Under RCEP, with 16 member countries involved, making a chicken pie should be quite easy with content inside members. The ROO threshold could be quite high without unduly hampering the ability of firms to comply with the rules. Of course, not every product is a chicken pie. This is why RCEP negotiators are working off what are called product-specific ROOs to ensure that the ROOs make sense for different types of products. The rules for chemicals should be different than the rules for textiles which should be different than the rules for pies. But all should ultimately be crafted to allow firms to source across the 16 member states without too much hassle. The point of the agreement is to facilitate trade in the region. It should help unlock new opportunities for companies to make pies or juice or plastics. These rules should work for large and small firms by avoiding cumulation rules that add unnecessary complexity by asking companies to calculate value addition by stops in the supply chain. The ROOs are an important element in getting the final RCEP agreement to do what it is meant to do—facilitate trade better across the 16 members.
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?
This has been an interesting, mixed, two weeks in trade. On the one hand, the system continues to receive new shocks, particularly from US President Donald Trump. On the other hand, trade integration is also moving forward. The net result continues to highlight the increasingly unsettled global environment. Firms need to focus on how to mitigate the risks facing their business operations.
Let’s start with the bad news. Two separate hearings have wrapped up in Washington. The first focused on product categories for an additional $16 billion in 25% tariff rate hikes against goods coming from China. Regular readers may recall that the Americans first produced a list of items totaling $50 billion for new tariff increases. The list was revised on the basis of hearings. The first $34 billion in tariffs have already gone into force (and were met with retaliation by China on a similar amount). But $16 billion in products were contested, resulting in a new list from the USTR. Now that hearings on the revised list of products has been completed, tariffs can be imposed at any time. Expect them to be announced on Friday (since this seems to be the preferred approach of the Trump administration). These new Section 301 tariffs will likely be met with $16 billion in matched retaliatory tariffs by China.
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.
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.