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  • 14 Jul, 2022
  • 4 min read

How the RCEP Affects ASEAN Businesses

How the RCEP Affects ASEAN Businesses

The Regional Comprehensive Economic Partnership was ratified in January this year.

What is this initiative, and how does it affect businesses in the Southeast Asian region?

What is the Regional Comprehensive Economic Partnership (RCEP)?

The Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement between the 10 ASEAN nations and their 5 non-ASEAN partners:

  1. China
  2. Japan
  3. South Korea
  4. Australia
  5. New Zealand

Its goal is to reduce tariffs and barriers to trade and investment among the 15 countries involved.

The scale of the agreement is notable — RCEP signatories make up 27% of global GDP and 30% of the world’s population, including the current world manufacturing champion, China.

In short, RCEP is now the biggest trading bloc the world has ever seen.

At the surface level, the partnership’s scale alone would make it a major accomplishment for all involved, and yet some see the agreement as not much more than a coup for China alone.

Critics say the RCEP will further entrench China’s dominance in the global supply chain and that the terms of the agreement were heavily tilted in Beijing’s favour.

These are valid concerns, but it is essential to remember that ASEAN businesses can benefit greatly from increased access to 30% of the world’s population.

Let’s take a look at the reality of the situation and why it is believed that ASEAN markets will see significant growth as a result of the RCEP.

Related Read: A SEA of Opportunities: Understanding Southeast Asia

What Are the Benefits of the RCEP for ASEAN Businesses?

The RCEP presents several benefits for ASEAN businesses. Let us take a closer look at them below:

Greater Competitivity in China

Increased access to the Chinese market is one chief advantage.

More than 65% of traded goods are expected to have all tariffs removed immediately and should rise to 90% in the next 20 years.

This reduction in tariffs will make ASEAN goods more competitive in China and provide a much-needed boost to businesses in the region.

The RCEP also includes provisions for increased cooperation on e-commerce, intellectual property, and competition policy — areas where ASEAN businesses are typically weaker than their Chinese counterparts.

Leveling the playing field in these areas allows the RCEP to give ASEAN businesses a chance to catch up and compete on a more equal footing with China, the economic monolith.

Unparalleled Access to a Wide Network and an Economic Opportunity in Supply Chain Shifts

It’s also hoped that the RCEP will help ASEAN countries gain further access to China’s ultra-ambitious Belt and Road initiative, and with it, access to the 147 countries that have signed to it.

The agreement also allows China to shift its supply chains to ASEAN countries for lower cost bases and improved efficiency. ASEAN businesses would be foolish not to try and take advantage of this.

In the process, China would be pumping millions into poorer ASEAN countries, developing their manufacturing economies.

Related Resource: Pro Business Podcast Series – Season 2

Greater Ease of Expansion

Another key benefit of the RCEP for ASEAN businesses is the increased certainty.

The RCEP includes a number of mechanisms to resolve disputes between businesses (known as the ASEAN way) and will provide greater clarity on regulations and standards across the region.

This increased certainty will be a boon for businesses operating in multiple jurisdictions and will make it easier for them to expand their operations into new markets.

Overall, the RCEP is expected to increase trade between the participating nations by $42 billion.

With ASEAN countries making up a large chunk of the partnership, it’s likely to benefit the region’s businesses significantly.

Related Read: Vietnam Expected to Lead ASEAN Growth in 2022 — A good thing for Southeast Asian Businesses

How Will the RCEP Affect ASEAN’s Relationship With China and the Other Countries in the Agreement?

The RCEP is likely to have a number of impacts on ASEAN’s relationships with China and other countries involved in the agreement.

Gain better leverage when dealing with other leading economies

Firstly, it will strengthen ASEAN’s position as a key player in the global economy. The RCEP is the largest free trade agreement ever signed, and ASEAN’s involvement gives it significant weight.

This increased influence will give ASEAN more leverage in its dealings with other major economies, and allow it to shape the rules of global trade to its advantage.

Encourages Strong Innovation and Growth

Secondly, the RCEP is likely to increase competition between ASEAN businesses and their Chinese counterparts.

As mentioned above, the RCEP levels the playing field by giving ASEAN businesses increased access to the Chinese market and reducing tariffs on goods.

This increased competition will force businesses in both regions to up their game, and likely lead to innovation and growth.

Related Read: Staying Connected: How Singapore Maintains Strong Business Connections

Provides an Opportunity to Improve Economic Integration With China

Lastly, like it or not, the RCEP is likely to solidify China’s position as ASEAN’s largest trading partner and cement China’s role as a continued leader in the world economy.

This increased dependency on China may give Beijing more sway over ASEAN decision-making, but it also presents an opportunity for ASEAN to deepen its economic integration with China.

The RCEP is Ultimately Beneficial for Businesses in Southeast Asia

The RCEP is a complex and far-reaching agreement that will have a significant impact on ASEAN businesses. The benefits of the agreement are clear, but it’s also important to be aware of the challenges it presents.

But, overall, I believe the benefits for ASEAN businesses outweigh its challenges.

The RCEP presents a unique opportunity for ASEAN to increase its economic force by driving economic recovery, level the playing field with China, and deepen its integration with what is now the world’s largest trading bloc.

FAQs on RCEP

  • The RCEP benefits Singapore by:
    • Integrating into global supply chains further
    • Boosting the city’s standing as a financial and business hub in the region
  • The RCEP helps to support foreign investment by boosting trade flows and promoting foreign direct investment (FDI).
  • The slew of opportunities the RCEP presents to the region means that it makes good business sense to expand your business here. Our incorporation veterans at InCorp are here to help!

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InCorp Content Team

InCorp's content team includes talented copywriters from our regional group and globally. We contribute informative, thought leadership, and market-trending articles to guide aspiring business entrepreneurs to a higher level across the Asia-Pacific region.

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