<![CDATA[Deal or no deal: is Asean's RCEP trade pact going the way of the TPP?]>
For the fifth straight year, officials from the 10-member Association of Southeast Asian Nations and the bloc's six key trading partners " India, China, Australia, New Zealand, Japan and South Korea " are insisting that they are in the last-chance saloon to wrap up a deal to make the 16 countries the world's biggest free-trade zone.
Asean already has free-trade agreements with the six other economies, but the Regional Comprehensive Economic Partnership (RCEP) " spanning territories home to 3.5 billion people, with a GDP of US$22.6 trillion " will equalise the terms of those pacts.
It is also hoped that the deal will lead to tariff cuts for more than 90 per cent of the goods traded among its members.
The pact is seen as a counter to US President Donald Trump's protectionist policies. Photo: AP alt=The pact is seen as a counter to US President Donald Trump's protectionist policies. Photo: AP
With the global economy being buffeted by major headwinds from the US-China trade war, Asean's leaders have sent strong signals that they want a speedy conclusion to the massive trade pact as a means to boost trade volumes amid rising protectionism.
Prominent Malaysian economist Yeah Kim Leng told This Week in Asia that the RCEP was an essential part of Asian countries' efforts to "counter [US President Donald Trump's] protectionist stance and tariff battles with China".
"By lowering tariffs and facilitating market access among member countries, the increased economic and trade activities will help to offset the decline in trade as the US economy becomes more insular and inward-looking under President Trump," he said.
After a summit last month, the 16 RCEP member countries' heads of government are set to meet again in November. The next round of talks among their chief negotiators will be held from July 22 to 31 in Zhengzhou, capital of China's Henan province. Trade ministers, meanwhile, are set to meet in Beijing on August 2 and 3.
Expectations are growing that the negotiators, who began meeting in 2012, will somehow thrash out a deal by November's summit. Among the various obstacles that have impeded their progress so far is New Delhi's concerns that the deal would lead to Chinese goods flooding its massive consumer market.
Long-time observers of the negotiations say the heady mix of optimism, sombre warnings and last-chance scenarios seem all too familiar as a fresh November deadline approaches.
Still, the likes of veteran trade consultant Deborah Elms, who has taken part in the bulk of the RCEP's 26 rounds of talks, say there is more than an inkling of truth in officialdom's claim that it is now or never for the pact.
"[The delay] is not ideal. But if the alternative is no deal at all, many have suggested it is long past time to make such a decision," said Elms, founder and executive director of the Singapore-based Asian Trade Centre. "RCEP is at 26 rounds of negotiations and counting. With every year, election cycle, new government, changing economic circumstances, and so forth, it gets harder to adjust the deal on the table to match new realities."
Analysts worry that the RCEP could go the same way as the TPP. Photo: AFP alt=Analysts worry that the RCEP could go the same way as the TPP. Photo: AFP
The big worry, analysts say, is that the RCEP could go the way of the formerly US-led Trans-Pacific Partnership (TPP).
That agreement was dealt a heavy blow when, after 32 rounds of negotiations over eight years, Trump pulled out upon taking office in 2017, citing concerns that it would lead to the loss of American jobs.
The pact's 11 remaining members signed a watered-down deal called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
But with momentum lost and the US " which would have made up 45 per cent of the free-trade zone " out of the picture, four of the 11 countries have yet to ratify the CPTPP.
Among the four is Malaysia, whose trade negotiators now say they have their eyes firmly fixed on the RCEP.
But this agreement could also fall victim to a similar hollowing out, its proponents fear, if India and its US$2.6 trillion economy is temporarily left out of the mix " a proposal purportedly mooted by China last month as a way to expedite a deal.
That proposal, reported by Nikkei Asian Review, also involves the omission of Australia and New Zealand for the time being, owing to their concerns over labour and environmental issues.
Malaysian Prime Minister Mahathir Mohamad, a key voice among Asean leaders, has said he would prefer such a limited 13-country set-up "for the time being".
Malaysian Prime Minister Mahathir Mohamad has signalled his willingness to push ahead without Australia, India and New Zealand. Photo: Bloomberg alt=Malaysian Prime Minister Mahathir Mohamad has signalled his willingness to push ahead without Australia, India and New Zealand. Photo: Bloomberg
Elms, the trade consultant, said that leaving some countries out of the pact in the first instance was among the "possible solutions" to breaking the current impasse in negotiations. Other solutions include lengthening the deadlines for the full reduction of tariffs " an approach that Elms said she viewed as untenable as those negotiated in the RCEP were already "extremely long" " and excluding more sectors or goods from the pact.
"This [exclusion]is not especially desirable, particularly where there are already inbuilt flexibilities that make it hard to lower the thresholds even further to get to an agreement," she said.
What has been termed the "Asean minus-x approach" could also be used to hasten the RCEP's implementation. Such a phased approach would temporarily exclude the bloc's member countries which are not ready to fully commit to market liberalisation " similar to how the trade pact Asean entered into with South Korea in 2006 initially omitted Thailand.
The RCEP is seen as a way for China and India to further enmesh their economies and avoid future conflict. Photo: Shutterstock alt=The RCEP is seen as a way for China and India to further enmesh their economies and avoid future conflict. Photo: Shutterstock
In India, meanwhile, observers are split on how the country should approach the RCEP.
Last financial year, New Delhi recorded trade deficits with 11 of the RCEP countries, and the likes of trade economist Nilanjan Ghosh, director of the Observer Research Foundation in Kolkata, fear the situation could worsen after a deal is signed.
He said India's trade deficits had tended to grow after tariff pacts had been entered into " a trend reflected in the deals it had made with Singapore, Japan, South Korea and Asean.
Yet Ghosh told This Week in Asia that policymakers, by and large, understood the importance of taking part in the pact, given its "geostrategic and geoeconomic implications": it is viewed as a key platform for long-time rivals India and China to further enmesh their economies, and avoid future conflict.
"There is an understanding that the RCEP has to succeed, but it has to be a win-win game," he said.
Indian Prime Minister Narendra Modi is keen to negotiate greater labour mobility as part of the pact. Photo: EPA alt=Indian Prime Minister Narendra Modi is keen to negotiate greater labour mobility as part of the pact. Photo: EPA
Among New Delhi's key demands " which other prospective pact members have balked at " are strict criteria for rules of origin. These rules, used to determine the national source of a product, would stipulate that a high percentage of its components need to have been sourced from an RCEP country for it to avoid tariffs.
Indian Prime Minister Narendra Modi's government is also eager to negotiate greater labour mobility for his country's rising number of service-sector workers, but there are worries in some RCEP countries that an immediate liberalisation would trigger an influx of Indian migrants.
Ghosh said Modi's signature "Make in India" campaign to revive domestic manufacturing would also be at risk if the trade pact came into effect.
"The consumer, of course, wins, you get a lot of choices ... but at what cost? The long-run cost could be the wiping out of local industries," Ghosh said.
"Domestic reforms to make our industries more competitive are required first ... RCEP is necessary, but India needs to get its house in order first."
The RCEP could put Modi's signature 'Make In India' campaign at risk. Photo: AFP alt=The RCEP could put Modi's signature 'Make In India' campaign at risk. Photo: AFP
Even so, New Delhi has signalled that it has no intention of being cut out of the RCEP for now.
Sitting out, even for a short period, could mean it giving up the chance to frame the bloc's rules.
Indian commerce industry officials told The Hindu newspaper late last month that high-level meetings had been set up to discuss the way forward for the country's participation in the RCEP.
"India has also shown it is keen for the partnership to work, as seen by our consistent engagement on the issue. There are some issues that need to be ironed out still, but it would be extremely premature to talk about RCEP going ahead without India," the newspaper quoted one official as saying.
Elms, who has been among those scrutinising the RCEP since it was first proposed during 2011's Asean summit in Jakarta, said the time for "posturing" was over.
Sometimes for Asean, coming together can be hard to do. Photo: EPA alt=Sometimes for Asean, coming together can be hard to do. Photo: EPA
Upon the launch of negotiations in 2012, the participating countries said talks would conclude in 2015. Since then, Asean leaders and their counterparts from the six other RCEP countries have talked up the conclusion of the pact whenever the second of the bloc's twice-yearly summits " usually held in November " is around the corner. Hopes are high that the ritual of waiting another year to sign the deal will be broken when the leaders meet in Bangkok in November.
This article originally appeared on the South China Morning Post (SCMP).
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