEAN plus One FTAs and CPTTP.
• As in the case of trade in goods, RCEP does not extend the benefits of previous market access concessions by a Party to the other Parties  exacerbates "noodles bowl" effect • With the progressive adoption of negative list schedules by all Members, albeit with different timelines, RCEP may cover a greater share of overall trade in services • New market access opportunities in a variety of sectors, including educational services, health services, computer-related services, other business services.
• Jointly with ERIA, ADB is carrying out a comparative analysis of schedules of commitments • Three specific annexes on financial services, telecommunications and professional services, with commitments and frameworks for enhanced cooperation containing signs of incremental value.

Investment
Limited expected value added of this chapter given a number of factors: • RCEP investors already covered by many international investment agreements (IIAs) and FTAs ; • Absence of investor-State dispute settlement (ISDS) likely to induce investors to use ISDS that is available in other FTAs and IIAs, rather than State-State dispute settlement mechanism under RCEP. Despite the shortcomings, several positive features including: • Adoption of negative list approach on entry into force, although the list of exemptions from the coverage of the Chapter, is long and affects many sectors; • "TRIMS-plus" prohibition of performance requirements extended to forced transfer of a particular technology, production process, or other proprietary knowledge as well as forced adoption of given rate or amount of royalty under a license contract; How to make RCEP attractive ?
• Multiple FTAs and «spaghetti bowl» effect -the determinants of exporters' choices • the coverage of products, • the extent of tariff reduction (preference margin)  MFN rates and tariff phasing down schedules • the ease of complying with rules of origin.
 RoO Administrative procedures  Form and restrictiveness of PSROs • All these elements are determinant for an effective utilization of the RCEP agreement.

An example of trade liberalization within RCEP
• Tariff-cutting "quick wins" are conditional on compliance with rules of origin.
• If rules of origin requirements are not met, the MFN tariff is levied

RCEP tariff cutting and rules of originpotential benefits
• Tariff savings: lower tariffs and coverage • One set of rules in all 15 countries: RCEP provides the first opportunity to have a common trade platform on rules of origin among members.
• Wide RCEP membership expands geographic scope of regional cumulation: potential to foster regional integration and value-chain creation by providing incentives to source intermediates within the RCEP region. • At the end of the tariff phasing down period, most of these tariffs will be down to zero within the RCEP region.
• High intra-regional trade values • Significant preference margins can trigger substantial tariff savings.
• Will they materialize? And when? How are tariff offers structured? An example: Viet Nam's tariff phase-out under RCEP Note: A1: Ad valorem duties to be reduced to zero upon entry into force; A10: Ad valorem duties to be reduced to zero in year 10 from entry into force and so on; AB1: Ad valorem duties to be reduced to a positive tariff upon entry into force; O: MFN free, no tariff reduction; U: unbound, no tariff reduction; CKD: Complete knock down; TRQ: Tariff rate quota. RCEP intra-regional import shares (2019) and RCEP tariffs phasing dow over years Year since RCEP enters into force RCEP -Intra-import shares by RCEP tariff rate tariff = 0% 0%<tariff≤5% 5%<tariff≤10% 10%<tariff≤20% 20%<tariff≤50% tariff>50% Notes: i) Intra-imports of RCEP countries are taken from COMTRADE data in 2019. ii) Tariff lines with a base rate of 0% and tariff lines subject to non-ad valorem duties are excluded from total imports. iii) Import at the national tariff line level is computed by using the share of tariff line in each HS6 category as a proxy for the proportion of trade of each tariff line within each HS6 category.