TWO important meetings by Asia Pacific trade ministers have taken place in Hanoi – one an attempt to revive a free trade deal and the other to take stock of another trade agreement still being negotiated. Both are mega deals.
The Trans-Pacific Partnership Agreement (TPPA) is now in limbo after the withdrawal of the United States. The 11 countries left, including Malaysia, are still figuring out whether to continue with it.
It is a different story with the Regional Comprehensive Economic Partnership (RCEP). The free trade deal, now into its fifth year of negotiations, is churning out the same old script – that after the 18th round of negotiations, there is progress.
The deadline to conclude RCEP has been postponed thrice and that says a lot about the progress.
In the years of negotiations before it was finally concluded, the TPPA attracted a lot of controversy, over accusations of being pro-corporations and a lack of transparency in negotiations, to name two.
Comparisons are also often made, with claims that the TPPA is driven by the United States while the RCEP is pushed by China as a counter to the TPPA.
However, the second assertion is untrue because the RCEP is Asean-led.
The RCEP was built on existing Asean+1 FTAs (free trade agreements) – Australia, China, India, Japan, New Zealand and South Korea – aiming to strengthen economic linkages and to enhance trade and investment related activities, as well as to help minimise development gaps among the parties.
Having FTAs has never been China’s game. For a long time, China has been doing it the bilateral way.
This is evident from the Belt and Road initiative. According to The Star columnist Martin Khor, the initiative is a collection of infrastructure projects in multiple countries that lay along the old Silk Road across land and sea centuries ago.
What China does is inject capital in soft loans to build infrastructure.
This is what China has been doing in Eurasia and Africa, as well as in South America, with Chinese companies constructing railways, roads and bridges, and Chinese banks providing the financing.
One point to note though. Historically, no RCEP country has used trade agreements as part of their foreign political agenda, unlike the United States.
China came into the World Trade Organisation (WTO) belatedly in December 2001, and is not a founding member of the WTO, which was established in 1995.
It was only admitted into the WTO after going through a lengthy process of negotiations and, required significant changes and reforms in its trade and investment rules.
So, based on its WTO admission experience, there should not be any expectation of China leading the RCEP.
Expect, however, that progress in the RCEP will be painfully slow, despite the positive spin put on it by the trade ministers at the Hanoi meeting last week.
One particular issue to note from the ministers’ statement is that they agreed to provide flexibilities to bridge the gaps between the more developed and poorer countries involved in the RCEP.
“These flexibilities are allowed in the initial stage to cater to the different levels of ambition of RCEP countries, and does not undermine our commitment to ensure the RCEP remains a quality agreement and beneficial to all,” said the statement.
What those flexibilities are, the statement did not explain.
With extremely different economic backgrounds between developed countries like Japan, South Korea and Australia on one side, and Cambodia, Laos and Myanmar on the other – surely they have different levels of ambition.
Even among the Asean 10, positions vary.
According to officials familiar with the RCEP negotiations, some of the less developed countries claim they have to deal with a “domestic situation” (i.e. domestic politics).
“Among Asean dialogue partners, they have different positions and among Asean members, they have different positions and levels of development.
“All this is compounded into a big problem. How do you make progress? What is the starting point? What would be the end point?
“Ultimately reaching the agreement is the end point but the problem is, the end point currently differs. If you do a landscape out of the end point based on the interest of 16 countries, it varies.
“The landscape will show you a lot of contours,” said an official who declined to be named.
The current scope of the RCEP covers trade in goods; trade in services, including financial and telecommunications services; investments; economic and technical cooperation; intellectual property; e-commerce; competition; and dispute settlement.
Unlike the TPPA, it does not include government procurement, labour and the environment.
But too much is at stake for the RCEP not to be concluded.
The RCEP is the only mega FTA negotiated globally and it involves countries that are among the fastest growing economies in the world, with an integrated market of 3.5 billion or 50% of the world’s population.
The ministers have directed their officials to conclude the negotiations expeditiously when they meet in Hyderabad, India, in July. Another meeting is scheduled for Incheon, South Korea, in October.
The question now is whether these 16 countries can narrow the gap, with only two out of 20 chapters of the FTA having been concluded.
Looking at the real “progress”, it is doubtful that the RCEP can be concluded this year.
Still, it will be interesting to see how the RCEP unfolds over the next few months.