RCEP Officially Signed in the World's Largest Economic Circle - China Dominates the Asia-Pacific Regional Economy

This agreement is the most extensive free trade agreement in the world. RCEP member countries will cover nearly one-third of the world's GDP ($26.2 trillion) and population, which is greater than the trade volume between the United States, Mexico, and Canada Free Trade Agreement (USMCA), or the European Union's common market member states.

Important content of the RCEP Agreement:

The Regional Comprehensive Economic Partnership (RCEP) was launched in 2012, and after 8 years and 31 rounds of negotiations, the signing was officially announced on November 15, 2020, and it will enter into force in 2022. RCEP has a total of 15 member countries, including Indonesia, Malaysia, the Philippines, Thailand, Singapore, Brunei, Cambodia, Laos, Myanmar, Vietnam, China, Japan, South Korea, Australia, and New Zealand (i.e., ASEAN 10+5, India 2019 quit). Centered on ASEAN, integrate the existing four "ASEAN+1" FTAs, including ASEAN-China FTA, ASEAN-Japan FTA, ASEAN-Korea FTA, ASEAN-New Zealand, and Australia FTA, and it is expected that zero tariffs will be made within 10 years. The product coverage rate reached 91.5%.

According to RCEP, the agreement will come into force when at least nine of the 15 members approve it (including six ASEAN countries), and it is expected to come into force in the next two years. After the agreement takes effect, more than 90% of the goods trade in the region will be zero-tariff in the future. The tariff reduction among members is mainly based on the promise of "immediately reduced to zero tariffs" and "reduced to zero tariffs within ten years", opening the service industry and loosening the entry and exit of professionals.

RCEP adopts regional rules of accumulation of origin to support the development of regional industrial chains and supply chains. Adopt new technologies to promote customs facilitation and promote the development of new cross-border logistics. Use the negative list to make investment access commitments and improve the transparency of investment policies. The agreement also includes high-level intellectual property rights and e-commerce chapters to meet the needs of the digital economy era. Two-thirds of ASEAN economies, plus Japan, South Korea, Australia, and New Zealand, are export-dependent countries.

Signing up to RCEP will ensure that Asia's economies in the Pacific Rim remain open. But perhaps the biggest advantage is that exporters only need a certificate of origin to trade with any or all the other member states in the agreement. Supply chains within Asia will become easier to manage for multinationals, which will appeal to those considering where to operate. RCEP's lowering of trade barriers will encourage some global companies that originally wanted to avoid the high tariffs imposed by the United States on Chinese products to continue operating in Asia without having to move to North America. RCEP gives foreign companies more flexibility to shuttle between the two major powers.

The pact's so-called rules of origin will set common criteria for how much of a product must be produced in the area for the final product to qualify for duty-free treatment. These rules can make it easier for companies to build supply chains that span several different countries. RCEP is a major step in the liberalization of trade and investment in the Asia-Pacific region. The RCEP expands the scope of trade and investment liberalization by establishing a common framework of origin, strengthening intellectual property protection, trade in services, and reducing barriers to investment.

• RCEP The world's largest trade agreement economic scale: 25.6 trillion US dollars (29.4%).
• Population covered: 2.27 billion people (30.6%).
• Total trade: $10.4 trillion (27.4%).

Six Aspects of RCEP:

1. Trade in goods: Reduction and exemption of tariffs on goods, improvement of customs procedures, quarantine and technical standards in various countries, and rules for accumulation of origin.
2. Investment: Investment protection, liberalization, promotion, and facilitation, including dispute prevention and coordinated settlement of foreign business complaints.
3. Economic and technical cooperation: Reduce unnecessary technical barriers to trade and ensure that standards and technical regulations comply with WTO norms. Assist in the implementation of technical assistance and capacity-building projects.
4. Trade in Services: Reduce restrictive and discriminatory measures for cross-border trade in services, and set rules and frameworks for professional services such as financial services and telecommunications.
5. Protection of intellectual property rights: Improve the level of regional intellectual property rights protection for copyrights, trademarks, geographical indications, patents, designs, traditional knowledge, and literature and art.
6. E-commerce: Create a favorable environment for e-commerce and protect the personal information and transaction security of e-commerce users.

The Impact of RCEP on Businesses:

According to the survey, 29.1% of enterprises have already established production bases in RCEP member countries. 26.8% of enterprises are expected to move to RCEP member countries, and nearly 10% are expected to set up production bases within three years. Among them, more than 50% of those who intend to relocate to RCEP member countries to set up production bases want to go to Vietnam, followed by Thailand and China.

Electronic components industry:

• 30.9% will accelerate overseas deployment.
• 28.2% of product exports face more pressure.
• 24.5% increase in the uncertainty of investment.

Computer and peripheral equipment industry:

• 36.8% will accelerate overseas deployment.
• 31.6% of product exports face more pressure.
• 20.0% Business model forced to innovate.

Motor machinery:

• 43.2% of product exports face more pressure.
• 25.9% will accelerate overseas deployment.
• 24.7% increase in the uncertainty of investment.

In Response to the Opportunities and Challenges of RCEP:

The three overall factors that affect the global operation of the machine tool industry, including exchange rates, shipping costs, and tariffs, will be affected by international economic and trade agreements. For example, in terms of the impact of RCEP tariffs, the top five RCEP markets for Taiwan's main exports are China, Japan, Vietnam, Thailand, and Malaysia. However, Vietnam and Thailand currently have zero tariffs on exports from RCEP countries to the country, which is lower than that of Taiwan. Therefore, even if the tariff is reduced, it will not have an impact. Taiwan's main export of machine tool products has signed ECFA with China, so some products have higher tariffs than Japan and South Korea. Becomes high. But at present, it seems that in the short term, most machine tool manufacturers are in China, so the impact is small. However, if Taiwan's export market continues to be affected by the increase in tariffs. With the increase in countries where tariff reductions and exemptions take effect, the long-term impact and impact will be large.

In response to the economic and trade impact, Taiwanese industry players should consider the following strategies in the future:

• Global channel operation (Entering the local market through mergers and acquisitions or setting up factories in the target market).
• High-value products (Towards the layout of high value-added materials or key components, and customized products).
• Explore new blue oceans (Use 5G, AI, and other new technologies to carry out cross-domain upgrading and transformation, accelerate production/decision-making processes, develop differentiated products, and develop new products to open up new market opportunities).

Global economic and trade agreements prompt the machine tool industry to redefine global business:

• The three major factors that affect the global operation of the machine tool industry are exchange rates, shipping costs, and tariffs.
• Under the impact of tariffs under the global economic and trade agreement, in the short term, the impact of machine tool manufacturers is small due to the deployment of Chinese production capacity.
• In the future, if Taiwan's export market continues to be affected by the increase in tariffs, the long-term impact and impact will be great.

The electric vehicle trend will bring new market opportunities and challenges:

• After the popularization of electric vehicles, the machine tool market is expected to shrink. Therefore, manufacturers must increase their added value to consolidate their market share.
• In the future, there will be new market opportunities in the manufacture of electric vehicle components and lightweight components.
• The supply chain of non-traditional auto factories is emerging, and future products will be more inclined to the ecosystem of electronic products.

The incompleteness of settlements in Southeast Asia makes the challenges of enterprise layout still severe:

• The main challenges of overseas layout are language, culture, and industrial settlement, followed by finance, regulations, management, production, resources, capital, and personnel-related maintenance.
• The development of mechanical settlements in Southeast Asia is relatively unsound, and it is easy to cause problems of unsmooth supply of upstream and downstream raw materials.
• Southeast Asia has a small demand for Industry 4.0 and smart manufacturing and is highly price-sensitive, and the domestic market for medium and high-end machine tools is small.

Asia-Pacific Economic and Trade RCEP vs. IPEF

The 2022 Regional Comprehensive Economic Partnership (RCEP) was officially launched, taking the lead in Brunei, Cambodia, Laos, Singapore, Malaysia, Thailand, Vietnam, China, Japan, South Korea, New Zealand, and Australia. After the approval of other member states such as the Philippines, Myanmar, and Indonesia, the scope of RCEP will gradually expand and become the largest free trade agreement in the world. And Taiwan will be excluded. Although Taiwan has applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the new economic relationship between China and Japan and South Korea can easily make Taiwanese industries vulnerable to global competition. The United States announced its return to the Asia-Pacific region through the layout of the Indo-Pacific strategy, hoping to gradually promote the Indo-Pacific Economic Framework (IPEF) to check and balance China's influence on the global economy and trade.

Competitive Relationship RCEP vs. CPTPP

Before the signing of RCEP, the world's major regional free trade zones included USMCA, EU, and CPTPP. After the RCEP is signed, it will be the world's largest free trade agreement. As the largest giant FTA so far, RCEP will not only make East Asian economies more integrated but will strengthen China's influence and create a competitive relationship with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

When RCEP launched in November 2012, the United States was forming the Trans-Pacific Partnership (TPP), a broader agreement than RCEP that was widely seen as the U.S. response to China’s growing influence in the Asia-Pacific region. But Trump withdrew in 2017, and the remaining 11 countries in the TPP continued to renegotiate, and in 2018 signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Currently, the two largest economic integrators in the Asia-Pacific region are RCEP and CPTPP. In the face of the RCEP signed by 15 countries including China, Japan, South Korea, Australia, New Zealand, and the 10 ASEAN countries, after the signing of the world's largest free trade agreement led by China, it symbolizes that Asia is moving towards regional trade integration. It is seen as a move by China to expand its influence in Asia, which will put pressure on the United States, prompting the United States to pay more attention to Southeast Asia to seek to face the situation of China's rise.