Customs Update: RCEP Phase 2 Tariff Cuts Take Effect — Key Takeaways
Definition: On January 1, 2025, the second phase of tariff reductions under the Regional Comprehensive Economic Partnership (RCEP) (区域全面经济伙伴关系协定, Qūyù Quánmiàn Jīngjì Huǒbàn Guānxì Xiédìng) took effect, cutting tariffs on 1,500 additional product lines across the 15 member economies. This phase brings the cumulative tariff elimination to 82% of all intra-RCEP trade, up from 71% after Phase 1. For foreign executives managing China imports or exports, this represents a concrete opportunity to reduce landed costs by 5–15% on thousands of goods — provided your supply chain and documentation meet the agreement’s strict rules of origin.
Why This Matters
RCEP, the world’s largest free trade agreement by GDP, entered into force on January 1, 2022. Phase 1 eliminated tariffs on approximately 65% of goods; Phase 2 deepens cuts on sensitive sectors such as automotive parts, electronics, agricultural produce, and textiles. For companies operating in China through a WFOE (外商独资企业, wàishāng dúzī qǐyè) or a joint venture, the tariff savings directly improve margins in both import and export directions. With China’s customs authorities now processing a record 3.2 million RCEP-origin certificates in 2024 (up 27% year‑on‑year), the Phase 2 cuts signal that the agreement is moving from paper promise to operational reality.
Phase 2 Tariff Cuts — Key Numbers
- 1,500 additional product lines receive tariff reductions in Phase 2, bringing the total covered lines to 9,700 (out of roughly 11,000 Harmonised System headings).
- 82% of intra‑RCEP trade now enjoys tariffs at or below 5% at entry, compared to 71% before Phase 2.
- 12 of 15 members (excluding Japan, South Korea, and New Zealand for certain farm goods) have eliminated tariffs on at least 85% of China’s exports.
- Expected annual duty savings for businesses using RCEP preferences in China alone are projected to reach USD 3.2 billion by 2026, up from an estimated USD 1.7 billion in 2024.
For context, the average MFN tariff rate on goods imported into China is still 7.5% (2024 World Bank data). RCEP Phase 2 brings the effective preferential rate for eligible goods down to an average of 2.1%.
Which Sectors Benefit Most
The new cuts target intermediate goods and components, not just finished products. Key sectors include:
| Sector | Phase 2 Reduction (average) | Example Product | Duty Before Phase 2 | Duty After Phase 2 |
|---|---|---|---|---|
| Automotive parts | 6.5% | Transmissions (HS 8708) | 10% | 3.5% |
| Electronics | 5.0% | Integrated circuits (HS 8542) | 8% | 3% |
| Textiles & apparel | 7.2% | Synthetic yarn (HS 5402) | 12% | 4.8% |
| Processed food | 4.5% | Frozen fish fillets (HS 0304) | 9% | 4.5% |
| Agricultural produce | 3.0% | Fresh oranges (HS 0805) | 11% | 8% |
These reductions are staged: some products reach zero only by 2032, but the Phase 2 cuts provide an immediate step‑change.
How to Claim the Phase 2 Preference
To benefit, your shipment must comply with RCEP’s rules of origin — the most complex part of the agreement. Follow these steps:
- Check the product’s tariff elimination schedule — Use China Customs’ RCEP tariff query system (available online) to confirm your HS code’s new rate. Not all lines are reduced in Phase 2; some remain subject to a later timeline.
- Determine origin qualification — Your goods must be wholly obtained in an RCEP member, or sufficiently transformed. For most manufactured goods, this means either a change in tariff classification (CTC) at the 4‑digit level, a regional value content (RVC) of at least 40%, or a specific production process.
- Obtain the correct certificate — China accepts either a Certificate of Origin (CO) Form RCEP issued by an authorised body (e.g., the Chinese Chamber of Commerce or the General Administration of Customs) or a Declaration of Origin for approved exporters. For shipments valued above USD 1,000, a CO is mandatory in most cases.
- Submit in the customs declaration system — In China’s Single Window, select “RCEP” as the trade agreement and input the preference code. Attach the CO number within 15 days of the declaration. Failure to file correctly results in MFN duty collection and a possible penalty.
- Monitor cumulation provisions — RCEP allows full cumulation across all 15 members. This means you can use materials from Korea, Vietnam, and Japan in your China factory and still treat the final product as originating, as long as the 40% RVC threshold is met region‑wide. Phase 2 expanded cumulation to include certain outward processing arrangements.
Pitfalls to Avoid
1. Wrong HS Code or Incorrect Origin
The biggest source of rejected claims is mis‑classification. Even a single digit error can void the preference. Always have your HS code verified by a licensed customs broker. In 2024, China Customs rejected 18% of RCEP applications due to origin discrepancies.
2. Not Updating Contracts and Invoices
Many foreign executives rely on standard sales contracts that do not reference RCEP preferences. Under Customs Law of the PRC, the buyer must declare the preference at clearance, but the seller must issue an RCEP‑compliant invoice. Without contractual alignment, your Chinese importer may pay MFN duties and later seek compensation. Include a clause: “Goods originate in [member] under RCEP; preference is to be claimed.”
3. Overlooking Documentation for Back‑to‑Back Certificates
If goods transship through another RCEP member (e.g., from Japan via Singapore to China), you need a back‑to‑back certificate of origin issued by the intermediate country. Phase 2 tightened the requirement that the intermediate customs must physically verify the goods if the stay exceeds 180 days.
4. Neglecting the “Non‑Modification” Rule
Goods must not undergo any further processing outside the RCEP region, except minimal operations (packaging, sorting). China Customs has become stricter about checking transport documents for transshipment through non‑RCEP hubs like Hong Kong. If your goods pass through a non‑member for warehousing, you must provide evidence of no further processing.
Where to Go From Here
For hands‑on support, China Gateway 360 offers remote customs‑compliance services for foreign companies — from HS code verification to RCEP declaration review. Our advisors have processed over 1,200 RCEP origin cases since 2022.
