INTRODUCTION

In the past decades, the Association of Southeast Asian Nations (ASEAN) has evolved rapidly to become one of the key emerging regional institutions in the world. As one of its key agendas, ASEAN has promoted progressive regional integration alongside the reduction of the intra-regional development gap. The process of ASEAN integration has been wide-ranging and inclusive, leading to significant benefits to members, even the less-developed ones such as Cambodia, Lao PDR, Myanmar, and Vietnam (CLMV). Although the “CLMV growth story is one ASEAN success story with lessons … on the potential benefits of economic integration” (ERIA 2014), maintaining the momentum for further improvement is essential.

The idea of the Regional Comprehensive Economic Partnership (RCEP) is not new. The initiative actually represents a continuation of the “Concentric Circle Strategy”, which gradually builds on ASEAN integration in the form of the ASEAN Economic Community (AEC) to be created by 2015 and ASEAN-plus integration with “ASEAN centrality”. The RCEP was initiated by ASEAN itself in 2011 with the Association's Framework for RCEP. In 2012, leaders of all sixteen economies — including ASEAN members, China, Japan, Korea, Australia, New Zealand, and India — supported and agreed to launch the RCEP negotiations. Fundamentally, the RCEP resembles the various efforts around the region for broader regional integration, such as the East Asian Free Trade Area (EAFTA) initiative by China and the Comprehensive Economic Partnership in East Asia (CEPEA) proposal by Japan.

Since the RCEP originates from ASEAN's aspirations, a couple of natural questions arise. The first is whether the RCEP arrangement can be really effective for sustaining growth and narrowing the development gap in the CLMV countries. The second question is whether the RCEP can benefit from the AEC framework. In answering these questions, one may need to start by identifying their possible impacts on these member economies. Complications introduced by the new context of Asia-Pacific integration — i.e., the ongoing Trans-Pacific Partnership (TPP) negotiations — should also be considered carefully even though not all the CLMV countries participate directly in the process. These questions and issues constitute the main analytical focus of this chapter.

The remainder of the chapter is structured as follows. Section 2 summarizes the main possible impacts of the RCEP on the CLMV countries.

IN THE BEGINNING…

The Trans-Pacific Partnership (TPP) trade negotiations began life as a different trade agreement. Now known as the P4 or “Pacific Four”, the official name of the agreement, announced at the APEC (Asia-Pacific Economic Cooperation) Trade Ministers meeting in June 2005, was the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP) (Lim, Elms, and Low 2012). The P4 linked together Brunei Darussalam, Chile, New Zealand, and Singapore. It grew out of attempts within APEC to create a larger economic free trade area. When these talks foundered, the leaders of the P4 countries pressed ahead with plans to demonstrate how small, largely open economies could still benefit from trade liberalization. However, given the quite modest levels of trade between the four, the P4 came into force in 2006 with very little attention (Elms and Lim 2012).

The original P4 negotiations closed without resolution on two difficult areas of negotiation — financial services and investment. The four country leaders elected to finish the agreement and then relaunch discussions on these outstanding issues within two years.

When the negotiations started in February 2008 over the two missing chapters, the United States also began to participate in the discussions (Business Day 2008). In September 2008, U.S. participation deepened with the announcement that the United States would seek to join the agreement in its entirety. When this happened, the P4 moved from a small experiment into something larger and much more interesting. Australia, Peru, and Vietnam also joined the talks. In 2008, the P4 agreement had morphed into the TPP with eight members.

The United States’ involvement with the P4 was an important decision given its relatively low number of trade deals. The United States opted to join the agreement in the twilight days of the George W. Bush administration. The U.S. announcement was made in September 2008, with the elections looming in November.

To make such a pronouncement ahead of a tight election might seem especially odd. At a minimum, it could have been argued that the decision could be easily postponed until after the election so the new administration could decide whether or not they wished to be involved in the trade arrangement. Instead, United States Trade Representative (USTR) Susan Schwab chose to ensure U.S. participation regardless of which party won control of the government.

INTRODUCTION

In the last five years, the mega-regional trade agreements of the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP) have caught the fancy of many countries across the Asia-Pacific region. In addition, the Transatlantic Trade and Investment Partnership (TTIP) is also being negotiated and the Pacific Alliance (PA) is being formed, in order to align their participating members with the forces of globalization and hence benefit from the Asia-Pacific's emerging regional agreements.

While the prognosis on these mega-regional deals is unclear at this juncture, it is certain that they will shape the global trade architecture of the twenty-first century — particularly the RCEP and the TPP — because of their sheer size and scope, covering issues that go beyond trade liberalization. However, it has been and will be difficult to first conclude the negotiations and thereafter to implement these mega-regionals as they are bound to face complex challenges. Though the broad text of the TPP has been agreed by the twelve member nations, its full ratification is expected to take sometime. The RCEP process has been slow since the beginning of its journey in May 2013, and missed the deadline of end 2015, as promised earlier.

This overview chapter looks at the literature on Regional Trade Agreements (RTAs), followed by a discussion on the role of RCEP and TPP, covering both economic and strategic aspects, in the bigger geography of the Asia-Pacific region. The chapter, thereafter, provides a short narrative of what is to be expected from the rest of the book. In the final section, it pulls strands from the subsequent chapters to give a flavour of where the future of the global trade environment could be headed.

LITERATURE REVIEW

The post-Cold War proliferation of Free Trade Agreements (FTAs) — a form of new regionalism — has gained prominence as countries struggle to balance the challenge of globalization against domestic interests. The General Agreement on Tariffs and Trade (GATT) received 123 RTA notifications from 1948 to 1994, while the World Trade Organization (WTO) has received notifications for over 300 additional arrangements covering trade in goods and/or services since its inception in 1995.

INTRODUCTION

In April 2011, the Presidents of Chile, Colombia, Mexico, and Peru gathered in Lima, Peru to establish a new regional integration initiative, the Pacific Alliance (PA). It had two stated goals. Firstly, to move progressively towards the free circulation of goods, services, capitals, and people among its members. Secondly, to become a platform from which these countries can project themselves towards the world and particularly the Asia-Pacific.

In its short lifetime, the PA has attracted great attention, both in Latin America and abroad. This chapter attempts to answer some of the most frequent questions surrounding it, such as:

1. • What is the strategic and economic rationale for the PA?

2. • What are the criteria for membership and observer status?

3. • Does the PA adopt any specific integration model, and (if so) why?

4. • Can the PA be considered a “high standard” Free Trade Agreement (FTA)?

5. • Is the PA linked to the Trans-Pacific Partnership (TPP)?

6. • Can the PA contribute to enhancing economic links between Latin America and the Asia-Pacific?

The answers to several of these questions are necessarily speculative at this point since the PA project is still in its early stages. The rest of the chapter is organized as follows. Section 2 provides an overview of the PA member economies and their trade and Foreign Direct Investment (FDI) links. Section 3 reviews the main milestones in the PA's history. Section 4 discusses the PA's possible role in strengthening trans-Pacific economic links. Section 5 concludes.

THE PACIFIC ALLIANCE: AN ECONOMIC OVERVIEW

PA members are generally regarded as Latin America's most dynamic economies, characterized by high growth (by Latin American standards), solid macroeconomic policies, improved social indicators, and a strong commitment to open markets (see, for example, George 2014). While much of this is true, the group's growth performance over the last decade is not remarkable. Mexico, by far the PA's largest economy, has grown well below the regional average, while Colombia and Chile have grown moderately above it. Only Peru has been among the region's fastest growing economies during that period (see Table 14.1).

INTRODUCTION

During the post-Cold War era, China engaged the Asia-Pacific economies through regional cooperation arrangements. These arrangements include the Asia-Pacific Economic Cooperation (APEC) forum, ASEAN (Association of Southeast Asian Nations) Plus Three (APT) forum, and other bilateral or plurilateral Free Trade Agreements (FTAs). APEC — one of East Asia';s few regional arrangements when the Cold War ended — was the first one China joined. After the 1997 Asian Financial Crisis, the regional architecture of East Asia was reshaped, with the APT emerging as East Asia's main economic framework (this included ten ASEAN countries plus China, Japan, and South Korea). Later, the APT evolved into a parallel framework in East Asia with APEC as a trans-pacific platform. This dual-framework architecture in the Asia-Pacific worked well for China until Japan proposed the “10+6” (Australia, New Zealand, and India were included) in 2006.

Since the 1997 crisis, China became active in regional cooperation and subsequently launched bilateral FTAs with ASEAN nations. By insisting on using APT as the main channel of East Asian cooperation, China has shown its preference for the smaller framework for economic cooperation. To some observers, this was because China was trying to maintain its dominant position in East Asian cooperation. Since then, China and Japan had been locked in competition for leadership of regional cooperation (Wang 2010) until the Trans-Pacific Partnership (TPP) was launched in 2008. Some have argued that an FTA strategy was formed in China during this period (Zhu 2009).

During this period, China experienced persistently high GDP growth rate, partly because of its successful cooperation with its regional economies. As a result, economic interdependence was acknowledged. However, this economic rise unfortunately led to “strategic tension” (Zhu 2013) between China and the United States, especially when the former was seen as a potential challenger of the latter.

When the United States launched the TPP with other APEC members, China was wary of the new initiative that focused on making “next generation trading rules”. Known as a latecomer in regional cooperation, China currently faces many challenges to further liberalization. Research interests generated among research institutes over these issues include the TPP's impact on China and recommendations on how China should respond to the agreement.

INTRODUCTION

In 2013, Indonesia hosted the Asia-Pacific Economic Cooperation (APEC) Economic Leaders’ Meeting for the second time, on the grouping's twentyfifth anniversary and twenty years on from the Bogor APEC Economic Leaders’ Meeting. The differences in atmospherics between these two meetings were stark and telling.

In 1994, Indonesia hosted APEC's second leaders’ meeting that: (1) cemented this central institutional feature; and (2) announced its central and very ambitious institutional commitment — the “Bogor Goals” of free trade and investment by developed member economies by 2010 and by 2020 for developing ones. In this same year, U.S. economist C. Fred Bergsten (1994, p. 20), who later was appointed as the chairperson of APEC's Eminent Persons Group, proclaimed that: “Contrary to most expectations about regional economic organizations, the Asia-Pacific Economic Cooperation (APEC) forum is poised to become a driving force for worldwide trade liberalization.” At this time there was great hope that APEC would deepen regional economic integration among the Pacific Rim economies and through this buttress, the global trading system and the nascent World Trade Organization (WTO).

APEC's silver anniversary summit in Bali in 2013 lacked the sense of excitement and regional and international media interest of its Bogor predecessor and was much lighter on the deliverables side as well. While the Bali Declaration (with twelve pages of annexes) was ten times longer than the Bogor Declaration, it provided much less guidance for the future direction of APEC as a regional economic grouping, established no central new commitments, and recognized that the Bogor Goals were still that — goals.

The stark differences between Indonesia's two APEC years is reflective of APEC's path of restricting relevance, a path APEC has been propelled along by enduring international relations realities. Rather than countering sceptical expectations about what regional economic organizations can, and cannot, accomplish, APEC's experience has reinforced them as has the concurrent stalling of the WTO process. ASEAN's bold commitment to the establishment of an ASEAN Economic Community (AEC) by 2015 and the early days of the Regional Comprehensive Economic Partnership (RCEP) seem to be following along similar, reaffirming paths as well. India';s inclusion in RCEP adds significantly to its future potential just as Japan';s late inclusion in the Trans-Pacific Partnership (TPP) did.

INTRODUCTION

The Asia-Pacific region is seeing growing economic integration through market-driven production networks, and through plurilateral and bilateral Free Trade Agreements (FTAs) and the emerging mega-trade blocs of the Regional Comprehensive Economic Partnership (RCEP) and Trans-Pacific Partnership (TPP). Both economic and political factors are driving the proliferation of FTAs in East Asia. The former is the push for economic growth and employment through improved economic competitiveness, access to markets and investments, and the strengthening of regional production networks and supply chains. The latter is to promote regional resilience and traditional and non-traditional security through closer cooperation.

Bilateral FTAs are proliferating among East Asian and non-East Asian countries. Plurilateral FTAs have also mushroomed, such as the ASEAN+1 FTAs. This proliferation is driven by the following developments: the stalled World Trade Organization (WTO) Doha Round and need for alternative paths to trade and investment liberalization; the shock of the Asian Financial Crisis (AFC) in the late 1990s impelling countries in the region to work more closely together; the desire to partially imitate North American and European regional economic integration; the fear of being left out of preferential deals and its resulting domino effect; and the desire to have a stronger East Asian voice and presence in the international fora. Questions that arise from such proliferation include: Will they be effective in liberalizing trade and investment flows? Will they undermine the WTO and the multilateral trading system? Will the various stakeholders, particularly the business community, find them useful and helpful? Will they create a “noodle bowl” phenomenon that actually fragments markets and add to business costs?

ASEAN has been playing a central role in FTA formation in the region. The ASEAN Free Trade Area (AFTA) entered into force in 1993, ASEAN Framework Agreement of Services (AFAS) in 1995, and ASEAN Investment Area (AIA) in 1997 and was succeeded by the ASEAN Economic Community (AEC) in 2007, ASEAN Trade in Goods Agreement (ATIGA) in 2010, and ASEAN Comprehensive Investment Agreement (ACIA) in 2012. The development of FTA networks with ASEAN';s Dialogue Partners has been an integral part of the AEC.

INTRODUCTION

The United States and the European Union (EU) launched negotiations for a possible Transatlantic Trade and Investment Partnership (TTIP) in July 2013. The goal of the TTIP is to create a modern, comprehensive free-trade area that would unite the two largest economic areas in the world. Thus far, the TTIP has undergone eleven negotiating rounds, the seventh having been held from 19–23 October 2015. As the United States and the EU are among the most open economies in the world, the negotiations are focusing on what might be characterized as “high-hanging” fruit, that is, politically difficult issues such as sensitive agricultural products, the financial sector, product standards, sanitary and phytosanitary (SPS — included issues related to animal welfare), the protection of intellectual property rights (IPR), and government procurement. Coupled with the usual political baggage associated with transatlantic relations and election-year politics in the United States, the scope and depth of the arrangement has generated extensive debates particularly in Europe. When the TTIP was launched, United States Trade Representative (USTR) Michael Froman expressed hope that it would be completed “on one tank of gas”. The long and winding road of trade negotiations has already required quite a bit of refuelling. Will it reach its destination?

There are reasons to be optimistic about the accord. The United States and European countries have been key leaders in post-World War II economic governance and in promoting liberalization of global trade and investment. They have been active in the General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO) in trying to bring down tariffs and non-tariff barriers (NTBs) globally, and their respective political and economic institutions related to trade are among the most advanced in the world. There is good reason to believe that the ultimate benefits of the accord could be relatively large, despite the fact that their economies are already relatively open. Moreover, rapid growth in Asia and the “mega-regionalism” in the Asia-Pacific region, particularly the recently concluded Trans-Pacific Partnership (TPP), have created strong incentives for the EU to avoid being isolated from Asia- Pacific markets and regional rule-making that may well emerge as global rules.

INTRODUCTION

Mega-regional trade agreements are the most recent manifestation of regionalism since its revival in the 1980s. In the past five years, there has been much discussion about the effects of these so-called mega-regionals on the global economy, the most important of which are: the Regional Comprehensive Economic Partnership (RCEP), the Trans-Pacific Partnership (TPP), and the Transatlantic Trade and Investment Partnership (TTIP). An additional preferential initiative currently under consideration, although not yet under negotiation, is the Free Trade Agreement of the Asia-Pacific (FTAAP), encompassing the full membership of the Asia-Pacific Economic Cooperation (APEC). According to the World Economic Forum, megaregional trade agreements are defined as:

Thus, their size is what differentiates the RCEP, TPP, and TTIP from other Preferential Trade Agreements (PTAs) and makes their study unique and pertinent. As detailed in Table 16.1, the successful negotiation of the RCEP, TPP, or TTIP would create a vast integrated market across several countries, commanding a substantial portion of the world's trade and gross domestic product (GDP). Moreover, their officially proposed completion date of 2015 indicates the high level of priority that their members have accorded these prospective agreements. As we have seen with the TPP, however, a 2015 completion date may well prove elusive. The purpose of such integration in these mega-regionals is to provide increased market access, regulatory compatibility, and a “rules basket” to iron out variations in business and investment climates (Meléndez-Ortiz 2014, p. 13). Simply put, mega-regionals are large PTAs designed to facilitate trade liberalization among its members.

Yet, PTAs — including mega-regionals — are problematic “two-faced” arrangements because they offer free trade only to members and protection against non-members, as Jagdish Bhagwati reminds us (Bhagwati 2008, pp. 16–17).

INTRODUCTION

Nearly two decades after announcing its Look East Policy (LEP), India is poised to play a much greater role in the Asia-Pacific than it had probably envisaged at that point in time. After several years of lukewarm ties with most countries of the region since the beginning of the Cold War, India's strategic economic links with the region have increased sharply. This is reflected in its presence in regional institutional mechanisms like the East Asia Summit (EAS), ASEAN Regional Forum (ARF), and several other bilateral trade and economic cooperation agreements in the region. Notwithstanding these, it is still not as deeply entrenched in the economic domain of the Asia-Pacific as it could possibly be. A major factor behind the relatively low integration is India's hesitation to decisively abandon a defensive and inward-looking trade agenda. The hesitation has been a compelling determinant of its relatively lesser interface with a region that has long taken a more liberal approach to trade and investment than India and followed strongly outward-oriented policies.

The reputation of being a hesitant economic liberalizer and difficult trade negotiator is firmly affixed on India as it negotiates the Regional Comprehensive Economic Partnership (RCEP) — its largest trade and economic deal with the Asia-Pacific region so far. The gradual maturing of negotiations at the RCEP has been accompanied by significant domestic changes in India, the most notable being a change in government with the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) having a pronounced right-of-centre political and economic ideology replacing the more left-of-centre Congress-led United Progressive Alliance (UPA). There are wide expectations from the new government in pursuing a more aggressive course of market-based economic reforms than its predecessor. Such expectations extend to India adopting a forward-looking and constructive approach in its external trade negotiations, including the RCEP.

This chapter examines the context of India's participation at the RCEP, including its active Free Trade Agreement (FTA) policy and the questions about the benefits of these FTAs. It illustrates the economic and strategic significance of the RCEP for India, particularly the gains accruable from its greater presence in global value chains and a larger strategic role in the region.

INTRODUCTION

Over the last twenty years, regional integration initiatives have been significantly developed: not only in terms of number, which has tripled since early 1990s, but also in terms of integration topics discussed and the number of countries involved in the agreements. Significant development can be observed in East Asia and the Pacific, where countries have been actively forming trade agreements within and outside the region. Recently, the process of integration in East Asia has been conducted under the ASEAN-initiated Regional Comprehensive Economic Partnership (RCEP). At the same time, there is also another regional initiative involving some East Asian countries together with countries across the Pacific, called the Trans-Pacific Partnership (TPP) agreement which is led by the United States.

These two proposals are expected to advance the regional trade architecture through the consolidation of various existing agreements among countries in the region. Many questions, however, have been raised in the wake of these recent initiatives: What drives countries in the region to pursue greater integration? How effective are current proposals to tackle the various issues related to international trade and investment? How do those initiatives affect each other and what is the likelihood that they would be compatible with each other? What are some possible directions for these mega-integrations?

This chapter is an attempt to address these questions. It draws upon lessons from the current state of the RCEP negotiations, taking into account other initiatives in the region such as the TPP and the ASEAN Economic Community (AEC). In order to put these discussions into context, we will briefly take a look at the evolution of economic integration in the region and discuss the drivers behind its current progress. We will then talk about challenges surrounding region-wide integration, as well as some suggestions to move the process forward.

A GLANCE AT THE INTEGRATION PROCESS IN EAST ASIA AND THE PACIFIC

Formal regional integration, in the form of trade agreements, is relatively new among East Asian countries. A similar situation can also be observed, to some extent, across the Pacific Ocean. The ASEAN (Association of Southeast Asian Nations) Free Trade Area (AFTA) and North American Free Trade Agreement (NAFTA) were the only visible trade arrangements in the region in the early 1990s.

The economic, political, strategic and cultural dynamism in Southeast Asia has gained added relevance in recent years with the spectacular rise of giant economies in East and South Asia. This has drawn greater attention to the region and to the enhanced role it now plays in international relations and global economics.

The sustained effort made by Southeast Asian nations since 1967 towards a peaceful and gradual integration of their economies has had indubitable success, and perhaps as a consequence of this, most of these countries are undergoing deep political and social changes domestically and are constructing innovative solutions to meet new international challenges. Big Power tensions continue to be played out in the neighbourhood despite the tradition of neutrality exercised by the Association of Southeast Asian Nations (ASEAN).

The Trends in Southeast Asia series acts as a platform for serious analyses by selected authors who are experts in their fields. It is aimed at encouraging policy makers and scholars to contemplate the diversity and dynamism of this exciting region.

EXECUTIVE SUMMARY