Foreign Affairs

An end in sight for RCEP trade talks?

A major Asia-Pacific trade deal seems to have new momentum, after years of discussions dragged on. What is driving the action, and will New Zealand get the deal it’s after? Sam Sachdeva reports.

While New Zealand has been focused on the drastic ups and downs of the (CP)TPP free trade deal, another - larger - agreement has been bubbling away in the background.

The Regional Comprehensive Economic Partnership, RCEP for short, is a proposed free trade deal between the 10 ASEAN members and Australia, New Zealand, China, India, Japan, and South Korea.

There have been 23 rounds of negotiations between the RCEP countries since 2012, a protracted process that has frustrated some countries and led to musings that India could withdraw.

But at the latest round of ministerial talks in Singapore last week, there was talk of a deal being “substantially concluded” by the end of the year.

Is this real progress, or a false dawn? And what does it mean for New Zealand?

Pushing back against protectionism

Trade and Export Growth Minister David Parker said it was hard to tell the reasons for the apparent momentum.

“Most of these negotiations dribble along and in the end someone says, 'come on we’ve got to close this'.”

One of the drivers of RCEP progress seems to be a desire to counteract protectionist sentiment around the world.

Former trade negotiator and Saunders Unsworth consultant Charles Finny said greater unity on trade from some was one of the “perverse outcomes” of Donald Trump’s US presidency.

“Trump hasn’t made America great again in a trade policy sense, but he’s making the world economy a better place in some ways in terms of helping that integration.”

“There is the awareness that given the very fragile state of global trade at the moment, good news is at a premium."

NZ International Business Forum executive director Stephen Jacobi said the RCEP countries were aware a successful deal would send a positive message about the future of trade, at a time when multilateral structures like the World Trade Organisation were under threat.

“There is the awareness that given the very fragile state of global trade at the moment, good news is at a premium...

“In this current crazy trade world, we’ll take what we can get.”

A quality deal?

What we can get may not be what we want: Kiwi politicians have expressed concerns in the past about the quality of RCEP compared to other trade deals, with lower standards for market access and other regulations.

National trade spokesman Todd McClay said India, a big prize for Kiwi exporters given the current lack of an FTA with the country, needed to give ground on its high tariffs - 150 percent for wine and 100 percent for kiwifruit.

Finny said there did not seem to have been a “marked improvement” in the quality of market access offered by India, with other countries instead leaning towards signing an initial deal and seeking to improve it later.

“I’ve got the sense people are saying, ‘Let’s be pragmatic, get India and all the countries tied into the same rules…and we will over time improve market access.”

“You’re only as good as your last trade deal, not your next one, so if the bar is lowered in RCEP, the next time we turn up to negotiate that’s where everybody starts from.”

New Zealand businesses had to prepare themselves for a “much more modest outcome than we’re used to” on trade, Jacobi said, but said there were areas outside of market access which could prove of greater benefit.

“They’re probably not top of mind issues for New Zealand exporters, but nevertheless they improve the environment for trade in some areas.”

McClay said it was “not worth putting pen to paper” on RCEP unless exporters would benefit from markedly improved market access, and the Government needed to hold the line on behalf of businesses.

“You’re only as good as your last trade deal, not your next one, so if the bar is lowered in RCEP, the next time we turn up to negotiate that’s where everybody starts from.”

Parker would not comment in detail on his views of RCEP’s quality,saying of previously expressed concerns from others: “Those risks remain.”

Finny said the complicated relationships between China, Japan and South Korea were also an issue, with the latter two countries concerned about the impact of Asian superpower gaining greater access to their agricultural sectors.

ISDS rises again

There is one further wrinkle which New Zealand will need to consider before it signs off on RCEP - the possibility that controversial Investor State Dispute Settlement (ISDS) clauses will be part of the final deal.

When in Opposition, Labour opposed ISDS provisions, which allow foreign investors to sue governments for breaches of an FTA.

Jacobi said it seemed likely that ISDS would end up in the deal, given RCEP countries like Japan were strong advocates of the mechanism.

When the Government signed the CPTPP trade deal despite the inclusion of ISDS - a decision which angered some of the coalition parties’ supporters - Prime Minister Jacinda Ardern said trade officials had been instructed to “oppose ISDS in any future free trade agreements”.

McClay said was more pessimistic [about a final deal in 2018], noting it was the fourth or fifth year in a row where RCEP countries had talked about wrapping things up.

Whether RCEP counts as a “future” FTA seems up for debate, given negotiations have been underway for years.

It’s also unclear whether opposition to ISDS is a so-called red line for the Government, although it seems likely it would not rule out signing a deal with the mechanism if the benefits were worth it (Parker confirmed it was opposing the ISDS in RCEP, but did not elaborate further).

So when might we see a final deal?

Jacobi said an end to the negotiating process was possible by the end of the year, but the legal verification and ratification process could drag on for some time.

McClay said he was more pessimistic, noting it was the fourth or fifth year in a row where RCEP countries had talked about wrapping things up.

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