Signing of RCEP a positive sign for multilateral trade relationships in Asia, but impact on China’s oil market growth to be minimal in the short-term

China and 10 members of the Association of Southeast Asian Nations plus Australia, Japan, New Zealand and South Korea signed the Regional Comprehensive Economic Partnership agreement, or RCEP on Nov. 15. The new accord demonstrated Beijing’s commitment of engagement in Asia-Pacific market, which is a breakthrough for multilateral trade relationships in the region. However, S&P Global Platts Analytics views the short-term impact on China oil market to be minimal.

The new RCEP accord aims to eliminate as much as 90 % of tariffs on imports among the signatories within 20 years of coming into effect, which could start as early as next year. It is worth noting that free trade agreements do not guarantee zero tariffs.

China already has FTAs in place with Australia, New Zealand, South Korea and ASEAN. Yet Beijing still imposes 4.8% import tariff on bitumen, 4.2% on light cycle oil and 2% on paraxylene cargoes from South Korea, one of the most important trade partners in the region for oil products.

China is already a major exporter of refined products and gradually becomes a net exporter selected petrochemical products as well. In this case, lower tariff barriers in the Asia-Pacific region after RCEP goes into effect could provide a more open market for Chinese oil and petrochemical products.
BEIJING STILL IMPOSES TARIFFS ON SOME OIL PRODUCTS FROM SOUTH KOREA DESPITE THEIR FTA

China’s tariffs on RCEP members

With around 30 % of the world’s population and GDP covered, common rules for e-commerce, trade and intellectual property are expected to be established in the region under RCEP, which could potentially bring more throughput for China coastal ports, leading to additional desire for fuel oil bunkering.

In 2019, RCEP signatories account for 27% of China exports by value, even though US is still the largest single destination country. China exports maintain a relative high plateau amid pandemic and achieved 0.5% year-on-year growth during January to October.

Container throughput at major China ports is recovering fast. The year-on-year growth of throughput at major ports in China reached 8.9% in September, highest level during the past same period since 2015. Continued ports throughout expansion could eventually bring more bunker demand from international vessels, thus a positive sign for China fuel oil demand.

Despite an optimistic outlook, there are uncertainties. According to the RCEP, the agreement must be ratified by at least nine of its 15 members, including at least six ASEAN members and at least three from outside ASEAN – China, Japan, South Korea, Australia and New Zealand. Each RCEP member will go through its own domestic legislative approval process.

The trade policy of next US Administration remains unclear to this newborn trade accord as well. US was the main supporter of the previous Trans-Pacific Partnership (TPP). Japan and 10 other countries revived TPP and created the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP in 2018 after the US withdrew.

The next US administration could lobby its traditional region allies such as Japan, Australia and New Zealand to withdraw from the RCEP or propose another FTA by including India, the big absence from recently signed RCEP agreement.

Overall, the RCEP signature brings some bright signs amid trade tensions and tariff disputes and have the possibility to reshape the Asian future, but the final success of regional integration is still pending.
Source: Platts