RCEP will help get Asian integration back on track

Author: Andrew Elek, ANU

Asian interest in the Regional Comprehensive Economic Partnership (RCEP) process is rising. It is now perceived to be far better suited to Asia than the proposed Trans-Pacific Partnership (TPP), which is dominated by the interests of the United States. After recent failures to conclude United States–Japan market access negotiations, the proposed TPP is no longer expected to lead to comprehensive trade liberalisation. And, on closer inspection, so-called ‘platinum standards’ are seen to suit rich economies while limiting the ability of emerging economies to compete.

Leaders from ASEAN pose for a photo during the opening of the two-day World Economic Forum on Asia Thursday, 22 May 2014 at the financial district of Makati, east of Manila, Philippines. (Photo AAP)

The RCEP has its own problems. The limited progress in the early rounds of negotiation among the 16 RCEP economies has alerted governments that they risk becoming bogged down, just as the TPP negotiations have been. A new two-track strategy, based on the approach to economic integration adopted by ASEAN, offers a way to achieve early mutual benefits from 2015.

The ASEAN Economic Community (AEC) provides a model of cooperation that suits the diversity of Asia, and it can be extended to embrace all of the RCEP economies. ASEAN’s experience (as well as that of the EU) has shown that liberalising trade and investment,as well as setting rules on trade-related issues like intellectual property rights, labour and the environment, is not enough to promote deep regional economic integration and a sense of community. The 20-year old ASEAN Free Trade Area has upgraded to the ASEAN Trade in Goods Agreement (ATIGA), but many more challenges remain.

ASEAN is now dealing with across-the-border and behind-the-border problems. Most attention is being concentrated on the practical matters, including working to harmonise economic regulations for investment and competition policy; to enhance connectivity of transport, communications and energy infrastructure; and to promote electronic transactions and enhanced trade logistics through e-ASEAN and the ASEAN Single Window for customs clearance. The ASEAN Master Plan on Connectivity sets out how much of this can be achieved. The new ASEAN Infrastructure Fund is supporting investment in the necessary infrastructure, with help from the Asian Development Bank.

The people engaged in international production networks are far more interested in cooperation on these issues than they are in trade liberalisation. They are aware that even modest improvements in the efficiency of supply chains offer potential gains far in excess of those that would flow from achieving the politically impossible task of getting rid of all remaining border barriers to trade. RCEP governments could also respond to these realities by widening the scope of the RCEP process beyond a trade negotiation.

Some trade negotiations are essential. The many sub-regional and bilateral trade deals among ASEAN economies have built on the extensive unilateral liberalisation of trade and investment by RCEP governments. On the other hand, these agreements among overlapping pairs have led to a confusing maze of regulations, especially regarding rules of origin.

RCEP trade negotiations should concentrate on achieving consistency in these provisions, rather than getting bogged down in trying to achieve further liberalisation of difficult sectors. It should be possible to agree to move towards convergence, with each RCEP economy extending the best terms that have already been agreed with any other economy and uniform rules of origin based on those in ATIGA. This principle of convergence could be agreed in 2015, with a reasonable pace of implementation that allows for differences among economies and agreements currently in place.

A 2015 agreement on convergence will demonstrate that the RCEP process can deliver results, unlike the TPP negotiations that have consistently failed to meet deadlines. Once negotiations deliver an early harvest, the RCEP process can set a longer-term strategy for deepening cooperation along two parallel tracks — learning from ASEAN.

After 2015, negotiations should focus on gradually removing restrictions on the international movement of goods, services, investment, capital, information and labour. The AEC process shows that these can proceed at the same time. While it will be essential to achieve a perceived balance of mutual benefit across these negotiations, there is no need to impose a needless requirement of agreeing on everything at the same time. RCEP governments can certainly learn the lesson of the TPP: the perfect should not be the enemy of the good, and there’s no point stalling negotiations for the sake of marginally greater market access for a few agricultural products and low-technology manufacturers.

Once the RCEP group adopts a smart strategy for trade negotiations it can also embark on a very different, second track of cooperation. This would begin to create an economic community among RCEP economies around the core being of the emerging AEC. ASEAN governments are considering the future of their economic community beyond 2015, including their objective to be a competitive part of the wider regional and global economy.

A practical way to launch the second track of the RCEP process would be to build on ASEAN’s work to reduce needless differences in economic regulations and to reduce the transaction costs of moving products, capital and people among economies. ASEAN’s effort to improve physical, institutional and people-to-people connectivity can be extended readily to embrace a wider group of economies.

ASEAN has drawn up a Master Plan for ASEAN Connectivity, which details what is needed to develop the skills, institutions and regulatory convergence required in order to attract and manage the massive investments that will be needed to construct and manage efficient transport, communications and energy networks in Southeast Asia. An RCEP strategy to improve connectivity can be a natural way to extend networks connecting ASEAN economies to their major trading partners.

The Asian Infrastructure Investment Bank (AIIB), expected to be launched by China in 2014, makes it possible to move rapidly to improve connectivity among RCEP economies. The AIIB could commit a very small part of its expected capital base to feasibility studies of significant initiatives with potentially very high mutual benefits. One of these can be a coordinated, region-wide effort to upgrade the capacity and performance of ports and airports. Another could take advantage of Myanmar’s recent decision to engage with the international economy to create high capacity transport and communications corridors between India and the other participants in RCEP.

Such decisive steps could demonstrate how the RCEP process can complement trade negotiations to create additional opportunities for trade and investment with a second track of cooperation that helps the private sector take full advantage of these opportunities.

Andrew Elek is a Research Associate at the Crawford School of Public Policy, The Australian National University. He was the inaugural Chair of APEC Senior Officials in 1989.