Big opportunities in the RCEP trade deal
Australian businesses can look forward to massive potential opportunities predicted to come from the Regional Comprehensive Economic Partnership agreement.
Even though trade is critical for its prosperity, Australia has never been a member of any of the world’s major trading blocs, until recently.
There have been bi-lateral treaties with close neighbours New Zealand, as well as trading partners including Japan, Korea and also China. But Australia has never had the advantages of being in a major trading club, such as the European Union.
This has changed in the last three years. In late 2018, Australia joined ten other nations in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and then, perhaps more significantly, signed up in 2020 as a member of the Regional Comprehensive Economic Partnership (RCEP), the world’s largest free trade deal.
Of the two, RCEP arguably holds the most potential and opportunity for Australia.
Signed in November 2020, RCEP comprises 15 nations – including major trading partners China, Japan and Korea – and will come into force 60 days after six ASEAN member states and three non-ASEAN member states ratify the agreement.
China formally ratified the deal in early March, and Australia is looking to do so late this year, giving Australian businesses time to digest the changes and prepare.
“If RCEP was a country it would hold 30 per cent of the world’s population, with 2.2 billion people, and would contain nearly 30 per cent of global GDP,” says Robert Rennie, Westpac’s Head of Market Strategy.
“There are some really exciting aspects to RCEP. There are some genuine differences in the details of this deal, which look very much to the future, and it offers potential long-term opportunities for Australian businesses, particularly in the manufacturing and service sectors.”
Defining the benefits
Rennie makes the point that history shows that nations that are part of a stable and free trade bloc over time trade exponentially more within the bloc than they do beyond it. The impact of trading within a multi-lateral bloc “vastly outweighs big bi-lateral trade routes”, he says.
“If you look at the European Union, for example, trade within the EU is worth about 50 per cent more than trade between the 28 member states [before Brexit] and the rest of world,” says Rennie. “Then there is Canada, the US and Mexico. US exports of goods to that group are worth about the same as US exports to the EU, Japan, China and South Korea combined.
“It shows that when countries come together in trade blocs, it encourages the movement of people and goods across borders and just gains more momentum and structure over time.”
There are three key aspects of RCEP which Rennie sees as particularly significant. The first is that it includes free trade agreements between countries that currently do not have any trade agreement in place between them: Japan/South Korea and Japan/China.
Japan and South Korea are the world’s third and twelfth largest economies respectively and bilateral trade exceeded USD 70 billion in 2020. The two countries have recently had a tense trading relationship, and yet both are set to join RCEP.
Then there is China and Japan, the world’s second and third largest economies. Despite the COVID-19 pandemic, bilateral goods trade between these two countries exceeded USD 280 billion in 2020.
Bringing all three nations inside a free trade club, which also includes 12 other countries, is a notable achievement, particularly when other aspects of the deal are considered.
Changing rules of origin
Rennie’s second point about RCEP, and one that could have major implications for Australia, concerns the simplification of rules around the country of origin. All countries have different rules of origin, but under RCEP if a product meets rule of origin requirements for one country, it meets them for the whole group.
This point is also made by the Department of Foreign Affairs and Trade. “RCEP will significantly reduce the burden of complying with Free Trade Agreement rules of origin on Australian businesses,” says a DFAT spokesperson.
“Australian businesses trading with multiple RCEP countries will only need to comply with one set of rules and procedures, and RCEP will also provide businesses with greater choice in how they meet origin documentation requirements.”
The third key feature, according to Robert Rennie, is the concept of regional value content. If a product has just 40 per cent RCEP content, then it is considered an RCEP product and can be traded freely within the bloc.
“This is a very low requirement – normally you would expect at least 50 per cent and possibly 70 per cent,” he says.
This has major implications for the development of the supply chain within RCEP and recognises the dynamics of the modern supply chain in ways that older trade agreements do not.
“It means we can more easily import semi-finished goods, which we can develop further, and the agreement very much encourages various stages of manufacturing and for products to cross those borders,” says Rennie.
For Australian manufacturers, this is an opportunity. Components will be able to move more freely among the 15 member nations, with companies in each adding their own value in a supply chain greased by lower barriers and less regulation.
DFAT agrees, seeing easier movement of goods and the use of “regional distribution hubs”.
Future opportunities abound
“Increased opportunities will flow for Australian business to access regional value chains by allowing goods made in another RCEP party from Australian inputs to benefit from tariff preferences under RCEP, when exported to a third RCEP party,” the DFAT spokesperson says.
The manufacturing industry is also alert to the potential of RCEP, according to Michael Sharpe, national director of industry at the Advanced Manufacturing Growth Centre (AMGC) who notes that over 80 per cent of global trade is in intermediary goods and RCEP will boost participation for Australia’s manufacturing industry in this lucrative supply chain.
“RCEP complements existing free-trade agreements Australia has around the globe,” says Sharpe. “Australian manufacturers that serve a regional customer base of 2.3 billion people – rather than limiting themselves to the 25 million local ones – will be better off economically. We know that those manufacturers who do business internationally are already scaling and proving more resilient over the longer-term.”
Sharpe adds, “Australian manufacturers are held in high regard for the quality and ingenuity of their solutions, and it’s a reputation we should be leveraging more to generate business opportunities abroad.”
In its regulation of supply chains, Robert Rennie sees RCEP as very forward-looking. It takes into account the realities of the modern supply chain, the digitisation of business and the importance of the free movement of people in developing major service industries such as finance, education and architecture – industries in which Australia is particularly accomplished.
“I have to be realistic and say it will take some time for RCEP to gain momentum,” says Rennie. “These agreements take time to develop. But the sooner we start understanding the benefits of this agreement, the sooner we will be able to take advantage of the opportunities.”
Stay informed with Westpac IQ
Get the latest reports straight to your inbox.
Related articles
How the ANZACs might handle the trade shock
Browse topics
Disclaimer
©2025 Westpac Banking Corporation ABN 33 007 457 141 (including where acting under any of its Westpac, St George, Bank of Melbourne or BankSA brands, collectively, “Westpac”). References to the “Westpac Group” are to Westpac and its subsidiaries and includes the directors, employees and representatives of Westpac and its subsidiaries.
Things you should know
We respect your privacy: You can view our privacy statement at Westpac.com.au. Each time someone visits our site, data is captured so that we can accurately evaluate the quality of our content and make improvements for you. We may at times use technology to capture data about you to help us to better understand you and your needs, including potentially for the purposes of assessing your individual reading habits and interests to allow us to provide suggestions regarding other reading material which may be suitable for you.
This information, unless specifically indicated otherwise, is under copyright of the Westpac Group. None of the material, nor its contents, nor any copy of it, may be altered in any way, transmitted to, copied of distributed to any other party without the prior written permission of the Westpac Group.
Disclaimer
This information has been prepared by the Westpac and is intended for information purposes only. It is not intended to reflect any recommendation or financial advice and investment decisions should not be based on it. This information does not constitute an offer, a solicitation of an offer, or an inducement to subscribe for, purchase or sell any financial instrument or to enter into a legally binding contract. To the extent that this information contains any general advice, it has been prepared without taking into account your objectives, financial situation or needs and before acting on it you should consider the appropriateness of the advice. Certain types of transactions, including those involving futures, options and high yield securities give rise to substantial risk and are not suitable for all investors. We recommend that you seek your own independent legal or financial advice before proceeding with any investment decision. This information may contain material provided by third parties. While such material is published with the necessary permission none of Westpac or its related entities accepts any responsibility for the accuracy or completeness of any such material. Although we have made every effort to ensure this information is free from error, none of Westpac or its related entities warrants the accuracy, adequacy or completeness of this information, or otherwise endorses it in any way. Except where contrary to law, Westpac Group intend by this notice to exclude liability for this information. This information is subject to change without notice and none of Westpac or its related entities is under any obligation to update this information or correct any inaccuracy which may become apparent at a later date. This information may contain or incorporate by reference forward-looking statements. The words “believe”, “anticipate”, “expect”, “intend”, “plan”, “predict”, “continue”, “assume”, “positioned”, “may”, “will”, “should”, “shall”, “risk” and other similar expressions that are predictions of or indicate future events and future trends identify forward-looking statements. These forward-looking statements include all matters that are not historical facts. Past performance is not a reliable indicator of future performance, nor are forecasts of future performance. Whilst every effort has been taken to ensure that the assumptions on which any forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from any forecasts.
Conflicts of Interest: In the normal course of offering banking products and services to its clients, the Westpac Group may act in several capacities (including issuer, market maker, underwriter, distributor, swap counterparty and calculation agent) simultaneously with respect to a financial instrument, giving rise to potential conflicts of interest which may impact the performance of a financial instrument. The Westpac Group may at any time transact or hold a position (including hedging and trading positions) for its own account or the account of a client in any financial instrument which may impact the performance of that financial instrument.
Author(s) disclaimer and declaration: The author(s) confirms that (a) no part of his/her compensation was, is, or will be, directly or indirectly, related to any views or (if applicable) recommendations expressed in this material; (b) this material accurately reflects his/her personal views about the financial products, companies or issuers (if applicable) and is based on sources reasonably believed to be reliable and accurate; (c) to the best of the author’s knowledge, they are not in receipt of inside information and this material does not contain inside information; and (d) no other part of the Westpac Group has made any attempt to influence this material.
Further important information regarding sustainability-related content: This material may contain statements relating to environmental, social and governance (ESG) topics. These are subject to known and unknown risks, and there are significant uncertainties, limitations, risks and assumptions in the metrics, modelling, data, scenarios, reporting and analysis on which the statements rely. In particular, these areas are rapidly evolving and maturing, and there are variations in approaches and common standards and practice, as well as uncertainty around future related policy and legislation. Some material may include information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. There is a risk that the analysis, estimates, judgements, assumptions, views, models, scenarios or projections used may turn out to be incorrect. These risks may cause actual outcomes to differ materially from those expressed or implied. The ESG-related statements in this material do not constitute advice, nor are they guarantees or predictions of future performance, and Westpac gives no representation, warranty or assurance (including as to the quality, accuracy or completeness of the statements). You should seek your own independent advice.
Additional country disclosures:
Australia: Westpac holds an Australian Financial Services Licence (No. 233714). You can access Westpac’s Financial Services Guide here or request a copy from your Westpac point of contact. To the extent that this information contains any general advice, it has been prepared without taking into account your objectives, financial situation or needs and before acting on it you should consider the appropriateness of the advice.
New Zealand: In New Zealand, Westpac Institutional Bank refers to the brand under which products and services are provided by either Westpac (NZ division) or Westpac New Zealand Limited (company number 1763882), the New Zealand incorporated subsidiary of Westpac ("WNZL"). Any product or service made available by WNZL does not represent an offer from Westpac or any of its subsidiaries (other than WNZL). Neither Westpac nor its other subsidiaries guarantee or otherwise support the performance of WNZL in respect of any such product. WNZL is not an authorised deposit-taking institution for the purposes of Australian prudential standards. The current disclosure statements for the New Zealand branch of Westpac and WNZL can be obtained at the internet address www.westpac.co.nz .
Singapore: This material has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (as defined in the applicable Singapore laws and regulations) only. Recipients of this material in Singapore should contact Westpac Singapore Branch in respect of any matters arising from, or in connection with, this material. Westpac Singapore Branch holds a wholesale banking licence and is subject to supervision by the Monetary Authority of Singapore.
U.S.: Westpac operates in the United States of America as a federally licensed branch, regulated by the Office of the Comptroller of the Currency. Westpac is also registered with the US Commodity Futures Trading Commission (“CFTC”) as a Swap Dealer, but is neither registered as, or affiliated with, a Futures Commission Merchant registered with the US CFTC. The services and products referenced above are not insured by the Federal Deposit Insurance Corporation (“FDIC”). Westpac Capital Markets, LLC (‘WCM’), a wholly-owned subsidiary of Westpac, is a broker-dealer registered under the U.S. Securities Exchange Act of 1934 (‘the Exchange Act’) and member of the Financial Industry Regulatory Authority (‘FINRA’). In accordance with APRA's Prudential Standard 222 'Association with Related Entities', Westpac does not stand behind WCM other than as provided for in certain legal agreements between Westpac and WCM andobligations of WCM do not represent liabilities of Westpac. This communication is provided for distribution to U.S. institutional investors in reliance on the exemption from registration provided by Rule 15a-6 under the Exchange Act and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors in the United States. WCM is the U.S. distributor of this communication and accepts responsibility for the contents of this communication. Transactions by U.S. customers of any securities referenced herein should be effected through WCM. All disclaimers set out with respect to Westpac apply equally to WCM. If you would like to speak to someone regarding any security mentioned herein, please contact WCM on +1 212 389 1269. Investing in any non-U.S. securities or related financial instruments mentioned in this communication may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the SEC in the United States. Information on such non-U.S. securities or related financial instruments may be limited. Non-U.S. companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect in the United States. The value of any investment or income from any securities or related derivative instruments denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related derivative instruments.
The author of this communication is employed by Westpac and is not registered or qualified as a research analyst, representative, or associated person of WCM or any other U.S. broker-dealer under the rules of FINRA, any other U.S. self-regulatory organisation, or the laws, rules or regulations of any State. Unless otherwise specifically stated, the views expressed herein are solely those of the author and may differ from the information, views or analysis expressed by Westpac and/or its affiliates.
UK and EU: The London branch of Westpac is authorised in the United Kingdom by the Prudential Regulation Authority (PRA) and is subject to regulation by the Financial Conduct Authority (FCA) and limited regulation by the PRA (Financial Services Register number: 124586). The London branch of Westpac is registered at Companies House as a branch established in the United Kingdom (Branch No. BR000106). Details about the extent of the regulation of Westpac’s London branch by the PRA are available from us on request.
Westpac Europe GmbH (“WEG”) is authorised in Germany by the Federal Financial Supervision Authority (‘BaFin’) and subject to its regulation. WEG’s supervisory authorities are BaFin and the German Federal Bank (‘Deutsche Bundesbank’). WEG is registered with the commercial register (‘Handelsregister’) of the local court of Frankfurt am Main under registration number HRB 118483. In accordance with APRA’s Prudential Standard 222 ‘Association with Related Entities’, Westpac does not stand behind WEG other than as provided for in certain legal agreements (a risk transfer, sub-participation and collateral agreement) between Westpac and WEG and obligations of WEG do not represent liabilities of Westpac.
This communication is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. This communication is not being made to or distributed to, and must not be passed on to, the general public in the United Kingdom. Rather, this communication is being made only to and is directed at (a) those persons falling within the definition of Investment Professionals (set out in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”)); (b) those persons falling within the definition of high net worth companies, unincorporated associations etc. (set out in Article 49(2)of the Order; (c) other persons to whom it may lawfully be communicated in accordance with the Order or (d) any persons to whom it may otherwise lawfully be made (all such persons together being referred to as “relevant persons”). Any person who is not a relevant person should not act or rely on this communication or any of its contents. In the same way, the information contained in this communication is intended for “eligible counterparties” and “professional clients” as defined by the rules of the Financial Conduct Authority and is not intended for “retail clients”. Westpac expressly prohibits you from passing on the information in this communication to any third party.
This communication contains general commentary, research, and market colour. The communication does not constitute investment advice. The material may contain an ‘investment recommendation’ and/or ‘information recommending or suggesting an investment’, both as defined in Regulation (EU) No 596/2014 (including as applicable in the United Kingdom) (“MAR”). In accordance with the relevant provisions of MAR, reasonable care has been taken to ensure that the material has been objectively presented and that interests or conflicts of interest of the sender concerning the financial instruments to which that information relates have been disclosed.
Investment recommendations must be read alongside the specific disclosure which accompanies them and the general disclosure which can be found here. Such disclosure fulfils certain additional information requirements of MAR and associated delegated legislation and by accepting this communication you acknowledge that you are aware of the existence of such additional disclosure and its contents.
To the extent this communication comprises an investment recommendation it is classified as non-independent research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and therefore constitutes a marketing communication. Further, this communication is not subject to any prohibition on dealing ahead of the dissemination of investment research.