Mega-regional Trade Research Articles

Why is there no investor-state dispute settlement in RCEP? bargaining and contestation in the investment regime

Abstract The Regional Comprehensive Economic Partnership (RCEP) is one of the most important mega-regional trade agreements signed to date. Yet, it failed to include an Investor-State Dispute Settlement (ISDS) mechanism in its investment chapter. What explains this omission? To unpack this, we examine international negotiations as a two-step process. In the first stage, we theorize that initial preferences towards ISDS are based on countries’ orientation toward foreign direct investment (FDI), experience with ISDS, and past treaty practice. Second, we theorize that during protracted negotiations, adverse regime developments and domestic politics can have a profound impact on treaty design. To test our framework, we examine the RCEP negotiations. Our analysis shows that mounting cases as well as the eroding norm of ISDS in other treaties lowered support for ISDS as the negotiations progressed. Then, a change of government in Malaysia shifted that country’s position dramatically, which tipped the balance against ISDS in the final round of negotiations. Our findings have important implications for the international investment regime. They highlight the factors that determine countries’ initial preferences while also demonstrating the importance of developments during the negotiations, which can lead to the abandonment of the institutional status quo.

Unpacking the impact of mega-regional agreements: the EU–Mercosur case

Mega-regional trade agreements progressively became a mechanism for the European Union (EU) to include a wide range of commitments in interregional negotiations. There is a well-developed scholarly debate on the EU’s normative power, but we have not seen a similar weight of research on how third countries react to European influence. We suggest that the focus on the macro analysis of state-level interests hides that domestic groups are impacted by EU rules and mobilise to respond to what is perceived as an imposition of European norms. This article explores the EU–Mercosur Agreement and, considering the pivotal role of Brazil in potentially obstructing it, we conducted documentary research to analyse how Brazilian stakeholders have reacted to the EU norm-spreading. We mapped influential individuals and organisations engaged in disclosing their positions and influencing the negotiation outcome. The results demonstrate that while supporters are those directly benefiting from trade liberalisation, opposition comes mainly from sectors impacted by the beyond-trade norms.

The Potential Impact of Tariff Liberalisation on India’s Automobile Industry Global Value Chain Trade: Evidence From an Economy-Wide Model

The impact of tariff barriers affecting participation in global value chain (GVC) trade has received attention in recent literature. However, the empirical evidence in the context of mega-regional trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP), from which India opted out recently, remains non-existent. Our study contributes to the empirical literature by undertaking an economy-wide modelling exercise, augmenting it to the automobile sector trade in GVC goods in the Indian context. We conduct two policy simulations with an aim to analyse how India’s auto-industry and auto-parts trade, involving forward and backward linkages in GVCs, have been affected by its decision to opt out of RCEP compared to a hypothetical scenario of not doing so. Our results suggest that a potential RCEP membership would have created net trade in both the finished automobile and intermediate auto-parts sectors, although imports would exceed exports. Further, we infer that both backward linkages and forward linkages in this industry will be adversely affected by opting out of RCEP, as there is export diversion in the auto-parts sectors globally, with India facing terms of trade losses due to higher import prices. This informs policymakers that developing domestic resilience and improving productivity are critical for India to improve its long-run export competitiveness while contemplating future trade agreements, including those with RCEP members. JEL Codes: F15, F61, O53

Rethinking Asia-Pacific regionalism and new economic agreements

ABSTRACT The neoliberal international order is facing a variety of pressing obstacles. One of the most contentious issues is the emergence of new Asian regionalism, which has been driven by the rising economic power of the region and integration based on the Association of Southeast Asian Nations (ASEAN) Plus Six framework. The legalization of the ASEAN way has propelled the New Regional Economic Order (NREO), which reinforces a trade-development nexus alternative to the Washington Consensus and will have far-reaching normative, economic, and geopolitical effects on the world. Given the proliferation of trade and investment initiatives including the ASEAN Economic Community and mega-regional trade agreements, this article investigates the influence of the Third Regionalism on Asian integration and beyond. Additionally, this article envisions the future of new Asian regionalism by uncovering the global and systemic implications of ASEAN and NREO developments.

Mega-Regionalism in Trade from a Sectoral Perspective. The Case of the Automotive Industry in the Regional Comprehensive Economic Partnership

Theoretical background: The Regional Comprehensive Economic Partnership (RCEP) is the largest mega-regional trade agreement ever signed, accounting for more than 30% of the global population, exports, and gross domestic product (GDP). It is also the largest automotive market worldwide, with significant potential both in terms of automotive manufacturing and sales. Purpose of the article: The paper’s main objective is to characterize China-RCEP automotive trade in the years 2012–2021 with reference to key provisions and implications of the aforementioned mega-regional trade agreement for the automotive industry. In the empirical part of the paper, the authors attempt to verify the hypothesis that trade liberalization under RCEP may contribute to the expansion of the regional automotive industry in terms of trade volume, as well as fragmentation of value and supply chains. Research methods: The authors conducted an analysis of intra-industry trade disaggregated into 54 six-digit HS tariff codes using the Grubel–Lloyd and Balassa indexes, accompanied by cross sectional analysis and studies of sectoral reports and literature in the field of mega-regionalism in trade. Main findings: The hypothesis formulated in the introduction of the paper was verified positively –the authors provided an added value to previous empirical studies on RCEP, in the form of a perspective of the automotive industry and in-depth analysis of sectoral trends for the last ten years. The potential for further fragmentation of value and supply chains inside the region was identified, including the possibility of relocation of manufacturing and assembly activities to lower the cost of RCEP Member States to strengthen comparative advantages over extra-regional counterparts (EU, USMCA). The authors pointed at the prospective rising attractiveness of RCEP in automotive manufacturers’ location decisions worldwide, considering both costs, retreat from global-oriented manufacturing and export strategies, investment security, sustainable development, as well as geopolitical trends in respect of newly established tariff and non-tariff barriers.

Did mega-regional trade agreements reshuffle the financial influence of the US, China, and Japan in ASEAN? Evidence from the volatility-spillover effects

The Trans-Pacific Partnership (TPP) and the succeeding Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) were widely viewed as trade agreements aiming at containing the influence of China and raising that of the US and Japan in Asia. This study utilizes the outward volatility-spillover effect of the equity market as a proxy for a country’s financial influence and analyzes whether the signing of the TPP and CPTPP reshuffled the financial influence of the US, China, and Japan in the Association of Southeast Asian Nations (ASEAN). The study finds that the TPP and CPTPP did boost the financial influence of the US and Japan in some ASEAN countries; however, there is no evidence that they have reduced the financial influence of China in ASEAN.

Сравнительный анализ мегарегиональных торговых соглашений в Азиатско-Тихоокеанском регионе

The article conducts a comparative analysis of the trade mega-formats (mega-regional trade agreements) operating in the Asia-Pacific region (APR) in terms of emerging institutional structures and compliance with existing regulations of the World Trade Organization (WTO). As a result, the hypothesis of basing in the medium term the model of functioning of international trade on the rules and regulations of the emerging integration format of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) is substantiated, within the framework of which a single trade and economic institutional environment is created, which differs from the functioning environment and organizational structure of the WTO. The high standards set by the CPTPP will determine the rules and regulations of international trade, either through gradual introduction into WTO instruments or by extending the agreement itself to new territories in the process of joining the partnership of the following participants. It is shown that in the medium term it is advisable for the Russian Federation to focus on the integration format of the Regional Comprehensive Economic Partnership (RCEP), free from the geopolitical context and absorbing the main share of mutual trade of countries in the Asia-Pacific region. Potential accession to the CPTPP would require large-scale economic reforms, which could prove quite painful for the country’s economy in the short term. According to the author, the RCEP in its essence and structure is not a mega-regional integration format, but a new large free trade zone without creating a single institutional environment. The main concessions are the reduction of tariff barriers, while in other areas long transition periods are envisaged, allowing for changes without the emergence of shocks in the national economy. This will give Russia the opportunity to expand cooperation with the main trading partners in the region and receive significant economic benefits without resorting to large-scale transformations

INDIRECT EXPROPRIATION AND THE PROTECTION OF PUBLIC INTERESTS

AbstractThis article analyses what is widely known as the police powers exemption found in modern international investment agreements, with a focus on mega-regional trade and investment agreements. It explores its legal nature and requirements, the burden of proof and issues of compensation. In an attempt to curb (indirect) expropriation claims, the exemption carves out non-discriminatory regulatory measures from the scope of indirect expropriation and in such situations no compensation needs to be paid. It follows that, as a rule, foreign investors are not protected against the adverse economic effects of regulatory measures. The key question addressed is whether host States can increase the level of protection given to public welfare objectives through the use of this exemption without having to compensate investors for the measures taken. The article argues that, under the proportionality test embodied in the exemption, States can provide the level of protection that they desire without incurring a risk of liability as regards expropriation claims.

Three Steps in the Aftermath of COP26: Trade, Key Players, and Decarbonization

This article offers three instruments to effectively mitigate climate change in the context of the Conference of the Parties (COP)26 and beyond. The first is the interaction between the climate and trade regimes. To that end, this article presents a thought-provoking premise – that mega-regional trade agreements (RTAs) can take a significant role in climate change mitigation. It argues that mega-RTAs can go further to galvanize climate change mitigation, in particular in the energy sector. The energy sector is the largest contributor of greenhouse gas (GHG) emissions, with the majority of energy consumption being supplied by fossil fuels such as coal, natural gas, and oil. As such, there are two main arguments made herein. First, mega-RTAs, as tangible indications of what is acceptable to major economies, are the impetus to influencing greater coherence on energy efficiency standards. This contributes to climate action by creating, even if to some extent, the harmonization of an otherwise fragmented status of energy governance. Second, mega-RTAs can create substantive provisions that redirect support from fossil fuels to renewable energy. This is the very essence of the energy transition. It is envisaged that these two roles conveyed effectively through mega-RTAs can substantially support the energy transition and amounts to action that mitigates climate change and promotes sustainable energy. The second instrument to effectively mitigate climate change is the role of two major Asian countries that are key in the fight against climate change, namely India and China. Both countries can play a major role in effectively mitigating climate change in the future, following the agreement at COP26 that coal must be phased down. Lastly, the third instrument is visualizing what a decarbonized future would look like. Two of many possible pathways for decarbonization are examined: clean-energy technologies and shale gas as a bridge to sustainability. The article argues that these pathways can be meaningful for effective climate action and are in alignment with the Glasgow Climate Pact. energy transition, mega-regional trade agreements, fossil fuels, renewable energy, global energy governance, electrification, clean-energy technologies, shale gas, sustainability

CONSTITUTIONAL TRADITIONS AS BOUNDARIES IN STANDARDISING ADMINISTRATIVE RULEMAKING THROUGH TRADE AGREEMENTS

AbstractPioneered by the US, recent mega-regional trade agreements such as the CPTPP have incorporated ‘regulatory coherence’ provisions—mirroring the US Administrative Procedural Act's core designs—to balance between domestic regulatory autonomy and international cooperation. Building upon existing literature that traces the trajectories of the diffusion of regulatory coherence across jurisdictions, this article analyses how Australia's constitutional tradition could effectively condition the development of regulatory coherence in a Westminster-based model of governance. It is argued that the global entrenchment of regulatory coherence is contingent upon the inherent boundary defined by the political dynamics and constitutional structures within a jurisdiction.

Regulatory Cooperation in Mega-Regional Trade Agreements

Trade friction in the age of global value chains is primarily due to regulatory diversity. While due to the lack of disciplines in the WTO context on the exercise of regulatory powers by states, it is difficult to eradicate the diversity, regulatory cooperation is key to reducing the restraints that heterogenous regulations may impose on international trade. Recent mega-regional trade agreements have gone beyond the WTO disciplines and put forward novel and ambitious approaches to regulatory cooperation to address behind-the-border non-tariff measures. After a critical review of the new regulatory cooperation mechanisms in three mega-regional trade agreements, this article argues that these new regulatory cooperation mechanisms have spelled out a thick web of procedures that can be used to deliver better quality domestic regulations as well as enhance governmental coordination through joint institutions that monitors the consistency of proposed regulations with treaty commitments. It is still too early to assume that these new initiatives will significantly impact ameliorating the adverse effects of regulatory diversity in international trade. Nevertheless, they break new ground in international economic rule-making and hold great promise.

The role of the corporate sector in the transformation of the international trade and economic relations system

The article discusses the role of MNCs in the process of transformation of global regulation of trade and international economic relations system. The relevance of this study is determined by one of the key trends in the world economy and the system of international economic relations of the late XX — early XXI centuries — by the process of corporatization of the economic space. There is a desuverenization and corporatization of the national economies of the countries. This process is associated with the increasing dependence of national economies on MNCs and is accompanied by the deepening of the process of corporate globalization of the economic space. The system of economic relations of mega-regional partnerships is the subject of the research. The purpose of the study is to determine the role of MNCs in the process of transformation of global regulation of trade and international economic relations system. There are different methods of scientific knowledge used in the research: comparative-historical, as well as general scientific methods: abstraction, axiomatic method, analysis, induction. As a result of the study, the author identified the key trends in the world economy of the XX–XXI centuries: the corporatization of the economic space, coupled with the desovereignization of national economies. The main findings of the study are: first, the trend towards corporate globalization in the world economy; second, a qualitative changes in the form of organization of trade and economic relations: the transition from globalization to globalizing regionalism — an increase in the number of mega-regional trade agreements, such as the Trans-Pacific Partnership / Comprehensive and Progressive Agreement for Trans-Pacific Partnership, The EU-Canada Comprehensive Economic and Trade Agreement, The Regional Comprehensive Economic Partnership, etc.; third, the crucial role of MNCs in the transformation process of the global trade regulation system; fourth, qualitative changes in the form of relations between corporate sector and state. The results of the study can be used in further research on a given topic.

Estimating the Impact of Cumulative Rules of Origin on Trade Costs: An Application to Mega-regional Free Trade Agreements in the Asia-Pacific Region

AbstractWe investigate the effects of free trade agreements (FTAs), focusing on the impact of cumulative rules of origin (ROO) on trade costs. Using a gravity regression model, we estimate the effect of various cumulative ROO systems on the measured trade costs. We apply these estimates to static and capital accumulation computable general equilibrium models to compare the effects of mega-regional FTAs in the Asia-Pacific region—namely, the Regional Comprehensive Economic Partnership (RCEP), Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), and Free Trade Areas in the Asia-Pacific (FTAAP). We find that mega-regional FTAs may not be a viable alternative to a multilateral trading system or bilateral FTAs unless less restrictive cumulative ROO are adopted. Successful FTAs depend on an appropriate cumulative ROO provision system rather than their membership expansion.

Japan-AfCFTA Integration through Economic Impacts of Alternative EPA Scenarios -Examination of the GTAP 10A MRIO Database

This paper analyzes the impact on an economic partnership agreement (EPA) between African countries and Japan through trade liberalization and reduction in non-tariff barriers. This study aims to investigate sectoral interconnections and participation in the EPA that would facilitate further possible opportunities for the JapanAfrican businesses. The methodology employed is the Computable General Equilibrium model integrated with the Global Trade Analysis Project version 10A Multi-Region Input-Output database. We first modified the GTAP’s structure form to develop a long-run closure under steady-state and thereafter examined the African Continental Free Trade Area-Japan Economic Partnership Agreement (AfJEPA) with several EPAs scenarios relying on the quantitative comparison of economic impacts of different technical measurements. As a result, the AfJEPA can provide new possible opportunities for Africa-Japan businesses, such as contributing to the existing African and Japanese mega-regional trade agreements. Specifically, the electronics, petroleum and coal, and chemical, rubber, and plastic industries in Africa would see the highest percent growth. Likewise, the Japanese industries would improve their productivity in the motor vehicles and transport equipment, chemical, rubber, and plastic, and textiles and apparel industries. To sum up, trade facilitation and knowledge transfer, which policymakers can improve concrete action and investment, would considerably stimulate African and Japanese real GDP. Thus, potential growth would rely on deep regulation policy through a degree of openness and initial level of trade barriers to each country.

Издержки и потенциал торгово-экономических взаимодействий между Россией и мегаформатами Азиатско-Тихоокеанского региона

The article presents the results of the decomposition of comprehensive trade costs, which make it possible to estimate the costs and potential of trade turnover for the «deep» integration scenario between Russia and countries included in the Asia-Pacific mega-regional trade agreements – RCEP and CPTPP. It is shown that Russia has significantly increased trade with the Asia-Pacific countries, and it has the potential to expand the scale of trade by reducing various barriers. On the basis of D. Novy’s index approach, the comprehensive costs of trade between Russia and RCEP / CPTPP were decomposed into non-tariff barriers and into tariff and transport costs. It was found that non-tariff barriers were the main factor hindering trade between Russia and RCEP / CPTPP. Based on a comparison with the estimates of non-tariff barriers obtained for the Union State of the Russian Federation and the Republic of Belarus, a possible reduction in such costs in the interaction of the Russia with the RCEP / CPTPP countries has been determined. The assessment showed that if the scenario of «deep» integration between Russia and RCEP / CPTPP is implemented, non-tariff barriers could be reduced by almost 2 times in the interaction of the Russian economy with the RCEP, and with the CPTPP – by almost 2.5 times. As a result, if this scenario were implemented, mutual trade could increase by 40 p. p. and more than 60 p. p. respectively. It is assumed that the continuation of the sanctions of key world economies initiated this year and the self-restrictions of foreign companies in relation to the Russian economy could slow down the implementation of the strategy of geographical diversification of Russian exports and Russia’s full inclusion in the integration processes in the Asia-Pacific region in the long term

Перспективы и место ВРЭП в системе мегарегиональных торговых блоков

The article analyzes the Regional Comprehensive Economic Partnership (RCEP) in terms of agreements reached and effects on the international trade system. Having involved the issues of tariff protection, rules of origin, TBT and SPS barriers in trade, investments, dispute settlement mechanism, and other regulation RCEP has an impact on both megaregionalism and international political economy system. In addition to the system level, the article examines the influence that this FTA will have on Russia and comparative market access conditions for Russian exporters in the RCEP countries. In comparison with other mega-regional trade arrangements such as TTP, RCEP provides for a more flexible approach to the commitments of the RCEP countries. Alongside the fact that each participating state has individual tariff elimination schedules with prolonged transition period for some products, such countries as Indonesia, Malaysia, Vietnam, China, Philippines, and Korea set differentiated tariff elimination schedules for certain participating states. Overall, the significance of RCEP is based upon two levels. First, this allowed to form a FTA that is of key importance for Southeast and East Asia, especially China, Japan, and Korea, which may be the basis for deeper integration. Second, RCEP is a case for megaregionalism revival against economic nationalism that seemed to be on the rise. Importantly, RCEP has non-western countries at its core, which puts the entire Asia to the fore of trade liberalization process. As for Russia, it is essential to secure the potential export niches, products, and services so to go up the value chain as well as to be cautious about potential surge in imports that may happen.

ПРОГРЕСС РЕГИОНАЛИЗМА И ЗАКОНОМЕРНОСТИ ПОЯВЛЕНИЯ МЕГАРЕГИОНАЛЬНЫХ ТОРГОВЫХ СОГЛАШЕНИЙ

Mega-regional trade agreements have become a new development trend in international trade, the first of which (the agreement on the Trans-Pacific Partnership) was signed back in 2016. Despite the ambiguity of MRTS, it is assumed that in the near future, they will have a significant impact on the system of regulation of international trade on a par with the World Trade Organization (WTO). Since international trade is undergoing significant changes in the 21st century, the system of its regulation (GATT / WTO) formed several decades ago requires significant changes. The most modern instrument for regulating international trade relations is the MRTS, whose rules are more effective than the existing WTO rules, or there are no such rules in the WTO so far.

Did Mega-Regional Trade Agreements Reshuffle the Financial Influence of the US, China, and Japan in ASEAN? Evidence From the Volatility-Spillover Effects

Did Mega-Regional Trade Agreements Reshuffle the Financial Influence of the US, China, and Japan in ASEAN? Evidence From the Volatility-Spillover Effects

African Continental Free Trade Area (AfCFTA) Agreement and the Mega-Regional Trade Agreements (MRTAs): what are the underlying challenges and prospects for Africa-South-South trade?

This study examines the possible challenges and prospects of the recent signing of the African Continental Free Trade Area (AfCFTA) Agreement on South-South trade. The recent ratification of the agreement by the African Union (AU) Heads of Government and the establishment of the mega-regional trade agreements (MRTAs) by the major global trading economies are the biggest since the establishment of the WTO. One of these regional and continental agreements' principal objectives is to further strengthen trade terms and balance of trade statistics between member nations. Whereas almost all the regional and continental blocs have to a large extent, achieved the purpose of their trade agreements, Africa stands out as the only region whose intra-trade value still constitutes less than 15% of global trade share. Many reasons have been adduced to be responsible for the weak trade performance, one of which is weak regional integration. This study, therefore, concludes that for Africa to achieve significant improvement in global trade, the region needs to encourage regional trade, which will act as a catalyst for transforming the domestic economies and lay a robust foundation for healthy regional competition and integration

Multipolarity of the world trade: challenges and "corridor of opportunities" for Ukraine

The paper discusses trends of the world trade development towards multipolarity that is caused by the increasing impact of “newly emerged” leaders, in particular China, and weakening of the domination of “traditional” transatlantic leaders. The development of multipolarity in the world trade is supported by the processes of trade regionalization, especially by signing of megaregional trade agreements on the base of the current balance of power in the world trade. The details of the regional trade agreements concluded by the world trade leaders – USA, EU and China are described. The academic discussion on the role of Regional Comprehensive Economic Partnership (RCEP) leads to the conclusions that creation of RCEP will induce the creation of a new world trade pole in Asia and the Pacific region during the next decades, where China will play a leading role. The future of the World Trade Organization and the WTO fundamental principle of multilateral trade relations is the most controversial issue in connection with the development of multipolarity of the world trade. Challenges that were faced by the WTO due to trade digitalization, COVID-19 pandemic and climate changes are analyzed, alongside with sources and causes of the WTO crisis. The spreading of economic patriotism (nationalism) trend that manifests itself in trade as a policy of protectionism is discussed in the context of the transition to multipolarity in the world trade . The development of multipolarity in the world trade is followed by the processes that must be considered in the shaping of Ukrainian trade policy. The ability of Ukraine to get its “space for maneuver”, which will allow to increase the country’s economic potential in the framework of the new world trade configuration, depends upon this country’s trade policy that is grounded on the analysis of risks and opportunities in the trade relations with “major players” in the world trade. Development of the trade with China creates significant risks of the increasing of raw materials orientation of export and strengthening dependence on the import of industrial goods from China. Vital risks also follow signing of the credit and investment agreements with China. Chinese investment in agriculture and food industry are the riskiest as they use natural potential of the recipient countries and Chinese technologies to diversify the sources of the food import to China. The shaping of the Ukrainian trade policy with the EU countries in the medium term will be influenced by latter’s new trade policy of Open Strategic Autonomy. The main challenge is created by the EU plans to implement the Carbon Border Adjustment Mechanism (CBAM), which provides for the import tax on the import of the electricity, cement, aluminum, fertilizers, and products from steel and iron. The opportunities, created by the new EU trade policy for Ukraine have emerged due to the EU’s declared support to the countries of the Eastern Partnership that have DCFTA with EU, including green and digital transition. The principle of “autonomy” in the new EU trade policy emphasizes the EU’s ability to make its own choices, reflecting its strategic interests, which has features of the policy of economic nationalism and protectionism and will create a “corridor of opportunities” for pursuing protection measures for the development of domestic industries.