Last week, officials from 16 countries across Asia held the final meeting of the year for the Regional Comprehensive Economic Partnership (RCEP) trade agreement. Progress was reportedly sluggish, but as negotiations head into 2017, talks are likely to accelerate.
Getting to a conclusion in the four rounds currently on the agenda for the year, however, will require fighting against the natural tendency of negotiations to slow down near the end.
The last few rounds of trade talks are always the hardest. The easy things have been addressed early in negotiations, leaving only the sensitive items and areas with genuine disagreements.
RCEP is not a simple negotiation. It involves 16 countries at wildly diverging levels of economic development—from Cambodia and Laos and Myanmar to Japan and Singapore. It has giants like China and India and tiny countries like Brunei. It has agricultural powerhouses like New Zealand, growing manufacturing centres like Thailand or Vietnam, and increasingly service oriented countries like South Korea and Australia.
The agreement itself contains about a dozen chapters covering market access for goods, services, and investment. It includes competition, intellectual property, e-commerce, financial services, telecommunications, and customs. There are some new rules for standards, a chapter for facilitating small and medium sized enterprises, and one for assisting with capacity building and development objectives.
The final commitments may not be the deepest or broadest ever negotiated in a trade agreement, but they are important. RCEP is likely to set the rules for trade across Asia for the next decade and is intended to help sort out the noodle bowl of overlapping trade agreements that currently cross the region.
Not every country in RCEP shares the same level of enthusiasm for the entire exercise. RCEP members are not volunteers. They were drafted—pressed into the RCEP process by way of an existing agreement with ASEAN.
The structure of RCEP itself has been based on this arrangement. RCEP is meant to rationalize the five existing ASEAN+1 agreements with what ASEAN calls the ASEAN Foreign Partners (AFPs or Japan, South Korea, China, India, Australia and New Zealand).
RCEP has therefore been negotiating with an unusual approach. First, the ten countries of ASEAN meet to determine their position in any given set of issues or chapter. Sometimes, the AFPs also caucus. Then, all 16 parties come together to talk. This multi-stage approach has helped keep ASEAN “in the driver’s seat” in RCEP thus far.
Heading into 2017, with the hope that only a handful of rounds remain, a few things suggest that RCEP will have to reconsider its strategy and approach if members intend to reach a satisfactory conclusion.
There are, fortunately, a number of trends that suggest that pressures are building to drive various member states to be more ambitious and aggressive.
1. ASEAN would like to conclude negotiations in 2017 to coincide with the 50th anniversary of ASEAN. ASEAN member states would surely prefer to avoid a light, disappointing outcome and better live up to their own sweeping rhetoric of regional integration.
2. As ASEAN chair in 2017, Philippines would like to preside over the successful conclusion of RCEP. RCEP ministerial meetings will line up with scheduled ASEAN senior officials meetings across the year in the Philippines.
3. The presumed withdrawal of the United States from the Trans-Pacific Partnership (TPP) agreement in January changes the calculations of many governments in RCEP.
4. Most important, up until now, China has been an active participant in RCEP, but it has not been driving the negotiations. ASEAN has been setting the agenda. The senior official in charge has been Indonesian. Despite press reports from the beginning that RCEP has been China-led, this has not been the case. However, with the United States backing away from trade in Asia, China now has every incentive to get an agreement in RCEP.
RCEP is poised to “set the rules of the game” in the region. China will be tagged with whatever happens in RCEP and not ASEAN. China should therefore care a great deal about getting a strong conclusion. It will surely want to show that it can deliver leadership on trade.
Leadership is not shown through poor quality outcomes.
5. If the TPP is not going to happen (or is not going to happen with the Americans involved), the seven countries in both TPP and RCEP have to hedge their bets more carefully now. To this point, the seven (Australia, Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam) have been able to take a more relaxed view on the overall quality of RCEP.
To their credit, many of the TPP7 have been pushing RCEP members to be more ambitious. But the final outcome in RCEP mattered less, because they could always rely on the TPP agreement to deliver stronger economic growth and jobs--while still receiving the additional benefits of whatever RCEP might offer.
Now, however, the situation is changed. Potentially absent the TPP, the seven care a great deal more about the final quality of RCEP. A weak outcome is no longer acceptable.
So, heading into the next RCEP round in Japan in late February, negotiations are likely to take on a very different character.
To really get the agreement that so many members suddenly want and need, however, it may be time to take a different approach. The two-track, ASEAN and AFP split, does not make as much sense once the agreement heads into the final rounds.
ASEAN has done an excellent job setting up the negotiations. It has helped each party explore ideas and issues and proceed carefully and cautiously. This is to be applauded and commended.
In the end, however, RCEP is intended to set the rules for 16 countries in Asia. It ought to be negotiated in the final stages as an agreement done by 16 countries and not as one managed by two competing groups seeking common ground.
Changing the structure of the negotiations might help members better meet the ambitious targets they have set for themselves in 2017.
RCEP matters to the business community. This agreement will provide the framework for trade across Asia. Companies need to keep a watchful eye on what happens next year.
***Talking Trade is written by Dr. Deborah Elms, Executive Director, Asian Trade Centre, Singapore***