The View

Apec summit spotlight likely to fall on competing American and Chinese trade liberalisation schemes

Service sector liberalisation – in particular in finance, information technology and logistics – is critical for competitiveness

PUBLISHED : Sunday, 15 November, 2015, 5:02pm
UPDATED : Tuesday, 17 November, 2015, 1:08pm

When leaders from the 21 Apec economies – ranging from America’s Barack Obama and China’s Xi Jinping to Peter O’Neill from Papua New Guinea and Michelle Bachelet from Chile – fly into Manila this week they will cause traffic jams in the sky around Manila airport that will without doubt be as bad as the traffic jams we have come to know and love on Manila’s cluttered streets.

To ease the congestion, and to put leaders at ease to discuss the region’s pressing issues, offices have been closed for the week across most of the city, dozens of major streets have been closed, and 20,000 police have been deployed to ensure security between the airport and the Makati business district. This is not a week for a quick business visit, or tourist getaway.

Apart from being the climax of Philippine President Benigno Aquino’s presidency of Apec, the meeting will provide opportunities for regional leaders to boast about the year’s achievements, and to set priorities for the year ahead.

For Obama, the main bragging rights will be over successful completion of the Trans-Pacific Partnership (TPP) trade deal – though I think he will come under a lot of pressure to provide assurances that Congress can be persuaded to ratify the deal before he steps down at the end of next year. Without ratification by the US government, the 6000–page trade deal will provide no more “high quality liberalisation” than the shredder it will be fed into.

Obama is also likely to call for any future trade liberalising deals to be built on the foundations of the TPP

Obama will also come under pressure to give support to the trade liberalising deal being prioritised by China – the Free Trade Area of the Asia Pacific (FTAAP). This is only in the nursery slopes of negotiation, with a “collective strategic study” due to be completed at the end of next year, and a tentative completion date of 2025. But this would be bigger and more “inclusive” (the Philippine Apec host’s word of the year) than the TPP, and more important, it would include China. The fact that China is excluded from the TPP raises many questions about the extent of its real-world relevance, since most of the region’s trade currently flows at some point through China, and since liberalisation in China is immensely more important for most businesses operating in the region than liberalisation in (say) Brunei or Chile.

For China’s part, Xi is likely to want to boast about the role of the Asian Infrastructure Investment Bank (AIIB) in tackling the region’s acute “infrastructure deficit”, and perhaps too about the significance for us all of the “One Belt, One Road” vision for regional economic integration.

ABAC, representing the Apec business community, will of course try to avoid being piggy in the middle of this Sino-US arm wrestling, but will almost certainly commend all initiatives that encourage liberalisation of trade and investment, and call for speedy ratification of the TPP.

Obama is also likely to call for any future trade liberalising deals to be built on the foundations of the TPP, and will almost certainly talk about a TPP-based framework for liberalising the rules for development of the region’s digital economy. Last week’s “Singles Day” in China, a US$14.3 billon one day orgy of e-commercial spending inspired by Alibaba’s Jack Ma Yun (up 60 per cent from last year), was a timely reminder of how important the digital economy is becoming. Differences of view across Apec over the future digital “architecture” are palpable, and it will be fascinating to watch reactions to the efforts by the United States to win Apec endorsement of the TPP rules for digital trade.

The Philippines, as Apec chair, will be pressing for endorsement of numerous initiatives on “inclusive business”, on giving small and medium-sized enterprises a leg up in particular on access to finance and access to international market opportunities, on the liberalisation of services sectors, and on improving the management of the movement of workers around the region.

For me, the most fascinating breakthrough here is the now-widespread recognition that service sector liberalisation – in particular in finance, information technology and logistics – is critical for competitiveness across all parts of our economies. Inefficient or expensive services destroy the competitiveness of manufacturers and service providers alike. Three years ago, there was an almost willful neglect of services in Apec liberalisation discussions. Practical agreements on the behind-the-border liberalisation or harmonisation of standards and regulations may still be a long way off, but it is encouraging to see the leaders and top officials recognise how important services liberalisation is for future competitiveness.

In deference to the fact that Peru will take over chairmanship of Apec next year, much attention is also likely to be given this week to the critical importance of strengthening links between Asia and the South American economies – in particular the four liberalising economies grouped in the recently formed Pacific Alliance – Mexico, Chile, Peru and Colombia.

The fact that Colombia is still outside Apec despite almost a decade of efforts to win membership is becoming more than a minor embarrassment. It would be timely for Peru as incoming Apec chair, and the Pacific Alliance members, to call for Colombia to be invited into Apec. There have been no new members since Russia and Peru joined in 1998, even though the formal “moratorium” on new membership expired around 2010. There are supposed to be 17 economies currently asking to be invited to join Apec, each with differing credibility. The claims of India, of Mongolia, and of the Central Asian “stans” may be hard to justify at present, but this is not so for Costa Rica (which is a strong liberaliser with a Pacific coastline and a natural claim to membership), nor for Laos, Cambodia and Myanmar (after last week’s peaceful electoral landslide in support of Aung San Suu Kyi, any case for keeping Myanmar out has evaporated). For Apec to include just seven of Asean’s 10 members seems unhelpful and impractical today.

Will there be announcements about new Apec members this week? I doubt it. But I hope discussions take place, and maybe there could be progress on this under Peru’s chairmanship. But this is to jump the gun. This week is the Philippines’ party, and should be celebrated as such.