1. The ASEAN+1 Framework
Asia has problems of criss-crossing agreements with hundreds of trade arrangements. Some countries, like Singapore, are involved in more than two dozen. Some of the agreements link members together in multiple ways. For instance, Singapore and New Zealand have four active agreements in place between them: a bilateral; the original ‘P4’ for Singapore, New Zealand, Brunei, and Chile; the follow-on deal to the P4, the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP); and ASEAN–Australia–New Zealand (AANZFTA).
The most important FTAs for supply chains, however, have typically been the so-called ‘ASEAN+1’ deals. These are agreements that have tied together the ten economies in the Association of Southeast Asian Nations (ASEAN), Brunei, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam, with other big regional or ‘dialogue’ partners.Footnote 1
Heading into 2012, ASEAN had five ASEAN+1 agreements in place: with China, Japan, South Korea, India, and a final agreement that included Australia and New Zealand.Footnote 2 The original intention of RCEP was to bundle these five existing deals together into one single document. It would allow firms to more easily move goods and services across the region. Given the existence of these five agreements, many assumed it would be quick work to translate them into a larger trade arrangement.
However, there were at least three problems with this assumption. First, the underlying ASEAN+1 trade deals were not consistent. While all covered trade in goods, trade in services and investment were missing for several. Only the 12 party AANZFTA included additional chapters on topics such as e-commerce or intellectual property rights. Second, even if a topic was included in an ASEAN+1 deal, it was not automatic that the parties in that agreement would agree to extend similar provisions to additional members. Tariff concessions, for instance, extended to Australia and New Zealand might be more or less attractive when considered in the context of trade with China or India. Finally, while ASEAN had deals in place with all six Dialogue Partners (DPs), the DPs did not all have arrangements between them. Critically, China was not connected to Japan, Japan had no trade deal with South Korea, and India had no arrangements with anyone other than ASEAN.
The original leaders’ statement for RCEP made clear that the final agreement needed to be better than all (or most) of the existing ASEAN+1 agreements. The Guiding Principles document noted that ‘RCEP will cover trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement and other issues’.Footnote 3 Leaders agreed to commence negotiations in 2013 with a goal of concluding by 2015.
For ASEAN, 2015 was viewed as a pivotal year. It was meant to be the launch of the ASEAN Economic Community (AEC). While the AEC had many goals and objectives, the key statement was the ambition to see ‘free flow of goods, services, investment, skilled labor and freer flow of capital’.Footnote 4 To conclude RCEP at the same time would be an undoubted coup for the institution.
As it happened, the AEC deadline was moved backwards from 1 January 2015 to the end of 2015 in an attempt to give the ten member states more time to complete elements of the agreement. The lofty and ambitious goals of ASEAN were not met, even by the extended timeline. RCEP was also not concluded on schedule, but ASEAN did succeed in firmly anchoring the agreement into ASEAN's internal processes. The institution was, and would remain, ‘in the driver's seat’ across the whole of the negotiations.
2. RCEP Is Built on ASEAN
What did that look like in practice? At least four elements were potentially distinctive about ASEAN's negotiating style.
First, the frameworks for nearly every element of the RCEP were pulled from ASEAN's past experience. This includes, for example, ASEAN-specific nomenclature like the use of the term Standards, Technical Regulations, and Conformity Assessment Procedures (STRACAP), instead of the more traditional Technical Barriers to Trade (TBT).Footnote 5 It also included references to existing ASEAN arrangements of various types.
RCEP, like ASEAN, has granted special flexibilities and preferences for the newest, least developed country members of the grouping: Cambodia, Laos, and Myanmar.Footnote 6 These preferences in RCEP mostly take the form of additional timeline extensions for specific provisions and commitments in the text.
Second, the RCEP process was unusual. Across the more than 29 official negotiating rounds in RCEP, the ASEAN member participants would gather first. Only after a day (or more) spent in internal caucusing – for every round and every chapter – would participants meet up as an RCEP group for discussions. Each chapter had two co-leads: one from an ASEAN member state and one from what were called ASEAN Foreign Partners (AFPs).
The overall negotiation was led by the same delegate from Indonesia, Pak Iman Panbagyo. Pak Iman served as the overall head of the Trade Negotiating Committee (TNC) from the first round in 2013 until conclusion in 2020.Footnote 7 The location of various negotiating rounds rotated. In ASEAN tradition, the sessions started with the first alphabetical host (Australia)Footnote 8 and basically alternated between AFP locations and ASEAN members (beginning with Brunei).
Third, the RCEP was built, as noted earlier, on a set of underlying trade arrangements between ASEAN and the AFPs. In addition, many members had bilateral trade deals in place. This meant managing a fair bit of complexity in creating RCEP outcomes that granted new market access for RCEP members while not creating conditions for any that were worse than existing arrangements.
What did this mean in practice? RCEP trade officials wrote 38 different tariff schedules with very long timelines of 20 years (or even slightly more).Footnote 9 Some countries (Australia, Brunei, Cambodia, Laos, Malaysia, New Zealand, Singapore,Footnote 10 and Thailand) created a single tariff schedule to apply equally to all other trading partners. The tariff on mandarin oranges, or the one on shampoo, for instance, is identical whether or not the product is imported from an ASEAN country. Japan used what might be termed a ‘hybrid’ schedule. It has only one document and most of the tariff lines are applicable to all RCEP countries. However, some specific lines include different tariff rates and reduction timelines for different member states. Japan has one tariff “schedule” for mandarin oranges, for instance, that applies to everyone but Korea and a separate arrangement for Korean exports of mandarin oranges. Finally, the remaining members (China, Indonesia, Korea, Philippines, and Vietnam) opted to create separate schedules to cover tariffs, with most providing five or six documents: one tariff schedule for ASEAN goods and separate tariff schedules for each AFP. The tariff rate for mandarin oranges or shampoo may, or may not, be the same across these different schedules. Or, the tariff rates may ultimately end up at zero for all members, but the timelines and pathways to reduction may vary between schedules. Some members have faster reductions or tariff elimination than others.
The services schedules highlight a fourth unique attribute of RCEP's negotiating style. Like ASEAN, flexibility and pragmatism is important to being able to knit together diverse members with wildly differing economic systems, sizes, and approaches to managing the economy. The base model for working on services scheduling was set down in the World Trade Organization's (WTO) General Agreement on Trade in Services (GATS) from 1995. Under this system, called a ‘positive’ list, members divide up services into four ‘modes’ of delivery depending on who or what moves across a border. Members then write down areas where they are able and willing to make commitments across 12 categories of services and around 160 subsectors. These services categories range from business services to construction to travel and tourism to health and education.
ASEAN has been working on the basis of positive list schedules in all of the ASEAN+1 agreements and within the organization under the ASEAN Framework Agreement on Services (AFAS) commitments. However, ASEAN has also undertaken the objective of switching to a newer approach to managing services commitments in the next generation of ASEAN commitments under the ASEAN Trade in Services (ATISA) agreement planned in 2021. Hence, ASEAN members now have in place a pathway to start scheduling services using what is called a ‘negative list’.
Under the negative list approach, every sector and subsector of services is presumed to be open unless member states agree to allow specific reservations (or exceptions) to the overall commitment to remain in place. Typically, negative list schedules need to include specific laws or regulations in member countries that underpin existing practices that will not be altered in the wake of new trade commitments.
Negative list scheduling has become increasingly common. ASEAN has recently announced a switch in its own use of scheduling in future services commitments as part of the ASEAN Trade in Services (ATISA) process. In addition, many of the members in RCEP already had experience using negative lists. This includes the seven members of RCEP that were also involved in the Trans-Pacific Partnership (TPP) negotiations: Australia, Brunei, Japan, Malaysia, New Zealand, Singapore, and Vietnam.
Some of these TPP parties, in particular, were reluctant to switch back to the use of positive lists. While it is possible to schedule exactly the same commitments using both methods, it can involve a greater workload for officials who have to ensure that both types of approaches deliver the same outcomes. For those members that appreciated the basic approach to negative listing – ‘everything is automatically opened unless stated otherwise’ – the idea of switching back again was viewed as less desirable.
In any case, RCEP had to accommodate the preferences of two different groups. It did so in a uniquely ASEAN way. It allowed members to schedule services under whichever approach worked. But then, as a means to creating greater harmony in the future, it included a promise to have all members switch to negative listing for services in the future.Footnote 11 Hence, at the outset, eight members have positive lists for services in place (Cambodia, China, Laos, Myanmar, New Zealand, Philippines, Thailand, and Vietnam).Footnote 12
As further evidence of pragmatism and taking whatever approach results in agreement among members, all 15 countries opted for negative listing for investment commitments.
Of course, the net result of these different approaches to scheduling services and investment is going to dramatically increase the complexity for firms attempts to understand and use RCEP. A firm that wants to provide something like landscape architecture services across Asia will need to know and understand that seeing the term ‘landscape architecture’ is helpful in one setting (as a positive listing means that members have undertaken a commitment to provide market access and national treatment along the specified modes of delivery) and not helpful in the other (under negative listing, the placement of landscape architecture on a schedule is likely to mean that it is not open for business as a specific reservation has been taken out for the sector).
3. It's Not Just about Country-Specific Schedules
Agreements are not all about the specific commitments that appear in the country-specific schedules. RCEP also managed to create a deeper, more comprehensive legal text. The final document runs to 510 pages and includes 20 chapters. Because the agreement is legally binding, it might have been expected that member states would resort to weaker legal language, i.e., ‘members shall endeavor to deliver’ but RCEP mostly managed much stronger commitments, i.e., ‘members shall deliver’.
The lawyers and academics, of course, will spend years arguing over the depth of such commitments and the extent to which such pledges across the agreement are, in fact, subject to the dispute settlement system embedded in the document. Flexibility and pragmatism also appear in many parts of the agreement that might otherwise seem to strongly commit RCEP members to certain promises. There are clauses where the dispute system is not applicable and others that contain a wide array of specific exceptions. The whole agreement, as with most trade deals, also contains a set of general exceptions for managing issues such as national security, public health and animal safety.
A distinctly ASEAN solution is likely to be deployed in many of these challenges. The RCEP agreement signed in November 2020 should be viewed as the baseline. ASEAN has an admirable track record of regularly updating or upgrading commitments over time. All of the original ASEAN+1 agreements have already undergone (or are in the process of undergoing) upgrading exercises. Typically, these include commitments that both broaden and deepen coverage compared to the original documents. RCEP has a built-in review mechanism, set for five years after the start of the agreement and every five years afterwards.Footnote 13
It is therefore likely that many of the provisions that started in RCEP as outside the scope of dispute settlement might be brought under legal review at some point in the future. The exceptions clauses that can be quite broad in the initial iteration may be narrowed. Items that appear to be weakly covered now, like the government procurement chapter framework or commitments in managing standards, could be made more robust over time.
The process of upgrading commitments should be made easier by another critically important innovation in RCEP: the creation of a Secretariat. RCEP does not, at the time of signature, have this institution in place. But members have agreed that the first task of the Joint Committee, which is in line to manage the overall agreement and commitments contained in the document, is to create a permanent Secretariat.Footnote 14 It is possible that, by the time of entry into force, specifics will be clearer (including the location).
Members recognized the complexity of the agreement which requires more sustained attention than any Joint Committee would be able to manage, i.e. meeting anually. The agreement has a range of legal commitments, other obligations that are not binding, and a raft of country-specific scheduled promises to monitor. The total page count of the agreement runs to 14,367 pages. In addition, the Secretariat will likely be responsible for the ongoing running of the dispute settlement mechanism. The agreement contains promises that will be phased in over time with a range of commitments in the text for additional work on specific issues. RCEP will also be opened for accession of new members 18 months after entry into force.
4. Entry into Force
RCEP will come into force once six out of ten members of ASEAN and three out of five Dialogue Partners complete their domestic-level ratification or certification procedures. For most of the member countries in RCEP, these procedures do not include formal approval by internal bodies, such as legislative endorsement.
Some countries, however, will have gaps in place between existing laws or regulations and RCEP requirements. This challenge is minimized in the short run for the three least developed economies, Cambodia, Laos, and Myanmar, as the agreement grants a variety of extension periods before specific provisions apply. Most of the timeline extensions are three or five years after entry into force. Hence, the most challenging aspects of RCEP implementation, such as many of the new rules for intellectual property rights protections and enforcement need not take place immediately but can happen over time and with additional capacity building mechanisms in place to provide the necessary support.
Some of the ASEAN Dialogue Partners, however, can have much more complicated internal procedures, including reviews or evaluations of the agreement impact, scrutiny from different legislative committees, or multiple readings required of any implementing legislation in Parliament. Such procedures may be time consuming to complete.
Once whatever internal procedures that are necessary are completed, the member is required to notify the ASEAN Secretariat, as the official repository institution for RCEP. When the necessary number of members have submitted letters, the agreement will come into force 60 days later. The target date for approvals is likely to be 1 January 2022. The economic impact of the COVID-19 pandemic will probably accelerate enthusiasm to being the new grouping sooner rather than later to help mitigate some of the damage from trade disruption.
5. What Happened to India?
RCEP began life in November 2012 with an announcement at the ASEAN Leader's Summit. At the time, as noted earlier, ASEAN invited Dialogue Partners that had existing FTAs in place with the region to participate (Australia, China, Japan, Korea, and New Zealand). It also included India.
India participated in all of the rounds of negotiations from the launch in early 2013 until the RCEP Leader's Meeting in Bangkok in November 2019. At that meeting, leaders announced the substantial conclusion of the agreement. A few issues were outstanding, including some of the final tariff line concessions, mostly between Dialogue Partner pairs, and the difficulties locking down the final commitments in the rules of origin chapter. Officials anticipated wrapping up these points and concluding a final legal scrub of the texts and schedules in the first few months of 2020.
Despite the fact that Indian Prime Minister Modi was part of the celebration activities of the substantial conclusion announcement and was included in the photograph of all 16 leader's shaking hands in the ‘ASEAN way’, he announced that his country would not actually be proceeding with membership in a speech (delivered in Hindi) at the event.
The reasons for India's withdrawal will likely be debated for some time. The ostensible reason was the inability of RCEP to deliver acceptable outcomes for India. Provisions that were identified as problematic varied. It may have been difficulties with the rules of origin that would allow content to be cumulated from outside of India or challenges with insufficient services commitments by others, or difficulties accepting limited movement of people. RCEP members were quite flexible and accommodating across most of the negotiations, although some topics, like expansive commitments on movement of natural persons, was never a likely outcome within RCEP.
The real challenge for India likely came down to the fact that there was almost no constituency inside India arguing in favor of joining RCEP and a large and vocal opposition to belonging. Modi was unable or unwilling to tackle entrenched interests that were so strongly opposed to participation. Hence, India declined to move forward to the signature phase of negotiations.
India's withdrawal so late in negotiations threw a wrench into RCEP plans to conclude details and release texts and schedules in early 2020. Much of the rest of the year was taken up with trying to sort out how to handle India.Footnote 15 Considerable energy was spent trying to cajole the country back to the table, with ASEAN inviting India to attend a special session in Bali in early February to discuss changes that might be made to the RCEP agreement. Indian officials, however, did not attend, nor did representatives attend any of the virtual meetings held later in 2020. In the end, India's specific schedules do not appear in the final agreement. India, as an original negotiating state, can accede to RCEP as soon as entry into force, without the need to wait 18 months for the deal to open to new members.Footnote 16
6. RCEP as a Platform for Future Rulemaking
When officials launched RCEP in 2012, it was largely seen as a simple exercise to try to untangle the ‘noodles’ of complicated rules, particularly for trade in goods, across Asia. The largely export-oriented countries in the region wanted to create a new agreement to make it easier for supply chains to operate.
However, by the time the agreement closed in 2020, the conditions for trade had changed rather dramatically. Even the final signing ceremony highlighted the extent of disruption, as the session was handled virtually, with government leaders and trade ministers from each of the 15 member governments signing the final document from inside their respective government offices. The 2020 ASEAN host government, Vietnam, held a small in-person session to facilitate the broadcast of the signatures and a ‘symbolic’ handing over of the agreement to the ASEAN Secretariat.Footnote 17
Other changes that took place during the course of eight years of negotiations, beyond the pandemic, included the continuing inability of the global trade regime at the World Trade Organization (WTO) to deliver concrete results on topics beyond trade facilitation during the eight years of RCEP talks. Equally disruptive was the evolution of the trade conflict between the United States and China from 2017 onwards which impacted supply chains across the region.
Despite strong headwinds, economic integration continued across Asia during the negotiating period. Seven RCEP members successfully concluded the Trans-Pacific Partnership (TPP) negotiations (2015) and then the closure of the follow-on agreement, the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) when the United States withdrew in early 2016. CPTPP came into force for five RCEP member states in 2018.Footnote 18 The European Union managed to sign and bring into force a series of comprehensive and ambitious agreements with South Korea (2015), Japan (2019), Singapore (2019), and Vietnam (2020).Footnote 19
In short, by the time of RCEP's signature in 2020, trade conditions had changed dramatically. The creation of a comprehensive agreement in Asia with an institutional structure built to encourage future collaboration and expansion arrived at a time when alternative mechanisms to manage trade were not working smoothly. RCEP governments have historically been strong supporters of the multilateral system and will continue to be so, but the ability of the Geneva process to deliver results is showing signs of significant stress. Most of the RCEP members are also members of the Asia Pacific Economic Cooperation (APEC).Footnote 20 The role of APEC to serve as an ‘incubator of ideas’ has probably never been more important.Footnote 21 But APEC's ability to deliver changes in the rules and procedures around trade is limited. The G20 or even G7 process has not and cannot create trade rules.
Hence, one of the most important potential consequences of RCEP goes beyond the signatures or implementation of the trade agreement. Asia now has a platform in place to consider and discuss – but critically to actually deliver – trade rules and benefits for the future. As an example, it is possible to imagine RCEP economies crafting rules that will help govern trade in areas like 3D printing. Right now, the global system has not figured out how to more effectively manage the challenges that come from advanced manufacturing processes. Who owns the designs used in 3D or additive printing? How should governments handle the shipment and distribution of inputs? How will governments regulate 3D printed food or pharmaceuticals?
RCEP was not originally created for managing these sorts of issues. But as it moves towards entry into force and implementation, it has set up mechanisms for addressing these critical questions. Regular meetings of officials, ministers, and leaders, managed by an RCEP Secretariat, means that Asia has the ability to discuss future trade and economic developments that will matter to the region. While Asian governments have not typically been at the forefront of setting new rules, regulations, or standards, RCEP creates the potential to do so more effectively in the future.
Of course, having a platform in place does not guarantee that members will use it. It could be that trade changes in the coming five to ten years will disrupt RCEP as well. Trade or economic tensions, or conflicts outside of the economic sphere, could easily confound RCEP's ability to manage member expectations and deliver any concrete results. The fact that RCEP has gotten this far – with a more ambitious, more comprehensive agreement now in place than many expected – suggests that RCEP governments may be able to seize the moment regardless of specific obstacles that might otherwise prevent cooperation.
