rules of origin

Unpacking RCEP: Benefits for Processed Foods

Unpacking RCEP: Benefits for Processed Foods

Managing multiple agreements for the trade of processed foods can be particularly challenging. Food and agricultural products have always been one of the most sensitive topics in trade agreement negotiations, leaving in place often high protectionist barriers. RCEP negotiators, however, were able to liberalize market access for food products, especially those that include more than one ingredient or are processed in any way. The large geographical scope, 15 countries, and the aforementioned concessions, give RCEP the potential to lower barriers and further facilitate and strengthen the development of regional processed food value chains. To illustrate the potential of RCEP to facilitate food trade in the region, consider a Thailand-based diversified food company making peach jam for export. The company uses peaches sourced from China and produces jam in a factory located in Thailand, where the peaches are chopped and then blended with sugar and pectin. The jam is cooked, pasteurised and packaged in jars for export. RCEP’s potential to lower the costs of trade for this and other processed food firms can be outlined under two key benefits: the elimination of existing tariff barriers between member countries and the lowering of compliance costs for regional processed food trade. In most RCEP members, tariffs for peach jam can be up to 30 and 34 percent. RCEP will eliminate those tariffs for ASEAN-based peach jam producers.

Using RCEP: Swimsuits and Textile Trade

Using RCEP: Swimsuits and Textile Trade

The upcoming entry into force of the Regional Comprehensive Economic Partnership (RCEP) should be helpful to the textile and apparel sectors. It will make it considerably easier to make fabrics and clothing in Asia and distribute them across the region with lower tariff rates or even duty-free treatment. Most important, the rules of origin will be consistent around the region. Given the highly integrated supply chains for these products that span multiple RCEP economies, having rules that better fit existing footprints will be especially helpful. To see how this works, think about a women’s swimsuit. It needs to be able to handle chlorinated and salt water, fit snuggly but not uncomfortably, and have sufficient flexibility in movement to allow swimming, surfing, diving and other water activities. A swimsuit requires high performance fabrics and sophisticated sewing abilities to make a final product that fits a range of body types and is attractive to buyers. As a result of these demands, the supply chain for swimsuits often includes the purchase of specialized fabrics from Japan or South Korea, nylon fabrics from Australia or Korea, and sewing skills from China or Vietnam. The global market for swimsuits (disrupted, as with so many things, by the pandemic in 2020) is still expected to reach US$27 billion by 2027, with growth of just over 5% annually. Existing MFN tariff rates on swimsuits (HS6112) can be quite high across Asia. Australia charges 10% on women’s swimsuits. China’s tariffs are 17.5% for synthetic materials and 16% for other fabrics. Japan has six different categories for swimsuits with base tariffs ranging from 10.9% to 8.4%. Korea levies 13% tariffs. Vietnam charges 20%.

RCEP: A First Look at the Texts

RCEP: A First Look at the Texts

The 15 countries in the Regional Comprehensive Economic Partnership (RCEP) held an elegant virtual signing ceremony on November 15, 2020. The Asian Trade Centre will be delving more deeply into the specific details and producing a series of materials to help companies get ready to use the agreement. For now, here are our first quick technical assessments of the agreement. Note that this early look should not be taken as the definitive guide, as an agreement with 20 chapters and thousands of pages of associated schedules will take some time to unravel. To get a sense of the task ahead, the Korean tariff schedules alone run to 2743 pages. Compounding the difficulties of making a quick assessment: governments can be quite creative in burying important details inside of different provisions. Flexibilities and exceptions are going to be tough to note, understand and unravel. RCEP will, of course, have important implications for trade in the region, for economic integration and for the future of trade policy. This post, however, will focus on the details of the agreement itself. The basic structure includes 20 chapters, making RCEP a comprehensive trade agreement that includes commitments in areas like goods, services, investment, intellectual property rights, competition, trade remedies, standards, e-commerce and dispute settlement. Many of these chapters were not included in the underlying ASEAN+1 agreements that formed the original core of RCEP. Getting these negotiated took significant time, which is partly why RCEP has taken 8 years to reach conclusion. Overall, RCEP represents a significant achievement. The 15 countries involved (Australia, Brunei, Cambodia, China, Indonesia, Japan, Lao PDR, Malaysia, Myanmar, New Zealand, Philippines, Singapore, South Korea, Thailand, and Vietnam) are very diverse in nearly every imaginable dimension. Getting an agreement that could successfully navigate the domestic constraints and starting points in all 15 countries is an important accomplishment. RCEP also represents the first time that many members have engaged in this sort of trade arrangements: especially between China, Japan and South Korea. As expected, this created additional friction as officials grappled with managing outcomes.

Using RCEP: Creating Products for Asia

Using RCEP: Creating Products for Asia

Under RCEP, however, the shampoo company can make shampoo safe in the knowledge that—as long as the content in the bottle comes from anywhere in the 15 markets in Asia meeting the ROOs for RCEP—it can be shipped to any of the 15 markets in Asia without any changes in formulation.  Given the size and diversity of these markets, this is a significant advantage to all Asia-based firms.  Even better, under RCEP, firms will need to fill out only one sheet of paper to prove that their products “qualify” for origin.  The new RCEP certificate of origin (CO) should reduce costs and time for companies.  The extent of the benefits, ie, the lower tariffs on offer, will vary in RCEP.  In some instances, the gap between the MFN rate or existing FTA benefits and new RCEP rates may be small.  But the ability to ship products, like shampoo, across all of Asia without change in formulation, is still extremely significant.  It means that firms will be competitive in markets that they may never have considered in the past. This apparently small element of RCEP is likely to be game changing.  Companies should start preparing now to use this trade agreement.

RCEP: Creating Rules for Trade in Goods

RCEP: Creating Rules for Trade in Goods

Under RCEP, with 16 member countries involved, making a chicken pie should be quite easy with content inside members.  The ROO threshold could be quite high without unduly hampering the ability of firms to comply with the rules.  Of course, not every product is a chicken pie.  This is why RCEP negotiators are working off what are called product-specific ROOs to ensure that the ROOs make sense for different types of products.  The rules for chemicals should be different than the rules for textiles which should be different than the rules for pies.  But all should ultimately be crafted to allow firms to source across the 16 member states without too much hassle.  The point of the agreement is to facilitate trade in the region.  It should help unlock new opportunities for companies to make pies or juice or plastics.  These rules should work for large and small firms by avoiding cumulation rules that add unnecessary complexity by asking companies to calculate value addition by stops in the supply chain.   The ROOs are an important element in getting the final RCEP agreement to do what it is meant to do—facilitate trade better across the 16 members.