What Is RCEP, and How Does It Facilitate Regional Trade?

 

The Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement (FTA) between ten members of the Association of Southeast Asian Nations (ASEAN) and five partners, including Australia, China, Japan, New Zealand, and South Korea. The primary goals of the framework are strengthening economic linkage, enhancing trade and investment, as well as minimizing the development gap among participating nations.

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RCEP is not only beneficial for the public sector but also for private businesses. The partnership provides many schemes that facilitate lowering trade barriers and securing improved market access for goods and services produced in the region. Interestingly, beneficiaries of these solutions are not only large multinational corporations (MNCs) but companies of any size, even including micro-enterprises, which are the most popular type of business actors in the region. Thus, RCEP is all about fair regional economic policies that benefit ASEAN members and partners equally.

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RCEP & ESG

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RCEP incorporates structures that allow countries in the Asia Pacific region to encourage trade engagement, technical cooperation, and standardize rules of origin, but that is not all. One of the critical areas of the partnership is energy transition. Developed members are encouraged to coordinate multilateral investments in alternative fuel sources and therefore facilitate the green energy transition in all countries of the region simultaneously. Green energy is significant for the ASEAN as the area suffers from many consequences of climate change. For that to happen efficiently, member states must standardize the Environmental, Social, and Governance (ESG) regulations. The lack of common standards often discourages private investors from allocating significant capital toward green investments. That is why the RCEP Ministerial and Joint Committee meetings embody the systematization of ESG directives into their agenda.

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In the context of RCEP, having a unified set of ESG laws is especially important considering that, in general, ASEAN is quite behind with its standards compared to the wealthy FDI partners. Many foreign investors need their funding to be distributed according to the highest worldwide standards. In addition, coming up with a common mechanism to battle climate change would greatly benefit the ASEAN states.

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The partnership provides an opportunity to foster environmentally-friendly business policies, which would positively impact social growth. Investors from wealthier countries need to invest in nations that are still developing. However, if investors respect the ESG principles while conducting their new ventures in developing parts of Southeastern Asia, then having this opportunity and firm regulations in place would allow green investors to create businesses that are based on the ESG principles and provide a myriad of social benefits to the people in developing countries. Multilateral financial institutions like the World Bank often enforce change with their strict regulations, and RCEP could do the same. With this push from abroad, ASEAN countries could implement ESG regulations much faster. Perhaps, once ASEAN members adopt the higher ESG benchmarks, they will attract even more funding.

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Conclusions

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To conclude, RCEP is a valuable initiative that lowers the barriers for investors from developed countries to allocate their resources in the ASEAN region. However, as ESG regulations become more crucial for businesses around the world, ASEAN members need to improve their standards in order to attract even more funds. Approving a standard set of ESG laws among the whole RCEP will allow nations to truly fight economic inequality and the effect of climate change.

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