High on symbolism, low on trade

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August 22, 2017 7:21 AM

Simulations based on the liberalisation in tariffs among countries are unable to accommodate the large non-tariff barriers.

low on trade, trade, High on symbolism, RCEP negotiations, tariff concessions, RCEPThe 19th round of RCEP negotiations concluded in Hyderabad last month with considerable uncertainty over the prospects of the deal. (Image: Reuters)

The 19th round of RCEP negotiations concluded in Hyderabad last month with considerable uncertainty over the prospects of the deal. India is being widely made out to be the ‘spoiler’ as it is still unwilling to provide as much tariff concessions as the rest of the RCEP wants. But India might have to eventually concede much greater cuts as pressure builds up to conclude talks. The RCEP has acquired significant symbolic value given its identity as an ASEAN+ economic architecture. ASEAN is heading into the 50th year of its existence. Trade and economic integration have been hallmarks of ASEAN’s regional framework. The ASEAN regional construct has moved well beyond Southeast Asia into other parts of Asia through the ASEAN+1 FTAs. These include the five FTAs that ASEAN has with other Asian countries: Australia & New Zealand, China, India, Japan and Korea. The RCEP is envisaged as the ‘mother’ of all ASEAN+1 FTAs as it draws into its fold ASEAN and all the six countries that are its FTA partners. Pulling off such a humongous architecture that would clearly be the largest FTA in the world as of now would be seen as a major milestone for the ASEAN in its 50th year. It would establish ASEAN as the forerunner in forging regional economic integration efforts in the world. Its ability to take forward the agenda of global trade through regional pacts would be firmly established at a time when the TPP could not go ahead. It would also signal the willingness of major Asian powers—China, India, Japan and Australia—to work with ASEAN as a stabilising force in the region.

While Asian regionalism has a lot of stake in RCEP, it is important to distinguish between strategic benefits and economic upsides from the trade agreement. The former, of course, are substantive. Apart from the political goodwill it would generate for the ASEAN framework, the RCEP has considerable virtues as an insurance policy. Trade and economic partnership agreements have for long been considered confidence-building-measures for avoiding frictions between countries. The ASEAN itself has been a strong advocate of this goal. The institutional economic binding in the region has helped in ensuring that internal political differences within Southeast Asia, or those between ASEAN and its partners, do not assume unmanageable proportions. The RCEP can extend this further, particularly to strenuous bilateral relations like India-China, or Japan-China, since all countries are members of RCEP. At this point in time, there are concerns that hostilities between India and China might affect movement on RCEP. If RCEP is concluded, then it could provide another platform where India and China can engage, as they have been at the BRICS, creating the opportunity for more constructive collaboration.

On the other hand, the economic benefits from RCEP might not be substantive. Though there are estimations on quantum of gains, these simulations, products of several strong quantitative assumptions, are unlikely to indicate the right picture. Simulations based on the liberalisation in tariffs among countries are unable to accommodate the large non-tariff barriers (NTBs) that exist in RCEP economies and which can amount to great hindrances to trade. Data on these barriers indicate the prevalence of substantive quality regulations in many RCEP countries that make it difficult for several exports to obtain access in these markets.

The two most common barriers are SPS and TBTs. The former are sanitary and phytosanitary measures (SPS) that aim to regulate exports on grounds of their causing injuries to plant, animal and human health and safety. The latter are technical barriers to trade (TBT), which focus primarily on regulating damage to environment, ecology and individuals. According to WTO data, there are 570 SPS and 373 TBT measures currently maintained by the RCEP countries. Philippines (142), China (119) and New Zealand (88) have the most SPSs and account for more than 60% of these measures in the RCEP. Similarly, China (104), Korea (77) and Japan (59) account for more than 60% of the TBTs. It is important to note that these are numbers based on measures informed by imposing countries to the WTO. There could well be many other measures that are maintained by many countries but not informed to the WTO. India, incidentally, is one of the relatively low users of these measures. It has 44 SPSs and one TBT.

The point to be noted is SPS and TBTs are hard to eliminate as these are domestic regulations maintained by the imposing countries and part of national quality standards. The importance of these standards from the perspective of their role in maintaining health and safety is undisputed. But at the same time, it is equally true that standards have also been tools for national governments for denying access to exports. Globally, trade protectionism has increasingly shifted to creation of procedural obstacles to exports—a role that SPS and TBTs perform particularly well. These also increase producer costs of testing and certification that are often disincentives for exporters.

The regional consensus on RCEP appears to be on reaching a quick conclusion by agreeing on a common tariff schedule. That would produce a trade deal that is low in scope and incapable of generating as deep access for exports as it could have, had it taken on NTBs. But unfortunately, hurry to conclude and unwillingness to work on domestic standards, is unlikely to make a dent on NTBs. So, while RCEP might fetch considerably symbolism and strategic dividends, it is unlikely to produce major growth in regional trade.

Amitendu Palit is a Senior research fellow and research lead (trade and economic policy) at the Institute of South Asian Studies, NUS. E-mail: amitendu@gmail.com Views are personal

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