How Might the Global Economic Structure Swing in the Future?

By Liu Chia-yu

On Nov 15, 2020, the US still did not have a conclusive result in the presidential election,and the outcome of the U.S.-China trade dispute was still up in the air, while the COVID-19 pandemic was escalating, and countries were beginning to take precautionary measures such as nationwide lockdowns, to the extent that the global economy and trade would continue to suffer. As the U.S.-China trade war and the pandemic have dramatically altered human life and regional economy, impacting global supply chains, issues of supply chain disruptions and restructuring have received a great deal of attention.
At this critical moment, after years of negotiations on the ASEAN Framework for Regional Comprehensive Economic Partnership (RCEP), excluding India, 15 other countries in the Asia-Pacific region, including ASEAN member states Indonesia, Vietnam, Laos, Brunei, Thailand,Myanmar, the Philippines, Cambodia, Singapore, Malaysia, as well as China, Japan, South Korea,Australia, and New Zealand, have jointly signed the RCEP, which is expected to take effect in late 2021 or early 2022.
According to the Chung-Hua Institution for Economic Research (CIER), since the start of the USChina trade conflict in 2018, Asian countries such as Taiwan and Vietnam have been seen as one of the destinations for supply chain shifts from China, with Asian supply chains gradually being restructured over the past two years due to tariff considerations and the prevalence of protectionism. Secondly, ASEAN and countries in the Indo-Pacific region hope to accelerate regional economic integration in order to revive their economies in the wake of the pandemic, and in addition to the RCEP, which is due to come into force in 2021, the previously formed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is also a major force. The trade dispute between the US and China and the protectionism resulting from the pandemic, as opposed to the free economic trade driven by the formation of the RCEP, are two opposing forces that will have a profound impact on global economic and trade development and industrial competition.

The RCEP Is the World's Largest Regional Economy

Looking back at the process of RCEP negotiations, the 19th ASEAN Summit in Nov 2011 approved the RCEP, inviting six other countries, including China, to participate, with negotiations initiated in 2013. The ASEAN Economic Ministers' Meeting in March resolved to establish the Trade Negotiation Committee (TNC), and the first round of negotiations was held in Brunei in May of the same year, resulting in a total of 31 rounds of negotiations up to the signing of the agreement.
After the third RCEP Summit on Nov 4, 2019, India announced its withdrawal, although it will still have the option to rejoin the RCEP in the future. The 15 member states of the RCEP currently have a total population of 2.27 billion, accounting for about 30% of the world's population; a GDP of US$26.2 trillion, representing about 30% of global GDP; and a gross export value of over US$5.2 trillion, constituting 28% of global trade, making it the world's largest regional economy in terms of free trade agreements (FTAs). However, before the RCEP took shape, there were already a number of FTAs between ASEAN and China and ASEAN and India in the Asia-Pacific region. Therefore, the seemingly influential RCEP may have to bring the previously established FTAs into assessment for their impact and influence on global trade and economy.
The RCEP text includes the following chapters: 1. Initial Provisions and General Definitions; 2. Tradein Goods; 3. Rules of Origin, including the annex Product Specific Rules; 4. Customs Procedures and Trade Facilitation; 5. Sanitary and Phytosanitary Measures; 6. Standards, Technical Regulations, and Conformity Assessment Procedures; 7. Trade Remedies; 8. Trade-in Services, including the annexes Financial Services, Telecommunication Services, and Professional Services; 9. Temporary Movement of Natural Persons; 10. Investment; 11. Intellectual Property; 12. Electronic Commerce; 13. Competition; 14. Small and Medium Enterprises; 15. Economic and Technical Cooperation; 16. Government Procurement; 17. General Provisions and Exceptions; 18. Institutional Provisions; 19. Dispute Settlement; 20. Final Provisions, in which trade in goods is the most important part for Taiwanese enterprises.

PwC Taiwan: Six key points about the impact of the RCEP on trade in goods

PwC Taiwan has identified six key points in relation to trade in goods under the RCEP.
Point 1: Tariff Exemption
Tariffs will eventually be abolished on 90% of trade in goods of origin between member states. Some of these tariffs will be eliminated immediately, and the industries most affected will be those with traditionally high tariffs, such as food, agriculture, consumer goods, and automobiles. It should also be noted that tariff reductions and exemptions may vary depending on the exact country of origin of the RCEP.
Point 2: Rules of Origin
All member states have agreed to apply consistent rules of origin to all products, which means that once a company can prove that a product meets the RCEP origin criteria, it will apply in all member countries. This is a key advantage of the RCEP as companies do not have to worry about following multiple rules in different agreements.
Point 3: Cumulative Value Added
Raw materials in any member country can be included in the product value added rate for calculation when determining the origin of the product. This is an important advantage over other FTAs because it provides greater flexibility in supply chain arrangements.
Point 4: Certificate of Origin
This is a requirement not found in many other FTAs in Asia and can be seen as a gradual introduction of the concept of self-certification of origin. In general, the FTA only authorizes exporters to self-certify the place of origin of their exports. All other exporters should apply to the exporting country for a Certificate of Origin (CO). However, after the transition period, the RCEP will require member states to allow exporters and producers to self-certify their origin by presenting a Declaration of Origin. The RCEP agreement stipulates that member states should review whether to allow importers to self-certify after the RCEP enters into force.
Point 5: Customs Duty Drawback
Importers who do not request RCEP benefits at the time of importation may apply for tariff refunds retroactively based on the RCEP rates, but only if the importer indicates at the time of importation that they plan to use this instrument in the future.
Point 6: Harmonizing Non-Tari Barriers
Customs procedures, inspec tion and quarantine measures, and technical standards will be gradually harmonized, which will help to facilitate the development of new cross-border supply chains and increase the free flow of goods.
On the whole, after more than 2 years of protectionism in the global economy and trade under the U.S.-China trade war, with the U.S. presidential election winner Joe Biden set to take over the White House, and with the RCEP being formed and more and more countries seeking to join the CPTPP, the potential for a resurgence of free trade economies in 2021 has been highlighted. However, the global situation is changing rapidly and it is still unpredictable whether the global economy will move to the right towards a free economy or to the left towards protectionism in the coming years. The only way for Taiwan and its companies to maintain their footing in the global market is to be prudent and responsive.