BANGKOK—Negotiators from across 16 countries in Asia are meeting this week in Bangkok to try to put together a new trade agreement. The Regional Comprehensive Economic Partnership (RCEP) is a megaregional trade agreement, like the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP) discussed in last week’s blog.
What all three agreements have in common is a shared vision of creating trade arrangements that bring together ever-larger sets of countries. RCEP includes 16 parties in Asia. TPP spans 12 on both sides of the Pacific. TTIP is trying to link the U.S. with the 28 members of the European Union.
These larger trade groupings are increasingly important given changing patterns of global trade. In the past, governments worked mostly at the global level through the World Trade Organization (WTO) or bilaterally with like-minded partners. Now, however, the WTO is clearly unable to move forward on any aspect of its agenda. Bilateral trade deals, while welcome, do not accurately reflect the way the most dynamic companies operate on the ground.
The process through which goods and services are produced and consumed is shifting rapidly. We are increasingly living in a world of global value chains (GVCs) or global supply chains. We’ve had supply chains of one sort or another in trade for centuries, as firms have traded with one another for raw materials, components, or final, finished goods. What is different now is that, with falling costs of communication and transportation, it is possible for companies to source exactly the right inputs from exactly the right geographic space to take advantage of different costs in materials, services, labor, and capital. The world is literally the “oyster” for global companies.
Such a development often makes people uncomfortable, as it unleashes fears of being overrun by large multinational companies that are extremely competitive. But this need not be the case. A GVC world also makes it possible for the smallest firms in the most remote places on earth to fit into value or supply chains elsewhere in ways that were never possible in the past. Firms can deliver services like translation, provide medical assistance, assist with customer service tasks, handle accounting, create new products, participate in the design of items large and small, and sell their own goods directly to consumers anywhere in the world with relative ease. Even manufacturing is possible in places that could not participate in the past when transport costs were prohibitive.
In this world, trade agreements have not kept pace with changes on the ground. The WTO agenda is nearly 15 years old. Bilateral agreements between two countries are not particularly helpful for value chains that span dozens of places.
Hence the drive to create larger trade agreements. In Asia, many governments have been very promiscuous, signing up to all sorts of trade deals. Singapore, for example, has more than 20 in force with more under negotiation. Such agreements can be helpful in spurring economic growth, especially for some companies or covered industries.
But the benefits of larger agreements cannot be ignored. If a company had to fill out only one type of paperwork to, say, export pencils to up to 15 other markets, this would be extremely helpful (and, it should be noted, most helpful for the smallest firms without people or resources to try to fill out 15 different forms). Creating a single platform and production base across the widest set of participants should make it easier for small and medium sized companies to participate.
This brings us back to the 7th round of RCEP negotiations taking place in Thailand. The 10 member countries of ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam) already have agreements with their “Dialogue Partners” through what are called ASEAN+1 deals. Under these trade agreements, ASEAN has hooked up with Japan, South Korea, China, India and Australia/New Zealand. The intention now is to stitch these existing agreements together into one, comprehensive megaregional that covers all 16 countries.
Done well, the new RCEP should unleash significant economic growth in Asia. Such an agreement ought to be particularly welcomed by smaller firms and poorer countries in the region, since they would have a platform to more easily hook into existing and new value chains.
RCEP could be extremely helpful in creating a trade agreement better suited for a GVC environment. Negotiations here in Bangkok include talks on goods, rules of origin, services, investment, competition, intellectual property rights, e-commerce, legal and institutional issues, and economic and technical cooperation. The goal is to complete talks by the end of the year. If successful, the potential for growth and development in this region is substantial.
The next post will focus on how well this vision is matching up with the reality taking shape in the negotiating rooms here in Bangkok. Stay tuned!
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