The massive Regional Comprehensive Economic Partnership (RCEP) agreement is expected to go into force in 2022. It could be instrumental in helping Asian economies bounce back from the pandemic.

The Regional Comprehensive Economic Partnership (RCEP) agreement, a major regional trade agreement in Asia, was signed a year ago as the pandemic fueled economic uncertainty. Now, key elements of the pact could prove instrumental in aiding the region's recovery in 2022 and beyond.

The agreement, led by the Association of Southeast Asian Nations, and signed by 10 of its members, as well as Australia, the People's Republic of China, Japan, the Republic of Korea, and New Zealand, holds the promise of rebuilding supply chains that were severely disrupted during the peak of the pandemic. It also stands to promote greater regional cooperation in trade and investment, addressing regulatory issues to ease cross-border movements.

By 2030, RCEP will increase the income of member economies by 0.6% while adding $245 billion and 2.8 million jobs to the regional economy, according to a recent study. This is especially welcome given the pandemic has dampened economic growth and caused job losses in many countries.

RCEP is expected to take effect on January 1, 2022. By early November, six ASEAN members—Brunei Darussalam, Cambodia, the Lao People's Democratic Republic, Singapore, Thailand, and Viet Nam—and four non-ASEAN countries—Australia, the People's Republic of China, Japan, and New Zealand—had ratified the agreement. (RCEP takes effect after at least six ASEAN members and three non-ASEAN countries ratify it.)

Three aspects of RCEP highlight how it stands to help the recovery move ahead.

Trade liberalization—RCEP gets member economies to lower tariffs for about 92% of goods traded within the region over a committed timeframe. It targets the opening up of 65% of all service sectors (e.g. professional, telecommunications, financial) with increased shareholding limits. Together, its members account for about 31% ($26.1 trillion) of global GDP and around 30% (2.3 billion) of the world's population, offering economies of scale larger than the European Union (EU), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the North American Free Trade Agreement (NAFTA). RCEP economies also play an important role in global trade, with their share growing from 20% to 28% during 2000-2019.  

Regional investment—Intra-RCEP investment stood at $122 billion prior to the pandemic—higher than investment seen in CPTPP and NAFTA but lower than that seen in the EU ($414 billion). Regional investment may increase further as RCEP prohibits performance requirements—such as a specified percentage of domestic content or requirement of technology transfer—being placed on investors as conditions for market access, and locks in future easing of measures thus lowering risk of backtracking.

Digital economy—RCEP takes a pragmatic approach to the digital economy, a sector that rose in importance during the course of the pandemic. Members agreed on ICT-driven trade facilitation measures, free cross-border flow of data and less stringent approaches to data localization. RCEP also features commitments to promote e-commerce by protecting online consumers and their personal information, and by enhancing domestic regulatory frameworks—including in areas of transparency and cybersecurity. Small and medium-sized enterprises are expected to benefit from these measures as countries also work to raise awareness and understanding of these issues.

Critics who see RCEP as limited in scope and depth argue its positive impact in these areas may be restricted. Although RCEP will indeed eliminate tariffs on most of the goods traded among its members, for instance, the levies are to be phased out over a period of 20 years. Moreover, complex tariff schedules and administrative bottlenecks may discourage businesses from using RCEP provisions immediately.

Further, rules-of-origin criteria and the conditional application of cumulation benefits for differentiated offers may even deter businesses from using the preferences for cross-border trade in goods in the region. The current agreement will need to be simplified so that different sets of rules can be brought under a single umbrella.

Similarly, some observers feel that the benefits of liberalization could be limited initially given that RCEP members are party to many international investment agreements—including ASEAN+1 FTAs. That could mean little incentive to use aspects of RCEP immediately. Meanwhile, new areas of cooperation such as government procurement, labor and environment are either viewed as lacking in detail or missing from the current agreement. And broad exceptions within RCEP may negate benefits that might otherwise be gained from its absence of forced data localization requirements.

Going forward, greater use of RCEP will be reliant on the political will needed to undertake its deep regulatory reforms and implement its integrity provisions. RCEP's built-in agendas and technical cooperation provisions offer a blueprint for future improvement. With new institutional capacity, for example its own secretariat, progress in implementation will be accurately monitored. And RCEP's open architecture will attract new members over time, enlarging the economic space.

While further work is needed to match its potential, RCEP holds promise if participating economies are motivated to undertake greater economic liberalization to support the post-pandemic recovery. As the pandemic dissipates, RCEP may well act as a catalyst for greater regional cooperation.