Tuesday, July 31, 2018

APEC Charting a Course Through Global Trade Turbulence

Eric Chiou
     Amid the recent escalation of trade tensions in the global economy, the APEC Trade Ministers Meeting held in late May achieved significant and fruitful results, showing that APEC remains  esilient and is determined to serve as a rudder for its members to safely sail through the billows of global trade turbulence.

     Without a doubt, this latest bout of instability in world trade is due not to the unpredictability of natural disasters, but can be primarily attributed to human causes. US-China trade disputes have become the epicenter of this global trade upheaval, threatening to wipe out the fruits of the hard-earned economic recovery that has taken place in the ten years since the 2008 global financial crisis.

     Under this highly volatile global economic climate, international trade frictions, if not handled carefully, can easily escalate to trigger unexpected consequences. Such hazards are especially possible at this particular juncture, given the recent roller-coaster developments in US-China trade negotiations, which lurched from the brink of a trade war, back to a truce, and then right
back towards a devastating confrontation.

     Given the uncertainty involved in these US-China trade disputes, various international economic organizations and forums, including the WTO, IMF, World Bank, G7 and G20, have issued warnings on the danger of risingprotectionism and reiterated their unwavering support for free trade. These
bodies have also consistently expressed their opposition to any use of tariffs or non-tariff measures to distort free trade.

     As one of the most active economic forums in the Asia-Pacific region, APEC has persistently devoted efforts to facilitating an open and free trading environment, enshrining the principle of open regionalism and upholding its long-term vision of the Free Trade Area of the Asia-Pacific (FTAAP).

     After their May meeting, APEC trade ministers issued a joint statement demonstrating their steadfast determination to pursuing further reforms while accelerating the pace of regional economic integration. In addition, they also noted the ongoing trade spats between members while saying they are willing to take concrete measures to address these deep-rooted issues.

     The statement indicates APEC recognizes that the benefits of trade have not been evenly distributed among all segments of society, and that income inequality has increased among APEC members. These admissions suggest that APEC members are pursuing the benefits of globalization
while developing an awareness of the negative effects of deeper economic integration among states.

     Not only that, the statement reveals that APEC understands that mounting protectionism is being driven mainly by a backlash to the uneven distribution of economic benefits between states and peoples within states brought about by globalization. Correcting this inequality is an imperative
that needs to be appropriately addressed with collective action, and the statement demonstrates that APEC is willing to take on this challenge.

     Furthermore, to counter ongoing anti-globalization and anti-free trade sentiments, the statement also emphasizes the role of APEC as an incubator and facilitator for multilateralism. Aside from its push toward FTAAP, APEC aims to enhance its member economies' ability to participate in high-quality,comprehensive free trade agreements through capacity building initiatives.

     APEC trade ministers seem fully aware that the origins of recent trade tensions stem not only from trade imbalances and tariffs, but also from more complicated trade issues which have not been adequately addressed by the WTO. As a result, these ministers have decided to develop a work plan for taking on Next Generation Trade and Investment Issues.

     To enhance economic integration among APEC members and strengthen institutional participation in trade and investment, the ministers also reached an agreement on support for investment promotion, facilitation and retention through the Investment Facilitation Action Plan, as well as on other international investment principles and practices. Additionally, the ministers also acknowledged efforts to address non-tariff measures, while encouraging APEC members to continue relevant capacity-building initiatives.

     Most importantly, given the approaching 2020 deadline for meeting the Bogor Goals, APEC must develop a post-2020 vision to continue addressing regional challenges and exploiting economic opportunities.

     Although the preceding analyses suggest that APEC trade ministers have worked to help APEC weather an approaching thunderstorm of trade protectionism, the divides among APEC members remain significant, as seen in the Statement of the Chair on Supporting the Multilateral Trading System issued in that meeting.

     The first sentence of the statement indicates that it "reflects the Chair's assessment of the prevailing views of APEC economies," revealing an implicit divergence between APEC members. With this prefatory phrase, the subject of the statement, "Supporting the Multilateral Trading System
(MTS)," which heretofore had been regarded as part of APEC orthodoxy and had frequently appeared in various formal APEC statements, must then be addressed individually by economy. Hence, this statement itself symbolizes a significant departure from APEC convention.

     The chair's statement recognizes "the importance of international trade to stimulate economic growth, support job creation and drive prosperity and development," and reaffirms a "commitment to achieving free and open markets in the Asia-Pacific region and the importance of international trade
to job creation."

     Additionally, it also underscores "the importance of ensuring the effective functioning of the rules-based, transparent, non-discriminatory, open, and inclusive MTS as embodied in the WTO," and pledges that APEC members will "work together to support, strengthen and improve the MTS."

     Furthermore, the statement reaffirms "APEC's leadership to promote free and open markets," as well as its "commitment to keep markets open, and to fight against and to rollback protectionist and trade distorting measures."

     Those familiar with official APEC statements may wonder why such boilerplate APEC verbiage appeared in this Statement of the Chair, though the reason should not come as a surprise when one recalls the recent G7 summit which was mocked as "G6 plus one." This chair's statement may
be viewed in the same vein as that summit, as an expression of collective resistance by APEC members to the unilateralism and protectionism of the Trump administration.

     Since the US opposed inclusion of an expression of support for the multilateral trading system in the formal statement issued by APEC trade ministers, the rest of APEC members as a result listed their "prevailing views" in the Chair's statement. Although APEC has been known for its inclusive and often watered-down resolutions, it remains rare to see such a huge divide appear in an APEC meeting.

     One certainty is that this standoff of "the US versus the rest" may return frequently in APEC meetings throughout the year. Given the tenacity of the Trump administration in pursuing fair trade and opposing multilateralism, this divergence between APEC member economies regarding the
organization's future direction is likely to remain unresolved.

     But it is precisely APEC's inclusivity, openness and emphasis on facilitating consensus that will continue to play a vital role in helping its member economies safely navigate the troubled waters of global trade amid challenges to economic integration in the Asia-Pacific region.

(Eric Chiou is an Associate Professor in International Political Economy at National Chiao Tung University)

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