The Regional Comprehensive Economic Partnership (RCEP) – a free trade agreement among 15 countries in the Asia Pacific — kicked off on January 1st this year and is expected to further harness the digital economy as the pandemic continues to restrict business operations.
A Deloitte report forecast that regional digital trade will further grow in the next three years, in part fuelled by strong cross-border e-Commerce strengthened by regional cooperation through the RCEP, increased digitalized lifestyles, and the emergence of new digital infrastructures.
To demonstrate its significance, it is important to note that Inter-Asia trade is bigger than trade between Asia, North America, and Europe combined. Since RCEP’s launch, 65% of tariffs have been eliminated and are expected to expand to 90% in 20 years.
From humble beginnings in 2012, RCEP was formed by the Association of Southeast Asian Nations (ASEAN) to strengthen ties with China and other APAC nations and facilitate logistics, imports, and exports. Due to delays, this year marks the first time China, Japan, and South Korea will be in the agreement.
The RCEP agreement is effective for Brunei Darussalam, Cambodia, Laos, Singapore, Thailand, Vietnam, China, Japan, Australia, and New Zealand. South Korea joins the bloc on February 1 while Malaysia, Indonesia, Myanmar, and the Philippines ratify the agreement.
According to Google, Temasek, and Bain, Southeast Asia is predicted to reach a US$1 trillion digital economy by 2030. In the past two years, enhanced connectivity, automation, and strong government support for cross-border kept economies afloat, while the adoption of a fintech enabled the region’s unbanked and underbanked consumers to participate in the digital economy.
According to Findexable, ASEAN members Singapore, Indonesia, Malaysia, Thailand, and Vietnam, are among the top 20 Asian fintech nations. The central banks of Malaysia and Thailand also launched a cross-border QR payment system last year to enable consumers and merchants to perform cross-border QR code transactions. Some countries in Asia such as Singapore have launched CBDCs (central bank digital currency), while others such as Malaysia are exploring the concept.
Digitalization and technologies such as AI and analytics are aimed at facilitating cross-border payments, as eCommerce drives strong regional trade. Further, new payment methods such as buy now, pay later (BNPL) empowers consumers as well as micro and SMEs.