Talking Trade blog
RCEP: Designing an agreement for the future
Published 02 March 2017
KOBE--The RCEP negotiators have been meeting in Kobe, Japan, all week. This is the 17th round of these talks, which are speeding towards likely conclusion (of some sort) in November.
While other parts of the world are turning inward (see our parallel post today on the newly released and deeply alarming Trump 2017 National Trade Policy Agenda), officials in Asia continue to make slow and steady progress towards greater economic integration.
RCEP will bring together 16 countries in Asia—from India to New Zealand to China and ASEAN. The agreement will have about a dozen substantive chapters.
These include provisions on market access for goods, rules of origin, services, investment, intellectual property rights, standards, trade facilitation, and e-commerce.
The texts of these chapters are still under negotiation, as are most of the country-specific commitments or schedules. In some areas progress is faster than others. So far, market goods seems to be moving the slowest, with delays in tariff cuts and slow movement on creating the rules of origin that will eventually let firms know how to qualify for these preferential tariff rates.
The tariff cuts discussions in Kobe continued around modalities for getting to an agreement—in normal language, officials are still grappling with how much tariffs will be cut and over what timeframes. This is not, to be frank, likely to be the most visionary portion of the overall agreement.
But the services and investment elements, by contrast, appear to be more promising especially compared to existing ASEAN agreements.
This is not an easy negotiation. The 16 parties are at widely different levels of economic development and not all share similar views on the final destination. The political pressures for getting an agreement by November in time for ASEAN’s 50th anniversary are very strong, making the timeline to get a deal done quite compressed.
RCEP does not have one country driving the talks. The negotiations are led by ASEAN, with individual chapters broken into lead officials from both ASEAN and what are called the ASEAN Foreign Partners (AFPs). This complex structure adds to the delay in getting an agreement but also helps ensure that all members are included in the process.
For readers more familiar with the TPP than RCEP, note that TPP texts are not being imported directly into the RCEP negotiations. These are different trade talks. RCEP builds on ASEAN templates, including the +1 agreements like the deal with Australia and New Zealand (AANZFTA).
However, since 7 countries are in both, some provisions might be in both places. As one key example, it would make sense to take TPP rules of origin as the starting point for RCEP negotiations, since time is short and TPP has already gone though the time-consuming process of creating rules to match each and every tariff line. RCEP rules are unlikely to match TPP provisions for every line, but it would be easier and faster than starting from scratch in drafting RCEP-appropriate rules.
Including multiple methods (but never simultaneous rules) of reaching origin will help benefit the largest number of firms, particularly the smallest companies. Thus far, RCEP has only crafted less than 20% of the 5000+ necessary ROOs.
Officials have clearly got a focus on helping the smallest firms in RCEP benefit from the final agreement. This is a welcome development, since every country in the grouping is dominated by smaller size companies.
The one area of sustained focus in RCEP that will be most promising for SMEs is e-commerce and digital trade. E-commerce and digital trade represent the fastest and easiest way for smaller firms to connect to suppliers, consumers and lead firms. Given the relatively higher levels of connectivity in Asia compared to other regions, this pathway can be developed further quickly with the right policies in place and help lead to new growth opportunities.
In the trade world, everything that includes the internet is dumped into the category “e-commerce.” The few trade agreements that include a chapter on e-commerce tend to focus narrowly on provisions related to information flows. These are, of course, critically important. Failure to let information flow across the region can undermine all the benefits found elsewhere in RCEP, since businesses increasingly rely on information of all types to power their business operations in companies both large and small.
Even getting this chapter right is difficult, since it requires that officials think hard about the rules that should structure the business environment today and still remain relevant tomorrow. The rules need to provide adequate protections for consumers, deal effectively with security concerns but not unduly hamper business plans now or in the future.
A badly drafted e-commerce chapter is at risk of damaging opportunities, driving unintended consequences and, at the same time, proving completely irrelevant in short order.
But this chapter is not the only thing that small firms require to be successful. Other elements that are critically important for smaller firms are better measures to support trade facilitation, or the faster and cheaper movement of goods across borders.
Small companies also struggle with standards that are country-specific. For example, if firms have to send products out for complicated and expensive testing and retesting for each market, it makes it impossible for smaller firms to export products.
Finally, crafting the right institutional framework to ensure that RCEP continues to work well for companies, consumers and governments in the future is quite important. ASEAN likes to view economic integration as a process, rather than a destination. Making sure that the 16 countries follow a clear pathway even after the rounds of negotiations end is going to be critical.
Time is getting short. Only 3-4 rounds remain before the November leader’s summit. Businesses that have input to deliver to country delegates cannot wait for their own internal processes to be sorted.
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