The Hong Kong government plans to start talks to join the Regional Comprehensive Economic Partnership (RCEP) next year. The RCEP, the largest free trade agreement in history, will have the effect of lowering tariffs, expanding trade in services, harmonizing rules of origin and establishing Hong Kong’s role as an important gateway to her 15 cities in the Greater Bay Area. There should be The Hong Kong government anticipates early accession to the agreement.
Economic effect
Hong Kong is preparing to join RCEP, the world’s largest free trade agreement. The agreement, which entered into force in most member states on 1 January 2022, covers 30% of the world’s population (2.2 billion people) and has a combined Gross Domestic Product (GDP) of US$38 trillion, making it the world’s third largest economy. 1/1. world GDP.
Accession to RCEP provides Hong Kong’s preferential tariffs to its member states. Improving mechanisms to deal with non-tariff barriers, such as customs clearance, quarantine and technical standards. A set of common rules for intellectual property, trade and e-commerce.
Even before Hong Kong joined, the Brookings Institution estimated that RCEP would generate nearly US$300 billion in profits by 2032, when RCEP provisions begin to take effect.1 According to the Hong Kong Trade Development Council’s research report, RCEP will “improve member states through measures to facilitate trade, eliminate tariffs, minimize non-tariff barriers, facilitate e-commerce and expand market access. It is widely expected to strengthen economic integration between Asia and Asia.” (The report notes that in 2020 alone, imports and exports from 15 RCEP members will total more than US$10 trillion, with all the accounts for about 70% of the trade in Oceania.
However, the RCEP is often compared unfavorably to the more ambitious subject of another large multilateral Asian trade agreement, the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP). In contrast to CPTPP, RCEP is more limited in scope. The RCEP has a narrow range of products covered and limited provisions for liberalizing trade in services, with a long period of time before many tariffs are fully eliminated. Unlike the CPTPP, the RCEP also does not have investor dispute resolution.
member
RCEP brings together many of the major Asian economies into a regional framework that includes China but excludes the United States. RCEP members include the entire Association of Southeast Asian Nations (ASEAN) (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Thailand, Vietnam and Singapore) as well as ASEAN’s major trading partners Australia, China, Japan and South Korea. ,new zealand.
After President Trump withdrew from the Trans-Pacific Partnership in 2017, the US was largely a bystander to the Trans-Pacific FTA negotiations. Early stage.
India is not a member of RCEP. It withdrew after many years as a negotiating party out of concern that its domestic industry could be hurt by cheap products from China and dairy imports from Australia and New Zealand.3
RCEP marks the first time that China, Japan and South Korea, the largest, second and fourth largest economies in the region, will conclude a common free trade agreement for the first time.
Tariff reduction
RCEP will eliminate more than 90% of regional tariffs within 20 years of its entry into force. However, tariff reductions are more limited in scope than those under the CPTPP and other “gold standard” FTAs. RCEP covers about 90% of the tariff lines, while CPTPP covers nearly 100%. RCEP excludes import-sensitive agricultural products from tariff reductions, and there is a long transition period for tariff liberalization for other politically sensitive products.
RCEP will continue to provide significant tariff reductions to key industries in the region. Tariffs on semiconductors and other technology products will also be reduced, benefiting countries such as Brunei, Cambodia, Laos and Myanmar that have not signed the World Trade Organization (WTO) Information Technology Agreement (ITA).
rules of origin
Standardized rules of origin are one of the key improvements brought by RCEP. Products manufactured according to RCEP standards can be transported to all member states using a single certificate of origin. This should give RCEP members an advantage over non-member exporters such as the United States, as companies will be able to manufacture and sell goods across the region with only a single certificate of origin. With so many goods manufactured across the region due to specialization, there used to be a lot of customs clearance. RCEP aims to make it easier for a multinational company to choose his RCEP country that best fits each element of the supply chain.
RCEP also provides U.S. and other multinational companies with the ability to locate production facilities within RCEP areas to ensure priority access to export markets and reduce the cost of assembling products sourced from multiple locations. may encourage you to do so.
dispute resolution
The dispute resolution mechanism contained in Chapter 19 is mandatory and similar to the World Trade Organization (DSU) Dispute Resolution Understanding. According to Section 19.2, the purpose is to “provide effective, efficient and transparent rules and procedures for the resolution of disputes arising under the (RCEP).”
There are certain exceptions. Chapter 19 covers standards, technical regulations and conformity assessment procedures (chapter 6), trade remedies (chapter 7), electronic commerce (chapter 12), competition (chapter 13), and government procurement (chapter 16). ) does not apply to disputes relating to
However, in contrast to the DSU, there is no appeal review mechanism and nothing compares to the WTO’s dispute settlement body. This point is similar to other regional FTAs.
There is provision for consultation before taking action, and the parties are free to choose alternative methods of dispute resolution, including mediation and conciliation (Article 19.7(1)). Complainants may then request the establishment of a panel. There is a mechanism for each party to the dispute to appoint a panelist and then a chair.
Panelists must (1) have legal experience; (2) Experience in international trade; (3) have experience with other matters covered by this Agreement; (4) maintain independence; (5) Not being involved in this case. (6) Comply with the Code of Conduct. (7) Serving in that capacity and not as a representative of any government or organization;
The Dispute Resolution Board will prepare a binding final report after hearing the dispute, including holding a hearing. The respondent who loses the dispute must notify the Complainant that it intends to comply with the report. If immediate compliance is not practicable, they must communicate what they consider to be a “reasonable time” for compliance (Article 19.12(5)).
If the respondent fails to comply, the complainant can initiate a compliance review, resulting in compensation. Alternatively, if a disputing party does not agree to compensation, the Complainant may suspend any concessions made to the Respondent. Both options are temporary measures and not suitable for complying with obligations.
Investor-State Dispute Resolution
RCEP does not currently include investor-state dispute settlement (ISDS). Under Section 10.18, the parties have agreed that the ISDS will be discussed within two years from the Effective Date. ISDS discussions aim to end three years after these discussions began (possibly as early as 2027, but still uncertain).
Currently, Chapter 19 permits interstate disputes involving alleged violations of RCEP’s investment protections, but monetary damages are not available. Remedies are limited to reports finding that the host country has failed to comply with its RCEP obligations (Article 19.15). If the measures are found to be inconsistent with the host country’s obligations under her RCEP, the host country must take steps to ensure compliance. Hundreds of ISDS lawsuits have been initiated under various other investment treaties, but interstate investment disputes are extremely rare.
On the other hand, CPTPP includes ISDS. Investors in the CPTPP region do not need to rely on their home country to undertake procedures to protect their rights. Alternatively, you can sue the host country directly for monetary damages.
For now, RCEP member states rely on pressure on their respective governments to initiate interstate procedures to resolve disputes under the agreement.
RCEP is a strong agreement, but it’s not gold plated
Given its vast geographic reach, significant tariff reductions, harmonized rules of origin, and trade facilitation services, RCEP has the potential to become a regional trade engine. The RCEP will benefit from the maturation of the region’s supply chains and the expansion of intra-regional trade in production hubs, where different producers provide different parts to the finished product. As the HKITC report notes, the relationship between upstream and downstream companies in different production sites will be further strengthened as “most raw materials and intermediate products will be able to move freely without trade barriers. “.
Benefits for Hong Kong
Hong Kong has close trade ties with almost all members and is expected to benefit from joining RCEP. Hong Kong has already signed free trade agreements with many of her RCEP member states, making tariff reductions less important. Still, the RCEP’s favorable rules of origin and trade facilitation section should benefit Hong Kong.
In particular, accession to RCEP is expected to boost demand for Hong Kong’s offshore trade and third-party logistics services. Hong Kong’s long-term status as a dispute resolution hub could also be underpinned by RCEP’s dispute resolution mechanism.
While FTAs around the world have stalled, the momentum given to the RCEP by Hong Kong’s accession has benefited companies headquartered in the beleaguered “Asia’s world cities” and will help strengthen regional trading partners. and will be welcomed by our partners in the global economy.
Businesses headquartered in Hong Kong, suffering from COVID-19 restrictions and supply chain headaches, should welcome the agreement and find ways to take advantage of RCEP’s regional trade benefits.
