This paper seeks to inform those interested in the Regional Comprehensive Economic Partnership (RCEP) trade agreement on two topics:
- the barriers to trade in financial services and
- the frameworks for regulatory cooperation that facilitate financial integration.
Firstly, it outlines the analysis available on RCEP and other countries’ barriers to trade in financial services and compares the extent of such industry protection with a range of factors that are often thought to drive such restrictions. These include a country’s economic and financial development and its chosen policy regimes for the exchange rate, consumer protection and systemic risk. The paper finds for instance that the extent of barriers to trade in financial services seems to vary more according to a country’s exchange rate regime than its consumer protection or systemic risk regimes. It also finds that some RCEP countries are more restrictive regarding trade in financial services than the average of all countries that have adopted the same exchange rate regime. Particularly as RCEP countries transition from fixed to floating exchange rates, some cooperation between regulators and policymakers to review what barriers remain necessary would be appropriate.
Secondly, it compares two case studies, the Asia Region Funds Passport and the ASEAN frameworks for financial integration, as well as other frameworks promoting financial integration through cooperation between financial regulators. RCEP has greater chance of making a difference if it establishes a mechanism for progressing financial services liberalisation and integration that involves negotiators, regulators and the private sector and encourages countries to opt in to a stipulated timetable for effective dialogue on opportunities to lower existing high barriers to trade. Such dialogue requires sustained input by all parties to make region-wide trade facilitation effective and achieve its benefits. However, negotiators may bear in mind that unilateral reforms to reduce barriers to trade in financial services would be simpler and quicker, only requiring explanation to trading partners.
This paper was produced under the Financial Integration in the Asia-Pacific project, which aims to provide Australian and Asian industry practitioners, policymakers and other stakeholders with the data and research necessary to enhance long-term strategic planning and decision-making. Other research produced under the project can be accessed here.