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RCEP: More Relevant Now Than Ever

31 January 2017

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By Tan Sri Dr Rebecca Fatima Sta Maria

When President-elect Donald Trump called the Trans-Pacific Partnership Agreement (TPP) a 'disaster' and vowed to pull out of the Agreement as soon as he took office, the international media almost instantaneously pronounced the TPP dead. And in the next breadth, they shifted their focus to the less controversial Regional Comprehensive Economic Partnership (RCEP), calling it 'China-led' and pitching it as the alternative to the TPP. The impression was that as one was US-led and the other China-led, they must necessarily be competing agreements. Not so.

ASEAN member states involved in the negotiations of both the TPP and RCEP were very mindful that these agreements were complementary, albeit at different levels of scope and ambition. What was more important was that both agreements would ultimately contribute to deeper economic integration of the Asia-Pacific that would come under a Free Trade Area of the Asia-Pacific (FTAAP).

When the FTAAP was mooted by the APEC Business Advisory Council (ABAC), it was not well received. In fact at their 2006 APEC Economic Leaders' Summit in Ha Noi, the Leaders rejected the proposal. It was only four years later that the APEC Leaders gave their nod for concrete steps to realise the FTAAP. And it gained momentum during China's Chairmanship of APEC in 2014 when it was decided that work on FTAAP would begin in earnest, with the TPP and RCEP serving as building blocks towards this FTAAP goal.

But even as the study on the framework of the FTAAP is progressing, it appears that an anti-globalisation movement is stirring in the face of Brexit. We have to wait and see if Trump will be able to implement his calls to deal with China and pull out of the North American Free Trade Agreement (NAFTA) and the TPP.

The TPP signatories should rightly be concerned of any agreement that excludes the US that will limit economic gains. But it is in this environment that ASEAN and its partners must consolidate and work to deepen economic integration in this region. Focus must be on the opportunities that agreements such as RCEP can bring not just to ASEAN but also to the global economy. As such, it would be in ASEAN's interest to step up work on RCEP to ensure its conclusion within the next 12 months.

As this is being done, it would be useful to take on board the valuable outcomes from the TPP. First of all, there are important lessons for public engagement now that the discourse on trade negotiations is under greater scrutiny. Parties must explain RCEP to their publics so that there is an appreciation of its impact and benefits.

Then, there is the issue of the Investor-State Dispute Settlement (ISDS). Post-NAFTA, this has been a major criticism against FTAs because of the apparent 'power transfer' from the sovereign state to big business. The high-profile suits brought against governments made the ISDS one of the strong causes against the TPP while it was being negotiated. As a result, the final text of the TPP included processes and procedures to safeguard against frivolous suits by businesses. This is in itself a major outcome that needs to be preserved, and perhaps even further improved upon, in all FTAs and investment agreements.

Another important inclusion in the TPP is the recognition of the contribution of Small and Medium Enterprises (SMEs). This Agreement is perhaps the first to have a dedicated chapter on SME development and cooperation, to ensure that they are integrated into the value and supply chains of the bigger companies.

With the uncertainty around the TPP and an apparent rise in protectionism, ASEAN can lead the way by using RCEP to keep markets open, deepen economic integration and narrow the development gap among the member states. This is because RCEP is an inclusive agreement that takes on board, in true ASEAN spirit, the development concerns of its members. The TPP was an agreement among equals, with no special and differential treatment ala the World Trade Organisation (WTO).

Since RCEP is ASEAN-initiated, it must provide the leadership to ensure that negotiations move forward expeditiously. It is important to be reminded of why RCEP was proposed by ASEAN in the first place. Above all else, this agreement between ASEAN and its six FTA partners (China, Japan, the Republic of Korea, India, Australia and New Zealand) made good business sense. It would create a market that accounts for over 30% of the global economy. More importantly, the potential benefits from ASEAN's demographic dividend and its growing middle-class are reason enough to move ahead with RCEP. By consolidating the five ASEAN+1 FTAs, the noodle-bowl effect of the different rules of origin is reduced, even as the focus is on tariff elimination and streamlining of other trade rules.

The challenge for ASEAN in RCEP is the balancing of different ambition levels among the negotiating parties. The more developed members who are also parties to the TPP set this Agreement as the benchmark. But at the other end of the spectrum are parties whose levels of development limit what they are willing and able to commit. Moreover, while ASEAN has FTAs with each of six partners, not all of these six partners have FTAs among themselves. For example, RCEP may provide the platform for China, Japan and the Republic of Korea to have an indirect FTA just as their trilateral FTA negotiation is stalled.

RCEP is a reflection of ASEAN's thoughtful and deliberate process towards economic integration. ASEAN must lead the way in manoeuvring and navigating through these difficult waters. In succeeding to do so, RCEP could well be the model for integrating the least developed countries with developing and developed economies. This model may not be equivalent to the 'gold standard' that the TPP is espoused to be, but it will provide a clear pathway towards that goal.

RCEP: More Relevant Now than Ever

Tan Sri Dr Rebecca Fatima Sta Maria is Senior Policy Fellow at the Economic Research Institute for ASEAN and East Asia (ERIA), and former Secretary-General of the Ministry of International Trade and Industry, Malaysia. These opinions are her own and do not necessarily represent ERIA. This article was first published in the December issue of ASEANFocus, a publication of the ASEAN Studies Centre at ISEAS-Yusof Ishak Institute, Singapore.

This opinion piece has been published in The Straits Times, Bangkok Post, The Nation, and Jakarta Post. These opinions are her own and do not necessarily represent ERIA. Click here to subscribe to the monthly newsletter.

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