RCEP

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.

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. 

The Need for Multilateralism: Remarks of Singapore's PM Lee (Part 2)

The Need for Multilateralism:  Remarks of Singapore's PM Lee (Part 2)

From PM Lee’s speech: Thus, short of universal trade agreements, we should at least strive for regional or pluri-lateral arrangements. This may be a second best solution, but it is a practical way to incrementally build support for lower trade barriers and higher standards, which can then be adopted by other countries. This was the rationale behind the Trans-Pacific Partnership (TPP). The US originally came on board the TPP because it saw the strategic benefits, although it ultimately withdrew. Fortunately, the remaining 11 members were able to preserve nearly all that had been negotiated, and so the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is now in force. I am glad that more countries have expressed interest to join the CPTPP, including South Korea, Thailand and the UK. China is also watching the CPTPP carefully. They are not ready to join now, but I hope that they will seriously consider doing so sometime in the future. Similarly, I hope one day it will become politically possible for a US administration to rethink the US’ position, and recognise that it stands to gain, economically and strategically, from becoming a member of the partnership that it played such a leading role in designing. Meanwhile, countries in the Asia Pacific are working on the Regional Comprehensive Economic Partnership (RCEP). The RCEP has a different footprint from the CPTPP. It covers all the key countries on the western side of the Pacific, including Northeast Asia and Southeast Asia, and also importantly India, Australia and New Zealand. This inclusive configuration minimises the risk of the RCEP being misperceived as a bloc that excludes the US and its friends. With such a wide range of participants, RCEP standards are naturally less ambitious than the CPTPP’s, and the deal is also much harder to negotiate. Nonetheless, I hope the participants can take the final step to complete the RCEP by this year, or if not, as soon as the domestic politics of the key players allow.

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?