Willemien Viljoen, tralac Researcher, discusses what the Continental Free Trade Area (CFTA) negotiations can learn from the Regional Comprehensive Economic Partnership negotiations in Asia

On Tuesday 21 February the Asian Trade Centre and Thomson Reuters hosted a webinar entitled ‘Demystifying RCEP – The “Other” Mega-Regional Trade Agreement’. What was evident from the panel discussions is that challenges for the Regional Comprehensive Economic Partnership (RCEP) negotiations resonate with challenges up for discussion in the Continental Free Trade Area (CFTA) negotiations. However, there have been some interesting suggestions under the RCEP framework to address some of these challenges which illustrate that a new way of thinking can lead to dynamic and modern solutions to persistent and well known problems – a dynamism which should be taken on board in the CFTA negotiations. It is not about taking what is being discussed under the RCEP and inserting it into the CFTA, but rather showing what is possible when there is a shift away from the traditional way of thinking about solving trade, developmental and economic problems.

The RCEP aims to achieve a modern and comprehensive trade agreement which covers trade in goods, services, investment, economic and technical cooperation, and dispute settlement involving the 10 members of the Association of South-east Asian Nations (ASEAN) (Brunei Darussalam, Cambodia, Indonesia, Lao, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam) as well as their six regional trading partners (China, Japan, South Korea, Australia, New Zealand, and India). The negotiations were launched in November 2012 and are still ongoing; although initial expectations were that the agreement would be concluded within three to four years. One of the biggest challenges to progress has been negotiations among countries, like India and China, which do not have existing free trade agreements in place. A challenge which is bound to also arise in the CFTA negotiations; bringing 54 African economies into one agreement where numerous countries do not have existing agreements in place. A further challenge for RCEP is to strike a balance between ambition (to deepen and broaden commitments already made in ASEAN) and flexibility given to less developed economies. Apart from being faced with overlapping membership issues, one of the most pertinent issues facing the CFTA negotiations is integrating countries with vast differences in the levels of development. Striking a balance between ambition and flexibility is vital to conclude a meaningful CFTA that can actually be implemented and beneficial.

During the panel discussions the panellists highlighted interesting issues which resonate with the complexities in the CFTA:

• There should be a commercially meaningful outcome. There should be a way for the private sector to monitor and participate throughout the negotiations process. According to Deborah Elms, Executive Director of the Asian Trade Centre, the private sector has been more focused on the Trans-Pacific Partnership (TPP) negotiations and less attention has been paid to the potential of RCEP. However, business should realise that RCEP can significantly benefit them, through tariff reductions across the 16 countries, regulatory reform, transparency and contemporary rules. Although the Asia Business Council has actively been engaging governments; to ensure, for instance ambitious tariff cuts, improved engagement needs to be facilitated. Governments must be pro-active in obtaining private sector inputs in areas of importance to them, including labelling requirements and testing and standard issues. Furthermore, emphasis has been placed on the need to have tariff reductions on those products which are actually traded among the parties. If there is a significant carve out or exclusion of tariff lines in products actually traded, but deemed sensitive it will actually reduce the overall benefit and usefulness of the agreement and prospects for economic development. Countries should agree on comprehensive tariff reductions within reasonable timelines; tariff reductions should include sensitive areas like textile products, agricultural products and processed food items; and low tariffs should be reduced to zero to eliminate ‘compounded’ tariffs for products which cross borders multiple times. There should be a focus on assistance and development of Small, Micro and Medium Enterprises (SMMEs); especially in least developed countries. This can bridge the gap between countries at different levels of development. One of the focus areas of RCEP is to allow for economic cooperation. This includes SMME development, especially linking SMMEs in less developed economies with larger corporations and ensuring their insertion into regional value chains. The element of economic cooperation to assist less developed economies is seen as being one of the unique features of RCEP.

• There is a need to streamline and develop contemporary Rules of Origin (RoO). A lot of work still has to be done on RoO; however, some interesting suggestions have been made to ease the rules. Firstly, the private sector needs to be more active by providing information on the rules which are in place vis-à-vis the rules which are actually needed for enhanced trade. Furthermore, information regarding regional value content is difficult to obtain from suppliers, so supplying this information to governments can enhance and inform the negotiations process. Secondly, the possibility of industry RoO should be investigated. Priority sectors can be identified and then different RoO can be developed according to the needs of the different industries. Thirdly, RoO must include full accumulation across all 16 countries and must be applied consistently. Lastly, firms must be able to use those rules which are easiest to use for them. RoO must allow for multiple calculation methods to encourage regional source production. However, multiple methods to be met simultaneously should not be excluded.

• Asia is a world leader when it comes to e-commerce, but cross-border payments are costly and inefficient. RCEP creates the opportunity for regulatory reform and the development of contemporary rules to ensure a safe and efficient transactional environment that can also be beneficial to SMMEs. Some of the suggestions which have been made in this area include branchless banking which is interoperable, cashless payments, mobile internet adoption, multiple payment gateways, interoperable electronic payment instruments and increased security standards like two-factor authentication or biometric features.

• Trade facilitation to ensure regulatory reform, transparency and address non-tariff measures should focus on streamlining customs procedures across all 16 countries and the expeditions and full implementation of the World Trade Organization Trade Facilitation Agreement by all RCEP countries.

Although some of the suggestions under discussion in the RCEP negotiations might not be practical for the CFTA, the discussions show the dynamic nature of the current discussions. It shows that other regional integration efforts face similar challenges than those faced by the CFTA process, but there are contemporary, modern and new ways of thinking about possible solutions. In order to ensure the CFTA will be commercially meaningful dynamic and creative solutions need to be found for persistent problems.

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Sources:

Asian Trade Centre (http://www.asiantradecentre.org/rcep/);

Today Online (http://www.todayonline.com/business/rcep-progress-take-bit-longer-lim-hng-kiang);

Asian Business Council (http://www.asiabusinesscouncil.org)