Trade Without A Referee

Trade Without A Referee

The game of football is basically the same all over the world.  Kids can learn the game in Morocco, Brazil, Laos or Germany secure in the knowledge that they might all one day compete together in the World Cup. They can sleep soundly at night because the rulebook is the same and because the referees that enforce the rules on the pitch do so in a broadly consistent manner. Both parts are important.  If kids in various countries had the same rulebook, but enforcement varied by a lot in different places, it would not be possible to play the same game anymore.  If what counted as a penalty was widely different in Morocco from Germany, or the total number of players allowed on the field was different in Laos from Brazil, the game would no longer be the same even if the “rulebook” were officially identical. We are about to find out what happens if the referees simply vanish from the pitch entirely.  How long will players keep following the same rules before local variations of the game appear?  Without a referee to maintain order, how will players behave in each match?  How long will the global game continue at all? Before football fans panic, this problem is not actually found in football, but in the global trade arena.  The referees are a much more obscure group of just seven individuals known as the Appellate Body of the World Trade Organization (WTO).  Today in Geneva, the referees were officially pulled off the trade pitch.

Using RCEP: Creating Products for Asia

Using RCEP: Creating Products for Asia

Under RCEP, however, the shampoo company can make shampoo safe in the knowledge that—as long as the content in the bottle comes from anywhere in the 15 markets in Asia meeting the ROOs for RCEP—it can be shipped to any of the 15 markets in Asia without any changes in formulation.  Given the size and diversity of these markets, this is a significant advantage to all Asia-based firms.  Even better, under RCEP, firms will need to fill out only one sheet of paper to prove that their products “qualify” for origin.  The new RCEP certificate of origin (CO) should reduce costs and time for companies.  The extent of the benefits, ie, the lower tariffs on offer, will vary in RCEP.  In some instances, the gap between the MFN rate or existing FTA benefits and new RCEP rates may be small.  But the ability to ship products, like shampoo, across all of Asia without change in formulation, is still extremely significant.  It means that firms will be competitive in markets that they may never have considered in the past. This apparently small element of RCEP is likely to be game changing.  Companies should start preparing now to use this trade agreement.

The Titanic Has Hit the Iceberg: Global Trade in Profound Trouble

The Titanic Has Hit the Iceberg: Global Trade in Profound Trouble

We have not seen this sort of global trade system in a very long time, so it is not possible to imagine fully what it will look like.  But to return to the Titanic discussion, if the main boat is sinking, what will happen?  Everyone will be desperately looking for any way possible to avoid drowning. The ideal scenario is to have another luxurious cruise ship nearby to pick you up.  For some countries, this trade option is available.  The European Union fits the bill for some lucky passengers.  Slightly less fancy, but still desirable, will be the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which gives members significant benefits from being inside a new luxury liner. A bigger boat is much better in a wide ocean than smaller boats.  The Regional Comprehensive Economic Partnership (RCEP) with 15 members in Asia is slightly less well-appointed than the CPTPP, but will do quite nicely for most Asian countries.  Some countries will be looking for any lifeboat, including tiny rowboats made from lashing together bilateral deals with key trading partners.  Some will get stuck trying to straddle a bunch of smaller boat options. Finally, some members will have no true options and are facing the freezing waters.  One of the main purposes of the multilateral trading system, in fact, has been to help smaller, poorer countries navigate a world of bigger, more powerful countries.  Once the Titanic sinks, this safety net is no longer available.  Drowning is a real risk.

RCEP: 15-1 Equals What?

RCEP: 15-1 Equals What?

The other 15 parties appear to have decided that delay was no longer possible and further negotiations were not likely to resolve such fundamental issues.  They decided to close the agreement and move towards signature and entry into force .  The door has been left ajar, of course, as negotiations can still take place.  India could join by February or potentially after that time. Much of the focus in the last two days has been on the situation in India.  This is understandable, but also somewhat unfortunate, as it has obscured the importance of the RCEP announcement. Leaders have pulled off what many believed was an impossible task—in spite of strong global headwinds, 15 Asian countries managed to agree on a significant new trade deal that will lead to new integration in the region.   The 15 are an extremely diverse bunch from rich to least developed economies, from large to tiny, from agricultural powerhouses to industrial manufacturing centers and resource based economies.  The agreement is not, as so many have described, a shallow, meaningless deal.  It covers the full range of topics of importance to companies and consumers, including goods, services, and investment.  It addresses issues like intellectual property rights and standards.  It has elements on smaller firms and development. 

RCEP: Reaching Substantial Conclusion?

RCEP: Reaching Substantial Conclusion?

Missing from all this cooperation, however, has been a mechanism to integrate the whole of Asia together in a meaningful way.  RCEP provides this template.  “Substantial conclusion” will not mean that people will be eagerly reviewing the texts and schedules on November 5.  There are two reasons for a delay in seeing the contents.  First, officials have been frantically switching, dropping and including provisions over the past few weeks in the sprint to the finish line.  Most of these elements have been under discussion for years.  RCEP officials started working on the deal at the end of 2012.  However, in the final push to get an agreement done, sensitive items actually have to get addressed and dealt with one way or another.  To ensure consistency across the document, the lawyers will need to carefully review the entire deal from start to finish.  The need for a careful legal scrub is not unique to RCEP.  Most trade agreements require something similar and ought to be welcomed by all.  The worst outcome would be to have a deal riddled with flaws that need correction later.