The implementation of the RCEP comes ever closer

This article was first published in October by The Daily Cargo News.

The fact that the Regional Comprehensive Economic Partnership Agreement (RCEP) has survived the COVID-19 pandemic and the apparent shift towards enhanced protectionism indicates that the parties still believe that there is merit in a rules-based multilateral agreement to facilitate trade.

RCEP: What it is

The RCEP is known as a plurilateral trade agreement between Australia and China, Japan, New Zealand, South Korea and the 10 members of the Association of Southeast Asian Nations (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam).  Australia already has many Free-Trade Agreements (FTA), both bilateral and multilateral, with some of the same parties, so the main benefits can be found in the size of the region and the potential to standardise rules and procedures across the region covered by the RCEP.

The implementation and entry into force of the RCEP depends on the relevant parties following their own domestic ratification of the RCEP. In Australia, that process requires review by the Joint Standing Committee on Treaties (JSCOT), a positive outcome of that review and a recommendation that “binding treaty action be taken”. The review by JSCOT is informed by a national interest analysis (NIA) and regulation impact statement (RIS) and is open to commentary by government agencies, industry and labour associations and the wider public. Even with the general endorsement of a treaty by a majority, there are often additional comments or dissenting reports, which generally reflect the view of opposing political parties who are members of JSCOT.

Following endorsement by JSCOT, our practice is to then pass necessary amending legislation to adopt the treaty, usually amendments to the Customs Act 1901 (for the new rules of origin and certification requirements) and the Customs Tariff Act 1995 (for a new schedule for the duty rates agreed pursuant to the relevant FTA). This often entails separate review by senate committees, providing opportunities for additional examination, commentary and objection. Once all the legislation is passed, the notification is provided to the other contracting parties to the FTA, and once enough countries have ratified the treaty establishing the FTA, it will come into effect.

The terms of RCEP and its benefits are set out on the Department of Foreign Affairs and Trade website and in earlier commentary from me.

The process

Following the signing of the RCEP on 15 November 2020, Australia put its “entry into force” process, including preparation of the NIA and RIS and review by JSCOT, which considered RCEP and released its findings in Report Number 196 (Report) released in August 2021. The process before JSCOT included reviewing submissions by interested parties and considering the evidence given during the JSCOT hearings. Ultimately, JSCOT endorsed taking “treaty action” on the RCEP, and the list of majority recommendations included that:

• the government continue to pursue the restoration of civilian, democratic rule in Myanmar as a foreign policy priority and considers making a declaration to this effect at the time of ratification; and
• the government continues to pursue the inclusion of labour, human rights and environmental provisions within the RCEP agreement at the time of the first review.

In addition to the recommendations set out above, there was also a dissenting report by the Australian Greens and “additional comments” by the Australian Labor Party (ALP). No doubt, this will be followed by enabling legislation and further consideration by the Parliament and the public to enable the anticipated commencement date of 1 January 2022, which would coincide with the commencement of the HS 2022 reform and adoption of the new Harmonised Tariff.

The executive summary of the report recognises the wider significance of the RCEP beyond the normal market access outcomes as follows:

RCEP is not a particularly ambitious trade agreement, and in terms of market access does not deliver much in the way of additional benefit for Australia. RCEP’s significance, however, lies in the broad composition of its membership – accounting for almost one-third of the world’s population and GDP – its reinforcement of ASEAN’s regional leadership role, and its simplification and harmonisation of rules of origin and other trading standards which should facilitate growing supply-chain integration.

In particular, RCEP contains a single set of rules and procedures for Australian goods exporters to utilise RCEP’s preferential tariff outcomes across the region, and increases opportunities for Australian business to access regional value chains.

Similar benefits apply to trade in services, investment, intellectual property and electronic commerce.

RCEP’s significance

The progress with the RCEP and its impending adoption and implementation has a broader significance, especially in the context of the COVID-19 pandemic, its effect on regional trade, the current trade disputes with China and the largely mysterious position of India in relation to liberalising trade.

The fact that the RCEP has survived the COVID-19 pandemic and the apparent shift towards enhanced protectionism indicates that the parties still believe there is merit in a rules-based multilateral agreement to facilitate trade. That, in itself, represents some confidence that “trade conquers all”.

China has pursued the commencement of the RCEP, despite its own trade and political issues with many of the other parties to the RCEP, including Australia. The RCEP commits China to a multilateral process for trade liberalisation, even in the face of its own political bilateral agenda conducted through the Belt and Road Initiative. At the same time, China is now engaged in disputes before the World Trade Organization (WTO) with Australia and others. These facts alone suggest that China may not have totally abandoned an entirely protectionist position on all matters, especially when it perceived the deal is in its interests.

India’s decision to withdraw from the RCEP is consistent with its earlier withdrawal from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). At the same time, it has adopted measures the subject of complaints at the WTO. While those decisions suggest that India continues to isolate itself from regional trade liberalisation in the pursuit of its own interests, there have been suggestions that India is trying other avenues to engage with the trade agenda. For example, in recent weeks, there has been evidence that India is seeking to re-engage with Australia on a bilateral trade liberalisation agenda despite its withdrawal from earlier FTA discussions and its withdrawal from the CPTPP and RCEP. While those negotiations may support a bilateral deal with Australia in some form, it is hard to decide what could be in such an FTA, given India’s withdrawal from earlier bilateral and multilateral negotiations. While India represents a strong global influence, there needs to be a better understanding from the country that advances in its favour need to be met with concessions to others.

The commentary in the report gives some insight into the position of many parties in relation to the future conduct of the whole Australian FTA agenda under other leadership. Importantly in the context of our next federal election (likely in 2022), the position of the ALP members on JSCOT could become important, including recommendations that labour, human rights and environmental provisions should be included at the time of the first review of the JSCOT. The ALP commentary included further opposition to investor-state dispute settlement (ISDS) provisions in FTAs. Although there is no ISDS provision in RCEP, the ALP members of JSCOT reiterated their objection to ISDS provisions in other FTAs – which could affect future negotiations with other countries under other FTAs if there is a change in government in Australia.

I will continue to provide updates to industry in various forums. Stay tuned, and feel free to contact our Customs & Trade team for details of engagement and education on the RCEP.