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RCEP key to restoring faith in multilateral trade
A SUBSTANTIAL conclusion of the Regional Comprehensive Economic Partnership (RCEP) negotiations by end of 2018 is not impossible. Speaking at the Asean Economic Ministers' Meeting last week, Prime Minister Lee Hsien Loong said that RCEP talks have "reached a critical stage". After deliberations for more than five years, "the possibility of substantively concluding RCEP negotiation is finally in sight".
To get a breakthrough in these talks, the economic ministers of the 16 RCEP participating countries met thrice this year. The intention was to resolve deadlocks and secure crucial parts of the negotiation, affirming political willingness to finalise the deal for the Leaders' Meet in November.
RCEP is key to instilling confidence in an open and inclusive multilateral trading system. The United States is attacking the liberal trading order by adhering to an "America First" policy and instituting higher tariffs against products imported from China, India, Russia, Mexico, Canada and the European Union. In retaliation, these countries are devising protectionist measures to curb American imports in their economies. The US administration has also been criticising the World Trade Organization as a useless institution.
RCEP is useful as it establishes an alternative trade path in the face of a possible full-fledged trade war with the US. The Trump administration, for instance, can potentially inflict punitive trade sanctions against Japan, which accounts for 12 per cent of the US' overall trade deficit. Japan's auto sector is particularly vulnerable as the sector makes up about 80 per cent of the total deficit. In this situation, RCEP countries can provide an alternative destination for the auto manufacturer. Asia is the third-largest destination for Japan's auto exports, accounting for around 13 per cent of the total.
Moreover, in case of a long-drawn trade war between the US and China, trade and investment rules in the RCEP agreement can facilitate reconfiguration and relocation of production lines from being more China- or US-centric to other RCEP members. Asean countries will then be in an advantageous position as the Asean Economic Community, with a robust and efficient regulatory environment around trade, will provide opportunities for anchoring supply chains within the region.
RCEP is often rhetorically cited as the twin of the Trans-Pacific Partnership (TPP). Since their inception, both are seen as mega-regionals to serve the interests of advanced and developing countries. While TPP survived the onslaught of US' withdrawal from the deal and emerged as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), RCEP is yet to perform its part.
RCEP is crucial for developing economies to deliver an Asia-centric trading architecture, consolidating existing smaller deals and streamlining rules and regulations across borders. This is important to facilitate manufacturing activities in Asia, many of which are anchored around China, and include India that has immense economic potential going forward.
Despite its value to various stakeholders, it is a bridge too far to expect that RCEP will be a truly multilateral trade agreement that will address several, if not all, of the 21st century economic issues.
RCEP comprises 16 member economies with diverse economic backgrounds. While countries like Singapore or Thailand, with long-standing open economies, are more agreeable to liberalisation, other relatively closed ones like Indonesia and India can make market access negotiations difficult. Australia, New Zealand and Japan, being part of CPTPP, can demand a high-quality agreement, which does not bode well with Asean's accommodating approach of trade negotiation.
Moreover, large trade deficits with China by a number of participating countries could result in an adverse impact on small businesses and employment prospects of importing countries. National elections in India and Indonesia next year don't help either.
Hence, trade-offs are inevitable for a substantial conclusion of RCEP negotiation this year. For example, in trade in goods, one may find different tiers of tariff concession. While Asean countries may demand a common tariff concession schedule from their non-Asean partners, the non-Asean members may settle for different tariff configurations with each other. Services liberalisation may cover aspects of movement of professionals, but subject to several conditions. This implies that RCEP could be better than the existing five Asean+1 FTAs (free-trade agreements), but it will still fall short of the best solution. Traders have to continue to navigate around many rules, particularly while doing business among non-Asean members.
Apart from market access, RCEP will set a pathway for Asia-wide trade-related issues. It will set direction to modernise customs procedures. It will factor in new trends like e-commerce and will pay attention to its supply-chain operations. For the first time at Asean level, RCEP will talk about cooperation around government procurement. It will also articulate ways to provide technical assistance to less developed Asean members and will take an inclusive approach towards SMEs (small and medium-sized enterprises) for their effective participation in regional economic activities.
Hence, as one moves towards the end of 2018, expectations will be high for a substantive conclusion of RCEP negotiation. It will be a commendable achievement for Asean, and for others it will be a triumph against odds of diverse economic interests and risks in global trade. Indeed, concluding the RCEP negotiations is a way to showcase that, irrespective of the headwinds, Asian economies are eager to work together on international cooperation for better welfare of the region's businesses and people.
- The writer is lead researcher for economic affairs at the Asean Studies Centre of ISEAS - Yusof Ishak Institute.