World’s Largest Trade Agreement
On November 15th, after nearly a decade of negotiations, leaders from 15 nations signed the world’s largest trade agreement to date. The Regional Comprehensive Economic Partnership (RCEP) includes Australia, China, Japan, New Zealand, South Korea, and 10 Association of Southeast Asian Nations (ASEAN) members: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. The participating countries account for about 30% of the global GDP and 30% of the world population. In terms of the sewn products industry, the RCEP members together exported $374 billion worth of textiles and apparel in 2019, or about 50% of the world share. The region consumed roughly 20% of the world’s textiles and apparel.
The official objective of RCEP is “to establish a modern, comprehensive, high-quality, and mutually beneficial economic partnership that will facilitate the expansion of regional trade and investment and contribute to global economic growth and development.” Or in simpler terms: it will reduce tariffs over the next two decades, streamline customs procedures, and replace a number of bilateral trade agreements in the region with one set of rules. RCEP members have committed to eliminating tariffs for most textile and apparel products immediately after the agreement enters into force. The agreement also includes liberal rules of origin for apparel products which allow RCEP members to source yarn and fabric from anywhere in the world and still qualify for duty-free treatment on finished garments.
There are a couple key factors that make this agreement particularly interesting, beyond its size.
First, although the RCEP was an ASEAN initiative, it is regarded by many as a China-backed alternative to the Trans-Pacific Partnership (TPP), which excluded China. While the general consensus is that U.S. President-elect Biden will not focus on trade right away, this agreement could put pressure on his administration to strengthen ties in the region. (The United States pulled out of TPP in 2017, but the remaining members went on to form the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP). Of note, RCEP focuses heavily on cutting tariffs and increasing market access but is seen as less comprehensive than the CPTPP.
Second, the agreement is seen as a way to strengthen Asian supply chains and boost their competitiveness in global markets. RCEP’s large scope will ensure equal treatment for products and product components from any member nation. This might give companies in RCEP countries an incentive to look within the trade region for suppliers, narrowing their pool of suppliers and shortening their supply chains.
Dr. Sheng Lu, Associate Professor of Fashion and Apparel Studies at the University of Delaware, recently spoke at the 2020 SPESA Virtual Executive Conference and discussed the type of regional textile and apparel supply chain that RCEP will enable. He argued that regional supply chains represent a key pattern for the present and future of the sewn products industry. In the next two years, he anticipates companies will likely work with fewer suppliers or even source from fewer countries.
RCEP will now begin the process of ratification within its member countries. It is expected to take effect within two years.
Additional Resources on RCEP:
ASEAN Official Summary of the Agreement (needs to be downloaded)