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.
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?
Since NAFTA 2.0 builds on the base of the original NAFTA, the new deal had some advantages over the TPP. For example, tariffs between the parties are already set at zero. This remains, although do note that there are very complicated tariff rate quotas in place in NAFTA 2.0 that were not scrapped. Indeed, the level of genuinely new market access granted to partners that have known and worked with one another for decades is vanishingly small. While much focus, as an example, has been on Canada’s new market access for dairy, the total amount given amounts to barely 0.4%. And the United States, in return, has an equally complex system of barriers in place to protect its own dairy industry from competition (as well as sugar, oranges, and others). The deeply problematic bits of the agreement can be found buried in the texts. For instance, the rules of origin (ROO) are incredibly complicated. Given that tariffs are zero, the only way to keep out goods is to craft ROOs that are impossible to follow. Clearly, for many products, this objective has been met. The level of NAFTA content required in fairly large swaths of products is extremely high. Commentators keep focusing on the insane requirements for auto production, but note that for a wide range of goods, new NAFTA content rules require 50% or more content. To make matters worse, in many products, these rules tighten after 3 years, rising to as much as 70% local (ie NAFTA) content.
The trade ministers from the 11 Trans-Pacific Partnership (TPP) countries will be gathering this weekend in Hanoi to discuss bringing the agreement into force. The Asian Trade Centre and APL Logistics have created a new booklet to highlight some of the specific market access benefits for companies. To see what the TPP with 11 parties delivers in wide range of products, we highlight seafood, wine, plastics, cosmetics and soap, shampoo, wood, furniture, iron and steel and some footwear and textile categories. The product categories were chosen to illustrate the range of different market access commitments made by TPP11 members. Many of these items show tariff cuts from as high as 40% to zero. The TPP continues to offer substantial market access benefits to participating member countries. Firms that operate in and across the TPP will face fewer tariff barriers with lower rates as quickly as the first day of the agreement.
The Brexit debate has given rise to many bewildered discussions about the apparent difficulties of negotiating trade agreements. After all, as at least one commentator said, if we can put a man on the moon, surely the UK can negotiate a few trade agreements? Of course. Compared to putting a person on the moon, many things seem easy. But the complexity of negotiating trade is not to be underestimated either. To illustrate why this is so challenging, just consider the following example of orange juice.