Regional Comprehensive Economic Partnership

Congressional Testimony: Trade Policies in Asia

Congressional Testimony: Trade Policies in Asia

The trade and economic landscape in Asia is rapidly evolving. While there are many activities that I could mention, I will focus my testimony today on four regional trade arrangements: the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP); the Regional Comprehensive Economic Partnership (RCEP); a set of digital trade deals known as DEPA or DEAs; and the upcoming American-led Indo-Pacific Economic Framework (IPEF). I will attempt to explain how and why these agreements matter for Asia and describe some of the implications of this evolving regional architecture for the United States. I will conclude with a few brief suggestions about how craft an IPEF that best fits into a complex economic landscape. Let me begin with the CPTPP. The CPTPP came into force in late December 2018 and now has eight active members: Australia, Canada, Japan, Mexico, New Zealand, Peru, Singapore, and Vietnam. The UK is in the middle of accession talks and hopes to be part of the group by the end of this year. Three additional formal letters of application were received last fall, from China, Taiwan, and Ecuador. South Korea’s outgoing government pledged to submit an accession request this month. There are three important items on the CPTPP agenda for this year: members must review the agreement; conclude accession negotiations with the UK; and decide on a process for addressing pending applications.

The Launch of RCEP

The Launch of RCEP

Apart from tariff benefits, RCEP members (and even non-members) can benefit from more streamlined customs procedures to facilitate trade. Building on existing ASEAN+1 agreements, RCEP introduces additional guidelines on the issue of advance rulings and on the release of goods at customs that improves certainty and reduces likelihood of shipment delays at the customs. The Chapter on Customs Procedures and Trade Facilitation also includes a scheme for authorised operators to benefit from reduced paperwork requirements, faster clearance of goods, and deferred payments or clearance at the premises of the authorized provider. While the assessment of benefits of FTAs are often fixated on tariff reductions for goods, it is equally important to recognize services and investment opportunities that RCEP offers to services providers and investors in Asia. RCEP provides further liberalization to services sectors such as legal services, accounting, architecture, computer services, wholesale trade and insurance, that can go well beyond existing ASEAN+1 agreements. This includes better market access, reduced limitations, and terms and conditions for the provision of services or the establishment of commercial presence in RCEP markets. For most service sectors, RCEP allows foreign service providers to deliver services across the border without requiring a local presence in the domestic market.

China Applies to Join DEPA

China Applies to Join DEPA

Trade watchers have had two important pieces of news this week. First, Regional Comprehensive Economic Partnership (RCEP) has enough members on board to bring the agreement into force on January 1, 2022. Note that the initial membership includes 10 of the 15 signatories: Australia, Brunei, Cambodia, China, Japan, Laos, New Zealand, Singapore, Thailand, and Vietnam. (The remaining members will become active participants 60 days after they have completed domestic level ratification procedures and submitted their letter to the ASEAN Secretariat.) Over all the years of negotiations and the time spent moving from substantial conclusion to signature to approval at the domestic level inside member governments, there has been repeated skepticism over whether or not RCEP would ever see the light of day. As a result, companies have been quite slow to get ready. With the actual launch less than 60 days away, it is time to focus. Firms should be rapidly preparing to use the agreement now. The second piece of trade news, however, was an even bigger bombshell. China officially asked to join the Digital Economy Partnership Agreement (DEPA). This agreement is only recently in force between the three members Chile, New Zealand and Singapore. DEPA was originally designed by these three small open economies as a way to build consistency in approaches to the digital economy. The idea was to create a series of “modules.” Each module covered a specific topic such as paperless trading or Artificial Intelligence (AI). Some modules, particularly those like paperless trading or non-discrimination against digital products, have become a more regular feature embedded in many different types of agreements, and have stronger, more legally binding language in DEPA. Other modules, especially those on new and evolving topics like AI or digital identities, were designed to encourage cooperation between members.

China Applies to Join the CPTPP

China Applies to Join the CPTPP

China has submitted a formal letter of application to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). Now, after years of speculation, it’s decision time. Will the current members of the CPTPP agree to allow China to start accession or not? As readers may recall, a CPTPP accession process has started already. Members have formed accession working parties to manage the addition of the UK. With China’s request, members will need to hold formal bilateral consultations. Then, they will convene to decide on what to do with the application request. If the current members decide to allow it, China will proceed to the accession stage and start working on their own country-specific schedules for market access in goods, services, investment, movement of business persons, state-owned enterprise (SOE) exceptions, and government procurement commitments. The text of the agreement and all existing member schedules are not intended to be adjusted in the wake of new accession discussions. The key question of concern for current members will be whether or not they judge China to be ready, willing and able to uphold the existing rules in the agreement?

Using RCEP: High-Tech Electronics Manufacturing

Using RCEP: High-Tech Electronics Manufacturing

The electronics industry is one where RCEP stands to make a meaningful impact. In most cases, trade in consumer electronics is already tariff-free thanks to the World Trade Organization’s Information Technology Agreement (ITA), enacted in 1996 and updated in 2015. The ITA and ITA2 has provided duty or tariff-free access to a wide range of listed electronics products. It has helped underpin today’s digital economy as the agreement lowered costs for everything from laptops to mobile devices. While the agreements dropped tariffs on (mostly) final products, the inputs for these goods received fewer benefits. Many tariffs remain in place, adding a substantial burden to the countries and companies that manufacture high-tech consumer electronics. Though pre-existing agreements like the ITA have already eliminated most tariffs on final consumer goods, RCEP still stands to benefit the consumer electronics industry in the region. While consumer electronics are often assembled for the final consumer in factories in China, individual components might come from places like South Korea, Japan and ASEAN. Components themselves may be largely tariff-free, but this is not necessarily true of the hugely expensive inputs necessary for their production. An example can be found in flat display screen manufacturing equipment. Many of the world’s liquid crystal display (LCD) and next-gen organic light emitting diode (OLED) devices are manufactured in East Asian cleanrooms. LCD and OLED devices are semiconductor technologies used in modern display screens everywhere from laptops to smartwatches to fridges.