Fukunari Kimura: Siow Yue Chia's paper is a superb review on the current situation of simultaneous negotiations over three mega–trade blocs, the Regional Comprehensive Economic Partnership of East Asia (RCEP), the Trans-Pacific Partnership (TPP), and the Trans-Atlantic Trade and Investment Partnership (TTIP). Because limited information is currently available on the details of these three mega free trade agreements (mega-FTAs), this new piece is extremely useful and provides real insights to one of the most important current trade agendas for both academics and non-academics. The whole paper uses a calm and at the same time a bit of a cynical tone while keeping trade liberalization as an important principle from the viewpoint of a well-trained authoritative trade economist. It looks at the issue from the best observatory point, Singapore, with frustration over the slowness in the rest of the world. The paper appropriately discusses the three mega-FTA negotiations from various angles: (i) identifying the rationale and motivations, (ii) quantifying the benefits, (iii) negotiating design and agenda, and (iv) noting the issues and challenges.
Rather than discussing details of the facts and interpretation that the paper provides, I would like to highlight three issues, which I believe supplement the arguments in the paper. The first is the role of TPP as a forerunner. TPP is claimed to be a model of the 21st century agreements with high-level liberalization and international rule-making. The negotiations have unusually been frequent and intensive. Nonmembers of TPP negotiations clearly feel the fear of possible isolation and try to watch the progress of TPP negotiations closely. If TPP negotiations go forward, other negotiations over FTAs including RCEP and TTIP will be accelerated, and the quality of those agreements will improve. Or, on the contrary, if TPP goes into difficulty, everything will slow down. Among negotiating members, TPP negotiations have already worked as an external pressure to reinforce the domestic reform agenda; Japanese agriculture is one of the examples, as the paper points out. Nevertheless, because various stakeholders try to influence such a negotiation, there is a risk that the agreement would be contaminated by a number of compromises and end up a low quality agreement. Participation by Japan would strengthen the credibility of TPP as a forerunner of international rule-making or might enhance a risk of dirty deals in tariff removals over agricultural products, for example. A dirty deal would also make discussions in the U.S. Congress more difficult. Whether TPP can continuously play the leadership role is one big issue that we should watch.
The second is on RCEP. RCEP covers the area of advanced international production networks in the manufacturing sector and can potentially lead influential rule-making in the world of production networks (Ando and Kimura 2005) or the second unbundling (Baldwin 2011). ASEAN has already concluded five ASEAN1 FTAs with six FTA partners and should lead the RCEP negotiation, though it has not worked that way so far. If RCEP does not fly and other FTAs such as the China-Japan-Korea FTA are concluded, the welfare of ASEAN may go down due to trade diversion (ERIA 2012 [Figure 3, 10]). We must also notice that ASEAN economic integration called the ASEAN Economic Community (AEC) is of relatively high quality and depth whereas ASEAN1 FTAs are of lower quality (Fukunaga and Kuno 2012; Ishido and Fukunaga 2012). Therefore, if ASEAN leaders are rational, RCEP must head for high quality; otherwise, ASEAN may suffer from another type of trade diversion. At the same time, high-quality RCEP may be an important step for keeping so-called “ASEAN centrality.” The starting point of RCEP negotiation should be placed at the level of AEC, rather than those of ASEAN+1 FTAs. The leadership of ASEAN as a driver of substance (Fukunaga and Isono 2013), however, does not seem to work well so far. For example, the second RCEP Ministerial Meeting, held in Nay Phi Taw in August 2014, failed to set the modality of negotiations. ASEAN ministers were obviously not well prepared, and the Indian minister was even absent in the meeting. Slow negotiations and the agreement of low quality may substantially slow down ASEAN and East Asian economic integration, and leaders in the region should notice that the world is rapidly changing.
The third is on the relationship between mega-FTAs, including TPP, RCEP, and TTIP, and the World Trade Organization (WTO) in international rule-making. The paper discusses this important issue with a bit of a pessimistic tone by citing a statement made by Pascal Lamy, the former Director-General of WTO. I share such concern with the paper but at the same time think that we could assess the role of mega-FTAs more positively in the current situation. The world is coming into a new era of production networks (or the second unbundling), and to establish a new international policy regime is an urgent issue. The WTO, however, is not functioning well even in wrapping up the current Doha Development Agenda with a shrinking negotiating agenda, let alone thinking of the expansion of policy modes that would be taken care of by the WTO. Even a single country can block the process of concluding any agenda in the WTO; we observe such examples in the failure of concluding the trade facilitation agreement in August 2014. Countries that do not yet participate in production networks cannot understand the urgent necessity of the new international policy regime, and thus we should not wait for everybody. Mega-FTAs may be the only channels at this moment for embarking this important work, which goes with competition among mega-FTAs. Although a number of caveats must be noted, mega-FTAs may arguably work in a similar way to plurilateral agreements under the WTO such as the Government Procurement Agreement and the Information Technology Agreement. The WTO itself should also shift toward accepting a plurilateral approach more widely in the near future.
Now is a critical moment of whether we can utilize mega-FTAs in an effective and constructive way or not. We economists should convince policymakers to act strategically rather than being captured by a narrow domestic political economy agenda. The paper provides food for thought in that direction.