A bridge too far? - ASEAN could stumble on RCEP’s stairway

IMPLEMENTATION of AFTA has not been easy for ASEAN. And monitoring will be essential if the step forward from AFTA, the AEC (ASEAN Economic Community) is to be successful. RCEP (a Regional Comprehensive Economic Partnership) covers an even more diverse community of interests, and may prove to be one step too far . . .

JUST IMAGINE a region which includes 13 of the world's top 50 economies — 13 countries with a projected combined economy of almost US$50 trillion (in 2000 dollar value) by 2050. Then imagine that it is a region with the bulk of the world's 4.2 billion so-called consuming class (by 2025).
In its World in 2050 report, published this year, the global accounting firm PwC lists six Asian countries among its top 20 economies, with projected combined GDP at purchasing power parity of US$57 trillion in 2030 and US$109 trillion by 2050.
And if the future pans out as their political leaders hope, they will form a region which is well and truly an integrated market under what is known as the Regional Comprehensive Economic Partnership (RCEP), founded in 2012.
The PwC report offers a vision of a thriving, prosperous region — the beating economic heart of the world — in production, trade, investment and consumption.
It is in this vibrant world that the ASEAN countries hope to be the core. ASEAN will seek to assert what it quaintly believes will be “ASEAN centrality" embedded in RCEP.
Negotiations are now in full swing concurrently for both the ASEAN Economic Community (AEC) and the Regional Comprehensive Economic Partnership (RCEP), encompassing ASEAN plus China, Japan, South Korea, India, Australia and New Zealand. They aim to conclude and implement their agreements by 2015.
RCEP is a larger version, if you like, of AEC. Asian policymakers believe RCEP will help harness the synergies and vitality of the region, exploiting the size of its population, and its combined domestic market.
But regional economists and analysts believe the path towards such a rose garden — where (skilled) people, trade and investment flow freely without impediment — is fraught with obstacles. As RCEP is to be anchored on AEC, then ASEAN leaders must first finalise their negotiations on AEC before they can hope to implement RCEP.
 "Whatever happens come 2015, ASEAN will declare that AEC is done and a great success," observes Jayant Menon, Lead Economist in the Office of Regional Economic Integration in the Asian Development Bank. He adds that much will remain to be done post-2015.
"2015 should not be seen as a hard target. It should be viewed as a milestone —  more as part of a journey towards greater integration," Menon says. "While it is one thing to sign off on agreements, it is another to implement what has been agreed to. The real work will start when the leaders return home."
Some analysts have noted that the process of AEC is slowing as participants get into more difficult areas — free movement of skilled workers and free flow of capital. Menon says reaching agreement on the ASEAN Free Trade Agreement (AFTA) was relatively easier,
because it mainly involved lowering tariffs.
But as ASEAN moves into other areas, like investment and people movement, implementation could be hindered by domestic laws. In some countries like the Philippines, constitutional changes may be required. That can be quite a sensitive and complex process.
Menon explains that the Philippines has restrictions on foreign investment in many sectors. The Philippine Government has enshrined those safeguards in the Constitution. The restrictions were brought in during the Administration of Cory Aquino (mother of the current President, Noynoy Aquino).
Menon has no doubt that ASEAN leaders will agree in good faith on what is needed to make the AEC work, but the question that he does ask is: Who is going to measure progress, and monitor implementation of the Agreement?
Monitoring is critical if the AEC is to function as intended, Menon says. "This is going to be a big challenge. If neglected, the whole system could break down." It has become increasingly more difficult for leaders in the individual
ASEAN States to push forward the reform agenda to meet their regional obligations.
Domestic politics have become more fractious, and Governments are leaning more towards populist policies to hold on to office.
A key Indonesian business leader, Sofjan Wanandi, told ATI recently that his powerful employer group, APINDO, is pressing the Indonesian Government to resist some reform for fear that its members could be edged out of business by Indonesia's more competitive neighbours. Groups with vested interests have been pressuring — and will continue to pressure — their governments to delay reform of sectors of their economies.
ASEAN nations have shown that they are most competitive among themselves – whether in trade, tourism or investment. Only around 25 per cent of Southeast Asian trade is between ASEAN members, according to the previous Secretary-General of the ASEAN Secretariat, Surin Pitsuwan. Intra-ASEAN trade is hampered by invisible non-tariff barriers, he says.
Despite difficulty in achieving a full AEC, ASEAN will not shy away from seeking to bring together the five FTAs signed bilaterally   with trading partners — China, India, Japan and Korea, and jointly with Australia/New Zealand.
"Concluding RCEP as intended is going to be difficult,” says Menon. “I don't agree that the fact that ASEAN has bilateral FTAs with the other RCEP countries will necessarily make it easier to bring them together in a mega FTA.”
"The evidence is to the contrary. The only real success story in consolidating bilateral agreements is the European Union, and they went very deep in creating the EU. European countries ceded significant sovereignty (to Brussels), and there was political will." Menon cannot see those conditions existing within RCEP countries.
Instead, he sees strong political motives to create RCEP. "It is designed, in some sense, to retain ASEAN centrality. ASEAN is worried about losing its central role. It also plays off against the (US-sponsored) Trans Pacific Partnership, of which China is not a member."
Given the wide diversity of the economies, Menon cannot see how RCEP members will be able to conclude their agreements by 2020, let alone their ambitious deadline of 2015.
In fact, he shares the concerns of leading trade economists who fear that negotiations to form RCEP could well turn out to be a "race to the bottom" as members seek concessions to preserve their self-interests. "Basically, you will see the countries agreeing on a common denominator to get consensus — and there will be a lot of exemptions,” he says.
It is more likely that, like AEC, RCEP will declare that it has reached agreement by 2015. But will it be worth the paper it is written on?
Many analysts and economists, including Menon, have their doubts.