Cutting Tariffs in RCEP

In the past, governments mostly protected local markets by using tariff barriers.  Tariffs, which act like a tax on imports, can raise the cost of foreign goods.  If the tariff level is set high enough, foreign companies will simply avoid shipping goods across a customs border since it can be impossible to remain competitive with domestic goods in the face of high tariff levels.

Countries have reduced tariffs after multiple rounds of reductions at the global level.  In fact, many people argue that tariffs are no longer an especially big issue.  In ongoing free trade agreements (FTAs), the focus has largely shifted from goods to other chapters and different kinds of “sexier” market commitments like services, investment, e-commerce, or intellectual property rights. 

Yet tariffs continue to matter.  For some sectors—like agriculture—tariff rates charged at the border can be 100%, 330% (some dairy into Canada) or as high as 1400% (for a particular kind of potato into Japan). 

Even in sectors where tariffs are generally low or set to zero, such as electronic goods, tariffs can still be important.  For example, while global commitments in the Information Technology Agreement (ITA) have eliminated tariffs entirely on some classes of goods, many of the raw materials, parts and components used in the manufacture of more complex electronic goods may continue to be charged tariffs at the border. 

Research shows, in fact, that the cumulative effect of even very low tariffs can be quite high—as semi-finished parts and components go back and forth across borders in supply chains, a 2, 5 or 10% tariff can add up quickly. 

Tariffs are leveled on the gross value of the good and not on the value-added amount.  Firms with long international chains can face significant costs from very low tariffs.  Ferrantino showed that a 10 percent tariff across a five stage chain results in a tariff equivalent of 34 percent—and doubling the chain again drives tariff levels up to the equivalent of 75 percent.  

Robert Koopman, now chief economist at the WTO, and his colleagues have reported that the effective tariff rate for the United States is 17 percent higher than the nominal rate, 71 percent higher in Hong Kong and 171 percent higher in Mexico.  Developing countries, overall, include more intermediate goods into final products, making the impact of tariffs more significant. 

Free trade agreements do not entirely solve this problem either.  Sebastien Miroudot and colleagues have shown how the amplification of tariffs still takes place under free trade agreements.

The continuing importance of tariffs makes some of the news coming out of regional talks in the Regional Comprehensive Economic Partnership (RCEP) particularly worrying.  At the ministerial meeting last month, leaders agreed to cut tariffs on 65% of goods at the launch of the agreement and raise this level to 80% by the time the deal is fully implemented in 10 years.

This news could also be presented another way—RCEP officials have agreed to leave 35% of tariffs untouched at the introduction of the agreement and not address 20% of tariffs even when the agreement is finished. 

I am trying to get research underway to determine the actual impact of such policies.  I suspect that trade between many RCEP members is currently limited to a small set of tariff lines.  If these lines are part of the “excluded” groups of tariff lines, the net impact of RCEP cuts will be modest indeed. 

The example I frequently give is to say that snow removal equipment will undoubtedly be “fully liberalized” across RCEP.  Given the tropical nature of many RCEP countries, such a concession is basically meaningless—they do not produce, sell, buy, export or import many snow shovels, snowplows, or even snow boots.  However, things that are actually traded, including many key agricultural items, will surely be left off, or “carved out,” of the final agreement.

More disturbing still, India has apparently won permission to continue with a “3 tier” offer in tariff cuts.  Under the tiered approach, ASEAN countries will receive the 65/80 offer (start at 65% coverage and increase to 80%).  South Korea and Japan, in tier two, will be stuck at 65%.  Finally, China, Australia and New Zealand will receive tariff cuts on only 42.5% of tariff lines at the outset into India.

Think about that for a moment.  India is promising to cut tariffs on less than half of tariff lines.  Snow shovels and boots are in.  Most commercially meaningful goods are not. 

New Zealand, in particular, is trying to fight back and require that India's offer include goods tariff lines that account for 55% of the value of goods traded between the two members.  This is more helpful, but still complicated and of less value to businesses than greater liberalization across the board.

Note that India’s coverage levels are not automatically reciprocal.  Apparently, China will offer India 42.5% of its domestic market, but Australia is going to be more generous at 80% coverage and New Zealand will start at 65% coverage. 

Tariff cuts have to be viewed in tandem with rules of origin (ROOs).  It is possible to have relatively modest cuts, but easy-to-use rules of origin and broad cumulation.  This makes it more likely that firms will take advantage of RCEP in the future since items produced with content from across the 16 member countries can be more easily included and often receive reduced tariff benefits into RCEP members.  A future post will consider where officials seem to be heading in the ROO chapter.

On the bright side, if these provisions remain for trade in goods, the Asian Trade Centre and a host of other consulting firms across the region are likely to have enormous demand in the coming years as companies come to grips with the potential benefits arising from RCEP commitments.  To successfully use an RCEP agreement with modest tariff cuts, different levels of commitment, and at least a 10 year phase in period, firms will need very savvy advice and support. 

We are standing by to help.

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

Scoring Success in ASEAN

Kuala Lumpur—ASEAN officials are wrapping up another long and comprehensive set of meetings in Malaysia.  The more countries become involved in interlocking and overlapping groupings, the more complicated the meeting schedules attached to ASEAN have become. 

The primary purpose of the ASEAN meetings, of course, is to help guide ASEAN member states.  Here in Kuala Lumpur, economic ministers met to discuss progress towards meeting the ASEAN Economic Community (AEC) and other elements of the ASEAN integration agenda.

Officials also met with a variety of counterparts from other countries that are dialogue partners with ASEAN.  Some of the counterparts that are also Trans-Pacific Partnership (TPP) members, including Australia, Canada, Japan, New Zealand, and the United States, held informal bilaterals between themselves and the ASEAN TPP members (Brunei, Malaysia, Singapore and Vietnam) to try to break through remaining issues in the TPP negotiations. 

Minsters from the 16 member countries of the Regional Comprehensive Economic Partnership (RCEP) also met to discuss progress after 9 rounds of talks.

Finally, various industry groups and associations, like the EU-ASEAN Business Council and the East Asia Business Council, snagged a few minutes of the time and attention of trade ministers during assorted sideline events. 

Many of the ASEAN discussions underway are likely to include at least one comment such as, “ASEAN is on track to achieve that AEC at the end of the year, with 80% (or 90%) of the objectives already finished.”  Or, “As the ASEAN Blueprint (or scorecard) shows, we have already accomplished 80 (or 90) percent of our objectives.”

What makes these statements puzzling is that ASEAN dropped the scorecard some time ago.  The last time ASEAN published the results, the scorecard only covered the period through 2011.  There is really no way to know how close or how far ASEAN might currently be from meeting the targets attached to the AEC.

Yet the idea of a scorecard seems rather firmly anchored.  Where did the original impetus for the scorecard come from?

ASEAN faces at least two distinct challenges in implementing commitments.  First, ASEAN’s methods of negotiation are unusual.  The grouping uses something called the “ASEAN – X” (ASEAN minus X) approach.  Under this approach, somewhere between all 10 members and no members actually implement any given commitment. 

This soft, persuasive approach means that members have sufficient flexibility and policy space to move ahead with commitments when they believe the time is right for their specific developmental status and domestic conditions.  The expectation is that all 10 members will eventually arrive at the same set of outcomes, since members that disagreed with the original objective could have rejected the approach or the commitment outright from the beginning. 

The ASEAN-X system, however, means that enforcement of commitments may always be a problem. 

Second, the member states do not like confrontation.  The region has been peaceful for all these decades in part, most argue, from the “ASEAN Way” of handling disagreements.  Such an approach requires discretion and careful dialogue over long periods of time to help build up trust and communication. 

The lack of confrontation means that the usual path of dispute settlement, taken by states in economic partnerships and free trade agreements, is not an option for ASEAN.  Member states are unlikely to agree to allow one another to actually be taken to arbitration by another member over failure to implement ASEAN commitments.  (Note, however, that ASEAN members have, on rare occasions, moved trade disputes over to the World Trade Organization system if the violation of ASEAN commitments can also be viewed as a WTO violation.) 

So, imagine that you are tasked with getting 10 member states to get to the same outcomes if the pathway is flexible and you cannot count on any sort of dispute settlement system to be actually used by members to ensure enforcement of commitments.  What system would you recommend?

One solution is to use some sort of “naming and shaming” approach to call out laggards.  However, if such a system were seen as too harsh and critical, it would never get past the member states. 

Hence, ASEAN defaulted to the creation of a blueprint.  The original blueprint was a fixed number of commitments that ASEAN members had agreed to implement on the path to the AEC.  These commitments were broken down into four broad areas. 

Of most interest to the business community were promises made in the first pillar, “Single Market and Production Base.”  This included commitments towards free flows of goods, services, investment, skilled labor and freer movement of capital.  The blueprint for achieving these objectives was broken down into phases, starting in 2007-2009 and concluding in 2015 with the launch of the AEC.

The commitments would be tracked by the use of an ASEAN Scorecard that could measure progress towards achieving each of the items in the blueprint.  Critically, to get approval of the members, the report card had several interesting features.  The report is an aggregated account of progress—no single member is ever praised or punished specifically for implementing or failing to implement any given commitment. 

The scorecard is a binary system.  Members are given “credit” for progress made towards the objective or are not.  There is no attempt to measure actual implementation.  The member states themselves must provide the information to the Secretariat for tabulation.

At the Secretariat, officials add up (behind the scenes) the check marks for progress and report out either “fully implemented” or “not fully implemented.”  As an example, the first scorecard for free flow of goods showed 9 items fully implemented and 0 items not implemented between 2007-2009.  The record reported in Phase 2, 2010-2011, was more mixed with 23 items implemented and 24 items not fully implemented.  It is not clear what items are even being measured.

This highlights more challenges with the blueprint/scorecard system.  Over time, members added additional items.  This made the scorecard more of a moving target.  A member state might have thought it would receive credit for 80% of commitments in phase 2, only to discover that with new, unmet commitments added to the scorecard, it (and ASEAN) might receive a score closer to 70% or worse. 

The easiest commitments are always likely to go first.  The tougher parts of integration dealing with the more sensitive items are most likely to appear in the blueprint at the end of the process.  Hence, under whatever system members might have devised to address implementation challenges for the AEC, progress towards the end was likely to slow down.

In the years since the last publication of scorecard results, officials and other stakeholders have had discussions about revising the system.  But given the extreme unwillingness of participants to have anything that might appear to be bad news or backsliding on commitments, members appear to have decided to abandon the entire scorecard exercise.  The lack of an actual scorecard now makes repeated references in 2015 to the scorecard and blueprints so strange to hear this week in Malaysia. 

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

Dairy Highlights Challenges to TPP Closure

The Trans-Pacific Partnership (TPP) negotiations did not close in Hawaii last month partly due to disagreements over dairy access.  Why did bargaining across 12 countries get so bogged down over milk and cheese market access?  What does the dairy dispute tell us about problems ahead?

Agriculture has historically been protected more than industrial goods, since nearly every country has particularly sensitivities around farming, farmers, and food.  The global trade regime under the GATT/WTO has made only modest inroads into agricultural trade so far, mostly by limiting tariffs in some sectors. 

The protection of agriculture has continued in various free trade agreements (FTAs) signed between WTO members, as Jo-Ann Crawford demonstrated by looking at 162 tariff schedules.  The countries in the sample varied in the extent of market liberalization for agricultural goods; however, overall, agricultural commitments made in trade agreements regularly omitted or excluded tariff lines.  The most frequent products carved out of FTAs include sugar (HS Chapter 17), miscellaneous edible preparations like coffee and tea (Chapter 21), beverages (Chapter 22), cereals (Chapter 10), dairy (Chapter 4), and meat (Chapter 2). 

This strategy for handling sensitive agricultural sectors—by simply excluding the items from market liberalization at all—was not supposed to take place in the TPP.  From the earliest days of discussions, officials took pains to announce that the TPP would contain “no exceptions.” 

Hence, even tough issues like dairy, sugar, meat and cereals (like rice and wheat) have had to be on the table for negotiations.  It will perhaps not surprise anyone to learn that these sectors, however, have been some of the very last items to be dealt with in the TPP. 

Canada apparently did not put forward an offer on dairy until just days ahead of Hawaii.  The original offer appears to have been a liquid milk equivalent tariff quota for all dairy products.  This gets rather complicated, but in short it meant that the partners could have access to a certain portion of Canada’s dairy market at lower tariff rates.  Once the quantitative cap was filled, everything after that would be charged (much) higher tariff rates.

Under a liquid milk equivalent scheme, all products made with milk, including cheeses, butter and all sorts of milk items would be interchangeable—in other words, partners could ship whatever form of dairy added up to the equivalent amount of liquid milk at lower tariffs up to the filling of the cap.  It could be that the entire cap could be filled with butter, leaving no room for cheese exporters, or the reverse. 

This is a deeply problematic outcome, however, for dairy exporters, as it is extremely difficult to determine what sort of outcomes farmers might receive in practice.  Quota systems are widely used in dairy and can sometimes be completely filled within a matter of weeks.  A sort of “blanket” quota would be even harder to judge since there could be no way to determine what portion of the quota other member countries might be able to fill or when.

Canada’s revised offer appears to have split up quotas for major subsectors of dairy.  This is an improvement, but still remains problematic.

The reason for Canadian delay in offering anything at all on dairy relates to specific domestic challenges.  Canada has a long-standing set of policies in place for dairy (and poultry) to protect the market against encroachment by (mostly) American dairy farmers. 

Under supply-management, the government has sheltered the dairy sector behind extremely high tariff walls (more than 300 percent, in some cases) and limited import quotas.  The system also includes complicated marketing boards that determine domestic prices, and controls on supply through the use of quotas per farmer for production. 

The net results of this system are a lucrative source of revenue for dairy farmers and extremely high dairy prices for Canadian consumers.  Efforts to dismantle or dramatically revise the system in the past have been complicated by the fact that the bulk of the 13,000 dairy farms in Canada are geographically concentrated in two important voting provinces.  While consumers would presumably benefit from cheaper products, like consumers worldwide, the average Canadian is not likely to rise up and lobby hard in favor of reduced dairy and poultry prices. 

Despite the soaring rhetoric of the TPP as a new kind of trade agreement better suited to the 21st century, dairy reforms in Canada will likely remain grounded firmly in the past.  Whatever happens, reform is likely to be limited, with changes to dairy phased in slowly over long time horizons.

Canada is not the only country, of course, with complex systems of support in place for dairy production.  Japan’s butter market follows a similar pattern—the government controls import volumes and prices and uses high tariff walls.  The result is that Japanese consumers pay more than triple the international price for butter and even experience shortages.

Like in Canada, however, consumers are not carrying protest signs around the trade ministry begging for lower butter prices. 

In the absence of visible support from consumers, officials are mostly getting an earful now from potentially disadvantaged firms.  It might be expected that industries that rely on dairy as an input, including all sorts of food manufacturers, bakeries, restaurants, and so forth would be working hard to convince governments that cheaper products could also be beneficial.  While some of this is undoubtedly taking place, their efforts are likely modest. 

Even firms that could be clear winners can be withholding visible support.  Many argue that, in the absence of a text that clearly lays out the extent and scope of changes that are coming, they cannot say anything at all. 

But once the agreement is finished and revealed, whatever (likely modest) changes are included for dairy are likely to provoke backlash from entrenched interests that benefit from current schemes.  Expect to hear loud calls for maintaining systems that “benefit small, family farms” and “produce high quality, safe food products” and “ensure adequate domestic supplies of dairy and dairy products.” 

Such complaints will be made even though: domestic farms remain set to continue to dominate markets; many farms could carve out an advantage in exporting; TPP products are of similar or equal quality; and supplies of products like butter, milk powder and cheeses are likely to increase.

Groups that feel under threat will not likely sit quietly.  Simply having the text available will not settle the issues.  

In the face of what can appear to be overwhelming support for the status quo, officials and political leaders can go wobbly.  They can backtrack on commitments for market opening and threaten to undo or torpedo the entire deal. 

A similar scenario will happen in various other sectors of agriculture and elsewhere.  Revealing the specifics of the compromises made in each of the 12 member countries is likely to set off vigorous debates.  Firms and industries that have decided to sit on the sidelines until the text is released may be joining the battle much too late. 

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

A Paradox of Trade Agreements: From Global to Bilateral Negotiations

Coming out of the negotiations in Hawaii, some officials in the Trans-Pacific Partnership (TPP) talks suggested that the failure to get a deal done was not catastrophic.  Ministers could meet again potentially within mere weeks on the sidelines of an ASEAN Economic Ministers (AEM) meeting in Malaysia.  This timeline appears to have gone by the wayside now.  Loose talk of a possible meeting in September also looks unlikely.

Hence, we are mostly back to what I suggested already:  if a preliminary deal is to be struck, it could be in November when leaders at all levels have a series of planned meetings around APEC and assorted other international gatherings. 

Again, many people will try to argue that the timeline is not terribly important—getting it done right, after all, is better than rushing to get it done.  I might argue that more than five years of negotiations, more than 20 full negotiating rounds, and four different multi-day ministerial meetings (not to mention endless assorted intercessional meetings, chapter negotiations, sideline meetings, video conference sessions and the like) hardly appears to suggest unseemly haste in closing.

As we linger over the dog days of August, it is worth pondering again an interesting paradox in trade talks:  while the benefits of larger agreements are becoming ever greater, it may have gotten even harder to conclude larger deals. 

This observation, which I will elaborate in a moment, also leads to an even more troubling paradox: current difficulties in getting large-scale agreements done with many participants will likely lead officials back to creating more bilateral arrangements.  But more bilateral agreements make it increasingly less likely that larger deals can ever be completed.

Trade agreements get signed for all sorts of reasons—to cement relationships, reward friends, give bureaucracies something to do, promote officials, provide newscopy, and more.  But fundamentally, a good trade agreement is supposed to help businesses create more trade between partners. 

For businesses, the most helpful kind of trade agreements are those that include the largest set of members.  After all, few companies plan to buy and sell to or from only one other country.  Even the smallest firm usually has aspirations of someday being able to tap on a global marketplace for materials, contracts, vendors, and consumers. 

Firms would like to have a seamless experience (or as close to seamless as possible) in navigating multiple markets.  This includes things like consistent border and customs procedures using the same set of required paperwork.  Companies would like consistent coverage of their products with similar rules, including sorting out differing standards that make trade difficult. 

This desire for fewer barriers to trade does not mean that firms are automatically hostile to regulations or are resistant to rules and procedures.  Very few firms are clamoring for unfettered trade access.  Instead, most would argue more strongly for consistency since what firms really need is to minimize uncertainty and risk. 

This is where trade agreements have a role to play in setting the ground rules for business and in creating market opportunities for firms.  From a business perspective, the largest possible trade agreement is infinitely preferable to trying to sort out multiple smaller arrangements that may—or may not—provide improved access to partner markets.

However, the global trade regime is clearly stuck.  The Doha round of the World Trade Organization (WTO) began in 2001.  Officials were tantalizingly close to finishing in the summer of 2008 and have barely been able to move ahead since then.  An “intense” period of consultations earlier this year failed to make much headway either and the WTO has just missed another deadline for moving ahead with the Doha agenda. 

Even the area with particular promise for businesses—the Bali agreement on trade facilitation—remains jammed.  Although the agreement would help smooth some of the barriers faced by companies at the border, countries have been extremely slow to ratify the deal.  Until significantly more WTO members sign on, the agreement will not be implemented.

The fine print has not yet been released on the Information Technology Agreement II (ITAII).  This agreement is meant to lower tariffs on a range of electronic products of interest to IT companies.  However, since the text has not been released as far as I know, it’s not exactly clear how much additional benefit firms will receive from this deal.

The lack of forward movement by the global trade regime has raised the stakes for regional agreements like the TPP.  If important deals cannot be struck in Geneva, then perhaps commitments can be undertaken by like-minded countries operating in smaller settings.

Now, however, the TPP has also become stuck (hopefully not as permanently as the WTO).  Similarly ambitious agreements like the Trans-Atlantic Trade and Investment Partnership (TTIP) between the United States and Europe are also progressing slowly.  As I mentioned from Myanmar over the weekend, the Regional Comprehensive Economic Partnership (RCEP), while not in quite the same leagues of high ambition as the others, has been moving along at a crawl.

The net result of a lack of movement at the global level and foundering efforts at the regional level is likely to leave governments searching for new ways to unleash new sources of competitiveness and economic growth.  If getting a deal done with more players is hard, perhaps, officials will surely start to think, perhaps we should return to negotiating smaller deals with fewer partners?  Or even revert back to bilateral agreements? 

A bilateral deal is faster to negotiate and requires fewer resources.  An agreement between two parties could be more ambitious (although it might not be ambitious at all).  The consequences of both success and failure are lower.

Yet a stampede back to bilaterals could just compound the difficulties of getting to yes with a larger group of members in the future.  This is because each layer of agreement between members adds to the complexity of the new deal. 

Of course, this makes intuitive sense.  But I do think the scale and scope of the problem has not been sufficiently appreciated. 

For example, the TPP talks foundered in Hawaii in part because of two different commitments from the North American Free Trade Agreement (NAFTA).  Under NAFTA, Canada was allowed to shield dairy and poultry from market opening.  This set up additional challenges in the TPP since continuing the stance would undermine the high quality aspirations of the TPP.  But not continuing the stance, as we have clearly seen, undermined the enthusiasm of the Canadian government to wrap up the talks—particularly with an election looming in Ottawa in October and the potential for facing a very upset group of voters in key provinces. 

The TPP also got stuck over rules of origin in autos.  Mexico objected to changes in the level of local content proposed for the TPP that would undermine the balances struck in NAFTA for autos. 

Similarly, a bilateral agreement between the United States and Australia over sugar access has compounded challenges in addressing sugar in the TPP.  In another example, Singapore’s (and now Vietnam's) commitments to protecting geographical indications with the European Union also caused hiccups in the TPP as both ASEAN members cannot agree to new regional rules that contradict promises made to Europe. 

The more countries sign up to wide-ranging, deeper commitments with one another, the harder it may be to craft good regional and global deals in the future.  Members rushing to sign and upgrade “easier” bilateral agreements could paradoxically find themselves increasingly constrained.  Many governments could be unable to create the kinds of large scale agreements that might be most helpful for businesses going forward.

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

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***