Five Obstacles to Creating Asia’s New World Order

Five Obstacles to Creating Asia’s New World Order

RCEP was certainly not launched in late 2012 with the intention of managing trade in a system of collapsing global rules.  It is struggling to get across the finish line in November after years of fraught negotiations.  Getting RCEP done is imperative.  Asia needs RCEP more than it ever could have imagined at the outset. There are at least five key challenges ahead in meeting the rapidly approaching November deadline for closure:

1: Japan and South Korea are currently embroiled in a rapidly escalating trade and security dispute.  The original problem stems from long-simmering historical grievances that have typically been tempered by the intervention of the United States.  However, the breakdown of the global order means that there is currently no handbrake stopping these two neighbors from continuing to intensify their disagreements.  It has already spilled over from trade to the security realm. 

RCEP: Filling a Critical Gap in Asia’s Economic Architecture

RCEP:  Filling a Critical Gap in Asia’s Economic Architecture

While Asia has been an exporting powerhouse for decades, it has not been particularly focused on buying and selling goods and services to neighbors.  This is changing. One thing that is missing, however, is a structure to manage an evolving economic landscape for Asia.   The existing institutional arrangements do not suit a future order very well.  There are only two organizations that might play a role:  the Association of Southeast Asian Nations (ASEAN) and Asia-Pacific Economic Cooperation (APEC).  The former consists of 10 countries in Southeast Asia while the latter includes 21 members, many of whom are not in Asia. However, 16 countries have spent years working on a trade arrangement for Asia:  the Regional Comprehensive Economic Partnership (RCEP).  The 16 member governments (Australia, Brunei, Cambodia, China, India, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam) are struggling to complete negotiations on the FTA for November. The stakes for RCEP are greater than most participants imagine. If the world is, indeed, watching a new “Berlin Wall” moment, RCEP is likely to become a critically important part of the new world order.  It is the only readily available platform for managing trade and economic issues in Asia.

Making Tariffs Great Again and Again

Making Tariffs Great Again and Again

The latest batch of tariffs, however, are on items that are directly obvious to customers in stores, including clothing, shoes, phones, video games and practically every item on or under a Christmas tree.  Trump’s latest move is likely to have been a shock to most observers. In fact, I had bets going with a wide range of people that Trump would not make it out of August without imposing tariffs on the so-called “List 4” products.  Most argued I was crazy.  Trump, they said, would not escalate the trade war at this time.  He would most likely bide his time until next year, engaging in trade talks with China with just enough enthusiasm to say that he was working on the problem, but not enough to solve anything too soon before the election.  Voters can have short attention spans and an early resolution of the China problem would not give him an electoral bounce in November 2020. The List 4 hearings in Washington in mid-June involved hundreds of companies across seven days and nearly 3000 submissions.  Nearly all were united in arguing against more tariffs on China and about the damage to be done by imposing tariffs on the remaining products, which had been carved out of the previous tariff policies for good reasons.  But I thought Trump would ignore this advice.  Hearings in Washington took place already, clearing the way for the imposition of tariffs at any point. To expect Trump not to impose them was like asking a child not to play with an exciting new toy that has been placed within reach. 

Comparing Digital Rules in Trade Agreements

Comparing Digital Rules in Trade Agreements

Parties signing free trade agreements (FTAs) have begun adding new rules to regulate and harmonize provisions of importance to companies trying to operate across multiple jurisdictions.  The latest Issue Paper, from the Asia Business Trade Association, highlights the similarities and differences between this set of cutting-edge agreements in some of the keys areas of interest to digital trade.  Table 1 identifies sixteen key digital provisions across seven FTAs. All seven FTAs, described more fully below, have only two provisions in common.  All contain provisions to include the elimination of customs duties on digital products or electronic transactions, and cooperation elements.  The remaining 14 elements, however, show variation across the FTAs under examination. The United States/Canada/Mexico (USMCA) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), show the most advanced provisions under review in this paper.  Both agreements, as an example, include safeguards to protect developers’ rights over their software source code against the demands of disclosure. In addition, the USMCA incorporates source code-related algorithms into the subject of protection, which makes this FTA distinct from previous agreements. This amendment should facilitate implementation by providing greater clarification on source code.

RCEP: Creating Rules for Trade in Goods

RCEP: Creating Rules for Trade in Goods

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.