Will RCEP Promote Investments in the Asia-Pacific?

The Regional Comprehensive Economic Partnership (RCEP) is being looked upon as the most promising framework for regional economic integration in the Asia-Pacific Region (APR) after the United States (US) decided to withdraw from the Trans-Pacific Partnership (TPP). Negotiated by sixteen countries—the ten member states of the Association of Southeast Asian Nations (ASEAN), Australia, China, India, Japan, Korea and New Zealand, RCEP is not as ambitious as the TPP.

One reason is that its negotiating ambit does not include many issues included in the TPP such as government procurement, e-commerce, labor standards, environment standards, and state-owned enterprises (SOEs). To be clear, RCEP, whose main objectives is to eliminate more than 90 per of the tariffs on traded goods between the negotiating countries, does look at services and investments. But in both these areas, RCEP is shying away from controversial provisions. For example, regarding investment, it is avoiding investor-state-dispute-settlement (ISDS) rules. ISDS is a controversial aspect of trade negotiations with many countries preferring not to discuss such rules lest they may lead to establishment of rules that empower foreign investors to litigate against host governments. For some RCEP members, however, ISDS rules can be important in affecting the volume of their outward foreign direct investments. These include Japan, Australia, Korea and China, which are major overseas investors, and thus conscious about protecting the interests of their investors and investments against adverse host government policy changes. If these countries prefer ISDS and the rest of the RCEP members do not, then RCEP members uncertain about legal rights of their investors in other member economies might refrain from investing in the latter. The agreement then will fail to promote regional investments and will not be an effective framework for regional economic integration. It is important that RCEP members discuss and decide on ISDS.