China and other APEC members recently put forward many proposals for pragmatic cooperation in the fields of regional economic integration, innovative development, reform and growth, and interconnectivity, trying hard to formulate an open, inclusive, mutually beneficial, and win-win partnership. In promoting regional economic integration in particular, China and other APEC members conducted close and frequent consultations and reached a series of important consensuses on initiating and pressing ahead with the Free Trade Area of the Asia-Pacific (FTAAP), and formulated the Beijing Roadmap for APEC’s Contribution to the Realization of the FTAAP. That was a milestone achievement of the 2014 APEC conference, as well as a substantial boost to the FTAAP initiative.
The Beijing Roadmap features the most systematic and comprehensive elaboration of the FTAAP since the it was first put forward at the 2006 APEC gathering. It is aimed at transforming the FTAAP into concrete actions. APEC is therefore in a privileged position to kick-start the FTAAP.
APEC economies are diverse and broadly representative. The 21 current members of the APEC are located on both sides of the Pacific. They feature different stages of development, have divergent economic systems and cultural traditions, and are thus broadly representative. All concerned parties’ ideas and efforts will create positive momentum for the materialization of the FTAAP. Meanwhile, APEC’s adherence to “open regionalism” will appeal to today’s non-members.
APEC has made impressive headway in trade liberalization and facilitation. When APEC was founded in 1989, the average tariff level of member economies was 16.9 percent. But, it had dropped to 5.8 percent by 2010. During the same period of time, trade in goods among APEC members increased from $1.7 trillion to $9.9 trillion, increasing almost five times, accounting for 67 percent of overall trade in goods of all member economies. APEC’s overall volume of trade in goods and services also rose from $3.1 trillion to $16.8 trillion, increasing fourfold. Between 2002 and 2010, APEC’s two trade facilitation programs reduced transaction costs between member economies by 5 percent.
New breakthroughs have been made in regional economic integration, and the TTP negotiations have entered its final stage. Australia has formally signed free trade agreements with the Republic of Korea and Japan; China has concluded substantive negotiations with the Republic of Korea and Australia on free trade areas. China and ASEAN have started negotiations on an “upgraded version” of a free trade area, and the construction of an ASEAN economic community has made impressive progress. The RCEP has completed six rounds of talks, proceeding from consultation on procedures to substantive negotiations.
The FTAAP will have more advantages than the TPP and RCEP. Given its limited membership and strict rule of origin, the TPP will dismember the production network and value chain already in place in East Asia; the RCEP generally fits well with the East Asian production network, but it will also tear apart the local value chain because it doesn’t include economic entities on the east coast of the Pacific. The FTAAP, on the other hand, can overcome the chokepoints on both the industry chain and supply chain of the Asia-Pacific, deepening integration of the global value chain.
There also are undesirable factors in the Asia-Pacific’s march toward the FTAAP.
First is the FTAAP’s own complexity. Though the FTAAP will have much fewer members than the WTO, it has a very similar demographic structure, and its members have very different interests and pursuits. Secondly, some APEC members are less than enthusiastic. The FTAAP was first incorporated into the APEC agenda in 2006 under the auspices of the United States. Japan and China have since been its main proponents. Australia, Singapore and some other members have also demonstrated considerable enthusiasm for it. The US, however, has made the TPP its current imperative, showing less interest in the FTAAP. The participation of other potential members is another source of concern. It will be a challenge for the FTAAP to decide who will be included in its future membership.
Now is time to lay the groundwork in order to transform the FTAAP from a mere vision into a reality. And this will entail joint strategy studies and functional cooperation, determination of next-generation trade and investment topics, information sharing, and capacity building.
The RCEP negotiations must be completed as scheduled. The RCEP has 16 member countries, accounting for approximately 48.8 percent, 28.7 percent, 27 percent, 24.4 percent and 23.3 percent of the world’s population, GDP, trade, foreign direct investments, and overseas investment. With the largest number of participating parties, and the biggest scale of negotiations in East Asia, the FTAAP features the integration of existing and mature free trade areas. The RCEP has strong inclusiveness, and suits Asian industrial structures, economic models and social traditions. Its incremental approach can accommodate member countries’ different levels of development.
The RCEP and TPP are both viable routes towards the completion of FTAAP, and each has its own comparative advantages: The RCEP is more representative of developing economies’ aspiration for regional economic integration; the TPP represents advanced, industrialized economies’ aspiration for making 21st century trade rules. Obviously the FTAAP must take both aspirations into consideration. Incorporating the RCEP and TPP into the FTAAP, and gradually dovetailing and merging the two is in the best interest of the entire Asia-Pacific, and hence the most reasonable strategic choice for the region.
In the future, the FTAAP will inevitably include both the Chinese and US economies. In a certain sense, the future integration of the RCEP and TPP means that the two countries reach agreements on bilateral trade and investments.
Efforts should be made this year and next for a comprehensive, high-quality, non-discriminatory, open, and transparent bilateral investment agreement. From there, the two parties can further enrich their cooperation. In July 2014, Zeng Peiyax n, chairman of the China Center for International Economic Exchanges, proposed to negotiate a bilateral investment and trade treaty (BITT), which received positive resonance from both sides. The BITT will cover such key fields as tariffs, investments, agricultural trade, service trade, government procurement, intellectual property rights, and environment for competition, and it will substantially promote China-US collaboration in technological innovation, cyber security, infrastructure, clean energy, and the ecological environment. On the basis of the BITT, the two sides can continue to proceed towards a China-US free trade area. As the two largest economies, China and the US are trying to formulate a new-type of major-country relationship. The establishment of a free trade area should be an integral part of such relationship. This will be a challenging mission. But the rewards will be tremendous. The free trade area will respectively bring $100 billion and $300 billion to US and Chinese national incomes, both higher than that to be brought by the TPP and RCEP to the US ($76.6 billion) and China ($249.7).
The process of China and the US negotiating and accomplishing the BIT, BITT and free trade area will be conducive to dovetailing and merging TPP and RCEP rules, and open pathways for developing economies to adapt to next-generation trade rules. Although such a process may be long and arduous, from the perspective of promoting regional economic integration in the Asia-Pacific, it is consistent with the FTAAP, thus worthy of serious attention from both sides.