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RCEP as a positive signal for globalization

  • Yose Rizal Damuri
    Yose Rizal Damuri

    Head of the department of economics at the Centre for Strategic and International Studies (CSIS)

Jakarta | Tue, January 10, 2017 | 11:37 am
RCEP as a positive signal for globalization Illustration of ASEAN cooperation. (Shutterstock/File)

The end of 2016 marks the second time ASEAN and its trading partners have failed to meet the target to establish a Regional Comprehensive Economic Partnership (RCEP). The negotiation that was targeted to finish before the launch of the ASEAN Economic Community last year has turned out to be more difficult than expected. However, the attention on the RCEP has been growing lately, and there is big hope it will be concluded by the end of 2017.

Statements from US president-elect Donald Trump that the US would “withdraw” from the Trans-Pacific Partnership (TPP), another mega-regional agreement in the making, is one of the reasons. The RCEP is perceived to be an alternative to the TPP in directing economic integration.

President Barack Obama even explicitly mentioned that the RCEP would alienate the US from leading the process of regional integration, if the TPP fails to commence. Many in the region also expect this agreement to play an important role in responding to anti-globalization sentiment.

How well does the expectation meet reality? When it was initiated back in 2012, ASEAN and its six trading partners envisioned that the partnership would “have broader and deeper engagement with significant improvements over the existing ASEAN+1 FTAs”, as stated in the Guiding Principle for Negotiation. However, the negotiation shows that it is likely that the agreement will act as the least common denominator of those existing FTAs.

Indeed, having ASEAN’s bilateral FTAs as the basis for negotiation has led to many difficulties. Even in the area of trade in goods agreement, the participating countries need to deal with 55 schedules of tariff reduction from those five FTAs that often contradict each other.

Consolidation of trade liberalization and harmonization of trade rules and practices in various areas seems to be becoming more difficult.

In order to address these issues successfully, RCEP negotiating countries should offer higher commitments than those in the most advanced ASEAN+1 FTA, i.e. ASEAN-Australia New Zealand FTA (AANZFTA). Not only the “noodle bowl” issue will be minimized, the RCEP will also bring significant improvement to the current arrangement in East Asia.

However, most countries have been reluctant to commit beyond their current concessions. They appear to be losing interest in the process either due to lack of domestic political support or for not seeing substantial gains over the possible outcomes. Many preferred to focus on other bilateral and regional initiatives, e.g. TPP or the China-Japan-Korea (CJK) FTA.

The current trade and business environment in East Asia and Pacific require a new set of rules to provide governance in the regional economic interdependence and to facilitate seamless international trade and business activities. In this context, behind border issues, including regulatory coherence, need to be an integral part of the negotiation. These includes consistent implementation of various disciplines and rules related to commercial and economic activities, e.g. intellectual property protection, competitive regulatory framework, services regulations and government procurement.

Those are important elements that TPP tries to offer: to define a new set of rules and governance for economic activities in the so-called 21st century globalization.

Because despite all the anti-globalization rhetoric, global economic integration processes will continue due to the advancement of technology and business interests.

It is more important than ever to create new rules of the game for future globalization and a more integrated economy.

Now that the TPP is on the brink of collapse, there is practically no other concerted effort in the region to create such discipline except from the RCEP. Unfortunately, the proposed commitments to the RCEP seem unlikely to offer adequate responses to the current situation.

Can the RCEP lead to more meaningful positions on trade? The most important issue for ASEAN and its trading partners at the moment is to conclude the negotiation. While the lack of ambition, interest and political will among negotiating parties may not support the creation of a “high quality” agreement, it is still possible for those countries to conclude the negotiation with substantial commitments.

The negotiating parties might start by focusing on common interests. While trade in goods seems to be the most difficult, there are other areas of discussion that can be completed while producing substantial commitments. Areas such as trade and investment facilitation are among these potential areas. Discussion on economic cooperation, which is central for a more inclusive economic agreement, may also be concluded earlier.

On more difficult issues, such as the elimination of tariff or non-tariff measures, RCEP members should consider the minus-X formula that allows any ASEAN trading partner to opt-out of the agreed commitments until the country is ready. The Guiding Principle of the RCEP Negotiation specifies such flexibility.

India, for example, seems to be quite reluctant to provide significant improvement from the ASEAN-India FTA, especially to non-ASEAN partners. The minus-X formula would allow the country to join the commitments later than other ASEAN partners.

Alternatively, the member countries have other options to make the new target of the end of 2017 attainable. The first one is conclude all agreed commitments and concessions while making strong statements that the RCEP is a “work in progress” and start the new round of negotiations right away: with a more elaborative approach than just using ASEAN+1 FTAs as starting points. The second one is to come up with an “early harvest” commitment, of which some agreed topics may be concluded before overall completion of other issues.

Again, participating countries should realize that getting results out of the negotiation is critical. That would send a clear message that East Asian countries, which are mainly emerging economies, continue to support a well-managed regional integration process, not a bunch of bilateral negotiations that Donald Trump envisions for the US trade strategy.

 

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