How the Regional Comprehensive Economic Partnership (RCEP) agreement can deepen supply chain integration and help SMEs achieve better business outcomes
By Audrey Cheong, Regional Vice President, Southeast Asia Operations, FedEx Express
The benefits of Free Trade Agreements (FTAs) remain undisputed in terms of economic and social benefits. These apply not just to large businesses, but more critically for the prosperity of local communities and small businesses that are the backbone of any economy, especially in Asia.
The Regional Comprehensive Economic Partnership (RCEP) between Asia-Pacific nations is the largest free trade agreement in history with an estimated worth of US$26 trillion covering roughly 30% of global GDP. Its significance extends beyond the scale and scope of the agreement. As the only agreement encompassing nearly all countries in Asia, it binds the trade bloc together by integrating their economies and providing a platform for them to establish compatible trade rules. RCEP recently came back in the media spotlight when Singapore became the first amongst the fifteen member countries to ratify the trade deal.
Former Singapore Minister for Trade and Industry Chan Chun Sing cited “strengthening trade and economic linkages with partners” and “benefit for our businesses and people” as key drivers for the government’s decision to ratify the RCEP.
What this means is a more seamless flow of commerce and goods between member countries – with more companies able to provide services at lower tariffs, and with access to more efficient clearance processes.
The RCEP helps to change the playing field for the logistics sector within RCEP markets, especially for Small-and-Medium Enterprises (SMEs), and the following are some of its implications.
- Enhanced cross-border mobility
Prior to the RCEP agreement, complex regional supply chains made clearance processes inefficient and complicated. Shipments between neighbouring countries are often held in customs for extended periods – in Singapore, customers clearance normally takes about three to five days.
Additionally, different countries had varying tax and duty structures subjected to individual trade agreements, which made it highly challenging for businesses unfamiliar with the rules of each country to operate.
As part of the RCEP, customs procedures are simplified with enhanced efficiency where normal goods can attain custom clearance within 48 hours. The management of cross-border supply chains and logistics are also designed to be streamlined among member countries. As businesses look to diversify their supply chains to Asia, the simplification of customs processes are likely to boost regional trade.
Within the logistics sector, these changes are expected to reduce time taken for shipments to be sorted and routed to their intended destination, and international end-to-end deliveries through well-connected providers like FedEx will likely become quicker than before. The increased efficiency and performance in the supply chains is likely to strengthen its resilience at a time when they are fragile.
Moreover, with the increased ease of shipping goods at a larger volume, economies of scale can be achieved leading to better efficiency and cost savings.
- Further leveraging Singapore’s position as a logistics hub
As a global logistics hub, the RCEP means that Singapore is likely to retain its competitiveness by facilitating the transportation and last-mile deliveries of goods with higher efficiency.
With Singapore already a global aviation hub for FedEx, there will be more seamless cargo operations in the region, allowing for the transition of shipments via the hub.
For years now, FedEx has been collaborating with SMEs to build cross-regional supply chains and the RCEP ratification will further boost those efforts.
A one-stop resource like the FedEx Global Trade Manager, which provides international shipping information for customers, can help SMEs leverage on FedEx services to expand the footprint of their products.
- Higher profit margins for SMEs
SMEs looking to leverage cross-border trade within the RCEP markets are expected to benefit from the lowering of preferential tariff rates of about 92% of goods on average over a period of 20 years.
Businesses will also get to enjoy cost savings due to additional preferential market access to specific goods such as mineral fuels, plastics and miscellaneous food and beverages in selected RCEP countries like China, Japan and Korea.
Lower tariffs and costs can lead to a wider profit margin for SMEs, with more feasibility and flexibility to trade across borders. Moreover, a reliable and affordable shipping solution like the FedEx Ship Manager™ can help SMEs schedule, manage and set up shipments to expedite cross-border movement.
- Enhanced digital trade environment
The RCEP is notable in its language on cooperation among members states to assist SMEs in the use of e-Commerce, facilitating trade using paperless trading and acceptance of cross-border electronic signatures. These rules will help create a more conducive digital trade environment for businesses.
With COVID restrictions leading consumers to shop more online versus brick and mortar stores, e-commerce sales are at an all-time high, growing by 27.6% globally for the year. The pandemic accelerated the shift to e-commerce by an estimated five years – requiring SMEs to adapt to a new digital economy that is shifting away from traditional retail.
With digital processes, SMEs can look forward to a reduction of paperwork and administrative procedures required for trade, one of the key barriers to participating in global value chains compared to larger companies. This could lead to less strain on manpower and more time to prepare goods for shipment. The inclusion of an e-Commerce provision reduces the need for costly and cumbersome paperwork processes.
- Consolidated IP protection for innovation
With an expedited process for the filing of copyrights, patents and trademarks across all RCEP markets, businesses planning to venture into the region will have more incentive to innovate. For instance, a business only needs to file one patent for it to take effect across all 15 RCEP countries.
This is highly beneficial to SMEs requiring rights protection when exporting products and services across regions – SMEs with IP protection report 68% higher revenue per employee compared to SMEs without.
Businesses looking to expand their businesses with new products and export them across the region can do so with more ease since they can potentially enjoy better protected IP rights.
The RCEP framework may bring about deeper intra-Asia supply chain integration, crucial for economies to thrive in the post-COVID world. By considering the logistics implications of the RCEP now, SMEs can start to plan and take advantage of this to expand, develop and grow.