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Hong Kong recently applied to join the Regional Comprehensive Economic Partnership (RCEP). The underlying aim of RCEP is to create an integrated market across the region. RCEP accounts for roughly 30 per cent of the world’s output, trade and population.
Author: Julien Chaisse, City University of Hong Kong
RCEP membership is ‘open to any state or separate customs territory after the lapse of 18 months from the date of enforcement’. Accession is important for Hong Kong but also to RCEP as it opens up to new members. While there have been protests against Hong Kong’s ‘one country, two systems’ principle in the past, there appear no significant barriers or objections that would impede Hong Kong’s participation in RCEP.
Hong Kong has completed negotiations with ASEAN — a precondition for joining RCEP. ASEAN has declared that Hong Kong is ‘well-placed to add value to RCEP’. China is also supporting Hong Kong’s application to which it has no objections within the framework of its ‘one country, two systems’ arrangement. Hong Kong’s neighbours, Japan and Taiwan are also likely to have no objections.
Membership of RCEP will make Hong Kong’s trade more liberal
Hong Kong has signed eight free trade agreements (FTAs) and 21 bilateral treaties (BITs), reflective of its proactive approach to liberalisation of trade and investment policies. Hong Kong’s push for towards membership in RCEP is consistent with Hong Kong’s domestic and international economic policy strategies.
Hong Kong’s decision to seek membership of RCEP, as an export-oriented economy with intensive trade with other RCEP members, makes sense. Membership will also favour Hong Kong’s future investment ideals. At the moment, Hong Kong does not have bilateral trade agreements with Japan or South Korea. By joining RCEP, Hong Kong may be able to capitalise on significant new trade and investment opportunities with both these countries.
Hong Kong boasts a stable financial market and free flows of capital and services
It has also signed FTAs which are structured to facilitate improvements in market access and boost investment flows with the rest of the world, especially with ASEAN countries. Given the number of Hong Kong’s FTAs with RCEP members, Hong Kong’s trade policies are already in alignment with the agreement’s obligations. Hong Kong’s membership of RCEP would simplify trade relations with members by combining a multitude of bilateral FTAs into one common framework.
RCEP creates a common rulebook for the trade in goods and services across the RCEP region replacing the complexity of multiple trade agreements. It also aims to better the business climate through more effective rules pertaining to issues such as intellectual property and commerce. There will be areas where Hong Kong will need to make its re-exports and domestic exports eligible for preferential tariff treatment and trade facilitation measures. This will not be a major challenge since most of its trade policies and practices already aim to promote free trade and trade liberalisation.
A number of advantages will flow to Hong Kong after it joins RCEP
It will deliver benefits from multilateralism within the region and eventually eliminate tariffs on 91 per cent of goods — creating a free trade zone covering a third of the world economy. Hong Kong’s unique location position it in the centre of regional trade.
RCEP measures — such as tariff reductions, market access, removal of non-tariff trade barriers and simplified customs procedures — are just some of the benefits that Hong Kong will enjoy as a member of RCEP that will lift GDP and employment. Lower tariff barriers will also reduce the costs for many companies operating in value chains across the region and help build supply chain resilience.
Hong Kong has the potential to be a significant economic participant in RCEP. Enhancing its dynamism through lower tariffs, simplified trade and commercial rules and procedures, and expanded market access and trade relations with Japan and South Korea will facilitate the movement of goods and strengthen Hong Kong’s global economic presence.
Julien Chaisse is Professor at the School of Law in the City University of Hong Kong and is the President of the Asia Pacific FDI Network.