On 15 November 2020 10 ASEAN member states (Brunei, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) and 5 Asia-Pacific countries (China, Japan, Korea, Australia and New Zealand) agreed on the Regional Comprehensive Economic Partnership (RCEP), an agreement that can be seen as the world’s largest multilateral economic integration. The agreement, which governments had spent 8 years negotiating on, is believed to cover approximately 30% of the world’s population and GDP.
H&P lawyers have prepared an article focusing on the advantages of this new partnership for Thailand. The RCEP agreement aims to develop and create “modern, comprehensive, high-quality, and mutually beneficial” multilateral economic cooperation by taking into consideration changing and emerging trade practices and trends. In addition, it also broadens coverage from several existing FTAs (Free Trade Agreements) and World Trade Organization (WTO) agreements both in quantitative and qualitative aspects. The agreement contains specific provisions on trade in goods, trade in services, and investment. Provisions on trade in goods include rules of origin; customs procedures and trade facilitation; and trade remedies, while provisions on trade in services cover financial services; telecommunication services; and professional services, as well as the temporary movement of natural persons. In terms of investment, the agreement provides a wide range of provisions covering various business features, including intellectual property; electronic commerce; competition; small and medium enterprises (SMEs); economic and technical cooperation; government procurement; and legal and institutional areas including dispute settlement.
Furthermore, the RCEP agreement also recognizes the individual and diverse economic challenges of the state parties. It addresses issues pertaining to the implementation of the agreement within their domestic contexts and calls for support among the state parties. It also provides flexible provisions for the least developed countries, especially Cambodia, Lao PDR, Myanmar, and Viet Nam to ensure that countries with different levels of development and different stakeholders can benefit from this agreement.
According to the agreement, the so-called “rules of origin” provision seems to be one of the most interesting commitments. The rules of origin are the criteria that determine the national source of a product. Accordingly, they will determine duties and restrictions in several cases depending on the source of imports. Under RCEP, the rules of origin criteria are clearly set out, including the minimum requirements for determining originating status of goods produced in a member state but use non-originating materials. This would allow businesses with global supply chains to ship goods across the member states more easily without having to face different rules of origin criteria for each step in the manufacturing process or in each country crossed. It also gives businesses an incentive to look within the RCEP member states for their production bases or suppliers. Moreover, since imports from any member state will be treated equally, they might want to think about outsourcing parts of their manufacturing process to other countries, especially within the RCEP zone to minimize costs and maximize their benefits.
Apart from the tariff reduction commitments, RCEP states have also agreed to the idea of opening their borders in favor of services trade within the bloc. According to the Annex on Professional Services, the agreement encourages the state parties to mutually recognize each other’s professional qualifications and negotiate arrangements for licensing or registration in professional services sectors, as well as mutually develop professional standards and criteria, including education, examination, experience, conduct and ethics, professional development and re-certification, scope of practice, local knowledge, and consumer protection. Since human resources are one of the main manufacturing costs for businesses, this initiative would help reduce costs for companies by providing avenues for freer movement of labors and increase supplies in professional services within the economic zone. Moreover, it would also help promote the exchange of new knowledge and skills, as well as technology within the member states.
Thailand, as an RCEP member state, could benefit significantly from this trade deal. Since currently its trading values with RCEP countries are worth more than 141 billion USD, accounting for 55.79% of its export values, the agreement would generate even greater market gain to the country. Moreover, concerning the benefits of the rules of origin laid out in this agreement, Thailand is likely to remain the main choice of major production bases in Asia, especially in industries in which Thailand has proven to be excellent in manufacturing and exporting, particularly automotive parts, plastic resins, plastic products, chemicals, rubber, rubber products and electronic components.
According to Thailand’s Department of Trade Negotiations, the country will benefit from the reciprocal reduction of tariffs and expansion of market access in RCEP members states. These include tariff cuts of more than 600 exported goods to South Korea, Japan and China, which cover a wide range of Thai agricultural and industrial products such as vegetables, fruit, beverage, food, fishery products, processed fruit, soybean oil, alcoholic beverage, coconut oil, processed pineapple, pepper, electronic cables and papers. Since Thailand is one of the major exporters of these products in the region, this agreement promises a great increase in the country’s export values.
In addition, the agreement would also open a window of opportunities for many other trade and investment projects in Thailand, including the Eastern Economic Corridor (EEC) which focuses on investing in industries with high value added to the economy. It is believed that the privileges guaranteed under RCEP will attract more foreign investment in the country. Furthermore, the service sector is also expected to be more competitive. In particular, the service sector will need to reduce the level of legal protection to facilitate the free movement of labor and capital. It is anticipated that regulations related to skilled labor and financial services would be specially made more flexible.
The RCEP agreement is estimated to be effective in mid-2021. Not only it could facilitate the expansion of regional trade and investment, but also contribute to global economic growth and development. Consequently, it will help create market and employment opportunities for businesses and people in the member states, as well as incentives for business partners of the RCEP nations. Moreover, the RCEP agreement will also complement the existing FTAs and multilateral trading system, in the hope of eliminating trade barriers and striving towards a free market. In addition, it could play a significant role in boosting the world economy amidst the ongoing COVID-19 situation.
If you need to consult with a lawyer in Thailand on the RCEP, please contact us at [email protected]