Unpacking RCEP: Benefits for Processed Foods

Unpacking RCEP: Benefits for Processed Foods

Managing multiple agreements for the trade of processed foods can be particularly challenging. Food and agricultural products have always been one of the most sensitive topics in trade agreement negotiations, leaving in place often high protectionist barriers. RCEP negotiators, however, were able to liberalize market access for food products, especially those that include more than one ingredient or are processed in any way. The large geographical scope, 15 countries, and the aforementioned concessions, give RCEP the potential to lower barriers and further facilitate and strengthen the development of regional processed food value chains. To illustrate the potential of RCEP to facilitate food trade in the region, consider a Thailand-based diversified food company making peach jam for export. The company uses peaches sourced from China and produces jam in a factory located in Thailand, where the peaches are chopped and then blended with sugar and pectin. The jam is cooked, pasteurised and packaged in jars for export. RCEP’s potential to lower the costs of trade for this and other processed food firms can be outlined under two key benefits: the elimination of existing tariff barriers between member countries and the lowering of compliance costs for regional processed food trade. In most RCEP members, tariffs for peach jam can be up to 30 and 34 percent. RCEP will eliminate those tariffs for ASEAN-based peach jam producers.

Digital Trade in the Asia-Pacific: 8 Issues for 2021 and Beyond

Digital Trade in the Asia-Pacific: 8 Issues for 2021 and Beyond

In the earliest days, the digital economy flourished with extremely limited regulatory oversight. While this might sound like an ideal environment for companies, most prefer to operate within a set of clearly defined basic rules. The alternative can be sudden and unanticipated regulatory and legal changes that can upend business models overnight. As the portions of the economy driven by digital technology have continued to expand and as digital connectivity has increased, governments have increasingly been grappling with the appropriate ways to allow digital trade to grow while restraining harms that might flow to consumers and businesses. Effective management of the regulatory and policy environment to facilitate digital trade will become one of the most important aspects of trade policy in 2021 and beyond. The Covid-19 pandemic and associated lockdowns and trade disruption have up-ended many longstanding business models. Firms are rapidly shifting to develop or expand digital capabilities to manage highly altered supply and demand pressures. The adjustment to digital tools applies to both large and small firms and has increasingly filtered to include citizens around the globe. An online presence can make the difference for companies between survival and extinction. Despite the growing importance of digital trade, the ability of governments to tackle a range of issues of relevance to managing the online environment still lags behind the speed of innovation for firms. Domestic-level regulatory and legal adjustments to better accommodate digital trade can be complicated. Negotiations between governments to ensure greater consistency in policy frameworks are often time-consuming to complete. By the time policy settings adjust, the commercial environment could appear quite different. Headed into 2021 and beyond, there are at least eight topics that are likely to be on the radar for government officials working on digital trade. The Asian Trade Centre, with generous support from the Hinrich Foundation, has launched a series of papers, Asia in the Digital Economy, to more carefully examine new and emerging issues in digital trade in 2021.

Using RCEP: Swimsuits and Textile Trade

Using RCEP: Swimsuits and Textile Trade

The upcoming entry into force of the Regional Comprehensive Economic Partnership (RCEP) should be helpful to the textile and apparel sectors. It will make it considerably easier to make fabrics and clothing in Asia and distribute them across the region with lower tariff rates or even duty-free treatment. Most important, the rules of origin will be consistent around the region. Given the highly integrated supply chains for these products that span multiple RCEP economies, having rules that better fit existing footprints will be especially helpful. To see how this works, think about a women’s swimsuit. It needs to be able to handle chlorinated and salt water, fit snuggly but not uncomfortably, and have sufficient flexibility in movement to allow swimming, surfing, diving and other water activities. A swimsuit requires high performance fabrics and sophisticated sewing abilities to make a final product that fits a range of body types and is attractive to buyers. As a result of these demands, the supply chain for swimsuits often includes the purchase of specialized fabrics from Japan or South Korea, nylon fabrics from Australia or Korea, and sewing skills from China or Vietnam. The global market for swimsuits (disrupted, as with so many things, by the pandemic in 2020) is still expected to reach US$27 billion by 2027, with growth of just over 5% annually. Existing MFN tariff rates on swimsuits (HS6112) can be quite high across Asia. Australia charges 10% on women’s swimsuits. China’s tariffs are 17.5% for synthetic materials and 16% for other fabrics. Japan has six different categories for swimsuits with base tariffs ranging from 10.9% to 8.4%. Korea levies 13% tariffs. Vietnam charges 20%.

RCEP: A First Look at the Texts

RCEP: A First Look at the Texts

The 15 countries in the Regional Comprehensive Economic Partnership (RCEP) held an elegant virtual signing ceremony on November 15, 2020. The Asian Trade Centre will be delving more deeply into the specific details and producing a series of materials to help companies get ready to use the agreement. For now, here are our first quick technical assessments of the agreement. Note that this early look should not be taken as the definitive guide, as an agreement with 20 chapters and thousands of pages of associated schedules will take some time to unravel. To get a sense of the task ahead, the Korean tariff schedules alone run to 2743 pages. Compounding the difficulties of making a quick assessment: governments can be quite creative in burying important details inside of different provisions. Flexibilities and exceptions are going to be tough to note, understand and unravel. RCEP will, of course, have important implications for trade in the region, for economic integration and for the future of trade policy. This post, however, will focus on the details of the agreement itself. The basic structure includes 20 chapters, making RCEP a comprehensive trade agreement that includes commitments in areas like goods, services, investment, intellectual property rights, competition, trade remedies, standards, e-commerce and dispute settlement. Many of these chapters were not included in the underlying ASEAN+1 agreements that formed the original core of RCEP. Getting these negotiated took significant time, which is partly why RCEP has taken 8 years to reach conclusion. Overall, RCEP represents a significant achievement. The 15 countries involved (Australia, Brunei, Cambodia, China, Indonesia, Japan, Lao PDR, Malaysia, Myanmar, New Zealand, Philippines, Singapore, South Korea, Thailand, and Vietnam) are very diverse in nearly every imaginable dimension. Getting an agreement that could successfully navigate the domestic constraints and starting points in all 15 countries is an important accomplishment. RCEP also represents the first time that many members have engaged in this sort of trade arrangements: especially between China, Japan and South Korea. As expected, this created additional friction as officials grappled with managing outcomes.

US President Joseph Biden: Time for a “Reset” on Trade?

US President Joseph Biden: Time for a “Reset” on Trade?

If this disruption at the top were not impediment enough to pushing for new policies, it remains unclear exactly what both parties will want to accomplish, particularly on trade issues. Traditionally, Democrats have been more skeptical of trade. This stance has changed in line with American public opinion to be more receptive to trade as a potential force for good. But it remains unclear how the Democratic party will respond to specific trade initiatives. It is also uncertain how Republicans will approach trade. In the past, free trade was a key plank in the party platform. Donald Trump scrambled this approach and it is not obvious how the Republican party will choose to address trade in the coming few years. Getting clarity inside both parties will take time. Trade, in general, is not going to be the key priority. Instead, expect Biden and the incoming Congress to focus significant time and attention on a host of domestic policy items including handling the escalating pandemic and economic fallout from disruption. There are two specific trade issues that will likely come up first: China and the CPTPP.