Promoting Inclusiveness of Mega FTAs for Advancing Asia-Pacific Regional Economic Integration

Chien-Fu Lin
President, Taiwan Institute of Economic Research/ Chair, Chinese Taipei committee for PECC

In recent years, free trade agreements (FTAs) have proliferated in the Asia-Pacific region. Most importantly, the mega FTAs consisting of the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP) have come into existence and will certainly transform the trading environment, since their gross domestic product (GDP) shares are 38% and 29% of the world, respectively. At the same time, the Asia-Pacific Economic Cooperation (APEC) is developing the Free Trade Area of the Asia-Pacific (FTAAP) which will arise in the form of a mega FTA in the future. According to a study by APEC (APEC 2015), if the FTAAP is in place by 2025, it would bring a 4%-5% increase of GDP in the whole region from 2015 and 2% of world total GDP. In order to continue the dynamism that is taking place in Asia-Pacific regional economic integration (REI), it will be necessary to address the most important challenges, that is, the inclusiveness issue. The main purpose of this article is to examine the issue of inclusiveness in the mega FTAs from two dimensions. The first dimension is about inclusiveness through open membership of the mega FTAs while the second dimension focuses on the importance of assisting small and medium-sized enterprises (SMEs) to benefit from the mega FTAs.

Linking APEC FTAAP with TPP and RCEP
During the 2010 APEC Economic Leaders' Meeting, leaders made a significant point in the Yokohama Declaration that they will seek to realize the FTAAP. Particularly, the FTAAP will serve to enhance the advancement of APEC's regional economic integration. Moreover, the FTAAP will be pursued in the form of a comprehensive FTA through building on ASEAN+3, ASEAN+6, and the TPP (APEC 2010). With this important announcement, APEC has embarked actively on the quest for attaining the FTAAP that includes the linkage with regional mega FTAs.

APEC leaders in 2014 proclaimed the Beijing Roadmap for APEC's Contribution to the Realization of the FTAAP. Specifically, the roadmap states that the FTAAP should be comprehensive and high quality as well as tackle next generation trade and investment issues. The FTAAP should be realized outside of APEC but will be in parallel with the APEC process. The reason is that APEC will continue to support the non-binding and voluntary cooperation principles. APEC will play the leadership role to advance the realization of the FTAAP. Furthermore, APEC leaders call for greater efforts to conclude the pathways to the FTAAP, such as the TPP and the RCEP (APEC 2014).

The APEC Leaders' Declaration of 2015 has continued to reaffirm the leaders' support for the FTAAP. The leaders have reiterated that the FTAAP should be advanced as a comprehensive FTA and should be high quality as well as address next generation trade and investment issues. Additionally, they have noted the progress of the pathways to the FTAAP that include the TPP and the RCEP (APEC 2015a).

From the series of points made by the APEC leaders in recent years, it can be inferred that they are determined to achieve the FTAAP in the form of a FTA that will be based on the pathways to the FTAAP consisting of the TPP and the RCEP. This path of action for the FTAAP ensures that the FTAAP will be strongly linked with the TPP and the RCEP. The challenge is about how to make sure that the triangular relationship can be accomplished. Thus, the following sections will explain the ways to link the three mega FTAs.

Promoting inclusiveness: Open membership
One way to connect effectively the three mega FTAs is to promote inclusiveness in the TPP, RCEP, and FTAAP through the adherence of the open membership principle. This means that APEC should take the leadership role to call on the TPP and the RCEP members to enable all APEC members to be able to join both mega FTAs. The important condition will be that APEC members must satisfy the TPP and the RCEP rules. Furthermore, it is essential that APEC allow the non-APEC members of the RCEP to enter APEC. Presently, all TPP members are also members of APEC.

The Association of Southeast Asian Nations (ASEAN) has related in the ASEAN Framework for Regional Comprehensive Economic Partnership that the agreement will have an open accession clause to allow ASEAN FTA partners and external economic partners to participate (ASEAN 2015). Additionally, Chapter 30 of the TPP agreement on Final Provisions has mentioned that the TPP is open to APEC members and other economies (USTR 2015).

Moreover, the TPP and the RCEP have made greater progress than the FTAAP. The TPP has completed negotiations, the RCEP is being negotiated, and the ASEAN Economic Community (AEC) has been established. APEC has considered the FTAAP to be a long-term goal and is currently conducting the FTAAP Collective Strategic Study. Therefore, the significant step for APEC to take at the moment is to request the TPP and RCEP members to permit APEC members to join them. With the support for inclusiveness through the institution of open membership in the TPP, RCEP, and FTAAP, their membership will be enlarged and intertwined.

Another positive aspect of open-membership inclusiveness is that developing economies will be provided with the option of participating in the mega FTAs. Thus the developing economies will not have to fear of being left out of the mega FTAs. Developed economies, such as the United States and Japan, will need to provide capacity building assistance to the developing economies, so as to assist them in enhancing their capability to adhere to the trade rules of the high quality mega FTAs. Furthermore, developed economies will encourage the developing economies to become members of the mega FTAs. In doing so, the advancement of Asia-Pacific REI will make progress to a greater extent.

Supporting inclusiveness: SME development
With the analysis of the importance of open-membership inclusiveness, I will now focus on inclusiveness relating to the significance of assisting SMEs to benefit from the mega FTAs. SMEs have greatly impacted economic development in Asia-Pacific economies. However, SMEs have fewer resources than big firms to participate in global value chains (GVCs) and enter international markets. The development of mega FTAs provides great potential for the growth of SMEs in the Asia-Pacific region from trade and investment liberalization.

However, the utilization rates of some FTAs are lower than 30% according to the survey of the Japan External Trade Organization (JETRO) and have provided few benefits to the SMEs (JETRO 2013). As a matter of fact, the TPP agreement includes a chapter on SMEs, Chapter 24. The SME chapter relates that each TPP party will develop a website that focuses on SME users. The website will offer information on the TPP agreement and will show how SMEs can take advantage of it. In addition, the chapter creates a SME Committee that will review how well SMEs are availing themselves of the TPP benefits. The committee will also seek to find ways to strengthen TPP benefits for SMEs. Furthermore, capacity building activities will be implemented to support SMEs in various areas, such as export counseling, trade assistance, information sharing and others (USTR 2015a).

The RCEP agreement will seek to attain a comprehensive, high-quality, and mutually beneficial economic partnership agreement. Furthermore, the RCEP will create an open trade and investment environment, in order to enhance the enlargement of regional trade and investment as well as to contribute to global economic development. The RCEP will also take into consideration the diverse levels of development of the RCEP members. Additionally, discussions on cross-cutting issues, such as SMEs and e-commerce, have deepened (ASEAN 2015a). Even though information on the ongoing negotiations is limited, it can be said that the RCEP will also promote inclusiveness through advancing SME development.

According to APEC's Boracay Action Agenda to Globalize MSMEs, APEC will seek to encourage the internationalization of micro, small and medium enterprises (MSMEs) and integrate them into GVCs. APEC will tackle trade and investment barriers that disproportionately affect MSMEs in comparison to larger businesses, so as to bring benefits to MSMEs (APEC 2015b). Furthermore, APEC leaders have mentioned that they are cognizant that internationally-oriented MSMEs can contribute to poverty reduction through creating employment, improving productivity, and enhancing economies of scale. APEC will make a progress report on the agenda by 2020 (APEC 2015a). Since APEC champions MSMEs, it is suggested that the future FTAAP agreement must include a chapter on MSME or SME development.

This article first appeared on RIETI website on February 2, 2016. Reproduced with permission.
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