China-Australia relations: ‘Don’t expect RCEP to solve trade dispute’

Su-Lin Tan and Orange Wang, South China Morning Post

Posted at Nov 16 2020 12:33 PM

The signing of the world’s biggest free-trade agreement has the potential to spur China and Australia towards resolving their escalating trade conflict but is unlikely to directly result in a settlement, analysts and trade lawyers said.

After eight years of talks, 15 nations signed the Regional Comprehensive Economic Partnership (RCEP) agreement on Sunday.

Observers said the deal might be a circuit-breaker in the seven-month trade spat between China and Australia, especially with the continued dysfunction of the World Trade Organization’s (WTO) dispute resolution mechanism.

But hopes that the RCEP could cool tensions between the two trading partners may not be realistic.

“The institutional structures set up along with the liberalisation commitments in the RCEP will provide an additional forum to negotiate on matters of common interest and to resolve the inevitable disagreements about technical trade issues,” said Brett Williams, principal at the Williams Trade Law firm.

But others were less sanguine about the untested dispute mechanism within the RCEP, with the agreement’s main function to stimulate new trade between the 10 member states of the Association of Southeast Asian Nations (Asean) and Australia, China, Japan, New Zealand and South Korea.

The RCEP would not contain sufficiently detailed rules to deal with the “thorny” issues of trade tensions, said professor Heng Wang, a trade specialist at the Herbert Smith Freehills China International Business and Economic Law (CIBEL) Centre at the University of New South Wales.

“The RCEP is a larger free-trade agreement (FTA) than the ChAfta [free-trade agreement between China and Australia]. It is also the only mega FTA involving China,” Wang said.

“Based on the previous FTA practice such as the North American Free Trade Agreement, the parties are more likely to use dispute settlement mechanisms under larger FTAs than those under bilateral FTAs.

“[But] the RCEP is likely to emphasise more market opening like tariff cuts than regulatory issues, for example on trade remedies.”

Henry Gao, associate professor of law at Singapore Management University, said the dispute settlement chapters in most free-trade agreements were notoriously hard to use and so not often accessed.

“The ChAfta already has that chapter and it’s not used. Some people might say regional deals are different, but I would counter that [and instead] look to the WTO,” he said.

“If Australia is not even bringing a case under the WTO, which has arguably the most legalistic dispute settlement mechanism under any trade agreement, it would be a bit naive to assume that they would bring a case under the RCEP.”

Dispute settlement mechanisms ultimately did little to resolve political differences, with the political willingness of the nations concerned counting most, both Wang and his CIBEL Centre colleague international economic law specialist Weihuan Zhou said.

“If the years of negotiations of the RCEP to its conclusion and signing have not helped de-escalate the ongoing Australia-China tensions, I don’t see how the signing of it would make any difference,” Zhou said.

When asked if third-party members in the RCEP could seek dispute settlement with the RCEP adjudicators on behalf of the two nations, Wang said it was usually the parties in a dispute who initiated the process.

If nothing else, the signing of the RCEP should send a strong signal to both China and Australia to remain committed to trading within the rules and to “engage with each other as equals”, Australian Department of Foreign Affairs and Trade deputy secretary Christopher Langman said at the Caixin Summit on Friday.

He said the need to continue to openly trade and cooperate was not only critical to the two nations but to all countries, especially in the rebuilding of economies after the coronavirus pandemic.

“At a time when international cooperation is needed more than ever, some have turned further inwards,” Langman said.

“Australia and China have a really long history of extremely productive economic and trade cooperation … our business has been built over many years.

“But now we have some real concerns about the growing pattern of issues that affect a range of Australian exports to China.

“When trade is treated as a political tool, business confidence is undermined and we all suffer.”