AFP/Manan Vatsyayana

Amid the surge of rising trade and political tensions currently engulfing global economic affairs, during the 35th ASEAN Summit held in early November in Bangkok, ASEAN and five of its trading partners finally announced that they have completed negotiations on the Regional Comprehensive Economic Partnership (RCEP) after seven years of frenzied talks spanning over 28 negotiation rounds. The world’s largest trade deal compromising 30 percent of global gross domestic product and half of the world’s population is now closer to becoming a reality.

RCEP is a modern trade agreement covering 20 chapters whose scope includes issues that go beyond trade in goods, services and investment such as a chapter on e-commerce as well as economic and technical cooperation. The RCEP was meant to solve the “noodle bowl” problem as ASEAN was entangled in a situation where it had multiple individual free trade agreements (FTAs) with each of its trading partners involved in the RCEP.

Negotiating the RCEP itself though was harder than navigating through a noodle bowl filled with various ingredients as negotiators had to balance the interests of all the trading partners in order to find a common understanding. Not all of the RCEP negotiating countries have solved the “noodle bowl” situation though, as in the Bangkok meetings India decided not to sign the RCEP due to what it called “significant issues of core interest being unresolved”.

Without India aboard, the RCEP cannot be considered as “done”, as the agreement uses the so-called “single undertaking” approach which in simpler language means nothing is agreed until everything is agreed.

Still, by being able to nearly conclude the RCEP negotiations at this point is a task that deserves a round of applause for RCEP negotiators and a major achievement for Indonesia, who first initiated discussions on creating the RCEP during the 2011 ASEAN Summit meetings and served the role as the chief negotiator.

The announcement in Bangkok is also a sign to the world that ASEAN and its trading partners are embracing the role of freer trade to boost the region’s growth prospects and contribute positively to the global economy rather than choosing the route of building walls and trade barriers.

With the RCEP pretty much a done deal aside from the need to solve outstanding issues with India, attention must now be shifted to ASEAN’s next trade agendas with other trading partners, which are also not without their own challenges.

The first trading partner that should be next on ASEAN’s FTA agenda is the European Union. Both parties have for long shown a desire to have an FTA as they are both important trading partners for each other. The EU is ASEAN’s second-largest trading partner and ASEAN is the EU’s third-largest partner. Bilateral trade in goods amounted to more than 237.3 billion euro (US$260.9 billion) in 2018 and bilateral trade in services amounted to 85.5 billion euro in 2017. The EU has also so far engaged in having bilateral FTAs with individual ASEAN countries which according to the EU will serve as building blocks toward the ultimate objective of having a future EU-ASEAN FTA. The EU has completed negotiations with Singapore and Vietnam, is in the process of negotiating bilateral FTAs with Indonesia and has previously engaged Thailand, Malaysia and the Philippines on the possibility of having FTAs.

However, serious negotiations with the EU may not start if the EU’s requests to include a chapter related to sustainable development, as the EU has included such a chapter in its bilateral FTA with Vietnam. Judging by the EU’s stance of using bilateral FTAs with individual ASEAN member states as a template for a future ASEAN-EU FTA, the EU’s insistence on the inclusion of this issue might become a stumbling block for any future ASEAN-EU FTA.

The EU’s announcement of banning the use of palm oil in biofuels has angered Indonesia and Malaysia, the world’s top two exporters of palm oil. Malaysia’s primary industries minister was quoted as saying that ASEAN will not sign a partnership agreement with the EU unless palm oil is allowed again.

In addition, the EU has included in all of its recent FTAs a unique system to settle investment disputes, dubbed the Investment Court System. This method deviates from the traditional investment dispute settlement mechanism commonly found in other FTAs, which according to experts has its own pros and cons. The method has been praised for assuring transparency and independency as members of tribunals tasked with settling disputes are not appointed by disputing parties, but also has raised questions as its provisions allow challenges to awards, jurisdictional issues and power of the Joint Committee/Trade Committee of the agreements. Negotiators would need time to analyze the pros and cons of this new way of settling disputes.

Another potential trading partner worth noting is Canada. Canada is ASEAN’s ninth-largest trading partner, while ASEAN is Canada’s sixth-largest trading partner. An ASEAN-Canada FTA is expected to double the $11 billion in two-way trade between the two trading partners reported in 2017. ASEAN and Canada in 2017 launched exploratory discussions for a possible Canada-ASEAN FTA. Both parties have since exchanged information about each other’s typical approach to FTA negotiations and respective domestic regulatory regimes, and to explore the elements of a possible Canada-ASEAN FTA.

Judging by Canada’s approach in negotiating FTAs with other trading partners, it has been inspired to use the template used in negotiating the North American Free Trade Agreement (NAFTA, now renamed as the United States-Mexico-Canada Agreement or USMCA). One area that might be a challenge is the approach used to liberalize trade in services, which uses the so-called “negative list approach” where generally only the sectors where there are restrictions on foreign investment are listed and liberalizes all other sectors not listed.

This approach of liberalizing trade in services would create challenges as only ASEAN member states who are members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership are familiar with this approach.

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Junior analyst at the Financial Services Authority (OJK) and a member of Indonesia’s Trade in Services Negotiating team.

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