New trade agreement to help exports, tourism

New trade agreement to help exports, tourism

Export and tourism-related stocks are likely to reap benefits from the new Regional Comprehensive Economic Partnership (RCEP) trade agreement, which includes 15 countries and was signed over the weekend at the 37th Asean Leadership Summit.

The new deal creates the world's largest free trade bloc, with a combined GDP of US$26.2 trillion, or 30% of the world's GDP, accounting for about 28% of the world's trade. The countries involved total a population of 2.2 billion people, 30% of the world population.

After signing, each country is required to seek a resolution from its own council or parliament, with a minimum of six Asean countries and three non-Asean members needed to ratify before it is expected to take immediate effect in the second quarter of 2021.

The predicted impact of RCEP is overall positive as it is expected to help lift the pressure of the US trade war on China, said Padon Vannarat, Yuanta Securities' head of research.

"We believe the main advantage of RCEP is successful regionalisation, which will replace globalisation at a time when global trade is under pressure from both trade wars and the pandemic, and it will accelerate the trade value in RCEP in the long run."

The deal also intends to increase international communication, transport, logistics, and international finance and investment among signatory nations, mostly benefitting the travel and transport sectors, along with the automotive, petrochemical, tourism, agriculture, food and industrial estate sectors.

According to the initial impact assessment, Yuanta Securities predicts Thailand has high competitive potential, based on a positive trade balance in automotive parts, petrochemicals, tourism, agriculture, food and retail industries. These are the sectors in which non-Asean trading partners are interested in expanding their production bases, while industrial estates, power plants and transport are also expected to enjoy indirect benefits, said the research house.

Early benefits to GDP may be marginal as Thai exports to the RCEP grouping already enjoy tax benefits through free trade agreements (FTAs) and Asean+1, while India, a big export market and a gateway to South Asian markets, was absent in this round of negotiations.

The RCEP's 20 chapters primarily discuss trade facilitation, keeping the World Trade Organization's principles on taxes in place and allowing each country to implement anti-dumping mechanisms.

If international tariffs against sensitive products have not been lifted, the increased trade value between the signatory countries may not be swift, instead more gradual as trade routes are shifted to the RCEP countries, said Yuanta Securities.

The details of the RCEP agreement still require a close follow-up, including those of other trade agreements such as the Comprehensive and Progressive Agreement of the Trans-Pacific Partnership, in which Thailand is poised to participate, as well as the progress of a FTA with the EU and the looming threat from Thailand's loss of US's Generalized System of Preferences privileges.

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