RCEP

RCEP: Still a Work in Progress

RCEP:  Still a Work in Progress

This was supposed to be the year that the Regional Comprehensive Economic Partnership (RCEP) trade negotiations finally wrapped up.  Once again, it will not happen. The 16 parties involved (Australia, Brunei, Cambodia, China, India, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, Philippines, Singapore, South Korea, Thailand, and Vietnam) have been talking since early 2013.  After 24 formal rounds, at least 9 ministerials, multiple informal meetings, and annual leader’s meetings, RCEP remains a work in progress. Why is it taking so long to get an agreement? The short answer is two-fold—a lack of sufficient political will and serious technical challenges in bridging the gaps between widely different member states.  The lack of political will seems surprising to many outsiders.  After all, at a time of rising global trade tensions, surely this is the best time to lock down an agreement in Asia to keep trade lanes open for mostly export-dependent trading states? 

The Challenge of Reforming the Global Trading System

Having negotiations just over rules will require flexibility by members because it will be much harder for members to return home and clearly point to “gains” from WTO changes.  In many places, adjustments to specific provisions could even lead to short term challenges. But without any way to address legitimate demands by many members to more accurately reflect the situation in the global trade regime in 2018 and beyond, the system itself is under increasing threat. We have forgotten how important the WTO has become to the business world.  It operates like air.  It is only when it is missing that it becomes obvious how much it was needed. Without creativity and flexibility by all members, the WTO is at risk of evaporating.  The focus ought to be on updating the global rule book, rather than increasingly carving up and out smaller and smaller bits of the economy to be tailored for various member interests. 

The Need for Sectoral Annexes in RCEP

While overall rules for standards and conformity assessment procedures in RCEP are necessary to reducing non-tariff barriers in Asia and facilitating trade, the example of cosmetics shows why sectoral approaches are also important.  Individual industries face particular challenges that cannot always be handled through generalized rules.  Cosmetics firms need to know which substances can, and which substances cannot, be included in products prior to manufacture.  Government officials are not always well positioned—on their own—to know the answers to such questions as which coloring agents might usefully be included in cosmetic products in the first place.  Hence it is also important to include industry representatives in the creation of rules and regulations.  Government should have the final say, but there is clearly a role for industry in crafting sensible policies that apply to a particular sector.

Organizing Business: The Launch of the Asia Business Trade Association (ABTA)

As Bloomberg reported yesterday, rising trade tensions have made it more imperative than ever that companies remain engaged in crafting sensible trade and regulatory policies.  Getting that job done, however, is unusually challenging in Asia.  While there are many excellent organizations at different levels in the region—within some individual countries, across ASEAN and within APEC—what has been lacking is an institutional framework to collectively gather business input from Asia as a whole. Hence the need for a new grouping—the Asia Business Trade Association (ABTA).  ABTA is a non-profit society, registered out of Singapore, to unite large and small firms from all across Asia in crafting a collective voice for companies on trade and regulatory issues.

Unnecessary Alarm: India’s Farmers, RCEP and ASEAN

For example, while Indian agriculture is frequently asserted to have suffered in the wake of the ASEAN agreement, a quick glance at the tariff schedules for India under the deal shows clearly that most key items, including apples, were placed on the exclusion list (EL).  This means that the ASEAN-India (AIFTA) agreement made no changes to existing tariffs. The 50% tariff on apples into India from 9 ASEAN member states still exists—even after full implementation of AIFTA.  Philippines has a separate tariff schedule with India in AIFTA and apples are also on the EL.  Apple exports from ASEAN to India may have grown in the wake of AIFTA, but it was not as a direct result of any changes to tariff levels in the agreement.  Hence AIFTA cannot be blamed as a cause of competitiveness problems in India’s apple orchards.