September 12, 2017 2:24 am JST

Countries grapple with perplexing RCEP puzzle

Lack of clear incentives clouds outlook for the next big Pacific trade deal

YASU OTA, Nikkei Asian Review columnist

The latest round of RCEP negotiations was held in Manila. (Photo courtesy of Japan's Ministry of Economy, Trade and Industry/Kyodo)

SINGAPORE -- Although the Regional Comprehensive Economic Partnership has been hailed as the new flag-bearer for free trade in light of the U.S. withdrawal from the Trans-Pacific Partnership, its 16 negotiating members are struggling to meet their original deadline to finalize the deal.

At a meeting in Manila on Sunday, ministers from RCEP countries conceded that they likely will not be signing an agreement by the end of the year as planned. The biggest problem is that none of the members are willing to spend the political capital at home required to open up their markets.

The trade partnership includes the 10 members of the Association of Southeast Asian Nations, plus Japan, China, South Korea, India, Australia and New Zealand. While ASEAN Secretary-General Le Luong Minh says the bloc is in the "driver's seat" in negotiations, its members have not been on the same page.

As a strong advocate for free trade, Singapore is eager to get the deal up and running as soon as possible. But other regional leaders like Indonesia, Thailand and Malaysia have dragged their feet on market liberalization, instead watching for moves from their main export destinations of Japan, China and India.

ASEAN apathy

The Philippines, this year's ASEAN chair, also seems uninterested in tackling the necessary domestic reforms. With the bloc celebrating its 50th anniversary this year, Philippine President Rodrigo Duterte is looking to announce at a November summit that major strides are being made, but is not keen on doing much else.

Japan, Australia and others are looking to set new rules on intellectual property, e-commerce, competition and state-owned companies, in addition to reducing tariffs. They hope to achieve the same level of liberalization under RCEP as was agreed to under the TPP.

But ASEAN is much less enthusiastic. Its members have no incentive to agree to the extra rules since RCEP does not give them increased access to the U.S. market, unlike the original TPP.

An aspiring global player in big data, China is even less willing to make concessions on e-commerce and intellectual property. It wants to maintain its grip over the internet at home, while protecting its digital titans like Alibaba Group Holding and Tencent Holdings as they compete on the global stage.

India also leans toward protectionism in almost all sectors, and is trying to determine when would be the optimum time to act so as to liberalize its market as little as possible. It likely would have gotten more involved in the negotiations had an agreement seemed imminent, since prolonged talks likely would bring greater pressure to free up its market. But with the process facing major roadblocks, it has adopted a more passive stance.

For a large-scale free trade agreement to succeed, it requires a major economy to take the leading role by opening up its own market to others. But RCEP currently lacks an actor that can fulfill the role played by the Obama administration for the TPP. A deal is still in the cards as long as negotiations continue. But the final product looks destined to fall well short of the sophisticated deal members originally sought.

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