Accelerating the RCEP Process through Strengthening the APT
Cooperation
Report of NEAT Working Group by NEAT China
August 2014, BeijingContents
1. Why the RCEP process needs to be accelerated? ......................................................................... 2
1.1 East Asia is in urgent need of a region-wide trade agreement ............................................ 2
1.2 Intensifying FTA activities outside the region put much pressure on East Asia ................. 3
1.3 The RCEP is a currently optimal choice for East Asia to achieve its regional integration.. 4
2. The potential benefits of the RCEP ............................................................................................... 4
2.1 Addressing the “noodle bowl” problem .............................................................................. 4
2.2 Building up a highly liberalized and larger common market .............................................. 5
2.3 Upgrading regional production networks and hence regional competitiveness .................. 5
2.4 Gaining experience for merging into an international trading system of higher standard
and larger membership .............................................................................................................. 6
3. Progress of the RCEP negotiations: ambitions, achievements and challenges ............................. 6
3.1 Ambitions of the RCEP Negotiations.................................................................................. 6
3.2 Achievements of the RCEP Negotiations ............................................................................ 7
3.3 Challenges facing the RCEP Negotiations .......................................................................... 8
3.3.1 The lack of cohesion ................................................................................................ 8
3.3.2 The complication of the negotiations ....................................................................... 9
4. Suggestions on pushing forward the RCEP process through cooperation among the APT
countries ......................................................................................................................................... 11
4.1 Substantiating ASEAN’s centrality in the RCEP process ................................................. 11
4.2 Advancing the parallel FTA negotiations in this region .................................................... 12
4.3 Revitalizing the RCEP approach in the negotiations ........................................................ 12
4.4 Introducing the “Pilot Program” into the negotiations ...................................................... 13
5. Conclusion ................................................................................................................................... 14
Annex: ............................................................................................................................................. 15
Table 1: Comparing the Regional Initiatives........................................................................... 15
Table 2: Intraregional Trade Share: 2000-2011 (%) ................................................................ 15
Table 3: Trade interdependency Rate to Different Integration Arrangements ......................... 16
Table 4: Impact of regional trade liberalization on real GDP (%)........................................... 17
Table 5: Tariff Elimination Levels by Country under the ASEAN + 1 FTAs ......................... 18
Table 6: WTO Plus in ASEAN+1 Free Trade Agreements (in terms of the Hoekman Index) 19
Table 7: Distribution of Tariff Lines by Liberalization Status ................................................ 20

1

The RCEP negotiations were launched by leaders from the ten ASEAN members and
ASEAN’s FTA partners (Australia, China, India, Japan, South Korea and New Zealand) on
November 20, 2012. The negotiations present an opportunity as well as a challenge for theparticipating countries. It is an opportunity to consolidate the ever proliferating and overlapping
sets of FTAs and form a region-wide FTA in East Asia. It is a challenge however because of thevarying degrees of interests and levels of ambition of each of the negotiating parties, and therelative extent to which they seek to undertake commitments on liberalization and facilitation intrade and investment, and other issues.
With the scheduled concluding year 2015 approaching, there is now growing anxiety among
the RCEP partners that the deadline is unrealistic and acknowledgement that the negotiations haveso far gone virtually nowhere. The RCEP process is now in urgent need of building up momentum
to help gain confidence and impetus for the negotiations to press ahead. It is very timely andappropriate for the APT countries to discuss the issue of the RCEP process. The reason is quite
simple: The RCEP is beneficial to the APT countries and the APT countries are the pillar of the
RCEP process. If the APT countries can reach consensus in some difficult areas and cement theirshared views on what is needed to bring the RCEP negotiations to a close, we firmly believe,
through our joint efforts, the blueprint of RCEP will be hopefully turned into reality rather thanremain just a talk.
This report consists of five sections. Section one and two provide the background of theongoing RCEP negotiations in terms of the necessity and potential benefits respectively. Section
three unfolds the progress of the RCEP negotiations from the perspectives of ambitions,achievements and challenges. Section four tries to propose some suggestions on prompting the
RCEP negotiations through cooperation among the APT countries. Last section is concluding
remarks highlighting both the importance of APT cooperation and the RCEP’s relationship with
the TPP.

1. Why the RCEP process needs to be accelerated?

So far, the RCEP negotiations have completed five rounds of talks. Though details remain
sparse, challenges can be imagined and outcome is still unpredictable. The RCEP process needs tobe accelerated mainly due to the following three considerations:
1.1 East Asia is in urgent need of a region-wide trade agreement
East Asia has gone from a region with almost no FTAs to a region with too many to count.
According to the ADB Asia Regional Integration Center’s statistics1, East Asia has seen a rapid
increase in the number of FTAs since the beginning of the 21st century. Countries with numerous
concluded FTAs (or EPAs) include Singapore (21), India (13), Japan (13), China (12), Malaysia(12), and Thailand (12). More FTAs are currently under negotiation.
This explosion of trade arrangements has developed without any organizational plan or
guiding principles. The overlapping and complex FTA arrangements in East Asia lead to higher
1

ADB: Asia Regional Integration Centre (ARIC),Free Trade Agreements, http://aric.adb.org/fta-country2

cost of doing business in the region. In particular, the presence of different, multiple rules of origin
is one of the troublesome components of the Asian “noodle bowl”, which also includes different,
competing tariff schedules, exclusion lists, and rules and standards.
Most importantly, the existing regional initiatives have not yet achieved a fully liberalized
region. There is much room for the RCEP to strengthen ASEAN and East Asia as a production
base. The recent international financial crisis made it clear that East Asian countries need to work
together to sustain regional growth and stability by addressing common challenges. The
market-led economic integration has begun to require further liberalization of FDI and trade, andharmonization of policies, rules, and related standards, etc.
1.2 Intensifying FTA activities outside the region put much pressure on East Asia
The stagnated WTO Doha Round trade talks have encouraged many major economies to take
FTAs as attractive and accessible alternatives. The new rules and disciplines underpinning the riseof supply-chain trade have been and continue to be written outside the WTO—primarily in deep
RTAs1. Efforts to harmonize these new rules and disciplines are taking place in mega-regionals(e.g. TPP and TTIP) and mega-bilaterals (e.g. EU-Japan) that are under negotiation or discussion.
WTO-plus agreements and those addressing the Singapore issues are becoming more common
throughout the world. These giant trading blocs of Europe and America might dominate
rule-setting in the global trading system, thereby marginalizing Asia. Policymakers should realize
the need for stepping up the pace of East Asian integration to improve international
competitiveness.
Special attention should be paid to the developments in other competing regional initiatives,
especially the TPP, which appears to be growing as an alternative hub for Asian FTA integration2.
The TPP agreement is a key component for the U.S. rebalancing strategy towards Asia. It would
solidify US economic, political, and security links with the Asia-Pacific economies for future
decades3. However, the political implication may be more straightforward. As an Asia Pacific
Economic Cooperation (APEC)-centered initiative, the TPP is aimed at creating a highly liberal
trade regime with comprehensive issue coverage. These initiatives could potentially impair the
ASEAN Centrality if they move much faster than the RCEP process, and if they have much richer
content than the RCEP4.
In addition, there have been a number of recent developments, indicating kind of momentum
for the TPP rather than the RCEP. These include the announcement of the TTIP; Japan’s entry into
the TPP; China’s statement that it is giving serious consideration to the TPP; and USTR’s signalthat it will soon seek Trade Promotion Authority.5 If the TPP negotiations are concluded inadvance of the RCEP, some of the dual members may have less desire to continue their efforts on
1

Baldwin, R: “WTO 2.0: Global governance of supply-chain trade”, CEPR Policy Insight No.64, December, 2012.
Lim, C.K., D.K. Elms, and P. Low, eds: “The Trans-Pacific Partnership: A Quest for a Twenty-first Century Trade
Agreement”, Cambridge: Cambridge University Press,2012.
3
Gordon, B.K.: “Trading Up in Asia: Why the United States Needs the Trans-Pacific Partnership,” Foreign Affairs
July/August, 2012.
4
Yoshifumi FUKUNAGA & Ikumo ISONO: “Taking ASEAN+1 FTAs towards the RCEP: A Mapping Study”, ERIA
Discussion Paper Series, 2013-02.
5
Meredith Kolsky Lewis: “The TPP and the RCEP (ASEAN+6) as Potential Paths Toward Deeper Asian Economic
Integration”, Asian Journal of WTO & International Health Law and Policy, Vol. 8, No. 2, pp. 359-378, September
2013. Available at: http://ssrn.com/abstract=2385517
2

3

the RCEP.
1.3 The RCEP is a currently optimal choice for East Asia to achieve its regional integration
ASEAN and its dialogue partners had been discussing for some time a wider arrangement inEast Asia, partly prompted by the experience of the Asian Financial Crisis, a desire to be more
self-reliant and a perception that regional trade was becoming more concentrated. There had beenparallel tracks, with ASEAN+3 favored by China and ASEAN+6 favored by Japan. By 2009, twoworking groups had been set up to study the feasibility of these arrangements. In August 2011,
China and Japan made a joint proposal for a regional FTA, which was incorporated into a conceptthat ASEAN leaders had already been developing—RCEP. The RCEP, characterized with“ASEAN Centrality”, is expected to demonstrate ASEAN’s leadership in bringing together its
own ten members and external partners for economic growth, development and harmonization
With the absence of the bilateral FTAS between Northeast Asian economies, the RCEP, withlarger membership, has provided an optimal platform for a regional integration scheme which will
benefit all.

2. The potential benefits of the RCEP

As in other FTAs, a region-wide FTA in East Asia would provide extensive and far-reaching
benefits, both economically and politically, for all the participating countries.
2.1 Addressing the “noodle bowl” problem
A unique economic rationale for a region-wide FTA in East Asia comes from the reduction oftransaction cost. East Asia has seen a rapid increase in the number of FTAs among themselves aswell as with non-regional countries since the beginning of the 21st century. This has alreadycreated a spaghetti bowl phenomenon. At present, there are at least 22 different ROOs (Rules ofOrigin) among ASEAN+1 FTAs, even after aggregating those that are similar but not the same.
Only about 30 per cent of tariff lines across the ASEAN+1 FTAs share common ROOs. Withbilateral agreements — the Japan-India FTA for instance — there are 12 types of ROOs, seven ofwhich are unique from the ASEAN+1 FTAs1. With differing rules of origin (ROOs) and tariff
reduction/elimination schedules, the multitude of FTAs has already created a spaghetti bowl
problem, increasing transaction costs of intra-regional trade and hence the costs of regional
production networks, especially for SMEs in East Asia.
If a comprehensive agreement like RCEP can be reached, rules of origin could be rationalized
and made more flexible, and be better administered through electronic means. In the area ofinvestment rules, where no WTO agreement exists, the RCEP will promote easier FDI flows and1

Jayant Menon: “The challenge facing Asia’s Regional Comprehensive Economic Partnership”, AIIA Policy
Commentary on “Pathways to the Same Destination? Free Trade Negotiations in the Asia-Pacific”, Number 14,
June, 2013.

4

technology transfers by multinational corporations.1
2.2 Building up a highly liberalized and larger common market
Another economic rationale resides in the scale of economy. The consolidated market size for
RCEP (48% of the world population and 28% of the world GDP in 2011, as shown in Annex table1) is large enough to create a positive trade creation effect and boost more inclusive economic
growth in this region. The higher ratio of intra-regional trade among RCEP member economies ofover 40% (as shown in Annex table 2) is another promising factor in expecting a large tradecreation effect.
Many studies show that the RCEP would generate larger benefits than the TPP because it
should cover the Asia’s giant economies (China, Japan, Korea and India). As Annex table 3 shows,
all the RCEP members except China has a higher trade interdependence rate with the RCEP thanwith the TPP. Annex table 4 shows that RCEP boosts more GDP growth than TPP, even for same
countries participating in both RCEP and TPP. For instance, Vietnam will have an increase of
23.42% of real GDP from the success of the RCEP, while only 12.81% from the TPP. If
successfully done by 2015, the RCEP as a grouping is likely to generate a GDP of US$ 28 trillion(approximately 30% of the world).
2.3 Upgrading regional production networks and hence regional competitivenessRegional production networking has become an integral part of the economic landscape of
East Asia since the end of Cold War. Many factors have contributed to the formation of the
production sharing in the region, such as MNCs’ global integration strategy caused by the growinginternational competition, unit cost reduction incurred from the IT revolution and the opennessand ease of policy environment in East Asia. Besides, continuous and rapid economic growth has
made China an important link in the regional production system and formed a very unique "Chinamodel" concerning industrial structure.
However, in the wake of the recent financial and economic crisis, the global economy is now
undergoing an era of restructuring and rebalancing, with the U.S. resolved in revitalizing its
manufacturing amidst its shale oil “miracle”, the EU effecting series of economic reforms, China
shifting its growth pattern, and the world witnessing rising motley of regional trade agreements
which is not the best way to organize world trade. All these developments put great pressure on
East Asia to maintain its competitiveness of the region’s production networks.
Instead, the RCEP would play a critical role in promoting and reinforcing regional production
networks by liberalizing and facilitating both trade and investment, and even by tackling
behind-the-border issues relevant to supply chains and production networks.

1

Ganeshan Wignaraja: “Why the RCEP matters for Asia and the world”, East Asia Forum 2013.

5

2.4 Gaining experience for merging into an international trading system of higher standard
and larger membershipAt present, economic integration in East Asia is quite shallow, referring to the extent ofliberalization in trade and investment, and coverage of issues included in the existing
miscellaneous FTAs. However, the launch of TPP and TTIP has released a very important signalthat the world trade might evolve in a quite opposite direction, in which high liberalization in all
sectors and new rules concerning issues like IPRs, competition policy, government procurement,labor, and environment, will all be introduced comprehensively and substantially.
The RCEP, serving as a gangplank for East Asia to meet the challenges posed by the everchanging world trade system, has provided an ideal vehicle for the region to practice reaching a
relatively high standard, but not too high to deter the potential parties (mainly developing
countries), trade agreement, which will surely gain the region very precious experience to aim at
more ambitious trade arrangements in the future.
It seems that the RCEP is also being negotiated with the possibility in mind that it could be
expanded into an FTAAP. The simulation results in Annex Table 4 show that the impact of tradeliberalization measured in terms of an increase in real GDP is the greatest when tradeliberalization is undertaken on a worldwide basis, followed in a descending order by under theframework of FTAAP, ASEAN+6 (RCEP), ASEAN+3. It is important for these countries topursue trade liberalization covering as many countries as possible, expanding the geographic
coverage even to all over the world. So far, the RCEP will be the top priority for China and mostdeveloping countries in the region.

3. Progress of the RCEP negotiations: ambitions, achievements and challenges

The start of negotiations for the RCEP was declared by the ASEAN+6 leaders on thesidelines of the 21st ASEAN Summit in November 2012 in Phnom Penh, Cambodia. Since then,the ASEAN process has boarded on its own track.
3.1 Ambitions of the RCEP Negotiations
The RCEP is an ambitious FTA involving complex negotiations as expressed in its "Guiding
Principles and Objectives for Negotiating the RCEP" (hereinafter called as Guiding Principles).
Objectives: The RCEP initiative aims to be an ASEAN-led process through which ASEAN
would broaden and deepen its economic engagements with its FTA partners. Its vision is to be amodern, comprehensive, high-quality and mutually-beneficial economic partnership agreement
among the ASEAN Member States and ASEAN’s FTA partners. Negotiations commenced in early2013 and aim to complete by end-2015.
Scope of Negotiations: The RCEP negotiations will cover trade in goods, trade in services,
investment, economic and technical cooperation, intellectual property, competition, disputesettlement and other issues.

6

Guiding Principles: The RCEP negotiations are guided by the following principles: (1)being consistent with the WTO, including GATT Article XXIV and GATS Article; (2) having
broader and deeper engagement with significant improvements over the existing ASEAN+1 FTAs,
while recognizing the individual and diverse circumstances of the participating countries; (3)including provisions to facilitate trade and investment and to enhance transparency in trade andinvestment relations between the participating countries, as well as to facilitate the participating
countries’ engagement in global and regional supply chains; (4) including appropriate forms offlexibility including provision for special and differential treatment, plus additional flexibility to
the least-developed ASEAN Member States, consistent with the existing ASEAN+1 FTAs, asapplicable; (5) maintaining the validity of the existing ASEAN+1 FTAs and the bilateral/plurilateral FTAs between and among participating countries; (6) having an open accession clause
to enable the participation of any ASEAN FTA partner that did not participate in the RCEP
negotiations and any other external economic partners after the completion of the RCEP
negotiations; (7) providing technical assistance and capacity building, building upon the
ASEAN+1 FTAs, to the developing and least-developed countries participating in the RCEP toenable all parties to fully participate in the negotiations, implement obligations under the RCEP
and enjoy the benefits from the RCEP; (8) conducting the negotiations on trade in goods, trade inservices, investment and other areas in parallel to ensure a comprehensive and balanced outcome.
3.2 Achievements of the RCEP Negotiations
The negotiations have so far completed five rounds, with the first in Brunei in May 2013,second in Australia in September 2013, third in Malaysia in January 2014, fourth in China in April
2014, and fifth in Singapore in June 2014. The sixth round of talks is to be held in India in
December 2014.
The negotiations began with the major areas of goods, services and investment, on which
three Working Groups were established in the first round of talks. With the negotiations goingbroader and deeper in the subsequent talks, the new Working Groups on Intellectual Property,
Competition, and Economic and Technical Cooperation commenced their work in the 4th roundand the Working Group on Dispute Settlement was established in the 5th round of talks. To date,the scheduled seven working groups have all been in place and commenced their work. The
participating countries have reached some preliminary consensus on a series of issues concerning
the RCEP.
On trade in goods, the negotiations discussed the texts, modalities to be used for tariff
negotiations and other issues relating Non-tariff Measures (NTBs), Trade Remedy, Standards,
Technical Regulations and Conformity Assessment Procedures (STRACAP), Sanitary andPhytosanitary Measures (SPS) as well as on Customs Procedures and Trade Facilitation (CPTF)
and Rules of Origin (ROO). On trade in services, the participating countries deliberated on the
structure and elements of the services chapter, the approach to scheduling market accesscommitments and a number of other specific issues. On investment, the elements of investment
chapter including investment modalities were discussed deeply. Progress has also been made on a
range of issues concerning intellectual property, competition, economic and technical cooperation,and dispute settlement.

73.3 Challenges facing the RCEP Negotiations
Despite concrete progress in the previous rounds, the RCEP negotiations are facing
challenges, which mainly reside in the lack of cohesion among the participating countries and thecomplication of the negotiations themselves.
3.3.1 The lack of cohesion
Any free trade agreement is a compromise from all the participating members. It will beeasier to come to a compromise if there is high cohesion among the partners. However, in the
RCEP negotiations, thorny issues which undermine the cohesion still exist, not only coming fromcountries directly involved in the negotiations, but also from other regionalism initiatives in the
Asia-Pacific Region, and not only economically but also politically.
Firstly, ASEAN’s centrality in the RCEP negotiations is not in full play. “ASEAN’s
centrality” is commonly recognized by all the participants and plays a flagship role in steering thedirection of the RCEP process. However, this centrality might be eroded due to the fact that
ASEAN’s internal and external integration are less clearly sequenced but proceeding in parallel.
Thus, ASEAN faces challenges: it has to develop external relationships even though its ability tomake common policy is limited. As a result, the external trade policies of ASEAN members are
not closely integrated. As an FTA rather than a customs union, ASEAN cannot set common tariffs.
So far as internal integration is concerned, there has been progress on the ASEAN Economic
Community (AEC), but the project is not likely to meet its 2015 timetable. The ASEAN Summit
in April 2013 declared that 259 measures or 77.54% of the AEC Blueprint had been implemented.
But in any case, the remaining over 20 percent of measures will be especially challenging. The
summit, therefore, recognized the need to develop a post-2015 program to continue progress on
economic cooperation.1 This prospect of ASEAN’s internal integration will inevitably make the
RCEP negotiations a mist, whose progress is highly dependent on the timely conclusion of the
AEC Blueprint.
Secondly, different levels of economic development and trade liberalization in the RCEP
countries are a substantial drag. The hug development gaps will naturally result in varied
stances among the participating countries. A very informative study 2 shows there are wide
variations in trade liberalization rates among the countries in ASEAN+1 FTAs.
In terms of trade in goods, as shown in Annex table 5: Among the five ASEAN+1 FTAs,
the ASEAN–Australia/New Zealand FTA (AANZFTA) has the highest trade liberalization rate of
95.7%, while the ASEAN–India FTA (AIFTA) has the lowest rate of 79.6%. Among the ASEAN
countries, Indonesia has the lowest trade liberalization rate of 83.4%, the remaining are arranged
in descending order as follows: Brunei Darussalam (95.9%), Philippines (93.1%), Thailand(92.6%), Malaysia (92.0%), Cambodia (90.0%), Viet Nam (89.5%), Lao PDR (89.3%), andMyanmar (87.3%). Among ASEAN’s FTA partners, Australia and New Zealand have the highest
1

Chairman's Statement of The 22nd ASEAN Summit,
http://www.asean.org/news/asean-statement-communiques/item/chairmans-statement-of-the-22nd-asean-sum
mit-our-people-our-future-together
2
Shujiro Urata: “Constructing and Multi-lateralizing the Regional Comprehensive Economic Partnership: An Asian
Perspective”, ADBI Working Paper Series No. 449, December 2013.

8

trade liberalization rate of 100%, while India has the lowest trade liberalization rate of 78.8%.
China has a rate of 94.1%, followed by Japan (91.9%) and the ROK (90.5%).
In terms of trade in services, only the ASEAN–China, the ASEAN–Korea, and theASEAN–Australia/New Zealand FTAs contain commitments in trade in services. Among them, as
shown in Annex table 6, Australia and New Zealand committed most, with substantially large
additional commitments beyond their GATS commitments. The ROK’s and China’s commitments
are significantly lower, with much smaller additional commitments under their ASEAN+1 FTAs.
For the ASEAN countries, their additional commitments are high for AANZFTA while they are
low for AKFTA and ACFTA, reflecting the reciprocal approach adopted in FTA negotiations.
There exist wide variations in the level of commitment among the ASEAN countries, with
Cambodia being the highest and Brunei Darussalam the lowest.
From the above, it’s self-evident that most of the RCEP countries have their own sensitive
areas that are vulnerable to competition from joining RCEP. Accordingly, they will inevitably seek
maximum protection for such areas in the negotiations, thus making the process more difficult.
Furthermore, high-income countries like Japan, Australia and New Zealand would also like toseek broader coverage of new trade issues such as competition policy, environment and labor
standards, which, once in place, will make the negotiation even more difficult. For the low-income
countries, the promising benefits from the RCEP would seem less attractive because it is difficult
for them to afford physical infrastructure and improve trade facilitation so that they are not reallyable to enjoy the benefits of smoother flow of goods and services across RCEP member countries.
Thirdly, political and strategic factors can impact the RCEP negotiations. The U.S.
rebalance toward Asia, with both security and economic ambitions, is perceived as an external
challenge to the RCEP. The U.S. led FTA—TPP, has enlisted seven of the RCEP members,
including four ASEAN members—Brunei Darussalam, Malaysia, Singapore and Vietnam, andthree non-ASEAN countries—Japan, Australia and New Zealand. The Republic of Korea, thePhilippines and Thailand have also shown their interest in joining the TPP. Indeed，many
countries’ movement towards the TPP can be explained at best in political rather than economic
terms, reflecting the increasing strategic importance of the United States in the region. Therefore,
they are trying to balance their security and economic interests by balancing between the RCEP
and the TPP. Any competition between the TPP and the RCEP may lead to disunity within ASEAN,
which may undermine the ASEAN’s centrality in the region. Especially in the short run, the twoparallel negotiations add much pressure on human capital, budget and other country resources tothe dual members. There is also a concern that if TPP negotiations are concluded ahead of the
RCEP, some of the dual members may have less desire to continue their efforts on the RCEP.
Within East Asia, though it is encouraging to observe that China, Japan, and the ROK began
trilateral FTA (CJK FTA) negotiations in March 2013, political tensions still exist. Having noted
optimism, it is very important for the leaders to improve political relations in order to makeprogress on and to conclude the RCEP and the CJK FTA negotiations.
3.3.2 The complication of the negotiations
Technically speaking, FTA negotiations are quite tough and cumbersome with so many
details to cover and different interests to accommodate. The RCEP negotiations are especially sowith even more technical issues to be addressed at the table.

9Firstly, negotiators must balance between “flexibility” and “high standards”. On one
hand, the RCEP is envisaged to become the next generation of trade liberalization process. Thismeans all the participants need to make substantial concessions on many issues to ensure the
RCEP being a “respectable” FTA. On the other hand, the Guiding Principles also include someform of flexibility including provision for special and differential treatment, plus additional
flexibility to the least-developed ASEAN Member States. Flexibility could be a boon or bane for
the RCEP. While it could help break deadlocks and protect disparate national interests, it could
also limit change or curtail progress in achieving greater liberalization. Flexibility, built on“ASEAN way” and differential treatment, may slow the progress.
Secondly, the absence of some important FTAs within RCEP members is another drag.
The RCEP scheme is mainly based on bilateral free trade agreements (FTAs) among participating
countries. In the absence of these important FTAs, including those between China and Japan,
China and India, Japan and South Korea, and India and New Zealand, the RCEP negotiations
could hardly make breakthrough any time soon.
Thirdly, to consolidate the existing five ASEAN+1 FTAs is never a technically easy task.
Since these FTAs were signed and negotiated at different points of time and differs in terms of theway of negotiation, economic coverage and stages of implementation, consolidation may be justas difficult, if not more difficult, than simply starting from scratch.
One thing to note is that ASEAN+1 FTAs are currently not uniform in structure. For example,
they not only use different tariff classifications for their tariff concessions but also use different
schedules for their FTAs with different countries. A study 1 on the liberalization status forindividual ASEAN countries reveals the difficulties in establishing a region-wide FTA. As shownin Annex table 7, it is only Singapore that does not have any problems in achieving a high level
region-wide FTA. Other ASEAN member countries face difficulty in liberalizing a number ofsectors. Indeed, the shares of “eliminated to all” in all products are low for many countries,
Indonesia (46.0%), Cambodia (64.3%), Myanmar (66.6%), and Lao PDR (68.0%), indicating thepossible presence of enormous obstacles in tariff elimination. Furthermore, the sheer number of
ROOs and their lack of commonality across FTAs will also make the task of harmonizing andconsolidating them much harder. Besides, trade in services and investment are not concluded for
all ASEAN+1 FTAs either.
Fourthly, each negotiator has more or less to face a tough balance between its
international requirements and domestic interests. Though trade liberalization is beneficial tothe participating nation as a whole, income distribution effects across sectors still exist which will
incur protectionism from those who lose. Breaking through these pressures will not be easy, andwill require a stronger commitment to domestic reforms from all members, especially in terms ofintensifying the job training and education programs, and providing sustainable and effective
social safety nets for the affected workers.

1

Shujiro Urata: “Constructing and Multi-lateralizing the Regional Comprehensive Economic Partnership: An Asian
Perspective”, ADBI Working Paper Series No. 449, December 2013.

10

4. Suggestions on pushing forward the RCEP process through cooperation
among the APT countries

As an important cooperative framework in East Asia, ASEAN plus Three (APT) have, in thepast, played a crucial role in enhancing regional economic integration. At the time being, theRCEP process is at a crucial crossroad, indicating that a bit more push might hammer out anagreement to the long-run interests of all while a little relaxation might lead nowhere. In order tomaintain and build up momentum for the negotiations, here are some suggestions on pushing
forward the RCEP process through cooperation among the APT countries.
4.1 Substantiating ASEAN’s centrality in the RCEP process
As the driver, ASEAN will continue to play its dominant role in carrying out the RCEP
blueprint and the pace of RCEP negotiations is heavily dependent on how duly ASEAN exert its
centrality influence. Therefore, to substantiate ASEAN’s centrality in the RCEP negotiations
should be the very first step.
First, the APT countries must strictly stick to the Guiding Principles in the RCEP
negotiations, stipulating that “taking into consideration the different levels of development of theparticipating countries, the RCEP will include appropriate forms of flexibility including provision
for special and differential treatment, plus additional flexibility to the least developed ASEAN
Member States.” To avoid the abuse of flexibility, it would be better that flexibility should only
be extended to the least developed AMSs rather than all the members in the RCEP negotiations.
Second, in order to maintain credibility in creating common markets in the region, and bring
additional and real gains for ASEAN countries, as the driver, ASEAN should set a clear goal ofhigher level of commitments for the RCEP negotiations while leave enough flexibility to theleast-developed members. This may involve (1) aiming at a higher level than the contents of thecurrent ASEAN+1 FTAs in terms of tariff, ROOs, trade facilitation, services, investment andeconomic cooperation; (2) introducing as many convergent rules as possible to all the chapters:common concessions in tariff structure; clear definition and approach in non-tariff barriers (NTBs);
a general rule in ROOs; a region-wide approach in trade facilitation and economic cooperation;and fewer types of limitations in services regulation; (3) making the new framework more
attractive than others, so that it can maintain the “ASEAN Centrality”. This strategy is realistic
only if ASEAN nations move quickly to build momentum in the RCEP negotiating process.
Third, the CJK countries should stand and work together to provide full support for the
proposals put forward by ASEAN based on the Guiding Principles. The CJK countries should also
contribute strong support to the realization of the AEC Blueprint and capacity building, especiallyhuman resource development and skill training in the least-developed AMSs. One of the mostimportant areas will be infrastructure connectivity. Though lots of efforts have been made, theASEAN region is still facing a huge financing gap in addressing its infrastructure needs. As thelargest economies in this region, China, Japan and South Korea possess a high potential infinancing the region’s infrastructure connectivity. It is worthy to note that Chinese President Xi

11

Jinping has proposed, during his visit to Indonesia last year, to establish an Asian Infrastructure
Investment Bank (AIIB) to offer financial support for infrastructure construction in developing
countries in the region, including members of the ASEAN. To date, China has begun the practicalwork with a Working Group for the AIIB preparation in a bid to accelerate the process. China isalso willing to welcome more countries to join the AIIB as founding members.
4.2 Advancing the parallel FTA negotiations in this region
Since the RCEP scheme is mainly based on bilateral free trade agreements (FTAs) among theparticipating countries, the absence of some important arrangements might be an obstacle. A moreproductive strategy for a smooth RCEP process is to see a streamlined trade agreements conductedin parallel with or even in advance of the RCEP.
One is to parallel the strategy for creating the AEC. Upgrading of the ASEAN Free Trade
Agreement (AFTA) of the 1990s to the more comprehensive ASEAN Trade in Goods Agreement(ATIGA) was one of the first steps taken to implement the AEC, alongside a broader program
including work to implement the Master Plan for ASEAN Connectivity.
Other FTAs like CJKFTA shall also be prompted. Involving the three largest economies in
the region, the conclusion of CJKFTA will be an important boost for the further progress of RCEP.
It will also be an important stabilizer for the trilateral political relations in the future. However,considering the geo-political and economic reality in this region, the endeavor will never be aneasy task. Maybe advancing the bilateral FTA between China and Korea will bring about abreakthrough in the trilateral negotiations, with a trilateral investment treaty already in place.
Besides, China and Australia recently also agreed to accelerate talks about a free trade
agreement (FTA). This will also be a backup for the RCEP process.
4.3 Revitalizing the RCEP approach in the negotiations
The RCEP takes a very unique approach in pursuing its goal: while introducing “significant
improvements” over the existing agreements, this approach allows for differential treatment anddifferent pathways for different economies. In this sense, the RCEP negotiations have actuallyadopted the ASEAN Way which stresses both consensus and flexibility (i.e. avoidance of strict
reciprocity, hard legalization and rigid implementation time-frame) in pursuing regional
cooperation. Now to expedite the negotiations, the RCEP approach needs to explore some newelements by innovating or generating some new explanations from the ASEAN Way in order tomaintain its vitality.
In terms of the principle of consensus, the “ASEAN minus X” formula1 can be adopted
innovatively into the RCEP approach to overcome the “consensus paradox”. Excessive stress onconsensus might result in a “race to the bottom” effect, where the lowest common denominatorrules or the final agreement means nothing. To avoid this hazard, an innovated“RCEP minus X
centered on ASEAN” rule might be a solution. The rule will work as follows: taking ASEAN as a
bloc and the central partner, once ASEAN moves a proposal on the RCEP negotiations, if the1Masahiro Kawai Dean: “ASEAN+3 or ASEAN+6: Which Way Forward?” Asian Development Bank Institute. Paper
presented at the Conference on Multi-lateralizing Regionalism Sponsored and organized by WTO – HE,
Co-organized by the Centre for Economic Policy Research (CEPR), 10-12 September 2007, Geneva, Switzerland.

12majority (at least 4) of all the 7 partners second the motion, then the agreeing participating
countries may proceed to do so without having to extend the commitments to non-agreeing
participating countries. In doing so, proper flexibility will always be left to the least-developed
AMSs, which means they may enjoy the benefits of the majority-agreed commitments during atransitional period while the non-agreeing, non-ASEAN participating countries cannot benefit
from the early harvest until they make the same commitments. In this sense, by relaxing the toostrict “consensus”, some of the RCEP goals can be firstly achieved within smaller range ofmembership.
In terms of the principle of flexibility, the RCEP approach needs to gain some binding ties
among the participating countries by setting an explicit schedule for all the issues covered withsequential steps (timetable) for concluding the negotiations. For example, to successfully achieve
trade facilitation, the RCEP should try to establish one ROO per one product. But if this is difficult
to achieve in one go, then a co-equal approach should first be applied to all the products, followed
by a gradual move to a one ROO per one product framework.
Therefore, The RCEP, rather than a single undertaking, should take a sequential approachwith flexible membership and an explicit schedule, and be a phased-in arrangement that
accommodates member countries at different levels of development.
4.4 Introducing the “Pilot Program” into the negotiations
While catering to the disparity among the 16 countries and providing special policies for the
least developed members of ASEAN, the RCEP scheme could also consider selecting some areas
as a priority “Pilot Program” on which consensus could be reached more easily, so thatparticipating countries could enjoy the benefits as early as possible and will be willing to promote
the follow-up deals. This will help gain momentum for the RCEP negotiations, and more
importantly, avoid the risk that small and developing members superseded and made into an
irrelevant actor behind the scene.
Such tangible functional cooperation in trade facilitation as harmonization of ROOs,
facilitation of customs procedures, and FTA utilization can be a target for the “Pilot Program”
since these areas are very basic foundations for trade liberalization and have relatively unanimous
demand from all the parties.
Tourism can also be a target for an early step in service trade liberalization since each of the
16 members has her own distinct but abundant resources in tourism. An early liberalization andfacilitation of tourism services in this region will surely bring about the development of local
economies by prospering hotels, restaurants, travel agencies and so on and so forth.
There are also many areas to be explored in terms of economic and technical cooperation,
which is also one of the issues covered by the RCEP negotiations. Cooperation in E-commerce,
new energy and green industry, infrastructure connectivity, regional industry value chains,capacity building for the least developed countries, addressing trade imbalance, and financial andmonetary cooperation can all be included in the “Pilot Program” as field trips for the RCEP
process.

13

5. Conclusion

The RCEP should be prompted not only as an economic integration but also as a process
towards the Community in the long run. However, the road ahead will not be smooth and is
expected to be fraught with many economic and political obstacles. In conclusion, two things need
to be highlighted.
One is the importance of APT cooperation. As the main pillar of the RCEP, the APT countries
should continue their virtuous tradition in cooperation and work together to achieve more
ambitious common goals under the RCEP. It may be reiterated that the APT initiative has indeed
carried two indispensable core advantages for the larger RCEP endeavor. Politically, ASEAN
centrality is supported by all the other six members of the RCEP, with the centrality of ASEAN
further facilitating the future RCEP negotiation process. Economically, the APT initiative for
economic integration has already made much practical progress in many areas such as financial
cooperation as the APT economies are highly complementary with each other. Therefore, the APTprocess can be seen as a good foundation for the RCEP process. What we need is even stronger
political will and commitments to RCEP.
The other is the relationship between the RCEP and the TPP. Competition is actually not thewhole story. Most believe these two arrangements offer different approaches towards deepening
economic integration in the Asia-Pacific region. The TPP requires much deeper economic
liberalization from its members and contains provisions to protect labor rights, environment andintellectual property, reform state-owned enterprises and boldly eliminate tariff, while the RCEP
places more importance on providing developing members with economic and technicalcooperation to narrow the development gaps. Because of these differences, the RCEP and the TPP
should complement each other rather than substitute one another. Furthermore, for the most part,the TPP and the RCEP offer benefits that are largely complementary—one focuses on deeper
integration with the Americas, and the other on improved access to Asian markets. Indeed, these
two frameworks can be considered as two different stages. Developing countries that cannot meethigh requirements for the TPP membership may achieve economic development under the RCEP,
and then may later join the TPP when they can pass the membership requirements. Therefore,
RCEP and TPP can just be two complementary building blocks for the realization of the long-term
objective of a Free Trade Area of the Asia-Pacific (FTAAP).

14

Annex:

Table 1: Comparing the Regional Initiatives

Population (billion)

RCEP

TPP

ASEAN

APT

CJK FTA

APEC

NAFTA

EU

GDP (nominal, US$ trillion)

GDP (PPP,
US$ trillion)

Merchandise
Trade(US$ trillion)

2011

2015*

2011

2015*

2011

2011

3.4

3.5

19.9

26.2

26.1

10.1

(48%)

(48%)

(28%)

(32%)

(33%)

(28%)

0.66

0.68

20.7

24.4

20.8

7.8

(9.4%)(9.4%)

(29%)

(30%)

(26%)

(21%)

0.60

0.64

2.1

3.1

3.4

2.4

(8.7%)(8.8%)(3.1%)(3.8%)(4.2%)(6.5%)

2.1

2.2

16.5

21.8

20.7

8.8

(31%)

(30%)

(23%)

(26%)

(26%)

(24%)

1.5

1.5

14.3

18.7

17.3

6.4

(22%)

(21%)

(20%)

(23%)

(22%)

(17%)

2.7

2.8

38.8

48.5

43.9

17.6

(40%)

(39%)

(56%)

(59%)

(56%)

(48%)

0.46

0.47

17.9

21.1

18.1

5.4

(6.6%)(6.5%)

(26%)

(25%)

(23%)

(15%)

0.50

0.50

17.6

17.5

15.8

12.3

(7.2%)(7.0%)

(25%)

(21%)

(20%)

(33%)

Note: the numbers in the parenthesis give the percentage to the world; * implies IMF forecast.
Source: World Economic Outlook, IMF, October 2012 database; WTO Database; Citing Sanchita Basu Das(2013),
RCEP and TPP: Comparisons and Concerns,
http://www.iseas.edu.sg/documents/publication/ISEAS%20Perspective%202013_2.pdf

Table 2: Intraregional Trade Share: 2000-2011 (%)
2000

2005

2010

2011

ASEAN

22.7

24.9

24.6

24.1

CJK

20.3

23.7

22.1

21.3

RCEP

40.6

43

44.1

43.8

TPP

48.1

43.5

39

38.6

APEC

72.2

69.5

67.1

66.1

Source: Sanchita Basu Das(2014), The Political Economy of the Regional Comprehensive Economic Partnership(RCEP)

andthe

Trans-PacificPartnership(TPP)

http://www.iseas.edu.sg/documents/publication/Trends_2014_2.pdf

15

Agreements:

An

ASEAN

Perspective,

Table 3: Trade interdependency Rate to Different Integration Arrangements
ASEAN+3

RCEP

TPP

2002

2012

2002

2012

2002

2012

Brunei61.57%

74.99%

68.75%

91.99%

54.97%

62.32%

Cambodia25.19%

48.11%

25.68%

49.37%

33.63%

38.64%

Indonesia

22.61%

25.83%

25.55%

29.04%

22.98%

19.08%

Laos *-

84.50%-

85.70%--

Malaysia

85.25%

77.84%

91.79%

87.49%

89.13%

55.63%

Myanmar *-80.80%-

90.50%--

Philippines

39.89%

24.98%

42.09%

26.34%

52.40%

20.10%

Singapore

123.14%131.28%133.95%148.22%124.18%83.09%

Thailand48.62%

67.69%

52.35%

74.67%

52.61%

51.05%

Vietnam

48.94%

80.80%

54.40%

86.89%

37.87%

48.44%

China

14%

11.98%

14.96%

14.39%

17.77%

15.78%

Japan6%

11.68%

7.10%

13.31%

6.94%

7.88%

Korea

20%

36.75%

21.72%

41.16%

22.30%

28.33%

Australia

15%

19.28%

17.10%

21.27%

15.07%

11.50%

India

4%

9.71%

4.05%

10.60%

5.17%

8.22%

New Zealand13%

17.11%

22.52%

25.39%

23.78%

19.18%

USA

5%

6.52%

4.96%

7.17%

7.76%

8.87%

Note: Trade Interdependency Rate=Total Trade Value(Export and Import Value) of Country i to different
integration groups/GDP of country i.
*: Data in 2010,From Lee, C. J. (2012), ‘Moving toward an Integrated Regional FTA System in East Asia’, citedin Zhang, Y., F. Kimura and S. Oum (eds.), Moving Toward a New Development Model for East Asia- The Roleof Domestic Policy and Regional Cooperation. ERIA Research Project Report 2011-10, Jakarta: ERIA. pp.318.
-: Data unavailable.
Source: Calculated by the author. Trade and GDP data is from UNComtrade and WDI database respectively.
Some of the ASEAN countries’ trade data is not available in UNComtrade database.

16

Table 4: Impact of regional trade liberalization on real GDP (%)
Worldwide

FTAAP

ASEAN+6

ASEAN+3CJK FTA

TPP

Indonesia

4.71

3.64

3.69

3.00

-0.32

-0.36

Malaysia

12.34

9.43

8.27

7.53

-0.52

4.57

Philippines

6.00

6.07

4.60

4.42

-0.75

-0.39

Singapore

3.53

2.42

3.15

2.71

-0.42

0.97

Thailand

26.35

20.24

17.03

16.31

-1.19

-0.89

Vietnam

37.50

34.75

23.42

23.13

-0.50

12.81

China

7.35

5.83

3.43

3.16

2.27

-0.30

Japan

1.25

1.36

1.10

1.04

0.74

0.54

Korea

8.68

7.10

6.34

5.94

4.53

-0.33

Australia

2.46

2.08

2.44

-0.04

-0.11

1.16

India

8.39

-0.91

2.99

-0.29

-0.16

-0.22

New Zealand

4.86

3.80

2.29

-0.19

-0.24

2.15

U.S.

0.35

0.26

-0.07

-0.03

-0.05

0.09

Source: Kawasaki Kenichi(2011), Determining Priority Among EPAs: Which trading partner has the greatest
economic impact? Research Institute of Economy, Trade and Industry.

17

Table 5: Tariff Elimination Levels by Country under the ASEAN + 1 FTAs
AANZFTA ACFTA

AIFTA

AJCEP

AKFTA

Average

Brunei

99.2%

98.3%

85.3%

97.7%

99.2%

95.9%

Cambodia

89.1%

89.9%

88.4%

85.7%

97.1%

90.0%

Indonesia

93.7%

92.3%

48.7%

91.2%

91.2%

83.4%

LAO PDR

91.9%

97.6%

80.1%

86.9%

90.0%

89.3%

Malaysia

97.4%

93.4%

79.8%

94.1%

95.5%

92.0%

Myanmar

88.1%

94.5%

76.6%

85.2%

92.2%

87.3%

Philippines

95.1%

93.0%

80.9%

97.4%

99.0%

93.1%

Singapore

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

Thailand

98.9%

93.5%

78.1%

96.8%

95.6%

92.6%

Vietnam

94.8%

n.a.

79.5%

94.4%

89.4%

89.5%

Australia

100.00%PRC

94.10%

India

78.80%

Japan

91.90%

Korea

90.50%New Zealand

100.00%

Average

95.70%

94.70%

79.60%

92.80%

94.50%

Notes: HS2007 version, HS 6-digit base. Data on Vietnam under the ASEAN-PRC is missing. Data on Myanmar
under the ASEAN-PRC FTA is missing for HS01-HS08.
Trade liberalization rate (also namely tariff elimination coverage), is defined as the proportion of tariff elimination
in total number of tariff lines (number of products).
Source: Fukunaga and Isono (2013), citing Kuno.

18

Table 6: WTO Plus in ASEAN+1 Free Trade Agreements (in terms of the Hoekman Index)
Country

AANZFTA

ACFTA

AKFTA

Average

Total

WTO+

Total

WTO+

Total

WTO+

Total

WTO+

Brunei
Cambodia
Indonesia
Lao
Malaysia
MyanmarPhilippines
Singapore
Thailand
Viet Nam

0.18
0.51
0.29
0.24
0.31
0.26
0.26
0.44
0.36
0.46

0.15
0.14
0.22
NA
0.21
0.23
0.17
0.33
0.12
0.19

0.05
0.38
0.09
0.02
0.11
0.04
0.11
0.3
0.25
0.34

0.02
0.01
0.03
NA
0.01
0.01
0.02
0.19
0.02
0.07

0.08
0.38
0.18
0.07
0.2
0.06
0.17
0.33
NA
0.32

0.06
0.01
0.11
NA
0.1
0.03
0.08
0.22
NA
0.05

0.1
0.42
0.19
0.11
0.21
0.12
0.18
0.36
NA
0.37

0.08
0.05
0.12
NA
0.11
0.09
0.09
0.25
NA
0.1

ASEAN Average

0.33

0.2

0.17

0.04

0.2

0.08

0.23

0.11

Australia
China
Korea
New Zealand

0.52

0.18
0.28

0.04
0.31

0.09

0.51

0.26

Note: “Total” means the score based on the simple average of the Hoekman Index derived from 155 sub-sectors.
“WTO Plus” is the difference between commitments under FTAs and those under the GATS, meaning “additional
commitment” to the WTO commitment. As is shown, most countries have commitment levels of less than 0.5,
meaning that the “unbound (no commitment)” is dominant overall.
Source: Shujiro Urata(2013), Constructing and Multilateralizing the Regional Comprehensive Economic
Partnership: An Asian Perspective, ADBI Working Paper No.449.

19

Table 7: Distribution of Tariff Lines by Liberalization Status
Country% of "Eliminated to All"
Products% of Depends on FTA"
Products% of "Protected to All"
Products

Brunei
Darussalam

84.1

15.9

0

Cambodia

64.3

35.3

0.4

Indonesia

46

52.8

1.2

Lao PDR

68

31.6

0.4

Malaysia

76

22.9

1.1

Myanmar

66.6

31.8

1.6

Philippines

74.6

24.4

1

Singapore

100

0

0

Thailand

75.6

24.3

0.1

Viet Nam

78.1

19.1

2.8

Average

73.3

25.8

0.9

Note: Those products that are subject to tariff elimination in all ASEAN+1 FTAs are classified under “eliminatedto all,” while those products that are excluded from tariff elimination in all ASEAN+1 FTAs are classified under“protected to all.” Those products that do not fall under either “eliminated to all” or “protected to all” are classified
under “depends on FTA.” In other words, those products that are subject to tariff elimination in some FTAs and are
excluded from tariff elimination in other FTAs are classified under “depends on FTA.”
Source: Constructing and Multi-lateralizing the Regional Comprehensive Economic Partnership: An Asian
Perspective, Citing Kuno.

20