How NZ will fare from RCEP

The Regional Comprehensive Economic Partnership (RCEP) has finally been signed and the news is all good for New Zealand, with the agreement expected to increase the rate of the country’s gross-domestic product growth for the next 20 years.

The world’s largest trade agreement was signed in November and will help facilitate trade between its 15 Asia-Pacific member countries. RCEP countries account for 30 per cent of the world’s GDP, 30 per cent of the world’s population, 61 per cent of NZ goods exports, 45 per cent of NZ services exports and 61 per cent of foreign direct investment in NZ.

These countries include the 10 members of ASEAN (Brunei-Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Viet Nam) plus five additional countries - Australia, China, Japan, South Korea and NZ.

Each of the 15 member countries must ratify the agreement before it comes into force. This could take a further two years.

The reduction of non-tariff barriers for goods provides the majority of the economic benefit of the RCEP to NZ. The country already has trade agreements with all RCEP member countries, meaning there are limited tariff reduction benefits in this deal. However, it will facilitate trade into some member countries such as Indonesia.

There are no downsides to being involved in a globally significant regional economic agreement.

Where NZ already has a free trade agreement with one of the member countries, the most favourable agreement can be applied.

There would be greater potential benefits to NZ should India - which withdrew from  RCEP negotiations in 2019 – join, but there is a fast-track process in place if it reconsiders.

Economic growth in  member countries is expected to outperform global averages in coming years. NZ is already heavily aligned with the RCEP group and this agreement will strengthen relationships further.

The RCEP group includes seven of NZ’s top 10 trading partners. Not included in the deal are the US, the European Union, and the United Arab Emirates.

Boost

Once fully implemented it is estimated by ImpactEcon that the RCEP will boost NZ’s annual GDP by between 0.3 per cent and 0.6 per cent a year, providing a benefit of $NZ1.5 billion to $NZ3.2 billion.

If NZ decided not to join the RCEP, but the other members did, NZ would be relatively worse off. This is reflected in the table below, where at the lower end of the forecast range there is a negative benefit (in actuality a cost) to NZ through the reduction in tariffs.

There are winners and losers. The processed food sector will benefit considerably more from RCEP than agricultural will. The manufacturing sector is forecast to be worse off, while the services sector will benefit.

Another important aspect is the RCEP provides one set of trade rules for all of the countries involved, which will reduce complexity for exporters who trade with a number of RCEP countries.

NZ already has high-quality trade agreements with the other RCEP countries, so the majority of the benefits will come from non-tariff measures.

Quickly

Tariffs reductions will be phased in over a 15 or 20-year period. Not all tariffs will be removed. Tariffs will be reduced to 10 per cent or less by most countries, but six countries will retain tariffs on 35 per cent of products. Most of the tariff benefits to NZ exporters will occur quite quickly once the agreement is ratified.

NZ has existing FTAs with all the RCEP countries. These have already reduced tariffs on most NZ exports. This means RCEP does not deliver significant new market access for goods exports as a result of tariff cuts. However, NZ exporters do encounter significant tariffs on product entering Indonesia.

The RCEP will eliminate tariff barriers from NZ exports to Indonesia on beef exports (bone in cuts), all sheep meat exports, preserved and prepared meat exports, table salt, fish and fish products, liquid milk, grated or powdered cheese, honey, avocados, tomatoes, persimmons, and many manufactured goods.

For exports to Indonesia the tariff reduction on chilled lamb and beef products will happen in the first year after the RCEP is ratified, whereas the tariff on frozen carcasses and bone-in products will be phased in over 15 years.

Tariffs on cheese and butter will be eliminated in the first year of the agreement, while tariffs on liquid milk and milk powder will be phased out over 10 years.

Clearing

For NZ, benefits of the RCEP are also derived from improved market access, reduced processing times for clearing customs and a disputes process. In 2019 there were over 1,700 non-trade measures notified to the World Trade Organisation.

Non-trade measures are anything other than tariffs that can potentially impact trade, such as technical barriers to trade, sanitary and phytosanitary measures, certification or testing requirements, quotas, import or export licenses and taxes surcharges.

Delays in getting products across borders are a common non-tariff barrier. Under RCEP customs procedures must be predictable, consistent and transparent. There should also be processes in place to resolve any issues.

The RCEP provides increased protection for and recognition of intellectual property (IP) rights. Services exports will also benefit from the agreement, as some of the commitments regarding services go beyond what is included in the ASEAN Australia-NZ Free Trade Agreement (AANZFTA).

This will benefit sectors such as professional, educational and environmental services, computer related services, air transport, research and development, and distribution services.

Susan Kilsby is an Agricultural Economist at ANZ Institutional