On 15th of November 2020 after more than six years of negotiations ministers from 15 countries from Asia and Pacific signed the agreement called RCEP (the Regional Comprehensive Economic Partnership). All Asian giants joined the agreement except for India, which had several issues preventing it from joining it. Main problem is concern that joining the agreement would hurt South Asian country’s domestic producers. Most probably India will join RCEP in a few years. Japan sees India as the counterweight to China. Nobody wants China to be the absolute leader of the pact.
RCEP is a modern and comprehensive free trade agreement covering trade in services, goods, economic and technical cooperation, and investment. It creates also new rules for intellectual property and electronic commerce.
It all started in November 2012 when negotiations were launched between the Association of Southeast Asian Nations (ASEAN includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) and ASEAN’s free trade agreement partners (Australia, China, India, Japan, New Zealand and Republic of Korea). It was left aside for some years until 2017 when U.S. President Donald Trump pulled his country out of the TPP (Trans-Pacific-Partnership) and slapped punitive tariffs on several U.S. trading partners for what he said were unfair trade practices.
In particular, the U.S.-China trade war has hurt many Asian exporters by reducing demand for their goods and slowing down growth. The urgency to conclude RCEP increased after all that.
The final text of the trade agreement must go first through legal reviews before being signed and finally released. Analysts think that RCEP is primarily beneficial for goods trade because it will progressively reduce tariffs on many products.
What does the implementation of RCEP mean for the rest of the world and particularly for wood business?
Viewed from the standpoint of European firms, the RCEP is best understood as a free trade agreement between three manufacturing powerhouses – China, Japan and the Republic of Korea– and their joint outreach towards a vast periphery in Asia. For example, under the RCEP, China commits to eliminate tariffs on 86 percent of Japan’s exports, including auto parts. Such action will put suppliers of auto parts from all over the world in a harder position.
If we look at wood business, we can see, that there will not be any major changes – at least not at the beginning. Europe, USA and Africa are mainly exporting raw material to Asia and buying from there already finished products and semi products.
Practically nothing can change in exporting softwood and hardwood from all over the world RCEP area. Oak, beech, ash, walnut and most of Africa species do not grow in Asia, so their vast furniture production will still need a lot of raw material from all over the world. If the agreement will help develop these countries, we can expect increase of wood export to Asia, because also their domestic market will start to flourish due to higher percentage of people with money.
As I heard from some big companies who import furniture from China and Vietnam, they expect to have lower prices of furniture, because combining productions in different countries and moving productions will be easy and safe. This will be the same effect as in EU. However EU sceptics see that the biggest countries exploit smaller and poorer members of EU. Can we expect that Japan, South Korea and China will try to take advantage of poorer and less developed countries? Probably yes.
One of the companies that will profit from RCEP is IKEA. It will be easier and cheaper to move productions around the Asian countries. It will also be easier to distribute furniture and other products to their shops around Asia. WE must not forget that IKEA is a big player there – only in China there are over 30 big shops.
Not only giants, also smaller niche furniture producers will be able to take their share. I am talking about high quality productions with good brands. Let us not forget that there are over 4,4 millions millionaires only in China. And they want high quality furniture. One of such companies is Bosnian company Artisan from Tesanj. Artisan is already an established trade mark in China and in South Korea and now huge new markets will open for them and they expect a huge growth in the following years.
Each economic pact is a step forward and means opportunity for increasing the business. RCEP is one of them and when India will join it, it will be by far the strongest and biggest alliance in the world. Many will profit and many will as usual sit beside and watch it happen.
