There has been lots of talk about RCEP these past few days. For Asian trade issues, I always listen closely to what Deborah Elms has to say. She just did an episode of the Trade Talks Podcast on RCEP, and I wanted to highlight three things she said there.
First, as I noted in the last post, RCEP does not have ISDS in it, but rather just a provision to consider ISDS in the future. How did we end up there?
Chad Bown:
So one of the most contentious, I think, areas of investment in recent trade agreements has been ISDS or investor state Dispute Settlement, enforcing some of the rules on investment. What do we know about that in RCEP?
Deborah Elms:
There is nothing called ISDS in RCEP. There was a lot of effort spent by the investment teams crafting a very comprehensive ISDS regime, but at the end as we got close to the end of eight years of negotiation, New Zealand in particular, brought in a new government that pledged that they would never sign another agreement under their watch that had ISDS in it. This created a major problem actually for RCEP because the original leader statement said that there would be ISDS in the final text. So how then are you going to solve this particular problem, RCEP does not have, or did not use, some of the mechanisms that other agreements have used. As an example, New Zealand got itself carved out of ISDS in the CPTPP agreement by using side letters with the other members to say ISDS provisions are in the text, but we in New Zealand and whoever signs the other side of this side letter will not apply ISDS to investments between us. Side letters used in CPTPP, were not part of RCEP and are not part of RCEP, at least at this point, maybe someday in the future, they'll come back again but for now, no. So how do we solve this particular challenge? If you look at the final agreement in RCEP, it goes to things around investment protection that I think is a bit different. So first, they have a special annex on expropriation, which is really the core of ISDS, is when the government expropriates or seizes your assets without fair compensation. So, what RCEP ended up doing is including more rules and more clarity around the appropriate expropriation rules for governments to follow, and has an inbuilt commitment in the agreement to discuss a mechanism for resolving expropriation claims that is supposed to launch within two years of entry into force, to be resolved one way or the other within three years of when those negotiations started. So what they basically tried to do was say, we haven't got the mechanism in place to replace ISDS, but we will start the negotiations around that, within two years, and we promise that within five years we will have something ready. So I think this is a way that, a pragmatic approach to resolving the issue of what we do about investor protection, at a time when ISDS itself is contested.
She also talked about the value of developing a Secretariat for RCEP:
Soumaya Keynes:
Are there any other chapters that you thought were notable for whatever reason?
Deborah Elms:
I don't think it's a chapter, but I think really interesting and notable is the commitment by RCEP to create a Secretariat. The benefits of RCEP are twofold. One is what's in the agreement itself and the ability of that agreement to live on and to be upgraded over the future like other ASEAN agreements. But the second crucial part of RCEP, to me, is something that was not on the agenda early, but has become increasingly important, which is, it is set up to be a platform for discussing trade and economic issues in Asia for the future. So if you say, well, part of this platform includes now a Secretariat, that is extremely important because it means that we have officials, we have ministers we have leaders who will regularly be engaging on the RCEP agenda, now into the foreseeable future. And that means that RCEP can start to create rules for trade in Asia and then beyond. So let me just give you a simple example of where I see this playing out. We currently have no rules in place, as far as I'm aware anywhere, on things like 3d printing. You know things like who owns the designs for 3d printing, how are we going to handle the materials for 3d printing, what are allowable public exceptions for health reasons or safety reasons, you know 3d printing weapons, etc. We don't have rules around that. I can imagine that RCEP economies could seize the opportunity to use RCEP as a platform for discussion about what are appropriate 3d printing rules for the future. And then once those rules get discussed and implemented in RCEP, they could become global rules on these areas as well. Because up until now we've had, Asia, very fragmented. ASEAN can create rules in the 10 countries of ASEAN, but we haven't had an ability to add in the Japanese, the Chinese the Koreans, the Australians and New Zealanders to discuss what are appropriate rules around things like 3d printing, blockchain, artificial intelligence, I mean fill in whatever categories you want, but I could imagine that RCEP could become a default platform for many of these conversations going forward. And that is a very big deal.
Finally, she talked about dispute settlement under RCEP:
Chad Bown:
My last question would be, despite the fact that there have been prior free trade agreements between countries in this region, they have been frequently using WTO dispute settlement, when they have trade frictions with each other. Right now, at the WTO obviously we have problems with the dispute settlement system, the breakdown of the Appellate Body, who knows what the future lies in there. Is this new RCEP agreement, does it have have a built out fully fleshed out dispute settlement process to handle trade frictions between countries that are inevitable to arise?
Deborah Elms:
It does have a fairly robust, I would say, dispute settlement chapter, and the officials who worked on that I will say are phenomenal caliber, in general, I mean having met them over the years, really dedicated, worked extremely hard to create a dispute settlement chapter, that is probably far more ambitious than people might have imagined for this region. The question of course is whether or not it will get used. So we have dispute settlement chapters in every FTA as far as I know, in the region, but they never get used, they never get used. We just don't have disputes between Asian markets that use Asian agreements to solve them. They usually as you know go to the WTO when they have a particular issue. So we have little track record of Asian markets using Asian FTAs for disputes, but we have an extensive track record of Asian markets going to the WTO to resolve these disputes. We have two challenges now, not only is the WTO dispute system not functioning, but increasingly, rules in RCEP are not also covered under WTO so where would you dispute some of these things if you didn't use RCEP. So I think it's an open question, how many disputes we might find in RCEP. I suspect it will be more than zero, but it will not be like an endless proliferation of disputes, given the past track record of Asian markets, and their caution around using the trade dispute settlement mechanisms in trade agreements.
