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Can RCEP overcome obstacles to trade reform?

10/06/2022    24

The Regional Comprehensive Economic Partnership (RCEP) — the world’s largest trade deal — came into effect in early 2022. Its 15 member countries account for 30 per cent of the world’s population, 29 per cent of global GDP, 27 percent of global trade and 29 per cent of global foreign direct investment.

RCEP is predicted to have a trade impact of nearly US$42 billion and transform the region into the centre of global trade. The existing trade interdependency between RCEP countries will also promote the development of more complex regional value chains in ‘Factory Asia’.

Given the potential economic impacts of the mega trade agreement, many have questioned its quality. Although RCEP aims to consolidate existing ASEAN+1 FTAs, it has added complexity to the region’s existing overlapping bilateral and regional FTAs, while providing less aggressive tariff cuts than other modern trade agreements. RCEP’s ‘ASEAN Way’ is defined by gradual commitments which take into account countries’ various levels of development. Instead of a single tariff commitment, each member will establish specific duty reduction commitments in relation to other exporting member states with a 20-year implementation timeframe.

RCEP’s effectiveness in boosting trade in goods could be discounted by the rising prominence of non-tariff measures. There are over 6000 harmful interventions implemented by RCEP member states against one another, with nearly 600 interventions beginning since the deal’s signing in November 2020. These interventions include various types of technical barriers to trade, trade remedies, subsidies, licensing, local content measures and different types of export measures.

Meanwhile, no commitment to prohibiting non-tariff trade barriers is expressly stated in the 20 chapters of the RCEP legal text. According to an assessment made by the Asian Development Bank, RCEP provisions relating to non-tariff measures do not cover the WTO-plus provision and are less comprehensive than the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. For example, the chapter on trade remedies appears to leave room for discretion while casting further doubt on the effective implementation and predictability of tariff concessions.

RCEP does not require substantive reforms in the agriculture and service sectors to address matters of competition and state-owned enterprises, nor does it adequately address e-commerce issues. And the agreement has nothing to say about environmental or labour concerns.

In addition to RCEP commitments, initiative from member states is essential to reduce non-tariff measures — an endeavour which might sit far from each member’s agenda. Even after RCEP entered into force in 2022, some countries are still implementing non-tariff measures quite liberally.

Indonesia — which has not ratified the agreement — recently implemented export controls on crude palm oil products, such as export licensing, quotas and temporary bans. The Philippines — which also has not ratified RCEP — is yet to gain its farmers’ support for the agreement. ASEAN’s least developed members — Cambodia, Laos and Myanmar — may face difficulties in implementing and reaping the benefits of RCEP, particularly on its new WTO-plus provisions. Member countries need to ensure their domestic policies and interests are aligned with RCEP.

That said, RCEP’s role in increasing trade among its members should not be discounted. RCEP is projected to streamline the rules of origin of many ASEAN+1 FTAs by treating the region as a whole. This will significantly reduce supply chain and administrative complications while improving the agreement’s utilisation rate.

RCEP institutional provisions also have an important role to play. With the establishment of a joint committee and subsidiary body mandated, differences of interpretation are able to be discussed and proposals for amendments considered — opening possibilities to improve non-tariff measures-related chapters. More importantly, the subsidiary body responsible for trade in goods could play an important role in the harmonisation of standards and customs procedures.

Like the WTO, RCEP also contains a chapter on dispute settlement mechanisms. While the effectiveness of the WTO’s appellate body can be argued, it is well-utilised by its members. A similar dispute settlement mechanism for RCEP members will also be beneficial in reducing harmful non-tariff measures.

The RCEP agreement is establishing the largest trade zone in the world, favourable to reducing non-tariff measures — even though commitment is currently modest and only minor tariff reductions are expected. RCEP’s most significant contribution is its harmonisation of origin rules, which has significant positive implications for the region’s global value chains. Yet RCEP will not automatically provide benefits — member countries must ensure that their domestic policies are consistent with the agreement, to reap the greatest benefits.

Source: East Asia Forum