Global Trade System in Crisis: A Failure to Think of Treatment Options

Global Trade System in Crisis:  A Failure to Think of Treatment Options

But slow stagnation does not automatically mean crisis.  The current state of calamity in trade comes from the new approaches taken by the largest players in the system. This is not a post to discuss the diagnosis of the problem.  It is, instead, to discuss the difficulties in treating the patient.  What has been especially striking over the past few weeks has been the inability of many trade policy experts to conceptualize treatment options that go beyond simple remedies.  If, indeed, the patient is on life-support or headed for the ICU, it may be necessary to think of unusual options. Yet different forums that ought to be perfectly positioned to do so seem to be caught.  Perhaps they do not want to acknowledge the severity of the illness, do not want to admit that the diagnosis goes beyond conventional treatments, do not want to handle the intervention of others in handling the patient treatment, or do not want to think about more depressing trade news.

Minister Lim: The Importance of Globalisation and Inclusive Growth

Indeed, globalisation is not a panacea for all economic woes nor does it come without costs. While globalisation has lifted hundreds of millions of people out of poverty, and brought immense benefits to consumers, we have to acknowledge the growing discontent. Benefits from globalisation have not been distributed evenly. We also have to recognize the impact of disruptive technologies, which can result in skills becoming obsolete and being displaced.  However, we should not make globalization the scapegoat for slowing growth and unemployment. Closing borders and turning inward is not the answer. Economies are so interdependent nowadays that it would be very difficult to disconnect from the global value-chain. If we do so, our businesses and communities will lose out. Markets will shrink, fewer jobs will be created and consumers will have to bear higher costs and will have fewer choices. We should avoid actions which will only hurt ourselves and lead to retaliatory measures, undoing the good progress that we have achieved so far.

Trump Fallout Reaches Peru—The Future Direction of APEC?

The study will say that FTAAP is an excellent idea that APEC should pursue. The original plan—certainly by the Americans—was to say that the study was nice, but since both pathways were currently in progress and moving ahead nicely, there was no need to push forward with FTAAP at this point.  After all, TPP was finished but in the domestic ratification stage and RCEP remains under negotiation.  Why jump to the next phase while the building blocks are still being built? Now the situation has changed. Trump will not even be present, yet his shadow will loom large because his election has called into question the viability of the TPP pathway to FTAAP.  If the TPP is not going to happen, then RCEP becomes the default path to FTAAP.  

Fantasizing about a Free Trade Area of the Asia-Pacific (FTAAP)

The diplomatic calendar in Asia gets extremely busy in November.  Over the years, officials have expanded the number of meetings attached to the Leader’s Meeting of APEC.

Last week in Manila, the leaders of APEC economies gathered and wore fancy hand embroidered shirts for this year’s “family photo.” In addition to the various meetings for APEC itself, some of the leaders also met on the sidelines for a review of the Trans-Pacific Partnership (TPP) and the Pacific Alliance (PA).  In between, many of the leaders also held bilateral meetings.  Finally, officials met in Kuala Lumpur over the weekend in a host of meetings associated with ASEAN including the East Asia Summit (EAS). 

These meetings addressed more than just economics.  But in trade, three things stood out.  As APEC chair, the Philippines consistently promoted small and medium enterprises (SME) across the overall agenda.  Small companies form the backbone of most APEC economies and a year of focus on their needs was helpful.  Second, ASEAN leaders celebrated the forthcoming launch of the ASEAN Economic Community (AEC) at the end of the year.  Finally, the APEC Leader’s Declaration highlighted the importance of achieving broad goals of free and open trade and investment.

This commitment reiterates past statements by APEC about the importance of the eventual Free Trade Area of the Asia Pacific (FTAAP).  APEC was launched in 1989 as a non-binding, advisory trade body that currently includes 21 member economies.  Economic benefits from sustained, regional trade liberalization would be enormous.  Member economies now account for 40 percent of the world’s population, 55 percent of the world GDP and 44 percent of world trade.

Starting in 2010, leaders agreed that the plans to get to an FTAAP could take different formats.  APEC would provide “leadership and intellectual input into the process of its development, and [play] a critical role in defining, shaping and addressing the ‘next generation’ trade and investment issues that an FTAAP should contain.”  In 2014, China pushed for a comprehensive study on how a 21 member economy agreement might take place.

Officially, leaders have endorsed several pathways to reach FTAAP.  APEC currently has no ability to negotiate directly, so the institution requires an outside mechanism to reach a deal.  Two of the officially sanctioned pathways to reach the FTAAP are now in play:  the 12 party Trans-Pacific Partnership (TPP) and the 16 party Regional Comprehensive Economic Partnership (RCEP). 

The hope of FTAAP backers has always been to allow both tracks to merge in the end to create an APEC-wide package of commitments.  In general, these hopes are likely to be dashed for several reasons.

Economies that have negotiated a “high quality” agreement in the TPP will prefer everyone to simply sign on.  From the earliest days of the TPP, membership has been opened to all APEC economies.  Not all have chosen to join and many of the remaining APEC economies are not eager to sign onto TPP-level commitments, including opening nearly all goods--and particularly agricultural trade--at (mostly) zero tariffs, new and expanded openings in services and investment markets, new rules on intellectual property protections, opening of government procurement markets, signing up for labor and environmental protection provisions in a trade agreement, and so forth. 

If economies outside the TPP are reluctant to step up to this deal, perhaps RCEP could serve as a better vehicle for moving ahead with trade liberalization inside APEC.  It is not clear how ambitious RCEP might become, but early signs suggest a significant gap in enthusiasm for market opening between the two deals.  For example, on goods trade alone, RCEP may see a “tiered” approach with different percentages of commitments forthcoming from some members to other members.  Services and investment provisions will likely have less opening and fewer protections.  While the negotiating agenda is expanding in RCEP it is unlikely to be as deep or broad. 

Hence, allowing RCEP to become a defacto platform for FTAAP would also require TPP member countries that are outside RCEP (including all of the Americas) to agree to fewer protections and less market opening.  The practical consequences of doing so would be modest, as most firms would likely opt to use the broader, more comprehensive TPP provisions if at all possible, rather than the shallower commitments in RCEP/FTAAP.

Merger of TPP/RCEP also contains some additional problems.  Not all APEC members are included in either agreement.  Four are currently left out of both: Hong Kong, Papua New Guinea, Russia, and Chinese Taipei. 

While some theoretical literature speaks eloquently about “multilateralizing regionalism,” in practice, this is devilishly difficult to do.  RCEP itself can be seen as an attempt to follow exactly this prescription—folding five different ASEAN +1 agreements (with China, South Korea, Japan, India, Australia and New Zealand) into one.  But officials have struggled to even exchange market access offers for one another in goods, despite two years and 10 rounds.  What countries offer to one partner may, or may not, be something they are ready and willing to offer to another. 

Converting RCEP into an FTAAP could contain similar challenges.  The nine excluded partners from RCEP (Canada, Chile, Hong Kong, Mexico, Papua New Guinea, Peru, Russia, Chinese Taipei, and the United States) might have dramatically different ideas about what should/should not be folded into FTAAP.  In addition, whatever commitments RCEP members have made to one another might be altered with the addition of new participants, as RCEP members could be quite uncomfortable making the same offers to a new grouping.

RCEP also contains non-APEC economies (Cambodia, India, Laos and Myanmar). Converting the agreement into FTAAP may mean bringing non-members into APEC or somehow cutting these participants out of the future, larger agreement.  Either option could prove tricky in practice.

In short, it is unlikely that a satisfactory FTAAP agreement can be created by merging RCEP with TPP or by morphing one or the other into a new agreement in the future.  Hence, if APEC wants to create an FTAAP that contains all members or gives all 21 member economies the option of joining, it should start from the beginning with all 21 members. 

***Talking Trade is a blog post written by Dr. Deborah Elms, Executive Director, Asian Trade Centre, Singapore***

When Business Sits at the Table in APEC

Boracay, Philippines—One complaint frequently expressed by business is that governments keep making trade policy decisions without sufficient input from companies.  Government officials often remark that businesses are not providing sufficient feedback into the policy process.

Asia Pacific Economic Cooperation (APEC) is supposed to help sort out these issues by deliberately providing seats at the table for both business and government.  APEC does this in multiple ways.  Two prominent examples are the use of the APEC Business Advisory Council (ABAC) and providing opportunities for companies to participate in the myriad meetings and sideline events attached to different APEC officials meetings.

ABAC meets four times per year in shifting locations around the world and provides its’ own recommendations to the leaders of the 21 APEC member economies at the end of each year.  APEC officials gather in the host country for three rounds of senior officials meetings, plus the final jamboree of leaders and trade ministers towards the end of the year. 

I have now attended several different meetings of these sorts and I can clearly see the difficulties that both sides have in communicating with one another.  I believe I have gone to enough events and spoken to sufficient numbers of people about their own experiences to draw some preliminary conclusions about the process, but not so many that I have become an insider.  

APEC is an extraordinarily complex animal.  There is not, as far as I know, an organizational chart that maps out the various working groups, committees, consultative mechanisms, and projects that are underway at any given time.  If there were such a chart, it would be so jammed up with lines and boxes that it may not make sense. 

The institution comes with its own jargon.  This is a terribly complex mix of trade terms, language drawn from business, and a set of acronyms that would make any military proud.  It can be so complicated that even long-time participants in the system cannot recall the meaning of all the abbreviations without looking them up.

Of course, lots of different organizations use specific jargon.  Yet the closest equivalent body I can think of—the World Trade Organization (WTO)—doesn’t seem to have quite the same level of jargon plus acronyms plus often detailed technical content under discussion.  I sometimes found the WTO to be impenetrable, until I sat in on these APEC meetings.  Now I feel particular fondness for conversations in Geneva at the WTO.

If I am struggling with managing the information and APEC-speak, I can only guess at the challenges that face the business leader that pitches up an APEC meeting.  With no one to put things into context and what appears to be an inability to translate some of the worst acronyms into normal language, I suspect that many extremely capable business leaders are mostly lost.  Everything is in English, which does not help.  Even most of the slides that were presented at the events I attended were not helpful—too small to read, whipping by at too fast a speed to comprehend, and without hard copies (or downloadable files) always available. 

The next set of barriers to communication could be put down to meeting formats.  Business leaders expect (or at least hope to achieve) clear and crisp meetings with specific action items identified.  This format does not exactly appear compatible with APEC (or maybe government meetings in general?).  In any case, the objectives of meetings are not always clear.  The deliverables may not be spelled out.  Or, they might be obvious to someone who has attended multiple meetings and understands the unspoken subtext of the meeting.  But I could certainly imagine frustration by some businesses about the loss of a whole day or more in a meandering, apparently pointless set of meetings.

One mechanism for including business has been to invite business leaders to serve as speakers.  This approach also has drawbacks.  Absent clear instructions about what is supposed to be accomplished by the speaker, many firms show up and basically give a short infomercial about their company.  (Before I upset anyone, I should note that this complaint was made frequently about presenters at meetings I did not attend.) 

If feedback is needed on policy documents, the materials have to be circulated sufficiently far in advance.  Then some guidance should be given to help businesses understand the context for the materials as well as specific areas of focus.  An open ended, “Please give us your feedback” is probably not going to solicit helpful remarks.  Asking for reactions to technical briefings from the business community on the spot are also not likely to yield much in the way of truly useful comment.  Firms can provide ample input, but need time and structure to do so effectively.

Public-private partnership models of all sorts seem to be currently in vogue.  However, businesses seem extremely unclear about what sorts of inputs they are expected to provide to these projects and meetings.  Without meaningful solicitation of ideas and a format or structure that aligns with their company interests, firms will simply stop attending.

Attendance problems are compounded when APEC meetings are held in locations that are not easy to reach.  For SOMII (the second Senior Officials Meeting of the year), the Philippine hosts selected Boracay as the venue.  Boracay is a challenge to reach.  Most participants flew into Manila and then changed planes.  The island of Boracay is serviced by two different airports.  One is 2 hours away from the ferry terminal by car.  The other airport is closer, but in both cases, participants had to be loaded onto boats for the short crossing to the island.   From there, participants were sorted into vans.  While Boracay has lots of hotels, none are big enough to host the number of delegates needed.  Participants have been spread across the whole of the island in a variety of venues.  All need to be shuttled between hotels all day long.

Thus a business leader that wanted to attend one meeting would have to give up at least 3 days to do so.  For that kind of commitment, business expects to at least get some clear outcome and see progress being made.  This is, as even many APEC groupies admit, not always obvious.

Smaller companies are unable to attend at all.  Between the time commitment and the costs of getting to places like Boracay, small firms simply give the whole process a miss.   The only way to encourage small and medium sized (SME) firms to participate is to hold carefully structured meetings (with no jargon or APEC-speak allowed) in locations like capital cities where SMEs congregate. 

Getting businesses to sit at the table may not be so difficult.  Firms understand the potential power of APEC to shape the economic environment in a key part of the world.  They want to be engaged.  They are often eager to attend.  The real challenge is getting business leaders to attend more than once.  For meaningful engagement between government and business, APEC has to keep people coming and provide them with all with clear, helpful and constructive roles to play. 

*** Two other points worth noting here related to trade:

The Senate last week voted to start the debate about Trade Promotion Authority (TPA).  This was not, as some people thought, the same thing as approving TPA.  The fight in DC has been over which amendments to the TPA bill will be allowed before the final vote.  Of critical importance is limiting the number of amendments, since the Senate bill was written to match similar legislation in the House of Representatives.  If there are differences between the two bills, these have to be reconciled. 

Again, if the fight were merely about TPA, timing would not matter so much.  But negotiators are sitting in Guam right now trying to iron out the remaining differences in the Trans-Pacific Partnership (TPP) negotiations.  Trade ministers are planning to leave Boracay and join them next week.  Absent TPA, it may prove to be a long, tiring trip for little purpose since most are not willing to put final offers on the table unless and until the Americans are ready.

Second, I am going to add a shameless plug for our work in the Asian Trade Centre.  We have been asked to help demonstrate that businesses and other stakeholders have an interest in greater participation in the parallel trade negotiations in Asia, the Regional Comprehensive Economic Partnership (RCEP).  We are still coordinating our plans, but if there are stakeholders out there that are interested in at seat at the table (or standing in the room) in RCEP, it would be great if you could contact me (elms@asiantradecentre.org).  Thanks!

***Talking Trade is a blog post written by Deborah Elms, Executive Director, Asian Trade Centre, Singapore***