November 18, 2020
The 10 member states of the Association of Southeast Asian Nations (ASEAN) – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam – and five other countries (China, Japan, South Korea, Australia, and New Zealand) officially signed the Regional Comprehensive Economic Partnership (RCEP) Agreement at the 4th RCEP leaders’ meeting held on November 15.
The move marks the official signing of the world’s largest free-trade agreement, after eight years of negotiations.
Eight years of negotiations finally create the world’s largest free-trade area
The RCEP aims to create a free-trade agreement by reducing tariff and non-tariff barriers. Negotiations started in November 2012 and covered more than 10 areas such as small- and medium-sized enterprises, investment, economic and technological cooperation, and trade in goods and services.
The 15 countries that the RCEP agreement covers have a total population of around 2.3bn, accounting for 30% of the global population. Their aggregate GDP has exceeded US$25trn. The regions that the RCEP covers form the world’s largest free-trade area.
Uniform free trade area could help build local supply chain and value chain, and ensure efficient coordination in local industrial divisions
A uniform free trade area enables local countries to build supply and value chains based on comparative advantages.
It facilitates the flow of goods, technologies, services, capital, and persons. For the textile and apparel industry, a typical value chain is that China imports wool from Australia and New Zealand, then produces fabrics and exports them to Vietnam, where clothes are produced and exported to Japan and South Korea. After the RCEP agreement takes effect, tariffs in these fields are poised to be reduced or eliminated. Furthermore, the signing of the RCEP agreement indicates China’s trade relationships with Japan and South Korea may improve further.
Overseas expansion by Chinese brands
The textile and apparel supply chain’s relocation to Southeast Asia and China’s industrial upgrading have continued in recent years. Chinese apparel companies used to have weak brand operation awareness and low brand reputations in overseas markets.
However, Chinese textile and apparel brands could make further progress in their global expansion thanks to their improving brand power, increasingly competitive products, advanced infrastructure (e.g. cross-border e-commerce and one-stop logistics solutions), and tariff cost reduction thanks to the signing of the RCEP agreement.
The textile and apparel industry chain is characterized by cluster effect. China is the world’s largest textile producer and exporter, and the stability of its supply chain has made it stand out. Given the signing of the RCEP agreement, leading names in China’s textile and apparel subsectors could be positioned to grow.
For more details, please see our report RCEP signed; China’s textile & apparel value chain has solid advantages published in November 2020.