Although talk of a US-China regional power play will dominate headlines, and doubts continue about Asean’s effectiveness in dealing with regional security issues like the South China Sea, one bright spot in this week’s Asean Summit will be its ambitious plan to launch a new regional free-trade partnership.
The partnership comprises Asean plus China, India, Japan, South Korea, Australia and New Zealand — countries that have already signed free trade agreements (FTAs) with the 10-country association.
Cambodian soldiers stand guard in Phanom Penh for the Asean Summit. — AFP
Asean will announce the start of talks on guidelines that would lead to the formation of the Regional Comprehensive Economic Partnership (RCEP) — a trade partnership comprising 16 countries with nearly half the world’s population and a combined gross domestic product (GDP) of US$17.23 trillion.
“It is a major announcement and huge undertaking,” says Asean Secretary General Surin Pitsuwan. The US-sponsored Trans Pacific Partnership — a pact that Washington sees as the model for a 21st century free trade agreement — is coming. But Mr Surin believes the RCEP could move forward more quickly.
The negotiation, based on the existing free trade region, will start early next year and be concluded in 2015, says Arthayudh Srisamoot, the Asean director-general for Thailand.
The pact, he said, would benefit trade in goods, services and investment between Asean and its partners at a time when many Western economies are economically weak or in recession.
After Asean signed the five FTAs (Australia and New Zealand are combined) the question was posed: what next?
China proposed an Asean+3 (China, Japan, South Korea) pact. Japan, concerned that China would dominate such an arrangement, proposed an Asean+6 pact.
Asean digested both proposals and came up with the RCEP — stringing the five FTAs already in place into one — aimed at forging deeper engagement than the individual FTAs and resulting in smoother flows of trade and investment.
“It is going to be a challenge because not all five FTAs are the same. With the Indians, Chinese, Koreans and Japanese there are still discrepancies,” said Mr Surin, but adding “at least there are building blocks already in place”.
He admits the launch of discussions on guiding principles is very general but if it is done, “everyone would benefit”.
“The Japanese would like to come through us to go into India. India would like to go through us to go to China and Australia. It’s a huge landscape that’s worth trying but it’s not going to be easy. There will be vested interests and conflicting interests. But it will be one of the major announcements at the summit”.
The economic ministers of the 16 countries have been working to submit key recommendations to their leaders when they meet this week. Some Asean officials say members want the pact to be formed by as early as next year.
According to Iman Pambagyo, director-general for international trade cooperation at Indonesia’s Trade Ministry, Asean and its FTA partners have already set up three working groups on trade in goods, services and investment.
The launch of RCEP tomorrow is likely to prompt scepticism since Asean is still in the midst of forming the Asean Economic Community (AEC) by 2015.
Criticism of Asean’s approach usually comes from the media, economists and academics. Asean is also criticised for being too slow or for adopting the wrong approach.
“But the Asean approach gets things done and has a structure leads to results,” says a western diplomat involved in trade negotiations with Asean.
“Economic connection in Asean is one of the most developed. All members are part of the process at a pace they can handle. [All members] contribute to liberalisation and they choose the priorities.”
The diplomat was full of praise of the AEC and its approach.
“The AEC brings together all the economic agreements and reorganises them, reprioritises them,” he said. The AEC is then added to the Community and Political Security pillars.
Apart from the prime objective of the AEC, another key Asean policy is to engage more deeply with its external partners, especially in the economic environment.
And at the heart of the AEC is the Asean Connectivity Master Plan, the diplomat said, adding that it is crucial to enhanced integration and to attract more external partners. The cost of the plan is US$600 billion.
Commenting on the RCEP, the diplomat said it was an Asean initiative that “surprised a number (of countries)”. The approach maintains Asean’s centrality but also allows for flexibility.
Everyone knows that there won’t be full liberalisation of trade barriers, but the diplomat added that a positive approach is open accession — any FTA partner member can take part and join at any time.
The individual interests of the partners can be accommodated and there is agreement that sensitive sectors would not be included or excluded, the diplomat added.
Although the United States is not a member of the RCEP, Washington will continue to remain economically engaged with Asean while pursuing its Trans Pacific Partnership. But the TPP is a completely different instrument, launched during the Honolulu Asia Pacific Economic Cooperation (Apec) summit last year by President Obama and leaders of nine Asia-Pacific countries.
The TPP goes beyond an ordinary free trade deal and covers areas such as government procurement, and promotes higher labour, environmental and intellectual property standards — areas that are usually excluded from other trade pacts.
Many developing countries would have difficulty complying with all the TPP targets. Even so, Brunei, Malaysia, Singapore and Vietnam have already joined from Asean. Thailand has just announced that it will study the pros and cons of starting talks with the US.
In any case, the United States continues to engage with Asean through the
Asean US Trade and Investment Framework Arrangement (TIFA). Under consideration for 2013 are continued cooperation on trade facilitation, the digital economy, trade and the environment, and priority areas for Asean integration including SME development and Asean connectivity.
Continued impetus to form new economic pacts in Asia comes at a time when the economies of Europe, and even the United States, are going through a rough patch. And while it remains to be seen how the AEC, the RCEP and TPP take shape, one thing is certain: many gover he future resting in Asia. And as the key regional grouping, that’s a bright spot that cannot be ignored.
About the author
- Writer: Pichai Chuensuksawadi