WHAT IS RCEP? HOW WILL THAILAND BENEFIT FROM THE WORLD’S LARGEST FREE TRADE AREA?

WHAT IS RCEP?

HOW WILL THAILAND BENEFIT FROM THE WORLD’S LARGEST FREE TRADE AREA?

RCEP (Regional Comprehensive Economic Partnership) is the world’s largest free trade area, effective January 1, 2022, with Thailand being one of the 15 countries that co-founded.

The prerequisite states that when at least six ASEAN members and at least three non-ASEAN countries have ratified, the agreement will be in effect. Therefore, from January 1, RCEP will be in effect with member states Brunei Darussalam, Cambodia, Laos, Singapore, Thailand, Vietnam, Australia, China, Japan, and New Zealand. Not yet ratified include the Philippines, Indonesia, Malaysia, and Myanmar, which are expected to be expedited and will be ratified soon.

How important is RCEP?

According to the information from the Department of International Trade Negotiations, Ministry of Commerce, RCEP is the world’s largest Free Trade Agreement (FTA) and Thailand’s 14th FTA, with 15 member states, including 10 ASEAN countries, Japan, South Korea, China, Australia, and New Zealand. It has a combined population of 2.3 billion (30.2% of the world’s population), a gross GDP of $28.5 trillion (33.6% of global GDP), and a total trade of $10.7 trillion (30.3% of global trade).

For the benefits that Thailand will receive from the RCEP agreement, for example, RCEP members canceled import duties on 39,366 items of Thai goods, immediately reducing the tariffs to 0% on 29,891 items.

Tariffs on goods exported from Thailand will be reduced or eliminated in parts of China, Japan, and South Korea, in addition to existing FTAs on goods such as fresh and processed fruits, fishery products, fruit juices, rubber, rubber products, automobiles components, plastics, chemicals, electrical components, computer components, etc.

In addition, the RCEP agreement will provide trade facilitation to its members, such as perishable goods that will receive customs clearance within 6 hours and normal goods within 48 hours, and will also expand opportunities in Thailand’s service business to RCEP member countries. such as construction, retail, health, film, and entertainment, etc.

“This agreement will be one of the key tools to help restore the Thai economy and RCEP members from the COVID-19 crisis. Before the RCEP agreement comes into effect next year, entrepreneurs, especially SMEs, should expedite their preparation to understand various trade regulations, study consumer behavior in RCEP member countries in order to prepare business strategies and develop products to meet the needs of the RCEP market fully” - Mrs. Oramon Supthaweetham - Director-General of the Department of International Trade Negotiations.

Business Perspective

Analysis by Kasikorn Research Center (KResearch) states that in terms of international trade, the marginal benefits of this tariff reduction are limited as most of the goods have already been liberalized under the ASEAN FTA Agreement with the Plus 5 counterparts, with clear direct positives being in the Chinese and South Korean markets. Thailand does not export a lot of agricultural, food, and industrial products. While indirect positives come from Plus 5’s first liberalization of trade, it is in this group that Thailand’s original production chain exports to Plus 5, such as automotive, plastic resins, chemicals, rubber, electrical and electronic components.

In terms of investment, the RCEP is one of the key tools that helps Thailand stay in the global production chain in Asia. With the strength of being the world’s largest integrated production base with rules of origin covering 15 countries, it makes investments in the region more attractive. Kasikorn Research Center believes that Thailand, which is part of the RCEP production chain, still has the opportunity to benefit from investments in the future, extending the production that uses traditional technologies such as hard disk drives, ICs, printed circuit board assembly, and automobiles. The next step is to attract foreign direct investment (FDI), a key technology group that will help upgrade Thailand’s manufacturing structure to the S-Curve industry.

However, to attract FDI, Thailand must compete with other ASEAN countries as well. In particular, Vietnam and Indonesia are both in the RCEP, so they have the same opportunity to grab investments as Thailand. Therefore, investment readiness is an important factor for investors when making investment decisions. It is an urgent matter that all sectors cooperate to develop in order to make Thailand more attractive for investment than competitors, both by establishing FTAs with key countries that are target markets. Creating an investment climate that enhances business flexibility preparing for the ESG trend as well as pushing for investment promotion measures.