New bloc offers golden opportunity

By Eric Chiou 邱奕宏  / 

Wed, Nov 21, 2012 - Page 8

For various reasons, this month does not seem to be an exciting and inspiring political period, although several important political events have happened in the past few weeks.

For instance, the rejoicing over US President Barack Obama’s re-election was soon overshadowed by lingering anxiety over the stagnation of the US economy. In Beijing, without any surprise, the Chinese Communist Party (CCP) has gingerly played by the script and appointed Xi Jinping (習近平) as the party’s general secretary and the head of the Central Military Commission, completing the once-in-decade leadership transition.

In Tokyo, amid low public support and defections from his party, unsurprisingly, Japanese Prime Minister Yoshihiko Noda finally announced that he will dissolve parliament for a general election next month, which is likely to end the three-year period of Democratic Party of Japan (DPJ) rule and hand power over to the opposition, the Liberal Democratic Party (LDP).

In contrast with most people’s political apathy toward these incidents, a more encouraging development regarding the recent formation of regional economic integration advocated by ASEAN perhaps deserves more attention. This latest proposal for a regional economic bloc in Asia is expected to make its first debut in the ASEAN Plus Six Summit in Phnom Penh, Cambodia, this week.

The framework of the Regional Comprehensive Economic Partnership (RCEP) initiated by ASEAN aims to include the 10 members of ASEAN, plus China, India, Japan, South Korea, Australia and New Zealand in its first stage.

The goal of the RCEP is to consolidate free-trade agreements (FTAs) signed between ASEAN and its six trading partners by further lowering customs duties and reducing trade barriers across the region by the end of 2015, as well as to strengthen economic and technical cooperation among its participants.

After its completion, the RCEP will emerge as the world’s largest free-trade zone, surpassing any existing regional FTA bloc, such as the EU and the North American Free Trade Agreement, with its coverage of 3.5 billion people and total GDP of US$23 trillion, around 28.4 percent of global GDP.

Given its inclusion of the most dynamic economies, its gigantic economic capacity and unparalleled market potential, the RCEP has drawn a great deal of attention since its initial concept was endorsed by ASEAN leaders last year. It is widely believed that the RCEP is ASEAN’s counter proposal in response to US-led Trans-Pacific Partnership (TPP) and a trilateral free trade agreement between China, Japan and South Korea.

By advocating the RCEP as a single framework and an exclusive solution to unify and harmonize the spaghetti-like FTAs among ASEAN and its trading partners, ASEAN not only intends to resume “ASEAN Centrality” in terms of determining the pace and direction of East Asian economic integration, but it also attempts to set a unique FTA template with “ASEAN characteristics” in order to distinguish its Asian-style FTA bloc from the US-style TPP.

While the former emphasizes flexibility and takes each member’s special needs into account, the latter claims to be a “gold standard” trade agreement for next generation trade and investment issues.

Given that the TPP does not cover all ASEAN members and Asian countries, such as China, potential RCEP members are also limited to ASEAN Plus Six countries, excluding the US from the partnership. Hence, the first and foremost strategic implication of the RCEP is a new round of free-trade competition over the directions between ASEAN-led East Asian regionalism and the US-led Asia-Pacific regionalism.

Although the articles of the RCEP are still unavailable, relevant documents have revealed some of its unique features. For example, the RCEP stresses the principle of open accession, allowing ASEAN FTA partners or other economic partners to join the RCEP whenever they feel comfortable to do so.

Next, it underlines RCEP’s flexible process, which can be conducted via a sequence, single undertaking or other approaches approved by members.

Additionally, the RCEP also distinguishes itself from the TPP by highlighting special and differential treatment as well as economic and technical cooperation, both of which principles represent ASEAN’s special consideration to lesser developed members, such as Vietnam, Cambodia, Laos and Myanmar.

In other words, the RCEP maintains ASEAN’s long-term principle of solidarity when conducting external FTA negotiations in order to avoid leaving any ASEAN member behind.

Some progress has been made on the preliminary discussions this year, but formal RCEP negotiations are expected to start early next year in order to wrap up the negotiations by 2015, just before the full realization of the ASEAN Economic Community.

While the emergence of the RCEP suggests the final convergence over the two blueprints of East Asian regionalism between China’s support of ASEAN Plus Three FTAs and Japan’s proposal for ASEAN Plus Six FTAs, as far as Taiwan is concerned, the RCEP, due to its open accession principle, may open a window of opportunity for Taiwan’s participation in Asian economic integration.

Since Taiwan has merely concluded five effective FTAs and only its trade pact with China has economic relevance, it is imperative for Taiwan to take part in regional economic integration to avoid being further marginalized. Although the Taiwan government had made a public appeal to join the TPP last year, seeking membership in both the TPP and RCEP is certainly not contradictory.

Given that Taiwan’s economic survival hinges on its export-oriented growth and that Taiwan’s trade and investment relationships with RCEP members have comprised a significant portion of its external economic activities, it is equally important and indispensable for Taiwan to participate in the ASEAN-led economic integration.

Furthermore, seeking RCEP membership is likely to contribute to Taiwan’s economy in various ways.

First, according to various quantitative analyses, Taiwan’s participation in the RCEP will generate more economic benefits than its membership in the TPP.

Second, joining the RCEP will facilitate Taiwanese firms’ further integration into East Asian production chains and help Taiwanese firms to expand in overseas markets.

Third, given its emphasis on flexibility and that it takes each member’s needs into account, the RCEP is likely to allow more time for industrial adjustment and therefore to pose less negative impact on adversely affected industries.

Finally, compared with the TPP, the RCEP includes major emerging and future markets, such as China, India and Indonesia, which are likely to be the locomotives of future global economic growth. Taiwan’s active involvement in the RCEP will not only pave the way for its access to these future markets, but it will also provide a crucial opportunity for Taiwan to break its quandary of regional economic isolation.

However, Taiwan’s biggest obstacle in joining the RCEP does not come from ASEAN, but rather from Beijing. How to join the RCEP with equal membership but without triggering China’s sensitive nerves poses a critical challenge for the Taiwanese government.

Since Beijing’s insistence on the “one China” policy has been the fundamental reason that Taiwan has been rejected from ASEAN activities, it may be worth noting whether China’s new leadership will cultivate innovative thinking in handling this issue differently, considering current political reconciliation between the two sides of the Taiwan Strait. One checking point may be whether Beijing will allow Hong Kong to join the RCEP, which may provide clues for Taipei to decipher.

Without overexaggerating “China factors” on Taiwan’s external economic engagements, it is axiomatic that Taiwan’s strategy to join the RCEP may rely on the pillars of its earnest interests and proactive involvement in ASEAN affairs as well as its irreplaceable relevance in East Asian production chains. Now, the door to joining the RCEP may be half open for Taiwan.

Whether Taiwan can seize this opportunity and make itself a valuable FTA partner hinges largely on the prudence of decisionmakers in Taipei. Paying keen attention to this week’s ASEAN Plus Six Summit will be a good starting point for contemplating Taiwan’s strategy to join the RCEP.

Eric Chiou is an associate research fellow at the Taiwan Institute of Economic Research.