Will RCEP compete with the TPP?

Competition appears likely to emerge between ASEAN’s Regional Comprehensive Economic Partnership (RCEP), an agreement to launch negotiations for which was reached at the East Asia Summit (EAS) in Phnom Penh on 20 November, and the Trans-Pacific Partnership (TPP).

 two regional trade pacts have quite similar objectives ⎯ trade liberalisation and economic integration ⎯ and competition between the two to be Asia’s predominant economic arrangement has the potential to divide the ASEAN countries.

The TPP was born out of an agreement between New Zealand, Chile, Brunei Darussalam and Singapore in 2005; the US, Canada, Australia, Peru, Vietnam, Mexico and Malaysia have since joined. Recently, Japan and South Korea have also showed interest in joining. The TPP aims to establish at least a regional FTA which will further liberalise trade in the Asia Pacific, but may potentially lead to even greater regional economic integration. In 2011, the total GDP of TPP countries was US$20 trillion, with the US accounting for three quarters of this.

In line with its pivot toward Asia, the US has led the expansion of the TPP and encouraged other APEC countries to join the negotiations. The US argues that the TPP needs to be broadened in order to cover relevant elements of economic cooperation and to meet the economic challenges of the 21st century. The TPP countries have negotiated on which areas should be covered by the agreement; these now include trade in goods and services, investment, intellectual property rights (IPRs), environmental protection, labour, financial services, technical barriers and other regulatory issues. The next TPP negotiations will be held in Auckland, New Zealand in early December 2012.

RCEP has a different origin to the TPP. ASEAN has FTAs with non-ASEAN countries, such as China, South Korea, Japan, India, Australia and New Zealand, which are separate from one another. The ASEAN framework for RCEP is an ASEAN initiative to gather all these FTAs into an integrated regional economic agreement. However, it will establish deeper economic cooperation than the existing FTA agreements. RCEP will open up more trade in goods and services, eliminate trade barriers, and gradually liberalise services and provide for greater foreign direct investment in ASEAN and its external trading partners. The GDP of the ASEAN and non-ASEAN negotiating parties is US$17 trillion.

Given the similarities between the two agreements, RCEP may pose a challenge to the TPP. The TPP calls for deeper integration than RCEP, promoting trade in goods, services and investment, as well as tackling other issues (for example, IPRs). RCEP will be a partial WTO-plus arrangement, which focuses on trade in goods, several types of services and investment. However, the TPP and RCEP may come into conflict due to the tension between the US and China, as each wants to shape economic cooperation in the Southeast and East Asian regions in order to secure its economic interests. Consequently, rivalry between the US and China might become the predominant factor in how the regional economic architecture develops.

Any competition between these two agreements may divide the ASEAN members. Singapore, Malaysia and Vietnam may be likely to focus on promoting the TPP to other Southeast and East Asian countries, while the rest of the ASEAN countries will likely aim to develop RCEP, so that it is at the centre of economic cooperation in the region.

Such division will profoundly influence the centrality of ASEAN. ASEAN aims to preserve its centrality to economic co-operation within Southeast and East Asia through initiatives such as the EAS and ASEAN+3. If ASEAN does not respond effectively to any potential competition between the TPP and RCEP, ASEAN’s role as a driving force in the various regional arrangements is more likely to decline. The rivalry between the US and China could also undermine the crucial role that ASEAN plays.

So, in order to maintain its centrality, ASEAN must focus on the creation of RCEP while furthering its regional consolidation through the ASEAN Community. If it does not do this, ASEAN may find that its role as a proactive, central player in fostering political and economic arrangements in East and Southeast Asia declines.

November 28, 2012

Source: East Asia Forum