Friday, March 20, 2015

The Year of Promising Economic Integration in the Asia-Pacific

Eric Chiou

        The year of 2015 is going to be indicated as a remarkable year for economic integration in the Asia-Pacific region. Not only the negotiation of Regional Comprehensive Economic Partnership (RCEP) is scheduled to be concluded by the end of this year, but also the Trans-Pacific Partnership (TPP), after a series of intensive and difficult negotiations, aims to reach a principle framework agreement in this year. In addition, an ambitious vision of the ASEAN Economic Community (AEC) is planned to be fulfilled within this year, which will make it one of major global player in the world, and become the seventh largest economy as well as the most consolidated trade bloc in Asia.
         Furthermore, foreseeing robust demands of infrastructure financing in developing countries in Asia, China initiated the proposal of Asian Infrastructure Investment Bank (AIIB), in order to provide sufficient financial support to bridge the gap of financial needs for infrastructure development in the region. The Bank is expected to operate by the end of this year and its establishment has been considered positive contribution to deepening regional economic integration and spurring economic momentum by strengthening physical connectivity in the Asia-Pacific region. Based on these favorable factors, the year of 2015 is likely to be a promising watershed in the history of Asia-Pacific economic integration.

        As the most vibrant and long-standing locomotive in promoting economic integration, APEC has been one of the most dynamic forums and a critical incubator for cultivating various ideas toward a common goal of facilitating free and open trade and investment in the Asia-Pacific region. Meanwhile, it has also played as the most persistent advocate and assiduous actor in carrying out numerous policy measures to enhance regional trade and investment.

        For example, APEC has adopted the global Trade Facilitation Agreement and also set a goal of increasing 10 percent from 2009 levels in regional supply chain performance by the end of this year. This initiative targets at reducing customs bottlenecks for goods at borders by enhancing custom cooperation among APEC members, which expects to improve efficiency, lower operation costs, and facilitate trade flows across APEC countries.

        To continue the efforts and progress made in 2014, one of APEC's priorities in this year is "Enhancing Regional Economic Integration." As a host member in 2015, the Philippines has laid out a plan to organize a task force and launch a two-year collective strategic study on issues related to the realization of a Free Trade Area of the Asia-Pacific (FTAAP), in order to ensure the fruitful results of the Beijing Roadmap for APEC's Contribution to the Realization of the FTAAP to be maintained and carefully implemented.

        Moreover, from a geopolitical aspect, heightened tensions over territorial disputes in recent years have gradually lessened since last fall, while the forecast of moderate economic growth for most countries in the region in 2015 has also played a positive role for allowing national leaders to keep cool head and concentrate on the issues of how to stimulate economic growth, instead of augmenting their existing political frictions. Last year, the lukewarm, but symbolic meeting between Chinese leader Xi Jinping and Japanese Prime Minister Shinzo Abe signified a historical turning point and showed deliberate efforts to turn down their rising suspicion and hostility in recent years.

        In a word, an overall geopolitical environment in 2015, so far, provides a fairly constructive and peaceful milieu in fostering economic integration. Nevertheless, despite various advantageous elements being depicted above, some critical hindrances to the final achievement of regional integration remain challenging in the coming months of this year. Here are possible challenges worthy of further discussion.

        First, despite the latest TPP negotiation just taking place in Hawaii in March, some thorny issues, such as intellectual property rights (IPR), have not been solved, which cast a shadow over the prospect of successfully concluding the TPP this year. Furthermore, with the upcoming presidential election in the United States in 2016, the chance for the Obama administration to obtain the Trade Promotion Authority (TPA) from US Congress seems gloomy.

        If the United States could not attain the TPA to complete the final stage of negotiation, the TPP may eventually turn out to be a failed attempt. At this juncture, Abe's visit to Washington in late April becomes crucial. If two leaders from Japan and the US can effectively narrow their differences and reach consensus in the meeting, this breakthrough may generate sufficient political momentum to compel US Congress to grant the TPA to the Obama administration. Then, the TPP will be more likely to be concluded within this year, given that two largest TPP members are able to settle their differences.

        Second, compared with intensive negotiations among TPP members, the progress and pace of RCEP seem relatively limited and slow. Although these indications do not necessarily suggest that the RCEP may become an illusion in the end, this tepid development certainly invokes some concerns over its quality and future implementation, even if RCEP members eventually reach a deal this year.

        It is estimated that the RCEP accounts for 28 percent of world economy and its implementation will produce income gains of $240-644 billion to the world economy in a decade. However, these inspiring figures are likely to be illusionary, if the final agreement of RCEP fails to live up to its original objectives of being a high quality regional free trade bloc.

       A similar predicament can be applied to the AEC, since it is exactly a product and also a victim of so-called "ASEAN Way." The characteristics of ASEAN Way have highlighted consensus-building, flexibility, mutual respect for differences, etc. The outcome and effectiveness of AEC will be dubious, if it fully abides by and operates in accordance with the ASEAN Way. Hence, what matters is not whether the AEC can be established or not, but to what extent the contents of the AEC can be faithfully implemented by ASEAN members.

        Despite some possible weaknesses, the formation of AEC will certainly generate a big boost to regional economic integration in the Asia-Pacific. At least, it will consolidate its pivotal role as a center of regional integration and spur the interests of its trading partners to further strengthen economic ties with the AEC. This outcome is likely to induce a virtuous circle of competition and accelerate the completion of other regional trade deals.

        In short, the year of 2015 will be a critical juncture for the Asia-Pacific economic integration as a whole. If the above trade initiatives are fully realized as promised, this year will be a historical turning point in the history of Asia-Pacific integration. Then, the question of how to efficiently converge those diverse regional integration initiatives will be a crucial task in the next stage, in which APEC will continue to take a leading role in facilitating discussion and guide a better way to the future.

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