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New Regional Comprehensive Economic Partnership takes effect

Tax Alert - February 2022

By Jeanne Du Buisson & Amy Sexton

The Regional Comprehensive Economic Partnership Agreement (RCEP) was signed on 15 November 2020 and took effect on 1 January 2022 after Australia and New Zealand completed their respective ratification processes. RCEP is a free trade agreement (FTA) between 15 member countries in the Asia Pacific region: the 10 ASEAN states (i.e., Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam), Australia, China, Japan, New Zealand, and South Korea.

Under the terms of this long-awaited trade deal, at least six Association of Southeast Asian Nations (ASEAN) countries and three non-ASEAN countries needed to ratify the agreement before it can enter into force. In addition to Australia and New Zealand, Brunei, Cambodia, Laos, Singapore, Thailand, Vietnam, China and Japan have also ratified the RCEP with effect on 1 January 2022.

South Korea ratified the RCEP on 2 December 2021 and it is expected to have effect in early February 2022.

Building upon the existing free trade agreements (FTAs) and economic linkages between the member countries, the practical effect of RCEP is to combine them into a single, Asia Pacific regional, multilateral pact. This will significantly reduce the compliance costs of businesses using FTAs and further enhance the trade creation effect brought by them.

RCEP is also the first FTA to connect China and Japan (Asia's largest and second-largest economies respectively) on the one hand, and Japan and South Korea on the other, laying the foundation for deeper cooperation between the three countries in the future.

RCEP is designed to eliminate as much as 90% of the tariffs on goods traded between its signatories within 20 years of the agreement coming into effect and promises to promote substantial increases in intra-regional trade and investment and bring new business opportunities.

The majority of tariffs on goods will reduce to zero immediately or within 10 years, demonstrating each country’s strong commitment to liberalisation of trade in goods. Each member country will, in phases, abolish tariffs on specific products imported from other RCEP members, based on their Schedules of Tariff Commitments.

  • Whilst New Zealand already has several FTAs in place with RCEP members, it is expected that over the first 20 years the RCEP will result in New Zealand's annual GDP growing between 0.3% - 0.6% larger. This amounts to an increase of between NZ$1.5 billion and NZ$3.2 billion.
  • New Zealand exporters in primary industries are expected to benefit from expectations that Customs authorities in RCEP countries will release perishable goods within six hours of arrival, helping to reduce spoilage and save money.
  • New Zealand exporters will also see benefit from the elimination of tariffs on some food and manufactured goods entering Indonesia.
  • RCEP will allow more market access opportunities for New Zealand, especially for services and investment into China and some ASEAN member states.
  • Overall, RCEP will enable New Zealand businesses to be better connected via regional supply chains and provide more certainty to exporters in the current uncertain global climate.

From a trade in goods perspective, lower tariffs and reduction of non-trade barriers will stimulate the flow of goods, technologies, services and capital. Further, the implementation of unified rules of origin under RCEP will contribute towards greater flexibility for companies to source from a larger pool of suppliers and the choice of where to centralise manufacturing, resulting in more cost-efficient supply chains and more trade connectivity within the region. This will be supported by the increased trade facilitation measures within RCEP that build on the WTO Trade Facilitation Agreement commitments.

From a trade in services perspective, the commitments made by member countries to liberalise services sectors and sub-sectors will encourage more service suppliers who have seen market saturation in their home country to venture out into overseas markets, comforted by regulatory changes that will formally allow market entry into the desired areas. This will further result in greater trade connectivity and integration of businesses operating within the 15 member countries.

Similarly, increased overseas investments are likely in the relevant sectors committed for opening under the investment chapters, whether via direct equity shareholdings or joint ventures with domestic partners. Commitments around freer capital flows will also provide assurance for companies to venture abroad into markets of the other member countries.

Deloitte’s Global Trade Advisory specialists are part of a global network of trade professionals who can provide specialised assistance to companies that would like to understand the opportunities presented by RCEP for their business. Our professionals can assist in identifying opportunities under RCEP in several ways, including:

  • Deploying Global Trade Radar (a proprietary Deloitte tool) to carry out data analytics on current supply chains and trade flows to map out companies’ existing regional footprint, and to examine import/export data filed with customs authorities (i.e., export countries, import countries, product(s) traded, FTAs utilised, opportunities missed, potential compliance areas for companies and others).
  • Based on results generated, identifying opportunities under RCEP and the steps required to realise them, whether structural or processes changes are required and other strategic considerations.
  • Reviewing production processes, value-adding and other ancillary activities along the supply chain to determine whether goods satisfy the relevant rules of origin prescribed under RCEP, or changes to existing processes and activities are required to benefit from RCEP.
  • Obtaining binding rulings from customs authorities in the relevant member countries in respect of matters such as HS classification, valuation, meeting relevant rule of origin requirements, etc., to obtain certainty about eligibility for preferential tariffs before RCEP takes effect.
  • Carrying out other customs and trade-related reviews including opportunities to benefit from other trade facilitation measures available under RCEP (e.g., certified exporter registration, AEO certification, harmonised technical standards).
  • Assisting with other ancillary matters that may arise during RCEP planning, whether about tariff or non-tariff barriers, the imposition of trade remedy measures, and the use of technology to simplify increasing compliance needs such as deploying GTA Review Smart (a Deloitte proprietary web-based health check tool), Trade Compass (FTA and tariff planning finder) and Trade Classifier (an AI-based HS classification solution).

Please contact your usual Deloitte advisor if you have any queries.

February 2022 Tax Alerts

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