The Regional Comprehensive Economic Partnership Agreement (RCEP) will take effect on January 1, 2022. The 15 member states of RCEP include the ten ASEAN countries, as well as China, Japan, South Korea, Australia, and New Zealand. Its total population, economic volume, and total trade account for about 30% of the global total. Therefore, RCEP is also known as "the world's largest free-trade zone." RCEP not only brings direct "dividends" such as tariff reduction and exemption and facilitation of investment and trade, but it also helps restructure the industrial value chain in East Asia and accelerate the process of economic recovery in various countries.
The formal entry into force of RCEP is a major new development in East Asian regional economic integration. It will greatly optimize the overall business environment in the region, significantly reduce the institutional cost of enterprises using the free trade agreement, and further enhance the trade creation effect brought by the free trade agreement. More than 90% of the goods trade between approved members will eventually achieve zero tariffs, and the tax will be reduced to zero immediately and within 10 years. This means that countries will fulfill their commitments to liberalize physical trade in a relatively short period.(Suntech)
What RCEP brings to the textile industry
With the help of RCEP, "bilateral cooperation" between China and other member states will be upgraded to "multilateral cooperation" in East Asia. Including China and Japan-between the world's second-largest and third-largest economies, a zero-tariff free trade arrangement will be formed for the first time: China will eventually reduce tariffs on 86% of Japanese products to zero, and Japan will impose tariffs on 88% of Chinese products. The tariffs were eventually reduced to zero. This will be good for the export of textiles and garments in various countries.
As far as China is concerned, ASEAN and Japan are the third and fourth-largest export markets after the EU and the United States, and their total exports account for more than 20% of China’s total annual exports of textiles and garments; South Korea and Australia are important textiles and garments in the world. The consumer market has relatively sufficient purchasing power and is also an important destination for the export of industry end products.
The signing of the RCEP has little impact on the existing textile and apparel trade tariffs between China and South Korea, but there are still some export products with the best tariffs under the RCEP rules. For example, after the implementation of RCEP, the tax rates for Chinese chemical fiber knitted sweaters, men’s and women’s down jackets, women’s jeans, men’s cotton shirts, etc. The cost of ore, rubber, PX, and other commodities will help improve the competitiveness of related industrial chains in the long run.
In terms of imports, China's annual imports of textiles and clothing from ASEAN exceed US$7 billion, accounting for about 30% of the industry's annual imports. ASEAN has become the largest source of China's imports of textiles and clothing. For example, China imports a large amount of cotton yarn and clothing from Vietnam and imports cotton knitted clothing from Cambodia. At the same time, Japan and South Korea are also important import sources for China's functional fabrics, chemical fiber textiles and garments, and textile dyes. In addition, Australia and New Zealand also provide China with a large amount of high-quality wool and other textile raw materials.
Through the connection of the RCEP agreement, China and Japan, which had no bilateral trade mechanism before, will have further development in economic and trade relations. The original import tax rate of 5%-8% for the main categories of products imported by China from Japan will be reduced to zero in 11, 16, or 21 years. For example, the original 8% tax rate of textile machinery products such as shuttleless air-jet looms and flat weft knitting machines imported by China from Japan will be reduced to zero within 11 or 16 years after the RCEP takes effect, which will help the industry to accelerate industrial innovation and upgrading. And improve production efficiency.
RCEP will also benefit ASEAN countries such as Vietnam. For example, the garments produced in Vietnam are now exported to China and have to pay tariffs. After joining the free trade agreement, the regional value chain will come into play. All enterprises in the local area can participate in the value accumulation of the place of origin, which is of great benefit to promoting mutual trade and investment within the region.(Suntech)
RCEP will promote the transformation and upgrading of domestic textile enterprises and industries. After the signing of RCEP, it means that China's textile and apparel industry will be more closely connected with East Asia and Southeast Asia, enterprises from various countries will be integrated into a larger market, and the flow of resources, technologies, and talents in the region will accelerate. Countries will rely on resource and price advantages to increase their share of the internal market in the RCEP region. At the same time, as the tariffs on some imported products drop, the domestic market will face more intense competition, which will also force domestic companies to compete. Accelerate transformation and upgrading, and improve product quality and added value.
After the RCEP takes effect, enterprises from various countries can better introduce advanced equipment, strengthen cooperation in production capacity, and upgrade the textile and apparel industry. It will drive nearly one-third of the world's economic volume to form a unified super-large-scale market, with extremely broad development space, and will inject strong impetus into regional and global economic growth.
