Pacific Currents

Jusuf Wanandi
Vice Chair, Board of Trustees, CSIS Foundation and
Former Co-Chair of PECC

The year had just begun when news of the coronavirus outbreak shook the world. The World Health Organization declared it a pandemic when the new virus, which causes the disease COVID-19, crossed international borders and spread rapidly into many countries of different continents.

Over two months later, another bombshell hit the already shaken world: a drastic drop in oil prices as a result of strong disagreements between Saudi Arabia and Russia.

Judit Fabian
Visiting Researcher, Graduate School of Public and International Affairs, University of Ottawa

International trade is often framed in starkly divergent terms: either economies choose multilateral trade agreements (MTAs) and advance the cause of global economic liberalization, or they choose preferential trade agreements (PTAs) and put the entire system at risk. Canada has a long track record of pursuing PTAs and with the Trump administration’s opposition to multilateralism, and longstanding opposition in elements of the Republican and Democratic parties, this trend will likely continue. The question is whether progress will come at the expense of the global trade system.

Some economists believe PTAs to be trade-diverting, reducing trade with more efficient producers outside the agreement. Others insist that PTAs can create trade by shifting production to lower-cost producers in one of the participating economies. One prominent contrary argument holds that PTAs lead to discontinuities in tariff regimes between economies and regions, increasing transaction costs, disrupting supply chains, creating opportunities for corruption and harming global welfare, especially in developing economies.

Christopher Findlay 
Vice-Chair, Australian National Committee for Pacific Economic Cooperation and
Honorary Professor, Crawford School of Public Policy, Australian National University
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Background & Objectives

PECC is a unique not-for-profit multi-stakeholder partnership of thought-leaders from business, industry, government, academia, and civil society from 24 economies.

PECC’s origins can be traced to a seminar in Canberra in 1980 co-hosted by Australia & Japan. PECC emerged as a trusted, independent & a-political source of expert advice & support for Pacific Rim Nations seeking to accelerate economic growth by greater integration into a Rules-based Global trading system.  In addition to funding & disseminating independent research, the PECC and APEC secretariats are co-located in Singapore & maintain close links, while PECC works closely with APEC leaders.

Brian Lynch*
Chair, New Zealand Institute of International Affairs, Wellington Branch;
Chair, New Zealand Committee of PECC; 
Former alternate New Zealand member of the APEC Business Council.

The swirls and eddies currently sweeping across the Asia–Pacific region's geopolitical and economic landscape do not offer a promising setting for the review of any regional agency, even one as long-established, and soon to enter its fourth decade, as the institution known as 'Asia–Pacific Economic Cooperation'. APEC has recently been described as the 'premier economic forum'¹ for promoting regional growth and integration and 'a global leader in addressing pressing problems'. The 21 APEC member economies, including New Zealand, are home to 40 per cent of the world's population and account for around 60 per cent of global production.

Seemingly undeterred by the regional volatility, APEC leaders have launched a major project to chart APEC's forward path and identify its place in regional economic architecture beyond 2020. The 30th anniversary will be a significant one for APEC; 2020 will be notable, too, because it was the target date which APEC set, in 1994 in the 'Bogor Goals', for full realisation throughout the region of the vision of 'free and open trade and investment'.

John West
Adjunct Professor
Sophia University, Tokyo

In my recent book on the Asian Century, I argue that Asia is sitting on a knife edge. The potential of the region to generate good and happy lives for its citizens is enormous. But the requirements of success and the risks of failure are equally enormous.

Asia's stunted economic and social development

It is true of course that most Asian economies have achieved stunning development over the past decades. But despite the region's rapid rise, Asia is suffering from stunted economic development. No major Asian economy has caught up with global leaders like the US and Germany in terms of GDP per capita and living standards, and there is little likelihood of such catch-up occurring over the foreseeable future.

It is also true that China, India and Indonesia are becoming major economic and political powers. But their huge economic weight is due to their large populations, more than their levels of economic, business and technological sophistication which remain modest overall.

Hugh Stephens
Distinguished Fellow, Asia Pacific Foundation of Canada
Vice-Chair of the Canadian National Committee for Pacific Economic Cooperation (CANCPEC)

Back in October of 2016 when the Canada-EU Comprehensive Economic and Trade Agreement, (CETA) was on the cusp of closure, the negotiations hit a roadblock when the Belgian region of Wallonia blocked the necessary consensus for the EU to conclude with Canada. Chrystia Freeland, who was then the minister of international trade, walked out of the negotiations in Brussels and packed her bags to return to Canada. She lamented that “… it is now evident to me, evident to Canada, that the European Union is incapable of reaching an agreement – even with a country with European values such as Canada, even with a country as nice and as patient as Canada.” A core element of her argument was that Canada and Europe shared common values, and therefore the path to an agreement should have been open. As we know, a compromise satisfied Wallonia’s concerns, mainly regarding the so-called investor-state dispute settlement process which allows foreign invested companies to sue governments for alleged discriminatory practices that negatively impact their investments. Canada and the EU went on to sign the agreement, most of whose provisions came into effect on Sept. 21, 2017. The government of Canada has cranked up its communications machine and is touting CETA as “a progressive trade agreement for a strong middle class”.

Hugh Stephens
Distinguished Fellow, Asia Pacific Foundation of Canada
Vice-Chair of the Canadian National Committe for Pacific Economic Cooperation (CANCPEC)

Canada-Japan relations are at a low ebb politically and need to be rescued by urgent and decisive action.

One of our largest trading relationships has been put at risk by the perceived snub offered to Japanese Prime Minister Shinzo Abe in Vietnam in November when Prime Minister Justin Trudeau missed a scheduled press conference intended to announce that Canada, Japan and nine other Trans-Pacific Partnership countries had reached agreement in principle on a revised trade pact. Worse still, it was Canada’s last-minute case of cold feet that almost sank the agreement.

It is time for a reset to restore this important bilateral relationship. The best way to do this is to double down now to resolve the outstanding differences between Japan and Canada that are hindering conclusion of what has been relabelled the Comprehensive and Progressive Trans-Pacific Partnership.

Hugh Stephens
Distinguished fellow, Asia Pacific Foundation of Canada
Vice-Chair of the Canadian National Committee for Pacific Economic Cooperation (CANCPEC)

It hasn’t been a good few weeks for the Trudeau government’s “progressive” trade agenda.

First, the unwillingness of some countries to swallow elements of the progressive agenda was at least partially responsible for the sudden postponement of an announcement around the Trans-Pacific Partnership (TPP) last month in Vietnam. The announcement was expected to confirm that the 11 TPP economies had reached an agreement in principle to conclude the pact.

Then an expected agreement on the start of free trade talks with China did not materialize during Justin Trudeau’s Beijing visit earlier this week, blocked by Chinese objections to including “progressive elements,” such as labour and gender rights, in the negotiations.

In both cases, talks have not been completely derailed, but it is fair to say the outcome is not what was expected. And in both instances this progressive agenda has been fingered as a principal cause.

Given the fact that progressive trade is proving controversial, it is worth examining what the concept actually means. It has become the term of choice for the Trudeau government, a branding exercise that seeks to distinguish the Liberals from the Harper government. The thinking then goes, if the TPP — negotiated by the Conservatives — was unpopular with some elements of Canadian society, why not change the dial, add some “progressive” elements and even modify the name? Thus the new version of the TPP (with its 11 economy members, down from 12 since the United States backed out) is now the “Comprehensive and Progressive Trans-Pacific Partnership.”

Mark Millar 
(Author of Global Supply Chain Ecosystems and Visiting Lecturer at Hong Kong Polytechnic University)

During the 1990s and 2000s, international trade experienced a substantial boost from mass globalisation, resulting in a huge increase in the volume of inter-continental freight flows and yielding a bonanza for logistics service providers and freight forwarders around the world.

This globalisation frenzy was fuelled by an unprecedented combination of three key drivers in the pursuit of lowest-cost manufacturing – the out-sourcing of business activities to third parties, the off-shoring of production to low-cost countries and the un-bundling of vertically integrated manufacturing clusters into dispersed specialist activities.

Peter A. Petri (PIIE), Michael G. Plummer (Johns Hopkins University and East-West Center), Shujiro Urata (Waseda University) and Fan Zhai (Former Managing Director, China Investment Corporation)

The withdrawal of the United States from the Trans-Pacific Partnership (TPP) in early 2017 led the remaining 11 countries in that trade and investment agreement to explore alternative ways to sustain economic integration in the Asia-Pacific region. This Working Paper shows that, without the United States, these 11 countries can achieve significant gains from high-quality, TPP-like agreements among themselves, and from what might have to be a less rigorous but wider agreement in a separate, 16-member Asian trade negotiation, the Regional Comprehensive Economic Partnership (RCEP). Either of these multilateral options would yield benefits greater than those that would flow from bilateral agreements between individual countries and the United States alone, and gains from such accords could grow over time. For example, expanding the TPP without the United States to five other Asia-Pacific economies, all of which have expressed interest in the TPP in the past, would yield global income gains that rival those expected from the original TPP that included the United States, and the gains are even larger for some members. The United States, meanwhile, would suffer losses from such arrangements in two ways: first, because it would forego the benefits that would otherwise accrue from the relatively large TPP agreement, and second, because the new Asia-Pacific agreements would reduce US exports to the region as countries shift their trade to competitors of the United States. In the longer run, a new Asia-Pacific agreement or agreements would keep trade liberalization on the global agenda and likely attract further interest from large partners, including Europe. Eventually, the United States might observe that it is losing out and change its mind about joining these larger trade blocs. [Abstract from Peterson Institute for International Economics]

Download full report from PIIE website.

Sherry M. Stephenson
Senior Fellow
International Centre for Trade and Sustainable Development

Services have enabled manufacturing in the U.S. to become more efficient and competitive

Services have enabled manufacturers to take advantage of cutting edge technologies and become more productive. Services have also enabled manufacturers to grow the value of their operations from the initial stage of designing their products to the final stage of getting their products to their customers. Manufacturing has become a complex mix of many types of services, automation, and computer-driven production, with a large and growing share of value derived from the services components.

Consumer and capital goods increasingly embody a greater percentage of services. Manufacturing companies have increased their reliance on services for their inputs, and services constitute a significant portion of their outputs and revenue. Rather than thinking of manufacturing and services as separate economic activities in today’s economy, it is much more realistic and essential to think of them as having become inextricably intertwined. Manufacturing companies are now great users, producers and traders of services. It is in fact efficient services that make U.S. manufacturing more productive and give it a competitive edge in global markets. A new term, “servicification,” has been coined to describe the increasing use of services by manufacturing firms in their purchases and production, as well as their exports, pointing to the integrated role that services play in every step of the process (Swedish National Board of Trade). This is part of an overall global trend as noted in a recent OECD study on services and manufacturing which found that in the digital age, “services are part of a ‘business ecosystem’ where collaboration with customers, partners and contractors is the key to innovation and productivity.” (OECD 2017 study)

Pamela Mar
Director of Sustainability
Fung Academy/ Fung Group

Insights: In Conversation With

Pamela Mar looks at how Asia's manufacturers can survive, and prosper, amidst changing markets and technological disruption.

Writer’s Note:

APEC officials were in Vietnam for the 2nd Senior Officials Meeting in preparation for the APEC Leaders’ summit to be held in Vietnam later this year. Connectivity was high on the agenda, as it is viewed as an essential driver for deepening regional economic integration, which is one of APEC’s four key priorities. APEC has launched a 2025 Connectivity Blueprint and is following this up with mid-term goals for 2020.

Pamela Mar
Director of Sustainability
Fung Academy/ Fung Group

Insights: In Conversation With

Pamela Mar outlines the challenges faced by Asia's production centers in a world where connectivity has become more critical.

Writer’s Note:

APEC officials were in Vietnam for the 2nd Senior Officials Meeting in preparation for the APEC Leaders’ summit to be held in Vietnam later this year. Connectivity was high on the agenda, as it is viewed as an essential driver for deepening regional economic integration, which is one of APEC’s four key priorities. APEC has launched a 2025 Connectivity Blueprint and is following this up with mid-term goals for 2020.

Camilo Pérez-Restrepo
Professor in Asia-Pacific Studies / Deputy Coordinator of the Asia-Pacific Studies Center at Universidad EAFIT, Colombia

The Asia Pacific Economic Cooperation (APEC) is back in Latin America for the first time since 2008, when Peru hosted the forum amid the global economic crisis. At that time there were concerns about raising protectionism across the region and increasing demands to reform the global financial system. In 2016, APEC takes place again in Peru, in a new context of economic growth in most of its member economies, but also during a moment when important structural reforms are taking place to secure better quality growth and better conditions for human development.

This article provides Canadian policy makers and businesses with a fresh perspective on APEC, its priorities in 2016, and the role and influence of Latin American economies. After a brief overview of APEC, the article provides context for Latin America-Asia relations, a matter of importance in view of Peru’s chairing of APEC in 2016. Peru’s dual chairing of APEC and the Pacific Alliance will potentially see Peru capitalize on opportunities for convergence between the organizations. The article then explains the APEC 2016 agenda with reference to the Latin American context, and concludes with a discussion of implications for Canada.

Chien-Fu Lin
President, Taiwan Institute of Economic Research/ Chair, Chinese Taipei committee for PECC

In recent years, free trade agreements (FTAs) have proliferated in the Asia-Pacific region. Most importantly, the mega FTAs consisting of the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP) have come into existence and will certainly transform the trading environment, since their gross domestic product (GDP) shares are 38% and 29% of the world, respectively. At the same time, the Asia-Pacific Economic Cooperation (APEC) is developing the Free Trade Area of the Asia-Pacific (FTAAP) which will arise in the form of a mega FTA in the future. According to a study by APEC (APEC 2015), if the FTAAP is in place by 2025, it would bring a 4%-5% increase of GDP in the whole region from 2015 and 2% of world total GDP. In order to continue the dynamism that is taking place in Asia-Pacific regional economic integration (REI), it will be necessary to address the most important challenges, that is, the inclusiveness issue. The main purpose of this article is to examine the issue of inclusiveness in the mega FTAs from two dimensions. The first dimension is about inclusiveness through open membership of the mega FTAs while the second dimension focuses on the importance of assisting small and medium-sized enterprises (SMEs) to benefit from the mega FTAs.

Linking APEC FTAAP with TPP and RCEP
During the 2010 APEC Economic Leaders' Meeting, leaders made a significant point in the Yokohama Declaration that they will seek to realize the FTAAP. Particularly, the FTAAP will serve to enhance the advancement of APEC's regional economic integration. Moreover, the FTAAP will be pursued in the form of a comprehensive FTA through building on ASEAN+3, ASEAN+6, and the TPP (APEC 2010). With this important announcement, APEC has embarked actively on the quest for attaining the FTAAP that includes the linkage with regional mega FTAs.

Shujiro Urata
Faculty Fellow, Research Institute of Economy, Trade, and Industry (RIETI), Japan

After five and a half years of negotiations, the Trans-Pacific Partnership (TPP) agreement was reached on October 5, 2015. Yet it is too early to celebrate as the agreement must be ratified by the participating countries including those where anti-TPP protestors have significant political influence. The TPP is a free trade agreement (FTA) among 12 Asia-Pacific countries, which together account for approximately 40% of the world's gross domestic product (GDP). Not only is it extremely ambitious in the level of liberalization in trade in goods, investment, and services, but also comprehensive in its coverage, setting rules for such areas as electronic commerce, government procurement, intellectual property, labor, and the environment. The TPP has high potential to promote economic growth and improve people's living standards by facilitating the free cross-border movement of key factors of economic activity, such as goods, people, money, and information. Failure to bring the TPP into force would be a great loss to not only the TPP countries such as Japan and the United States but also the global economy.

TPP and the revitalization of the Japanese economy
Following the collapse of its economic bubble, Japan plunged into a prolonged period of stagnation which now has come to be referred to as the "lost two decades." Thanks to the expansionary monetary and fiscal policies under the leadership of Prime Minister Shinzo Abe and his second Cabinet formed in December 2012, the Japanese economy was boosted in 2013. But the effect was short-lived and the economy has been sluggish since 2014. The stagnation of the Japanese economy can be partly attributable to external factors such as a slowdown in the global economy. However, internal factors—i.e., a shrinking and aging population, massive government debts, and slow responses to structural problems such as the closed nature of the market—are more serious. In revitalizing the Japanese economy, which is currently in such a dire predicament, the TPP will be playing an important role.

Sanchita Basu Das
Yusof Ishak Institute of Southeast Asian Studies

At the last Asia Pacific Economic Cooperation (APEC) Summit in November 2015, the United States and China advanced their own set of interests with respect to trade agreements in the Asia-Pacific region. While the United States celebrated the conclusion of its Trans-Pacific Partnership (TPP) deal in early October 2015, China stressed the potential of a Free Trade Area of Asia-Pacific (FTAAP).

In his speech, President Xi Jinping promised to work to ‘finish at an early date negotiations for the Regional Comprehensive Economic Partnership (RCEP), while accelerating talks on a China–Japan–South Korea FTA.’

Jeffrey J. Schott
Senior Fellow, Peterson Institute for International Economics

Trade ministers from the 12 countries participating in the Trans-Pacific Partnership (TPP) trade negotiations concluded talks on October 5, 2015. Negotiations are done but there is much left to do before this mega-regional trade accord is ratified and implemented.

If Congress and the president work closely, a TPP vote could be taken by Congress by mid-2016. However, differences over the drafting of implementing legislation could delay a vote for an extensive period (as occurred with the Korea-US Free Trade Agreement).

Andrew Elek
ANU and member of AUSPECC

This article is cross-posted from the East Asia Forum website

The most important objective of international economic cooperation in 2011 is to conclude the Doha Round. The United States has the influence to do that if it is prepared to show political initiative and have realistic expectations of others.

The APEC group can also provide leadership within the G20 to tackle global problems. APEC’s Committee on Trade and Investment (CTI) can begin to set out a strategy on how the WTO might operate beyond the Doha Round. Bringing the WTO up to date with the 21st century world of international commerce is an essential dimension of cooperation to narrow development gaps.

Ippei Yamazawa
Professor Emeritus, Hitotsubashi University, Japan

2010 APEC Yokohama was completed three weeks ago with three major achievements, first the mid-term assessment of its Bogor target, second a concrete direction toward Free trade Area for the Asia-Pacific (FTAAP), and third APEC’s growth strategy. The first two give us a future prospect for APEC’s main activity of Trade Investment Liberalization and Facilitation (TILF), while the last packages its new initiatives undertaken for the past decade in order to combat with changing economic environment in the region. Discussion has so far focused on TPP as a possible route to FTAAP but others seem to be missed since the Yokohama meetings. This short essay aims to discuss both the first agenda and continued TILF of the second.