By Ms Ulfah Aulia, Assistant, Research Activities: The Regional Comprehensive Economic Partnership (RCEP) is the largest free trade agreement in terms of gross domestic product (GDP), population and trade. It is signed by the 10 ASEAN member states and five of its external trading partners: Australia, China, Japan, South Korea and New Zealand. It also brings the three large Northeast Asian economies (China, Japan and Korea) into a binding regional trade agreement for the first time.

As a mega trading bloc, the RCEP, which entered into force in January 2022, aims to establish a modern, comprehensive, high-quality and mutually beneficial economic partnership that will facilitate the expansion and development of global trade, as it includes all major trading nations in ASEAN and Northeast Asia. Taking this into account, the RCEP is expected to not only benefit the members in the region, but also bring significant economic and political impact to the globe.

The trade pact provides a dispute settlement mechanism (DSM) stipulated in Chapter 19 that envisions an effective, efficient and transparent process of consultation and resolution whenever a dispute arises between its members. The notable features of the RCEP’s DSM include: (i) choice of forum; (ii) consultations; (iii) good offices, conciliation or mediation; (iv) establishment of a panel; and (v) rights for interested third parties.

The question is whether RCEP members should refer to this newly established mechanism or stick to the Dispute Settlement Understanding (DSU) of the World Trade Organization (WTO) that has proven effective for years.

One thing we need to take into account is how Chapter 19 of the RCEP explicitly affirms the fact that it has adopted the provisions of the DSU. This was solidified during the 2011 ASEAN Framework for RCEP, when member states consented to the proposal that the regional partnership would be consistent with WTO’s dispute mechanism.

This is confirmed in Article 19.4 (2), which obliges ASEAN’s DSM panel to consider relevant interpretations in reports from WTO panels and the WTO’s Appellate Body as adopted by its Dispute Settlement Body (DSB). As such, it can be interpreted that in general, the RCEP’s dispute settlement proceedings would not be much different from WTO’s.

As a potentially leading dispute settlement process, the RCEP also tries to address the loopholes found in the WTO’s DSU. One of these is non-violation complaints. Under the RCEP, non-violation complaints are strictly prohibited. A non-violation complaint allows a member state to go to the DSB as long as it can prove that it has been deprived of an expected benefit as a result of the actions by another member state or an existing situation.

In other words, potential damages that have not occurred (or would have never happened) can be the basis of a WTO claim, but the RCEP does not give any room for such assumptive and ambiguous complaints. The explicit prohibition of non-violation complaints under the RCEP is meant to uphold the objective of providing an effective and efficient dispute settlement proceeding by limiting the ambiguity and litigious nature of such complaints, and instead focusing on actual nonconformity.

The RCEP also sets out dispute settlement time frames that are shorter than the WTO’s, which once again affirms the partnership’s main objective is to provide an effective and efficient dispute settlement mechanism. Time efficiency is stipulated in Article 19.13 (4), which states that the period of time for issuing a final report shall not exceed seven months from the time establishment of the dispute settlement panel. At the WTO, the time frame is from six to nine months at most.

Further, the RCEP also stipulates that the time period for issuing an interim report after a panel is established is 150 days (around five months), while it is six months at the WTO. This shows how the RCEP’s DSM not only reflects the WTO’s DSU, but also tries to upgrade the provisions and address the weaknesses in the WTO mechanism.

Chapter 19 of the RCEP also eliminates its appellate system. This should be seen as an applaudable reform, as it affirms the finality and binding force of the panel’s final reports. The elimination of the RCEP’s appellate system will indeed create a more efficient and effective mechanism, since no appeal is permitted. It will also prevent any possible “drama” or “crisis”, like we have seen with the WTO’s Appellate Body.

Despite not having an appellate system, in implementing the final report, the RCEP gives a chance for the responding party to reconvene a panel to formally lift a suspension once it has fulfilled the obligations regulated in the final report. The RCEP also enables a panel to be reconvened when the responding party objects to the level of a suspension or considers that the imposed suspension is not in line with the principles set out in Chapter 19.

It is worth noting that this is different with an appellate system, as reconvening a panel focuses on implementing the final report, not challenging the panel’s finding or legal interpretation.

The opportunity to reconvene a panel offers more assurance and legal protection to the responding party than the WTO mechanism, which has no specific way of reconvening a panel to examine the implementation of its final report.

These are just a few points on how the RCEP’s DSM responds to the weaknesses in the WTO’s DSU. This is a good sign that seems to show that the RCEP intends to advance and improve on its own dispute settlement mechanism.

ASEAN centrality has always been the key to maintaining peace and stability in Southeast Asia. Promoting ASEAN centrality is also one of the RCEP’s main objectives, as its core aim is to protect and to extend ASEAN centrality in economic and political cooperation in the Asia-Pacific. It is also supported by the commitment of its five dialogue partners, which adhere to the existing ASEAN mechanisms and principles.

Resorting to the RCEP’s DSM will endorse the agenda of ASEAN centrality, as it not only strengthens economic and political cooperation, but also promotes legal cooperation in the region. It will also spur regional confidence in promoting peace, stability and solidarity.

With its vast political and economic impacts, the RCEP might encourage member states to resolve disputes quickly and collectively. Chapter 19 will also be more relatable to member states, as it was specifically designed to take their interests and circumstances into account, something that might not be mainly and purposefully considered during the conclusion of the WTO’s DSU.

This opinion piece was written by ERIA's Assistant, Research Activies, Ms Ulfah Aulia, and has been published in The Jakarta Post. Click here to subscribe to the monthly newsletter.

Disclaimer: The views expressed are purely those of the authors and may not in any circumstances be regarded as stating an official position of the Economic Research Institute for ASEAN and East Asia.