Finally, after seven years, the RCEP trade agreement including India is close
By Richard Harman (author)
Hopes are high in Bangkok today that after seven years, there will be agreement on the Regional Comprehensive Economic Partnership.
Leaders are due to meet late today to review progress and hopefully to sign a provisional agreement
The big news for New Zealand is that it will our first trade agreement involving India.
But to get there, New Zealand has had to reassure India that we are not about to flood their market with dairy products.
Instead, says the Minister of State for Trade and Export Growth, Damien O'Connor, we will be looking to high value-added product to go to India which has 120 million farmers of its own.
Many own only one or two cows, so dairy imports have the potential to be hugely politically disruptive.
That is one of the reasons the RCEP negotiations have been fraught and why this is O’Connor’s second trip to Bangkok in a month for negotiating meetings.
The fact that the meeting on Friday even took place at all was a surprise. India, only two weeks ago, had been threatening to walk away from the whole agreement.
India is concerned that the agreement will lead to a flood of cheap imports from China but against that is a widespread concern among export-oriented ASEAN countries that the US trade war with China is damaging their economies.
The Bangkok Post has reported that there are six chapters of the agreement left to wrap up including one on mitigating any side effects t induces.
In a way New Zealand’s difficulties with India are a peripheral issue but O'Connor is making his own efforts to reassure them that side effects will be minimal.
Tomorrow O’Connor will head to India for meetings with farmer organisations and the country’s largest dairy co-op.
But O’Connor believes there is more to the agreement which links 16 Asian nations including China, Japan, Viet Nam, Thailand, the Philippines, South Korea, Malaysia, Singapore, Indonesia and Australia --- the fastest growing economic region in the world.
O'Connor says what is important is that it brings these countries into a rules-based system.
That is going to become even more important as the United States-led demolition of the World Trade Organisation means it is likely to be less effective from the beginning of next year.
“ Rules of trade with half the world's population is is a huge level of security," O'Connor told POLITIK.
“It won't be ideal.
“No trade agreement ever is.
“But when the rest of the world is kind of falling apart around the rules of trade, then trying to get something in place here is incredibly valuable for us as a small player, as a country, depending upon exports for its existence and a signal to the rest of the world that we can, as a region come together and we do see the value in having some discipline around trade.“
Before leaving India for Bangkok, where he arrived yesterday, Indian Prime Minister Narendra Modi stressed that India wanted concessions from the other RCEP partners in return for opening up the Indian market.
“It needs to be recognised that opening the vast Indian market must be matched by openings in some areas where our businesses can also benefit,” he said.
Obviously, New Zealand's market is so small as to be almost meaningless to India, and it is likely that India has sought concessions in other areas from New Zealand.
O’Connor suggested that the concessions had come over investment and immigration.
“The existing rules around investment pretty much remain in place and with some tweaks for some of the bilateral arrangements.
“The details of that will become clear.
“Rest assured; we are not opening up our economy.
“We are providing opportunities, both inward and outward, that will benefit all the players.”
He would not be specific about what concessions had been made over immigration.
“It's always an issue, he said.
“We manage that carefully in terms of the numbers of people coming in, both temporary and permanent moving to New Zealand.
“That's one of the issues that's been part of negotiations.”
In turn, O’Connor sees opportunities for New Zealand services – particularly technology transfer --- in the farm sector in India.
“I think in terms of services, helping those small farmers in India come together under a bit more structure is something we can assist with.
“I'll be going from here to India visiting Amel, which is the biggest co-operative, having some blunt conversations with them.
“They see us as a real threat.
“But I have to try and explain that we have many markets around the world.
“Our total production is far less than they have in “India.
“That is the biggest dairy industry in the world.”
Partly for that reason, to not provoke a backlash from India’s politically important farmers, O'Connor believes that New Zealand's dairy exports to India will be high value-added products.
“The price that the farmers get for their from the milk from the one or two cows is very sensitive to additional milk into the market.
“We understand that.
“So we've got to reassure them that we're there to add, to put, to put in place value, add products to lift the range of dairy products for consumers and hopefully over time help the income for their dairy farmers.”
While India is the big prize in the RCEP agreement, there is much more to it than that. It embraces, China, India, Japan, Korea, Cambodia, Laos, Vietnam, Thailand, Myanmar, the Phillipines, Malaysia, Singapore, Brueni, Indonesia, Australia and New Zealand.
Together they include half the world's population.
There is no better example of the impact a trade agreement can have than the trade between New Zealand and the RCEP meeting hosts, Thailand.
Since the Closer Economic Partnership between the two countries was signed in 2005, New Zealand exports to Thailand have doubled, and it is now our ninth biggest trading partner.
It is not just dairy products; there are over 4000 Thai students at New Zealand educational institutions.
Officials are optimistic that trade in services will increase now high-level contact between the two counties has been restored after New Zealand withdrew in 2014 following the military coup in Bangkok.
O’Connor sees similar opportunities in other East Asian countries. Still, he believes that the importance of RCEP is that it will impose a structure on countries which are susceptible to political pressures impacting into trade.
“The advantages are obviously the collaboration among all the countries, and then I guess certainty, but there will be upsides and downsides to some of it.
“We've got a free trade agreement with China; we’ve got through CPTPP existing arrangements with Japan.
“At the other end, we've got emerging growth opportunities and some of the growing markets like Vietnam, but all of them are sensitive to different services, to products, to investment and this agreement, will have those consistent rules that we understand and then open the door for individual companies to come in and capitalise on."
But O’Connor stresses that it is not yet a done deal; today’s meeting moves from the Trade Ministers who have spent the seven years negotiating the document to the Heads of Government.
“The devil's in the details.
“So the fine print is always important.
“And it will probably be fair to say that that won't be all concluded so it will probably offer a pathway to conclusion, which is what we've been working on obviously for seven years.
“It's been a long process, but we're getting it down to the hard part.
“They always are at the end of any agreement like this, half the world's population; a number of big countries with different levels of development and different objectives within their own economies.
“So there was always going to be tough.
“But we're still on track, which is a huge achievement.”
And though no-one is saying so, it is a huge achievement for China which has pushed for its completion after ASEAN originated the agreement in 2012.
Many observers believed that was a response to the Trans Pacific Partnership which at the time included the United States.
But when President Trump pulled the US out of the TPP, he left China alone to dominate the East Asian region economically.
That is not something that many ASEAN members are comfortable with. Diplomats in Bangkok point to the historic role of the US as a counterweight to China.
This may become more important as the impact of massive Chinese investment in cities like Bangkok becomes more obvious.
The final agreement on RCEP will reinforce China's growing political dominance of the region and raise questions about what the US wants its role to be.