Myanmar

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The Regional Comprehensive Economic Partnership (RCEP) promotes connectivity among economies in the Asia-Pacific region

The Regional Comprehensive Economic Partnership (RCEP), the world’s largest trade deal, officially took effect on January 1, 2022, targeting a market of 2.2 billion consumers.

 

RCEP 2022

 

RCEP Overview

Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement (FTA) among 10 ASEAN member countries and an additional 5 countries: Australia, China, Japan, South Korea, and New Zealand. RCEP was signed in Hanoi, Vietnam on November 15, 2020, aiming to form the East Asia Free Trade Agreement (EAFTA) and the Comprehensive Economic Partnership in East Asia (CEPEA).

Map showing RCEP members

The 15 members of RCEP accounts for 30% of the world’s population (2.2 billion people) and 30% of the global GDP (26.2 trillion USD), forming the largest trade bloc in history. RCEP is the first free trade agreement between China, Japan, and South Korea, three of Asia’s four largest economies.

Table comparing RCEP with major FTAs

As of November 2, 2021, 6 ASEAN countries and 4 of the partner countries, including China, Japan, Australia, and New Zealand, sent their ratification of the RCEP Agreement to the General Secretary of ASEAN. On this basis, the RCEP Agreement officially took effect starting January 1, 2022. RCEP has two major changes compared to previous FTAs: consolidated Rules of Origin (ROO) and tariff reductions. Both will have positive impacts on trade within the region and will likely attract multinational corporations into the bloc.

Enhance Trade with Accumulative Rules of Origin

The agreement’s accumulative ROO is the RCEP agreement’s biggest accomplishment. A good will be considered to meet the ROO requirement if it meets just one of the following three conditions: the good is wholly obtained in a member country; the good is produced solely from materials originating in one or more member countries; the good is produced from non-originating materials that meet the requirements of the Item Specific Rules. For example, cotton from China processed in Vietnam, under the new cumulative ROO, will be deemed to have originated in Vietnam when Vietnam exports the final product to another RCEP country. In general, the RCEP brings together all the original rules of origin outlined in the ASEAN-Plus-one and other bilateral preferential trade arrangements (PTAs). Thus, businesses will only need one ROO when trading within the bloc.

Accordingly, the RCEP creates huge benefits to some key export industries of its members, for example, Vietnam’s textile and garment industry. The previous FTAs which Vietnam had signed with Japan: VJFTA and AJCEP, both required two-step rules of origin: the fabric had to be produced in the ASEAN country or in Japan to be eligible to receive tariff preferences. With the new RCEP Agreement, Vietnam manufacturers can import fabrics from anywhere; as long as the fabric is then cut and sewn in Vietnam, tax incentives will be implemented when exporting to Japan. Vietnamese exports to any of the member countries of the agreements will now be more time- and cost-efficient. Other industries such as footwear, automobiles, agriculture, fisheries, and telecommunications will also enjoy similar advantages with the new RCEP.

Overall, the relaxed, consolidated ROO will reduce costs and enhance global value chain activities for any company that has supply chains spanning in Asia. Multinational companies that would like to move parts of their production to Asia will also find it easier to establish supply chains in the region.

Benefits for China with Tariff Abolition and Reduction

The RCEP will eliminate tariffs and quotas on more than 65% of traded goods, improving market access. The member countries agree to reduce or eliminate customs duties imposed on goods by approximately 92% over 20 years. Some tariffs will be eliminated immediately, while others will be phased out gradually over 20 years. However, this does not necessarily imply extensive tariff abolition for all member countries, as more favourable trade agreements already exist between some of the member countries.

Among the countries, China is the one that will benefit greatly from this agreement. RCEP members are all important partners of China. In the first nine months of 2020, trade turnover between China and its member countries amounted to 1.055 billion USD, accounting for about one-third of the country’s total foreign trade turnover. With RCEP, 85% of Chinese goods will enjoy zero tariffs when exported to RCEP countries. Further on, a total of 98.2% of Chinese products will be granted zero Australian tariffs in the long run. Overall, the share of trade with free trade partners is expected to increase from 27% to 35%, and China will have a total of 19 free trade agreements with 26 partners.

Thanks to RCEP, China can also establish its first free trade agreement with Japan. During the first three decades after China’s reform and opening, Japanese investment in China was mainly in the form of “re-exports”, meaning that Japan invested in manufacturing in China, to then export those products to other countries. With RCEP, preferential tariffs will be immediately applied to 57% of Chinese goods exported to the Japanese market. Therefore, Japanese investors who are eager to switch from re-export investment to investment focused on the China market can promote this strategy further with RCEP.

In general, global partners and investors can benefit from a bigger market, more flexible supply chains, lower transaction costs in RCEP countries with this new partnership.


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    by Asia Perspective Asia Perspective No Comments

    Asia-Pacific Nations Form World’s Largest Trading Pact

    After eight years of negotiation, 15 nations formally signed one of the world’s largest free trade agreements on the 15th of November 2020. The Regional Comprehensive Economic Partnership (RCEP) includes the 10 ASEAN nations as well as their close partners China, Japan, South Korea, New Zealand and Australia. The agreement stands as a symbol of China’s growing economic impact in Southeast Asia, at a time when the US places itself in an uncertain position in the region.

     

    RCEP map

     

    The RCEP shows that the world won’t wait around for the US, but instead engage in aggressive trade negotiations without it. The European Union are currently pursuing several free trade agreements at a high pace. As a result, many American exporters might lose their global market shares.

    The RCEP is expected to abolish a range of tariffs on imports over a 20-year period. It also includes regulations on intellectual property, telecommunications, financial services, e-commerce, and professional services. However, as the new trade agreement eliminates tariffs mainly on goods that are already eligible for duty-free treatment, it is expected to formalize, rather than remake, the business among the involved nations. Moreover, the pact introduces so-called “rules of origin”, which will set common standard for how much of a product needs to be produced within the region to qualify for duty-free treatment. As an effect, international enterprises will have an easier task of setting up cross-border supply chains that span several countries.

    Due to the ongoing global pandemic, the signing of the free trade agreement was a bit unusual as The whole process was conducted virtually. Each country’s trade minister took turn signing the deal, while his or her head of state or government stood nearby and watched the signing take place.

    The agreement is the biggest of its kind in relation to the massive population it affects. The pact covers 2,2 billion people, more than any previous free trade agreement has ever covered. Moreover, the deal could increase global national income by 186 billion USD annually by 2030. It is believed that the pact will benefit China, Japan and South Korea the most.


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      Uncover sourcing trends in Asia with our 2018 survey

      This year’s report on the sourcing trends in Asia and the world is now published.

      Asia sourcing survey 2018

      Each year Asia Perspective surveys the perceptions of sourcing professionals around the world to discover the newest trends in sourcing and to assess what future developments we should be expecting.

      Download our 2018 report to get an insight into the compounded opinions of over 1000 sourcing professionals around the world.

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      Myanmar: The Continued Rise of an Emerging Economy

      Back in 2011, Myanmar experienced a transformative political election which resulted in significant economic strides. In 2015, power changed hands once again. Under the stewardship of the newly elected party, the National League for Democracy (NLD), the country seems poised to continue along its path of steady and impressive growth.

       

      Myanmar street scene

       

      Myanmar’s economy experienced setbacks in 2015 as a confluence of factors seemed to be working against it. Most notably, severe flooding caused a chain of supply shocks in one of the country’s central sectors, the agricultural industry. Throughout the summer, a series of floods caused a decrease in production of important exports such as rice and teak. Although the service sector overtook agriculture as the dominant industry around 2011, the agricultural sector still accounts for roughly 40% of GDP and employs nearly 70% of the labor force. Thus, the adverse climate conditions of 2015 had a noticeable impact on GDP growth, income growth, and the employment rate throughout the country.

      Overall GDP growth decreased to 7% year-on-year, compared to the 8.5% growth rate that Myanmar sported in 2014. Through the first three quarters of 2015, nominal exports decreased by nearly 12% year on year, while, simultaneously, inflation rose to 16%. Despite these setbacks, though, forecasters expect that the economy will resume its pre-2015 rates of steady growth in the following years. The Asian Development Outlook predicts that Myanmar’s GDP will rebound to a growth rate of 8.4% in the fiscal year of 2016 – a rate faster than any other Asian country.

      Yet, in order for every sector of Myanmar’s nascent economy to unlock its full potential on a global scale, it must overcome a series of infrastructural hindrances. Despite its advantageous geographical position in South East Asia, Myanmar lacks a sophisticated network of roads and ports to efficiently facilitate the movement of goods. This poses significant challenges for profitable investments as well. In 2014, only 38% of its roads were paved, and the situation has improved only marginally since. In the following years, Myanmar must divert more resources toward developing its roads, highways, and ports.

      Undoubtedly, though, Myanmar has made some significant infrastructural headwinds since 2011, particularly in regards to telecommunications and internet connectivity. In 2010, mobile phone and internet usage were virtually non-existent: a paltry 1% of the population had access to mobile phones. Now, nearly 50% have mobile phone subscriptions. Moreover, 3G networks emerged in 2015, greatly increasing the accessibility of higher-speed data and of the country’s bandwidth potential as well. Circumstances are only set to improve. In early 2016, the government approved contracts for the construction of an undersea fiber-optic cable that will connect Myanmar, Malaysia, and Thailand. Once functional, this cable (known as MYTHIC) will provide Myanmar with 300 gigabits per second of bandwidth – a tenfold increase from the 2013 connectivity capacity. In a mere six years, the internet and telecommunications have improved exponentially. However, the picture is not necessarily as rosy as that data suggests, and the country certainly has lots of room for improvement. Although an increasing percentage of the population can now access the internet and utilize mobile phones, intermittent power and data shortages occur frequently. Moreover, a staggering 75% of the country’s youth reside in homes that lack electricity, according to the Economist. Evidently, though the country is developing at an impressive rate, a great deal of development is still necessary. As connectivity and the power capacity continually improve in the following years, Myanmar will certainly find itself more easily integrated into the global economy.

      The story of Myanmar’s financial sector follows a similar trajectory, marked both by significant progress and persistent impediments. After the political regime change in 2011, the government took steps to liberalize the banking system, allowing the central bank to manipulate interest rates in response to economic fluctuations. Furthermore, they loosened banking regulations, permitted the use of ATMs, and allowed for foreign banks to take a small, albeit highly regulated, role in their domestic banking system. Such changes have helped spur foreign investment, though a myriad of problems still remain. At a 2016 international conference of economists in Myanmar, many investors and analysts noted that stifling regulations impede banks’ ability to extend credit and make loans. Many concluded that, although opportunities for growth are positive, the financial sector needs further liberalization in order to stimulate entrepreneurial activity and allow more businesses to flourish. Nonetheless, the country is certainly moving in the right direction and foreign investment is expected to increase. In September of 2016 the government ratified a bill on the Myanmar Investment Law, which simplified the regulatory mechanisms that approve foreign investment applications and encouraged foreign companies to take a bigger role in Myanmar. This landmark legislation should have a significant impact on the amount of Foreign Direct Investment in Myanmar and provides yet another example of the new government’s commitment to developing the economy in a global context.


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