Challenges and Opportunities for regional economic architecture
Author： Source： Date：2017-09-01
Editor’s notes: The negotiations and ratifications of the two regional trade agreements, TPP and RCEP have captured wide attention. Ms. Cutler aspires that such mega trade agreements can significantly strengthen regional economic integration and lead to an increase in regional economc growth, jobs, trade and investment, and provide an important vehicle and externalforce for needed domestic reforms
Thank you very much and I’m honored to be here this morning on such an esteemed panel, particularly following a Nobel Prize Laureate. Dr. Maskin talked a lot about PPP. I’m going to be talking about TPP, as well as other issues but I wanted to get that straight right away.
We are witnessing a time now when international trade is slowing. In fact, the World Trade Organization has just come out and lowered the growth rate for global trade for this year. Apparently, it’s the first time in 15 years that the growth rate for global trade is going to be less than global economic growth. Nevertheless, I think that many countries, particularly those in Asia recognize the importance of international trade and entering into trade agreements to expand trade and investment and also to lead to economic growth, to support job creation, to help attractforeign direct investment, which leads to more jobs. I would like to stress in light of the topic of today’s conversation, is that trade agreements provide important external force to undertake difficult domestic reform. We have seen China, in its WTO accession almost 15 years ago, used the WTO negotiations to promote economic reform in China.When the United States negotiated a free trade agreement with Korea, one of the primary reasons that Korea wanted to enter into this FTA was to develop its services market and make it more competitive. Recently, Japan used the TPP as a vehicle to open up and reform its agricultural sector, and the list goes on and on.
Today, I wanted to focus briefly on two trade initiatives underway in the region. There are many other initiatives underway in the region, including in the infrastructure and energy areas. But I want to focus on the Trans-Pacific Partnership, the TPP, and the Regional Comprehensive Economic Partnership, RCEP. They’reboth called mega-regional agreements, involving multiple countries from the region and covering a range of issues. As a result, they are very difficult and time-consuming to negotiate. TPP took over 5 years to negotiate and RCEP is now enteringits 5th year.
Why are they such tough negotiations? First, there are a number of countries involved. TPP comprises twelve countries and RCEP sixteen. Each country comes into the negotiation with a different list of priorities and sensitivities and the challenge is to find a balanced outcome that countries can take home and sell domestically. Furthermore, each country has a different level of economic development, which makes it challenging to negotiate this type of deal. Finally, these negotiations cover numerous issues. They go beyond traditionalmarket access issues into a range of other issues. This was particularly evident in the TPP negotiations, where the particpants negotiated issues ranging from the environmentto intellectual property, to state-owned enterprises, and the list goes onand on.
One could ask why countries are increasingly focusing on these mega-regional agreements if they are so tough and time-consuming to negotiate? The most significant reason is that efforts to conclude trade liberalizing mega deals in the WTO have stalled. In addition, while countries have entered into a lot of bilateral free trade agreements they are finding nowthat trade is increasingly no longer conducted between just two countries, but between a group of countries. There are global value chains which call for thesetrade agreements to cover a range of issues and a range of countries. So the next logical step is these mega-regionals. Furthermore, the payoffs of a mega-regional deal are far more significant than individual bilateral deals.
The TPP comprises a group of 12 like-minded countries which shared a joint purpose to conclude a high standard agreement that goes beyond the WTO rules. People often forget that the United States was not an original member of TPP. It was initially an agreement concluded among 4 Asian-Pacific countries -- Chile, Singapore, Brunei and New Zealand, and over time more countries joined. TPP is not aimed against any country nor is intended to be exclusionary. In fact, TPP contains accession provisions, with theexpectation that over time other countries would join TPP.
The negotiations were tough, and the hope was that the TPP would be concluded earlier.But indeed, as I mentioned, they took ver5 years. Unfortuantely the conclusion of TPP was concluded in the midst of the US presidential election and at a time when trade issueshad become front and center in our political season. It’s unprecedented that both US Presidential candidates were skeptical on the benefits of trade and opposed the TPP in its current form. Both candidates have expressed concerns about economic anxietiesin the United States and trade is often pointed to the reason for these economic concerns. In fact, thoughdata show that many of these concernshave been brought about by globalization and increases in productivity resulting from technological advances, rather than from trade itself. But there is a vocal sentiment in the US and in other countreis as well thatglobalization has left them behind. In the US situation, this is a complicated issue. It has been discussed every day in the newspapers all around the country. And now we are seeing that trade agreements are being blamed during the presidential campaign for loss of jobs and growing inequalities among segments of our population.
At the present time, the twelve TPP countries are trying to get through their legislatures. For the United States, Congress needs to approve TPP in both houses by a majority vote. But this Congress’stime is running out and thus it is very difficult to pass TPP. But I believe that there is a window in the lame duck session. The lame duck session isthat the period of time between the presidential election and when the next president takes office. Whether it will be taken up in this session or not will largely depend on the outcome of the presidential election, as well as the congressional elections. It will be determined by who wins the election and by how much. Also, people will look into how the trade concerns actually factored into the outcome of the elections. The Obama administration is doing everything it can to be ready for this window if it presents itself in the lame duck session. It is preparing the Congressionally mandated reports. It is addressing concerns raised by stakeholders and it isconducting outreach all over thecountry to build support. If it’s not done this year, the path forward is uncertain. But I believe that a way will be found to put TPP into effect with the United States as a member given its significant economic and strategic benefits.
Now, let me turn briefly to the Regional Comprehensive Economic Partnership, RCEP. As we speak, there is an important meeting taking place in the Philippies between the sixteenministers of RCEP. The RCEP negotiationshad planned to conclude at the end of this year. But they have come to a consensus that this would not be possible. This is largely a resultof the complexity of negotiating with so many counties with different levels of development and discussing a range of issues. In the coming year, RCEP members will have a genuine opportunity to raise the standards of their agreement to go beyond just tariff and market access issues. And my hope is, given the importance of the small and medium size enterprises in the region, that RCEP will find a way to address this issue, which is of particular importantce to the ASEAN members of RCEP. In this regard, small and medium sized businesses in particular can benefit from robuste-commerce provisions.
TPP and RCEP are often portrayed in the press as rival agreements, with the TPP being a US-dominated negotiation and RCEP being a China-dominated negotiation. The press repeatedly speculates on who’s going to win this rivalry. I take issue with this view. In fact, these negotiations and agreements are complementary. They have the same objectiveof liberalizing trade and investment. Indeed, they have different levels of liberalization, different coverage of trade rules, and different depth of commitments. The key for both to coexist in aaregional trading system is not to have conflicting rules. I believe that this would be unlikely since 7 members of TPP are also members of RCEP.
In the coming days, weeks and months, the fate of RCEP and TPP will be determined. And, if they are both successful they would significantly strengthen regional economic integration and lead to an increase in regional economc growth, jobs, trade and investment. Moreover, coming backto the point I madeat the beginning of my remarks they provide an important vehicle and externalforce for needed, although politically tough domestic reforms.
Thank you.
Wendy Cutler is the vice president and managing director of Asia Society Policy Institute Washington D.C. Office.
Speech delivered at the Global Views and China’s Economy session during the 3rd Dameisha Forum. Opinions expressed belong to the author and do not necessarily represent the position of SZIDI.
Thank you very much and I’m honored to be here this morning on such an esteemed panel, particularly following a Nobel Prize Laureate. Dr. Maskin talked a lot about PPP. I’m going to be talking about TPP, as well as other issues but I wanted to get that straight right away.
We are witnessing a time now when international trade is slowing. In fact, the World Trade Organization has just come out and lowered the growth rate for global trade for this year. Apparently, it’s the first time in 15 years that the growth rate for global trade is going to be less than global economic growth. Nevertheless, I think that many countries, particularly those in Asia recognize the importance of international trade and entering into trade agreements to expand trade and investment and also to lead to economic growth, to support job creation, to help attractforeign direct investment, which leads to more jobs. I would like to stress in light of the topic of today’s conversation, is that trade agreements provide important external force to undertake difficult domestic reform. We have seen China, in its WTO accession almost 15 years ago, used the WTO negotiations to promote economic reform in China.When the United States negotiated a free trade agreement with Korea, one of the primary reasons that Korea wanted to enter into this FTA was to develop its services market and make it more competitive. Recently, Japan used the TPP as a vehicle to open up and reform its agricultural sector, and the list goes on and on.
Today, I wanted to focus briefly on two trade initiatives underway in the region. There are many other initiatives underway in the region, including in the infrastructure and energy areas. But I want to focus on the Trans-Pacific Partnership, the TPP, and the Regional Comprehensive Economic Partnership, RCEP. They’reboth called mega-regional agreements, involving multiple countries from the region and covering a range of issues. As a result, they are very difficult and time-consuming to negotiate. TPP took over 5 years to negotiate and RCEP is now enteringits 5th year.
Why are they such tough negotiations? First, there are a number of countries involved. TPP comprises twelve countries and RCEP sixteen. Each country comes into the negotiation with a different list of priorities and sensitivities and the challenge is to find a balanced outcome that countries can take home and sell domestically. Furthermore, each country has a different level of economic development, which makes it challenging to negotiate this type of deal. Finally, these negotiations cover numerous issues. They go beyond traditionalmarket access issues into a range of other issues. This was particularly evident in the TPP negotiations, where the particpants negotiated issues ranging from the environmentto intellectual property, to state-owned enterprises, and the list goes onand on.
One could ask why countries are increasingly focusing on these mega-regional agreements if they are so tough and time-consuming to negotiate? The most significant reason is that efforts to conclude trade liberalizing mega deals in the WTO have stalled. In addition, while countries have entered into a lot of bilateral free trade agreements they are finding nowthat trade is increasingly no longer conducted between just two countries, but between a group of countries. There are global value chains which call for thesetrade agreements to cover a range of issues and a range of countries. So the next logical step is these mega-regionals. Furthermore, the payoffs of a mega-regional deal are far more significant than individual bilateral deals.
The TPP comprises a group of 12 like-minded countries which shared a joint purpose to conclude a high standard agreement that goes beyond the WTO rules. People often forget that the United States was not an original member of TPP. It was initially an agreement concluded among 4 Asian-Pacific countries -- Chile, Singapore, Brunei and New Zealand, and over time more countries joined. TPP is not aimed against any country nor is intended to be exclusionary. In fact, TPP contains accession provisions, with theexpectation that over time other countries would join TPP.
The negotiations were tough, and the hope was that the TPP would be concluded earlier.But indeed, as I mentioned, they took ver5 years. Unfortuantely the conclusion of TPP was concluded in the midst of the US presidential election and at a time when trade issueshad become front and center in our political season. It’s unprecedented that both US Presidential candidates were skeptical on the benefits of trade and opposed the TPP in its current form. Both candidates have expressed concerns about economic anxietiesin the United States and trade is often pointed to the reason for these economic concerns. In fact, thoughdata show that many of these concernshave been brought about by globalization and increases in productivity resulting from technological advances, rather than from trade itself. But there is a vocal sentiment in the US and in other countreis as well thatglobalization has left them behind. In the US situation, this is a complicated issue. It has been discussed every day in the newspapers all around the country. And now we are seeing that trade agreements are being blamed during the presidential campaign for loss of jobs and growing inequalities among segments of our population.
At the present time, the twelve TPP countries are trying to get through their legislatures. For the United States, Congress needs to approve TPP in both houses by a majority vote. But this Congress’stime is running out and thus it is very difficult to pass TPP. But I believe that there is a window in the lame duck session. The lame duck session isthat the period of time between the presidential election and when the next president takes office. Whether it will be taken up in this session or not will largely depend on the outcome of the presidential election, as well as the congressional elections. It will be determined by who wins the election and by how much. Also, people will look into how the trade concerns actually factored into the outcome of the elections. The Obama administration is doing everything it can to be ready for this window if it presents itself in the lame duck session. It is preparing the Congressionally mandated reports. It is addressing concerns raised by stakeholders and it isconducting outreach all over thecountry to build support. If it’s not done this year, the path forward is uncertain. But I believe that a way will be found to put TPP into effect with the United States as a member given its significant economic and strategic benefits.
Now, let me turn briefly to the Regional Comprehensive Economic Partnership, RCEP. As we speak, there is an important meeting taking place in the Philippies between the sixteenministers of RCEP. The RCEP negotiationshad planned to conclude at the end of this year. But they have come to a consensus that this would not be possible. This is largely a resultof the complexity of negotiating with so many counties with different levels of development and discussing a range of issues. In the coming year, RCEP members will have a genuine opportunity to raise the standards of their agreement to go beyond just tariff and market access issues. And my hope is, given the importance of the small and medium size enterprises in the region, that RCEP will find a way to address this issue, which is of particular importantce to the ASEAN members of RCEP. In this regard, small and medium sized businesses in particular can benefit from robuste-commerce provisions.
TPP and RCEP are often portrayed in the press as rival agreements, with the TPP being a US-dominated negotiation and RCEP being a China-dominated negotiation. The press repeatedly speculates on who’s going to win this rivalry. I take issue with this view. In fact, these negotiations and agreements are complementary. They have the same objectiveof liberalizing trade and investment. Indeed, they have different levels of liberalization, different coverage of trade rules, and different depth of commitments. The key for both to coexist in aaregional trading system is not to have conflicting rules. I believe that this would be unlikely since 7 members of TPP are also members of RCEP.
In the coming days, weeks and months, the fate of RCEP and TPP will be determined. And, if they are both successful they would significantly strengthen regional economic integration and lead to an increase in regional economc growth, jobs, trade and investment. Moreover, coming backto the point I madeat the beginning of my remarks they provide an important vehicle and externalforce for needed, although politically tough domestic reforms.
Thank you.
Wendy Cutler is the vice president and managing director of Asia Society Policy Institute Washington D.C. Office.
Speech delivered at the Global Views and China’s Economy session during the 3rd Dameisha Forum. Opinions expressed belong to the author and do not necessarily represent the position of SZIDI.
