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Will Asian trade strategies unite or divide?

16 September 2013

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Dr Shiro Armstong is a Research Fellow and Co-Editor of East Asia Forum. Shiro’s areas of expertise include International Economics and International Finance and Government and Politics Of Asia and The Pacific. He currently teaches Masters Research Essay (IDEC8011).

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Negotiating the noodle bowl of trade agreements. By Shiro Armstrong.

Whether we like it or not, free trade agreements are — at best — only part of the solution to further international trade liberalisation, and their proliferation has resulted in a ‘noodle bowl’ of overlapping agreements throughout the Asia Pacific.

Now we have the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP): mega-regional agreements that have emerged to attempt to deal with the noodle-bowl problem and, more hopefully, to define a way forward on new issues in the trading system.

The 12 Asia Pacific members negotiating the TPP are attempting to set rules for economic exchange that reflect commerce in the 21st century, including for intellectual property, data flows and high standards in areas such as labour and environment. Among its negotiating members are Australia, Japan, Malaysia, Mexico, New Zealand, Singapore, the United States and Vietnam.

RCEP consists of ASEAN members plus six of their FTA partners: China, Japan, South Korea, Australia, New Zealand and India. As RCEP starts from existing ASEAN+1 agreements, consolidating those would seem to be a good starting point. Yet harmonising and consolidating the ASEAN+1 FTAs into RCEP will be difficult — possibly more so than starting from scratch, such as if they were pursued simply as another FTA negotiation.

The TPP and RCEP may end up either providing ballast to the global trading system — and bringing some coherence to the many regional FTAs — or undermining it, by adding more noodles to the bowl. To achieve the first scenario, the agreements need to be complementary and outward looking. That means they should minimise discrimination towards non-members and be open to adding new members.

The worst-case scenario is for these agreements to become competing, exclusive blocs with very little overlap in membership. It is already clear that it will be difficult for China to join the TPP given the high hurdles to membership and the US Congress will not easily facilitate US membership of RCEP.

The two agreements are quite different in their approach and process, and potentially quite different in outcome. The TPP, which has completed 19 rounds of negotiations, is a single undertaking that is allowing carve outs and bilateral deals in some areas to achieve a high-standard agreement. RCEP starts with more flexibility in its guiding principles, allowing special and differential treatment for developing countries while still aiming for a high-standard agreement. Still in early stages, RCEP’s second-round negotiations will be held over 23–27 September in Brisbane.

Negotiations for RCEP aim to be complete by 2015 and the TPP is pushing for an ambitious conclusion as early as the end of this year. Given the scale and importance of these two mega-regional agreements, they will need to be living agreements, evolving beyond their initial conclusions.

Flexibility is RCEP’s strength, allowing common objectives to be pursued over different paths and the interests of the less-developed members to be met. But it could also be a weakness if it limits greater liberalisation. An expert roundtable has proposed moving each of the ASEAN+1 FTAs towards common ASEAN Economic Community (AEC) objectives outlining an easier and more productive negotiating strategy. This would make RCEP a truly living agreement with binding end goals by 2025 with initial downpayments negotiated by 2015.

RCEP can adopt the four core goals of the AEC: a single market and production base, a highly competitive economic region, a region of equitable economic development, and a region fully integrated into the global economy. The six other members of RCEP can also join and contribute to the achievement of these goals.

A shift of this sort from a traditional FTA negotiating framework towards a broader economic integration framework would mean there can be more alignment of external economic policies and domestic reform priorities. This will provide the external pressure for reform, as these agreements are meant to, but with individual pathways, priorities and inbuilt regional support.

Many aspects of the AEC, such as its connectivity agenda, will not be discriminatory and will extend benefits to non-members. Other areas can be multilateralised over time, consistent with past ASEAN practice, and a starting point would be for the economies with overlapping RCEP and TPP membership to extend their RCEP market-access commitments to TPP members.

Both agreements have open accession as a core principle. It is important to make that operational and realistic. The idea is that preferences should be extended to non-members over the longer term.

For that to be operational, both agreements should have transparent accession criteria and be open to new members willing to meet standards and commitments. The TPP should be ambitious and practical in this and one idea is to welcome any new regional members willing to subscribe to a corresponding level of commitments made by a founding TPP member whose level of economic development or economic structure it most closely resembles at the time of accession. Given its organisation around US negotiating norms, however, this seems like a long shot.

The TPP and RCEP are game-changers in regional economic governance and architecture. The key question is whether they will ultimately be forces for furthering global and regional economic integration or fragmenting trade and investment. The answer remains far from certain.

This piece was prepared for the recent conference on Governance of East Asian Regional Economic Architectures at Centre for Multilateralism Studies (CMS) S. Rajaratnam School of International Studies, Singapore, 10 September 2013. These and other issues will be the topic of a public forum on Asian trade strategies: Regional and global trade arrangements at The Australian National University on 19 September.

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