Doing Business in China, Growth and Scaling, Tax Compliance

Tips for foreign enterprises to benefit from the new RCEP Agreement

Zhang Kan

May 17, 2021

RCEP (Regional Comprehensive Economic Partnership Agreement) is the largest free trade agreement in history, which consists of 15 countries – 10 member states of the Association of Southeast Asian Nations (ASEAN), China, Japan, South Korea, Australia, and New Zealand. Although the pact must be ratified, it is scheduled to enter into force next year, 1st January 2022.

RCEP holds great significance for the region and specially for China, involved in an agreement with participating countries covering 30 percent of the global GDP. Without the presence of the USA, the RCEP symbolizes as well much more than that: the global economic center of gravity is shifted to the Asia-Pacific region.

The agreement aims to reduce tariffs, open markets to services and promote investment to help emerging economies trap the rest of the world. The final goal is to create a unified trading system in the AsiaPacific.

To start, what are the key measures of the RCEP Agreement?

a) Tariff elimination of about 92% of goods traded amongst RPCs countries.

b) Platform to conduct technical consultations for RPC countries to improve the transparency on import regulations to better facilitate preferential market access and reduce trade transaction costs for businesses.

c) Rules of Origin. Streamlined rules to give businesses greater flexibility to tap on preferential market access benefits.

d) Simplified customs procedures will allow efficient administration of procedures and clearance of goods including the release of express consignments and perishable goods within six hours of arrival.

e) Liberalisation 65% of services sectors. Enhanced commitments in liberalised sectors above existing ASEAN FTAs with external partners are undertaken in Professional Services, Business Services, Research and Development, Computer and Related Services, and Distribution and Logistics Services, among others.

f) Reduce Investment requirements. RCEP includes commitments to prohibit performance requirements (such as a specified level or percentage of domestic content, technology transfer requirements) on investors as conditions for entering, expanding or operating in RPCs. It locks in future relaxation of investment measures covered by the Agreement and mitigates backtracking of commitments. The Agreement also includes a built-in work programme on investor-state dispute settlement provisions.

g) e-Commerce. RCEP includes enhancements in areas such as online consumer protection, online personal information protection, transparency, paperless trading and acceptance of electronic signatures. It also covers cross border data flows, an emerging area in the digital economy. The agreement provides for a more conducive digital trade environment for businesses.

h) Intellectual Property (IP). RCEP will raises standards of IP protection and enforcement among the RPCs.

i) Competition. RPCs are committed to maintaining competition law regimes based on international best practices and agreed principles.

j) Government Procurement. Government Procurement is a new area of cooperation that is not in any existing ASEAN agreements. RPCs are committed to increasing transparency by publishing laws, regulations and procedures regarding government procurement. RPCs have also committed to a review aimed at improving this in future.

But, how can your business benefit from the RCEP Agreement?

Are you producing or selling in China? You are in the right place, as you are in the largest consumer market and supplier in the RCEP region.

Thanks to a more unified trading system in the AsiaPacific, companies having its supply chain in the region will be able to enjoy more flexibility and lower costs, as requirements will be unified for all member countries. It is expected an increase of cross-border trade and investment across the region and accelerate the formation of integrated regional supply chains.

Furthermore, companies based in China will reduce operating and transaction costs, so they can be in a better competitive advantage to expand sales in ASEAN’s markets.

In case your company is based in other RCEP member countries you will have now a softer landing, as your company will have a cheaper and more effective framework to enter China’s domestic market, through cross-border e-commerce and physical retail.

Finally, if you are selling on a cross-border e-commerce (CBEC) model, your business is expected to increase between China, East Asia, and South East Asia. Guangzhou (already a Comprehensive Pilot Area for CBEC in 2016) has already released real measures and is already offering cheaper custom clearance, fast tax rebates, and more advantages for the establishment of overseas warehouses for crossborder logistics among the RCEP markets.

If you want to know more, contact MONX

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