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  1. As trade deals get unpopular, does RCEP matters?

As trade deals get unpopular, does RCEP matters?

Coupled with low economic benefits and the current anti-trade sentiments, it runs the risk of heading nowhere

By: | Published: August 5, 2016 6:18 AM
The RCEP includes 16 countries. Apart from the 10 Southeast Asian economies (or ASEAN), it comprises Australia, China, India, Japan, Korea and New Zealand. The RCEP includes 16 countries. Apart from the 10 Southeast Asian economies (or ASEAN), it comprises Australia, China, India, Japan, Korea and New Zealand.

Is the appetite fading for the 16-member Regional Comprehensive Economic Partnership (RCEP)? The RCEP members might be getting increasingly disillusioned over its economic benefits with negotiations hardly progressing. Furthermore, anti-trade sentiments prevailing in North America and Europe are spreading to Southeast Asia and Asia-Pacific making trade deals more unpopular than before.

The RCEP includes 16 countries. Apart from the 10 Southeast Asian economies (or ASEAN), it comprises Australia, China, India, Japan, Korea and New Zealand. The grouping is already through multiple regional and bilateral trade agreements. There are six RTAs within the RCEP, including one among the ASEAN economies, and five each between ASEAN and the remaining RCEP members. There are 28 additional bilateral FTAs connecting various RCEP members. What can the RCEP members get from negotiating the RCEP that they already haven’t from the existing RTAs and FTAs?

The ASEAN economies want market access beyond what they have through the ASEAN+1 FTAs. Their main interest is in more access in the Indian market as the India-ASEAN FTA has the lowest tariff elimination coverage among the ASEAN+1 FTAs. While the latter have an average coverage of around 90%, the India-ASEAN FTA is less than 80%. If RCEP aims for eventual coverage of around 95% tariff lines for phased elimination, tariff reduction by India has to be far more than the rest. ASEAN and the rest wouldn’t mind letting go of another 5% tariff lines, as most of these would as it is go through other agreements like the TPP and the ASEAN Economic Community (AEC). But they would be unwilling to trade off elsewhere for these tariffs, certainly not on greater foreign investment in domestic services or easier entry of foreign skilled labour. The latter is too sensitive to be traded at a time when immigration perspectives are inward-looking in most of the ASEAN. While leaderships in Indonesia, Philippines and Vietnam are promising to scale back restrictions on foreign investments, the task is long and arduous, particularly in countries like Philippines, where it involves Constitutional amendments.

Australia, Japan, Korea and New Zealand hardly have much to gain from RCEP. Japan and Korea can at best hope to have more access in the Indian market over and above their bilateral FTAs. Such access won’t be substantive since RCEP is bound to have long phase-in tariff elimination programmes along with negative lists. Japan doesn’t have bilateral FTAs with Korea and China. Korea is likely to join the TPP that includes Japan. China is as it is Japan’s largest trade partner even without FTA. The RCEP would provide even less additional gains to Korea, which has bilateral FTAs with ASEAN and all other RCEP members, except Japan. Australia and New Zealand also have similar bilateral FTAs, except with India. Moreover, Australia, New Zealand and Japan are already in TPP that would allow them far greater access in each other’s’ markets than the RCEP is likely to.

China is keener on RCEP than the rest of its negotiating members. Apart from the proportionally higher access it will get in the ASEAN markets, RCEP will give it preferential access in the Japanese and Indian markets. This is crucial for China at a time when protectionist responses to its exports are increasing rapidly in the US and EU. Given its uncomfortable strategic relations with Japan and India, China is aware of the near impossibility of having future bilateral FTAs with these countries. Its only hope of preferential access in these countries is through an agreement like the RCEP. China is also keen on investment facilitation among RCEP members given its interest in strategic investments in many of the latter.

What does India gain from RCEP? More preferential access through tariff concessions over and above what it has through agreements with ASEAN, Japan and Korea. But that is contingent on India conceding on tariffs. The concession on the margin would be more for India given its higher base tariffs in most protected sectors. The concessions would also extend to Australia, New Zealand and China. The Indian expectation, if any, of market access surrendered through tariffs to be compensated by greater access in easier movement of professionals is largely wishful thinking. Anti-immigration sentiments prevent such possibilities. Even if RCEP grants members such access, actual labour movement would get stuck due to difficulty of recognising qualifications and other domestic barriers.

On the whole, therefore, RCEP doesn’t mean much for negotiating members. While political correctness would ensure continuation of talks, the eventual deal, whenever it materialises in future, is likely to mark only cosmetic improvements over existing agreements. Even China is unlikely to invest too much effort in the deal given the futility of its chasing preferential market access in Japan and China. Unlike the TPP, RCEP is not a geo-strategic alliance and lacks political appeal. Coupled with low economic benefits and the current anti-trade sentiments, it runs the risk of heading nowhere.

The author is senior research fellow and research lead (trade and economic policy), Institute of South Asian Studies, National University of Singapore.

Email: isasap@nus.edu.sg , Twitter: @Amitendu1 Views are personal

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