RCEP and digital services

Talks, as regular readers will know, continue to plod along.  Getting these diverse members—from Australia to Vietnam—to agree on a comprehensive trade agreement with more than a dozen substantive chapters is challenging. 

But ministers will be meeting next month in the Philippines ahead of the Leader’s Summit for the fourth time this year.  This level of personal engagement on a trade negotiation is unprecedented. 

The leaders from the 16 member countries are expected to announce a comprehensive outline that will give the clearest indications yet of what officials have been able to accomplish after years of effort.

As the pieces slowly lock into place, it is important to recall the point of RCEP.  This is not simply another trade agreement. 

Asian members are already linked together in different ways with many agreements.  Some are regional, mostly through ASEAN commitments.  Some are bilateral. 

The quality of the existing agreements varies tremendously.  Some are useful to companies.  Most, to be brutally honest, are not.  They are not helpful for firms because they do not cover goods that are actually traded between partners, or because the rules are too complicated or too expensive to follow, or because services and investment provisions were never included, or because the non-tariff barriers that stymie firms never got addressed.

Trade agreements really ought to be about helping improve business conditions.  They can serve other purposes as well, but if companies cannot receive benefits at the end of the process, an opportunity has been lost.

RCEP represents a significant chance to sort out many of the barriers that impede trade in Asia—especially for the smaller firms that dominate the landscape in the region.  If small and medium sized enterprises (SMEs) are to capitalize on opportunities to grow, they need to be able to more easily find new markets and customers in cross-border trade.

Larger regional agreements, like RCEP, provide the size and scale in an agreement that can unleash new growth prospects.  To get there, however, requires officials, ministers and leaders to seize the chance and create something special.

RCEP has to address barriers to trade in services, for example.  Services are critically important to the economy of the future.  Even trade in goods requires that services be considered, since blockages on the movement of services across borders can fundamentally impede the growth of trade in physical products like manufactured goods and agricultural items.

Increasingly, services will be provided digitally.  One such example is the rise of online travel agencies (OTAs.)  These service providers represent a new dimension to travel and tourism, as they match up customers seeking things like accommodation, rental cars, or local experiences like cooking classes or photography tours with local providers and vendors of such services. OTAs can provide consumers with greater choice, improved service, more convenience, and often superior security. 

The Asian region is one of the fastest growing travel and tourism areas, with more total gross bookings than either Europe or the United States.  By 2030, more than 500 million international tourists are expected to visit Asia.  OTAs are growing at 17 percent per year, with mobile bookings increasingly important in the region. 

Many governments may view the growth of online services as a threat.  This need not be the case, however. 

Consider the small business owner of a local hotel in an RCEP economy.  Absent an OTA listing, the local hotel would be unable to attract the same volume of views from potential customers.  It would not be able to find potential customers from a global marketplace.  It would not have access to the same level of marketing or receive the analytics and data provided by the OTA.  In short, it would be unlikely to be as fully booked or as competitive if it stayed outside the OTA marketplaces.

Opening online services does not, of course, mean that regulations do not exist.  Consumer protection laws remain important and RCEP should ensure that consistent regulations apply both online and offline.   

RCEP officials need to open services sectors in general.  There are roughly 160 subsectors of services, ranging from professional services like accounting and HR to construction, travel and tourism, and retail.  Nearly all ought to be opened in RCEP by the end of full implementation of the agreement, with clear timelines over which will be opened and when.

Digital services, however, could be opened on accelerated timelines.  This is especially critical since SMEs are more likely to deliver services digitally.  To really benefit the smaller firms that form the backbone of companies across Asia, online services should be opened across RCEP. 

Travel and tourism has been a priority sector for ASEAN for years.  Yet repeated rounds of market opening in ASEAN has resulted in few meaningful commitments.  ASEAN countries have agreed to open hotels to other ASEAN firms that are two stars or below or located only in some far-flung provinces. 

Other areas that are open for ASEAN investment includes football-chess clubs.  If ASEAN really wants to make travel and tourism a priority, such sporting activities may not be the best route to success. 

If RCEP simply replicates such poor market opening in this critically important sector that contributes significantly to local jobs across the region, something will be lost out of this regional integration project. 

It is time to seize the opportunity to move Asia into the future, particularly by opening up online services.  RCEP can lead the way.