For any country to survive and grow in this dynamic but uncertain world, it is important to have strong trade relationships. This is exactly what Australia and China aim for by backing the RCEP agreement. A boost in trade between RCEP countries will cause a dramatic shift in the world’s economy and improve currency exchange. Before we shed more light on its benefits, let’s understand what is RCEP and what it does.
What is RCEP?
The RCEP stands for Regional Comprehensive Economic Partnership, and it’s safe to say that this agreement is a mammoth trade deal that took a decade in the making. This trade agreement enables one-third of the world population to access 29% of global gross domestic product.
The contract promises to expand trade grounds for ASEAN countries adding Australia, New Zeeland, South Korea, Japan, and China. A noticeable factor in RCEP is that China and Japan have hardly been on good terms. However, RCEP is designed to promote a diplomatic and collective benefit for all nations under this agreement.
India was also a part of the RCEP contract. However, India withdrew from the agreement, fearing that lower tariffs might affect domestic production, with manufactoring sectors been hit by Chinese goods, and Agricultural produce hit by Australia and New Zealand.
“We need a circuit breaker to reverse the downward trajectory in our bilateral relationship and protect our future. The beauty of the RCEP is that it provides a potential opening to a friendlier world if we just have the awareness to seize the opportunity”, said Duncan Calder MD Contour Capital, past National President Australia China Business Council.
What Does RCEP Do?
RCEP is expected to reduce a wide range of tariffs for the next 20 years to promote trade. However, the most important part of this agreement lies in its depths. RCEP mainly removes product discrimination. Compared to other Free Trade Agreements, RCEP is lenient to some extent in sharing that the final product’s components do not affect the trade tariffs. However, most FTA would account for it and impose excruciating tariffs on trade.
“The existing FTAs can be very complicated to use compared to RCEP,” said Deborah Elms, from the Asian Trade Centre.
An Agreement to Counter TPP?
Despite the undeniable benefits of RCEP, some argue that it’s a counter to Trans-Pacific Partnership, which did not include China. Although both agreements might seem similar at first glance, the lack of product discrimination and lenient trade policies of RCEP outmatch that of TPP. Moreover, RCEP partnering countries collectively supply 29% of the world’s gross domestic product. This initiative opens a world of opportunities for Australia as trade restrictions and heavy Tariffs are cut down to a minimum.
Instead of viewing RCEP as an agreement to counter TPP, as commented by Adj Prof. Warwick Powell, “The RCEP is comprehensive. Standardisation for e-commerce and data – coupled with tariff reductions – will support streamlined and increased trade flow. Movement of talent is also expected to get easier as time goes by. Integrated into the overall fabric will be physical infrastructure that will reduce transport and logistics time and costs. Last, a digitalised currency or currencies will enable trade finance without SWIFT”.
The benefits of RCEP in light of the current Australia China trade relationship can help fix their damaged relationship. The RCEP creates a bilateral trade ground for numerous countries, and Australian exports can see a massive boost. Moreover, the trade opportunities that come with RCEP make it more important for Australia to maintain a good relationship with China. Australia China Entrepreneurship Club favors RCEP as it will help achieve a trade balance in the world. Moreover, it is expected that Australia can significantly benefit from this agreement, and local exporters can enjoy substantial revenue over their products.