[HKEJ Article] Real Value of APEC

November 17, 2014




The big APEC Party has just ended in Beijing with great fanfare, and the Summit season is in full swing. Regional leaders now move down to Myanmar for a meeting of ASEAN leaders, and then to Australia for the G20 Summit.

While the diplomatic jostling will be energetically evident in the coming weeks, for Beijing, nothing could surpass the importance of the APEC Leaders’ meeting, which comes at the end of a year’s APEC leadership paved with ambitious intentions. And has the year lived up to best hopes? Before the leaders’ meeting I would have said on balance no – though this is not for want of trying.

But as the meeting concludes, I need to revise. Much more has been achieved than I expected, and much more than the inauspicious global setting might have allowed. The global economy is still spluttering; Japan’s shock new “quantitative easing” has in particular rattled nerves over the state of Japan’s economy; China’s economy is growing at its slowest pace since 1990; Obama has just lost control of the US Senate and is staring lame duck status in the face; tensions over Ukraine made it unclear whose hand Putin would be willing to shake; and half a dozen APEC members are at loggerheads over inconsequential rocks in the south China Sea. Fair to say that APEC’s leaders have never previously met against such a conflicted backdrop.

China’s achievement was not just in the Herculean efforts across Hebei to clear Beijing’s polluted skies, or the sumptuous hospitality (Maotai bottles were in full flow in banquets perhaps for the first time since Xi’s anti-corruption campaign began early in 2013).

While security hovered discretely on nearby street corners during the APEC meeting, China’s leadership without question injected huge energy into making the 2014 APEC year a memorable one – conscious of this year’s anniversaries to be celebrated: APEC’s own 25th anniversary, and the 20th anniversary of the now-iconic “Bogor Goals” which set the 21-economy region on a course towards “free and open trade and investment” by 2020.

China’s achievements both for the year and for the Beijing meeting in particular were substantial. On the diplomatic front, it was no small feat to choreograph Putin, Abe, Obama and Xi Jinping around each other for four full days. While the frisson is always going to be palpable, significant progress was made. Some was theatre and symbolism – like Xi and Abe meeting for the first time since Xi became President. There was clearly no love there, but a fragile foundation was laid be begin improving relations. Some leader exchanges were more substantial – like China’s gas deal with Putin. Russia has a high level of paranoia about letting significant Chinese investment loose in Siberia, potentially undermining Moscow’s control of its “Far East”.

Some was very pleasantly surprising – like Sino-American agreement on a new Information Technology Agreement (ITA) that will bring down tariffs on lots of electronic goods and components. This ITA deal has been blocked for more than two years over disagreements between China and the US, and the breakthrough was as welcome as it was surprising. The ITA breakthrough is doubly helpful, because China’s refusal to sign up to a new ITA has for the past year been cited by the US as a key reason why China should not be invited to join critically important services liberalization negotiations – called the TiSA – now in progress in Geneva. There are currently 23 economies, accounting for around 75% of global services trade, negotiating TiSA, and if the block on China were lifted, this would hugely augment the TiSA as a plurilateral deal with global force.

When China took over chairmanship of the Asia Pacific Economic Cooperation Grouping from Indonesia at the beginning of the year, it set an ambitious three-pronged agenda worthy of the landmark anniversaries being celebrated: regional economic integration; economic reform and innovative development; and building infrastructure and regional connectivity.
From the outset, the centerpiece of the first prong – regional economic integration – was in jeopardy. China decided it wanted its main deliverable to be an APEC commitment to a Free Trade Area for the Asia Pacific – FTAAP – that would by 2025 embody the iconic “Bogor Goals” of free and open trade and investment in the region. It was a brave thing to shoot for. The US and others negotiating the Trans-Pacific Partnership have been consistently adamant over the year that no regional initiative should be allowed to put the TPP in jeopardy. They have blocked and tackled from day one on the FTAAP plan. Beijing’s cold dry air has literally crackled with static electricity as China and the US have arm-wrestled over the FTAAP. So news that agreement has been forged in the Beijing meeting (lubricated, I think, by breakthrough on the ITA strongly advocated by the US) was significant: an impressive tribute to persistence and patience on both sides.

Even days before the leaders met, it wass unclear what would be agreed – but perhaps that is always so. US hopes that a TPP deal could be cut by the time of the APEC Party came to nothing, and this perhaps paved the way for the US to adopt a more pragmatic position on the FTAAP.

On the infrastructure front China will claim significant progress. At the APEC Finance Ministers’ meeting in Beijing two weeks ahead of the leaders meeting, they won regional agreement on a new Asian Infrastructure Investment Bank (AIIB) that will work alongside the World Bank and the Asian Development Bank to improve investment flows into critically needed regional infrastructure. Xi will now arrive in Myanmar for the ASEAN meetings able to commit to big infrastructure investments, backed by the AIIB.

Beijing will declare victory too on the connectivity agenda. A fascinating and ambitious new “Connectivity Framework” has been forged which will cluster much APEC work into three key areas – Physical connectivity; institutional connectivity; and people-to-people connectivity. It will be left to the Philippines as APEC Chair in 2015 to put flesh on the bones of this framework, but this looks like providing a genuinely interesting new approach to regional integration.

Beijing will also claim credit for significant progress by Finance Ministers on the post-2008 efforts to build deeper and more transparent capital markets in Asia based on insights learned in the 2008 crash.

There have been numerous other markers of progress over the course of the 80-odd days of meetings spanning 2014 that no outsider will notice or much care about, but which are significant nevertheless – making our supply chains more efficient; liberalizing our services economies; cooperating on development of the “blue economy” – shipping, fishing, seabed mining, coastal tourism and so on; running uncountable numbers of capacity building courses and best-practice learning workshops for officials to learn how to put these glamorous headline initiatives into practice.

As someone who spends almost three months a year in unglamorous APEC meetings in unglamorous cities across the region throughout the year, it is mildly irritating to be in Beijing and to recognize that for most people, the APEC party that has just come to an end, with its funny-dress photo-ops, will be regarded as the total sum of what APEC amounts to – an inconsequential talk-shop.

In truth, the real value of APEC sits elsewhere – in unsexy workshops where top officials learn from each other, and without the distraction of political theatre, help to train officials to implement the ambitious liberalization initiatives embodied in high-sounding “leaders’ declarations”. But this doesn’t make headlines. It does not get the pulse pumping in the way that putting Putin and Obama in the same room together does.

As Beijing’s Party comes to a close, attention now begins to turn to 2015, and an APEC year under Philippine leadership. Solid foundations have been laid by Beijing this year, and it is possible that Manila – with much more modest resources than China – will achieve more that we might expect from one of APEC’s less developed economies.

The Philippine “Motto” for the year ahead makes the direction of the year clear: “Forging Resilient, Inclusive Growth: A fair deal for all”. This is solidly the agenda of a developing, not a rich economy. For APEC, which from 2007 to 2012 was chaired by successive “developed” economies ranging from Australia and Singapore to Japan and the US, policy focus has now shifted to the concerns of our developing member economies. Starting from Indonesia’s leadership in 2013, chairmanship has passed to China and now the Philippines – and after the Philippines come Peru, Vietnam, Papua New Guinea and Chile. There will be added developing economy momentum during 2015 as ASEAN economies focus on completing their “ASEAN Economic Community” by the end of 2015.

So as China passes the baton forward, priorities for APEC in the next five years are clear: infrastructure-building, urbanization, SME development, labour mobility and human capacity building, and marine and oceans development. And of keen interest to Hong Kong, the development of services will attract increasing attention: APEC’s leaders have at long last begun to realise that almost all future jobs – and in particular the high-skill, high wage ones – will involve services. They have also begun to realise that even manufactured products can only be made competitively if the services costs embedded in them are cheaply and efficiently delivered.

But in the meanwhile, the current sequence of diplomatic party-going remains in full flow. Glowing with a sense that the 2014 APEC has been a job well done, with some significant gains having been made, Xi Jinping and his team can fly into Yangon with a spring in their step. And from there, the Australian government will be keen to dovetail the APEC achievements into their challenge of sealing good progress for G20. The past week has been a good week for international trade liberalization.


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