Does the future of trade look like RCEP?

Australia’s Trade Minister Steven Ciobo was in China mid-February to talk up tourism, but also to focus on trade. Ciobo and Gao Hucheng, China’s Commerce Minister, discussed the end of the TPP and China’s supposed replacement: RCEP, which Australia and New Zealand are also signatory to. 

"The hope of many economists and those fatigued by trade deals is RCEP may begin to unify the noodle bowl of free-trade agreements across Asia."
Helen Clark, Freelance journalist & former Asian correspondent
Australia is “forward-looking on trade and investment,” Ciobo was quoted as saying. “We are very well placed in terms of regional architecture and we really stand to gain from any further commitments to liberalisation.”

RCEP’s total membership accounts for $US22.5 trillion of GDP and a total of $A396.5 of trade with Australia, according to November figures from DFAT.

Its estimation of trade with TPP nations was $A99 billion, “a third of Australia’s total exports.  In 2015, Australian investment in TPP countries was 44 per cent of all outward investment.”

The hope of many economists and those fatigued by trade deals is RCEP may begin to unify the noodle bowl of free-trade agreements across Asia, easing both trade and supply chains. Its members are the entire ASEAN bloc, Japan and Korea, Australia and New Zealand and India and China.

It has none of the reforms of the TPP (IP – intellectual property - law, environmental, labour laws) but it is China’s most ambitious thing to date - a step up from the Asian Infrastructure Investment Bank, requiring serious rounds of negotiations (something a development bank does not have to do) and not with near equals.

SOME TIME

The world - and APAC - has been moving towards multilateralism for some time. RCEP may not directly favour smaller nations but it gives them breathing and bargaining room unlikely when little nations deal directly with large.

For this reason Trump favours bilateral free trade agreements. It’s a similar explanation for China’s stance in the South China Sea being focussed upon a bilateral solution with claimant nations.

Australia's trade relationship with China is already strong, with the ChAFTA in place since the end of 2014 and a further reduction in tariffs from January first this year (a boon for both wine merchants and those in the human hair business). Trade with New Zealand is brisk and there is an ASEAN, Australia New Zealand FTA, too.

Australia has BTAs with ASEAN and many of its members, FTAs with China, Japan, Korea and an interminably argued FTA with India still on the way. Indonesia is a standout in, save for multilateral FTAs via ASEAN, it has only two BTAs: Japan and Pakistan.

Nations like Vietnam will miss the promise of better US market access (despite its own BTA with the US) and access to new markets and its reformers will miss their chance to push needed, and enforceable, reform of the SOE sector. Japan and Singapore of course want reforms too.

 The value of the TPP, and why it mattered to the US, was not just the volume of trade but also sweeping norms it brought to trade, forcing more into the US camp.

Foreign Affairs wrote last year the “geostrategic rationale for TPP is much less about achieving overt economic and security objectives than it is about preserving—and strengthening—US soft power”.

What China does have a chance to do is make RCEP powerful - and show it can now lead effectively - negotiating with near equals like India.

IN THEORY

Neither Australia nor New Zealand has the power or money to sway much but a bloc with Japan and Singapore, could push China to add some TPP-style reforms, in theory.

That is just one possible hope. Professor Siah Hwee Ang of Victoria University in Wellington told BlueNotes, “Japan and Australia are ranked second and fifth respectively in the RCEP in economic size. “

“I would not say that they will be driving the RCEP with China, India and South Korea around. Australia was one of the first to ask China to join TPP now that US seems to be out of it. So you can see where the bargaining power lies.”

And as for global reforms, “China has been doing a lot of reforms around environmental concerns and IP,” he said.

“So this needs no pushing. The issue of who gets to set standards will be the one to watch. It’s hard to see NZ jumping alongside Australia and Japan to put pressures. We have to protect our interests in our bilateral relationship with China.”

Professor Jane Kelsey at the University of Auckland wrote in 2016 all RCEP negotiating parties “have committed to achieving the 2030 Agenda for Sustainable Development, which will require a rebalancing of developmental over commercial outcomes; yet the RCEP chapter is silent on those goals.”

She also sees a structural advantage for larger nations - rather than lessening the burden of differing restrictions for smaller - arguing RCEP makes market access easier for large foreign multinationals. Or rather, it takes down the restrictions facing them even when their competitors might be relatively smaller local firms.

A critic of globalisation, Kelsey sees the advantages going to the stronger nations.

“A WTO-compatible RCEP should not allow the more developed parties to cherry pick the GATS obligations that suit their interests and ignore explicit protections for developing countries,” she wrote, basing her analysis on leaked chapters she had read.

Dr Jeffrey Wilson, at Murdoch University in Perth is more in favour of RCEP. He sees it as a way for China to take a more internationalist lead. His latest writing on it, for the University of Western Australia’s Perth USAsia Centre, can be seen here.

Wilson told BlueNotes the AIIB is “pennies from heaven”.

“You just kind of had to put your hand up (to get money),” he said. “RCEP is hard domestic policy reforms and the RCEP learning curve is so much higher than the AIIB learning curve.”

China’s having to take a lead in major, multilateral negotiations with varied and intransigent players is a new game to simply building infrastructure and giving out money not tied in to “norms and values”. This might be the unnoticed silver lining, believes Wilson.

Whilst a heavy component of the TPP did indeed involve norms, rule of law, intellectual property laws, environmental protection and workers’ rights RCEP simply deals with trade and the reductions of tariffs that stymie it.

This is difficult in itself as there are differing domestic situations in each nation and special interest groups, and different nations want different things.

Australia and Japan may push for new, TPP-like reforms. India and Indonesia may not and are already being difficult.

Should Japan help China deal with India it may then demand more of the very thing India does not want in reform, according to Wilson.

“China has never been in a position where it has had to deal with these vexing problems of trade negotiation,” he said.

PENNIES FROM HEAVEN

Ang thinks China’s primary concern may not now be RCEP at all since the TPP is gone.

“China is moving too fast for the most parts,” he said. “Trade is important for them but not the number 1 priority, which is he One Belt One Road initiative. There is really no incentive for them to jump all over RCEP, especially now that TPP is in limbo.”

Forcing China to take an active part in what are going to be difficult negotiations may help it change up its own command style, but also force it to listen to other voices in the region when previously it has resorted to bullying, force, or divisive tactics.

Whatever the case some trade deal is as desired as it is needed. Asia has enthusiastically embraced free trade in recent decades. According to the Asian Development Bank there are 147 operational FTAs in Asia, and another 68 in negotiations as of 2016. That is one hell of a tangle.

For developing nations free trade is useful beyond selling key products (like Australian wine) but many developing nations import one product to assemble or create a second and then onsell again (Vietnam imports materials from China, hence part of its imbalance with its large neighbour).

Endless varying trade rules with each partner stymie such things, and especially cause problems for smaller businesses.   

Overarching trade rules would go a long way to untying that noodle bowl and facilitating trade in an uncertain time.

“They're going to give it a red hot go and we’ll all be better if they succeed,” Wilson said.

Helen Clark is a journalist specialising in the Asia-Pacific region