What is RCEP?
The Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement between ten member states of the Association of Southeast Asian Nations (ASEAN)* and five other large economies in the Asia-Pacific region (China, Japan, South Korea, New Zealand, and Australia). RCEP was reached on November 15, 2020, after nearly eight years of tough negotiation. (Note: ASEAN members include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. India was an original RCEP member but decided to quit in late 2019 due to concerns about competing with Chinese products, including textiles and apparel.)
So far, RCEP is the world’s largest trading bloc. As of 2019, RCEP members accounted for nearly 26.2% of world GDP, 29.5% of world merchandise exports, and 25.9% of world merchandise imports.
As of November 1, 2021, Lao, Burnei, Cambodia, Singapore and Thailand (ASEAN members), as well as China, Japan, New Zealand and Australia have ratified the agreement. This has met the minimum criteria for RCEP to enter into force (i.e., six members, including at least three ASEAN members and three non-ASEAN members).
As announced by Australia on November 2, 2021, RCEP will enter into force on January 1, 2022
Why RCEP matters to the textile and apparel industry?
RCEP matters significantly for the textile and apparel (T&A) sector. According to statistics from the United Nations, in 2019, the fifteen RCEP members altogether exported US$374 billion worth of T&A (or 50% of the world share) and imported US$139 billion (or 20% of the world share).
In particular, RCEP members serve as critical apparel-sourcing bases for many US and EU fashion brands. For example, in 2019, close to 60% of US apparel imports came from RCEP members, up from 45% in 2005. Likewise, in 2019, 32% of EU apparel imports also came from RCEP members, up from 28.1% in 2005.
Notably, RCEP members have been developing and forming a regional textile and apparel supply chain. More economically advanced RCEP members (such as Japan, South Korea, and China) supply textile raw materials to the less economically developed countries in the region within this regional supply chain. Based on relatively lower wages, the less developed countries typically undertake the most labor-intensive processes of apparel manufacturing and then export finished apparel to major consumption markets worldwide.
As a reflection of an ever more integrated regional supply chain, in 2019, as much as 72.8% of RCEP members’ textile imports came from other RCEP members, a substantial increase from only 57.6% in 2005. Nearly 40% of RCEP members’ textile exports also went to other RCEP members in 2019, up from 31.9% in 2005.
What are the key provisions in RCEP related to textiles and apparel?
First, RCEP members have committed to reducing the tariff rates to zero for most textile and apparel traded between RCEP members on day one after the agreement enters into force. That being said, the detailed tariff phaseout schedule for textile and apparel products under RCEP is very complicated. Each RCEP member sets their own tariff phaseout schedule, which can last more than 20 years (for example, 34 years for South Korea and 21 years for Japan.) Also, different from U.S. or EU-based free trade agreements, the RCEP phaseout schedule is country-specific. For example, South Korea sets different tariff phaseout schedules for textile and apparel products from ASEAN, China, Australia, Japan, and New Zealand. Japan’s tariff cut for apparel products is more generous toward ASEAN members and less so for China and South Korea (see the graph above). Companies interested in taking advantage of the duty-free benefits under RCEP need to study the “rules of the game” in detail.
Second, in general, RCEP adopts very liberal rules of origin for apparel products. It only requires that all non-originating materials used in the production of the good have undergone a tariff shift at the 2-digit HS code level (say a change from any chapters from chapters 50-60 to chapter 61). In other words, RCEP members are allowed to source yarns and fabrics from anywhere in the world, and the finished garments will still qualify for duty-free benefits. Most garment factories in RCEP member countries can immediately enjoy the RCEP benefits without adjusting their current supply chains.
What are the potential economic impacts of RCEP on the textile and apparel sector?
On the one hand, the implementation of RCEP is likely to further strengthen the regional textile and apparel supply chain among RCEP members. Particularly, RCEP will likely strengthen Japan, South Korea, and China as the primary textile suppliers for the regional T&A supply chain. Meanwhile, RCEP will also enlarge the role of ASEAN as the leading apparel producer in the region.
On the other hand, as a trading bloc, RCEP could make it even harder for non-RCEP members to get involved in the regional textile and apparel supply chain formed by RCEP members. Because an entire regional textile and apparel supply chain already exists among RCEP members, plus the factor of speed to market, few incentives are out there for RCEP members to partner with suppliers from outside the region in textile and apparel production. The tariff elimination under the RCEP will put textile and apparel producers that are not members of the agreement at a more significant disadvantage in the competition. Not surprisingly, according to a recent study, measured by value, only around 21.5% of RCEP members’ textile imports will come from outside the area after the implementation of the agreement, down from the base-year level of 29.9% in 2015.
Further, the reaching of RCEP could accelerate the negotiation of other trade agreements in the Asia-Pacific region, such as the China-South Korea-Japan Free Trade Agreement. We might also see growing pressures on the Biden administration to join the Comprehensive and Progressive Agreement of the Trans-Pacific Partnership (CPTPP) to strengthen the US economic ties with countries in the Asia-Pacific region. The economic competition between the United States and China in the area could also intensify as the combined effects of RCEP and CPTPP begin to shape new supply chains and test the impacts of the two countries on the regional trade patterns.
By Sheng Lu
- Regional Comprehensive Economic Partnership (RCEP): What Does it Mean for US Apparel Sourcing from Asia? (2021 TexworldUSA webinar)
- Lu, S. (2021). Why Why does the Regional Comprehensive Economic Partnership matter to apparel?. Just-Style
- Lu, S. (2019). Regional Comprehensive Economic Partnership (RCEP): Impact on the integration of textile and apparel supply chain in the Asia-Pacific region. In Shen, B., Gu, QL., Yang, YX (Eds), Fashion Supply Chain Management in Asia: Concepts, Models and Cases. Springer.
19 thoughts on “Regional Comprehensive Economic Partnership (RCEP) and Textiles and Apparel (Updated November 2021)”
This discussion focuses on RCEP, Regional Comprehensive Economic Partnership which is the world’s largest free trade agreement. RCEP matters for the textile and apparel sector as about 50% of apparel and textiles come from RCEP related countries involving majority of Asia as well as impacting economic and social factors. The good side of RCEP for apparel and textile companies is now having one rule of origin however the difficulty is the numerous tariff schedules with many countries having multiple but hopefully these tariffs will reduce especially for apparel and textile goods.
These are the statistics and points mentioned in the post. What is YOUR evaluation of the impact of RCEP? For example, on the regional supply chain and US companies’ sourcing practices?
After watching the video for class regarding RCEP in the post-pandemic world as well as reading this blog post, it is clear that there are many advantages and limitations of the trade agreement. It was originally surprising that India was a part of RCEP because of how difficult the country makes sourcing and production. Even though many manufacturers and suppliers within India voiced their agreement with RCEP, they didn’t want it to affect them, and the country is often slow to move on issues such as this trade agreement and show little to no interest. Another great point made in the video was that the apparel and textile industry are hopeful that trade agreements such as RCEP will encourage the Biden Administration to revisit the benefits the United States could receive from being a part of these agreements and will hopefully move forward towards a more open mind surrounding trade agreements. Overall, I believe RCEP will have many benefits for Asia’s textile supply chain, since it was previously more difficult to trade between Asian countries, so this agreement will encourage in Asia, for Asia supply chains, leading to the improvement of Asia’s economy. Following this video and blog post, some other research questions we could explore would be analyzing the trade agreement in the future once it is completely implemented by each country and observe the benefits, disadvantages, as well as the effects it may have on countries that are not involved.
Great points. geopolitics will be ever more relevant for apparel sourcing and trade. you may also find this news update relevant–the Biden administration is expected to announce its new Indo-Pacific economic framework next year: https://www.voanews.com/a/us-east-asia-leaders-convene-to-discuss-threats-challenges-in-region-/6287538.html
I think that the Regional Comprehensive Economic Partnership (RCEP) matters greatly to US fashion companies sourcing from Asia. RCEP is a trade agreement between members of the Association of Southeast Asian Nations (ASEAN) and non-ASEAN neighboring countries. Thus making RCEP one of the most significant trade agreements. Additionally, it’s one of the first trade agreements that China, Japan, and South Korea have joined. The US should be aware of the implications this has on the Asian retail market. By partaking in this trade agreement it allowed Asian countries to recover quicker from the pandemic. The US has pulled out of more trade deals than it has entered, unlike some Asian countries. This can cause US fashion companies to pull their sourcing from Asia and reposition. There have also been increased tariffs causing US fashion companies to move production. On the opposing side, although the US is not a part of the RCEP deal, multinational fashion brands that are based there importing products from RCEP countries in Asia will also benefit from the ease of doing business across the region. Overall this is a complex issue and one that the US should keep its eye on.
The Regional Comprehensive Economic Partnership (RCEP) that is known as the worlds largest trade agreement and is very important to the fashion industries in the US that highly depened on sourcing overseas in places like Asia. There is a benefit now with RCEP because they implented one rule of origin which makes processing easier to work with Asia.
How exactly RCEP can benefit the US? Isn’t the US is NOT a RCEP member?
I agree that the Regional Comprehensive Economic Partnership (RCEP) is another important free trade agreement. Specifically, RCEP allows members to develop and create a regional textile and apparel supply chain. Liberal rules of origin adopted by RCEP is very appealing to countries engaging in trade. This increases the internal interconnectedness of countries and strengthens their relationships founded off of the global fashion industry. These connections allow for increased trade within this region and encourages business between the different member countries. Not to mention, the establishment of the Regional Comprehensive Economic Partnership encourages and could accelerate the negotiation of other trade agreements in the Asia-Pacific region, such as the China-South Korea-Japan Free Trade Agreement. This would allow for further benefits available for member countries within the specified trade region.
The RCEP will have a significant influence on the textile and clothing sectors. The RCEP members’ textile and apparel supply chains will benefit from this endeavor. Five countries have signed up to the Regional Comprehensive Economic Partnership (RCEP). In addition, it gives Japan, South Korea, and China more confidence. So ASEAN will take over as the region’s leading clothing manufacturer. The regional textile and apparel supply chain developed by RCEP members will be more difficult for non-RCEP members to participate in. This is the case because of the RCEP’s shortened time to market and removal of tariffs. Because the RCEP’s tariff-free policy does not apply to non-members, they suffer considerably. Trade discussions in the Asia-Pacific region will be more efficient as a result of this. The potential Biden government may need to enhance connections with Asia-Pacific countries in order to prevent major losses from the Regional Comprehensive Economic Partnership.
From this article, I learn that RCEP has significant influence in the world textile and apparel industry. RCEP’s most members are Asian countries and most of them are the main apparel exporters for the US fashion companies. It controls the most of the T&A supply chain not only for the US fashion brands but also the whole global fashion supply chain. The US should keep an eye on RCEP and seek for cooperations with those countries for gaining more benefits in textile and apparel industry.
This article has provided an in-depth insight into RCEP, the Regional Comprehensive Economic Partnership. This agreement was made for the Association of Southeast Asian Nations and non-ASEAN neighboring countries, giving them one rule of origin. This creates easier processes of trade for partners within these regions with zero tariffs. However, those not included within this agreement are at a disadvantage with high tariff rates. The US is not currently involved with this agreement, but should observe closely to see what they should do next.
What I learned about RCEP through reading is its impact on European and American countries. There are also the limitations of RCEP and the impact of RCEP on countries in general. For Europe and the United States, RCEP members are mainly the purchasing bases of fashion brands from European and American countries. Although Europe and the United States are not included in the agreement, European and American companies can still obtain preferential tariff policies. One of the limitations is the complex tariff phaseout schedule among RCEP member countries. Trade agreements among RCEP member countries are different, which also makes the designation rules more complicated. However, RCEP can generally strengthen the textile and garment supply chain in the region, and also strengthen the position of some countries in the textile and garment industry to a certain extent. At the same time, they also have strong competitiveness.
I enjoyed reading this article on RCEP and diving deeper into the topic of this trade agreement. When looking into the economic impacts of RCEP, it seems to be a toss up between who it benefits, but also who it hurts. RCEP is seen to further the regional textile and apparel supply chain among RCEP members. Japan, China and South Korea will grow stronger as the primary textile suppliers for the region. Although RCEP will be improving the supply chain among its members, it seems anyone outside of RCEP will have a hard time getting involved with this regional supply chain. This is where the US is challenged by RCEP, being that they are not a member. Although the US could technically benefit by becoming an RCEP member and becoming an insider to this regional supply chain, it may not be a great idea for them still because of the other trade agreements they take part in.