[Square] Will RCEP Bring a Golden Age for Asia-Pacific SMEs?

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The entry into force of the Regional Comprehensive Economic Partnership (RCEP) has simplified exports and imports for small and medium-sized enterprises (SMEs) across Asia and created opportunities for cross-border trade growth worldwide.

Humanity has traded across borders and continents for thousands of years. From the ancient Egyptians and the Greeks expanding eastward toward Asia, to the establishment of the Silk Road and the founding of the Americas, merchants traversed vast lands and seas, exchanging food, goods, and exotic items to enrich lives and shape civilizations.

Today, after a long passage of time and despite the challenges posed by COVID-19?or perhaps because of them?policymakers and businesses have newly recognized how crucial cross-border trade is in meeting everyday needs and sustaining business operations.

Amid these difficult times, the world's largest trade agreement, RCEP, came into effect. Signed by 10 ASEAN member countries along with five dialogue partners?Australia, China, Japan, New Zealand, and the Republic of Korea?RCEP took effect on January 1. It represents about one-third of the world's gross domestic product (GDP) and approximately 30% of the global population.

While the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) aimed to integrate production bases within the Americas and Asia, RCEP is an agreement designed to further strengthen trade and commercial relations among APAC parties. Tariff reductions, elimination of trade and investment barriers, and integration of production bases all contribute to maximizing efficiency. All these provisions can turn the aspiration of an "Asian factory" into reality.

RCEP has completely eliminated tariffs on more than 65% of traded goods and plans to reduce tariffs on nearly 90% of goods over the next 20 years. SMEs with limited financial resources stand to benefit greatly from these cost savings, which will accelerate trade both within and outside the region.

Thanks to RCEP, companies sourcing materials from or exporting to countries within the preferential trade zone can benefit from relaxed rules of origin. This lowers tariff and non-tariff barriers and provides preferential market access. These rules of origin benefits are expected to reduce export costs and increase exports of goods among ASEAN member countries by an average of about $90 billion annually.

As SMEs within ASEAN member countries begin to move up the global value chain, the rules of origin benefits expand the possibility of engaging in free trade with countries where high tariffs previously made trade difficult.

In short, RCEP not only promotes trade integration among SMEs within the ASEAN region but also makes the area more attractive from the perspective of multinational corporations diversifying their supply chains or pursuing multi-shoring. Recent supply chain disruptions caused by COVID-19 and ongoing US-China trade tensions have highlighted the importance of diversifying supply sources. RCEP provides the best environment for ASEAN SMEs to leverage multi-sourcing strategies and gain stronger competitiveness on the global stage.

Now that e-commerce and digital trade are defined as important areas within RCEP, governments and logistics providers appear eager to actively support the digitalization of supply chains and improve connectivity in cross-border trade. Free trade agreements like RCEP are building a solid ecosystem where SMEs can thrive in the future.

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