Talking Trade blog
RCEP: Reaching substantial conclusion?
Published 30 October 2019
The 16 countries involved Regional Comprehensive Economic Partnership (RCEP) are set to announce “substantial conclusion” (or some similar language) on November 4.
What will that actually mean?
It means that Asia is finally prepared to create an integrated platform for trade and addressing economic interests that will link together the ten countries in ASEAN to six “Dialogue Partners:” Australia, China, India, Japan, New Zealand and South Korea.
These countries are, of course, connected already in a variety of ways, including through existing ASEAN+1 trade agreements with all of the Dialogue Partners and many bilateral free trade deals. All but four (India, Cambodia, Laos and Myanmar) are included in APEC. Seven are hooked through their experiences in working on the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) including Japan, Brunei, Malaysia, Singapore, Vietnam, Australia and New Zealand.
ASEAN meets will all of these Dialogue Partners regularly, including during ASEAN Summits at the end of each year. Each of the Partners runs a wide variety of different types of programs with ASEAN or with individual ASEAN member states.
Missing from all this cooperation, however, has been a mechanism to integrate the whole of Asia together in a meaningful way. RCEP provides this template.
“Substantial conclusion” will not mean that people will be eagerly reviewing the texts and schedules on November 5. There are two reasons for a delay in seeing the contents. First, officials have been frantically switching, dropping and including provisions over the past few weeks in the sprint to the finish line. Most of these elements have been under discussion for years. RCEP officials started working on the deal at the end of 2012.
However, in the final push to get an agreement done, sensitive items actually have to get addressed and dealt with one way or another. To ensure consistency across the document, the lawyers will need to carefully review the entire deal from start to finish.
The need for a careful legal scrub is not unique to RCEP. Most trade agreements require something similar and ought to be welcomed by all. The worst outcome would be to have a deal riddled with flaws that need correction later.
Second, not all elements of the agreement are actually finished. Most of it is done. But there are a few parts that remain. For instance, the tariff schedules between India and China are not complete. This does not mean that nothing is scheduled, nor does it mean that the negotiations will automatically take forever to conclude. All of the easy tariff lines are (or should be) already locked into place. All highly sensitive items are carved out of the agreement, so no negotiations are needed to tackle the toughest issues.
What remains is a relatively limited set of moderately sensitive tariff lines. The scheduling timelines for India/China can be absurdly long, making the negotiations less fraught than they might otherwise be since any substantial impact of RCEP commitments for some markets can be pushed off for years (or even decades). India has already gotten a set of domestic level provisions into place to safeguard against sudden surges of imports, should Chinese firms actually succeed in using the RCEP agreement for getting goods into India in the future.
In other words, the remaining work on RCEP is fairly modest in scope and scale. It should not take long to complete. The key challenge has been to get the political commitment into place from all 16 parties to agree to conclude.
Assuming RCEP is announced on schedule on November 4, this condition will have been satisfied. Officials should be able to wrap up the loose ends fairly quickly and the document should be signed by mid 2020. Entry into force could be planned for January 1, 2022.
Businesses, of course, are suddenly feeling deflated on reading that the agreement will likely not take effect until 2022. But preparations to use the deal will take some time for both governments and companies. An important mega trade arrangement is important to get right. The paper text is useful, but implementation on the ground is what really matters.
There is still the possibility, of course, that the deal will collapse at the last minute. India has faced continuing challenges in getting RCEP across the line. The RSS, a group affiliated with the ruling party in India, led 10 days of nation-wide strikes against RCEP earlier this month. The opposition Congress party just came out formally against RCEP. Few business groups have said anything positive about the agreement and most are vociferously against opening up the Indian market at all.
Should the agreement collapse at the eleventh hour in Bangkok, what happens? Unfortunately, it is probably the end of RCEP. After multiple missed deadlines, officials are already facing a strong credibility problem. There is nothing on the horizon in 2020 that suggests that conditions would change sufficiently to shift calculations of leaders in favor of a deal next year that is not already present today. There are no key elections ahead in member economies. The trade landscape is likely to be less favorable for market opening than it is today, rather than more conducive to radical moves.
Officially, of course, no country will have the guts to actually declare RCEP “dead.” It would remain in a sad state of suspended limbo. Asia will have missed a key opportunity to build a platform for addressing issues of critical concern for the region.
RCEP will not start life as the world’s greatest trade agreement. It is not deep or broad enough to satisfy business and consumer demands, particularly from smaller firms that will struggle to use the agreement. It is unnecessarily complicated.
But it is a comprehensive deal that includes goods, services, investment, contains (limited) e-commerce rules, raises intellectual property rights protections, tackles some difficulties with inconsistent standards, improves customs procedures, and delivers capacity building to developing countries. Overall, the agreement will make it easier for firms to operate across Asia.
The most important part is that RCEP, like all ASEAN agreements, can be viewed as a platform or a base for handing trade and economic issues in Asia. Once in place, it can be upgraded, adjusted, improved and built-out in ways that deliver new benefits to Asia.
This alone is a benefit worth celebrating on November 4.
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