The RCEP Trade Agreement Impact on Fashion

The Regional Comprehensive Economic Partnership (RCEP), which has been negotiated for 8 years, has been widely described as significant, though it largely performs the function of reiterating the terms of several existing trade agreements between members of the Association of Southeast Asian Nations (ASEAN) — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam — and combining them into a single multilateral pact with non-ASEAN neighbours: Australia, China, Japan, New Zealand and South Korea to form the world’s largest trading bloc by some measures.

It should not be unnoticed to the fashion industry observers that a number of countries in this list represent major sourcing and manufacturing hubs, as well as an increasingly important group of consumer markets for global fashion and beauty brands.

China biggest winner and India to loose

According to a report from the Beijing-backed Chinese Academy of Social Sciences (CASS), the deal will “provide a new growth driver for the Chinese economy.” It estimated that over 10 years, RCEP will add 11.4 percent to China’s already significant exports.

India and Bangladesh are expected to be the biggest loser from this agreement when it comes to the fashion industry and its supply chain links across Asia as its apparel and textile sourcing and manufacturing sector is likely to be less competitive than RCEP intra-Asian supply chain partners..

Fast Retailing, the company behind fast fashion giant Uniqlo, previously said it would like to move more sourcing to India, presumably in part to help spur growth there, potentially shifting production out of China, where more than half of Uniqlo’s products are currently produced. India’s foreign direct investment regulations stipulate international brands must source 30 percent of products sold in the market from India.

The tightening of supply chain integration in South East Asia and China due to the RCEP agreement may prompt a rethink in the strategy of shifting production out of China. Given that Southeast Asian apparel producers will have access to duty-free textile imports from China but India won’t, making a shift from China to Southeast Asia a potentially cheaper and more convenient option than a shift from China to India.

The fashion industry has a lengthening and incredibly complicated supply chain, which often runs across multiple countries. Raw materials and textiles are commonly sourced from one country, then shipped to other countries for assembly. What RCEP will do is essentially help determine which countries that chain runs through, taking advantage of member countries over those that have not signed on to the deal.

“Probably the biggest upside is exporters will need just one certificate of origin to trade with any and all the other RCEP members,” Biswas explained.

For instance, major international fashion retailers such as H&M, which currently have a diverse range of suppliers across Asia (and the rest of the world), might be able to take advantage of RCEP’s integrated supply chains in order to cut costs on low-margin products if links in their chain are more concentrated within the RCEP trading bloc. Consequently, it is likely that many global retailers will be doing the maths to see whether they would be better placed shifting production to the 15-country zone.

Hall, C. (2020) What the world’s largest trade agreement means for fashion. Business of Fashion