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RCEP: Build A "Group" Against The Trend And Expand The Capacity Of Free Trade Partners

2020/11/23 17:26:00 58

RCEPTradeInvestmentInternational Observation

On November 15, the world's largest free trade area was announced. After eight years of negotiation and consultation, the 10 ASEAN countries and 15 member countries, including China, Japan, South Korea, Australia and New Zealand, successfully signed the regional comprehensive economic partnership agreement (RCEP).

RCEP member countries have a total population of 2.27 billion, GDP of 26 trillion US dollars, and total exports of more than 5 trillion US dollars, accounting for about 30% of the global total. It has unique development advantages such as the largest population coverage, the most diversified membership structure and the largest development potential.

After the signing of RCEP, China has signed 19 free trade agreements and 26 free trade partners, which not only effectively promotes China's opening to the outside world at a higher level, but also is of great significance to maintaining the multilateral trade system, deepening regional economic integration and stabilizing the global economy.

In this issue, the chamber invited domestic scholars and industry personages in the field of regional cooperation to discuss topics related to RCEP.

Why should the member states that have joined the WTO set up RCEP?

RCEP was initiated by ASEAN in 2012. After 31 rounds of formal negotiations, RCEP has completed the legal review of more than 14000 pages. Recently, RCEP was successfully signed during the fourth RCEP leaders' meeting.

Tu Xinquan: RCEP, as a regional agreement, is further liberalizing trade and investment on the basis of WTO. It's like a pyramid, with the WTO at the bottom and RCEP at the top. It has a smaller coverage and a higher degree of openness.

Generally speaking, each country has close trade partners and will sign more open trade agreements with each other, which can consolidate the development partnership and promote its own economic growth.

China's accession to RCEP is conducive to further opening up and reducing trade and investment barriers. At the same time, China will continue to accumulate experience, enhance the awareness of rules and the level of openness, so as to be applicable to more trading partners in the future. From this point of view, RCEP is similar to the domestic free trade zone, which means "reform pilot field".

Zhu Zhujun: the failure of the WTO "Doha round" negotiation has hindered the process of World Trade and investment liberalization. However, individual countries have built up trade barriers and adopted one-sided industrial return policy, which has led to increased uncertainty in the global economic and trade system, and objectively enhanced the necessity and urgency of signing regional free trade agreements.

The economic and trade frictions between China and the United States since 2018, as well as the global epidemic of new pneumonia this year, have severely damaged the globalization of trade and investment, which aims to improve the efficiency of resource allocation. Many countries have begun to realize that it is better to balance efficiency and security in the supply chain of industrial chain. In this context, RCEP is more practical and feasible in the Asia Pacific region.

What is the difference between RCEP and other free trade agreements?

RCEP agreement is composed of preface, 20 chapters and 4 market access commitments, including trade in goods, trade in services, temporary movement of natural persons, investment, intellectual property, e-commerce, competition and government procurement.

Zhang Jianping: among the countries that have signed free trade agreements with China before, South Korea has the largest economy with GDP of about 1.6 trillion US dollars. RCEP not only includes South Korea, but also Japan, the world's third largest economy, which is a huge breakthrough in volume.

As a new type of free trade agreement, it also has many bright spots, such as progressive zero tariff, regional cumulative rules of origin, negative list of service trade, etc. its contents expand from traditional trade in goods, service trade and investment to intellectual property protection, competition policy and other trade and investment rules in the 21st century.

Zhuzhujun: obviously, RCEP is a very inclusive regional agreement. During the RCEP negotiations, Japan and other member states have always held reservations on the liberalization of agricultural product protection; in the field of service trade, developing countries, including China, also have their own considerations on whether to adopt a high-level opening-up with a negative list at the beginning; in addition, the United States has carried out large-scale manufacturing backflow, intervened in the TPP, and the negotiations on the free trade zone between China, Japan and South Korea are not smooth Factors caused the RCEP negotiations to delay repeatedly.

Shen Minghui: because the main member countries are good at manufacturing, RCEP emphasizes trade in goods more than other regional free trade agreements, and the relevant provisions in this respect are more detailed.

In the past, many free trade agreements adhere to the unique origin standard, such as adopting the conservative regional value composition principle, which is conducive to safeguarding the internal interests of the region. However, RCEP allows the regional value component principle and tax classification to change the standard in terms of the rules of origin, which is more flexible for enterprises in the region.

In the past, the certificate of origin of manufacturers in the region had to go to the Council for the promotion of trade or the import and export inspection and quarantine department for certification. RCEP carried out experimental exploration in this respect, and manufacturers could take self certification. Because of the fear of cheating, only large enterprises in developed countries had the qualification to self certify. This breakthrough was unimaginable in developing countries in the past.

Generally speaking, RCEP has explored new areas, which is inclusive and comprehensive, and is suitable for the diversity of economic development levels of member countries.

What obstacles should China, Japan and South Korea overcome in speeding up the construction of "small groups"?

Through the signing of RCEP, China and Japan have established a free trade relationship, which is the first time that China and Japan have reached a bilateral tariff reduction arrangement, and it is also the first time that China has signed a free trade agreement with the world's top ten economies, increasing the trade coverage between China and its free trade partners to about 35%.

Zhang Jianping: at present, the annual trade volume between China and Japan is 315 billion US dollars. With the trade creation effect brought by RCEP and the increase of investment, the trade volume between China and Japan is expected to move forward to the level of US $500 billion.

With the foundation of RCEP, the China Japan South Korea free trade zone is also expected to accelerate. In the future, it will form a free trade area with higher standard and higher gold content than RCEP, and will play a leading role in the process of economic integration in East Asia.

The latest free trade agreements between Shen Hui and South Korea, as well as with China, have been passed. Japan's tax cuts on China's commodities mainly focus on textile and clothing, light industrial materials, agricultural products, and so on. These industries will usher in favorable conditions in the future.

Zhu Zhujun: the industries of China and Japan are highly complementary. Japan's advanced machinery and equipment are urgently needed by some industries in China. However, China, Japan, South Korea and Japan have not signed a bilateral free trade agreement. The signing of RCEP will promote mutually beneficial cooperation between China, Japan and South Korea. In terms of economic volume, China, Japan and South Korea may lead the development of the FTA, form a growth pole effect, and have a positive spillover effect on the developing countries of ASEAN.

After the signing of RCEP, China can attract more Japanese investment, and the investment in Japan is expected to be strengthened. In the past, the effect of China's investment in Japan and South Korea was not particularly ideal, and there are opportunities to change for the better. The demonstration effect of RCEP may make the bilateral and trilateral FTA between China, Japan and South Korea more smoothly.

Tu Xinquan: Japan's foreign investment mainly faces the United States and East Asia. RCEP gives Japan an incentive to expand its investment in East Asia. China is the most important market in the Asia Pacific region. The high-level protection of intellectual property rights in RCEP will also eliminate Japan's concerns about investing in the Chinese market.

RCEP has reassured us that East Asian economic integration will continue to advance. However, it should be said that it is more difficult to build a China Japan ROK Free Trade Zone in the short term. Trilateral agreements are often more difficult to negotiate than regional agreements with multinational participation, because the interests of each other are not easily balanced. The three countries are highly competitive in industry, and there are also some internal resistance. In addition, the RCEP negotiation promoted by ASEAN and participated by 15 countries has less opposition; the relationship between China, Japan and South Korea is complicated in reality, and the FTA negotiation is easy to be politicized. We are pushing forward with a positive attitude, but we need not rush for success.

Where is made in China?

The core of RCEP lies in "free trade", while the core of free trade is to "eliminate tariff barriers". After the agreement comes into effect, more than 90% of goods trade in the region will eventually realize zero tariff, and mainly reduce the tax to zero immediately and within 10 years.

Tu Xinquan: RCEP development gradient is relatively complete, including developed countries such as Japan and South Korea, as well as several relatively backward countries in ASEAN. Between the two, China's manufacturing industry will inevitably be impacted by Japan's advanced manufacturing industry, facing certain pressure. At the same time, some ASEAN countries may continue to shift to low-end manufacturing industries.

While opening up brings pressure, competition can also stimulate progress. From the past experience, Chinese enterprises have a strong ability to cope with pressure and adapt to the market. Before China's entry into the WTO, many people also worried about "the wolf came", but later some people said, "the Chinese ate the wolf.".

In the economic and trade frictions between China and the United States and the new outbreak of pneumonia, China's market players have shown considerable competitiveness. The expansion of opening up will further improve the market economic system and bring more flexible adjustment space for enterprises. In the high-end electrical appliances industry, for example, China's textile industry has the biggest competitive advantage.

In addition, the signing of RCEP is also China's contribution to the development of regional cooperation. The world economy is in a downward range. Some countries are engaged in trade protectionism. Countries in the region should strengthen cooperation to ensure the supply chain of regional industrial chain.

Zhang Jianping: under the RCEP framework, most industries in China will benefit in varying degrees, and some industries may face greater competition pressure. For example, textile, clothing, bags, shoes and hats and other industries, with the increase of domestic comprehensive costs, some factories have been transferred to lower cost ASEAN countries, and similar enterprises without transfer have increased the competitive pressure.

Shen Minghui: in terms of e-commerce, RCEP has cancelled some restrictive provisions, which will help Chinese enterprises to explore emerging markets in Southeast Asia.

Cosworth: China is the world's largest manufacturer and exporter of mechanical and electrical products. At present, China's import and export volume of mechanical and electrical products to RCEP countries is increasing. The design and manufacturing industries in the Asia Pacific region are mainly represented in the information manufacturing industry. The landing of RCEP is conducive to the stability of the Asia Pacific industrial chain, and its core position in the field of electronic information manufacturing will be more stable.

In recent years, affected by the rising labor costs, some electronic information enterprises have withdrawn from China, but we should take a positive view of this normal industrial transfer. On the one hand, the transfer out is usually relatively simple assembly process, and the core link is not easy to transfer. Samsung, for example, has been increasing its investment in China's semiconductor memory chips and power batteries in recent years, although its mobile phone and TV assembly plants have been transferred to Vietnam.

On the other hand, the traditional manufacturing industry is also gradually replacing the machine, the domestic labor force is more transferred to the service industry, and part of the labor force is invested in high-tech fields such as research and development, which is the inevitable trend of future industrial development, and will also help the high-quality development of China's economy.

Why pay attention to the "ID card" of products when enjoying preferential tariff?

Products enjoy preferential tariff, must meet the rules of origin. One of the most important breakthroughs of RCEP is to coordinate quite different rules of origin in ASEAN's existing trade agreements and set up the "regional accumulation principle".

Shen Minghui: like ordinary people, products also have "ID card" - Certificate of origin. According to the rules of origin, a member country can enjoy preferential tariff or zero tariff if it directly exports its raw materials to other member states; if it can be proved that these semi-finished products or parts are imported from other Member States and then exported to other Member States, if it can be proved that these semi-finished products or parts come from other Member States, the rules of origin shall also apply.

Zhang Jianping: not all products in the free trade area can enjoy preferential tariff treatment. For example, according to the traditional free trade agreement, if a product is exported from China to other member countries, the added value of its origin in China must reach the standard of 40%, for example, in order to enjoy zero tariff.

However, RCEP adopts the rules of origin of regional accumulation, which breaks through the limitation that only the added value of products in the origin meets the standards specified in the agreement. For example, the added value of a certain product in China is only 10%, while the added value of parts from Vietnam, Malaysia and the Philippines accounts for 10% respectively. After the regional accumulation reaches the 40% standard, they can also enjoy zero tariff.

Shen Minghui: in the past, some regional free trade agreements only allowed bilateral accumulation. For example, when a member country's products are to be exported to another member country, only semi-finished products between the two countries are allowed to accumulate, and other countries in the region are not allowed to accumulate.

Obviously, the principle of regional accumulation can reduce the cost of regional supply chain, promote the free flow of means of production or elements, allocate to the most efficient place, and improve and optimize the whole regional industrial chain and value chain.

Zhang Jianping: at present, products are basically divided by labor within products. Each production link is usually distributed in different countries, forming a division system with processes, sections and links as the object. The regional accumulation principle of RCEP helps to encourage the construction of new supply chain system and production network system in the region, not only reduces the cost, but also significantly improves the efficiency and promotes the prosperity of regional trade and investment.

Why are member states making different progress in opening up trade in services?

In terms of trade in services, seven member states such as Japan, South Korea, Australia and Singapore adopt negative list commitment, while the remaining eight member states such as China adopt positive list commitment, which will be converted into negative list within six years after the agreement enters into force. China's commitment to opening up trade in services has reached the highest level of existing free trade agreements.

Shen Minghui: in the RCEP opening negotiations, although there are still various trade protections, such as Japan's protection of the five major agricultural products, the manufacturing industry accounts for a large proportion in most economies in the Asia Pacific region, and the opening of most industrial products is relatively difficult, and countries are more confident in the opening up of trade in goods.

But trade in services is not the same. For developing countries, trade in services is not a dominant industry, but also involves telecommunications, finance and other relatively sensitive industries. In some countries, not only laws and regulations are not perfect, but also unclear which ones involve personal privacy and national security. At present, the service trade of these countries is still in the primary stage, and they are more cautious in opening up and need to be carried out in stages.

Zhang Jianping: the difficulty of opening up service trade is not only the problem of market access, but also the requirements and specifications of qualification, as well as the contents that need to be certified and recognized in the specific process of service industry management. When the door is opened, it is often found that there are two doors, three doors, or glass doors, spring doors.

Therefore, the complexity of opening up the service industry and the complexity of rules are much greater than those of trade in goods.

Tu Xinquan: there are many kinds of service trade, such as goods transportation, traveling abroad, and even buying a commodity from abroad through the Internet. Different service industries have different contents and different forms of opening up. Each industry has to consider different scenarios and make specific provisions.

As the factor mobility of service industry is not as good as that of trade in goods, the opening of service trade is more challenging to domestic corresponding industries. For example, it is more difficult for the local accounting firms to be affected by the collapse of local workers. Compared with the trade in goods, the degree of openness of service trade in various countries is lower, which is a common phenomenon in WTO and regional free trade agreements.

The number of service sectors that China promised to open in the form of a positive list this time is based on the commitment of China's accession to the WTO of about 100 departments, adding 22 departments such as R & D, management consulting, manufacturing related services, air transportation, etc., and improving the commitment level of 37 departments such as finance, law, construction, and shipping, and the degree of openness has exceeded the current domestic standards for foreign investment.

At present, China is compiling a negative list of cross-border service trade, and its opening level should be lower than the requirements of RCEP. Through this time difference, we should take the initiative to start with the negative list we have compiled, and gradually adjust it to the RCEP level, and then the two lists should be combined.

Shen Minghui: on the one hand, during the six-year transitional period, we need to further promote the experience that can be replicated and popularized, especially the experience of opening up the service industry, to the whole country, and test our affordability and acceptance.

On the other hand, we should compare the positive list with the negative list after the future transition period from multiple perspectives, and determine the real negative list by combining the domestic and international platforms.

Zhuzhujun: if we successfully switch to the negative list after six years, it means that many restrictive conditions will be removed, which will promote our deepening reform. Expanding opening up to promote development, reform and innovation is the general direction.

Of course, there is a trade-off between expanding openness and risk control. Service departments should control systemic risks, such as the financial industry, which may involve the opening of capital accounts. In order to deal with the negative list after the transition period, it may be necessary to issue a supporting early warning policy.

The competitiveness of service industry in RCEP countries, including Japan and South Korea, still lags behind that of Europe and the United States. However, European and American enterprises should set up local companies in RCEP region to participate in the competition.

How long will it take from signing to taking effect?

The entry into force of RECP requires the approval of at least 9 member states of 15 member states, including at least 6 ASEAN members and at least 3 of China, Japan, South Korea, Australia and New Zealand.

Shen Minghui: according to past experience, one and a half years is fast. Like the cptpp, Malaysia has not yet been approved by Congress. I estimate that RCEP will take effect as soon as may or June next year, but I am afraid that the international situation will change during this period. In the next stage, countries need considerable interaction in order to effectively promote the adoption of the agreement.

Zhang Jianping: now it is mainly waiting for the approval of the legislative bodies of various countries. The efficiency of different countries is different, and the procedures are also slightly different. It is not ruled out that various problems may arise in the legal process in individual countries. For example, will Japan or Australia be affected by international factors and make some noise in the legislative process? But I think that in view of the new pneumonia epidemic and the pressure of the global economic recession, countries will eventually make a rational and wise choice.

Tu Xinquan: after years of negotiation, RCEP was officially signed after being recognized by all parties. RCEP is not a regional free trade agreement dominated by one or two big countries. During the negotiation process, no country exerted pressure on other countries to force them to accept certain provisions against their will. Moreover, the terms of RCEP remain flexible, and countries have certain discretion.

Shen Minghui: after the agreement comes into effect, we should also pay attention to maintaining the vitality of RCEP. According to past experience, several years after the agreement came into force, some provisions may not adapt to the new situation. For example, in the process of further opening up trade in services, new provisions may need to be added. In the future, RCEP should conduct a new upgrade negotiation every few years. If the negotiation goes smoothly, RCEP will have lasting vitality and be conducive to the sustainable development of the whole East Asian economy.

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