Comprehensive Economic Partnership (RCEP)
Negotiations by 16 Asia-Pacific nations to establish the RCEP - the world's largest trading bloc - have been proceeding since 2012. Surveying the negotiations, Biswajit Dhar argues that this ASEAN-led initiative can constitute the building block for a truly viable East Asian Community provided the parties break out from the straitjacket of trade liberalisation.
IN 2011, the leaders of the Association of South-East Asian Nations (ASEAN) took the decision to establish the Regional Comprehensive Economic Partnership (RCEP), for which the ASEAN members agreed to engage with partner countries with which the group had already concluded a free trade agreement (FTA).1 Importantly, the ASEAN leaders decided that the process for establishing the RCEP should be driven by the members of the grouping. The process, according to the ASEAN leaders, was to be guided by the ASEAN Charter, which underlined the need to 'maintain the centrality and proactive role of ASEAN as the primary driving force in its relations and cooperation with its external partners in a regional architecture that is open, transparent, and inclusive' (Article 1, section 15).
The RCEP was conceived of within the broad framework of 'open regionalism', which, as stated in the 'General Principles' agreed by the leaders, was to have 'an open accession clause to enable participation of any of the ASEAN FTA partners ... as well as any other external economic partners'. This meant that the membership of the RCEP was kept open and was not confined to a select few countries. Such a model of integration has the advantage of being more robust and inclusive through the inclusion of a large number of countries.
However, a year later, the ASEAN leaders' decision to launch the negotiations for the RCEP restricted the scope of participation to the grouping's existing FTA partners, all of which lay in ASEAN's immediate neighbourhood. The 'Guiding Principles and Objectives for Negotiating the Regional Comprehensive Economic Partnership' stated that the RCEP would be guided by the principle of broadening and deepening 'engagement with significant improvements over the existing ASEAN+1 FTAs', while recognising 'ASEAN centrality in the emerging regional economic architecture'. The Guiding Principles thus reflected the motivation of the ASEAN members to bring all the grouping's FTA partners under one umbrella agreement and also the intent of the grouping to play a determining role in the process of economic integration that the RCEP was expected to bring about.
More importantly, the Guiding Principles recognised the 'interests of ASEAN's FTA Partners in supporting and contributing to economic integration, equitable economic development and strengthening economic cooperation among the participating countries'. This statement marks out the RCEP as a significantly different regional economic architecture from the other regional economic arrangements that are either in place or being negotiated. While the architects of the RCEP introduced a development dimension in the negotiating mandate, all other regional economic agreements are hinged on the singular objective of opening up markets. This challenging objective notwithstanding, the negotiating mandate for the RCEP stated that the aim would be to conclude the negotiations by the end of 2015.
As an economic formation in the East Asian region,2 the RCEP brings to the fore the collective strength of some of the largest economies in the world. In 2015, countries involved in the RCEP accounted for more than 30% of the world's gross domestic product (GDP) and more than 28% of world trade. Collectively, these countries are home to nearly half the world's population.
These figures indicate that if its collective strength is properly harnessed, the East Asian region can become a strong pivot for the world economy. This will require the countries of the region to develop in a cooperative framework, one which meets the long-term interests of the countries participating in the RCEP negotiations. Given the considerable variations in levels of development, both across the participating countries and also within most of the individual countries, the underpinnings of the RCEP should be to address these development gaps.
This article looks at the state of the RCEP negotiations almost a year after the original end-2015 deadline for conclusion had lapsed. It begins by discussing the key elements of the negotiating mandate and tries to situate it in the larger context of regional cooperation between ASEAN and its FTA partners. A number of initiatives have been taken under this rubric of regional cooperation and these are clearly aimed at improving the development potential of the East Asian region. Importantly, the RCEP negotiating mandate also recognises this critical dimension of cooperation.
The second part of the article dwells on the negotiating dynamics of the RCEP in some of the critical areas. The negotiations are increasingly giving the RCEP the character of any other contemporary FTA, whose horizons are extremely narrow. These FTAs are typically focused on incremental market access possibilities in goods, services and investment that can be taken advantage of only by the dominant players in the marketplace. In other words, these FTAs have added further layers of exclusion to the existing exclusionary processes that were forced upon developing countries by the proponents of the Washington Consensus nearly three decades back.
The RCEP as the basis for building an East Asian Community
The RCEP negotiating mandate, which was elaborated in the 'Guiding Principles and Objectives for Negotiating the RCEP' adopted by ministers of the proposed regional forum in August 2012, included at least two dimensions that differentiate the proposed agreement from conventional FTAs. The first of these was that, as mentioned above, the 'RCEP will recognise ... interests of ASEAN's FTA Partners in supporting and contributing to economic integration, equitable economic development and strengthening economic cooperation among the participating countries'. In other words, economic development and cooperation were expected to be the building blocks of the RCEP.
The second contrasting dimension was that the RCEP negotiating mandate includes economic and technical cooperation as one of its negotiating planks, which 'will aim at narrowing development gaps among the parties and maximising mutual benefits from the implementation of the ... agreement'. The Guiding Principles further clarify that 'economic and technical cooperation provisions in the RCEP will build upon existing economic cooperation arrangements between ASEAN and ASEAN's FTA partners participating in the RCEP'.
It is important to note here that ASEAN members have viewed 'technical and development cooperation' as a sine qua non for economic integration not only within their region, but between ASEAN and other parts of the world as well. This was highlighted in the Initiative for ASEAN Integration (IAI) launched in November 2000. The IAI stated that technical and development cooperation would 'address the development divide and accelerate the economic integration of the less developed ASEAN Member Countries so that the benefits of ASEAN integration are shared and enjoyed by all ASEAN Member Countries'. When it was launched, the IAI identified the following as priority areas: infrastructure, human resource development, information and communications technologies, capacity building for regional economic integration, energy, investment climate, tourism, poverty reduction and improvement in the quality of life.
Over the past few years, a number of regional organisations have made sustained efforts to improve connectivity within the East Asian region, thus giving effect to these critical 'regional public goods'. These efforts are intended to take full advantage of the 'economics of neighbourhood', which can provide a strong impetus for regional integration. An Asian Development Bank (ADB) study conducted in 2012 has argued that the Asian economies can 'unlock their vast economic potential, achieve sustained and inclusive rapid growth, and reduce poverty'.3 Another study has pointed out that 'cooperation on infrastructure and trade facilitation (e.g., transport, customs clearance and product standards) and services (e.g., financial services and labour services) would likely lead to a reduction in trade costs and result in welfare gains well in excess of gains from mere tariff liberalisation'.4 In keeping with this understanding about the importance of connectivity, the ADB is supporting a range of infrastructure projects in the East Asian region that can eventually result in the narrowing of the development gaps.
Effectively connecting the East Asian region is undeniably a critical factor for achieving the objectives of the RCEP. In recent years, a number of initiatives aimed at improving the connectivity between countries through efficient provisioning of regional public goods have been taken. Since the middle of the last decade, the East Asia Summit (EAS) process has been engaged in working out the details of the connectivity plan in the region. The most significant of these is the Comprehensive Asia Development Plan (CADP) aimed at improving connectivity within the East Asian region. The CADP provided 'a grand spatial design of economic infrastructure and industrial placement, and will claim to pursue both deepening economic integration and narrowing development gaps at the same time'.5
The infrastructure development plan spelt out in the CADP aimed not only to support the production networks that already exist in the East Asian region, but also to bring in countries and sub-regions which did not figure very prominently in the networks. Key among the latter category of countries are the least developed countries in ASEAN, namely Laos, Cambodia and Myanmar. Myanmar's opening to the outside world at the beginning of this decade has thrown up a plethora of possibilities of better connectivity between India and ASEAN. It raised expectations of an early implementation of the Mekong India Economic Corridor (MIEC), which proposes to connect 'Ho Chi Minh City, Phnom Penh, Bangkok, and Dawei by road and further to Chennai (Madras) in India by sea route'.6 The MIEC increased the prospects of India participating in a more holistic manner in the production networks that are existing or are expected to come up in the East Asian region.
With these developments afoot, the RCEP can provide the overall framework through which a strong and viable East Asian Community can be developed. The RCEP therefore needs to have two tracks: the first, a regional cooperation and development track, and the second, a market integration track. The first track should tie in all the initiatives of building regional infrastructure. This would enable the RCEP members to provide a coordinated approach to the development of regional public goods like the infrastructure projects mentioned above. Fast-tracking market integration would merely enable the countries that are better prepared to benefit from the process, and this could exacerbate the existing inequities in the region.
Since the RCEP is focusing on generating growth impulses through the regional production networks, the two-phased approach would provide the lagging countries equal opportunities to secure the more coveted slots in these networks. Such an approach should be ideally suited to the interests of countries like India and Indonesia, which have been somewhat hesitant in pursuing the trade and investment 'liberalisation alone' agenda that seems to have driven the RCEP process thus far.
Issues in the RCEP negotiations
The RCEP negotiations began in 2013, and as mentioned earlier, the participating countries had initially expressed their intention to conclude the agreement by the end of 2015. With the original deadline having passed, the negotiating countries have wisely avoided specifying a fresh deadline.
The 15 rounds of negotiations that have been held thus far have exposed the deep divisions that exist between the participating countries in most of the major negotiating areas. Countries driving the negotiating process have tended to treat the RCEP as yet another conventional FTA, with dominant players focusing on issues like market access, investment and intellectual property rights. Economic and technical cooperation, which is the distinguishing feature of the RCEP negotiating mandate, appears to have been largely ignored.
Gleaning from the negotiations held thus far, it can be surmised that the negotiating dynamics are being driven by a set of countries with very high trade liberalisation ambitions. Several of these countries have brought these ambitions from their participation in the Trans-Pacific Partnership (TPP) negotiations. The TPP, which is led by the United States, was negotiated 'with the objective of shaping a high-standard, broad-based regional pact'7 which not only aims at eliminating tariffs and other barriers to trade in a comprehensive manner between the participating countries, but also seeks to set high levels of investor and intellectual property protection. Yet another key objective of the TPP is to ensure regulatory coherence that would be based on the norms existing in the US.
The trade liberalisation agenda pursued in the RCEP negotiations has already exposed at least three anomalies. For instance, calibrated reductions in tariffs on goods offered by India have not been accepted; a single schedule for tariff cuts has been proposed as the approach to tariff cuts. Such an approach would imply that countries that need to protect their sensitive products from imports originating in a specific country would find it difficult to do so. And if the sensitivities are too high, the tariff negotiations could be protracted, as was the case in the TPP negotiations, which took a while to address Japan's sensitivities in the agriculture and automobile sectors.
A second anomaly is the slow pace of services negotiations relative to those on the goods sector, which gives the impression that tariff liberalisation in goods is being pushed as an early harvest. A third anomaly is the complete lack of interest in liberalising services trade via the so-called 'Mode 4', or the cross-border movement of service-providing workers. This issue has been extremely contentious, especially because the ASEAN members have argued that they do not favour its inclusion at this stage, while India has pushed for its inclusion, with some support from Australia.8
There are several issues included in the RCEP negotiating mandate, such as investment and intellectual property rights, on which participating countries have significant differences in perceptions. Existing investment agreements have generally adopted a template which provides high levels of protection to foreign investors and includes the controversial 'investor-state dispute settlement' (ISDS) mechanism that allows a foreign investor to litigate against its host government using private international arbitration procedures. In recent years, the number of ISDS cases has increased substantially,9 a development that has prompted a rethink by several governments about these investment agreements. Among the countries participating in the RCEP negotiations, India had decided to terminate 58 of the 83 bilateral investment treaties it had entered into10 after it had put in place a revised 'Model Text for the Indian Bilateral Investment Treaty' in 2015.11 The new Model Text has rewritten the provisions relating to the ISDS mechanism and has introduced several public interest provisions which would limit the claims that a foreign investor can make while initiating a dispute against the Indian government.
On the issue of intellectual property rights, the RCEP negotiations have become yet another forum where the contestation between the rights of intellectual property owners and the interests of the public at large, especially in the area of pharmaceuticals, is being played out. The contested area has seen deep divisions between the participating countries on issues that have implications for access to medicines at affordable prices. For instance, countries have differed on the language for incorporating the World Trade Organisation (WTO)'s Doha Declaration on the TRIPS Agreement and Public Health, especially on the nature of flexibilities that the Declaration provides for addressing public health concerns. Japan, South Korea and, to a lesser extent, Australia and New Zealand have differed with the positions taken by India and the ASEAN members.
Japan and South Korea have also proposed so-called 'TRIPS-plus' provisions, i.e., provisions that go beyond those included in the WTO's TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement for enhancing the rights of intellectual property holders. For instance, these two countries have proposed that the term of a patent should be extended beyond the 20-year period provided by the TRIPS Agreement in order to compensate for delays in obtaining marketing approval for a patented product. Further, South Korea has proposed that the patent term be extended if there was a delay in processing a patent application.
Yet another 'TRIPS-plus' provision, put forward by Japan, South Korea and Australia, is in respect of intellectual property protection of plant varieties. These countries have proposed that RCEP members should compulsorily accept the framework provided by the International Union for the Protection of New Varieties of Plants, better known as the UPOV Convention. The framework that UPOV currently follows (this was adopted in 1991 and is hence commonly known as UPOV 1991) imposes several limitations on the activities of traditional farmers in developing countries. The most important limitation is that farmers are not allowed to either save seeds of a protected variety to be used in the following year's harvest, or exchange the seeds with their farm neighbours. The TRIPS Agreement, in contrast, does not require WTO member states to follow UPOV 1991; they can develop their own sui generis system for protecting plant varieties. India has used this flexibility to enact a sui generis system that allows farmers to save seeds and exchange with their farm neighbours.
The architects of the RCEP were mindful of the need to address the development aspirations of the participating countries, for they designed an agreement framework that looked distinctly different from that of any other agreement. We have elaborated in this article that the negotiating mandate for this regional integration agreement, namely, the 'Guiding Principles and Objectives for Negotiating the Regional Comprehensive Economic Partnership', emphasised the importance of 'equitable economic development and strengthening economic cooperation among the participating countries'. It also underlined the aspirations of 'narrowing development gaps among the parties and maximising mutual benefits'. In other words, economic development and cooperation were seen as the building blocks of the RCEP. We have also explained that while the development dimension is an integral part of the RCEP negotiating agenda, this dimension has largely remained on the backburner during the negotiations that have taken place thus far.12
Our view is that in order to deliver outcomes that are development-centric and inclusive, it is important for the RCEP to deviate from the path traversed by all other contemporary FTAs. These FTAs have been driven by dominant commercial interests and have thus militated against the interests of countries facing development deficits. The 'disciplines' introduced by such FTAs have denied these countries the policy space that they must have to climb the development ladder.
In other words, these countries have been deprived of opportunities to 'defy their comparative advantages'13 and to therefore meet their development aspirations. While the development experiences of the present-day advanced countries are rife with examples where countries have 'defied their comparative advantages' over time, the FTAs have denied the developing countries the chance to follow suit.
Further, conventional FTAs are driven by short-term sentiments; development partnership is not part of the DNA of these agreements. The RCEP therefore needs to depart from the narrowly focused objectives of conventional FTAs and instead support the process of building an effective East Asian Community that makes the holistic development of the region its core objective.
The members of this formation need to recognise that in order to put their economies on a sustained growth path, they would have to ensure that their domestic economies are fully attuned to taking advantage of the market integration which they initiated. This can be done only if the RCEP members are given the opportunities to make the necessary adjustments. Failure to ensure this will drive another wedge between the leading and the lagging economies, raising uncertainty about the process of integration itself.
Despite its critical importance for furthering the process of East Asian integration, discussions regarding the future directions that the RCEP should take have been extremely inadequate. In the absence of such discussions, the approach towards the RCEP has been reduced to the pursuit of a narrowly focused goal of 'yet another FTA'.
In this article, we have tried to give a glimpse of the immense possibilities that the proposed regional economic formation has in forging a viable East Asian Community. We argued that regional connectivity projects, best described as regional public goods, can provide a strong impetus for the economic integration of the region. These regional public goods can result in benefits that far exceed those provided by a mere tariff liberalisation exercise. The RCEP can therefore provide a collective forum through which the participating countries can work towards the long-term development of their region.
Biswajit Dhar is Professor of Economics at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi.
1 'ASEAN Framework for Regional Comprehensive Economic Partnership', Nineteenth ASEAN Summit, Bali, Indonesia, 14-19 November 2011, accessed from: http://asean.org/?static_post=asean-framework-for-regional-comprehensive-economic-partnership.
2 The countries participating in the RCEP negotiations are the original members of the East Asian Community, which was formed in 2005.
3 Bhattacharyay, Biswa Nath, Masahiro Kawai and Rajat M Nag (2012), Infrastructure for Asian Connectivity, Asian Development Bank Institute and Edward Elgar, UK, p. 2.
4 Asian Development Bank Institute (2013), 'Connecting South Asia and Southeast Asia: interim report', ADB/ADBI, Tokyo, p. x.
5 Economic Research Institute for ASEAN and East Asia (2010), The Comprehensive Asia Development Plan, ERIA Research Project Report 2009-7-1, available at: http://www.eria.org/publications/research_project_reports/the-comprehensive-asia-development-plan.html, p. 1.
6 Ibid., p. 90.
7 'USTR Ron Kirk Remarks on Trans-Pacific Partnership Negotiations', Press Release, Office of the United States Trade Representative (USTR), 15 December 2009, available at: http://www.ustr.gov/about-us/press-office/press-releases/2009/december/ustr-ron-kirk-remarks-trans-pacific-partnership-n.
8 Mishra, Asit Ranjan (2016), 'RCEP faces services logjam; India pushes for liberalized visa regime', Livemint, 25 July, accessed from: http://www.livemint.com/Politics/7Zfm9yuQYP6XrcNztK7APM/RCEP-faces-services-logjam.html.
9 In 2015, 70 investor-state disputes were initiated, the most in a single year. For details, see UNCTAD (2016), 'Investor-State Dispute Settlement: Review of Developments in 2015', accessed from: http://investmentpolicyhub.unctad.org/Upload/ISDS%20Issues%20Note%202016.pdf.
10 Response of the Indian Minister of Commerce and Industry to a question in Parliament on 25 July 2016, accessed from: http://dipp.nic.in/English/questions/25072016/lu1290.pdf.
11 Accessed from: https://www.mygov.in/sites/default/files/master_image/Model%20Text%20for%20the%20Indian%20Bilateral%20Investment%20Treaty.pdf.
12 There is some reference to this dimension in: Elek, Andrew (2014), 'RCEP will help get Asian integration back on track', East Asia Forum, 7 June, available at: http://www.eastasiaforum.org/2014/06/07/rcep-will-help-get-asian-integration-back-on-track/.
13 See Ha-Joon Chang's arguments in Lin, Justin and Ha-Joon Chang (2009), 'Should Industrial Policy in Developing Countries Conform to Comparative Advantage or Defy It? A Debate Between Justin Lin and Ha-Joon Chang', Development Policy Review, 27(5): 483-502.
*Third World Resurgence No. 314/315, October/November 2016, pp 11-15