Regional Comprehensive Economic Partnership or mostly referred as RCEP is the largest trading bloc formed by Asia-Pacific countries including South Korea, China, Japan, Australia and New Zealand. This partnership agreement is very important because the countries signing the agreement have a total of 2.2 bln people population while also these countries cover over around 30% of world GDP. In addition, RCEP is an significant agreement because it is the first Free Trade Agreement to include China which is one of the key economies in the world.
Turkey currently has Free Trade Agreements with 3 of the RCEP countries namely Malaysia, Singapore and South Korea. Turkey’s largest trade partner among RCEP countries is China with the export volume of 2 bln 726 mln USD. For Turkish companies which already have presence in RCEP countries and manufacturing operations in these countries, this agreement may be an opportunity to take advantage of the facilitation of trade among member countries.
RCEP is expected to affect the global trade trends and also the trade partners of Turkey. Currently, European Union is the main trade partner of Turkey. Some believe that this agreement may push Turkey to be an even closer trade partner of the EU while others comment that Turkish companies need to invest more in the Asia Pacific region to leverage this agreement. The agreement still needs to be ratified by RCEP countries to take effect.
RCEP and its effect on FDI
RCEP is expected to benefit signatory countries in terms of FDI flows as well. In a UNCTAD report, UNCTAD it is stated that “RCEP is already an important foreign direct investment (FDI) destination. It accounts for 16 percent of global FDI stock and more than 24 percent of flows. While global FDI has been stagnant for the last decade, the RCEP group has shown a consistent upward trend until last year.” It is believed that there might be a boost in foreign direct investment in the region following the RCEP.
RCEP covers a wide range of countries in the Asia-Pacific region. As such, the economies of the signatory countries differ a lot. As stated in a news by ASEAN Briefing, “While countries such as Australia, China, Japan, New Zealand and South Korea are mainly technically advanced countries, they also have relatively high labor and production cost. To cooperate more among signatories, this will enable countries to direct their manufacturing investments in countries with relatively lower production cost. Unified rules of origin regulations under RCEP are expected to attract more investors to Cambodia, Laos and Myanmar for reduced costs.”
RCEP region is already an important destination for FDI. For instance, China has been the largest recipient of FDI in 2020 despite the coronavirus outbreak and its effect on the global economy. According to a report prepared by UNCTAD, “Intra-regional investment, at about 30% of total FDI in the RCEP, has significant room for further growth. It is relatively low compared to other major economic partnerships. The ASEAN group, at the heart of the RCEP, will play an important role. Already about 40% of investment in ASEAN comes from RCEP members.”