RCEP: Opportunity to Penetrate Regional Supply Chains

Administering rules of origin in the Regional Comprehensive Economic Partnership (RCEP) in a consistent and uniform manner will present Vietnamese businesses with the opportunity to enter more deeply into regional supply chains.

RCEP-shaped supply chains

RCEP was signed in 2020 by ASEAN and five partner countries, namely Australia, New Zealand, China, Japan and Korea. This is the largest free trade agreement, covering 30% of the global GDP. RCEP will eliminate about 90% of tariff lines in 20 years from the date of entry into force, with reduction rates varying by industry.

According to RCEP impact assessment reports, the RCEP Agreement is producing a very positive and large impact on regional economies. The region’s income is forecast to rise by about 0.6% by 2030, or an increase of US$245 billion a year, and 2.8 million jobs will be created. According to the World Bank's forecast on RCEP impacts, Vietnam's exports will increase by 11.4% by 2030.

Mr. Luong Van Khoi, Deputy Director of the National Center for Socioeconomic Information and Forecasting (NCIF), said that, in addition to RCEP commitments like conventional traditional agreements, RCEP has more on e-commerce, telecommunications, competition, small and medium-sized enterprises (SMEs) and public procurement. Importantly, RCEP harmonizes regional origin with the application of the origin rate cumulation method, thereby opening up a lot of opportunities and benefits for intra-regional exports.

Besides the above benefits, RCEP plays an important role in shaping supply chains in Vietnam, said Dr. Tran Toan Thang, Director of the Department of Industry and Enterprise Forecasting, NCIF.

Tariffs on Vietnamese goods that are deeply involved in regional supply chains such as textile and garment, automobile and electronics products will be slashed, and the application of uniform rules of origin in RCEP will help Vietnam join more deeply into regional supply chains.

The redirection of supply chains into Vietnam, which already happened earlier thanks to bilateral FTAs or within the ASEAN+6 framework, will be further facilitated by RCEP. Vietnam's FDI inflows are also expected to increase as major investors in the region foster specialization for supply chain development.

Benefits for many industries

According to a report on how RCEP shapes supply chains in Vietnam released by NCIF and KAS, RCEP-beneficiary products include textiles and garments (19.8%), light industries (5.7%), and fruits and vegetables (5.25%). On import by commodity, all items will be advanced, with the largest being textiles and garments (12.81%) and light industries (6.08%). Sharp increases will be seen in textile and garment exports to China; fruit and vegetable shipments to Korea and other ASEAN countries, while electronic exports will decline in China, Korea and Australia but look up in Japan and New Zealand. Besides, Vietnam will raise imports from RCEP member countries while slashing imports from external partners. This shows that RCEP will help diversify trade for Vietnam.

Ms. Do Thi Thuy Huong, Vice President of Vietnam Supporting Industries Association, said that many leading corporations and technology suppliers in the world such as Apple and Foxconn are considering establishing their production and supply chains in Vietnam. This opens the door for Vietnamese businesses to cooperate and participate in supply chains of more high-tech content and value.

RCEP also has a great impact on electronics supply chains. RCEP countries are the largest suppliers of electronic parts and components in Vietnam, accounting for 66% of its total electronic import value, driven by China and South Korea.

Regarding solutions to unlock RCEP advantages to join more deeply into supply chains, NCIF recommended the necessity to strengthen corporate competitiveness, create an environment for Vietnamese firms to access modern technology and take part in stages of generating more added value in production value chains. The government can play a role in market-making for technology, and strengthen the capacity to control imported technologies.

At the same time, it can provide and share information quickly and promptly to businesses about RCEP commitments, specific requirements for each product line to be implemented to help businesses actively invest in accessing new markets.

On the other hand, guaranteeing input supplies is key for Vietnamese companies to improve competitiveness. For that reason, it is necessary to have policies to encourage more investment in supporting industry development, especially industries where Vietnam has comparative advantages for expanding the market and accelerating Technology 4.0 development to embrace new trends.

By Huong Ly, Vietnam Business Forum