RCEP Comes Into Effect, Impact On Petrochemical Industry

Q: The RCEP agreement includes a total of 20 chapters on investment, trade in goods, trade in services, rules of origin, customs procedures and trade facilitation, and temporary movement of natural persons, as well as 4 sets of annexes to the 15-country market access commitment table. Which of these chapters are relevant to the petrochemical sector? What are the policy highlights?

A: There are three main aspects related to the petrochemical field. The first is related provisions in the investment and service fields. The policy highlights are mainly reflected in the management of the negative list and the ratchet mechanism of the policy. Among them, the negative list management means that each member state lists its own restrictive clauses in the investment and service fields in Annex III. Except for the content specified in the list, each country grants national treatment or most-favored nation to the investors and service providers of the contracting state. treatment.

Negative list management has a high-level open model. In the investment field, 15 member states have adopted the negative list management method for the mining industry (including the oil and gas industry); in the service field, 7 member countries including Indonesia, Australia, Singapore, Brunei, and Malaysia have adopted the negative list method, and the remaining 8 Countries (including China) make commitments in the form of a positive list, and will be converted to a negative list within 6 years after the agreement takes effect. Under the negative list management model, member states have all made commitments such as "national treatment, most-favored-nation treatment, prohibition of performance requirements, market access, and local presence".

The ratchet mechanism of the policy means that the liberalization policies of the parties to the agreement for foreign investment and foreign service providers cannot be reversed. If foreign capital or foreign businessmen have enjoyed national treatment, they can enjoy it for a long time. If the national policy is tightened, domestic and foreign investors and services must be treated. Businesses are treated equally. The preferential policies for investment and service industries in the agreement are applicable to the ratchet mechanism.

The second is related to the terms of trade in goods. The policy highlights are mainly reflected in two aspects: import tariff reduction and exemption and rules of origin accumulation. In terms of tariff reduction and exemption, since China has signed free trade agreements with 13 RCEP member countries except Japan, only Japan has a more obvious impact on my country's energy industry in terms of substantially reducing trade tariff rates on energy products. According to Japan's "Tariff Commitment Form", the import tariffs on all oil and gas and equipment in the country will be reduced to zero from the date of entry into force of the agreement. The cumulative rules of origin refers to the cumulative consideration of the value components of each member state contained in the goods when determining whether a certain good is subject to the RCEP preferential tariff policy. For most commodities, if their regional value content reaches 40% cumulatively, they are considered as origin goods and can enjoy RCEP tariff concessions.

The third is related to the flow of people and the customs clearance of goods. The policy highlights are mainly reflected in the relaxation of the scope of personnel access, the extension of the period of stay, and the acceleration of customs clearance of goods. RCEP stipulates that member states grant temporary entry or extension of temporary stay for business visitors and intra-company mobile personnel, allowing them to trade in goods, provide services or make investments. China, Australia and Japan have added to their specific commitment tables their temporary entry permit policies for "professionals and investors, contract service providers (including energy services), and spouses and children" in related fields. The facilitation of customs clearance of goods is mainly reflected in the provisions of Article 10 of Chapter IV of the Agreement on Advance Ruling. The importer needs to, before the goods arrive in their territory, according to the written application submitted by the exporter, on the "tax classification of the goods, whether they are origin goods or not". ” and other matters to make customs clearance pre-judgment to shorten the customs clearance time after the arrival of the goods.

Q: According to the text of the RCEP agreement, my country's tariff reduction commitments involve 8,277 commodities with 8-digit tariff numbers. Among the tariff adjustments in China-ASEAN, China-Australia, and China-New Zealand, the number of commodities immediately reduced to zero tariffs accounted for more than 65%. %, and the final number of zero-tariff commodities accounted for more than 90%; while the proportion of other contracting parties' final tariff reduction to zero on my country's products reached more than 85%, of which Australia was as high as 98.2%. Excuse me, what impact will the substantial reduction in tariffs have on the import and export trade of my country's energy and chemical industries? Which chemical products will make good profits?

A: To understand the impact of tariffs on the energy and chemical industries, it is necessary to understand the characteristics of my country's petrochemical trade. The trade pattern of my country's petrochemical industry is that upstream crude oil and downstream high-end chemicals are highly dependent on imports, while refined oil and other chemical products are exported. From the perspective of petrochemical trade with other countries, the substantial reduction of tariffs is conducive to my country's imports of upstream raw materials and downstream high-end products, and will help my country's chemical products to open up export channels to RCEP countries and form a tighter supply chain.

With the signing of RCEP, the import cost of my country's energy and chemical products will be greatly reduced. On the upstream side, light cycle oil, base oil, asphalt, petroleum tar, ethylene, etc. are favored by RCEP. Taking ethylene as an example, the main importers of ethylene in my country are South Korea, the United States and Japan, accounting for 27%, 25% and 22% of the total imports respectively, with an import volume of 1.97 million tons. According to the RCEP ethylene import tariff commitment table, after the agreement takes effect, the tariff rate on ethylene products in ASEAN will drop to zero, Japan will drop by 0.1 percentage points year by year, South Korea will drop by 0.2 centenary points year by year, and it will drop to zero in the tenth year. In the long run, it is beneficial to my country's stable ethylene supply.

On the downstream side, the import cost of key chemical products such as paraxylene (PX), polyethylene, and rubber will also decline. In 2020, my country's external dependence on paraxylene will be 41%, and the total import volume will be 13 million tons. Among them, imports from RCEP member countries accounted for more than 50%. At present, my country's benchmark import tariff rate for paraxylene (PX) is 2%. After the agreement came into effect, the PX tax rate to ASEAN decreased by 0.1 percentage points year by year. PX is an exception product in the tariff commitment table for Japan and South Korea. In terms of ethylene, China is the world's largest polyethylene consumer, accounting for about 30% of global polyethylene consumption. Domestic high-end polyethylene is seriously scarce, and the gap between supply and demand can only be filled by imports. From the perspective of the proportion of imports, South Korea's import volume ranks first, accounting for 32.30% of the total imports of the 15 countries in the agreement. After the RCEP agreement takes effect, South Korea will implement zero-tariff policy on 65% of the goods. In terms of rubber, my country's dependence on rubber exceeds 90%, which is mainly imported from RCEP countries. The signing of the RCEP agreement will further increase the import share of my country's rubber raw materials.

In addition, the tariff reduction will also benefit the import of materials and equipment by domestic petrochemical enterprises. At present, most of my country's key petroleum and petrochemical equipment has been localized, and the production cost is relatively competitive. The impact of tariff reduction and exemption on my country's equipment manufacturing industry is not large. At the same time, some high-precision equipment in my country still needs to be imported from Japan, South Korea, Singapore and other countries. The implementation of the agreement will obtain tariff reductions and exemptions, which will help reduce import costs.

In terms of exports, the import cost of upstream PTA, ethylene glycol and other chemicals has been reduced, and the export competitiveness of chemical fibers, polyester products, and yarns is expected to be further enhanced. Countries will combine their own advantages to form a new industrial chain division of labor. In addition, the signing of RCEP will also benefit the trade of PVC products and the export of PVC raw materials in the medium and long term. For countries in Southeast Asia and other countries where infrastructure construction is emerging, low tariffs are conducive to the export of domestic PVC raw materials and advantageous products.

Q: Opportunities often coexist with challenges. The signing of RCEP has further enhanced the liberalization of Asia-Pacific countries' investment and trade with China, and provided a new option for the Chinese petrochemical industry to obtain preferential and convenient cooperation policies in the Asia-Pacific region. At the same time, it also brought competition and challenges. Could you please talk about the challenges and pressures faced by my country's petrochemical industry after the RCEP agreement came into effect? How should the industry and enterprises deal with these challenges in the future?

A: Tariff relief and differentiation bring rare opportunities to my country's petrochemical industry, but also challenges us. First, it is closely related to the development stage of my country's petrochemical industry. The resource characteristics of my country's lack of oil and gas, the lack of high-end technology in the growth background, the industrial structure is facing the development stage of adjustment and optimization, and the petrochemical industry is in the process of transitioning to green and low-carbon attributes of energy conservation and consumption reduction. The process of transformation and upgrading. Secondly, while my country obtains duty-free chemical products from Japan and South Korea through RCEP, its advantages in processing and exporting to Southeast Asia will face challenges.

In the context of more intense market competition in the future, the "positive list" policy in the RCEP agreement will form a short-term protection for my country's engineering and technical services. According to the agreement, my country maintains strong constraints on onshore oil services in the "Service Specific Commitment Form", that is, onshore oil services adopt "positive list" commitments. If a commercial entity is established in China to provide services, it must be Or in the form of cooperation between Sinopec and Sinopec enterprises, all data, samples and related reports of oil operations are provided to the Chinese side, and the Chinese side enjoys the ownership of the above materials. The "positive list" system has a certain protective effect on engineering and technical service enterprises, but the agreement requires that it be converted into a negative list within 6 years. It is suggested here that petrochemical enterprises should make good use of the protection period in the next few years to enhance the core competitiveness of engineering technology service enterprises and prepare for more intense market competition.

Also, it is worth noting that on November 20, 2020, President Xi Jinping said in his speech at the 27th APEC Economic Leaders' Informal Meeting that China "will actively consider joining" the CPTPP. As the highest international trade rules, the impact and impact of CPTPP are emerging, and the transfer of trade and investment to our country is inevitable.

The petrochemical industry must face up to the challenges and implications of CPTTP. After the implementation of RCEP, the petrochemical industry should speed up the appropriate terms of the CPTTP agreement in the pilot free trade zone, carry out preliminary stress tests, further amplify the effect of opening up and force reform, and jointly promote the improvement of the level of opening up in the fields of goods, services, and investment. Strengthen regulatory coordination and cooperation in intellectual property, environmental protection, digital economy and e-commerce, competition policy, government procurement, small and medium-sized enterprises, economic cooperation and other fields, and gradually form a system of economic and trade rules that conform to the overall development interests of Asian countries and promote the reform of the multilateral trading system. The plan will lead the development direction of economic globalization and free trade, and contribute to the power of Asia for an open world economy.