RCEP not to have a strong impact

By Yen Huai-shing

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After more than eight years of talks, the Regional Comprehensive Economic Partnership (RCEP) was signed on Nov. 15, combining the individual free-trade agreements signed between ASEAN member states on the one hand, and China, Japan, South Korea, Australia and New Zealand on the other.

Under the leadership of ASEAN and China, most observers did not expect the RCEP to provide a high degree of openness, and the announced agreement lives up to these expectations, containing few surprises.

All products covered by the RCEP tariff reductions are agricultural and industrial products, but reductions of agricultural product tariffs are very limited, for example covering only 49 percent of Japan’s agricultural and fishery products. In addition, many of the RCEP members are only to implement the reductions over the next 10 to 25 years.

Tariff reductions on machine tools and plastics industry products, which are of Taiwanese concern, would not be very high, and while this might still have an impact, it would not be a chock.

As for service trade and investment deregulation, the RCEP is probably the first free-trade agreement to use a “mixed-model” commitment method.

China and most of the ASEAN members continue to use the WTO’s positive list approach, tabulating deregulated service categories. A minority of members, such as Australia and Japan, would use a negative list approach, listing service sectors and investments with limited deregulation.

Doubts remain as to whether this complicated model will achieve the RCEP’s goal of integrating the various ASEAN Plus One regulations.

Furthermore, there is no additional deregulation for government procurement, as the RCEP stops at improving government procurement procedure-related transparency regulations without any commitment to market deregulation. In other words, China and many of the ASEAN states would remain closed.

Other issues, such as beef and pork inspection regulations, include progressive clauses about strengthening scientific evidence and risk evaluation.

In the same way, e-commerce rules prohibit forcing foreign businesses to localize databases as a precondition for approving their investments.

However, these progressive clauses are “soft,” in the sense that they do not include a dispute settlement mechanism. In other words, they are more symbolic than binding.

Many observers have expressed the view that as Taiwan would not be able to join the RCEP, it would result in the nation’s effective marginalization. While it is true that the RCEP will likely affect the Taiwanese economy, it does not involve very far-reaching liberalization, which lessens the pressure on the nation.

In addition, the ASEAN Plus One free-trade agreement has been in effect for more than a decade, and 90 percent of all such agreements include mutual clauses on zero manufacturing customs duties. This means that the Taiwanese economy has experienced 10 years of pain and adaptation, and has still found stable foothold and ways of handling this situation.

The main effect of the RCEP on Taiwan would stem from the new free-trade relationships between China and Japan, and Japan and South Korea.

Preliminary observations show that tariffs between these countries would be cut by 80 to 90 percent. However, thanks to information technology agreements stipulating zero tariffs or existing zero-tariff agreements with other countries, more than 70 percent of Taiwanese exports to China, Japan and South Korea already enjoy zero tariffs.

Fortunately, the three countries have have not reduced tariffs on products from high-tariff industries such as the plastics, machinery and textile industries, or are delaying reductions. In other words, while the RCEP will likely affect the Taiwanese economy, it would not be excessive.

In addition to increasing its push to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Taiwan should make an effort to build a foundation for reorganizing its supply chains based on trust, like-mindedness, non-corruption and accountability — four characteristics that have increasingly come into focus for many countries.