Will RCEP be a reality by the end of 2017?

Asean hopes to seal a landmark trade deal, but it may be hard to sew up negotiations this year

Six years ago, Indonesian trade official Iman Pambagyo was elated when he was asked to handle a new partnership being discussed by Asean.

He was already doing some exploratory work on a regional trade partnership agreement with Indonesia's then-Trade Minister Mari Pangestu and a World Bank colleague. He could not believe that he was chosen to anchor the Regional Comprehensive Economic Partnership (RCEP) initiative involving Asean and six of its closest partner countries.

"I was excited. No one has done this before. There was no precedent in the modern history of the world. Sixteen countries try to consolidate five FTAs into one and we are talking about more than half of global markets," he told The Sunday Times last month. He was in Singapore to deliver a talk on the RCEP at the ISEAS - Yusof Ishak Institute.

Now, 17 rounds of negotiations later, the 56-year-old director-general for international trade negotiations at Indonesia's trade ministry has set his mind on completing the massive trade deal by the end of the year - partly because there is a possibility that he could be given a new portfolio. Given his position - he is also chair of the RCEP Trade Negotiating Committee and Asean coordinator for RCEP negotiations - he is aware that a change in his role could delay the historic negotiations.

 
 

It is a goal that many of the members of the grouping share as well and declared as much at the 16th round of negotiations in Tangerang, Indonesia, in December.

The need to conclude negotiations on the RCEP, which was mooted by Asean in 2012, has been in the limelight since United States President Donald Trump nixed America's participation in the Trans-Pacific Partnership (TPP) trade deal in January, labelling it a "job-killer".

The RCEP - seven of whose members have also signed the TPP - is now seen as the next big leap for global trade partnerships, creating one of the world's largest trading blocs with Asean at its core and plugging the regional alliance of 10 nations into the world economy.

The enormous trade deal involves Australia, China, India, Japan, New Zealand and South Korea, and consolidates Asean's overlapping trade partnerships into one trade agreement, creating business opportunities for people across the region and having the potential to improve thousands of lives.

As risk consultancy Eurasia Group notes in a report on the issue, together, the 16 countries account for half of humanity and around a third of world trade and gross domestic product (GDP).

When it does come through, the trade deal will deepen Asean's economic integration into the Asia-Pacific, and be a building block for the proposed Free Trade Area of the Asia-Pacific alliance envisioned by Asia-Pacific Economic Cooperation (Apec) leaders to link Pacific Rim economies, from China to Chile, including the United States.

With Asean celebrating its 50th anniversary and China's President Xi Jinping taking the lead on globalisation, political momentum for completing the negotiations has been building up, raising expectations that the end of the year will indeed see the RCEP taking shape.

However, negotiations between the partners are far from complete, members are still distrustful of others, and different levels of economic development of countries are getting in the way of settling implementation schedules. These, and the absence of trade partnerships between Asean's partners in this alliance, are all proving to be major stumbling blocks - leading to scepticism about a deal being signed by the end of the year, with pro-trade watchers cautioning against rushing into a shallow agreement.


MR IMAN PAMBAGYO,

Said Mr Peter Mumford, director (Asia) for Eurasia Group: "It will be difficult to reach a full agreement by the end-2017 deadline even though political dynamics are now more favourable. The best that could be achieved by the end of the year is a framework agreement."

A tug of war seemed to be happening between China and Japan at the 17th round of talks held in Kobe, Japan, last month, with both pushing for clashing visions of how the trade deal should shape up, the Financial Times reported.

Beijing pushed for a rapid conclusion of the agreement with a "low-quality" deal focused on lowering tariffs between Asean and its partners in this alliance whereas Tokyo, together with Canberra, wanted a high-quality deal covering services and investment.

According to Professor Jane Kelsey, a law professor at the University of Auckland, only about a quarter of the 15-chapter RCEP treaty has been finalised. Most of the text is still secret, she was quoted as saying by the Japan Times, as she reiterated the need for more transparency to allow stakeholders, among them businesses and civil society, to be involved.

Negotiations for most of the other chapters continue to face hurdles, said Ms Sanchita Basu Das, fellow and lead researcher at the ISEAS - Yusof Ishak Institute's Asean Studies Centre, in a paper on the future of trade diplomacy in East Asia.

In trade in goods, for instance, the proportion of products that will be included in the agreement is not yet finalised, she noted.

"Asean's proposal for 92 per cent has met with resistance from countries that have growing trade deficits with China.

"Moreover, India is pitching for simultaneous negotiation of trade in goods and services, which would slow things down, given the complexities in the services sector and related regulations."

Likewise, the investment chapter and the intellectual property rights (IPR) chapter are contentious.

In the investment sector, the issue of investor-state dispute settlement (ISDS) remains controversial, dealing as it does with the rights of the private sector to file lawsuits against the state. Lawsuits worth US$31 million (S$43 million) are pending settlement, Ms Basu Das noted. India, Indonesia and Australia want ISDS reconsidered before discussions take place on the rights of investors.

In terms of IPR, some members are demanding data exclusivity, which is an issue for less-developed countries.

The diversity among members, in terms of economic development, further delays negotiations, said Mr Pambagyo. "This affects the level of technical discussions. In some situations, the least developed countries just ask Asean to take care of their interests," he said.

NO PRECEDENT

I was excited. No one has done this before. There was no precedent in the modern history of the world. Sixteen countries try to consolidate five FTAs into one and we are talking about more than half of global markets.

MR IMAN PAMBAGYO, on being asked to handle the Regional Comprehensive Economic Partnership initiative.

The regional alliance is also having to cope with the problem of its trade partners not having bilateral trade agreements between themselves, which means that they are discussing the opening of their borders to each other for the first time as part of this alliance.

Mr Pambagyo noted that China and Japan, India and China, Japan and South Korea, and Japan and New Zealand have not had negotiations for a bilateral free trade agreement. Meanwhile, negotiations between China, Japan and South Korea for a trilateral partnership and New Zealand and India for a bilateral one are still ongoing.

As for the two largest nations involved, he said India feels that it has to be careful in the negotiations as it has a trade deficit of between US$52 billion and US$56 billion with China, whereas China looks at India as a huge market for its products.

Mr Pambagyo said: "In some rounds, the discussions are just about India and China. And when India has some difficulty, they will talk to me. Similarly, when China has some difficulty, they will talk to the chair. I say you sit together, why don't you talk to each other? But they always come to me."

There are other challenges. For some rounds of discussions, about 700 officials could be involved. Twenty to 22 rooms have to be booked just for the talks, he said.

Still, he hopes much will be gained during the 18th round of negotiations to be held in Manila next month. And by the time Apec leaders meet in Vietnam in November, the hope is that the RCEP would have taken some shape, he adds.


THE RCEP WILL MEAN:

•Deepening of economic ties already achieved through Asean+1 FTAs

•Creation of a massive free trade area for participating countries, progressively eliminating tariff and non-tariff barriers

•Easing of restrictions on trade in services

•Building a competitive investment environment

•Integrating Asean further into the global economy


Flags of Asean countries and their partners during their summit in Vientiane, Laos, last year. The regional alliance is aiming to create a massive free trade area for participating countries. PHOTO: AGENCE FRANCE-PRESSE

WHAT'S STALLING PROGRESS:

•Members continue to differ on tariff reductions

•Negotiations on services liberalisation are proving difficult

•Differences in development levels among RCEP participating nations translate into extended discussions on implementation schedules

•India has been anxious about tariff reductions in the manufacturing sector, which could ease the inflow of Chinese goods

•Many of Asean's trade partners in this agreement do not have trade agreements with each other, making it difficult to reach common ground

•Trading off to settle negotiations is proving difficult in multi-party negotiations


Correction note: An earlier version of this story misspelt Mr Iman Pambagyo's name. We are sorry for the error.

A version of this article appeared in the print edition of The Sunday Times on April 23, 2017, with the headline 'Will RCEP be a reality by the end of 2017?'. Print Edition | Subscribe