Asia-Pacific economies need to identify a new paradigm for post-crisis growth and Japan, as the chair of APEC this year, is required to set a new direction for the regional economic forum under the changing global circumstances, officials and experts said at a recent symposium in Tokyo.
Japan should also establish a clear policy on free trade agreements with its key trading partners, including the sensitive agriculture sector, so that it can lead — and not be left behind in — the regional efforts on free trade, they said.
The officials and experts were speaking at a symposium organized Sept. 27 by the Japan Business Federation (Nippon Keidanren) and the Keizai Koho Center under the theme, “Development of the Asia-Pacific Region and the Future of APEC.” The event was held as Japan hosts a series of Asia-Pacific Economic Cooperation forum meetings, including ministerial conferences held since February and the annual APEC summit from Nov. 13 to 14 in Yokohama.
Established in 1989 as a forum for promoting regional economic cooperation and free trade, APEC has expanded over the years and today encompasses 21 member economies, which together account for 40 percent of the global population, 43 percent of world trade and 53 percent of the world’s gross domestic product, said APEC Executive Director Muhamad Noor.
APEC economies, Noor noted, “have become the world’s growth center by promoting free and open trade and investments, and strengthening regional economic integration.”
Per capita GDP in the Asia-Pacific region increased 47 percent from 1989 to 2008 — much faster than the 33 percent increase worldwide over the same period, Noor said. “There was also a sixfold increase in APEC members’ total trade in the world. . . . Average tariffs in the APEC region have been reduced from 17 percent in 1989 to about 6.6 percent in 2008,” said the head of the APEC secretariat.
The 2008 financial crisis and the subsequent global recessions shifted the focus of global growth to the fast-growing Asian economies as prospects remain shaky for most industrialized economies.
“APEC needs a new growth paradigm to cope with the changing post-crisis global economic landscape,” Noor said. APEC members this year started crafting a new growth strategy “that takes into account current challenges such as environmental imperatives and disparities” in economic development among its members, he added. The key elements of the planned new strategy, Noor said, will be balanced, inclusive, sustainable, innovative and secure growth.
Since Asia is widely seen as the new economic powerhouse to drive global growth, “APEC has the responsibility to identify the new growth paradigm that is sustainable and ensures long-term, high-quality growth,” Noor said.
While APEC has mainly focused on a trade and investment agenda since its creation 21 years ago, it must now “set examples in dealing with new challenges,” such as energy security and environmental sustainability, he said. And it is Japan’s role as the host nation this year “to set directions for APEC,” he added.
“The increasing economic, strategic and political weight of the Asia-Pacific region” present “not only opportunities but challenges for APEC itself,” said Murray McLean, Australia’s ambassador to Japan. “APEC must adapt to reflect” the changes that have taken place in the region “to remain a relevant and influential body into the future,” he said.
In 1994, APEC leaders meeting in Bogor, Indonesia, agreed on a set of goals to achieve free and open trade among industrialized member economies by 2010 and among developing member economies by 2020. The Bogor Goals deadline has arrived for the developed APEC members.
APEC’s industrialized economies have “made substantial progress toward the Bogor commitments, with some remaining work to be done in selected sectors like agriculture, services and investments,” the ambassador said.
Still, future growth and closer economic integration in the Asia-Pacific region “will require APEC economies to go beyond” their focus on traditional trade and investment barriers such as import tariffs and take action on “behind-the-border barriers,” including domestic reforms by each member, he said.
This will include strengthened trade facilitation efforts and stronger investment linkages, “which have the potential to deliver greater economic gains than further efforts on border liberalization alone can achieve,” McLean said.
APEC economies must establish a new vision “that includes a long-term commitment to undertake national structural reforms” to help companies and people “take advantage of the opportunities that open markets offer,” the diplomat said.
A long-term vision with domestic structural reforms as its central tenet “will see deepening trade and investment reforms combined with effective domestic policies and structural reforms to drive regional prosperity,” McLean said.
That should help create the conditions for greater integration among APEC economies, including the creation of a seamless regional supply chain across manufacturing and services, and a more coordinated and transparent regulatory environment, he said.
“And over the long term, this could mean the development of a single regional market including a possible free trade area in the Asia-Pacific,” he added.
Yorizumi Watanabe, a professor in Keio University’s Faculty of Policy Management, said APEC, as a forum to promote concerted efforts for trade liberalization by member economies, has indeed contributed to more free and open trave and investment in the region. However, he said it also must be noted that such progress has been backed by the legally binding agreements achieved under the last Uruguay Round of the General Agreement on Tariffs and Trade – the predecessor of today’s World Trade Organization.
One major significance of APEC, he said, is that it serves as a bridge between two of the world’s three mega-economic regions — countries under the North American Free Trade Agreement and East Asia. Such a forum of cooperation between the two regions contributes to greater stability in the world economy, he noted.
Today, there are several parallel paradigms of economic integration in the Asia-Pacific region, such as ASEAN plus Three (the Association of Southeast Asian Nations and Japan, China and South Korea), ASEAN plus Six (incorporating India, Australia and New Zealand) and the U.S.-proposed Free Trade Area of the Asia-Pacific, which would encompass all APEC members, he said.
In addition to these frameworks, the Trans-Pacific Partnership — a regional trading group created from a free trade agreement originally launched in 2005 among Singapore, Brunei, Chile and New Zealand, and in which several other countries, including the United States and Australia, are negotiating to join — is gaining importance as a “high-quality” free trade arrangement that could potentially constitute a critical mass in the region, Watanabe said.
Japan, he suggested, should join this partnership before too many countries take part in the agreement. However, hurdles for participation are high because its current and prospective members are committed to high levels of trade liberalization, he said. TPP in principle requires its member states to eliminate all tariffs.
So far, Japan has concluded economic partnership agreements with 10 countries and one with ASEAN, and is negotiating with five others — South Korea, India, Australia, the Gulf Cooperation Council and Peru — with the EPA talks with India nearly concluded. The agreements that Japan has concluded with these countries go beyond liberalization of goods and services and cover mechanisms for settling disputes involving foreign investments, Watanabe said.
However, Japan has not yet concluded such agreements with any of its major trading partners, mainly because such countries are big agriculture exporters and Japan remains reluctant to liberalize its farm sectors, he pointed out. About 35 percent of Australia’s exports to Japan are farm products, he added.
“If Japan can overcome this challenge and conclude FTAs with major economies, that could provide a model for a future APEC-wide liberalization of trade and investment,” Watanabe said.
He called the free trade agreements that Japan has already concluded as “first-generation” FTAs. Japan needs to consider bilateral FTAs with major powers that could potentially lead to regionwide FTAs — such as those with Australia, the United States, the European Union and China, he said.
“Japan needs to establish a clear policy on what it plans to do about these second-generation FTA/EPAs. Otherwise, any plans for broader, regional FTAs such as an APEC—wide agreement would only be a pie in the sky,” he said.
Watanabe said one of the key challenges for APEC will be resolving the remaining disparities among its members, to make sure that benefits of growth will be shared by as many economies as possible.
A 2009 World Bank index that ranks countries in terms of the “ease of doing business” shows Singapore and New Zealand — both APEC members — as the top two countries. But the index also points to substantial gaps among APEC economies, with some members lagging behind others in business environment as gauged by difficulties involved in starting up businesses, construction permits, employment practices and property registration, Watanabe said.
One of the key principles in the planned new APEC growth strategy — the “inclusive growth” — can be rephrased as “growth for all,” Watanabe said. “Resources tend to concentrate on certain key sectors such as the auto industry and IT (information technology) sector, and it becomes difficult for everybody in APEC economies to share the benefits. How the region’s growth can be shared by a wider spectrum of people through different layers of society will be a key,” he said.
It must also be noted that the FTAAP is described as a free trade “area” rather than an “agreement,” Watanabe said. The term “area” means that it is not yet considered as something legally binding as defined by the WTO, Watanabe said.
“The question is how APEC members promote ‘irreversible’ trade liberalization as they push for an APEC—wide free trade area — or how to realize tariff cuts and harmonization of standards and rules, which require binding powers, under the ‘nonbinding’ process of APEC,” he said.
Yoshihiro Watanabe, a member of the APEC Business Advisory Council, said that APEC, despite the nonbinding nature of its procedures, can play the role of an incubator of ambitious targets such as the FTAAP by setting common goals that may be difficult to achieve today but all participants will try to reach in the future.
The business community is urging APEC leaders to include the creation of the FTAAP as a core part of the APEC vision beyond 2010, in the belief that the FTAAP plan can guide trade and investment liberalization in the Asia-Pacific region since the Doha Round talks under WTO auspices remain stalled, said Yoshihiro Watanabe, who is also an adviser to the Bank of Tokyo-Mitsubishi UFJ.
Bruce Ellsworth, a governor of the American Chamber of Commerce in Japan and co-chair of ACCJ’s APEC Task Force, said that one of the problems with APEC is that its activities have often lacked continuity because some of its agenda and priorities change as host nations change every year.
In that sense, Japan hosting the meetings this year and the United States taking over as chair for 2011 provides a good opportunity for continuity, Ellsworth said. If the two countries can work together to set a common set of targets on priority areas for the 2010-2011 period and keep up the efforts until the goals are reached, then there is a strong chance that APEC can achieve concrete results, he said.