Talking Trade blog
RCEP: Status update
Published 19 July 2016
Jakarta-Officials involved in the Regional Comprehensive Economic Partnership (RCEP) negotiations are currently meeting in Jakarta in an attempt to break a deadlock in a critical area of the talks.
This is not a full negotiating round, but what trade officials call an “intersessional,” that brings together only some of the delegates. The two key groups huddled together this time are officials from the trade in goods committee and the lead negotiators.
They are trying to sort out an issue that has bedeviled the talks in RCEP since the beginning. RCEP brings together 16 countries that are linked by virtue of an existing trade agreement with ASEAN.
The six dialogue partners (Australia, China, India, Japan, New Zealand, and South Korea) already have trade agreements with the 10 members of ASEAN. Each of these past deals covers trade in goods. Most have provisions for services and investment. The best agreement of the bunch, with Australia and New Zealand (AANZFTA), has additional commitments in other areas like intellectual property and e-commerce as well.
But what does not exist is an agreement that opens trade in goods between most of the dialogue partners—particularly between the big players like India and China. RCEP will create new trade linkages between these markets for the first time.
This dynamic has always created certain tensions and, as the talks have progressed and officials have started filling in the details about which tariff lines will have to be cut and by how much, hypothetical discussions about market opening are starting to feel quite real. For some officials grappling with how to handle tariff reductions in potentially sensitive sectors, the rubber is meeting the road.
The original proposal by India to handle these tensions put tariff cuts into three bands. The top-level access would be granted to ASEAN countries who would receive tariff cuts on 80% of tariff lines. Mid-level access would be granted to South Korea and Japan who would get improved access to 65% of tariff lines. But China, Australia and New Zealand would have better access to just 42.5% of tariff lines.
India has some of the highest tariff levels among member countries. Excluding from the beginning such a large percentage of tariff lines was always going to be problematic. Worse, given the high degree of concentration of trade in RCEP, even opening up 95% of tariff lines might not result in dramatically improved terms of trade on items that are actively traded between some partners.
After many hours and now months of negotiations, the three-tier approach appears to be dead. The focus has turned to how much of a reduction is going to be required.
Do RCEP members have to cut tariffs to zero? How many tariff cuts have to be set to zero at entry into force? How many have to go to zero at the point of full implementation of the agreement? How long do member states have to reach full implementation? What are the rules of origin that should accompany these tariff levels and cuts?
These questions are important because they set the context for the rest of the negotiations. Until they are answered, officials are hamstrung in other parts of the bargaining. For example, if market access in goods is only going to be mediocre, then officials will not bring their best offers to the table for services either.
The urgency in resolving the issue of market access for goods in Jakarta is that trade ministers are meeting in Laos in about two weeks. They are supposed to provide guidance to the next full negotiating round for Ho Chi Minh in mid-August.
The Vietnam round is intended to sort out and clear up as many details as possible before the RCEP leaders meet in early September. Since the official “deadline” for RCEP is the end of this year, leaders need to know how close, or how far, negotiations are likely to be from closure with only two additional rounds planned for 2016.
There are four potential outcomes for RCEP at this point.
First, RCEP could simply fail. This would be deeply problematic, but not entirely unexpected. In a time period when trade is facing strong headwinds in many places, getting a large Megaregional off the ground is tough. RCEP members have massive gaps in every conceivable dimension. Toss in new political and security tensions and the glue holding together these diverse 16 countries may be insufficiently strong to get a result.
Second, RCEP could conclude as planned at the end of the year. The agreement will not be good. There is physically too much to do and too little time to do it well. Leaders could certainly fudge the issue and leave the deal in the “legal scrub” or “translation” for one-two years while officials race to nail down all the details. But this is risky since talks could actually derail if the agreement is not really close to conclusion.
Third, RCEP could close with a “built-in agenda.” This would allow the talks to finish on schedule and let talks continue on everything that is not done. But ASEAN’s track record of built-in agendas is not great. As a case in point, the very first item on the AEC Blueprint 2025 is to conclude everything not finished in the ASEAN Economic Community (AEC) in 2016 but progress has been glacial as July draws to a close.
Fourth, RCEP could announce an “early harvest” and keep negotiating through 2017. This is not a desirable outcome for many dialogue partners who want to keep up the momentum for a higher quality outcome. But the pressure for some sort of concrete result is high, particularly for some RCEP parties. Hence a small, comprehensive package might be worthwhile to consider that does not dilute the interest of most members to keep talking.
At the end of the day, RCEP represents a once-in-a-decade opportunity to get a trade agreement done in Asia with concrete results for large and small businesses in Asia. It is worthwhile to make it as useful as possible for the benefit of companies and consumers in the region.
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