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How APEC Can Boost Free Trade in Asia Pacific 

Economics / Asian Economies Nov 16, 2018 - 04:59 PM GMT

By: Dan_Steinbock

Economics Amid trade wars, the outcome of the APEC meeting matters. As globalization is at crossroads, trade in Asia today will shape world trade tomorrow.

As the 21 member countries of the Asia Pacific Economic Cooperation (APEC) meet during the weekend in Papua New Guinea, there is an elevated international concern about the future of global trade amid the tide of nationalism and protectionism.

APEC member economies represent some 40% of global population, the region’s combined GDP is more than 60% of global GDP and it accounts for almost 50% of global trade in goods and services. What APEC leaders decide matters.


The paths to global trade                   

There are three possible (but two probable) paths to free trade in Asia Pacific.

The ‘mini-TPP’. Founded in the early 2000s by a few smaller regional countries, the initial Trans-Pacific Partnership (TPP) was more economic, open and inclusive by nature. Former President Obama’s ‘pivot to Asia’ opted for a more exclusive, geopolitical and secretive TPP, which aspired to a “gold standard” that would remove tariffs between its members that represented 40% of global economy. But TPP also deemed provisions on labor rights, environmental protection and state-owned enterprises. These “high standards” made it impossible for China and India to join the TPP, while boosting the role of US multinationals in Asia Pacific trade.  

On his first day in office, President Trump killed the TPP. He is considering rejoining a revised TPP, but only if the US is granted a “better deal.” Without US participation, other TPP members have agreed on a mini-deal (that is, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, CPTPP), which may be progressive, but it cannot be comprehensive without China, India - and the US.

ASEAN-led RCEP. The Regional Comprehensive Economic Partnership (RCEP) is fueled by the 10 ASEAN members. Since 2012, the goal has been to harmonize free trade agreements among ASEAN countries, advanced economies (Australia, Japan, South Korea, and New Zealand), and China and India. The US has stayed on the sidelines. Seeking to exploit its economic clout, it prioritizes bilateral talks and seeks to defuse ASEAN’s bargaining power. As a trade pact, the RCEP is not as exclusive, broad and deep as the Obama TPP. But it is more multilateral, realistic, and inclusive – and could materialize in 2019.

‘America First’ Asia Pacific. Trump and his trade hawks are pushing a new Asia Pacific alignment, which strategically seeks to cement America's Indo-Pacific Vision to contain China's rise. Economically, it aspires to neutralize China's One Road One Belt initiative. Militarily, it is exploiting the “freedom of navigation” doctrine to dominate the South China Sea as 60% of U.S. naval fleet will be transferred into the region by 2020. However, any geopolitical sphere-of-interest plan would split the region and thus derail the much anticipated Asian Century.

Unsurprisingly, even America's allies - Japan and South Korea - feel unsettled about new US protectionism. And that leaves only one solution.

Toward the FTAAP                             

Within the APEC economies, the idea of regional free trade has been around since 1966 when Japanese economist Kiyoshi Kojima advocated a Pacific Free Trade agreement. Three decades later, APEC leaders opted for free and open trade and investment in the Asia Pacific.

In 2006, C. Fred Bergsten, then chief of an influential US think-tank, advocated the Free Trade Area of the Asia Pacific (FTAAP). If the FTAAP could be achieved, he argued, it would represent the largest single liberalization in history.

The TPP-11 is dominated by advanced high-income economies but excludes upper- and lower-middle income regional engines. In contrast, RCEP includes these regional engines and a few high-income economies as well. Yet, the final pact must be able to include the interests of both advanced and emerging economies. Ultimately, only the FTAAP has potential to cover the interests of the RCEP, the TPP-11, the U.S. (when Trump or the next White House accepts a more inclusive deal), Russia, and other potential members (Figure).

That’s the FTAAP goal that APEC put forward in 2006 and Asian economies support, including China. Ultimately, the TPP-11 and RCEP must agree on harmonization that will facilitate trade and cooperation among regional members and can form a joint path to the FTAAP.

It is very much in the long-term interest also of the US to accept the idea that all nations, including those in Asia Pacific, have interests of their own. Neither the US nor any other country can have a unipolar primacy in world trade; but all countries do have a critical stake in multilateral world trade.

A tentative draft suggests that APEC leaders “acknowledge the importance of APEC’s regional economic integration agenda, including how to advance, in a comprehensive and systematic manner, the process toward the eventual realization of a Free Trade Area of the Asia Pacific.”

A timely roadmap for the effective implementation of this agreement would be the right start for the region and the world.

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

© 2018 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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