Thailand submitted the ratification for Regional Comprehensive Economic Partnership (RCEP) on the 28th of October 2021, increasing its trade and investment opportunities with key economic partners in the Asia Pacific. The Thai government hopes this agreement will help the nation’s economy to recover despite the pressures of the global health crisis and high inflation rates. Over time, it will help the country become a more sophisticated trade partner.
What exactly is RCEP?
The Regional Comprehensive Economic Partnership (RCEP) was a proposed agreement between 10 member states of the Association of Southeast Asian Nations (ASEAN) and five free trade agreement (FTA) partners, aiming to cover trade in goods, services, and intellectual properties, and more. It reflects the signatory states’ strong commitment to a fair and open multilateral trading system for the benefit of citizens in the region and the world.
The 15 countries participating in the agreement are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam, Australia, China, Japan, New Zealand, and South Korea. It is considered the world’s biggest trade deal that came into force on January 1, 2022.
Half a year after it went into effect, Thailand is already reaping good results from the RCEP trade pact. Thailand has benefited early from the agreement, with trade in fruits, vegetables, textiles, cars, and car components, seeing increases in early 2022.
Tariff Reduction Under RCEP
Under the RCEP framework, gradual tariff reductions will make trade liberalisation possible. It allows for significant exemptions in sensitive and strategic sectors. RCEP tariff concessions should ultimately put an end to tariffs on over 90 percent of goods traded within the bloc. Many tariffs will be eliminated, while others (including Thailand) will be reduced gradually during a 20-year period. Thailand’s Ministry of Commerce estimated 39,366 products to see tariff reductions. Twenty-nine thousand eight hundred ninety-one goods immediately enjoy zero tariffs after RCEP’s implementation.
RCEP allows for tariff adjustments to discriminate among members. Many members have opted out of any liberalisation commitments and have decided to vary their commitment level across trading partners substantially. Overall, RCEP will slowly reduce tariffs for trade among members, especially on the imports of China, Japan, and South Korea, because the import tariffs for the other member states are already low.
The Favourable Effect Of RCEP
RCEP introduces additional tariff cuts and a systematised trade framework to stimulate trade and investment. From 2016 to 2019, the country’s trade with RCEP members was worth US$269 billion yearly, accounting for about 60 percent of the total trade. The provisions on the rule of origin allow businesses to receive substantial incentives and preferential tariffs while lowering costs on supply chain management and compliance.
Many agricultural products imported from free trade agreement (FTA) partners were already tariff-free in Thailand. Nevertheless, the tariff concessions under RCEP create favourable circumstances for various Thai products in the Asia Pacific region.
Thailand’s Market Penetration to East Asia
Thailand has existing free trade agreements with China, Japan, and South Korea. Thus, these nations consented to further reduce tariffs for Thailand as part of the RCEP discussions. As a result, imports of Thai goods are expected to rise in China, Japan, and South Korea, among other nations.
Due to their agricultural significance, many member states exempt agricultural and automotive products from tariff reductions under RCEP. However, these are a few sectors where Thailand is positioned to gain the most because of liberalisation commitments.
In addition, the agreements on intellectual property and e-commerce, along with tariff concessions, may help the regional e-commerce trade grow. E-commerce could be favourable for the food, textile, and electronics industries. However, its market is underdeveloped compared to many other Asian nations, which poses logistical difficulties for businesses that use these channels to sell their products.
Conclusion
Regardless of how the RCEP would affect various economies, the creation of a free trade zone will authorise businesses operating across the Asia Pacific to broaden their supply chains and market reach. Therefore, organisations in Thailand would have to reassess their activities considering the modifications in the agreement.
If you are planning to register a company in Thailand to increase your market presence across the region, contact us to get you started.
