On 30 August 2022, the Indonesian House of Representatives agreed to pass a law ratifying the Regional Comprehensive Economic Partnership (RCEP), the largest regional free trade agreement outside the World Trade Organization — involving 10 ASEAN countries and five non-ASEAN countries, i.e., China, New Zealand, Australia, Japan and South Korea. With the passing of this law, which still requires promulgation by the President, RCEP is set to come into force for Indonesia, possibly before the end of the year.
RCEP is more than just a free trade agreement that is limited to trade in goods and services. Rather its 20 chapters also cover investment, intellectual property, e-commerce, competition, government procurement and dispute settlement. As it will soon be implemented in Indonesia, businesses should consider whether they can take advantage of the benefits that this agreement offers.
Update of RCEP ratification timeline
RCEP actually came into force for participating member states that have deposited their instrument of ratification 60 days after the date on which at least six ASEAN member states and three non-ASEAN member states have ratified RCEP. On 1 January 2022, it came into force for the initial ratifying members of Singapore, Brunei, Thailand, Lao PDR, Cambodia and Vietnam (all ASEAN member states), China, Japan, New Zealand and Australia (non-ASEAN member states). Indonesia’s ratification was delayed due to its focus on more pressing domestic issues. Subsequently, Malaysia and South Korea have also ratified this agreement, leaving Myanmar and Philippines as the two participating member states that have yet to ratify RCEP.
What should businesses do in preparation for RCEP?
As we look forward to the implementation of RCEP in Indonesia, businesses should consider whether they are able to take advantage of any benefits offered by RCEP, including those noted below. Also in some areas such as competition policy and consumer protection, they should expect more harmonization of laws and greater cooperation between the relevant authorities of member states, which may present additional compliance challenges for their operations in member states:
- Customs duty planning and mitigation: RCEP aims to reduce or eliminate customs duties imposed by each member state on originating goods by approximately 92% over 20 years. In particular, businesses with supply chains involving Japan, China and South Korea may take note that RCEP establishes a free trade relationship between the three nations for the first time.
- Further optimization of supply chain: As RCEP consolidates members of the existing ASEAN +1 agreements with the five non-ASEAN member states, this will make it easier to meet the regional value content requirements through the cumulation rule. As such, businesses may enjoy greater sourcing options as well as have more flexibility in optimizing their manufacturing processes within the 15 member states.
- Nontariff measures: Nontariff measures on importation or exportation between member states are prohibited under RCEP, except in accordance with rights and obligations under the WTO Agreement or RCEP. Quantitative restrictions made effective through quotas or licensing restrictions are generally to be eliminated.
- Trade facilitation: RCEP stipulates trade facilitation and transparency measures, including procedures for approved exporters to make declarations of origin; transparency around import, export and licensing procedures; issuance of advance rulings; prompt customs clearance and expedited clearance of express consignments; use of IT infrastructure to support customs operations; and trade facilitation measures for authorized operators. For trade between certain countries, greater trade facilitation may be expected as RCEP introduces the option to self-certify the origin of goods through declaration of origin, as self-certification may not be available under certain ASEAN +1 agreements (e.g., the ASEAN-China FTA).
- Competition and consumer protection: RCEP provides for exchange of information among member states’ competition authorities and allows for coordination in enforcement actions taken by them. This chapter also provides for technical cooperation to increase capacity in competition law enforcement. Cooperation is also provided for matters of mutual interest related to consumer protection.
- E Commerce: Stipulates that parties will adopt or maintain a legal framework conducive to e-commerce, including in adoption of laws to protect data privacy and e-commerce consumers. The parties also agree not to impose custom duties for electronic transmissions.
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