Impacts of Regional Comprehensive Economic Partnership (RCEP) on BRI

The aim of the Regional Comprehensive Economic Partnership (RCEP) is to create the world's largest free-trade zone in terms of trade volume or population, effective from January 1, 2022. It is a free trade agreement among fifteen countries (Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam).

The RCEP agreement simplifies customs clearance procedures between all member nations, in keeping with the fundamental principles of free trade. Overall, it will reduce delays, which will save costs and speed up turnaround times. In addition, to safeguard digital trade within the RCEP region, all countries have agreed to paperless trade, mutual recognition of digital signatures, and the establishment of multilateral digital protocols.

Meanwhile, the infrastructure, trade, and financial connections provided by the Belt and Road Initiative (BRI), which was launched in the year 2013, have created the groundwork for the region's economy. After the RCEP is implemented, BRI will assist in fostering stronger regional trade and investment links in the area. Through regional supply networks, China-Asean commercial and trade links will become stronger. It is anticipated that more Chinese manufacturing firms will invest in Malaysia, particularly in the production of automobiles and auto parts.

The RCEP and BRI anticipated lowering trade barriers and improving facilitation, enabling speedier integration of Chinese manufacturing firms into the global supply chain and clearing the path for expanded exports of Chinese railway models and standards. According to the chairman of the Malaysian Chamber of Commerce, Malaysia is looking forward to future high-speed railway projects with China as the East Coast Rail Link, Malaysia's massive rail project, constructed in conjunction with Chinese contractors moves forward. The RCEP's trade facilitation will enable Asean to import higher value-added inputs from east Asia and export higher value-added finished products to the plus five countries (Australia, China, Japan, New Zealand and the Republic of Korea), as well as boost regional investment. Agricultural products and auto parts are likely to be two of the

top items receiving the most immediate boost with less trading friction. Along with supporting the growth of physical trade and investment under the RCEP, BRI infrastructure also plays a positive role in the opposite direction, potentially lowering the cost of construction for some of the major BRI projects that are still in the planning and development stages.

In terms of manufacturing, manufacturers within the RCEP are no longer restricted to producing in just one nation to get preferential tariff status. Thus, it allows for a highly linked production and supply chain inside the RCEP zone, but other nations along the BRI may also feel the consequences of this and benefit from it. This is due to the fact that enterprises from non-RCEP nations can gain access to this trade agreement by making wise investments and setting up a manufacturing or production facility there.

Attention is also given to digitalisation, as protecting intellectual property rights is a key concern for RCEP. In RCEP, e-commerce has garnered attention. E-commerce will assist SMEs in entering and profiting from the Asean market. Consequently, it presents a chance for Malaysian businesses to take advantage of digitalization and harness the potential of e-commerce. Malaysia must set up the appropriate enablers in order to reap

the rewards of RCEP. For instance, Malaysia's home ecosystem needs to have better access to the technology required to support digitalization. The rollout of 5G is a crucial step in this procedure. Additionally, it is important to encourage Malaysian SMEs to engage in regional investment and trade as SMEs in Malaysia contribute so much to economic development.

Thirty per cent of China's entire current trade is made up of commerce with RCEP participants. China's three major trading partners are Asean, Japan, and Korea. China is well-positioned in the upper-middle to the middle tier of the regional industrial supply chain, which means BRI investors in Chinese textiles, auto parts, electronics, and other products will profit from their distinct competitive positions in the regional supply chain, which will support China's wider exports. Due to its industrial supply chains and labour efficiency, RCEP will further encourage regional direct investment in China.

To recap, as the largest trade bloc, RCEP’s goal is to cut tariffs, open up services trade, make it easier for foreign investors to come in, and strengthen economic and commercial ties among its members. Many Chinese enterprises will find it easier to invest in regional markets as a result of the RCEP, while other member nations will gain from having access to the big and rising Chinese market. With the establishment of RCEP, China's Belt & Road Initiative will be more entrenched, as RCEP is China's largest trade partner, accounting for more than 32% of China's total trade. In conclusion, when RCEP is combined with Asean's expanding prosperity, it could assist in attracting investors from outside the area. Then, the Chinese and regional markets will be perceived as an "integrated market".

Dr Lee Hui Shan is an Assistant Professor at Universiti Tunku Abdul Rahman. The views expressed here are entirely the writer’s own.

The SEARCH Scholar Series is a social responsibility programme jointly organised by the Southeast Asia Research Centre for Humanities (SEARCH) and the Centre of Business and Policy Research, Tunku Abdul Rahman University College (TAR UC), and co-organised by the Association of Belt and Road Malaysia.