Are there many building blocks to freer trade?

Steven CM Wong
Senior Director, ISIS Malaysia

LOGIC: The more extensive and deeper an agreement is, the more likely it is to be the de facto standard

How does the Trans-Pacific Partnership (TPP), now being negotiated among 12 Asia-Pacific countries, including four from Asean, impact the latter's  Regional Comprehensive Economic Partnership (RCEP)?

It is easy to claim, as some have done, that both are building blocks towards freer trade. But are they really? This claim is further doubtful if the two blocks are of different size, weight and degree of ambition.

TPP is touted as a 21st-century agreement. There are many regional free trade and economic partnership agreements in the world but not a single one approaches what TPP is attempting in terms of comprehensiveness and ambition.

What about RCEP? On paper, it goes much further and deeper than anything Asean has attempted, either among member states or with Plus One countries, that is, with Australia, China, India, Japan, New Zealand and South Korea.

RCEP guiding principles incorporate services liberalisation, intellectual property protection and competition. In an obvious nod to TPP, RCEP will also cover "other issues covered by FTAs among RCEP participating countries, which may be identified and mutually agreed in the course of negotiations, and take into account new and emerging issues relevant to business realities".

The drawback is that RCEP contains language that some have felt uncomfortable with, especially given Asean's practice of striving for consensual minimalist rather than conflict-prone maximalist goals.

Qualifying phrases such as "recognising the individual and diverse circumstances of the participating countries" and "appropriate forms of flexibility, including provision for special and differential treatment", in effect, provide escape clauses from the making of full-blooded commitments.

These fears now seem to be taking on greater shape after the first RCEP ministerial meeting held in Brunei last week, where some member countries talked of free trade exceptions and the need to be less aggressive and ambitious.

Indonesia did so and so did India. Adding to this apparent credibility gap is the fact that unlike the TPP, there are no prime movers, certainly none as large and powerful as the likes of United States and others to set agendas and keep negotiations on track.

The idea that countries can commit to two widely differing standards of regional economic obligations needs to be critically examined. Logically, the more extensive and deeper an agreement is, the more likely it is to be the de facto standard.

In the present case, this would undoubtedly be TPP. Not only is the scope wider and the commitments deeper but more countries are interested to join. The latest to do so is Japan, after Canada and Mexico.

China is giving off strong signals that it is prepared to enter into TPP negotiations. The standards will propagate through the Trans-Atlantic Trade and Investment Partnership (TTIP) and other bilateral agreements that TPP members sign.

China, Japan and the US make up a large part of world trade and Asean is dependent on them to a large extent. RCEP may not be able to significantly deviate from these since these three same countries are involved in TPP.

Asean's expectations about being able to take it easy and maintain flexibility may therefore be more apparent than real. Asean has little room to manoeuvre if it places a high priority on concluding RCEP.

Understandably, large ones will be hesitant to jump on the bandwagon. But can they afford not to even as others are onboard or running to get onboard?

This all presumes, of course, that TPP and RCEP are concluded. These are big 'ifs' given the complex and sensitive nature of negotiations and the huge level of ambition.

If efforts to conclude TPP are not successful, this might possibly give greater wiggle room for RCEP. But many countries in TPP have economic partnership agreements with each other and the US, so this scenario is unlikely.

Those who opt out of TPP might find that the alternative is not really that much more pleasant. In effect, they would not have the advantages of being in TPP while subject to its terms anyway. If RCEP, in turn, cannot be satisfactorily concluded, the region is back at square one and this could have serious implications for the growth of world trade and protectionism.

*Article by Steven CM Wong which appeared in The New Straits Times, Aug. 27 2013.  This article is also derived from ISIS Malaysia website (www.isis.org.my) and uploaded here with the express permission of the author.