SYDNEY/TOKYO/BEIJING -- The world's biggest free trade agreement is set to take effect on Jan. 1, slashing tariffs for countries including Japan, China and members of the Association of Southeast Asian Nations.
New Zealand Trade Minister Phil Twyford on Wednesday said his country had completed ratification of the the 15-nation Regional Comprehensive Economic Partnership, following Australia.
Bringing together $25 trillion in economic output, the supersized trade pact covers roughly 30% of global gross domestic product, population and trade -- more than the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
RCEP comes into force 60 days after six of the 10 ASEAN nations and three of the five other Asia-Pacific countries deposit instruments of ratification to ASEAN, which is serving as the wider trade bloc's secretariat.
According to the Australian Trade Ministry's website, countries that have ratified the agreement are: Brunei, Cambodia, Laos, Singapore, Thailand, Vietnam, Australia, New Zealand, Japan and China. The pact will enter into effect for these 10 countries first, according to Japan's Foreign Ministry.
Unlike the CPTPP, RCEP does not set rules on state-owned enterprise reform, the environment and labor relations. But it stands to benefit a larger number of countries and more of the world's population when it comes to trade in goods. It is the first trade deal to bring together the economies of China, Japan and South Korea.
Once RCEP takes effect, participants will immediately either scrap or lower tariffs on a wide range of items from where they were in 2014, when negotiations began.
Overall, the pact will eventually eliminate tariffs on 91% of all industrial goods within the framework. The CPTPP eliminates 99.9% of tariffs.
Japan's government estimates that RCEP will lift Japanese GDP by about 2.7% through higher exports. For Japan, RCEP means 86% of exports to China and 92% of exports to South Korea will become tariff-free, a dramatic increase from the current 8% and 19%.
The new deal is expected to benefit Japan's growing electric vehicle sector in particular. Some EV motors for the Chinese market faced a tariff of up to 12% as of the date of negotiations, but this will be scrapped in stages over 16 or 21 years. The 6% tariff on certain lithium-ion batteries will also be scrapped over the course of 16 years.
Because many tariffs will be phased out gradually under RCEP, it will take time for the pact to have a full impact on regional trade.
RCEP will also set bloc-wide standards for about 20 different fields including intellectual property. It will require members to allow free data flows across borders, and ban them from forcing companies to set up local servers.
India participated in the RCEP negotiations from the start but withdrew before their conclusion. Japan had hoped India would serve as a counterbalance against China.
"China is ready to work with all parties to push for the early entry into force and implementation of the RCEP to yield dividends as soon as possible, and promote regional economic integration and long-term prosperity and stability," Chinese Foreign Ministry spokesperson Wang Wenbin told reporters Wednesday.
China in September applied to join the CPTPP. "Chinese compliance on RCEP will be one of the tools we can use to weigh its membership in CPTPP," a Japanese trade negotiator told Nikkei Wednesday.