Singapore was the first country to ratify the Regional Comprehensive Economic Partnership (RCEP), the free trade agreement that includes the 10 ASEAN members (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam) and Australia, China, Japan, New Zealand, and the Republic of Korea.
After a decade of negotiations, the RCEP was signed in November 2020 and ratified in January 2022. Data from the World Bank estimates that the agreement would cover 30 percent of the world’s population, approximately 30 percent of global GDP (US$25.8 trillion), approximately US$ 12.7 trillion (25 percent) of global trade, and 31 percent of global foreign direct investment (FDI) inflows.
Through the RCEP, ASEAN hopes to transform from a net importer to a net exporter of goods and services and become the new engine of growth in Asia.
For Singapore, the country hopes to reap long-term benefits under the RCEP by integrating further into global supply chains and strengthening the city-state’s position as a financial and business hub in the Asia-Pacific.
Signatories to the RCEP can enjoy an average tariff elimination of about 92 percent for traded goods, progressively over the next 20 years. This will be advantageous for Singapore as an export-oriented producer of high-value goods; the RCEP will enable preferential market access allowing Singaporean producers to be competitive in regional markets.
The Agreement sets a unified framework for a single rule of origin to be applied for every product from the 15 member countries in the RCEP. This means Singapore manufacturers can accumulate raw and semi-raw materials under the Regional Value Content (RVC) criterion from all 15 RCEP countries to count as originating content. The RVC rule requires that a product must have at least 40 percent RVC to obtain a certificate of origin for preferential tariffs.
Without the harmonization rules of the RCEP, businesses would often use multiple FTAs to meet the different criteria across various supply chains needed to enjoy preferential customs duties. At times, this can be an administrative burden to determine the origin of materials and increases the risks of non-compliance when claiming the preferential duties under an FTA. The authorization of a single rule of origin under RCEP harmonizes the procedures for required documents, local content, and certificate of origin for supply chains across its members. A report by Allianz estimates that the reduced export costs would boost export value among Singapore and the signatories by around $90billion on average annually.
Compared to existing ASEAN+1 FTAs, the RCEP took an extra step to liberalize services by introducing the negative list approach. Contrary to a positive list approach, the negative list only requires governments to exclude certain services and investment sections from RCEP participation. Otherwise, it is automatically understood that all services and investments will be eligible for market access. Seven RCEP members, including Singapore, have opted for the “negative list” while the remaining eight members who chose the “positive list” approach are required to adopt a negative list within six years of the RCEP coming into force.
In addition, the RCEP aims for at least 65 percent of service sectors (e.g. finance, telecommunications, distribution, and logistic services, among others) to be open to foreign investors. This is unprecedented liberalization that would facilitate the greater export of Singapore’s key financial and transport services to diverse markets.
This article was first published by AseanBriefing which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in China, Hong Kong, Vietnam, Singapore, India, and Russia. Readers may write to [email protected].
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ASEAN Briefing features business news, regulatory updates and extensive data on ASEAN free trade, double tax agreements and foreign direct investment laws in the region. Covering all ASEAN members (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam)
