2.1
This Chapter covers the international trade environment in which the Regional Comprehensive Economic Partnership Agreement (RCEP) was negotiated and a summary of the RCEP negotiations.
International trade architecture
2.2
RCEP is the latest development in international trade architecture, arising from the challenges facing the multilateral trading system and the World Trade Organization (WTO). RCEP was negotiated contemporaneously with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
General Agreement on Tariffs and Trade and the World Trade Organization
2.3
Immediately after the Second World War, the Western Allies established the General Agreement on Tariffs and Trade (GATT), which was based on a philosophy of countering national protectionism involving the imposition of tariffs on imports. In the years that followed, GATT expanded steadily and, by the 1990s, had a membership of 123 countries.
2.4
GATT was initially focused on trade in goods, aiming to liberalise tariffs and remove quantitative restrictions on the movement of goods across international markets. GATT established:
… a new basic template of rules and exceptions to regulate international trade between members … and locked in initial tariff reductions that these countries committed to establish.
2.5
Following GATT negotiations in Uruguay in 1994, the WTO was established.
2.6
At present, the WTO administers the following multilateral instruments:
the General Agreement on Trade in Services;
the Agreement on Trade-Related Aspects of Intellectual Property Rights; and
the Agreement on Trade-Related Investment Measures.
2.7
Despite the ambitions and expectations that surrounded the establishment of the WTO, the organisation has encountered mounting difficulties since the 2000s. The Doha Round of negotiations, launched in 2001 with the agenda of further trade liberalisation, strengthening WTO rules and addressing concerns of developing countries, is yet to be concluded.
Alternatives to multilateralism – unilateral, bilateral, plurilateral
2.8
As progress on negotiating WTO agreements has stalled, countries wishing to progress free trade agendas have used a mix of three alternatives:
unilateral reductions in tariffs and other trade barriers;
bilateral trade agreements with other individual countries; and
plurilateral trade agreements involving more than one other country.
Unilateral reductions in trade barriers
2.9
Unilateral reductions in trade barriers occur when a country removes tariffs or non-tariff barriers unilaterally, in the absence of similar actions by other countries. Unilateral reductions are not usually taken in isolation. Rather they tend to occur as part of broader economic liberalisation process, such as that undertaken by Australia in the 1980s and 1990s.
Bilateral trade agreements
2.10
Bilateral trade agreements are negotiated between two countries. Such agreements are recognised and specifically permitted by the WTO. The content of bilateral trade agreements builds on the multilateral agreements administered by the WTO.
2.11
The negotiation of bilateral trade agreements has increased significantly in recent decades, particularly in the Indo-Pacific region. The Perth USAsia Centre described this as the:
…’turn to bilateralism’ in the trade system. Rather than pursuing multilateral agreements (at the global or regional levels), governments have preferred smaller bilateral FTAs [Free Trade Agreements]. The primary appeal is their ease: with only two parties, deals can be negotiated far more quickly than in multilateral fora. For these reasons, bilateral FTAs are often viewed as a useful ‘second best’ trade strategy, to be used when multilateralism fails. According to WTO data, there are currently 286 bilateral FTAs in force globally.
The limits of bilateralism: the ‘spaghetti bowl’ problem
2.12
As time has passed, the limitations of bilateral trade agreements have become more apparent.
2.13
The Perth USAsia Centre pointed out that many bilateral trade agreements do not take account of modern production systems where value is added in a chain spreading across a number of different countries and not confined to a transaction between two partners:
… bilateral FTAs do not adequately support the development of value chains. As they only lower trade barriers between two economies, they are of little assistance to complex value chains that incorporate many countries.
2.14
The Committee was told that a multiplicity of bilateral trade agreements can create a complexity of inconsistent rules and standards for business, thus creating a ‘spaghetti bowl’ or ‘noodle bowl’ of confusing systems.
2.15
The Australian Chamber of Commerce and Industry (ACCI) said that, while they support bilateral agreements, they were concerned about increasingly complex regulation and the ‘noodle bowl’ effect:
… we regularly point out the build-up of 'red tape’ resulting from the compounding development of bilateral and regional preferential trade agreements and their compliance regimes. As the number of [trade agreements] available to Australian exporters grows, so does the confusion and inconsistency within the overlapping agreements. The ‘noodle bowl’ continues to grow, and this can be seen as a significant barrier to trade for Australian SMEs [small and medium enterprises] …[and] as the noodle bowl deepens, so too does the complexity of harmonisation.
2.16
Mr Bryan Clark from ACCI also told the Committee that complexity could be reduced by withdrawing from some bilateral trade agreements:
The government can significantly reduce the 'noodle bowl' issues by commencing a program of withdrawal from historic bilateral trade agreements superseded by the newer regional agreements. The government has already begun this task in terms of investment treaties, and we encourage the extension of these efforts to trade agreements. It will benefit Australian exporters in our wider economy by providing clearer rules for trade, reducing costs for our economy and removing and reducing red tape.
2.17
Mr Clark pointed out that ‘there are five separate agreements that involve Malaysia’, but the ‘trade agreements themselves aren’t helping and business … gets very confused by trying to use the agreements’. He added that: ‘[w]e think RCEP, in itself, is a good prospect, but it's only going to be beneficial if we can also start to clean out the agreements from underneath it’.
2.18
The Perth USAsia Centre agreed that the ‘spaghetti bowl problem’ creates inconsistencies and distortions that ‘raise the friction in global value chains as companies are forced to comply with potentially dozens of rules’.
Plurilateral trade agreements
2.19
Plurilateral trade agreements involve more than two countries. Like bilateral trade agreements, they are specifically permitted by the WTO.
2.20
The problems associated with bilateral trade agreements in the Asia-Pacific have resulted in an effort to re-multilateralise the region’s trade architecture by negotiating plurilateral trade agreements that harmonise the rules governing trade between parties:
… rather than have a lot of individual agreements with differing standards and often incommensurate provisions within them, try to bring everything together under a single regional legal architecture.
2.21
RCEP is one of these plurilateral trade agreements.
2.22
One of the promoted benefits of RCEP for Australia is the potential to harmonise rules, procedures and standards for the participating economies, particularly those who are already linked in various trade agreements.
2.23
Dr Simon Twisk from the Department of Foreign Affairs and Trade (DFAT) stated that:
The advantage of RCEP is that it provides a single set of rules for exporters to use, rather than having to rely on the multiplicity of different rules and procedures under the existing FTAs.
2.24
The Perth USAsia Centre said:
RCEP’s contribution to Indo-Pacific economic integration, and Australia’s engagement therein, must be understood in terms of its role within this regional trade architecture. It functions primarily as a harmonisation platform, offering a single and cohesive set of trade and trade-related rules for participating economies. It is particularly configured to supporting the growth of regional value chains, by providing compatibility between existing bilateral trade mechanisms. It also contributes to buttressing rules-based trade in the Indo-Pacific, at a time when the regional trade system is under increasing stress.
2.25
The Northern Territory Government told the Committee that RCEP:
… streamlines, harmonises and standardises rules of origins procedures in certain countries, which should bring much-needed efficiencies in trading relationships and offers protections for foreign investors to foster growth.
Regional Comprehensive Economic Partnership Agreement
2.26
RCEP was signed at a virtual signing ceremony on 15 November 2020. Australia signed in Canberra, and the other 14 states signed in their respective territories – China, Japan, New Zealand, the Republic of Korea, and the ten members of the Association of Southeast Asian Nations (ASEAN): Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.
2.27
Article 20.6.2 (Entry into Force) provides that RCEP will enter into force for those signatory states that have deposited their instruments of ratification, acceptance, or approval, 60 days after the date on which at least six signatory states which are member states of ASEAN and three signatory states other than member states of ASEAN have deposited their instruments of ratification, acceptance, or approval with the Depositary.
2.28
The RCEP negotiations were launched by ASEAN at the East Asia Summit in Phnom Penh, Cambodia, in 2012. RCEP is considered a major achievement for regional economic integration and for ASEAN’s role in Asia-Pacific diplomacy.
2.29
Mr James Baxter from DFAT concurred with this assessment, emphasising that Australia sees RCEP as an ‘ASEAN-led agreement and reflects the interests and the positions of ASEAN’.
2.30
Article Three submitted that:
One of the big aims early on in the negotiations was to consolidate the agreements between all parties, with the existing ASEAN regional agreements at the core.
2.31
Similarly, the Perth USAsia Centre told the Committee:
It is built on top of the existing network of ‘ASEAN Plus One’ FTAs, which connect the ten-member ASEAN bloc to five other regional economies: Australia, China, Japan, Korea and New Zealand.
2.32
RCEP is also expected to be advantageous for China, Japan and the Republic of Korea. Article Three submitted that ASEAN’s initiative had provided a basis on which the three major Asia-Pacific powers could balance their political and economic priorities:
RCEP establishes a comprehensive trade agreement between South Korea, Japan and China, which the three countries have been circling around for years. This is significant because of the value chains – particularly in electronics – that have been established between those three countries, plus ASEAN, and the volume of manufacturing trade involved.
2.33
Mr Baxter added that:
…RCEP will be the world's largest free trade agreement. RCEP signatories account for almost one-third of the world's population and GDP [Gross Domestic Product]. No other free trade agreement brings together the collective economic weight of the ASEAN nations and the major economies in North Asia. RCEP also provides for additional economies to join the agreement in the future, building the significance of the agreement over time.
RCEP provisions
2.34
RCEP consists of 20 Chapters with associated Annexes, Appendices and footnotes.
2.35
The provisions of RCEP cover the following matters:
movement of natural persons;
small and medium enterprises (SMEs);
general provisions and exceptions;
institutional provisions;
2.36
The Government considered that RCEP would provide:
A single set of rules and procedures for Australian goods exporters to utilise RCEP’s preferential tariff outcomes across the region, and increased opportunities for Australian business to access regional value chains by allowing goods made in another RCEP party from Australian inputs to benefit from tariff preferences under RCEP when exported to a third RCEP party.
Avenues for tackling non-tariff barriers, including in areas such as quarantine and technical standards, by promoting compliance with WTO rules and further improving cooperation and transparency. Rules on intellectual property and e-commerce will help create an enabling environment for business to trade digitally in the region and support consumer confidence in the online environment.
New market access commitments for service suppliers and investors in China and ASEAN markets such as Malaysia, the Philippines and Thailand, and provide an additional avenue through which exporters can access those markets in which we already enjoy high quality FTA commitments, including Japan, New Zealand, Republic of Korea and Singapore.
2.37
The following Chapters will discuss RCEP’s provisions and related issues in detail.