After eight years of negotiation, the Regional Comprehensive Economic Partnership (RCEP) finally came into force at the beginning of 2022. Lawyers feel it will bring new opportunities for Chinese enterprises as well as the legal services market.
The Regional Comprehensive Economic Partnership (RCEP), a free trade agreement between 15 Asia-Pacific countries, came into force earlier this year. Given that the member nations account for about 30 percent of the world’s population and 30 percent of global GDP, the RCEP is easily the largest trade bloc in history.
Lawyers say that due to its growth potential, the RCEP will not only boost the post-pandemic recovery of the global economy, it is also critically significant to China’s economic development. “RCEP provides important support for China to strengthen confidence in reform and further opening-up,” says Henry Huang, managing partner of Grandall Law Firm.
Feng Xiaopeng, partner at King & Wood Mallesons (KWM), concurs: “The formal entry into force of RCEP means about 30 percent of the world’s economic output will become one integrated market.”
Data from the Peterson Institute for International Economics show that by 2030, the RCEP is expected to drive net export increase and national income growth of member states by $519 billion and $186 billion respectively, with the biggest expected GDP increase of $85 billion going to China.
“While enabling one-third of China’s foreign trade to enjoy zero-tariff, RCEP will also facilitate trade and improve business environment among members and further open up corresponding services and investment, greatly improving the welfare level of each signatory and the trade volume between them,” says Feng.
SHOWCASING INNOVATION
Stronger interaction between signatories, and enhanced investment rules are expected to lead to the vigorous development of regional markets. But lawyers say one of the hallmarks of the RCEP is the innovative approaches it takes.
The first example is tariff reduction. Tariff reduction of trade in goods among RCEP members is mainly based on the commitment to achieve zero-tariff immediately, or within ten years. An important part of RCEP, tariff reduction will bring about lower import costs and more export opportunities.
RCEP has created a good development environment and institutional guarantee for cross-border e-commerce, which is gradually becoming an emerging driver for economic growth in Asia.
According to Huang, tariff relief has greatly stimulated cross-border e-commerce activities. The Guiding Opinions on Quality Implementation of the Regional Comprehensive Economic Partnership Agreement, issued by the MOFCOM and the SAMR on Jan. 22 this year, “encourage enterprises to make good use of the tax reduction commitments of member states [to further] expand exports.”
Huang adds that the Guiding Opinions emphasise “standardization and digitisation of trade and reduction of communication costs” brought about by “promoting high-quality development of cross-border e-commerce and the international mutual recognition of digital certificates and e-signatures,” which also conforms to the characteristics of cross-border e-commerce and contributes to development in this field.
Feng agrees. For example, Japan previously imposed high tariffs on Chinese imports. “Post-RCEP, Japan will give zero-tariff to 86 percent of Chinese imports. Specifically, 70 to 80 percent of products in industries such as motors and appliances, nuclear reactors, boilers, vehicles and accessories, and medical devices will enjoy zero-tariff immediately, while almost all products in industries such as garment and textile, furniture and plastics will enjoy zero-tariff after the transition period,” he says, adding that this undoubtedly benefits cross-border e-commerce enterprises, especially further development of some important industrial fields.
Coordination of rules of origin is another key achievement of the RCEP. Unlike the bilateral rules of origin in most free trade agreements, RCEP adopts a regional cumulative approach, which helps enterprises reduce operational uncertainty.
“This will help multinationals design a more flexible industrial layout, establish a more refined industrial chain division system and lower the production costs of end products. It will not only help expand trade among RCEP members, but also greatly promote deep integration and development of regional supply chain and value chain,” Feng explains.
Meanwhile, the signing of RCEP will also greatly reduce obstacles to the construction of warehouses overseas, smoothening the movement of resources and commodities of countries in the region and facilitating the cooperation of technology, service capital and talents. Feng advises that “enterprises can seize this opportunity to make capital or human resources investment over-seas, promote regional brand building, construct high-quality warehouses over-seas and offer more functions for such warehouses, and effectively integrate overseas market resources.”
However, before reaching further cooperation, Chinese enterprises need to complete some preliminary work. As of this January, China has also signed 19 preferential trade agreements (arrangements), involving 26 countries and regions. Feng reminds that “enterprises must carefully study various rules of origin and understand and compare the tariff concessions their products are eligible for under different agreements in advance, so as to select the agreements with the largest tariff reduction.”
IP CHALLENGES
Despite all the benefits, the expected intensification of competition among industries and enterprises is no small challenge. Both experts suggest enterprises be fully prepared for fierce competition.
As cross-border e-commerce is often not limited by regional and national boundaries, the circulation of goods may cause issues concerning intellectual property (IP). Huang believes this to be one of the challenges faced by Chinese enterprises.
In fact, “IP policy and compliance are long-term problems faced by Chinese enterprises and should become their focus (under RCEP),” says Huang. In this regard, he suggests that “enter-prises can engage lawyers to provide a full suite of services. With RCEP coming into force, enterprises also need to pay more attention to protecting IPs in cross-border e-commerce, responding to overseas IP disputes and safeguarding their rights.”
Feng also points out “the contradiction between the boundlessness of cross-border e-commerce and the territorial characteristics of IP protection as the root cause of many IP disputes in cross-border e-commerce.”
Compared with TRIPs and other agreements, Feng believes that RCEP’s IP provisions not only consider the situations of different member states but also balance the interests of different parties in the IP legal relationship. In fact, China’s IP protection standards are generally similar to those under RCEP, and much higher than TRIPS, adds Feng.
Therefore, when IP disputes arise, “Chinese enterprises should take active prevention and response measures, immediately seek professional legal advice, and establish good cooperation with Chinese firms that can provide one-stop legal services... Chinese firms share the same language and culture with clients, and can jointly develop targeted response strategies to prevent unreasonable and unnecessary IP infringement complaints from causing products to be removed, or litigation or other sanctions, resulting in significant economic losses,” suggests Feng.
LAW FIRMS GETTING PREPARED
Chinese firms have stepped up preparation in anticipation of possible increased demand from clients. Huang tells ALB that Grandall’s recent initiatives included partnering with China (Hainan) Institute of Reform and Development Research (CIRD) to establish the Hainan CIRD-Grandall Free Trade Port Legal Research Center to “step up research of free trade port laws, RCEP and TPCPP rules, so as to promote the comprehensive development of Chinese enterprises under RCEP and the free trade port system.”
In the future, “China may combine the development policies of 21 free trade zones, especially the Hainan free trade port which can establish the most direct contact with ASEAN among RCEP signatories, to further develop the modern service industry and the manufacturing industry,” adds Huang.
Feng shares that at present, of the RCEP member states, KWM has physical presence in China, Australia, Japan and Singapore, and cloud offices in ten countries including South Korea, Malaysia, Thailand, and New Zealand. These are the firm’s most practical “hardware preparation.”
KWM has also enhanced cooperation with relevant countries, such as by holding workshops with Singapore government agencies and law firms to actively provide suggestions for clients in Southeast Asia. The firm will step up research in the new year to “sort out tariff agreements and rules of origin for clients and help them improve customs clearance and arrangements for rules of origin management”.
“In the next three to five years, our participation in business related to other RCEP Members is expected to grow exponentially,” says Feng.
