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SINGAPORE – Let’s say you are a company that produces lamb curries in Singapore.
With the recently signed Regional Comprehensive Economic Association (RCEP) trade pact, you can buy ingredients like lamb meat and curry paste from 14 other countries and still have the final count of cans or packages of dishes made in Singapore.
This will be more profitable for two reasons.
One, ingredients purchased from the other RCEP countries are considered to originate in Singapore when determining their origins to enjoy preferential tariffs.
Two, perishable goods can be cleared through Customs as quickly as six hours after arrival.
Singaporeans will also be able to enjoy a cheaper lamb curry when the cost savings are passed on to them.
This cascade of benefits is an example of how the RCEP, the world’s largest trade pact signed on November 15, will affect businesses and consumers here.
With the participation of the 10 members of Asean, in addition to China, Japan, South Korea, Australia and New Zealand, the RCEP covers almost a third of the world’s population and contributes around 30 percent of the gross domestic product (GDP ) world.
One of its key achievements is that it eliminates tariffs for about 92 percent of goods traded between members.
Single rule
But the biggest benefit for Singapore is the presence of a single rule for each product that applies to all 15 parts of the RCEP, said Ms Sulaimah Mahmood, RCEP chief negotiator at the Ministry of Trade and Industry.
Previously, different countries had different rules, he added. “If you exported to South Korea, there was one rule; if you exported to Japan, there was another.”
Each of Asean’s trade agreements has different rules of origin.
For example, if a company in Vietnam manufactures a bicycle, it may be eligible under a trade agreement with Japan, but may need different components or manufacturing processes to be eligible under an agreement with South Korea.
“We thought: What would be the best way to consolidate the rules to make it easier for our companies?”
In addition to a single rule, there is also the accumulation of rules of origin (ROO), which establishes how much regional content a product must have before it can enjoy lower tariffs.
Before the RCEP was concluded, many companies in Singapore could only take advantage of existing ASEAN free trade agreements (FTAs) plus one, or trade agreements between the 10-member regional bloc and individual dialogue partners such as Japan, Korea. from the South and China.
Now, the RCEP has opened the door wide. Companies can obtain inputs from any of the other 14 RCEP members, Ms. Sulaimah said.
Food and automotive sectors will benefit the most
While RCEP allows for broader sourcing by businesses, preferential rates are likely not better than those already offered in other FTAs, such as Asean-plus-one FTAs, said Asian Worldtrade managing partner. PwC Management Services, Frank Debets.
“Only if companies require a broader accumulation of originating materials, or if they trade extensively between Japan and China or Korea, is RCEP likely to be more beneficial to them.”
China, Japan and Korea have been trying for years to reach their own trilateral FTA.
Debets added that industries with traditionally higher rates of customs duties, such as food and agriculture, automotive and consumer electronics, benefit the most.
But each company will have to do its homework to determine the exact benefits, which tend to be product specific rather than industry specific, he added.
Visiting Principal Investigator of the National University of Singapore Business School, Alex Capri, said members have made impressive commitments around e-commerce, digital services, intellectual property protection, controversies and other critical areas for digital commerce.
These are areas that align with Singapore’s goals to be a global hub for knowledge and the digital economy.
“The RCEP would appear to be beneficial to small and medium-sized enterprises (SMEs), as the digital economy still presents SMEs with significant barriers to cross-border trade,” he said.
“So these provisions, if actually implemented, would be great for fintech, cleantech, logistics and other sectors in Singapore.”
Business awareness
PwC debets, however, cautioned that the RCEP may not be the most important thing for companies because it is still subject to ratification, and it may be more than a year before the pact takes effect.
“Judging from experience, it may mean that companies don’t see the urgency and forget about the deal, even when it finally goes into effect,” he said.
The agreement will enter into force after six ASEAN countries and three non-ASEAN countries ratify it.
Singapore Business Federation Executive Director Ho Meng Kit said companies could start by reviewing their existing supply sources and considering new markets so they can make the most of RCEP when it goes into effect.
“Trade in services should also critically analyze RCEP’s more liberal market access commitments for services, e-commerce provisions, and intellectual property protection clauses to identify opportunities where they can gain a competitive advantage in this fast growing region, “he said.
He added that the federation is planning a series of outreach activities, starting in December, on the benefits of the agreement.
San SeSan food trader, importer and distributor’s director of business development, Mr. Gary Lee, said his company, in anticipation of RCEP, has realigned its supply chain to mitigate the impact of the US-China trade war. .
Its aim is to take advantage of the RCEP to export to Japan and South Korea with lower or no tariffs, and also expand to the Chinese market, he added.
“Our Thailand-based joint venture factory expanded its capacity in an exchange of US-sourced products, so that we can avoid the high import tariffs on US goods to China.
“On the contrary, we see that many products of Chinese origin are beginning to move in a similar way to factories in Asean to support exports to the United States.”
Mr. Lee also hopes that RCEP will strengthen intellectual property, to counter what he believes has been a proliferation of Chinese companies registering unrelated trademarks that are similar to existing marks.
“We also hope that the RCEP can be expanded to include other countries, including one from the Middle East and North Africa region.”
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