Within the region, it has been hard to escape the rah-rah over the establishment of the Asean Community, and in particular the Asean Economic Community (AEC), over the past year. On the other hand, there are those who continue to believe that the Asean Community is toothless.
There are also those who do not even know much about Asean, let alone buy into the idea of a common Asean identity that is necessary for a true community, however conceived, to flourish. As Singapore begins its plans ahead of taking on the rotating chairmanship of Asean in 2018, Foreign Minister Vivian Balakrishnan has found the need to “make a concerted effort to promote Asean identity and awareness among Singaporeans”.
While the European Union is something quite different from Asean, but it does not help that scepticism around the world towards deeper regional integration has been fueled by the various EU crises of the past few years, relating to the common currency and the ongoing refugee crisis.
It is all good and well to celebrate Asean’s achievements as a community. But what if we thought about the Asean Community in another way – as a vital building block towards something larger?
RCEP: bringing regional giants together
In the long lead-up to the establishment of the AEC, much had been said about the “building blocks” that Asean already had hitherto – the various trade and investment agreements signed by ASEAN member states over a number of years. Now that the AEC framework has officially been established, it is time to see the AEC itself as a building block towards the next goal in trade liberalisation.
Take the Regional Comprehensive Economic Partnership (RCEP) for a start. Beyond its long name, and beyond the plethora of the alphabet soup of free trade agreements (FTAs) in the region, the RCEP is potentially a game changer. It would be the first FTA ever to bring China, Japan and India together, as well as the middle power that is South Korea. Australia and New Zealand are also part of this negotiating framework.
Regional giants like China, Japan and India are loathe to accept each other’s leadership in any regional initiative, political or economic. Even bilateral relationships between individual Asean countries and China have been testy, given the South China Sea disputes in particular.
Such an all-encompassing FTA is less likely to deepen trade and investment ties, compared to an FTA like the Trans-Pacific Partnership (TPP), which has frequently been described by its proponents as a “high quality”, “high standards”, “comprehensive” deal.
But bringing regional giants and their smaller neighbours under the same FTA umbrella will be a huge step forward for Asia, especially where they have not always been in the best of relationships. Locking nations further together in trading relationships is one time-honored way to lower simmering tensions, so that the risks of disrupting valuable trade ties outweigh any benefits from waging conflicts.
If we think of the AEC, a single market when fully functional, as a vital building block of the RCEP, one can then begin to appreciate the crucial role of the AEC as the catalyst for regional trade integration.
Why are we talking about mega-FTAs?
The logic of having the building blocks of FTAs extends beyond the RCEP. China proposed a Free-Trade Area for the Asia-Pacific (FTAAP) at the 2014 Beijing APEC meeting, essentially welds together the TPP, which currently excludes China, and the RCEP, which does includes China. Some American scholars also advocate the FTAAP, although such a “merger” is bound to face complications.
This brings us to origins of the current international preoccupation with FTAs and, more lately, mega-FTAs. It all started mainly because of the stalling of the latest round of negotiations of the World Trade Organisation (WTO), the Doha Round. This happened due to deepening divisions between developing and developed countries, as well as major questions whether China was to be considered under the former grouping or the latter
The problem of negotiating for trade liberalisation apart from the WTO framework, as the former WTO Director-General Pascal Lamy often liked to warn, is that it would result in the “spaghetti bowl effect” – where overlapping trade deals complicate the matrix of rules of origin, which then results in the opposite effect of having discriminatory trade policy.
The art of trade negotiation is certainly a complicated science. But to put it simply and idealistically, if the mega-FTAs currently being negotiated can be welded together to form some form of a super-FTA, it could complement the current WTO framework, or even be superseded into it. These various scenarios have been termed WTO 2.0 and “New WTO”, respectively, by analysts.
Developments to watch in 2016
The TPP negotiations concluded in October last year, and 2016 would be the year to monitor the ratification process in the individual signatory states.
The TPP has been criticised, among other things, for the secrecy of its contents during negotiations (as the full text was only made public after the talks were concluded), for transferring sovereign power from states to private corporations, and for excluding China. There are a number of issues with the TPP that would create a lot of resistance in many national legislatures, not least in the US Congress, and especially during the year of a US presidential election.
The RCEP negotiations were scheduled to be concluded by the end of 2015 – which has not been the case, though the latest targets and expectations are that 2016 would see the RCEP negotiations wrapped up. Following that, it remains to be seen whether there would indeed be appetite and the possibility – depending on the final texts of the RCEP and the TPP deals – for realising the FTAAP which merges the two.
Then there are the ongoing negotiations for the Transatlantic Trade and Investment Partnership (TTIP), the FTA for the United States and the EU, which are the world’s two largest markets. The TTIP is largely about transatlantic relations, and some expect it to possibly be the new focal point in that regard than the North Atlantic Treaty Organization (NATO), the long-standing transatlantic military alliance, if concluded successfully.
The TTIP, when concluded like the TPP, would cement the US’s central role in world trade, with its Atlantic and Pacific flanks secured. This could potentially put it on a collision course with the RCEP which, unlike the TPP, includes China.
Besides the mega-FTAs discussed here so far, the negotiations on the EU-Japan FTA continue to be a key one to watch in 2016. They have been ongoing for three years, though some of the latest readings suggest that it has met with new difficulties.
But if successfully concluded, the FTA would be the largest the EU has concluded bilaterally with a country in Asia, following on from the ones concluded with Singapore and Vietnam. This then further strengthens the loop of trade agreements between the EU, Asia and the US.
AEC as a single market: not the end goal
The Asean Community, and especially the AEC, has been formally achieved in 2015. The time therefore has come, as of 2016, to focus on a new conception of the AEC.
If we stop thinking of the AEC simply with an end goal of building a single market, and rather more as a building block towards a bigger step for trade liberalisation on the world stage, the AEC then takes on a whole new meaning and promise hitherto not celebrated enough by Asean governments.
This article was contributed by Loke Hoe Yeong. He is an Associate Fellow at the European Union Centre in Singapore, a partnership of the National University of Singapore (NUS) and Nanyang Technological University (NTU), where he also looks at regional integration in Asean.