JThis year, the entry into force of the Regional Comprehensive Economic Partnership (RCEP) on January 1, 2022 creates the largest free trade agreement in history, encompassing China, Japan, South Korea, Australia, New Zealand and 10 ASEAN member states.

This historic free trade agreement will have a significant influence on investors seeking investment opportunities and mergers and acquisitions in China, a leading member, opening the door to import and export to unprecedented levels, and also signaling a long-term development trend for companies and individual investors.

Radiation

Ni Xudong
M&A and Compliance Expert
East and Concorde Partners

Unlike other bilateral and trilateral regional trade agreements in which China participates, RCEP is its first multilateral regional trade agreement. More importantly, the GDP of RCEP member states accounts for approximately 30% of global GDP ($26.2 trillion) and total population, creating the largest free trade area in the world.

Research indicates that by 2030, trade liberalization will increase the GDP of the 15 RCEP member states by a total of $174 billion, with China taking the largest share at $85 billion. According to the General Administration of Customs, the value of trade in the first quarter between China and other RCEP countries accounts for 30.4 percent of its total foreign trade value, reaching 2.86 trillion RMB ($424 billion). . Even at the start of RCEP, it is clear that China is reaping considerable rewards.

Tariff reduction is a key element of the RECP, and Chapter I clearly provides for the elimination of tariff and non-tariff barriers between contracting states, with the aim of achieving and facilitating trade liberalization. Chapter II also sets out detailed rules on tax reduction. Tariffs on 92% of agreed goods will be phased out over the next 20 years. Import duties on 954 products provided for in the 2022 tariff adjustment plan released by China will be reduced.

In this sense, trade barriers between China and other countries will gradually fall and commodity prices will fall, facilitating the entry of foreign investors, buyers and traders from all sectors into the important Chinese market.

To some extent, this offsets the damage caused by the Sino-US trade war to businesses and individual investors on both sides.

Facilitation

Grace Lo, East and Concord partners
Grace Lo
Internal
East and Concorde Partners

RCEP reduces non-tariff barriers by using a common set of rules of origin. Under the new rules, only one certificate of origin is required for investors trading in the region, thereby avoiding the cumbersome process of checking and adjusting state-specific rules of origin and significantly reducing corresponding costs, which represent from 1.4% to 5.9% of the Transaction Amount.

For investors in China, especially those trading between RCEP states, the favorable policy serves as an ideal business catalyst, which attracts more potential investors and, in turn, promotes the diversification of supply chains.

Also simplified are the processes required for investors to enter the market or conduct business operations and expansion in the Contracting States. RCEP explicitly prohibits further restrictive measures, which means that foreign investors will undergo a less cumbersome process when entering the Chinese market.

It also provides an investment and trade dispute resolution mechanism that can be initiated by contracting states, further alleviating the concerns of individual investors and allowing them to focus entirely on investments and mergers and acquisitions.

Tendencies

The RCEP stipulates new rules on the protection of intellectual property (IP) and the promotion of electronic commerce, which is also in line with the future development of the contracting states. China has made remarkable progress in intellectual property protection and stands out in the field of e-commerce. Under RCEP’s leadership, with more open market access and stronger intellectual property protection, e-commerce will remain a key investment and M&A target for foreign investors.

Intellectual property is of great importance to businesses, and good intellectual property protection motivates the investment of time and energy in the development of new products and know-how. It is important to note that intellectual property protection under RCEP far exceeds the scope of traditional copyright and trademark protection. According to its detailed interpretations, it also protects non-traditional marks, such as audio marks, broader forms of industrial design, and digital copyright.

This expanded scope of intellectual property protection paves the way for innovation, production and investment as a prelude to substantial development. Among RCEP members, China plays an exceptionally active role in implementing regional intellectual property protection rules.

Legal scholars point out that RCEP highlights China’s experience, with its terms of malicious marks and electronic registration in the intellectual property chapter, reflecting the defining status of Chinese practice in this area for international rules. of intellectual property.

China’s participation in RCEP also indicates its government’s strong commitment to intellectual property protection and builds foreign investors’ confidence in the protection of their intellectual property under Chinese law.

In addition to expanding the scope of intellectual property protection, standardizing the development of e-commerce industry also deserves attention. The content of RCEP reflects the fact that the rapid development of the digital economy is closely linked to cybersecurity, privacy and national security.

For example, by formulating rules on e-authentication, e-signature and online consumer protection, RCEP creates a favorable legal, regulatory and policy environment for e-commerce while promoting its development, reducing the costs of import and export, better integrating the region’s industrial chain and value chain and creating more business opportunities for small and medium-sized enterprises.

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China’s remarkable economic achievements over the past 40 years of reform and opening up, stable political environment, well-established infrastructure, complete industrial chains, highly skilled labor resources and market demand particularly large and diversified, have proven attractive to many investors.

Since the entry into force of RCEP, a further elimination of import and export duties with the aim of lifting restrictions on investment and facilitating trade – coupled with the wide application of information technology and high-tech – will grant China much greater production efficiency compared to other emerging economies, and attract more investors to China’s M&A landscape.

As for existing foreign direct investment, RCEP anchors it firmly in the Chinese market, while further stimulating the desire for expansion and mergers and acquisitions.

Ni Xudong is an M&A and compliance expert and Grace Lo is an intern at East & Concord Partners

Reform

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