RCEP: The World's Largest Free Trade Partnership
On November 15th, 2020, 15 countries in Asia Pacific signed the Regional Comprehensive Economic Partnership (RCEP), a landmark free trade agreement. RCEP will create the world’s largest trade bloc and strengthen regional supply chains. There will be a shift within the region towards China (the bloc’s largest member) away from the US and Europe, laying the foundation for a new world order.
Key Agreements of RCEP
1. Elimination of Tariffs: RCEP will eliminate 92% of tariffs between member countries implemented progressively over the next 20 years.
2. Standardization of Rules of Origin: Rules of origin, which define where a product comes from, will be standardized. Exporters will only need to fill out one set of paperwork to trade goods across the region.
3. Simplification of Customs Clearance: Customs procedures will be simplified such that goods, particularly express shipments and perishables, will be released within six hours of arrival
4. Opening of Services: 65% of service sector will be open to member investment. Limits on foreign shareholding will be lifted across industries (e.g., financial services, telecom, computers services and logistics)
5. Streamlining of Investments: Market access will improve. Processes for investors entering, expanding or operating in member countries will be streamlined.
According to economists, RCEP is expected to add approximately US$200 billion to global GDP and US$500 billion to world trade by 2030. Regional trade will increase disproportionately. In particular, improved market access will create and strengthen Asian supply chains. RCEP will also affect trade flows. Asia will likely become China’s largest trading partner, displacing the European Union. China, as the largest RCEP member, will drive regional flows and expand its “Belt and Road” investment in the region.
Geopolitically, RCEP will help create an Asia superpower,
shifting the global balance of power towards the East. Asia will likely orient itself increasingly towards China, and away from the US and Europe. As a result, likely China will grow in power and stature in the region, and globally.
Implication for investors
For investors, RCEP highlights the growing importance of Asia and China in a forward-looking portfolio. The ACATIS QILIN Marco Polo Asia Fund, with it‘s focus on growth and value in Asia, is uniquely positioned to capture the emerging RCEP investment opportunities.