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China-championed Asia trade pact gains traction in Jakarta talks

Bloomberg Quint | 9 December 2016

China-championed Asia trade pact gains traction in Jakarta talks

(Bloomberg) — The U.S.’s imminent exit from a massive Asia-Pacific trade deal has renewed urgency among nations huddled in Indonesia to hammer out a separate, China-backed pact.

The 16 nations seeking the Regional Comprehensive Economic Partnership accelerated their efforts during talks this week as rising protectionism threatens a system that has lifted hundreds of millions of Asians out of poverty. Negotiators said they neared agreement on protections and assistance related to small-and-medium-sized enterprises, and also made progress on competition policy.

Matters such as intellectual property rights, as well as trade in goods and services, remain unresolved. The next talks will be held in Japan in February.

“The Asian region generally appreciates that trade and engagement with the world is crucial to higher living standards in the future,” Australian Trade Minister Steve Ciobo said in Jakarta on Wednesday, as his country and Indonesia push ahead with a bilateral trade pact. “That’s a point of contrast in some respects to other parts of the world, where they have adopted a more protectionist approach.”

Focus on the RCEP, which was launched four years ago and could potentially create the world’s biggest free-trade bloc, has sharpened as U.S. President-elect Donald Trump prepares to quit the Trans-Pacific Partnership. Trump’s elevation has seen China become an unlikely champion of trade liberalization at a time other protectionist headwinds are blowing: The World Trade Organization projects the slowest growth in trade since the global financial crisis, while the U.K.’s decision to leave the European Union has added to the uncertainty.

The TPP was the economic component of the Obama administration’s effort to assert U.S. influence in the region amid China’s military and economic rise. For China, which is a party to the RCEP but not the TPP, Trump’s election has created an opportunity to push ahead with an Asia-focused agreement that the U.S. is not involved in.

Chinese President Xi Jinping cited the deal last month among the measures needed to integrate his country into the global economy. A Ministry of Commerce spokesman said Nov. 24 that China wanted to seal the RCEP deal as soon as possible.

“This is an opportunity for RCEP members to drive the process,” said Carlos Kuriyama, a senior trade analyst with the Asia-Pacific Economic Cooperation secretariat, giving his personnel view. “If TPP doesn’t go through, they can try and cover that hole.”

Supply Chains
The RCEP aims to levy tariffs and rules on the region’s supply chains, liberalize investment and introduce dispute-resolution mechanisms. Unlike the TPP, it wouldn’t require members to take steps to protect labor rights or improve environmental standards. The deal, which includes Southeast Asian nations plus countries such as Australia and Japan, would cover almost half the world’s population and 30 percent of the global economy.

Indonesian Trade Minister Enggartiasto Lukita told China’s official Xinhua News Agency on the sidelines of the RCEP talks that negotiations on goods, services and investment sectors were intensifying, with major disagreements persisting.

Not all countries are giving up on the TPP yet. Australia is pushing ahead with ratifying the pact, Ciobo said in an interview, while Japan and Vietnam have signaled they are proceeding. Vietnam’s prime minister Nguyen Xuan Phuc warned Thursday of the growing risk of a return to protectionism, clouding the outlook for an economy that was cited by economists as one of the biggest beneficiaries of the TPP.

“The world and Asean region are facing big challenges in various areas, including security, finance, climate change and risk of returning protectionism," Phuc said at the Bloomberg Asean Business Summit in Hanoi.

The renewed push to get the RCEP across the line comes in the wake of the WTO’s downgrade of this year’s global trade growth forecast to 1.7 percent from 2.8 percent. Next year’s expansion was was seen as ranging from 1.8 percent to 3.1 percent.

Negotiators will meet next in Kobe, where they hope to achieve progress simplifying the current “noodle bowl” of overlapping free-trade agreements between the Association of Southeast Asian Nations and individual countries. One risk would be that countries decide they want to incorporate elements of the TPP into the talks, slowing progress, APEC’s Kuriyama said.

The Jakarta talks are “building a foundation to enter the next step to the finish line,” said Iman Pambagyo, director general for international trade negotiation at Indonesia’s Trade Ministry. All parties must be prepared to “put something on the table” for the talks to move forward, he said.

 source: Bloomberg Quint