Section 301 Investigation: The Expected and The Unexpected So Far

So what happens next?  Under the terms of Section 301, USTR has completed two key items on the checklist.  It will likely issue a damage assessment figure that can be used as the basis for a preliminary calculation of potential sanctions.  These sanctions could be rolled out at any time between now and August 2018, if the US decides that China is making insufficient progress towards satisfactory resolution of the problems identified in the original complaint.

But as the comments and hearing illustrated, it remains unclear at this point what is the likely area or areas where USTR might chose to focus attention.  The comments failed to shed new light on specific challenges in a way that might have made it easier to guess which way the investigation will roll in the future.

Advice to RCEP Officials

Perth:  The talks in Perth between the 16 governments negotiating a free trade agreement, the Regional Comprehensive Economic Partnership (RCEP), across Asia represent a curious mixture of building momentum for closure at the end of the year and a growing realization of the distance that has to be crossed to reach the finish line. 

On issue after issue, officials said that they were working towards ambitious goals but then went on the discuss the diversity of members, the complexity of the issues, the challenges of building a suitably enabling environment and so on. 

Each qualifying statement is both true, of course, and disheartening.  There is not much point in crafting yet another trade agreement in Asia that does not really respond to the needs of the business community. 

In Perth, the East Asian Business Council (EABC) got to present their recommendations to the Trade Negotiating Committee (TNC).  This is the top-level negotiating group for RCEP.  EABC also offered up a survey done by JETRO of businesses across the region that highlighted many of the problems companies currently have using existing FTAs.  These challenges will be familiar to any business operating in Asia—uncertain information, lack of benefits, hard to use, and so forth.

For RCEP to avoid making the same mistakes, it has got to involve more businesses into the process.  Allowing the EABC to present recommendations on behalf of companies is a good start.  Australia also included a number of what it terms “stakeholder” events for Perth.  At these sessions, a handful of companies were allowed to present information to different groups of officials. 

The total number of companies represented, however, remained microscopic.  Given the difficulties that businesses often have in getting information exchanged at the domestic level with government officials, it is not good enough to say that officials in the room already know what businesses need or want or do not need or do not want. 

RCEP is meant to close by the end of this year.  Leaders have said it shall be so and have already extended the deadline once.  To do so again would, apparently, be unacceptable.  

This is the truly difficult part of RCEP.  Negotiations are, apparently, accelerating.  But the gaps are still wide and the business community as a whole is going to be very disappointed in the outcomes if the agreement closes without crafting an agreement that is helpful in making it easier to do business across Asia for companies both large and small. 

Officials may decide to hive off a portion of the agreement and do an “early harvest” for 2016.  This is a time honored ASEAN tradition.  It would allow leaders to declare a partial victory in RCEP, meet the deadline, and continue negotiating. 

To be frank, however, it is not really clear what might be harvested.  Of course it is only April and there is still time to conclude more chapters.  At the moment, it looks like only the economic and technical cooperation chapter might be sufficiently teed up for finish by the next round in New Zealand in June.  Probably an SME chapter could be concluded, as such chapters are mostly arm waving around the importance of helping smaller companies with limited commitments for member governments. 

To make the package of benefits better, some tariff reductions will probably be announced.  My favorite examples, of course, of snow removal equipment, will undoubtedly be included in the tariff lines for early harvest.  Makers of snowshoes, snowplows and snow skis will be delighted with the zero tariffs coming from RCEP. 

Given the concentrated levels of trade between member countries, as shown in a new Policy Brief we have just drafted, limited tariff reductions in RCEP (below 90%) will deliver no new net benefits for most businesses.  Market access negotiations will need to continue—and industry will have push hard—before sectors like textiles can expect to see any benefits from this new deal.

The services negotiations are proceeding on the basis of a positive list (except for Australia).  This means that only sectors listed for opening will actually be opened for RCEP member firms.  It could be possible to find a handful of service subsectors that might be gathered up for the early harvest package. 

Positive lists also come with the modes of supply drawn from the World Trade Organization, so RCEP members can open up sectors like travel and tourism, but do so only, for example, for mode 2—for their own citizens to travel to other RCEP countries to use travel and tourism services.  In any case, it would be possible to craft an early harvest list for services that replicate commitments made already at the WTO or within existing ASEAN + 1 deals for most members. 

Investment, by contrast, is done on a negative list basis.  All sectors will be opened for investment, except for those listed.  This is generally more challenging for officials to do the first time, as they have to think more carefully about what specific reservations they might have.  Hence, an early harvest package may have extremely limited investment provisions.  (And, if companies do not push, the final agreement may also be quite modest.)

In short, an early harvest would likely offer up only the most limited benefits for companies while officials continue to wrestle with the hardest issues. 

However, this might actually be a desirable outcome for businesses and certainly, it should be seen as better than a race to conclude the entire agreement by the end of this year given the current status of talks.  As of now, negotiations are not at the point where most companies will be satisfied with the RCEP outcomes.

Recall again that officials are only going to meet once to craft an Asian trade agreement for a good long time—once RCEP is concluded, they will not meet again to have wholesale revisions.  (They might, some people fantasize, turn RCEP/TPP into the Free Trade Area of the Asia Pacific.)  So this is the trade deal that will stick in the region for at least a decade.  It very much matters that they get it right the first time.

We have, as usual, been heavily focused on e-commerce.  We believe this is the most important area for RCEP as the countries involved have a novel opportunity to be innovative and forward looking, especially for mobile.  An ambitious outcome here will unleash new opportunities for smaller firms across the region.

But e-commerce is also challenging as it is cross-cutting and requires sustained attention across different chapters.  We recommend giving responsibility to the e-commerce working group for the topic and letting them ensure that e-commerce provisions are included at the end of the day in various specific chapters, like intellectual property rights or customs or services, that facilitate trade for smaller firms in the e-commerce space. 

To really push RCEP officials to be more ambitious, however, businesses will have to urge governments in and across the region to take the entire project seriously.  This is an important opportunity for companies.  It should not be wasted. 

***Talking Trade is a blog post written by Dr. Deborah Elms, Executive Director, Asian Trade Centre, Singapore***