Talking Trade blog
Bright spots for trade in Asia
Published 30 July 2020
It can be difficult to find anything positive in what can appear to be a sea of bad news—trade numbers that continue to show declines, firms grappling with existential threats to their operations, individuals receiving lay-off notices, and COVID case numbers that continue to rise.
But there are some encouraging points of light in an otherwise gloomy landscape.
On Saturday, the 21 member economies in APEC held a virtual meeting of trade ministers. The meeting, and final statement, focused on a number of important issues including the necessity of keeping trade lanes open for critical medical supplies and other essential goods, supporting developing countries and smaller firms in this uncertain landscape, and providing backing to the World Trade Organization (WTO).
APEC members are working on a wide variety of topics this year, but a key objective is to create a Post-2020 Vision before the annual Leader’s meeting in November. The introduction of a pandemic has made this work more urgent than ever, as collective action is needed to drive growth and jobs across the world in the new normal.
On August 1, the EU-Vietnam agreement takes effect. EVFTA has a wide range of benefits, particularly for companies looking to export from Vietnam into the EU. (For more details on EVFTA, see our booklet produced with SICC here.)
Two other important groupings have big milestones in August.
The members of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) are meeting on August 5.
The CPTPP, which still has no Secretariat to manage this sprawling and complex trade agreement, is instead driven by a series of meetings across the year by government officials working on various aspects of the deal. The primary mechanism for oversight is the CPTPP Commission, which will be held virtually under Mexico’s chairmanship this year.
This Commission meeting should be notable for a few reasons. First, it is an opportunity to celebrate the achievements of the agreement after more than 18 months in operation. While trade flows remain depressed under the pandemic, governments like Vietnam have taken advantage of the opportunity to expand knowledge. Vietnam held 577 seminars and workshops in 2019 alone to encourage the proper utilization of the CPTPP by firms of all sizes across the country.
Second, the Commission will review any issues that have emerged in implementation. An agreement that runs to nearly 600 pages with thousands of country-specific commitments is bound to have a few issues. As a simple example, a typo in one of the letters mentioned yams instead of yarn.
While the CPTPP rulebook is extensive, in many areas it is remarkably thin. For instance, the CPTPP allows for Advanced Rulings (Article 5.3) on issues like tariff classification and rules of origin, but it does not actually say how such things will be done or how members will recognize rulings between parties. These are implementation details that have to be reviewed regularly to ensure that the spirit and intent of the provisions are applied on the ground. If there are issues, members have to address these challenges in various committee meetings and report solutions to the Commission at the annual meeting.
Finally, and perhaps of most interest to outsiders, the Commission is the body tasked with managing accession of new members.
The list of potential new members is not terribly long and 2020 has made it even more challenging for some candidates to consider membership at this time. All of the institutions attached to trade, including trade ministries, customs agencies, and political leadership have been distracted by a wide variety of policies and programs aimed at managing and mitigating COVID-damage.
Nevertheless, the Commission will be reviewing the entry requirements for new members and considering possible candidates for admission. While the original TPP had a strict rule to prohibit “observer” status for potential members to ensure that only committed participants joined the ongoing negotiations, the CPTPP members may want to find a new pathway to allow a small handful of interested countries to start becoming familiar with the agreement and working through issues related to formal membership.
The Commission is only scheduled to meet once a year, so missing this opportunity to expand means a lengthy delay. At a time of such unsettled trade relationships, it is problematic to have promising candidates wait even longer to start working on membership.
At the same time that the CPTPP Commission will be meeting, five of the active members (Australia, Japan, New Zealand, Singapore and Vietnam) are meant to be wrapping up their work on the Regional Comprehensive Economic Partnership (RCEP).
The 15 participating countries in RCEP (ASEAN, Australia, China, Japan, New Zealand and South Korea) are due to sign the agreement in November. This means the final texts and schedules need to be completed in August to allow sufficient time for member governments to review the final details.
The legal scrubbing of RCEP has taken some time, as there were a number of fast and furious changes at the end of last year when talks were getting down to the wire. Not all of the bilateral commitments between members over tariff cuts were fully completed and the matching rules of origin work has also taken time to conclude. Switching to virtual negotiations has also slowed progress in some areas.
However, all the necessary work should be completed for RCEP by next month as the agreement heads towards signature in November. Once signed, it will likely take until January 1, 2022, to enter into force, as the agreement needs to obtain domestic-level approval in at least 6 ASEAN member states plus three of the five ASEAN Dialogue Partners.
RCEP will also be a sprawling trade arrangement, with commitments in 20 or so chapters, including goods, services, investment, intellectual property rights, standards, cooperation and development, MSMEs, and more. The institutional arrangements are important. RCEP needs a dedicated Secretariat to manage implementation and provide the kind of sustained attention to the agreement that is necessary if it is to have a significant impact on trade in Asia.
Overall, Asia continues to have some bright spots of promise on trade and economics. Governments in the region have largely recognized the importance of keeping goods, services and investments moving and have taken critical steps to keep up momentum. Such efforts should be encouraged.
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