Does RCEP Matter?

Deborah Elms of the Asian Trade Center on what is working and what isn’t for the trade pact

By Mary R. Silaban and Gilang Ardana
Tuesday, January 17, 2017

With the Trans Pacific Partnership trade deal stalled, delayed or dead due to the incoming Trump administration in the US, the ten members of the Association of Southeast Asian Nations (ASEAN) and their six free trade agreement partners (India, China, Australia, Japan, Republic of Korea and New Zealand) are setting up another major trade agreement, the Regional Comprehensive Economic Partnership (RCEP), which does not include the US and is seen as largely pushed by China.

The 16 RCEP countries account for almost half of the world’s population, almost 30 per cent of global GDP and over a quarter of world exports. The RCEP negotiations aim to achieve a modern, comprehensive, high-quality and mutually beneficial agreement that will cover trade in goods and services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement and other issues. While it does not go as deeply into many issues as the TPP, its more modest aims may give it a better chance of success.

To date, the negotiations have reached their 16th round, and are scheduled to be finalized this year. AmCham Indonesia talked with Professor Deborah Elms, founder and executive director of the Asian Trade Center (ATC), a Singapore based organization that specializes in regional trade agreements. Deborah was in Jakarta to attend the RCEP negotiations in last month

AmCham Indonesia: What are your insights from the last RCEP negotiation round in Indonesia?

Deborah Elms: This was the 16th round after the 15th round in Tianjin, China in October. So we’ve been meeting for a while and the intention is to have all negotiations finished by the end of 2017. It is going to be tough for sure because you have sixteen countries with varying degrees of enthusiasm. From what I have heard, the progress is very slow. I don’t know much about how the Trade Negotiating Committee (TNC) is driving the overall agenda or how much it will drive the working group committee level, if I may make a comparison to TPP, the TNC that drives a lot of the negotiations. But I guess that is because TPP was a voluntary agreement and everyone wanted it, so the TNC of TPP was really able to drive a lot of discussions and then push it down to the level of the working group.

In general, it’s the dialogue partners that are pushing and not ASEAN itself. You need dialogue partners to push the agenda in a lot of working groups. When I say dialogue partners, I mean the six RCEP participating countries outside ASEAN. However, it is not all of the six, it is sort of a mix and that is what is so interesting in these working groups. In some of the working groups we have ASEAN players that are very enthusiastic, and then less enthusiastic in other working groups.

RCEP is a very broad agreement, much wider than any ASEAN agreements and any ASEAN+ agreements. It is complicated because it means you have to have a lot of interlocking parts and a lot of negotiating teams. For some smaller countries it is hard to get enough people to sit on all of the different committees, so it’s always been a challenge.

What are the common interests shared by the 16 countries?

The interest for a lot of them is to have a regional agreement, an agreement that works across all sixteen countries. But the enthusiasm for that goal is not shared evenly. Some countries want to have the most ambitious regional agreement, a deeply ambitious platform that allows companies to seamlessly operate across sixteen countries. On the other side, some countries want to have an agreement that barely links them together because they want to reserve the right to have a lot of policy space for their own efforts and they want to make sure that the local companies are protected from intense competition from the other parties. The level of enthusiasm also varies between topics. Some countries are enthusiastic about investment. Countries in this group think investment means more knowledge, more jobs creation for them. But it is also hard for some countries in RCEP to pursue the outbound investment experience. Many of them just don’t think of themselves as outbound players in anything. They only worry about domestic. So they all are generally enthusiastic about investment as an inbound thing.

What do the RCEP countries think of the death of TPP?

TPP has never been mentioned in the RCEP context, especially because many of the RCEP countries are hostile to the very idea of TPP. Many of them will celebrate the idea of the death of TPP. For some of the countries, it does change the dynamic in the room, for both good and bad reasons, depending on your perspective. For some of the countries it changes the dynamic as they are shifting over negotiators from TPP desks to RCEP desks and they are looking far more ambitious. I think this is currently causing some difficulties because if you expect RCEP to be ambitious, the other side of the group doesn’t want RCEP to be ambitious.

It also changes the dynamic in a way how the faith in TPP will affect the RCEP negotiations. There is a growing recognition that TPP will go forward in Asia, but without the US, and if this happens there will be less need for RCEP to import some TPP provisions straight into RCEP. However, if we don’t have TPP, then they need to pick up some of the TPP provisions and import them to RCEP. That’s a very complicated thing to do because then you have to get some of the RCEP countries to agree and that’s not going to be very popular.

What issues or topics are of concern to the Asian Trade Center?

The Asian Trade Centre has been promoting e-commerce from the very beginning and we do that in various ways in order to make governments understand the importance of e-commerce. We’ve put together an e-commerce agenda – what should e-commerce do and why e-commerce is important, especially for small companies. So we put together an early policy brief. After some discussions, we finally were able to get a working group started and negotiations are underway. From that point, in each round we have been trying to print some new materials, especially on what should be discussed for e-commerce. However, there are some points that we have highlighted from this process.  To begin with, there’s a clear lack of understanding of these officials about technology. It’s obvious that the people who are negotiating in e-commerce, some of them do not understand how data works, hence there’s localization discussions and so on. We invited some tech experts to explain how data moved so the trade people in the room could interpret that and understand that argument made on mandatory localization is pointless. We also learned that the negotiators seem to have very limited levels of understanding on how exactly small businesses will benefit from e-commerce. We had very little business interaction with RCEP to begin with, very little small companies explaining why e-commerce matters to them.

Based on your experience, which countries work really well together with industry in trade agreement negotiations?

The US through the USTR [US Trade Representative] does a very good job of getting feedback from companies. When the USTR goes into negotiations, it does actually know what the industry wants and needs. So when you read comments coming from the USTR, you discover things like; the pomegranate industry would point out that there are barriers into Chile for pomegranates. This is not something the USTR would know, it would never figure this out on its own and it would never fight for this unless it talked to companies. I can guarantee you that in RCEP we have the equivalent problem to that and no one knows about it. The RCEP officials are not making the case because they never heard about the problems. Part of the problem is the companies in Asia don’t understand why you should be proactive around trade agreements, and officials don’t ask the right questions either. So, therefore, they don’t respond and the governments are frustrated and here we are, ending up with no effective feedback.

Why should companies in Indonesia, both national and multinational, care about RCEP?

RCEP is very important. We have 16 countries in Asia joining RCEP, and the negotiations will be finished next year. If companies want their issues aired, they need to be proactive in suggesting input. Companies should be talking to the trade ministry, the RCEP desk, and explaining what they are looking for and explaining why it matters to them. Pitch it particularly for what it will do for Indonesia, for the company and for employment here in Indonesia. I think companies can also talk to other RCEP delegations.

I believe RCEP could be finalized by the end of 2017, but it’s going to be tough. I am not convinced that Asia can actually negotiate much past 2017 for whatever reasons, as it is hard for Asia to keep attention focused for too long. I think China needs an agreement in 2017, so I don’t think it will roll over to 2018. 

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