When the Regional Comprehensive Economic Partnership (RCEP) comes into effect, it could provide Japanese corporations with an opportunity to review their supply chains in the region. Reconsideration of supply chains could impact corporate strategies going forward, as tariff cuts will be applied to lithium-ion batteries and other electric vehicle (EV) parts, among others.
RCEP allows the “cumulative rule of origin,” meaning that products can contain parts and labor from multiple countries to benefit from the agreement, as long as the countries are members of the RCEP agreement. For example, if tariffs are removed, Thailand can import auto parts from China, assemble them into final products, and export them to Australia tariff-free.
The COVID-19 pandemic has forced factories in Southeast Asian nations to shut down, reducing the number of available parts. Production operations at auto manufacturers, including major companies such as Toyota Motors, have been greatly impacted. RCEP will expand the options open to the region’s businesses by enabling them to switch suppliers and supply chains more flexibly.
“China, South Korea, and Southeast Asian countries’ sharing a common legal framework will have a significant impact,” says Sugawara Junichi, chief researcher at Mizuho Research and Technologies. Swift and simplified procedures at customs will likely benefit corporations as well.
To prepare to apply for tariff reductions or exemptions, companies are hurrying to prepare “certificates of origin” that prove their merchandise has been produced domestically. Japanese corporations can apply for tariff exemption using existing documents if the receiving country has a free trade agreement (FTA) with Japan. However, no Japanese companies have gone through the process with either China or South Korea. The Ministry of Economy, Trade and Industry is urging domestic firms to keep the certificates for the period designated under RCEP, for example, “at least three years,” so as to be prepared for inquiries from the customs authority of partner nations.