Regional Comprehensive Economic Partnership

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? 

Where Are We in Global Trade?

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. 

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.