Asia’s RCEP a Reminder that Trade Goes On Despite the Pandemic

Euromoney, December 2 2020

It is easy to forget, in this age of closed borders, geopolitical tensions and empty airports, that a landmark trade agreement was signed in November.

The regional comprehensive economic partnership (RCEP) brings together 15 Asian nations covering 30% of the world’s GDP and 27% of global trade.

It also marks the first time that China, Japan and South Korea have been part of the same trade deal; India’s not in it, for fear that its industries would be hammered by cheap Chinese exports, but it is welcome to join.

There are echoes with the previous proposed agreement, the Trans-Pacific Partnership (TPP), in 2016, coinciding as it does with a US election.

The first thing president Trump did upon taking power was to pull the US out of the TPP, but trade deals have simply gone on without the US – and with China. That’s geopolitics.

So, what does it mean for the banks?

RCEP was clearly in the background when Singapore’s UOB announced a memorandum of understanding with Vietnam’s Foreign Investment Agency on Friday.

The bank will facilitate an additional pipeline of more than S$1.5 billion ($1.12 billion) of foreign direct investment (FDI) into Vietnam as part of the arrangement, joining a wave of $14 billion of disbursed FDI Vietnam received in the first nine months of 2020.

UOB says that RCEP is going to be a notable boost to such intra-regional investment flows, adding that 40% of Asean FDI comes from fellow RCEP members.

The trade deal will bring about a single rulebook that will facilitate regional supply chains, as well as bringing in investment protection provisions – although it remains to be seen how robust those are in practice, particularly in China.

On Tuesday, HSBC released a survey on the impact of RCEP on intra-Asian trade, very much in agreement with UOB’s expectations. It found 71% of Asia-Pacific companies are trading within Apac, up from 67% in 2019, with two in three expecting to increase their investments even as they cut costs through Covid.

“Intra-regional trade already accounts for some 60% of Asia’s overall trade, and it’s a figure that will only grow when RCEP comes into effect,” says Stuart Tait, regional head of commercial banking for Apac at HSBC.

There are caveats: as DBS points out, most of the participating countries already had bilateral free-trade agreements with each other, so the bigger impact is on those that did not, chiefly China-Japan and Japan-South Korea.

But really, it is about the message.

It is encouraging to think that amid a global pandemic that has shattered our ideas about movement, there is still enough momentum to building trading blocs for the future. Banks with strong trade finance businesses in Asia should reap the benefits.

Read the whole article here