How will the implementation of RCEP benefit China's foreign trade
- Apr 27, 2021
- 6 min read
On April 15th, Deng Xijun, Chinese Ambassador of ASEAN, officially deposited the approval letter of Regional Comprehensive Economic Partnership Agreement (RCEP) with Lin Yuhui, Secretary General of ASEAN. This marks that China has officially completed the RCEP approval process, and has become the first non-ASEAN member country to formally complete the approval process. At present, China's progress is that it has completed the conversion of the main tariff reduction schedule and commitment schedule for goods trade.
Not long ago, on April 9th, Singapore's Ministry of Trade and Industry announced that it had completed the approval of RCEP, becoming the first ASEAN country to complete the official approval process.
All RCEP member countries have indicated that they will ratify the agreement before the end of this year, so as to push the agreement into effect on January 1 next year.
At this time, what preparations should China's export enterprises make? What will be benefitted among all the export products?
#1 How will the tariff be reduced?
For our export enterprises, the most direct benefit is the tariff reduction.
The member countries of RCEP including China, Japan, South Korea, Australia, New Zealand and 10 ASEAN countries (Indonesia, Malaysia, Philippines, Thailand, Singapore, Brunei, Cambodia, Laos, Myanmar and Vietnam). India pulled out at the last minute.
Once the RCEP Agreement comes into effect, more than 90% of the goods trade in the region will eventually achieve zero tariff, and the main products will be reduced to zero immediately or within 10 years.
As we all know, before the signing of RCEP, China had signed free trade agreements with 10 ASEAN countries, Australia, New Zealand and other countries among the above countries. It is possible that the tax reduction degree of these bilateral free trade agreements is better than that of RCEP agreements.
For example, New Zealand and Australia have achieved or promised to achieve 100% zero tariff on goods imported from China after the transition period, so there is no room for RCEP to show its advantage.
However, it should also be considered that the tax reduction arrangement under the FTA corresponds to its rules of origin, and the origin requirements of each FTA will be stricter than those in the RCEP Agreement. (The issue of origin will be explained in detail in the second half of the article. )
Therefore, when foreign trade enterprises choose which agreement to achieve the purpose of tax reduction, they need to consider comprehensively:
1. in which agreement the product is in the tax reduction list;
2. Which list has a greater tax reduction;
3. Which agreement's origin standard is easier to meet;
4. Which agreement is more convenient to operate?
As for how to inquire about the bilateral agreement tax rate of specific products and compare it with the RCEP tax reduction table?
The official and authoritative channel is here:
China Free Trade Zone Service Network
From the home page the agreed tax rate can be inquired.
RCEP Tariff Commitment Table
Click to enter a PDF form, and query according to the customs code of the destination country.
At present, the 15 member States of RCEP:
Eight countries have adopted "unified tariff reduction", namely: Australia, New Zealand, Brunei, Cambodia, Laos, Malaysia, Myanmar and Singapore, which means that there is only one tariff reduction schedule, and the tariff reduction list for each member is exactly the same;
There are seven countries that adopt "national tariff reduction", namely: China, Japan, South Korea, Indonesia, the Philippines, Thailand, and Vietnam, which means that the number of tariff reductions is different. For example, there is only one in Japan and Thailand; There are five in China, South Korea and the Philippines; There are six in Indonesia and Vietnam.
Please pay attention to distinguish when inquiring about the tariff reduction.
In addition, please pay special attention to one risk point, which is:
Did your competitor get preferential tax rate treatment from the target market country under RCEP agreement?
As we know, RCEP is for 15 countries to promote the reduction of tariff and non-tariff barriers in the region. Tax reduction is not limited to China and other 14 countries. All 15 countries will enjoy the benefits brought by opening up, but also face the challenges brought by opening up.
Therefore, at this time, we export enterprises need to pay attention to observe whether the competitors of your products, among the 14 countries, have obtained a more favorable tax reduction range for your export destination country.
If the answer is "Yes", it is necessary to plan ahead to cope with the impact of future competitors.
Here, we should also highlight one country - Japan.
At present, Japan's tariff rate on imports from China is still higher than its average level with other countries and regions in the world. It must also be stated that in the RCEP agreement, Japan's treatment for ASEAN countries, Australia and New Zealand exceeds that for China.
However, this is the first time that China has signed a free trade agreement with the top ten economies in the world, and it is also the first time that China and Japan have reached a bilateral tariff reduction arrangement. According to the RCEP agreement, the proportion of tariff-free categories exported by Japan to China will eventually expand from the current 8% to 86%; At the same time, Japan will implement zero tariff on 88% of Chinese goods.
In terms of favorable industries exported to Japan, the products exported by China to Japan will realize zero tariff immediately or after the transition period, including all mechanical and electrical products, clothing, furniture, instruments and meters, toys, some steel and its products, aluminum and its products, vehicles and parts, chemicals, some textiles, some shoes and boots, some aquatic products, some vegetables and their products.
#2 How to recognize the country of origin?
As mentioned above, the tax reduction arrangement under FTA corresponds to its rules of origin.
The rules of origin of bilateral trade agreements generally require that goods entering from country A to another free trade partner, country B, need to meet the value-added standards or production requirements in country A, and be recognized as the original goods in country A before they can enjoy preferential tariffs in country B.
When it comes to RCEP, the rules of country of origin are easier than those of previous bilateral FTA, which is mainly due to the rules of origin accumulation under RCEP agreement, which is a highlight of this agreement.
The so-called rule of origin accumulation simply means that when goods enter the free trade partner B from country A, the intermediate products produced by several member countries in the FTA can be used to meet the required value-added standards, so that the threshold for country A to enjoy zero tariff from country B is obviously lowered.
For example, China exports a pair of sports shoes to South Korea. China imports 10% of raw materials from Indonesia, Thailand and South Korea (all RCEP member countries), and imports 60% of materials from countries outside the region. China's own native materials and processing value-added account for 10%. This situation cannot be enjoyed in bilateral trade agreements, but in RCEP agreements, if the regional value component reaches 40%, it can be exempted from 8-13.
Therefore, for foreign trade enterprises, if you take a longer-term view, under the RCEP framework, your supply chain can be located not only in China, but also in any country within the agreement, the resource allocation can be optimized, the economy in the Asia-Pacific region will be closely integrated, and the industrial chain will be further upgraded.
It can also be understood that RCEP brings mutual benefit to all member countries, not a zero-sum game. Therefore, the opportunity and challenge left to us at this time is to learn not only how to sell, but also how to buy.
For a more detailed guide to the rules of origin, we will supply a study package upon request.
#3 when will RCEP agreement come into effect?
The RCEP Agreement needs to be ratified by at least nine members, including at least six ASEAN members and at least three non-ASEAN members among China, Japan, South Korea, Australia and New Zealand. The agreement will come into force among the above countries 60 days after the countries meeting the entry into force conditions submit their ratification documents to the ASEAN Secretariat.
At present, China and Singapore have approved the RCEP agreement, and Thailand has also ratified the agreement. All RCEP member countries have indicated that they will ratify the agreement before the end of this year, so as to push the agreement into effect on January 1 next year.
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