Understanding the regional comprehensive economic agreement

Vasuki Shastry

A very good morning and good afternoon to everyone. Welcome to this Chatham House event on Understanding the Regional Comprehensive Economic Partnership, or RCEP, as we will refer to it during the course of this session. We have a terrific panel to help us, you know, navigate us through this free trade agreement, which was signed in the middle of November, has created a stir transatlantic, as well as in Asia and, you know, there’s a lot of speculation and noise on what is actually in the agreement. So, you know, we’ve got a terrific panel to help us unpack elements of this agreement, look at the economic, business and geopolitical implications of RCEP.

Now, before I introduce our panellists, a few housekeeping details. This event is on the record, so, you know, feel free to attribute what you hear from the speakers. We have a ‘Q&A’ button at the bottom of your screen. We’d like to keep this session as interactive as possible, so do send me your questions, I’ll try to cluster them, and, you know, we’ve got one hour. Our speakers will speak for about eight minutes each at the start. So, we’ll have plenty of time for Q&A and hopefully, we – you know, many of you would like to challenge what you hear from the panellists, that will always make for an interesting session.

Now coming to our panellists, we have Yu Jie who’s a Senior Fellow here at Chatham House on China. You’ve heard Yu Jie speak many times before and we’re looking forward to her insights. We have Wendy Cutler from Washington D.C. She’s the Vice President of the Asia Society Policy Institute, and before that was a Senior Trade Official in the Obama Administration. And last but not least, we’ve got James Zhan, from UNCTAD in Geneva. So, you know, got a very good, well-rounded and diverse panel, each of them looking at their – providing perspective, based on the areas of expertise.

We’re going to start today with hearing from Yu Jie. Talk to us a little bit about China’s imperative in signing RCEP, how does the world of trade and, indeed, the world look like from Beijing’s perspective at this very critical juncture? We have an important political transition taking place in Washington D.C. tomorrow. And China’s own relations with Asia, with its neighbours in Asia, have been fraught on occasion, particularly related to regional and geopolitical issues. So, is trade an investment somewhat divorced from this whole process? Yu Jie, the floor is yours.

Dr Yu Jie

Thank you, Vasuki, and, firstly, happy New Year to everyone who joined this afternoon and also, by standing together with two towering figures in the field of international trade and investment for having me here, I feel quite humbled. And also, thanks to my colleague, Emily, to putting this altogether. Now, Vasuki, to answer your question, how China sees RCEP, and how China sees itself under Biden Administration, so on and so forth, I think three things I’d like to unpack here today. Now, firstly, I think China’s intention to be part of RCEP is very clear and this marks very clear signature that China will – having its own Asia pivot foreign policy back to Asia.

Now, in the past, given what we have seen so far since Xi Jinping came to power, we all couldn’t understand these whole narratives on China’s Belt and Road Initiative, extending globally across Europe and Central Asia, Eastern Asia, and also Latin America and African countries as well. But much has been talked about it for the Belt and Road Initiative, in the last seven years or so. I think China has actually attracted more criticisms and more hostility encountered in much of the Europe, as well as some part of the developing world, regarding developing the Belt and Road Initiative. But a large part of Asia seems to be a little bit more welcome on this initiative, and to be frank, I mean, much of the China’s infrastructure building, much of the money has been spent on the Belt and Road Initiative, has already been in Asia, in the ASEAN region, specifically as well.

Now, and also, just judging by numbers, and what I look into before I came here, by the end of last year, ASEAN countries, really ASEAN as a whole, surpassed the Europe Union, become the largest trading partner with China, with the total trade volumes of ten – more than ten billion US dollars. And this is actually a jump of 76%, compared with the previous year, by 2019. So that trade number really shows you already that much of the focus, much of the strategic priorities for China has been given to its economic statecraft, is really back to Asia, and back to ASEAN countries.

And, also, logically, I would say, given where we are, and given into China’s domestic economic situation, we’re expecting to see a much bigger retreat or recalibration of China’s Belt and Road Initiative, which is to say that much of the priority will be given to Asian countries. So that is also – it’s not just a sea change, it’s not just a break from the past, it’s actually we’re back to this whole notion of the so-called periphery diplomacy, which has been launched back to the days of President Hu Jintao. So, I think Xi Jinping really picked up that idea, you know, that sense of periphery diplomacy, and a realisation of his relationship with Asian neighbours.

So, I think that’s the priority number one, from a foreign affairs perspective, why China like to be – play a big part with RCEP. Now, secondly, come to domestic element, and is very much on this whole notion of the so-called dual circulation, and perhaps, in this part of world, we haven’t really spoken too much regarding what does that mean to the West in general, or what does that mean for Asia? Now, dual circulation, it is a part of China’s 14th five-year’s plan, which has been introduced just in the aftermath of the US Presidential election last year. And what essentially does China’s leadership like to do, it is to – by using the so-called export-oriented model search in – to replacing the export-oriented model only, together with something that encouraging domestic production for domestic consumption and building one internal circulation. So that’s one layer in circulation.

Now, the second circulation is the so-called external circulation. Now, that external circulation pretty much is the continuation of what’s happened with China, become the largest export – you know, continue to be the exporter, continue to be the hub of the world factory. So, given where we are and given just judging by the economic data we had yesterday, and much of the China’s economic growth in the quarter four, it still remain as the investment and export. So, no matter how much the China’s leader wish to increasing domestic consumption, wish to increasing domestic production, and ultimately, Chinese do have to return part of the important export market to revitalising its own economy, to sustain its own economy and, therefore, I think largely, the RCEP members aren’t the priority for the Chinese economy. It’s a way of really to drive the Chinese economy as well. And that also bring the issue that if China decided to move throughout the value chain, you know, less export and about labour-intensive manufacturing products, but more likely to export a high value-added manufacturing products, such as electric vehicles and renewable energy equipments. And I think, obviously, the ASEAN members and RCEP members would be a very much important market for the Chinese economy. So that would ultimately also resolve the issue on the balance of payment. So that’s the second reason why China would like to join RCEP.

Now, the very last reason, but not least, is, you know, that old tales that we’re always saying, the Chinese leadership like to – using the external forces to facilitate domestic economic reform. And China has practised that back to 20 years ago, and the accession to WTO, and perhaps we give China opportunity to practice that again by introducing self, by putting self as a member of RCEP because much of RCEP, as so far as I am understanding, the rule is based on the negative list. So, to reducing the barriers, to reducing tariffs, and also, to reducing the requirements on the so-called local contents, which is part of this very strong criticism China has received, in the past few years, by – from those foreign investors.

So, I think, again, it’s really by using foreign forces, and by using foreign mechanism to induce domestic change and I think that’s one of the key reason. And just to give very quick example, I mean, I saw the news yesterday from the Chinese official Ministry of Commerce website, MOFCOM, and they’re now going to launch a campaign, and to introduce what is RCEP. So, basically, the nuts and bolts of RCEP, and they require, at least, 6,000 of the party members, provincial officials and also state-owned enterprises, management team members, to study RCEP. So, obviously, will show you the political significance over there. So, overall, say, RCEP is about China’s future-proof itself, for its own economic drive, but it’s also to – again, it’s much more difficult Sino-US relations. So – and in here, I much look forward to hear your comments and disagreements.

Vasuki Shastry

Thank you, Dr Jie. Wendy, over to you. The US is on the cusp of a very important political transition in less than 24 hours. One of the first acts of President Trump four years ago was to withdraw the US from the TPP. Now, the President-elect has ruled out the US getting back into CPTPP, essentially signalling that the first priority will be on the domestic agenda. Just wanted to get your sense on how the trade landscape looks from D.C., where would the US be concentrating its policy priorities on?

Wendy Cutler

Well, thank you, Vasuki, and thanks to the Chatham House for inviting me, and I’m really honoured to be on this panel as well. I thought I would just kind of start and talk about what’s the US perspective on RCEP. And to be frank, if you ask most Americans what they thought of RCEP, they wouldn’t know what it is. And so, we’re really talking about the trade community, or the foreign policy community, and what their views are and, frankly, there are really two schools of thought here.

One is to – one school is to kind of dismiss RCEP and look at it as kind of a weak agreement, not going to have much impact on Asia, and largely see this agreement as weaving together existing agreements, maybe adding a little, but not very much. And then there’s kind of the other school of thought, which views RCEP as an agreement coming on the heels of two years of implementation of CPTPP and are quite concerned that we are on the outside looking in, and urgently want the United States to return to CPTPP. So, I thought what I would do is kind of offer my perspectives, which I think incorporate both of the perspectives that I shared with you, to kind of give maybe a view of what – of how Americans are looking at RCEP.

First, and I don’t mean this as criticism, because I was a Trade Negotiator for about 30 years, and I know how tough these deals are to negotiate. And particularly among 15 countries, it used to be 16, with India dropping out a year ago, varying levels of development, and, frankly, parties to very different types of trade agreements. So, my comments do not come as – they’re not disparaging, but it is a pretty weak agreement, at least when you compare it to other trade agreements that have – and investment agreements that have been negotiated. I think I’m, you know, struck by the low level of tariff liberalisation and a lot of products are excluded, including many sensitive products for countries, with very long transition periods, going beyond the normal ten years of industrial tariff cuts.

There’s also so much wiggle room in a lot of the rules, provisions, of RCEP. Whenever I see the phrases, “endeavour to”, or “in accord” – you can live up to these commitments, in accordance with your laws and regulations, or exceptions for least-developed countries. And I think in the eCommerce chapter, at least one exception kind of stood out to me in particular, and that is – you know, lays out obligations on data. But then it says basically, you can do what you want, in order to achieve your legitimate public policy objectives.

So, you know, I conclude that RCEP is a low standard agreement, but I would categorically emphasise that to dismiss it or ignore it, or to say it’s going to be inconsequential, would be a grave mistake, and you’d totally be missing the point, if that was your conclusion. And why do I say this? Number one, it’s a mega Asia trade deal. 15 countries came together to do a trade agreement, a number of these countries didn’t even have trade relate – trade agreements prior to this agreement, and here I think of China and Japan, and Japan and Korea. Second, as these countries work together, they build relationships, they build confidence about working without the United States, and I think these relationships, particularly given the participation by Ministers in this negotiation, can spill over to other areas as well.

I also think that this deal is going to result in more economic integration, and the broadening and deepening of supply chains in the Asian region. In fact, if you read the preamble of RCEP, that’s one of its stated goals. And, if you go and you read the chapters on rules of origin, you do get – you get the sense there will be a common rule of origin, one certificate of origin, I think which is going to facilitate the integration of these economies, and as well as the deepening of supply chains over time.

Moreover, the deal provides many institutional mechanisms, including a Secretariat, annual meetings of the Ministers, frequent meetings of the Senior Officials and other groupings to discuss specific topics. And they’re not only going to look at implementation of this deal they’re going to be looking at new issues that are coming up. They’re going to be looking at how to build on, you know, the obligations in the agreement. And finally, I would note that this deal, which is very ASEAN central, the ASEANs in all of their trade agreements, they view their agreements as living agreements. So, even though what’s on the paper now may look weak, over time, ASEAN countries built on these agreements. In the past, they have negotiated goods agreements that over time have been expanded to services and investment. And I suspect now that RCEP includes services and investment in other areas, they’ll continue to deepen the obligations in the chapters that are already concluded. But also, to expand the chapters as well.

So, maybe I’ll stop there, and I can talk later about what I think this all means for the United States going forward, but I think I’ve used my time up. Thank you.

Vasuki Shastry

Thanks a lot, Wendy. James, from an UNCTAD perspective, as you look at this agreement, what are the things that strikes you as being different, could possibly be scaled up and replicated in global trade agreements, if you ever come anywhere close to global trade agreements? So, you know, what lessons can, you know, Geneva, WTO, UNCTAD and the other UN agencies draw from this particular agreement?

James Zhan

Thanks, Vasuki. First of all, this is a kind of so-called mega deal, not in terms of a country’s population, economies, size of economies involved, as mentioned by Wendy and Yu Jie. I mean, even for the size of the agreement is formidable. It’s about 14,000 pages. It’s very difficult to digest and, of course, it’s a result of eight years of negotiations, 31 round of such a negotiation and it covers kind of 20 chapters, that includes the general definition, scope and definition, goods trade, rules of origin, and Wendy mentioned that and elaborated on that, and many other kind of extenders, plus market access, commitments. I mean, I think to assess this monster involving, kind of, 15 countries, with the total population of 2.27 billion, and the GDP of 26 trillion $US, with some total export about – of 5.2 trillion $US, it accounts for the total – a global total of 30% global trade. In terms of investment, it’s also a similar size of global investment, in terms of stock. And you can see that it involves the large – the largest economies, like China and Japan, and the smallest economies, like Cambodia, Laos, Myanmar. So, this is kind of the overall picture. But in terms of assessing what is new and what is the implications for trade and investment, I thought normally there are four dimensions that we can look into. And the first is, of course, the global geopolitics and global trade and investment, and I think Jie and Wendy have already highlighted on that. But the other dimensions to look into is the market access, and what is the liberalisation and also, in case of the investment as a promotion facilitation aspect. And then, the kind of systemic implications, in terms of the rulemaking, and the third dimension is the general implications for trade investment, in terms of diversion creation and consolidation.

And let me just start with some market access. I think, for this aspect, in terms of trading goods and the services and investment, starting with trading goods, Wendy has already highlighted. Rules of origin is something that is quite important for this region integration, and particularly for the global value chain in the region, and also for international investment. In fact, in my view, that trade liberalise – investment benefit more from trade liberalisation than investment liberalisation itself, in terms of impact in – of regional integration of FTA/RTAs. And in this sense, we see that the rules of origin truly benefit from the trade of intermediary goods then, and for that, it facilitate the regional integration, and the regional value chains, particularly as we see the kind of transformation of global value chain in the coming decade. That the value chain will become shorter and less fragmented in manufacturing. There will be more regional chains, value chains than global value chains, and this agreement will have an important role to play, and particularly the rules of origin.

So that’s one important aspect. Secondly, I agree with Wendy’s assessment regarding the liberalisation, the market access aspect. Compared with AC – AP – CPTPP, the degree of liberalisation, in terms of tariff reduction, and also [inaudible – 24:08] reduction, it’s relatively modest. But having said that, it’s also above 90% of the goods covered. So, it’s still quite a lot. Having said that, we admit that if you read agreements, particularly to read in connection with other agreements, ASEAN-plus-ones, ASEAN-plus-one, Japan, no, no, no Japan. ASEAN-plus Australia, plus China, plus Korea, these ASEAN-plus-ones, and, in fact, a lot of commitment’s already made there. So, in that sense, what is new? It is not that much with some – and it’s more, I would’ve said, effect of lock-in. Lock-in effect, and consolidation of all these agreements.

So, for that, and this lock-in is important. I think in certain aspect, you know, there’s also, kind of, a [inaudible – 25:12] cost, meaning that you cannot go back. Not only consolidate exceeding commitments and different agreement, but also for that. So that is in – that is interesting, and services, of course, there are liberalisation, and in some – but in quite a number of sensitive sectors, so to speak, it’s still – and there are a lot of reservations. In the area of investment, it’s, again, a consolidation. It’s very important. But it’s worth mentioning that this agreement use a hybrid approach. In terms of investment rules, it is a negativist approach, in most of the cases. And in services, it’s a positivist approach, at a very – and there’s a lot of flexibilities. I would say for that, there are some treaty innovation arrangements in it, but these are all technicalities I wouldn’t single out in this discussion, it’s more strategical and bigger.

The second dimension is the systemic rulemaking, and that’s – I mentioned already, but I would say if you look at the current ASEAN-plus-one agreements, so these kind of regional agreements already at a mega level, there are already 11 such agreements. And if you look at ASEAN members, individual members signing agreement with other countries, in terms of FTAs, there’s another 17. And in the area of investment, individual ASEAN countries have signed the bilateral investment treaties with others. Altogether, of the interregional – the 15 countries, bilateral investment treaties altogether, there are 44. So, what are the implications, systemically? Basically, this is a consolidation of fragmentation of rules under regulations in the area of trade and investment. So, there is a kind of uniformity, or at least that there’s a kind of aggregation, not at this stage completely, let’s see, aggregating the other agreements, but at least there’s a common denominator for the 15 economies, and large and the small, to work together in the area of trade investment services. So that is an interesting phenomena.

The second thing is that to build up the relationship Japan, China and Korea. Japan does not have a kind of plus with others, and Japan doesn’t have a FTE with China – FTA with China. So, when you put all these together, in fact, you link the North Asia, Northeast Asia, that is Korea, Japan, China, into a framework lock-in. So that is a kind of new thing and it’s a value added on top of others, in terms of systemic issues, but also, strengthening the market access and liberalisation, all these. So, this is the kind of implication, I see it.

The third dimension, of course, what are the implications for the trade and investment in the region and beyond the region? We see the kind of diverse – this complementarity, because of the LDCs on the one hand, and Laos, Cambodia and Myanmar, and to a lesser extent, Vietnam on one side, and on the other side, you have Japan, China, Korea, Singapore, and these other very strong economies, and there’s complementarity. And the benefit – I see the main benefit is for the regional value chains, and initially we start the kind of – the transformation of global value chain in four trajectories, that is reshoring, regionalisation, diversification and replication. Four, driven by four mega trend – mega drivers, or mega trends, that is sustainability, technology and resilience driven, and which – and also, the economic governance realignment, with all these four, including protectionism. With all four, if the region has a further closer collaboration through some rules and arrangement, that will strengthen the regional value chains, in that sense, and then that will have implications of stronger export from the region to the rest of the world.

But within the region there will be some kind of a consolidation. And because the market was fragmented and then, with such a consolidation of the rules and regulations, firms can stay in one place, instead of two or three, and produce for different segment of the markets. Partly because of the rules of origin has been unified, partly because of other factors I’ve mentioned driving the regional value chain. Investment diversion we’ve seen the region, that could leave something happening. But also, the diversion of the investment from outside the region get into the region for barrier hopping. Rules of origin, the factory set certain barriers, and then you have to be present in the country, in the region, and then, if you look at the rules of origin facilitated intraregional trade and investment, and then, when that will encourage outside region to invest into the re – firms from outside the region to invest in the region. And the denial of benefit in the rules of investment will also push companies to be present in the region, in order to benefit from all these investment liberalisation, facilitation promotion in the region.

Well, I guess, I’ve talked too much, so that’s the rough idea on what is new. Another new feat – another interesting feature is the sustainable development dimension, basically this – there’s a – there are – there’s a lot of flexibility built in, taking into account of the LDCs in the country, Laos, Myanmar and Cambodia.

Vasuki Shastry

Thanks a lot, James. I think we should come back. You make a very important point on sustainability. We should come back to that in the Q&A. I’d like to invite all participants to send their questions. We’ve got a few of them already. Yu Jie, the first question is, kind of, a challenge to your proposition that China needed the RCEP, needed this external pressure, in order to carry out important domestic reforms. And the premise of the question really is, “Is the CCP, is the Chinese Government really interested in the pro-market reforms, and that it needs these external pressure points?” What would your view be on this?

Dr Yu Jie

I’m not surprised at all, because such a debate actually exists even inside the Chinese Central Government as well, you know, regarding where are you – draw the boundary between the party and the market. I think what we have experienced so far, it’s very similar, like all this kind of internal conversation each individual country has. You know, to what extent on the one hand you want economics, on the other hand, you want geopolitics, under which one do you choose? So, I think for China, it’s in that very classical crossroad moment. Yes, on the one hand, it does want to secure, sustain its economic growth. But then, on the other hand, it wants to run a rather hawkish diplomacy, rather hawkish foreign policy.

So, the two square – I mean, it doesn’t really square the circle. But I think overall, the direction of travel, and especially for the Chinese economic planners, it’s quite clear that this – by using external forces to push forward internal economic reform, and not mentioning the political reform, but it’s more down to the road and the economic reform. And also, I mean, Xi Jinping giving the indication that China would look into CPTPP quite favourably and later this year. So, perhaps, I mean, that would be in line with what RCEP has wanted, and what China really wanted. Again, if you look into the recent mega deal – another mega deal which China has done so far in principle, the China-EU Comprehensive Agreement in Investment. And much of the barriers on regarding state subsidies and much of the barriers around labour and the treaty and labour agreements, labour recommendations, has been under discussion.

So, yes, from economic perspective, from economic diplomacy perspective, it seems to me that China travel towards that direction. But I think the proof is always in the pudding, that China will have to show these are then the worst to deliver that what – if it has real intention of reforming, of carrying forward the market reform. So, I’m optimistic, but it’s a very cautious optimism in here.

Vasuki Shastry

Thanks a lot. Wendy, question for you, really on, has the US missed the bus? You now have these two giant regional trade agreements in place in Asia, and obviously, you have a new administration coming in, which is probably eager to reengage. Again, just wanted to get your perspective on, how, in the absence of re-joining, how the US can meaningfully reengage? And there was also a question on – you had mentioned how ASEAN considers RCEP and other agreements to be living agreements, which, you know, evolve and change, during the course of the implementation. The question I really wanted to get your insight on, how this actually works?

Wendy Cutler

Okay, first, I’d just like to build on what Yu Jie just said, and that is, I think one of the tests about, you know, does this agreement really lead to reform and change will be what laws and regulations each partner will need to change, in order to complete its domestic ratification procedures? And so, I know, for example, when the US joins a trade agreement, we need to get implementing legislation through our Congress. And through our implementing bill, we submit, propose legislation on those items where we’re going to need to change our laws. The same on regulations. Other countries have different ratification procedures, some do not have to go through their parliament or through their legislature. But yet, they need to change, you know, their regulations, to make sure that they can implement this deal.

So, I’ll be looking at that going forward, not only for China, but for other countries as well. And if it looks like except for lowering tariffs, over a long period of time, most participants don’t need to change any laws and regulations, I think that will lead to further questions about how deep these commitments are in the current RCEP. And that kind of leads me to your last question, about what is a living agreement? And a living agreement, in my mind, is the idea that okay, you’ve negotiated the rules that reflect today’s reality, but as time evolves, you’re going to have new issues that you’ll need to discuss, and maybe establish rules for. You – there are also probably issues where you could not reach agreement in the current text. And here I would point to government procurement, where it looks like the party’s agreed to transparency obligations, but also committed to continue that conversation on government procurement, I think, because they realised maybe more could be done with time.

So, there are a number of areas that are already flagged in RCEP, including in the ecommerce chapter and government procurement chapter, and I’m sure there are others, where more work and more discussions will be held over time, but I suspect new issues will be brought to the table as well. And then this kind of segues into your point about the US, and from my point of view, the US is at a disadvantage. If we are not at the negotiating table helping to shape these rules, others are going to do that, and others are doing that, okay? And so now we have two mega trade deals in Asia where the US is sitting on the sidelines. Commercially, we’re losing out on market access, rules-wise, we’re losing our ability to help shape the rules. And I think it’s imperative that the United States, under the Biden administration, reengages in the region, not just on the geosecurity side and the military side, but also on the economics side.

But I don’t think that joining CPTPP is the only option for reengaging in the region. And, in fact, in a recent paper I authored for the Asia Society Policy Institute, my view was, and continues to be, that at least in the immediate term, given President Biden’s focus on domestic recovery and COVID recovery, and building US – rebuilding US competitiveness, the US should look at narrower regional deals, issue-specific regional deals. Whether they be in digital trade, medical supply chains, climate and trade, anti-corruption. There’s a lot of kind of issue-specific deals that could be done, that would be relatively easier to conclude, probably would not need Congressional approval, meaning they could come into effect sooner and have an impact. And it would be a real way for the United States to rebuild trust and rebuild momentum with our trading partners in the region.

The past four years have been tough for our trading partners all around the world. The Trump trade policy kind of focused on go it alone, hitting both our allies and partners, as well as our adversaries. And the Biden administration has made it clear that one of its priorities across the board, not only limited to trade, but much broader than that, will be to rebuild our alliances. To work closely with our allies and partners, and to work through inter – work with and through international institutions and groupings, like the World Trade Organization, to address a number of the challenges that the global trading system is facing.

So, I don’t think we’ve missed the boat, but I think we’re in a weaker position in the region, economically, than we were four years ago. But I am confident that we can get back in and regain our leadership and our posture in the region on the economic side, and work with others to address the new challenges, frankly, that the global trading system is facing. Whether it be in the digital area, and with respect to supply chains, with respect to COVID recovery. And starting tomorrow, I think we’re going to be reading a lot and hearing a lot about concrete efforts to rebuild our presence all around the world, but also in the Indo-Pacific region.

Vasuki Shastry

Thank you, Wendy. James, there’s a question, a technical question for you, on how these rules of origin is really going to work in the context of RCEP. I mean, the questioner gave an illustrative example of a Chinese Glass Manufacturer moving to Malaysia to produce glass, which enables the company to export to South Korea, where glass imports from China are currently banned. Can you unpack this for us a little bit, and what is really new about these rules of origin chapters in the RCEP?

James Zhan

Yeah, this is not my strong part, by the way. I’m specialised in investment. If you ask me questions about investment, I did read very carefully about that. Regarding the rules of origin aspect, I haven’t studied carefully, I must admit. I understand this is coming up for regional accumulative kind of rules of origin, meaning that for the final product, that’s a requirement for a qualification. It doesn’t have to be just produced in one location, and then to apply for the rules. But it can be in different locations in the region, and then to be qualified as the regional. So that is what is called innovative part of this rules of origin and that’s what I understand.

I cannot give you the details, unless I’m 100% sure, I don’t want to mislead. But I do understand it’s accumulative, and that’s the innovative part. Having said that, for investment, I would say that there’s a denial of benefit, which is like the rules of origin in trade, in a sense. Who are qualified to be the investors in the region who benefit from the national treatment of a fair and ethical treatment, all these things, all these benefits. And that can either benefit as a kind of permanent residence, and businessperson – a number of requirements for that. But having said that, one of the important thing is to see the kind of ownership of control. This is not in the rules, but all in the commitments made by – for individual countries, particularly in the areas around commercial presence in service agreement, and that’s part – in fact, that’s also investment aspect.

And I do see that companies outside the region can find a way to benefit and bypassing some kind of the rules of – regarding denial for benefit. Having the ownership structure in a way that can benefit from that. You call it freeriding, or whatever, but there is a way that companies can do that and then, in fact, we did a calculation before the negotiation was concluded, and not only for this one, but also, at that time for TPP and TTIP. And between kind of 16 to 25% of the companies outside the region can find a way to benefit from the liberalisation and the protection promotion of investment in the region, even though they – on surface, it looks like there’s an ownership control and other requirements for that. I wouldn’t elaborate further on that.

Vasuki Shastry

Thank you. Yu Jie, we have a question on, you know, despite all the positivity that we are seeing with the signing of RCEP, this has happened in the shadow of a rather nasty trade dispute between Australia and China. Just wanted to get your sense from China’s perspective. I know the – from the media narrative, it seems very much like China retaliating against Australia, because it’s taken a favourable position vis-à-vis the US. Is there something more to this, and, you know, how does this – I mean this in a way undermines the case for RCEP. So, cosmetically, optically and politically, how does this – how does all of this look like in Beijing, and is there a path for this to get resolved?

Dr Yu Jie

Well, cosmetically, you have chosen the right word, Vasuki, yeah. Put in this way, I think the Sino-Australian relationship has never really been as – has been quite turbulent back to 2015. So, what we have experienced so far, last year, was very much like the end result, you know, that part of the game, China simply just want to extend – flex its economic muscles to show how much damage that China can do when it come to dealt with the trade partner, which is obviously Australia’s – part of the Australia’s economy are reliant on exporting towards China. So, I think for me, my understanding is that sense of the economic statecraft, that punitive economic statecraft being practised by China, and also, domestic opinions that matter as well, when it come to foreign policymaking.

I mean, as far as I do remember, even though we’re considering that seems that China is a country that the leadership can simply decide one side of the foreign policy. But on Australia’s case, I can – from all the social media and the coverage so far, it seems to be that the Chinese Government also need to present a certain narrative to its own public by showing the Chinese Government are actually doing something, when it come to these rather crazy comments about its own country. So, for me, it is not just about economic factor, but largely, it’s more about diplomatic factor, that diplomatic upholstery that China tried to present to Australia, to the world. And, of course, this doesn’t really come across very well for China’s international image at all.

Vasuki Shastry

Thank you. Wendy, we have a number of questions on the implications of China joining CPTPP without the US being present. I just want to use my prerogative of the Chairman to ask you a hypothetical question. Is there a grand bargain to be had of a trade agreement that could potentially involve the US and China in CPTPP? You know, what would the architecture of trade look like if we arrived at such a grand bargain? And in the absence of that, what do you think the implications will be?

Wendy Cutler

So, while I never like to say never, because things can always change, I don’t see the prospects for a grand bargain on trade between the US and China in an agreement like the CPTPP. Frankly, if the US were to re-join the CPTPP, it would need to seek revisions and updates to the current text, both to reflect developments and technology, but also, to reflect changes in our trade policy, and where the US public opinion is on trade now. At the same time, I don’t think China is in a position to live up to the obligations of the current CPT text. And everyone always points to state-owned enterprises, clearly that’s an area where China’s moving in the opposite direction, in terms of increasing the role of the state, and increasing the heft and the size of state-owned enterprises.

But there are many other areas of CPTPP that raise questions for me about China’s ability to embrace CPTPP provisions at any time, too. These include labour, including living up to the ILO conventions, an issue that was extremely controversial, in my understanding, the last issue settled before the EU and China recently agreed to their investment agreement. There are also serious concerns for China if it – in the eCommerce chapter, which calls for the free flow of data, calls for the prohibition against restrictions on localisation, two key obligations that were not included in the RCEP agreement.

And so, I think China just adhering to the current CPT text would face enormous hurdles, and for the US, the current CPT text would be inadequate in many areas as well. So, I don’t see a grand bargain there. That said, you know, can US and China find a way to work together on certain trade issues? I would hope so, going forward. Maybe in the WTO there are some issues where we can see eye-to-eye. But, again, I don’t see some kind of grand bargain, and when I look at the RCEP text, I don’t see kind of nuggets and hints that would lead me to conclude that’s some kind of grand bargain under the CPTPP rubric, is in the cards any time soon for the US and China.

Vasuki Shastry

A follow-up to you, Wendy, would be India’s neither a signatory to RCEP, nor is it a part of CPTPP. And in this evolving trade architecture, first of all, I guess it’s a perfectly reasonable question to ask Indian policymakers can they afford to be out of this very comprehensive free trade agreement. But there’s a general sense of the US essentially – of India essentially, we have a Quad agreement now, which is very live, in terms of regional security. What do you think India’s prospects are, in terms of improving its trade partnership with the US?

Wendy Cutler

Well, relations between US and India are strengthening, but the trade side of the relationship has always produced a huge challenge between these two countries. And the Trump Administration has tried hard, over the past year, to even – to conclude what we call a mini deal with India, just dealing with four or five issues that have been negatively affecting our bilateral trade relationship, and we’ve been unable to conclude that agreement. My experience working with India on the trade front is that there’s a lot of potential, but when push comes to shove, India just can’t deliver. It doesn’t have domestic support for opening its market, and I think it has concluded that protectionism, high tariffs and non-tariff barriers work to its advantage.

And it’s not just the US that has experienced those challenges in working with India on the trade front. We’ve seen that over the years in the WTO, and we’ve certainly seen in the RCEP negotiations, where India was a partner for about six years of the negotiations, seven years of the negotiation, but then, left the talks about a year ago, kind of paving the way for the agreement to be signed by others. So, India remains a huge challenge. There’s so much potential there, and I would hope, under a Biden administration, that US-India trade relations would improve and strengthen. But I think we need to have realistic expectations there, and I don’t see the US and India, for example, doing a comprehensive FTA any time soon. But, again, I think maybe a step-by-step approach is a more realistic way to look at how we can build such – this important bilateral relationship.

Vasuki Shastry

Thank you. I think we’ve almost run out of time, but I want to give each one of our panellists an opportunity to offer closing thoughts, perhaps with a focus on sustainability and climate, and how that can be better integrated in these regional free trade agreements. I mean, much of it is focused on goods, a little on services, and a lot of it on data and digital. But how can we make sure that we embed the sustainability, the UN SDGs, as well as the Paris Climate Accord commitments made by member countries in – as they look at trade? So, I’m going to start off with you, Yu Jie.

Dr Yu Jie

Yeah, just on sustainability, I mean, obviously China declared that, you know, its ambition to get carbon neutral by 2060. I think on the one hand, yes, we don’t deny that sense of public good provision that China intended to do. But on the other hand, I also perceive – this is almost like – my personal understanding, this is almost like a business opportunity for a large number of the Chinese renewable energy manufacturers, a large number of Chinese electric vehicle companies as well. So, essentially, it’s much about public goods issue, but this is also an issue regarding international balance of payment as well. It’s a way for the Chinese companies, and also the Chinese Government, to attract the balance of payment.

Vasuki Shastry

Wendy?

Wendy Cutler

Well, I think it’s a great question, and the issue of climate is just going to be a central part of the new President’s agenda, and it’s not just going to be limited to re-joining the Paris Accord, which we might do as early as tomorrow. I think you’re going to see like a whole of government approach to climate change, including in the trade world. And that’s one of the reasons why earlier I mentioned climate and trade as being an important area where regional partners can work together, without doing a comprehensive free trade agreement.

And so, what can – you know, what can be done together on this – in this front? Well, a low-hanging fruit is the Environmental Goods Agreement. That was almost concluded in the WTO under the Obama Administration. I think that’s something that the WTO should dust off and see if that’s something that could go forward. I also think we need to look at fossil fuel subsidies, and whether they should be disciplined further. And Europe and others are looking at carbon adjustment measures, and I think that’s going to be a key area looking ahead in trade, where, you know, progress may be needed. And so, again, I think this is an extremely important area, and I think you’re going to hear more and more about it from the Biden administration going forward.

Vasuki Shastry

Thank you, Wendy. James?

James Zhan

Yeah, for sustainability, as far as RCEP is concerned, sustainability involve – for me involves two dimensions. One is – in international treaties, is the flexibility policy space, and development dimension, and second is environmental, social and the governance. For the first one, I think RCEP has made an effort, especially taking into account of LDCs, and also, insert and a flexibility, in terms of for markets as commitment. And before that, through – to reserve the policy space of individual countries and their concerns, including national security.

So that’s one dimension you already – we measure an agreement. Second dimension relate to the environment. In fact, the environment is not part of this agreement. So, that’s – that compare with some other agreement, it’s not there. Now for bigger picture, if we see the mega ones, AC – AP – CPTPP, this RCEP and this China-EU, you know, so that’s another one. China-EU, EU-China, EU-India, EU has concluded with Singapore, Australia already. But with that kind of deal on the continent, I would say RCEP is a high-level of agreement, but lower than the other two. But I do see that EU-China is raising the bar further. It will look at RCEP, and what is new that was not committed by countries like China, was in this intellectual property rights, in this competition in procurement in – and in any number of areas that China could’ve been in, that’s something new in that sense, and this is at the regional level.

Now, this EU-China, this kind of a further include labour and the environmental. So, what is left between EU-China and the CPTPP is a kind of state-owned enterprise. That’s the issue, and how to deal with that, there are different ways, in my personal view. At the end of the day, it’s also subsidies, so – and then there are many instruments, including WTO and the others, how – and this has been debated over the years for – including a special forum, that close the forum, called the G7+5 by that time, the BRICS+G7. They discussed specifically on this issue a few years ago [inaudible – 60:23] OECD closed the door. I think there was some understanding, but that process was stopped for a while, already for quite a few years.

But I think that will be the critical issue, and the second issue is that level of commitment on this environmental and social, including labour standards, how high that – can we set that bar? That’s [inaudible – 60:51] but what Wendy says is interesting, seeing that if her – the approach she proposes of this mini sectoral issue-oriented smaller deals on key issues is happening. So, geographically, there are agreements, while issue-oriented agreements coming in, eventually pave the way for the grand bargain. But it takes a long time, I see – I agree with her, grand bargain is not that at all. But this kind of step-by-step accumulatively, it may move towards that direction of also convergence.

Vasuki Shastry

Thank you very much. We’ve unfortunately run out of time. I want to thank our terrific panellists for their excellent insights. I’d like to thank all the participants for their challenging questions. I think this is going to be a big year for trade and investment policy issues in Asia, so we hope to come back to this issue in the next few months. Thank you all very much, stay safe.