The Regional Comprehensive Economic Partnership (RCEP), the world's largest free trade agreement, officially came into effect on January 1, 2022. Covering 15 countries—including China, Japan, South Korea, Australia, New Zealand, and 10 ASEAN nations—RCEP aimed to promote economic integration by reducing tariffs, streamlining trade regulations, and enhancing supply chain cooperation. As the agreement completed its first year, member countries experienced various economic shifts. Trade volumes increased, investment patterns evolved, and regional supply chains became more interconnected. However, challenges such as geopolitical tensions, post-pandemic recovery struggles, and global inflation also shaped RCEP's impact. This article explores the key changes across RCEP economies during its first year.
1. Boost in Intra-Regional Trade
One of the most immediate effects of RCEP's implementation was the increase in trade between member countries. According to data from ASEAN and China's customs authorities, intra-RCEP trade grew significantly in 2022.
China-ASEAN trade exceeded $975 billion, solidifying ASEAN's position as China's largest trading partner.
Japan and South Korea saw a surge in exports to China and ASEAN due to tariff reductions.
Australia's agricultural and resource exports to RCEP partners, particularly China and Japan, experienced growth.
Tariff reductions on over 90% of traded goods made many products more competitive, encouraging businesses to source and sell within the region. For example, under RCEP rules, electronic components from Japan could be assembled in Vietnam and then exported tariff-free to South Korea, strengthening regional production networks. However, despite these benefits, global inflation and supply chain disruptions still posed challenges, limiting trade growth in certain sectors.
2. Strengthening Regional Supply Chains
RCEP's Rules of Origin (ROO) provision played a crucial role in restructuring supply chains. This rule allowed products manufactured with inputs from multiple RCEP countries to qualify for tariff-free trade, leading to:
More cross-border manufacturing partnerships in industries like electronics, automobiles, and textiles.
Increased foreign direct investment (FDI) in Southeast Asia as companies optimized their supply chains.
Greater regional self-sufficiency, reducing reliance on non-member countries like the U.S. and the EU.
For example, Vietnam, already a major manufacturing hub, saw increased investments from Japanese and South Korean firms in electronics and machinery. Similarly, Malaysia and Thailand benefited from rising automobile and semiconductor production under RCEP's trade facilitation framework. However, China's COVID-19 lockdowns in early 2022 temporarily disrupted some supply chain flows, highlighting the need for further diversification within the region.
3. Japan and South Korea Deepen Economic Ties with China
Before RCEP, Japan and South Korea lacked a formal free trade agreement (FTA) with China. RCEP's implementation marked the first time the two nations enjoyed lower tariffs on many exports to China.
Japan's automobile and machinery exports to China became more competitive.
South Korean electronics and chemicals benefited from smoother trade processes.
China, in turn, expanded its agricultural exports to Japan and South Korea, taking advantage of newly lowered tariffs on food products. This shift reinforced China's central role in the region's trade ecosystem. While trade grew, political tensions between China and both Japan and South Korea led some businesses to exercise caution. Still, economic incentives kept commercial relationships strong despite diplomatic challenges.
4. ASEAN's Enhanced Role in Regional Trade
ASEAN, particularly Vietnam, Indonesia, Thailand, and Malaysia, emerged as key winners from RCEP's first year.
Vietnam saw its exports to Japan, China, and South Korea increase, particularly in electronics, garments, and agriculture.
Indonesia attracted more FDI, particularly in its nickel and electric vehicle (EV) supply chain, benefiting from RCEP's investment facilitation measures.
Thailand and Malaysia capitalized on supply chain diversification, gaining from increased foreign investments in the automotive and semiconductor sectors.
However, smaller ASEAN economies like Cambodia, Laos, and Myanmar struggled to maximize RCEP benefits due to weaker infrastructure and domestic challenges. For instance, Myanmar's ongoing political instability hindered its ability to attract investment.
5. Australia and New Zealand: Agricultural and Resource Trade Gains
For Australia and New Zealand, RCEP strengthened agricultural and resource exports to Asia.
Australia saw increased exports of beef, wine, and dairy to China, Japan, and South Korea under new tariff reductions.
New Zealand expanded its dairy and fruit exports, particularly to China and ASEAN.
However, Australia faced geopolitical tensions with China, which had previously imposed restrictions on Australian wine and coal. While RCEP created a framework for better trade cooperation, political relations still influenced economic interactions.
6. Challenges and Geopolitical Considerations
While RCEP's first year was largely positive, several challenges remained:
Geopolitical tensions: The U.S.-China rivalry, China-Taiwan tensions, and Japan-South Korea disputes created uncertainties.
Global economic slowdown: Inflation, rising interest rates, and weak consumer demand in major markets affected overall trade performance.
COVID-19 disruptions: China's strict pandemic policies in early 2022 slowed economic activity and supply chains.
Despite these hurdles, RCEP strengthened economic ties across Asia-Pacific, signaling a long-term shift toward regional economic integration.
Conclusion: A Transformative First Year for RCEP
The first year of RCEP brought notable changes to its member economies, including:
Increased intra-regional trade, with China-ASEAN commerce reaching record highs.
Stronger supply chain integration, particularly in electronics, automobiles, and manufacturing.
New trade links, especially between China, Japan, and South Korea.
Growing investment in ASEAN nations, benefiting Vietnam, Indonesia, Thailand, and Malaysia.
Stronger agricultural and resource exports from Australia and New Zealand.
While challenges such as geopolitical tensions and global economic uncertainties remain, RCEP's long-term impact is expected to deepen. As trade flows and investments continue to evolve, the agreement will likely serve as a cornerstone for Asia-Pacific's economic future, positioning the region as a key driver of global growth in the coming years.
