RCEP Shifts Into a New Gear?

Nay Pyi Taw, Myanmar— The ninth round of negotiations is wrapping up in Myanmar for the Regional Comprehensive Economic Partnership (RCEP).  The unbelievably massive convention centre (and Nay Pyi Taw has two convention centres!) is full of serious looking delegates sporting various colored country badges. 

Talks are ongoing in a wide variety of working groups, sub working groups, expert groups and the main negotiating committee.  Some sessions meet with just ASEAN officials, others with the ASEAN Foreign Partners (AFPs: Australia, China, Japan, India, New Zealand, and South Korea), and others with all 16 parties in the room.  Topics include goods, services, investment, rules of origin, customs, intellectual property, competition, legal affairs, and economic and technical cooperation. 

I’m even delighted to report that e-commerce has finally moved beyond discussions into a negotiating phase!  We attended two previous rounds to promote the inclusion of this agenda item into RCEP. 

The mood overall appears to be mixed.  Many delegates expected to be attending this round in the wake of provisional agreement of the Trans-Pacific Partnership (TPP) negotiations.  Seven countries are involved in both negotiations: Australia, Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam. 

The closure of the TPP would have put considerable pressure on RCEP negotiations.  At the moment, talks here remain at a relatively early stage, despite having been underway for more than 2 years. 

The original intention was to complete the agreement by the end of this year.  The timing had been chosen to link up RCEP with the introduction of the ASEAN Economic Community (AEC).  However, when RCEP ministers met in Kuala Lumpur last month, they finally agreed that closure in 2015 was not possible.  No new deadline has been announced (which is frankly an excellent idea, given the problems attached to “missing” a deadline). 

Instead, ministers suggested that they should redouble their efforts in an attempt to move talks along.  Offers have now been exchanged in services and investment. 

But this forward progress is partly obscured by difficulties in negotiating market access for goods.  These discussions are still stuck in a dispute over modalities.  This is trade-speak for the procedures or process under which members will conduct the talks—in other words, at the end of the RCEP negotiations, are the members ready and willing to have one offer that is extended to everyone else or can members offer up different types of commitments for different parties? 

At the start of discussions this week, India was pushing for a three-part offer in goods with differing levels of market access or openness to different members.  China, Australia and New Zealand, for instance, would have the worst amount of access to the Indian goods markets as members of India’s third tier.  Some of ASEAN, by contrast, would enjoy improved access.

The difficulties in locking down the procedures for negotiating in goods is somewhat ironic, given the origination story for RCEP.  This megaregional trade agreement got underway as a mechanism to improve supply chain integration in Asia by stitching together the five existing ASEAN+1 agreements (that brought ASEAN together with Japan, South Korea, China, India and Australia/New Zealand).  While not all five of these agreements have commitments on services and investment, all did include market access for goods.  Thus, the goods negotiations in RCEP should have been the easiest to get underway (even if getting closure could be difficult). 

But a multi-part schedule for market access in goods does not provide the kind of seamless integration benefits that make the most sense for companies.

As it stands now, a company that wishes to use either ASEAN agreements or (some) of the ASEAN+1 agreements will struggle to find specific market access schedules.  While most goods between ASEAN members can be shipped duty free now, there are some deviations.  These exceptions are hard to find. 

When it gets to determining market access commitments for services and investment within ASEAN, the situation is even worse.  (If you think I am making this up, try to see if your favorite service like chiropractic care or tour guides or opening a 4 star hotel is listed as opened to investment/services access on the ASEAN website or member state websites.  The only good news about the lack of clarity is that it leads to a surge of services activities for consultant firms trying to sort these things out for firms.)

But I digress a bit.  The general point is that RCEP was intended to make integration easier by linking up 16 important markets in Asia.  As we get close to the end of Round 9, the jury is still out on whether this is more or less likely in RCEP. 

One thing that has become quite apparent from this meeting, however, is that officials have dramatically expanded the scope of coverage for the negotiations.  Working groups are now underway in important areas like sanitary and phytosanitary (SPS) to help (potentially) sort out inconsistent rules around food and food safety standards, and another group is examining standards, technical regulations and conformity assessment procedures.  Officials are discussing trade remedies and members even held an experts meeting to start a conversation about government procurement issues. 

All of this activity is, I would argue, excellent news.  It means that the final agreement is more likely to contain provisions that address the issues on the ground for firms in the region.  For instance, companies frequently run into problems with testing procedures for products that vary from country to country and from even entry port to entry port.  A product that qualifies as safe in one country may have to undergo expensive and lengthy qualification procedures again in another country.  Not all of these tests are strictly necessary and RCEP efforts to streamline and remove duplicative testing procedures could be more important for many firms than cuts in tariff levels.

However, increasing the complexity of the final agreement could make it more difficult to conclude negotiations.  With 16 members at very diverse levels of economic development, these talks have already proven challenging to manage.  Expanding the agenda sometimes makes it easier to find win-win outcomes than more narrowly focused agreements.  But adding more topics can also increase the risks of collapse.

One of the best pieces of news from negotiations this week was the inclusion of a discussion on stakeholder engagement to the leader agenda.  In a complex environment with multiple parallel sessions, I think it is more critical than ever to get feedback from participants on the ground.  There is no point in flying officials all around Asia to various hot spots like Nay Pyi Taw for a week or more at a time if the deal under discussion does not meet the needs of stakeholders. 

In Asia, the connections and formal feedback loops between government and business are weak and often inconsistent.  Thus it is not automatic that officials here have a clear sense of what issue areas ought to be top of the agenda and which can be safely discarded or at least minimized. 

Finally, as the hiccup in the TPP negotiations have just clearly shown again, failure to line up stakeholder support in advance of closure can lead to disaster.  At the end of the day, even countries with varying degrees of responsiveness to constituents will struggle to approve and properly implement an agreement that runs contrary to sentiments on the ground. 

If the stakeholder consultation process gets approved, it will fall to companies to step up their own engagements with officials in future negotiating rounds.  Otherwise, if the final agreement fails to deliver sufficient benefits to companies and consumers across Asia, firms may share part of the blame.

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

RCEP: Low Quality, Low Ambition Beckons?

BANGKOK—The 16 Asian countries in the Regional Comprehensive Economic Partnership (RCEP) trade negotiations have continued to meet in Bangkok.  As the last post suggested, getting an ambitious outcome from this trade agreement could bring significant benefits for member countries and the region as a whole.

A strong RCEP would provide new opportunities for large and small firms to connect to one another and to their customers and consumers across the region.  It could include better transparency of rules and regulations so that companies find operating businesses less challenging.  The deal could save time and money for firms by speeding up barriers to trade at the borders and address new sets of issues that previous agreements left out.

In short, the rhetoric surrounding a possible RCEP deal is very helpful.  However, seven rounds into the negotiations, the reality of what might emerge from these rooms is less optimistic. 

In part, I would argue, low ambition stems from a particular chicken-and-egg problem in RCEP.  That is, while businesses stand to benefit in important ways from an agreement that ties together the region from Japan and China to India and New Zealand, and includes all of ASEAN, business groups are not engaged in the talks.  Because business groups are not here and are not pushing for ambitious outcomes, government officials do not feel especially compelled to deliver much. 

Of course, a post like this might not galvanize firms to pay greater attention either.  However, in the absence of feedback from businesses and others about what is needed or what is lacking, officials are likely to continue to bump along the bottom of the ambition scale.

A few businesses have managed to present materials here.  A couple of firms or industry associations were able to speak directly to officials in the experts meetings on e-commerce and non-tariff barriers, for example.  [For the sake of transparency, I should note that the Asian Trade Centre also presented a proposal on e-commerce.]  But business is largely absent and uninterested.  Consumer groups and other NGOs are equally unengaged. 

I have always joked that trade officials have never deliberately embarked on a low quality, low ambition agreement.  But precisely this mindset seems to be seeping into negotiations in several ways.  Start with the most basic element of a free trade agreement (FTA):  market access for goods.  In general, an FTA tries to deliver better benefits for members than non-members receive.  The single easiest deliverable is to grant lower tariff (or duty) rates to member companies. 

Talks have been hamstrung around this issue in RCEP.  India, South Korea and China showed up at the last round with a proposal to open only 40% of their tariff lines for benefits.  Things got even worse this round, when India further suggested that concessions on the 40% of items covered would vary, depending on the member country.

This is even more depressing than it first appears.  India does not actually trade much in goods with the other RCEP members.  Thus, much of India’s trade takes place in a very narrow band of tariff lines or product categories.  A 40% offer could easily exclude from the outset all the items that might conceivably be traded with anyone and certainly would carve out all the items of particular interest for most trading partners. 

The latest offer made things even worse, as the specific content of India’s 40% offer could shift between RCEP member countries.  Recall that the whole point of an agreement like RCEP is to make it easier for companies to source, buy and sell from and across members.  If every country has different sets of sensitive items that are completely excluded from coverage, it becomes so complicated for companies that many will just skip using the agreement at all. 

To add further fuel to the low ambition fire, India has also suggested deeply unhelpful provisions in the rules of origin (ROOs) discussions.  Tariffs and ROOs work in tandem.  I could create fantastic tariff reductions but make it so difficult for products to qualify for these lower rates that no one will use them.  Conversely, I can recommend easier ROOs that help business take advantage of even relatively higher tariff levels.  One of the best things about previous ASEAN agreements was that their ROO regimes were generally quite good.

For RCEP, India is suggesting applying the rules only to “wholly obtained” goods.  These are items that are 100% sourced from inside one (and only one) country—mostly things that are grown, harvested, dug up or fished out of the country’s territory.  This completely negates a primary purpose of a deal like RCEP, which is to connect together supply or value chains across the region.  Firms almost never source goods only from one territory anymore.  Further harm comes from such rules, as they would condemn the poorer members in the agreement to stick to exporting only raw materials and (mostly) unprocessed agricultural products where the value is often lowest.

Outside of goods, things are not shaping up much better either.  In services, for example, many members are pushing to use a negotiating method (a positive list) that is frequently a route to low-quality outcomes.  Under this method, countries open only the sectors explicitly listed in the agreement. 

The track record of ASEAN and the Dialogue Partners (or ASEAN Foreign Partners, AFPs, as they are called here) is not great.  Most members barely agreed to open services in the existing ASEAN+1 deals.  Thus, although it might be possible to have an ambitious, positive list approach to services, the signs are not promising.  This sort of list is stubbornly resistant to change later as well, making it harder to ratchet up quality over time in services.

In several other areas like competition, intellectual property rights, or sanitary and phytosanitary (SPS) rules over food and food safety, talks are progressing extremely slowly with wide gaps between member positions.   These splits are not always between ASEAN and its Dialogue Partners either.  Often, the disagreement is greatest between ASEAN members or, especially, between some Partners. 

Lest I be accused of picking only on India, let me say that other members are also pursuing low ambition outcomes.  In e-commerce, for example, it was the Malaysian lead trade official (joined, however, by India) who apparently helped kill off a unanimous suggestion of the experts group to proceed with setting up a working group on the topic.  E-commerce was one promising avenue for helping small and medium sized firms take advantage of the agreement and plug into larger chains for greater growth and job prospects.

Officials continue to work around a schedule that calls for conclusion by the end of the year.  The next round, however, is not until June.  Given how relatively little has been decided, getting a deal done a few months from now will be a major challenge.  The prospects for more ambition are not bright either, without substantial pressure for improved outcomes.

This is not an easy negotiation for many countries.  It is expensive to send delegates to far-flung locations and keep them away from their offices for a week or more.  Many of the RCEP participants only have small trade offices in the first place and putting a dozen or more people in Bangkok is a huge strain on resources. 

Given the apparently clear low trajectory of the talks after 7 rounds of negotiations, it seems to me that it is time to take bold action.  If, in the end, officials can’t craft an agreement that businesses use, what is the point?  Countries should be thinking seriously about walking away from this deal until the time is “ripe.” If this is not possible, then members should at least admit by the end of the next round that if higher ambition is not forthcoming quickly, then the agreement cannot and should not be done on the current timeline.  This would allow time for countries to improve their knowledge and understanding of some key issues.  It would give an opportunity to dramatically improve the offers on the table before a deal is sealed.  The alternative could be a 16 party low quality, low ambition trade agreement in Asia.

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Before I close for today, I would like to note one extremely positive development from RCEP—participating countries have all sent large delegations of women.  A purely unscientific guess would put the gender balance at 50/50?  In any case, there are many, many smart, articulate women here.  Many are lead negotiators in various chapters.  Perhaps they will speak up more loudly in the media and on stage in the future, so we might avoid the extremely depressing problem highlighted here in the New York Times of a lack of female voices in public around issues of foreign and economic policy.  I’ve lost track of the number of times I am the only woman on the stage or in the room!