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The RCEP Initiative and ASEAN “Centrality”

CIIS Time: Dec 6, 2013 Writer: Wang Yuzhu Editor: Li xiaoyu

 

by Wang Yuzhu

 

 

In a watershed moment for regional cooperation, the ASEAN Framework for Regional Comprehensive Economic Partnership (RCEP) was endorsed by leaders at the 19th ASEAN Summit in November 2011. Just as APEC and CAFTA did many years ago, the new ASEAN initiative drew immediate, widespread attention, triggering talks on its future influence on the regional economy. After all, this free-trade arrangement covers half of the global population and a third of global GDP. People have concerns about the potential influence of the new initiative on the Asia-Pacific region’s cooperation structure. One of these concerns is the interaction between the RCEP and United States-driven TPP. Now that the ASEAN Community has reached a crucial developmental stage, establishing a high-level FTA through the RCEP will not be an easy economic task. In addition, ASEAN has sometimes hidden its true motivations.[1] It is evident that ASEAN’s efforts to advance the RCEP are geared towards boosting the often-addressed “centrality” of its organization rather than deepening regional economic cooperation. As a result, ASEAN may emphasize process more than progress in building the RCEP.[2] It will take time for the RCEP to usher in welfare effects and bring about closer regional cooperation.

 

I. The RCEP Framework and Objectives

 

The RCEP Initiative was first proposed under the ASEAN Framework for Regional Comprehensive Economic Partnership. Two documents are necessary in order to fully understand the Initiative: the ASEAN Framework for Regional Comprehensive Economic Partnership, which explains the agreement’s principles, and the Guiding Principles and Objectives for Negotiating the Regional Comprehensive Economic Partnership, which has played a guiding role throughout negotiations. Together, the contents of these two documents outline the RCEP Initiative: to build a “modern, comprehensive, high-quality and mutually-beneficial FTA” through consolidation of the five ASEAN-centered “10+1” FTAs.

The RCEP framework that was endorsed by national leaders at the 19th ASEAN Summit in November 2011 in Bali aims at “establishing an ASEAN-led process by setting principles”. The principles defined in the document call for more extensive interactions with current FTA partners and advances in existing FTA/CEP. These principles outline the framework for future regional cooperation agreements. Rough as this framework is, it acts as a strong guiding force for establishing future regional partnerships.

The Guiding Principles and Objectives for Negotiating the Regional Comprehensive Economic Partnership was endorsed at the 44th ASEAN Economic Ministers’ (AEM) Meeting in August 2012 in Siem Reap, Cambodia, marking an important step in the building of the RCEP. This was seen as a sign that the RCEP would be negotiated as an agreement. With the exception of negotiating objectives that still must be further defined, this minister-designed document is mainly in line with the ASEAN Framework for the RCEP and acts as preparation for launching the negotiations.

First, it established a time frame for the negotiations, marking an initial step in the RCEP process. Negotiations between ASEAN, China, Japan, South Korea, India and Australia and New Zealand will be launched in early 2013 and completed by the end of 2015. In addition, it set an objective framework for the negotiations. The negotiations will aim to establish a modern, comprehensive, high-quality and mutually beneficial economic partnership that encompasses trade in goods and services, investment, economic and technical cooperation, intellectual property, competition, dispute-settlement and other issues. This will help define the objective of the RCEP and the goals for this round of negotiation. The document also defined numerous related aspects.

It will aim to progressively eliminate tariff and non-tariff barriers on all trade in goods in order to establish a free-trade area among parties. With regards to trade in services, it will substantially eliminate restrictions and/or discriminatory measures between RCEP participating countries. All sectors and modes of supply will be subject to negotiations. The document also strives to create a liberal, facilitative, and competitive investment environment in the region. It further states that negotiations for investment under the RCEP will cover the following four pillars: promotion, protection, facilitation and liberalization. On the subject of economic and technical cooperation, the RCEP will build upon existing economic cooperation arrangements between ASEAN and ASEAN’s FTA partners that plan to participate in the RCEP. Cooperation activities should include e-commerce and other areas that will be mutually agreed upon by participating RCEP countries. The document will also aim to reduce IP-related barriers to trade and investment by promoting economic integration and cooperation in the utilization, protection and enforcement of intellectual property rights. While aware of the significant differences in the competitive capacities and national regimes of participating RCEP countries, the agreement will aim to promote competition, economic efficiency, consumer welfare and the curtailment of anti-competitive practices.

Moreover, the RCEP will include a dispute-settlement mechanism while also including other issues covered by FTAs among RCEP participating countries. These issues may be identified and mutually agreed upon throughout the course of negotiations, and they will take into account new and emerging issues relevant to the business realities of today’s world.

 

II. The “Bucket Effect” and Challenges Facing the RCEP

 

Building the RCEP into a modern, comprehensive, high-quality and mutually beneficial economic partnership will bring substantial benefits to all stakeholders.[3] Although it will also require great efforts in order to include high-level tariff reduction,[4] the integration of different rules of origin (ROOs) and consensus measures on service trade and investment. On May 13, 2013, the First Meeting of the Trade Negotiating Committee resulted in a joint statement that further promotes the existing “10+1” FTAs. It also emphasizes the importance of maintaining ASEAN “centrality” and taking into account development gaps between participating countries. Even though there have not yet been specific measures on how to boost the five “10+1” FTAs, it is clear that there are at least three levels of “bucket effect” constraints when promoting the RCEP.

 

1. Huge differences among five “10+1” FTAs

A comparison between the five “10+1” FTAs demonstrates huge differences in time arrangement,[5] tariff reduction levels and the applicability of rules of origin. The last two are of critical importance to the RCEP. Different ROOs are the primary cause for the “noodle bowl” effect. Among the five bilateral FTAs, the ASEAN+Australia & New Zealand FTA enjoys the highest tariff elimination coverage, reaching 95.7 percent, while the ASEAN+India FTA has the lowest coverage, reaching only 79.6 percent since India only committed to 78.8 percent elimination, far less than the other four countries. Even if tariff elimination coverage is targeted at 90 percent, it is hardly optimistic for India to meet such an objective by the end of 2015, especially considering its current tariff levels. However, if a 95 percent coverage goal is adopted, all countries will be challenged, except for some ASEAN countries (Singapore, Brunei, Malaysia and Thailand), Australia and New Zealand. Flexibility is repeatedly addressed in the RCEP framework and guiding principles, so it is likely that a “race to the bottom” scenario will occur in order to achieve consensus in the RCEP. This also means that the RCEP negotiations will need to escape the “noodle bowl” effect, which is caused by the coexistence of multiple FTAs. It may also be constrained by the “bucket effect” during the consolidation process.

 

2. Lack of several important bilateral FTAs between RCEP participating countries

The RCEP will also be challenged by the “bucket effect”. According to the negotiating principles currently expounded by RCEP participating countries, the agreement will be built on the five existing bilateral FTAs and it will move forward on an ASEAN-centered base. However, among ASEAN and the five FTA partners, many member countries still do no have bilateral FTAs with each other: for example China and Japan, China and India, Japan and South Korea, India and New Zealand. Although the China-Japan-Korea Free-Trade Area (CJKFTA) negotiations were launched in 2013 in order to achieve a trilateral free trade agreement, the negotiations came to a deadlock after the Diaoyu Island dispute broke out between China and Japan. As was the case with the first round of CJKFTA negotiations, the future talks are also likely to be affected by trilateral diplomatic ties. At the present time, it is unrealistic to rely on these three countries in order to advance the RCEP. That is to say, building the RCEP is not simply about binding the existing “10+1” FTAs together; making the liberalization objective in the RCEP acceptable to participating countries with no bilateral FTAs will be no easier than integrating the five FTAs.

 

3. ASEAN Economic Community hardly complete on schedule

It is important for ASEAN, the leader and facilitator of the RCEP, to enhance its own capacity building. However, as a tool intended to improve integration, the ASEAN Economic Community (AEC) does not have the best prospect to accomplish this task. The Mid-Term Review of the Implementation of AEC Blueprint shows that tariff elimination within the AEC is not on schedule.[6] Further development of the AEC will require restructuring in all participating countries, making AEC building even more difficult. This means that ASEAN itself may become the weakest link during the RCEP negotiations.

 

III. RCEP and ASEAN “Centrality”

 

Why would ASEAN propose the RCEP initiative when it is not sure whether it can achieve the RCEP objectives? Das, a Singaporean scholar, listed three motivations: first, to overcome the “braking effect” caused by competition between the “10+3” and “10+6” FTAs in East Asian cooperation; second, to solve the “noodle bowl” problem by integrating the current five “10+1” FTAs; and third, to further entrench ASEAN centrality.[7] In fact, the first and third points actually refer to the same thing: ASEAN enhancing its centrality. ASEAN simply chose to reach this objective through integration, an approach that affects the welfare of all participating countries.

 

1. ASEAN “centrality” and conditionality

A brief review of East Asian cooperation since the 1997 financial crisis shows that ASEAN, a group that has upheld the “Balance of Powers” since the Cold War, obtained centrality by building multiple “self-centered” bilateral cooperation frameworks in East Asia. This centrality gained momentum in the wake of China’s proposal for a China-ASEAN FTA. Further studies show, however, that ASEAN has sought to attain “functional centrality,” meaning that it acts as a platform for cooperation and thus has the functional rights. ASEAN is not the power center of East Asian cooperation, which is illustrated by numerous literature on the leading role of East Asian coopeeration. Many ASEAN scholars have expressed their doubts on ASEAN’s centrality. The separation between the power center and the functional center has alienated ASEAN’s role in East Asian cooperation while forcing it to extend its centrality by maintaining its role as a platform. To gain a better understanding of the relationship between the RCEP initiative and ASEAN’s appeal for centrality, one must analyze ASEAN’s peculiar position in East Asian cooperation.

ASEAN’s advantage as the center of East Asian cooperation benefits from two factors: first, the special power structure in East Asia makes it impossible to form a power axis in the region, unlike the historic Franco-German axis in Western Europe.[8] Thanks to competitive and cooperative Sino-Japanese relations, ASEAN, a group of small countries, was able to acquire centrality. Under such a political structure, ASEAN built a self-centered cooperation framework by executing the diplomatic strategy of “balancing powers.” Even though China’s rapid economic growth is reshaping the actual power structure in East Asia and beyond, Sino-Japanese competition and cooperation will continue in the short-term. It is fair to say that ASEAN did not lose its advantageous international relations position by acting as a functional center. Second, ASEAN has been promoting regional cooperation since 1967; by expanding the membership and scope of its cooperation, it has accumulated much experience. Although criticized by many parties, the ASEAN way of cooperation is best suited to its own interests and characteristics. As such, ASEAN’s role as a functional center also profits from the wide acceptance of the ASEAN way. For example, in the aftermath of the 1997 Asia financial crisis, ASEAN put forward a proposal to enhance cooperation with China, South Korea and Japan in order to boost the building of markets. This proposal received positive responses and became the new platform for regional cooperation.

The two factors above demonstrate that ASEAN centrality depends on certain conditions. According to “path dependence theory”, there will not be a challenger in East Asia that can replace ASEAN as the pioneer of East Asian cooperation. Regardless, ASEAN still needs to improve its integration in order to more effectively move East Asian cooperation forward. This impetus led to the establishment of the ASEAN Community Plan, consisting of the Economic Community, the Political Security Community and the Socio-Cultural Community. ASEAN is keenly aware that the “ASEAN way”, formed through long-term cooperation, helps secure its advantages in East Asian cooperation; similarly, it is aware that its own capacity-building and further integration will help consolidate its role as the platform and regional function center. Such considerations fully explain why community building was listed as the priority in the recently concluded 22nd ASEAN Summit.[9]

The two factors analyzed above account for why ASEAN acts as the center of East Asian cooperation, but these are only the prerequisites for ASEAN to lead in the regional cooperation framework. Obviously, it was not until the “10+3” cooperation framework that ASEAN gradually formed its “centrality” in the post-crisis years. In the previous three decades, no one spoke of ASEAN centrality in East Asian cooperation; back then, there was no effective cooperation framework in East Asia. What is often ignored is that ASEAN’s functional centrality in regional cooperation relies on the regional cooperation framework. That is the most fundamental premise of ASEAN’s centrality.

The conditionality of ASEAN centrality also guarantees its vulnerability. For ASEAN to control this vulnerability, it needs to strengthen integration while safeguarding the East Asian cooperation framework.

 

2. Safeguarding ASEAN “centrality” as a RCEP priority

ASEAN’s functional centrality in the region depends on the progress of cooperation in East Asia. This will help determine ASEAN’s sensitivity regarding the East Asian cooperation framework and also help explain why ASEAN puts process above progress.

A basic overview of cooperation in East Asia reveals that since the 1997 financial crisis, the ASEAN-centered “10+” structure took shape as a result of a common voice pushing for regional market building. The structure supported by multiple “10+3” and “10+1” FTAs makes ASEAN an important platform and functional center in East Asian cooperation. Despite China and Japan’s struggle over regional dominance, this cooperation framework has managed to sustain itself. However, when rivalry between “10+3” and “10+6” occurred in 2006, the development of the framework was stalled and ASEAN-centered cooperation in East Asia suffered. Such developments show that the competitive initiative aiming to reduce China’s influence has garnered expected results. However, the initiative also endangered ASEAN’s functional centrality because of the competition over frameworks and the consequent interruption in the process. The word “centrality” has shown up frequently in ASEAN’s statements and declarations over the past two years, proof that ASEAN has recognized the deep-seated challenges facing its “centrality”.

The United States’ participation and promotion of the TPP in 2009 posed even more severe threats to ASEAN’s centrality. As APEC lost its vitality and the Bogor Goals failed to adapt to a changing Asia Pacific, the United States lost its effective connection when cooperating with East Asia. Targeting a Free-Trade Agreement of the Asia Pacific (FTAAP), the TPP on the one hand helps the United States recreate a cooperation platform with East Asia and on the other hand determines rules via a new cooperation framework. Different from ASEAN’s “teamwork” in East Asia cooperation, the TPP has a high threshold and has only adopted “one-on-one” negotiations thus far. Moreover, the TPP was designed to establish an FTA under the APEC framework, and APEC does not include all ASEAN countries. Even if the TPP covers all APEC countries, ASEAN will not be wholly included, and it will certainly not play a central role.

In summary, ASEAN is aware of the great difficulty of reaching its RCEP objectives. But under the new framework, ASEAN has subtly shirked Sino-Japanese competition in East Asia and launched a self-centered cooperation process across the region. What is more, ASEAN shifted its efforts from promoting a “10+6” agreement to promoting the RCEP, thus shaking off concerns that China would lead in extending the East Asian framework.

 

IV. RCEP Process and the Regional Cooperation Landscape

 

Over the next two and a half years, RCEP participating countries must reach a consensus in defining their liberalization and integration objectives. All parties are expected to complete negotiations by the end of 2015, but it is possible that more efforts will follow in case consensus can only be achieved on certain issues. The RCEP is definitely a success in terms of safeguarding ASEAN’s “centrality”, and to some extent it will influence the regional cooperation landscape of the future.

 

1. Safeguarding ASEAN “centrality”

Even though many people suspect that it will hardly be possible to attain the RCEP objectives by the end of 2015, the RCEP will still be promoted as a regional cooperation process for the following two reasons.

First, ASEAN has attached great importance to completing the negotiations by 2015. Great changes in the East Asian security situa-tion in recent years have forced ASEAN to safeguard its own interests. As a result, the RCEP initiative has highlighted ASEAN’s “centrality”,[10] which ensures that ASEAN’s interests will be supported and valued in regional cooperation. ASEAN’s historic efforts, reaching back almost five decades, have not yet led to a high level of integration. The 1997 financial crisis greatly harmed ASEAN’s image and pushed ASEAN to improve on all fronts. Within the organization, the level of consensus and timely completion of the RCEP negotiations are of secondary importance; for ASEAN, the key is to launch an ASEAN-centered process.

Second, the RCEP has received support because there is sufficient demand for its creation. During the 2012 ASEAN Summit, leaders representing ASEAN and six FTA partner countries released the Joint Declaration on the Launch of Negotiation for the Regional Comprehensive Economic Partnership. In this declaration, they expressed unanimous support for the RCEP, and long before the summit, all participating countries sent various types of positive signals. China made commitments to participate in and promote the RCEP before attending the 2012 ASEAN Summit. The United States, which has been closely following East Asian cooperation, also made positive comments. When attending the United States-ASEAN Ministerial Meeting in August 2012, United States Trade Representative Ron Kirk said, “[We] think they [the TPP and RCEP] are complementary, not necessarily competitive.” This is the type of remark that ASEAN had hoped for, because it was reluctant to see the RCEP labeled as a rival of the TPP. In the China-ASEAN Forum held in Singapore in November 2012, Ambassador Tommy Koh of Singapore laid out ASEAN’s view on the relationship between the RCEP and the TPP: he said the RCEP will help achieve the FTAAP pursued by the TPP. In other words, the RCEP and the TPP share the same objective.

Underlying these supportive statements is strong regional demand for the RCEP. A study from the Asian Development Bank shows that there has been more macroeconomic activity among Asian countries than there was in the past. Since there are no prospects for a Doha round, the RCEP is a more realistic platform for regional cooperation. Also, because the United States-driven TPP has high standards, many Asian countries will be excluded, even though it may provide strong revenue for some.[11] In other words, besides its desire to safeguard its centrality, ASEAN is also strongly driven by economic interests in promoting the RCEP.

In fact, the RCEP has already begun to function as a new platform for ASEAN-led regional cooperation. On the one hand, the launch of RCEP negotiation indicates that East Asian cooperation was able to overcome the “braking effect” caused by Sino-Japanese competition; but on the other hand, ASEAN played a leading role, whether in proposing the RCEP framework or in formulating negotiating principles. This provides evidence that by offering a platform for regional cooperation, the RCEP has achieved initial results in safeguarding ASEAN’s “centrality”.

 

2. The RCEP and regional cooperation structure

Regardless of whether RCEP negotiations are successfully concluded by the end of 2015, this new process of regional cooperation has already been launched. As designed in the RCEP framework, the FTA will expand to include more ASEAN dialogue partners after 2015, a signal that the RCEP building would be a long-term development course. The RCEP will also help form a regional cooperation structure in which the Asia Pacific and East Asian frameworks can function parallel to each other.

After the Cold War, the Asia Pacific cooperation structure only evolved from APEC to the APEC plus ASEAN-centered “10+” framework. Entering the 21st century, the “10+” framework experienced stagnation and the TPP was formed under APEC, becoming the new Asia Pacific framework. Stagnation in the “10+” framework endangers ASEAN “centrality”, and the East Asian cooperation framework is also likely to be fully covered by the TPP. In terms of the evolution of the Asia Pacific cooperation structure, after the parallel structure of APEC and “10+” collapsed, the RCEP, originally designed to safeguard “centrality”, has also come to fulfill that role. Whether or not the TPP and RCEP integrate and end up becoming the FTAAP, their coexistence will be a windfall for East Asia. After all, many countries are unable to reach the high thresholds of the TPP.

 

V. Conclusion

 

The RCEP is a cooperation framework designed to safeguard ASEAN “centrality” amidst a changing Asia Pacific cooperation landscape. At present, RCEP is winning support from all sides and is being launched as a new cooperation process. Already it has begun to play its role in safeguarding ASEAN “centrality”. However, the RCEP’s objective to promote regional integration by integrating the five bilateral FTAs will not be an easy task. It will be made even more difficult by the fact that ASEAN does not intend to deviate from its approach of “putting process over progress” by realizing the RCEP objectives. The launch of the RCEP heralds a new parallel cooperation model in which the RCEP and TPP can coexist and will influence the future Asia Pacific cooperation landscape.

 

Source: China International Studies September/October 2013 p119-132


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