2018/53, 7 May 2018
There is immense expectation that the Regional Comprehensive Economic Partnership (RCEP), under negotiation for the past five years, will be delivered by ASEAN in 2018.
Prime Minister Lee Hsien Loong in his post-ASEAN Summit press conference called for RCEP negotiations to be concluded soon. Referring to the difficulties in negotiations he highlighted India as an important participant to RCEP negotiation which has ‘significant reservations on the idea of goods and services liberalisation’. Similarly, alluding to Australia, he remarked that ‘the best should not be the enemy of the good’.
India, from the beginning of RCEP negotiation, has pushed for simultaneous deliberation of trade in goods and services under a single undertaking. Even though this was not done in many of the ASEAN+1 FTAs earlier, India has argued that it has more to lose if negotiations are separate or sequential. Compared to other RCEP members, its comparative advantage lies in services. It intends to open up its goods trade only after other members have committed to liberalise their services sector.
India also has reservations regarding equal tariff concessions across all RCEP members. It is seeking differential tariff cut structure with China given that its trade deficit with China has increased to US$53 billion in 2015-16 from US$48 billion a year earlier. Under services, India wants movement of people and is requesting for ‘single business travel’ visa to facilitate such movement. However, this issue is deemed political as exemplified by Brexit and Trump’s immigration moves. In fact, the ASEAN countries have always approached the subject of cross-border movement of people extremely cautiously even in their own economic integration.
Australia has also imposed difficult conditions for RCEP members. ASEAN-Australia-New Zealand FTA (AANZFTA) is the best FTA among the six FTAs that ASEAN has signed so far. It covers issues like e-commerce, intellectual property and competition policy that are not yet covered in many other ASEAN+1 FTAs. Tariff concession is also the best at around 95% of tariff lines. Accordingly, from the inception of RCEP negotiation, Australia has clearly declared its intention for a better FTA than the existing AANZFTA. This is however unlikely to happen for many of the RCEP participating members.
Australia is also basing its demands on its participation in CPTPP, which provides governance for state-owned enterprises, intellectual property rights, environment, labour and data flows under e-commerce. It is advocating for liberalisation together with improved and transparent regulatory measures among RCEP members to facilitate investment in bigger economic space. Australia appears to want to deliver a wide-reaching deal that does not accommodate the concerns of many less developed countries in the region.
Although India and Australia view their demands as legitimate from their own standpoints, both countries need to understand the urgency to conclude RCEP negotiation soon. The world economy is on the brink of a trade war. The US, under the Trump administration, has imposed new tariffs on steel and aluminium imports. It has also announced its intention to increase tariffs by 25% for 1,300 Chinese imports. Prior to that, the US has pulled itself out of TPP, defeating the original strategic purpose of economically anchoring the US in Asia. RCEP in its current form is not only useful to reduce the sombre mood in international trade, but is also beneficial to showcase a pan-Asian form of regional cooperation architecture.
So while ASEAN wants to have an all-inclusive 16 party RCEP, under the circumstances, it might have to explore other alternatives, including a smaller grouping. Prime Minister Lee hinted at this when he stated that there is no guarantee that ‘if there is no RCEP, no smaller groupings will emerge’. This will be unfortunate as a smaller grouping will not provide an Asia-wide governance structure for economic interdependence. It will also not serve strategic imperatives as Asia may witness an uneven distribution of economic power with spill-over effects in political and security cooperation.
Dr Sanchita Basu Das is Lead Researcher for Economic Affairs at the ASEAN Studies Centre of ISEAS - Yusof Ishak Institute.
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