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The mood across the Asia-Pacific has soured since this time last year with expectations for global growth turning distinctly negative. Regional economic growth is expected to slow from 3.8 percent growth in 2018 to 3.3 percent growth this year. However, it is the dramatic slowdown in the external sector that is of most concern with export growth slowing from 4.0 percent to just 0.9 growth this year for Asia-Pacific economies. While governments are acting to moderate a slowdown through stimulus measures, primarily interest rate cuts, other actions also need to be taken.
Sixty-eight percent of respondents to PECC’s annual survey of the Asia-Pacific policy community expect weaker or much weaker growth for the global economy next year. The top five risks to growth identified by our survey of the Asia-Pacific policy community for their economies are:
• Increased protectionism and trade wars
• A slowdown in world trade growth
• A slowdown in the Chinese economy
• A slowdown in the US economy
• Lack of political leadership
The list of risks remains the same as in 2018, with one exception, a slowdown in the US economy has entered the top 5 list. The US economy has been going through its longest ever economic expansion overtaking the boom that lasted from 1991 to 2001 that ended with the bursting of the dot com bubble. Related to the slowdown in the major economies is the potential for spillover or contagion risks from the top two risks in this year’s survey - increased protectionism and trade wars and the slowdown in world trade growth.
Out of a list of 15 possible priorities, the top 5 selected by the regional policy community for discussion by APEC leaders when they meet in Santiago are:
• The China-US trade conflict and rising trade tensions
• The future of the WTO and multilateral trading system
• The emergence of anti-globalization & anti-trade sentiments
• Progress towards the Bogor Goals and the Free Trade Area of the Asia-Pacific (FTAAP)
• Progress on the APEC growth strategy to promote balanced, inclusive, sustainable, innovative and secure growth
Chapter 2 addresses APEC Beyond 2020 and what lies ahead. Next year APEC economies will reach the deadline of 2020 for the Bogor Goals of achieving ‘free and open trade in the Asia-Pacific’, relations among key member economies are marked by a degree of suspicion and hostility not seen in over half a century. To be sure, periods before this, even after APEC’s establishment in 1989, were not free of disputes. Disagreements, however, were managed and not escalated to full-on conflicts.
After a slow multi-year recovery from the 2008 Global Financial Crisis, the green shoots of economic growth are being weighed down by unprecedented policy risks and uncertainties. The
multilateral rules-based trading system is also being furtherdegraded in fundamental ways. Equally significant issues of inclusiveness, environmental sustainability and the onset of the digital and technological revolution are rising to the fore. The overarching question that APEC now faces is how it can and should address them. Casting an APEC Post 2020 Vision was always going to be challenging, but recent developments may well be rendering it an impossible zero-sum exercise. APEC was established on the basis that positive-sum cooperation was essential to sustain the region’s economic dynamism and progress.
Contrary to those who would write it off, APEC as an institution is still regarded by its key stakeholders as highly relevant in the coming decades. In contrast to the 1994 Bogor Goals, however, APEC’s remit is now clearly broader then when the Vision was first conceived. Within the trade and investment agenda, investment and services liberalization and e-commerce and digital trade are now central areas of work. Issues of inclusiveness and sustainability have moved from being ancillary to become important joint goals to
be achieved. Within these, the human resource development and structural reforms to capitalize on emerging digital technologies and improve connectivity and investment in infrastructure are critical underlying subthemes.
APEC’s primary strategic value lies in its being an overarching platform for cooperation rather than negotiating and resolving policy differences. If there is one key to the post 2020 agenda for APEC it lies in the term ‘robust dialogue’. It is clear that APEC needs frank, realistic and rational discussions to inject fresh political commitment into what will become its core agenda. This is critical to dispel any doubts that APEC does not have the interest and wherewithal to perform this role.
Chapter 3 presents the findings of PECC’s work to construct an index to measure connectivity in the region. In 2013, regional leaders recognized that the achievement of the vision of an
Asia-Pacific community required seamless physical, institutional, and people-to-people connectivity. They agreed to establish “a seamlessly and comprehensively connected and integrated Asia-Pacific” by 2025 through the APEC Connectivity Blueprint, with a mid-term review to be conducted by officials by 2020. While the Blueprint sets ambitious targets to realize its vision, it only provides a high-level framework to organize the relevant work streams. In other words, how to measure, monitor and evaluate in concrete terms what progress APEC is making toward achievement of its goals is currently missing from the Blueprint. Against this backdrop, the Standing Committee of the Pacific Economic Cooperation
Council (PECC) established a task force to develop a Connectivity Index (the Index).
For the Asia-Pacific region, physical connectivity accounted for 41 percent of connectedness followed by institutional at 35 percent and people to people at 24 percent. While there are some differences at the level of individual economies, the pattern was fairly common across all regional economies no matter the level of development.
The objective of constructing the index was to provide an objective basis for assessing the state of connectivity in the Asia-Pacific. The work led to several conclusions. The first is the importance of the hypothesis that was reached after an extensive literature review
and discussion: that the three pillars are self-reinforcing and interrelated. The second is that no one size fits all – no matter how one looks at the data – economies in the region are pursuing different models and approaches. As this index looks a single point in time
this effort will need to be repeated to measure progress. The third, based on the index findings, is the priority areas for work. At the aggregate Asia-Pacific level: for physical – transportation and infrastructure; for institutional – trade facilitation and intellectual
property; and for people to people – educational mobility and labor exchange. However, these are the aggregate results, there is no reason why these should apply to all regional economies. These are simply the headline numbers from the index. Each economy can look at whether these apply in its own specific circumstances.
While considerable thought and discussion amongst a group of experts went into the selection of indicators and identification of the sub-indices under each pillar. This is one way to measure connectivity. These are not issues just for economists and statisticians but critical to helping policy-makers get a sense of priority for the key issues – improving people’s quality of life and increasing opportunities. Free and open trade are necessary but not sufficient conditions for this. Improved connectivity goes some of the way to addressing some of the gaps.