What impact will RCEP have on China’s chemical industry?

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What impact will RCEP have on China’s chemical industry?
What impact will RCEP have on China's chemical industry?

What impact will RCEP have on China's chemical industry?

The regional Comprehensive Economic Partnership (RCEP), which covers e-commerce, small and medium-sized enterprises, investment, economic and technological cooperation, trade in goods and services, and is regarded as the world’s largest free trade agreement, was finally launched on November 15.

The main contents of the agreement include: trade in goods, tariff reduction to zero; Trade in services; Investment; Technical cooperation; Mobility of people; E-commerce and data exchange; Development of small, medium and micro enterprises. The main contents include the reduction of tariffs on 90% of goods to zero, the liberalization of trade in services and investment, etc.

Insiders believe that RCEP will become an important strategic trade reserve for China, comprehensively enhance China’s import and export trade and investment, and open up more market space for China. Petrochemical and coal chemical industries will benefit from RCEP. The core upgrade measure of RCEP is to gradually cut tariffs to 0% in the current or next 10-35 years. This is a long process, which will help China and ASEAN to form closer trade cooperation in the long run.

The RCEP agreement covers 20 chapters, among which: 1) Trade in goods: zero-tariff categories of commodities will reach 90% of the total in the next 20 years; 2) Service trade shall gradually realize national treatment and non-differentiated MFN treatment; 3) Encourage investment opening up and do not set operational requirements for foreign investment in China. In addition, the RCEP has two chapters dedicated to smes and economic and technical cooperation, which aim to help developing members strengthen capacity building.

Analysts believe that RCEP’s short-term boost to China’s exports is limited, and the gradual reduction of tax rates is more of a medium – and long-term benefit, while the greater significance of RCEP lies in the establishment of a direct free trade zone between China, Japan and the ROK, especially Between China and Japan, for the first time. Given the high probability of Mr. Biden’s arrival, the possibility that the Trans-Pacific Partnership Agreement, which Mr. Trump pulled out of, could be revived, will also constrain the effectiveness of RCEP implementation, in which the relationship between the United States and China remains a key variable.

Compared with the provisions of the RCEP and THE TPP agreement in terms of trade and investment liberalization, intellectual property protection and state-owned enterprise rules, they are not exclusive. The provisions of the RCEP are softer and provide greater flexibility than those of the TPP agreement. If the trend of anti-globalization intensifies, RCEP will become An important strategic trade reserve for China. If the anti-globalization is eased, China may also join the TPP.

The RCEP has 15 members, including the 10 ASEAN countries, China, Japan, the Republic of Korea, Australia and New Zealand. RCEP is the world’s largest FREE trade agreement, because it covers 2.2 billion people, accounting for about 30% of the world’s total population. The GDP of the 15 member states in 2019 will reach us $25.6 trillion, accounting for 29.3% of the global economy. Intra-regional trade volume will reach US $10.4 trillion, accounting for 27.4% of the global total.

Launched in 2012 by the ten ASEAN countries, the RCEP is a regional free trade agreement centered on developing economies. The 15 member states span the two continents of the Northern and Southern hemispheres, ranging from developed economies such as Japan and Australia to less developed countries such as Cambodia and Laos. They have different policies in investment, competition and intellectual property rights. Vietnamese Minister of Trade and Industry Chen Junying said frankly that “RCEP negotiations are one of the most complicated trade negotiations”.

Prior to the RCEP signing, the world’s major regional free trade areas included the US-Canada-Mexico Free Trade Area (formerly the North American Free Trade Area), the European Union (EU), and the equally wide-ranging Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).

On the one hand, after nearly 40 years of reform and opening up, China’s chemical industry has made great progress, with continuous improvement of industrial layout and supporting facilities, and continuous emergence of integrated competitive advantages. China has occupied an increasingly important position in the development of global chemical industry. According to Cefic Chemdata, global sales of chemicals reached 336 billion euros in 2016, of which 206.8 billion euros were sold in Asia. The sales volume of chemicals in China is 133.1 billion euros, accounting for 64.37% of the sales volume of chemicals in Asia and 39.6% of the sales volume of chemicals in the world, making China the largest chemical sales country in the world.

On the other hand, many high-end fine chemicals and new chemical materials in China still rely on imported resources. For example, in semiconductor materials, lithium battery materials, solar cell materials, panel display materials and other industries, many high-end applications of conventional chemicals with higher purity and better product consistency and stability are involved, such as electronic reagents such as electronic grade sulfuric acid, hydrochloric acid and nitric acid. As Japan and South Korea are the main import sources of high-end chemical materials in China, the signing of RCEP will help domestic downstream enterprises to reduce procurement costs.

The signing of the RCEP agreement will gradually reduce import tariffs on related chemicals, which means that the price advantage of imported goods will be gradually reflected in the future. Take polyester as an example, considering the large production pace of upstream plate of polyester, it may have a certain price impact on varieties including PTA and EG in the short term. However, from another point of view, with the further improvement of the refinery integration pattern, the future does not exclude China’s surplus of self-produced products to export. Therefore, the signing of the agreement is conducive to the adjustment of the development direction of domestic industry and the opening of the international market.