[SCMP Column] APEC's Day of Reckoning

January 07, 2017

As we begin a new APEC year under the chairmanship of Vietnam, with the region’s senior officials set to gather in Nha Trang in just a month’s time to frame the year’s agenda and priorities, I sense the 21-economy grouping will this year have its mettle tested more than ever before.

For almost 27 years, the Asia Pacific Economic Cooperation grouping (APEC) has made a huge contribution to lowering barriers to trade and investment across the Asia Pacific region. Its aspiration towards regional economic integration has been relentlessly pursued. For the first time in its lifetime, these core convictions are being tested.

Forged as the Uruguay Round of trade liberalization negotiations were successfully completed, and the General Agreement on Tariffs and Trade (GATT) blossomed to become the World Trade Organisation (WTO), APEC embodied the optimistic spirit of the moment. Its core commitments, formalized in Bogor in Indonesia, to the ultimate and beneficial goal of free and open trade and investment in the region by 2020, were unanimously endorsed, energetically pursued and have never been questioned – until now.

APEC members have pursued these goals confident that on balance trade openness and the globalization process linked with it is bringing huge benefits to our economies – strengthening growth, raising living standards, and creating millions of high-value-adding jobs. The success of this aspiration is in evidence across every economy in the region.

Whatever has happened in the US in the past two months, that confidence remains strong among the majority of members. Their challenge is to argue the case, and maintain liberalising momentum when the group’s single most significant – and previously its most stridently liberalizing – member seems set to “go rogue”.

Some may say it is premature to make such a gloomy presumption. Donald Trump has yet to be sworn in as President, and it may be unfair to make presumptions on the basis of a small number of ignoramus tweets. But presidential nominations speak louder than words, and as far as trade is concerned, alarm deepens by the day.

Wilbur Ross, in the most senior and traditionally protectionist role of Commerce Secretary, has spent his career rescuing and restructuring crippled and bankrupt US steel, coal and textile companies. He once complained to New York magazine that the US has spent too long “exporting its standard of living and importing its unemployment”. He is reputed to be smart, and may have bright ideas about breathing life into uncompetitive US companies, but for sure he is no friend of free trade.

Peter Navarro, a professor of economics and public policy at the Paul Merage School of Business, University of California, Irvine, is to head the newly formed National Trade Council. He is possibly best known as author of a book titled “Death by China: Confronting the Dragon – A Global Call to Action”. Say no more.

And finally Robert Lighthizer, nominated as the US Trade Representative, who as a lawyer with Skaddon Arps has spent his career pursuing anti-dumping actions (mainly against China) on behalf of the US steel industry. He appears to have done a very good job for his clients if the recent 200+% anti dumping duties imposed on certain Chinese steel exports are any measure. But one suspects that US companies that need to use steel have less cause for celebration. Quite how internationally competitive they are today must be open to question.

Add to this triumvirate Rex Tillerson, the 42-year Exxon veteran nominated as Secretary of State, and you have as unlikely a bunch of trade liberalisers as anyone has seen in the US in the past half century.

The first meeting of APEC trade negotiators in Nha Trang late in February is going to be fascinating to watch. I am reminded of an astonishing reversal that has occurred since 2012, when trade officials met in Kazan in the Islamic south of Russia. 

In the huge negotiating rooms, where APEC members are seated alphabetically, US officials almost always sit squarely opposite their Chinese counterparts. In Kazan, US officials were tabling numerous ambitious proposals, including for the first time on services trade liberalization.

It was bemusing to watch the pedestrian Chinese stone-walling. Mainland officials were all junior, with no power to make any proactive proposals, and had clearly been instructed to drop bricks in the way of simply every meaningful proposal. Effective and frustrating –especially for the liberalising Americans.
One suspects that in Nha Trang the tables will have been totally turned. By today, China’s officials have become enthusiastic liberalisers. So much so that over the past year or so, US officials have begun to drop bricks in the road – perhaps more than anything else because they can’t believe the change in China’s tone can possibly be sincere.

Imagine the US officials’ plight as they arrive in Nha Trang. The new Trump team will have been in office for just a month. Trade strategy will still be unclear. But all signals to negotiators will have been negative: kill the Trans-Pacific Partnership; prepare for sanctions targeted at China; block any initiative aimed at making it easier for US companies to invest in (and therefore divert jobs to) Asia’s economies.

Of course, the US officials at the table will do no such thing. They are likely to be junior. They are like to be wooden. They are likely to be armed with bricks to drop in the path of any fresh new initiative. Just like those wooden Chinese officials in Kazan.

At this early stage in the APEC calendar, it is impossible to be sanguine about what is likely to be achieved this year by APEC’s Vietnamese chair. And yet in a region where most governments – including the once-obstructionist China, Indonesia or Japan – have come firmly to believe that trade and investment liberalization is in our region’s economic interests, this is a critically important time to make the case for liberalization, and stronger regional integration. Stakes are high, and the antics of Trump’s neophyte warriors will be fascinating to watch.
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