14 Mar 2019
Amid all the noise and uncertainty around international free trade over the past few years, a group of seasoned envoys from 16 nations has been quietly getting on with the task of building what could soon be the world’s biggest FTA.

The Regional Comprehensive Economic Partnership (RCEP) – comprising all ten ASEAN nations plus China, India, Japan, Korea, Australia and New Zealand – is on track for completion by the end of this year.

Sulaimah Mahmood, Senior Director, ASEAN Division and South East Asia & Oceania Division at the Ministry of Trade and Industry Singapore, says there is strong commitment to finishing the process on time. This is partly because the RCEP is viewed as a kind of beacon for the benefits of free trade globally. It is also proof that agreements on such a scale can still be reached. “It’s very important that this exists. It gives a really important signal to the world that another mega-FTA is here,” explains Ms Sulaimah.

James Crabtree, Associate Professor in Practice at the Lee Kuan Yew School of Public Policy (LKYSPP), agrees it is an important signal. “Eventually passing RCEP would be a major boost for a global trading system rocked by concerns about the retreat of globalisation and the US-China trade war,” he says.

How will the RCEP benefit partner nations?

Diplomats from each of the countries have already agreed on a busy calendar of meetings for the year ahead, including a Ministerial Meeting in Siem Reap in March. It is hoped a final text can be agreed by end 2019, with an official signing to take place sometime in 2020. If and when the resulting document is eventually ratified domestically by all 16 parties, the RCEP will become one of the most significant trade agreements ever implemented. It will encompass almost half the world’s population, 30% of its GDP at current levels and a quarter of its exports.

Essentially, the deal is an attempt to harmonise, and where possible, extend agreements already in place between ASEAN and its FTA partners - China, India, Japan, Korea and Australia-New Zealand. Those ASEAN-plus agreements, negotiated separately over the years with the individual parties, feature varying provisions and levels of market access, ranging from elimination of virtually all tariff lines in the case of Australia-New Zealand to 74% in the case of India.

Crabtree also points out that why the RCEP is often referred to as a 'wide but shallow' trade deal - “its economic effects will be small for those in existing bilateral deals. Still, research from the US Peterson Institute suggests, if properly and fully implemented, it would add $286 billion to global GDP.

From Singapore’s point of view, Ms Sulaimah explains that the goal is simply to try to obtain something better via a single agreement than what is currently available with six separate ones. “The guiding principle for RCEP is to build and make it much better than the ASEAN-plus one FTAs.”

In terms of market access, that means pushing for a figure closer to 100% across all 16 markets. “We’re trying to move that ruler up,” she says. “We work around the median of what should be there… hopefully more than 90% and above.”

RCEP_image

Streamlining trade rules

Another clear goal for Singapore has been to try and simplify things for business. “We felt, based on feedback from companies, there was a spaghetti bowl in terms of the rules,” says Ms Sulaimah. “So if we have just one, mega FTA… to simplify the rules of origin, for example, in terms of documentation… then we will see improvements.”

Negotiators are working to transform this spaghetti tangle into a single strand across the whole trade zone. That alone could be a major economic benefit to millions of people, resulting in real cost reductions for business across a vast stretch of the globe. “If you want to export under ASEAN-India [Free Trade Area] or ASEAN-Australia [currently] then you use different forms and each of them will have different rules of origin for one product,” Ms Sulaimah explains. “Once we have RCEP there’s only one form, one rule of origin for all 16 markets.”

Similar efforts have been directed towards achieving more consistent and comprehensive rules for e-commerce and Intellectual Property. Past negotiations have suggested that Japan and Korea in particular are pushing for major enhancements to IP protections.

Ms Sulaimah hints that RCEP should show some notable progress between negotiators. “On e-commerce… clearly, there’ll be more than what we’ve done in the ASEAN plus-one agreements,” she says. “Intellectual Property we have covered in one or two past FTAs but more in terms of cooperation. Under the RCEP, when it’s completed, I do hope that we can achieve quite a good chapter.”

Negotiations officially began on the margins of the East Asia Summit in Phnom Penh in 2012. Since then, an agreement has been reached on seven of the 20 chapters. That might not seem like much, given the approaching deadline, but Ms Sulaimah says many of the thorniest issues have already been resolved. A veteran of numerous talks, including the drawn-out ASEAN-India FTA negotiations, she is confident that all Participating Countries are committed to concluding the RCEP, so that legal scrubbing can commence next year.

A work in progress: What's next?

What happens after that is anyone’s guess, but domestic politics will surely present hurdles, particularly in India. The RCEP has been met with a divided response there, with critics branding it a threat to local industry, especially manufacturing and agriculture. Ms Sulaimah says each party will have to consult stakeholders and make their own assessments.

"RCEP has been delayed over many years, and substantial barriers remain to a deal," agrees Crabtree. “Especially one which keeps India on board. So further delays are possible, as is some kind of fudge in which India is given some kind of special status, or delayed entry. But eventually a deal of some sort is likely to be done."

For Singapore, that will involve a net calculation, comparing the benefits and costs versus those that already apply. “When we say that it must be substantially better than the ASEAN plus-one FTAs, we’re not saying that we will have to have value-add for each of the 20 chapters. If we see that we have actually achieved better offers, whether it is in goods or services or… the e-commerce chapter that is much better than what have – each of us will have to make that individual assessment.”

Based on the way the technical side of negotiations have progressed, Ms Sulaimah seems quietly confident of a successful outcome. “It’s challenging and it’s very complex but we’ve managed to move it on because all 16 parties are committed to do this,” she says. “We want to be a region that can signal that we do believe in pluri-lateral, rules-based global trade.”

Indeed, if the agreement does go through as planned, it will be seen as a success for Asia. “Coming after the passage of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), an RCEP deal would show that Asia is capable of leading a new generation of trade agreements,” says Crabtree.