It has been announced that the RCEP (Regional Comprehensive Economic Partnership Agreement) will enter into force for Japan and nine other member countries on January 1, 2022, ten years after the start of negotiations. It is reported that South Korea will enter into force on February 1, a month later. Although it will come into effect without India, there is no doubt that a huge free trade bloc will emerge in the Asia-Pacific region. In this paper, I would like to explore its historical significance and its impact on Japanese companies.

Overwhelmingly High Tariff Reductions Using China's RCEP

When the CPTPP (Comprehensive and Progressive Agreement on the Trans-Pacific Partnership) came into effect, Japan's imports of Canada and New Zealand It is still fresh in our minds that tariffs on beef and pork from Japan have been lowered, and sales at supermarkets have become a hot topic. Even if the RCEP comes into effect, it will be impossible to reduce the tariff rate on smartphones and color TVs because most of the tariffs on Japanese industrial products have already been eliminated. Consumers will benefit from lower tariffs on handbags or food items such as chocolate.

On the other hand, items for which Japan has obtained tariff reductions in exports to China and other RCEP member countries include sake, apples, photographic film, plastic plates and sheets, refrigerators, and washing machines. , Completed vehicles and some auto parts were excluded.

Calculating the effect of tariff reduction in trade between Japan and China/South Korea using RCEP (how much the tariff rate could be reduced before RCEP came into force, Note 1) shows that it can be done as early as five years after it comes into force. It was lower than other EPAs/FTAs in terms of stage. Nonetheless, as the final year approaches (for Japan, China and South Korea, the final year is about 20 years after the entry into force), the effects of the tariff reduction will gradually begin to take effect. The benefits are expected to permeate.

On the other hand, the amount of tariff reduction (Note 2) in Japan's trade with China when using the RCEP, which has been five years since its entry into force, is lower than the Japan-India EPA and It exceeds the amount of tariff reduction in Japan's trade with India and Vietnam using the Japan-Vietnam EPA. At the same time, it greatly exceeds the amount of tariff reduction in Japan's trade with South Korea using the RCEP, which has been in effect for five years. This trend will further expand in the final year of RCEP.

In addition, the amount of tariff reduction in Japan's trade with South Korea using the RCEP five years after it came into effect is not only for Japan's trade with China, but also for Japan's Vietnam and India in 2020 using the EPA. It is also less than the amount of tariff reduction in trade with However, the amount of tariff reduction in trade between Japan and South Korea in the final year will exceed the amount of tariff reduction in Japan's trade with India.

What is the significance of the entry into force of RCEP?

Although RCEP is designed to have a tariff reduction effect over a certain period of time after entry into force, even in the final year after entry into force, Compared to other FTAs ​​such as the CPTPP, it is characterized by the fact that there are still more items for which tariffs cannot be eliminated.

However, the amount of tariff reduction in the final year of Japan's imports from China using RCEP was $2.41 billion, and the final year of Japan's imports from South Korea using RCEP was $170 million. This far exceeds the US$730 million for Japan's imports from Vietnam under the Japan-Vietnam EPA and US$1.44 billion for the final year of tariff reductions for Japan's imports from EU27 under the Japan-EU EPA.

In addition, China's tariff reductions on imports from Japan using RCEP reached $3.67 billion in the final year, and Korea's imports from Japan using RCEP on final year $1.06 billion, $960 million from India's imports from Japan under the Japan-India EPA, $730 million from Vietnam's imports from Japan under the Japan-Vietnam EPA, Germany's Japan under the Japan-EU EPA It greatly exceeds the $460 million in the final year of imports from Japan.

In other words, the amount of tariff reduction obtained by Japan's exports to China using RCEP will be extremely large in the final year compared to other EPAs/FTAs, and exports to South Korea using the same RCEP The same is true for

Therefore, the significance and characteristics of the entry into force of RCEP for Japan are, first of all, that the amount of tariff reduction due to the use of RCEP in trade between Japan and China is larger than that of other EPAs/FTAs; As the benefits of the reduction effect gradually permeate among the member countries, it is possible to ultimately enjoy the benefits of large tariff reductions.

Secondly, many of the 15 RCEP member countries have already concluded FTAs ​​other than RCEP. It can be pointed out that the fact that an FTA can be applied to inter-regional trade for the first time will lead to the emergence of a trade framework that will have a major impact on the restructuring of supply chains in East Asia.

Next, although India unfortunately withdrew from the RCEP negotiations, the fact that a huge free trade area involving all 10 ASEAN countries, Australia, and New Zealand as well as Japan, China and South Korea was born due to the RCEP's entry into force. has not changed, and is considered to be a historic event in the framework of trade in the Asia-Pacific region.

Also, the RCEP will come into effect in 15 countries excluding India, and the unification of the rules of origin within this large regional economic bloc is also a great achievement. This will free us from the spaghetti bowl phenomenon where multiple rules of origin are intertwined.

And in the RCEP, liberalization in the service sector such as the relaxation of foreign investment ratio regulations and the formulation of rules such as protection of intellectual property rights are progressing, and there is freedom in areas such as investment and movement of people We cannot overlook the fact that the transformation is progressing.

Will RCEP follow the path to FTAAP?

As the conflict between the United States and China progresses, trade strategy movements in the Indo-Pacific region from the beginning of 2021 are intensifying. . It all started with the application for CPTPP membership by China and Taiwan in September of the same year. China's decision not to expect the US to return to the CPTPP for the foreseeable future has sparked US moves to form a new trade framework in the Indo-Pacific region. Biden Administration Secretary of Commerce Gina Lemond and U.S. Trade Representative Catherine Thy visited Asia in mid-November one after another and announced that they would start negotiations on a new economic framework in the Indo-Pacific region as early as 2022. .

In the first place, the purpose of the US starting the TPP negotiations was to form a new trade rule in the Asia-Pacific region led by the US without China. The RCEP emerged as an Asian-led trade framework in the region, slightly behind the TPP movement.

CPTPP and RCEP have been regarded as frameworks leading to the creation of FTAAP (Free Trade Area of ​​the Asia-Pacific), an Asia-Pacific wide FTA. The United States originally considered developing the TPP and linking it to an FTAAP, but withdrawing from the TPP during the Trump administration brought that aim to a halt.

In June 2021, the CPTPP committee decided to start the UK's membership procedure, and it is reported that South Korea will apply for membership following China and Taiwan, so there is a possibility that the number of CPTPP members will expand. is rising. In addition to the CPTPP, the United States is promoting a new economic framework in the Indo-Pacific.In order for the RCEP to play its role in the path to the establishment of the FTAAP, further liberalization and the expansion of its membership are essential. issues need to be addressed.

Japan's response to the trade framework in the Indo-Pacific region

Since Japan was the 12th member of the TPP after the accession of Mexico and Canada, it was passive at the beginning of its accession. negotiations continued. However, as the United States withdrew from the TPP after the initial TPP was signed, Japan was able to demonstrate leadership over the remaining member states and contribute to the entry into force of the TPP, which had the potential to disintegrate in the air.

Because of this achievement, Japan has come to play a leading role in the committee that considers applications for membership of the CPTPP, such as China. In order for Japan to continue to demonstrate its presence in the Indo-Pacific trade framework, it will be extremely important for Japan to maintain its leadership in the CPTPP, which boasts a comprehensive and high degree of liberalization.

On the other hand, with regard to RCEP, Japan proposed to start RCEP negotiations with 10 members of ASEAN plus 6 countries of ``Japan, China, South Korea, India, Australia, and New Zealand,'' and it was approved. There is a history that In addition, Japan attaches importance to ASEAN centrality in East Asian trade frameworks, including the RCEP, and above all, it means that it has become possible to use an FTA between Japan and China/South Korea for the first time. But the RCEP is considered an essential trade agreement for Japan.

In other words, both the CPTPP, which can demonstrate its presence in negotiations within Japan's trade framework in the Asia-Pacific region, and the RCEP, which is effective in restructuring supply chains in the region, are both important to Japan. undoubtedly a good trade deal.

The new economic framework in the Indo-Pacific region that the United States is trying to push requires deliberation in Congress by the Biden administration, which cannot consider returning to the CPTPP at this time due to employment measures in the Midwest Rust Belt. It is one of the attempts to launch a digital economy agreement under the leadership of the United States that does not allow China to become a countermeasure in the struggle for hegemony with China.

For the United States, the new economic framework in the Indo-Pacific region will not include China, but will include CPTPP members such as Japan, Australia, Canada, Chile, Malaysia, New Zealand, and Singapore, all of which are allies. desirable. And if the environment is ready after the midterm elections, the Biden administration may consider a path to return to the CPTPP and even explore new developments, such as incorporating the CPTPP into the new economic framework.

Therefore, in order to show Japan its presence in the negotiations on the new economic framework in the US Indo-Pacific region, Japan will strongly demonstrate its leadership in considering applications for membership of the CPTPP by China, Taiwan, etc. At the same time, it is necessary to actively promote further liberalization and India's return to the accession negotiations in the RCEP continuation negotiations.

Remaining problems in RCEP include the low liberalization rate of agricultural and industrial products, the need for further deregulation and abolishment of foreign investment ratios, and the state-owned enterprise chapter and For example, the chapter on labor and the environment has not been introduced. It is hoped that Japan, China and South Korea will continue to work together to resolve these issues remaining in the RCEP while placing importance on the centrality of ASEAN.

The liberalization rate of RCEP is 91%

What is important when considering supply chains in the Asia-Pacific region using RCEP is the degree of progress in tariff liberalization. If the liberalization rate (tariff elimination rate) is lower than other FTAs ​​and the rules of origin are complicated, RCEP will not be used.

The tariff liberalization rate of the RCEP agreement is 91% on an item basis, which is higher than the 90% of the China-Korea FTA, but compared to the 95% or more of the CPTPP and the 99% or more of the AFTA (AEAN Free Trade Area). It is undeniable that it is inferior. The RCEP liberalization rate could be even lower if India joins. If the RCEP comes into effect, the first FTA will be applied to trade between Japan and China/South Korea, and as a result, the percentage of Chinese industrial products that are duty-free against Japan will drop from 8% before it came into effect to 86%. rise to Similarly, the percentage of duty-free items imported to Japan from South Korea will increase from 19% to 92%.

Regarding the rules of origin that stipulate whether a product is of regional origin, RCEP states that the product must have a regional origin ratio of 40% or more, or the tariff number must be changed at the time of import and after assembly in the country. Either of the following should be satisfied. For this reason, RCEP's rules of origin are easy to use and unified within the region, so there will be no phenomenon where different rules of origin are intertwined. It is easier to achieve than the Japan-India EPA's rules of origin, which require both to be met.

Under the RCEP, in China, finished automobiles, excluding tractors and some passenger cars, and in South Korea, finished automobiles, excluding motorcycles and trailers, were not subject to tariff reductions. However, China has pledged to eliminate tariffs on about 87% of auto parts (5 trillion yen worth of Japanese exports to China). These include motors for electric vehicles, electrodes for lithium-ion batteries, engine parts for gasoline vehicles, camshafts, and engine pumps. Similarly, South Korea will eliminate tariffs on about 78% of auto parts (Japan's exports to South Korea of ​​190 billion yen). The items include camshafts, airbags and their parts, and electronic parts.

Agricultural products from China such as packed rice, rice crackers, scallops, salmon, yellowtail, mixed seasonings with sauce, etc., and from South Korea, candies, bar chocolate, etc. will benefit from the elimination of tariffs.

Regarding the improvement of service-related market access, China will not impose restrictions on foreign investment ratios in hairdressing and beauty services, life insurance and securities services, welfare services for the elderly, and real estate services for luxury properties. promised. In addition, South Korea acknowledged that it would not require a fixed rate or amount of royalties based on license agreements, except for some fields.

In investment, the prohibition of performance demands such as technology transfer requests and royalty regulations was stipulated, and a ratchet provision was also incorporated to prohibit the reinforcement of regulations that promised to be relaxed or abolished. However, the ISDS provision that allows companies to sue the government was not included, and it was stipulated that discussions should begin within two years after the agreement enters into force.

Regarding digital-related RCEP rules, in addition to provisions such as free cross-border transfer of information and data by electronic means, prohibition of requests for installation of computer-related equipment, consumer protection in electronic commerce and personal information Provisions to ensure reliability, such as protection, were also introduced. On the other hand, it was decided that the handling of the prohibition of requests for disclosure of source code and the handling of localization requests related to the financial sector will be considered in the future process of reviewing the agreement.

It should be noted that RCEP does not include areas such as the environment, labor, state-owned enterprises, and regulatory consistency specified in the CPTPP. As the confrontation between the United States and China progresses, issues such as human rights issues, protection of workers' rights, environmental measures, subsidies to state-owned enterprises, and unfair trade practices are becoming apparent in Asia. These issues must be dealt with appropriately in ongoing negotiations between the two countries.

Multi-layered corporate supply chains

With the RCEP coming into effect, it is now possible for Japanese companies to use FTAs ​​in addition to their existing procurement networks for materials and products in the Asia-Pacific region. A new supply chain may emerge in the trade between Japan and China/Korea, which was not possible.

As a typical example of the supply chain in the Asia-Pacific region so far, parts are brought from Japan to Thailand, processed, assembled in Vietnam, etc., exported to China, finished products and exported to the United States, etc. Such a route is conceivable.

With the RCEP coming into effect, a supply chain will be established in which parts are brought directly from Japan to China or South Korea, processed and assembled locally, then brought to ASEAN for reprocessing, and the final products are exported to Europe, the United States, etc. expected to appear. In addition, RCEP is used to bring materials from China and South Korea to Japan, and after processing these intermediate goods and semi-finished products to ASEAN and assemble them, the final products are supplied to Europe, the United States, China, and South Korea. Chains can also be envisaged.

Due to India's withdrawal, India will drop out of the supply chain path using this RCEP at this time. However, FTAs ​​in the Asia-Pacific region, such as the CPTPP and the ASEAN-China FTA, will become even more layered with the advent of RCEP, and Japanese companies using these FTAs ​​will have more options for forming supply chains in the region.

Note 1. Refers to the difference in tariff rate (MFN tariff rate - FTA tariff rate), which is the difference between the tariff rate paid for normal imports (MFN tariff rate) and the tariff rate paid when using RCEP (FTA tariff rate). ing. At the same time, it also refers to the "tariff reduction rate" (tariff reduction amount / import amount), which indicates the percentage of the import amount that the tariff reduction amount is. Unless there is a reversal phenomenon between the MFN tariff rate and the FTA tariff rate (MFN tariff rate < FTA tariff rate), the tariff rate difference and the tariff reduction rate in this paper's analysis are the same. For the analysis results of some of the tariff reduction effects, please refer to the appendix table: Analysis results of tariff reduction effects of Japan's RCEP, Japan-India EPA, Japan-U.S. Trade Agreement, Japan-Vietnam EPA, and Japan-EU EPA.

Note 2. The amount of tariff reduction in this paper is obtained by multiplying the import amount by the tariff rate difference (MFN tariff rate - FTA tariff rate) (tariff reduction amount = import amount x (MFN tariff rate - FTA tariff rate)). .

Table 1. Japan's RCEP, India , US, Vietnam, EU average tariff rates (India, US, Vietnam: 2020 China, South Korea, EU: 1st year/5th year/final year, weighted average)

(Note 1) The MFN tariff rate is the tariff rate levied on normal imports when an FTA is not used. The FTA tariff rate is the tariff rate applied when using an FTA for imports. The tariff rate difference is the MFN tariff rate minus the FTA tariff rate, and the larger this ratio, the greater the tariff reduction effect.

(Note 2) Each figure is the weighted average tax rate weighted by the import value of each item. Import values ​​used for weighting are 2020 for Japan's imports from China and South Korea, 2019 for Japan's imports from India, the United States, and Vietnam, and 2018 for imports from the EU. Tariff rates used for calculations are the first year/fifth year/final year after entry into force for RCEP and the EU, and for other EPAs/FTAs, the tariff rates one year after the respective import amounts used.

(Note 3) The average tariff rates for imports and exports between Japan and the United States are the items covered by the first stage of the Japan-US Trade Agreement (Japan 615 items (Japanese concession table HS 9-digit basis), the United States 241 It is the weighted average of commodities (US Concession Table HS 8-digit basis). The United States (covered items) in this table refers to the average tariff rate for these covered items.

(Note 4) The final year is 2026, the 16th year for Japan's imports from China and South Korea, 2026, the 16th year for Japan's imports from China and South Korea, and 2038, the 19th year for imports from the United States. 2024 is the 16th year for imports from Vietnam, and 2039 is the 21st year for imports from the EU.

(Note 5) Japan's imports from China and South Korea are controlled by RCEP, imports from India by the Japan-India EPA, the United States by the Japan-U.S. Trade Agreement Phase 1, Vietnam by the Vietnam EPA (JVEPA), and EU27 by is the average tariff rate when the Japan-EU EPA is used.

(Note 6) The HS code of the tariff schedule for FY2021 is HS2017, and the RCEP tariff schedule is based on HS2012. and very many. Compulsory tariff schedules and RCEP tariff schedules were combined using HS6-digit based converters, but it should be noted that the accuracy is considerably reduced compared to previous analytical work. The HS code conversion from 2012 to 2017 was done on a HS 6-digit basis, so there is a wide range of tax rates applied. Therefore, each concession schedule created two indicators, one for each "maximum" and "minimum" (of the tax rate). In this table, the minimum value among them was adopted.

(Documents) Created based on Tariff Rate Tables of each country, Tariff Reduction Schedules of each country, and IHS Global Co., Ltd.: Maritime & Trade.

Table 2. RCEP, India, the United States, Vietnam, and the EU's average tariff rates for imports from Japan (India/Tonam: 2019, United States: 2020, China/Korea/Germany: 1st year/5 year/final year, weighted average))

(Note 1) Import values ​​are 2020 values ​​for China and South Korea, 2017 values ​​for Vietnam, 2018 values ​​for the EU, and 2019 values ​​for the United States. Tariff rates used for calculation are the first year/fifth year/final year after entry into force for RCEP and the EU, and for other EPAs/FTAs, one year after the respective import amounts used.

(Note 2) China's final year of imports from Japan is the 21st year, and Korea's final year of imports from Japan is the 20th year. The final year of imports from Japan for Germany will be 2034, the 16th year, 2029, the 10th year for the United States, and 2026, the 18th year for Vietnam.

(Note 3) When importing in India, in addition to the normal tariff rate (MFN tax rate), a social welfare surcharge (10% of the tariff rate) and the Integrated Goods and Services Tax (IGST) ), Goods and Services Compensation Tax (CESS, applicable to cigarettes and automobiles), etc. The figures in parentheses for India in this table represent the total tariff amount (effective tariff rate).

(Note 4) Figures for the United States are calculated for items subject to the first stage of the Japan-US Trade Agreement.

(Data) Same as Table 1.

Table 3. Japan's RCEP, tariff reduction amounts and tariff reduction rates for imports from India, the United States, Vietnam, and the EU (India/US/Vietnam: 2020; China/South Korea/EU: 1 year after entry into force/ 5th year/final year, weighted average)

(Note 1) For Japan's import value, 2020 is used for imports from China and South Korea, 2019 for imports from India, the United States, and Vietnam, and 2018 for imports from the EU. Tariff rates used in Japan's calculations are the first year/fifth year/final year after entry into force for RCEP and the EU, and for other EPAs/FTAs, the tariff rates one year after the respective import amounts used are applied. bottom.

(Note 2) Regarding Japan's imports from China, South Korea, India, the United States, Vietnam, and the EU27, RCEP, Japan-India EPA, Phase 1 Japan-US Trade Agreement, JVEPA (Japan-Vietnam EPA), Japan-EU・Calculation of tariff reduction amount when EPA is used. The United States (targeted items) refers to the items (615 items) covered by the first phase of the Japan-US trade agreement.

(Note 3) Since the amount of tariff reduction is (MFN tariff - FTA tariff), this is (import amount x MFN tariff rate - import amount x FTA tariff rate), and (import amount (MFN tariff rate - FTA tariff rate)). Become. In other words, the amount of tariff reduction is obtained by multiplying the import amount by the tariff rate difference. Calculate the tariff reduction rate by dividing the tariff reduction amount by the import amount.

(Data) Same as Table 1.

Table 4. RCEP, India, the United States, Vietnam, and the EU's tariff reduction amounts and tariff reduction rates for imports from Japan (India/Vietnam: 2019, United States: 2020, China/South Korea/Germany: 1 from entry into force) year/fifth year/final year, weighted average)

(Note 1) Import values ​​are 2020 values ​​for China and South Korea, 2017 values ​​for Vietnam, 2018 values ​​for the EU, and 2019 values ​​for the United States. Tariff rates used for calculations are the first year/fifth year/final year after entry into force for RCEP and the EU, and for other EPAs/FTAs, the tariff rates one year after the respective import amounts used.

(Note 2) Figures for China and South Korea in this table are based on RCEP, India on the Japan-India EPA, the United States on the Phase 1 Japan-U.S. Trade Agreement, Vietnam on the JVEPA, and Germany on the Japan-EU EPA. shows the tariff reduction effect of

(Note 3) Figures in parentheses ( ) for India are the actual reduction amount and rate of reduction, while figures for the United States are calculated based on the items subject to the Japan-US Trade Agreement (241 items).

(Data) Same as Table 1.