RCEP: The New Era of Trading Block

Updated: Jan 7

By: Fitri Nur Arifenie

o Summary of the RCEP negotiation

o Liberalization trade and investment to boost the Indonesia’s economic growth

The Regional Comprehensive Economic Partnership (RCEP) was officially signed on 15 November 2020 by ten countries, by ASEAN members and its partner, namely Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam, China, Japan, South Korea, Australia, and New Zealand. Covering a population of more than 3 billion people who contribute around 30.2% of the world’s gross domestic product, 29.8% of world foreign direct investment, and 27.4% of global trade, the agreement can easily be dubbed as the world’s largest trade agreement.

The signing of the agreement is expected to be a fresh air for the Indonesian economy by improving the participation in global value chains and soaring the Gross Domestic Product (GDP) growth by 0.05% per year. According to the study of the Ministry of Trade, RCEP has welfare gain of around USD 1.52 billion. Welfare gain is the surplus that consumers and producers obtain from a transaction. From the consumer side, a welfare gain is obtained if the price that consumers can pay is greater than the factual price in the market. This means that consumers can save their funds (savings). Meanwhile, from the producer side, a welfare gain is obtained if the price that the producer can offer the lower than price prevailing in the market.

RCEP has strategic meaning for Indonesia's export and import as the negotiation bring tariff liberalization up to 91%. The other benefit of the trading block is the company only need one certificate of origin to send its products to many countries. Global Trade Atlas recorded that the accumulation of trade value during the period 2010 - 2019 between Indonesia and RCEP member countries were USD 2,069.1 billion or represents 61.2% of the total trade value. Indonesia's export trend to RCEP member countries recorded a CAGR growth of 0.40% in the last decade. Meanwhile, Indonesia's import trend from RCEP member countries experienced a CAGR growth of 2.9%.

Based on the destination country, Indonesia's largest exports during 2010 - 2019 were Japan (23.32%) and China (21.60%), whose respective values were USD 226.9 billion and USD 210.1 billion. Meanwhile, according to origin import countries, the highest figures were China (29.44%) and Singapore (19.25%). In the last ten years, Indonesia imported from China amounting to USD 322.7 billion and Singapore amounting to USD 211.0 billion.

Export Import trend between Indonesia and RCEP member countries 2010 – 2019

(in USD million)

Source: Global Trade Atlas

Despite of the trade, the number of investments will bring the positive environment towards investment as the RCEP countries are the main investors of Indonesia. The widening market access will bring more investment to Indonesia and create the country as the home of the production. Foreign direct investment from RCEP member countries in Indonesia recorded a CAGR growth of 7.43% in the 2010-2019 period. The total investment value collected over the last ten years from RCEP countries has reached USD 143.5 billion. In 2019, total foreign investment from RCEP member countries reached USD 14.42 billion or decreased by 31.1% compared to last 2018. The largest investment was made by Singapore amounting to USD 5.4 billion during January to December 2019. Second place was China with USD 3.3 billion and Japan with USD 3.2 billion in the same period.

Trend FDI in Indonesia from RCEP countries (in USD million)

Source: BKPM

Overall, the focus of RCEP agreement is to establish a modern, comprehensive, high-quality, and mutually beneficial partnership that will facilitate the expansion of regional trade and investment as well as contribute to global economic growth and development. Accordingly, it will bring about market and employment opportunities to business and people in the region. The RCEP agreement will work alongside and support open, inclusive, and rule-based multilateral trade system.

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