By Julien Chaisse*
Hong Kong expressed a strong interest as early as 2018 in joining the Regional Comprehensive Economic Partnership (RCEP) and has received positive responses RCEP member states.
RCEP, usually claimed as the ‘largest free trade agreement’ in the world, launched negotiations in November 2012 with the aim of facilitating the creation of an integrated market and making the goods and services more accessible for signatory states. The first round of negotiations in the lead up to this agreement between the 10 ASEAN nations, Australia, China, India, Japan, New Zealand and South Korea began in May 2013 and the deal was signed in November 2020.
India eventually opted out of RCEP due to several ‘core concerns’. An influx of goods from New Zealand and China as a consequence of RCEP would harm India’s agricultural and dairy sector. The India–China border conflict also encouraged India to back out of the deal. Inadequate protection against a surge of imports and awarding Most Favoured Nation status to countries with which it has conflict did not sit right with India. On the other hand, Japan recently ratified RCEP with hopes to strengthen its economic ties with the Asia Pacific region and in expectation that the treaty will boost its GDP by 2.7 per cent.
RCEP would be a natural extension of Hong Kong’s proactive international trade and investment policy. It is actively working towards expanding its FTA network to enable better conditions for the entry of its goods and services into other markets. So far, it has signed eight FTAs and maintains 19 bilateral investment treaties (BITs).
In particular, Hong Kong’s entry into RCEP is rational given that it already has an FTA with ASEAN that came into effect in 2019 and several BITs with individual ASEAN member states. Hong Kong has also signed FTAs with 13 of the RCEP states. These FTAs include agreements with China (2003) and New Zealand (2010).
Hong Kong, as a financial hub, is a substantial source of investment in the Asia Pacific region. In 2019, RCEP member economies received more than half of Hong Kong’s outbound direct investment. Mainland China and ASEAN were Hong Kong’s largest and second-largest merchandise trade partners in 2020, and its largest and fourth-largest major services trading partners in 2018. The value of commerce between Hong Kong and RCEP’s 15 member economies reached US$770 billion dollars in 2020, accounting for 73 per cent of Hong Kong’s total foreign trade. After joining RCEP, more of Hong Kong’s businesses would be enticed to invest in RCEP member nations, assisting their development.
Becoming an RCEP member does not raise major legal difficulties for Hong Kong. Article 20.9 of the RCEP treaty, which deals with accession, suggests that the agreement is open to any state or separate customs territory after the lapse of 18 months from the date of enforcement. This chapter also designates a depository that will be responsible for all formalities related to accessions. This includes tasks such as receiving and disseminating documents related to requests of acquisition, instruments of ratification, and various other notifications to all signatory and acceding states.
Outside of Hong Kong, Taiwan and Macau have also shown an interest in joining RCEP, but China has frozen Taiwan’s attempts to join. Hong Kong has not been marginalised in the same way with respect to regional economic integration due to its acceptance of the ‘one country two systems’ model. It is also a member of the WTO, independently from Mainland China, and enjoys expansive economic independence across the globe.
Acceding to RCEP could prove highly beneficial for Hong Kong. It would help Hong Kong companies expand and open up regional markets across ASEAN. RCEP would further simplify trade between Hong Kong and the entirety of the Asia Pacific region by bundling multiple FTAs into one unified system. Additionally, removing tariff barriers could further integrate regional supply chains that have suffered due to COVID-19.
RCEP may also benefit Hong Kong’s offshore and third-party logistics services. It may also eventually foster strong trade and investment relations between Hong Kong and RCEP nations, and these nations may begin to demand financial and professional services in which Hong Kong maintains strong competitiveness.
RCEP has the potential to serve as a major global platform for trade, especially in the post-COVID-19 world. But whether or not this dream will be realised depends on whether or not the ratifying nations are successful in promoting the spirit and intent of the agreement. Smoothing the way for Hong Kong’s accession would be one way to demonstrate such intent.
*About the author: Julien Chaisse is Professor at the School of Law in the City University of Hong Kong and is the President of the Asia Pacific FDI Network.
Source: This article was published by East Asia Forum