Despite not being a signatory to the largest free-trade agreement in history, Hong Kong still stands to become a beneficiary.
Eight years in the making and requiring more than 30 rounds of multilateral negotiations, the Regional Comprehensive Economic Partnership (RCEP), signed last November, brings together 15 economies in the Asia-Pacific region in a trade pact for the first time. It is a formidable trading bloc that takes in China, Japan and South Korea, plus Australia and New Zealand, as well as the 10-member Association of Southeast Asian Nations (ASEAN).
According to Hong Kong Trade Development Council figures, the RCEP bloc forms a market of 2.2 billion people (almost 30% of the world’s population), with a combined GDP of US$26.2 trillion (about 30% of global GDP), and accounts for nearly 28% of global trade (based on 2019 figures). This makes RCEP bigger than both the US–Mexico–Canada free-trade bloc and the European Union’s single market.
As the leading international finance, trade and logistics hub in the region, Hong Kong could reap substantial benefits under RCEP
Although not a member in its own right, Hong Kong has long had close economic ties with RCEP members including 13 free-trade deals. In theory, membership would simplify trade between Hong Kong and virtually the entire Asia-Pacific region, by essentially bundling multiple bilateral free-trade agreements into a unified framework. As the leading international finance, trade and logistics hub in the region, Hong Kong could reap substantial benefits from deeper economic integration and GDP growth under RCEP.
As Hong Kong seeks ways to rejuvenate its Covid-battered economy, economists have noted how the RCEP concept fits well with Hong Kong’s position as one of the most externally oriented economies on the planet. It also adds diversity to the role Hong Kong can play in the Greater Bay Area – which aims to develop nine cities in mainland China's Guangdong province plus Hong Kong SAR and Macau SAR, into an advanced manufacturing, trade, finance and logistics cluster, similar to Japan’s Greater Tokyo Area and the San Francisco Bay Area in the US.
In anticipation of the opportunities that RCEP membership could unlock, a number of Hong Kong’s prominent decision-makers from politics and business have expressed hopes of being among the first economies to join the pact once it opens its doors to new members. Writing on his official Sunday blog recently, Paul Chan, Hong Kong’s financial secretary, said joining RCEP would help the city’s economy, with membership benefiting the services sector, trade and investment.
Encouragingly, mainland China’s vice-minister of commerce, Wang Bingnan, is supportive of Hong Kong joining RCEP. States and separate customs territories can accede to RCEP 18 months after it comes into force. More generally, supporters of open trade have welcomed RCEP, especially for the encouraging signal it sends at a time when the concept of trade liberalisation has received a considerable amount of criticism.
Down to details
Regarded by many analysts as a milestone achievement for multilateral trade in the Asia-Pacific region and a potential window of opportunity for Hong Kong, as with most trade agreements, the devil is in the detail. While RCEP is designed to eliminate as much as 90% of the tariffs on goods traded between its signatories, it conspicuously omits the agricultural sector as well as any environmental and climate protection goals.
This has prompted some economic market watchers to conclude that the pact will formalise, rather than remake, business between its members. As things stand, while the legal text defining a common framework of guiding principles spans more than 500 pages, the agreement allows members to cherrypick key provisions and to keep tariffs for imports in sectors they regard as especially important or sensitive.