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Pathways to Asia Pacific Regional Economic Integration

Mar 07 , 2014

Asia Pacific economic cooperation is an essential part of today’s economic globalization process. The most striking feature is the large number of participating economies and population involved, the economic diversity and scale, the sharp difference of interests between developed and developing economies and the complex and numerous integration mechanisms. The process seems to be at a crossroads again: both TPP and RCEP are under negotiation with set timetables, the former without China and the latter without the USA, while the FTAAP initiated by APEC as early as 2006 remains a vision. 

I. Two pathways: Can they converge? 

The focus of regional economic cooperation in the Asia Pacific is on how to handle the relationship between TPP and RCEP. 

In 2008, the US started to push for TPP, envisioning a high-level and comprehensive partnership oriented towards the 21st century. The move was regarded as an important step in the country’s back to Asia strategy. Participation in TPP negotiation quickly expanded within a few years from 9 to 12 countries. By 2013, 19 rounds of negotiation were conducted. Final conclusion of an agreement will be up for high-level political decisions, and the adoption of a trade promotion authority act by the US Congress. 

The emergence of TPP and its recent development has given an impetus to the East Asian integration process. ASEAN was keen to safeguard its ”centrality” in regional cooperation and China and Japan were no longer tangled up in a debate over 10+3 or 10+6. Thus, the door was opened for deepened regional integration. The economic ministerial meeting between ASEAN countries, China, Japan, ROK, India, Australia and New Zealand in late August 2012 agreed in principle to negotiate a RCEP and to conclude the negotiation by 2015. In the same year, China and ROK started their FTA negotiation, also targeting 2015. China, Japan and ROK also announced the launch of FTA negotiation (CJK FTA). Three rounds of RCEP negotiation have been conducted. With increased momentum of the TPP, some people appear pessimistic towards the future of RCEP, but the governmental commitment and efforts remain unchanged. 

The RCEP negotiation has actually played the role of consolidating multiple 10+1 FTAs in East Asia, competing with TPP as two major tracks in the Asia Pacific. 

Both TPP and RCEP are high-level free trade arrangements. But they also differ greatly in many aspects. TPP is led by the US and serves the comparative advantages of developed countries in services, economic systems, IPR protection and innovation. RCEP is mainly composed of East Asian emerging economies, reflecting the competitive edges and concerns of the manufacturing-based and export-oriented economies, with intended standards and coverage far exceeding existing arrangements between the relevant parties. The US is pushing TPP for manifold purposes, inter alia, to seek leadership and dominance in regional cooperation in the Asia Pacific, to increase competition costs of and leverage greater market access to developing economies through rule-setting, and to attract foreign direct investment to the US so as to create more jobs. The RCEP is intended to improve the East Asian production network and fulfill the development aspirations of East Asian countries through institutional arrangements in alignment with openness, comprehensiveness and gradualism. TPP and RCEP also reflect the differences between the US and other Asia Pacific economies in the principles guiding regional economic cooperation. TPP highlights the US as a “selfish hegemon”. It stresses reciprocity. It is quite closed and non-transparent. It lacks flexibility, comfort, and an eco-tech cooperation arrangement to accommodate the needs of developing economies. The RCEP, on the other hand, carries forward APEC’s principle of open regionalism and cooperation spirit. It features openness, flexibility, gradualism and comfort for all parties. It also stresses development cooperation. Memberships of TPP and RCEP are overlapping. However, China is not in the TPP negotiations, and the US is not in RCEP. This is not good for regional economic integration and should not be a desired prospect for the region. 

Given the overlapping memberships, TPP and RCEP are actually complementary to one another, and only the combination of the two may satisfy the common pursuit of majority members. The problem is, the different institutional arrangements and varying interests of parties render much difficulty to their combination. 

We must look at these two regional free trade agreements from the constructive perspective of development. The two have the same ultimate objective of economic integration at a higher level and in a greater scope. They may not completely converge but may well co-exist to satisfy varying needs of economies. There are also areas shared by the two, and in these areas attempts should be made to harmonize the rules. In this connection, it may be possible to create and launch a FTA information exchange mechanism to facilitate communication and interaction between TPP, RCEP and other free trade arrangements for them to learn from, promote, converge with and complement each other. When conditions are ripe, rules can be aligned and harmonized such as with regard to value chain management and rules of origin. In short, the various parties in the Asia Pacific should pursue free trade arrangements following the principles of openness, inclusiveness and transparency, and endeavor to unify the various FTAs into one harmonized FTA with greater efficiency for the entire region. 

II. FTAAP and its feasibility 

It has been eight years since APEC formally proposed FTAAP in the declaration of the 2006 APEC Informal Leadership Meeting. APEC Economic Leaders recognized that the FTAAP initiative deserved serious consideration and instructed APEC Senior Officials to look into paths and approaches towards this long-term goal. In 2010, Pathways to FTAAP was published as an attachment to the declaration of the APEC Economic Leaders’ Meeting, explaining its purposes, pathways and issues. In that declaration, FTAAP is defined as a mechanism to comprehensively handle the next-generation trade and investment issues with a high quality. The 2013 APEC Economic Leaders’ declaration put forward the initiative to unfold policy dialogue and communication between different FTAs for the purpose of FTAAP and promote capacity building of APEC economies so as to enable them to take part in major negotiations. 

In the past 8 years, APEC has given much attention to the FTAAP proposal, which has in turn developed into a vision and objective of APEC. This suggests that APEC members generally accept FTAAP as the direction of Asia Pacific economic integration and an objective for all members to work for. In other words, there is a sound basis for cooperation between APEC members on FTAAP. Various studies have also shown that FTAAP will be the arrangement to bring about maximum economic welfare to the Asia Pacific region. 

Current discussions about pathways to FTAAP can be broken down into debates over four aspects: scope, standards, leadership and membership. 

In terms of scope and standards, there are various views in academia. Some people are in favor of achieving FTAAP through TPP; some find it better achieved through RCEP; some believe that RCEP and TPP may converge or that TPP may absorb RCEP to become FTAAP; and there are also people foreseeing the long-term co-existence and expansion of RCEP and TPP until one of them becomes FTAAP. Obviously, RCEP and TPP are regarded as two references for the future FTAAP, whose scope and standards should be somewhere between them, being closer either to developed economies or to developing economies. Judging from the relevant discussions, at the least the academic circle is moving closer towards the common understanding of seeking the balance point where the interests of both developed and developing economies overlap. 

Competition over leadership in the relevant initiatives has for a long time stagnated the East Asian FTA process. To promote FTAAP, it may be necessary to dilute such competition. As a matter of fact, none of the economies or FTAs is in a position to dominate the FTAAP process. APEC is a natural promoter of FTAAP. As it has put forward the initiative and identified pathways and a basic vision, it should initiate, guide and support the relevant negotiations. 

In terms of membership, all members of TPP are APEC members but its future members from Latin America may not be part of APEC, and some RCEP participants (India, Cambodia, Laos and Myanmar) are not APEC members. In other words, FTAAP may have a membership larger than APEC. Then should APEC expand to the size of FTAAP or should FTAAP be independent of APEC? Some scholars think that when the FTAAP negotiation starts it is not necessary for all APEC members to be part of the negotiation. 

Up to now, FTAAP remains a vision. To facilitate the FTAAP agenda, APEC should start to develop its framework, guiding principles and approaches on the basis of the 2010 Pathways to FTAAP. No matter whether the FTA will be led or supported by APEC, APEC ought to walk the walk rather than talk the talk. 

III. New mission of APEC 

Twenty-five years ago when APEC was first founded, there were only 3 cooperation fora and 3 free trade agreements in the Asia Pacific. Now there are 25 cooperation mechanisms and 56 FTAs. APEC members now face selection confusion in the direction and priorities of cooperation. The region is more integrated, and yet more fragmented. Inevitably, the relative position and role of APEC is somehow weakened. However, as the main channel of regional economic cooperation, APEC should re-focus and plan the future Asia Pacific partnership with a long-term view. 

The year 2014 marks the 20th anniversary of APEC’s Bogor Goals. Only six years is left to achieve the Bogor Goals. At this juncture, while all parties should remain committed to the goals, we also need to think about APEC’s agenda in the future 10 to 15 years, especially in regard to tailoring a new regional trade arrangement for the Asia Pacific. 

First of all, the regional economic cooperation process will not be successfully completed by 2020. In the long term, achievement of the Bogor Goals will only be a stage in the Asia Pacific economic integration process. No matter whether the Bogor Goals are achieved or not, the region needs a new regional trade arrangement to promote the common destiny of the Asia Pacific community. 

Second, the dual-track free trade arrangement process in the region will be a long-term scenario. Without coordination and guidance by APEC, regional economic cooperation will be even more fragmented. APEC should promote sound interactions between competitive mechanisms in an open, inclusive, cooperative, win-win, transparent and flexible manner. 

Third, to retain its role of locomotive of world economic growth, the Asia Pacific region must push its economies to speed up their restructuring and deepen convergence of the industrial chains and value chains, which cannot be self-realized with the arrival of 2020 but be pushed and locked-in by a new free trade arrangement tailored for the region. 

Fourth, continued participation in the development of multilateral trade regime serves common interests of all economies in the region. Formulating a long-term agenda at an early date will help steer the development of WTO. 

In reality, APEC has also put in place the basic conditions for the formulation of a long-term agenda for the future 10 to 15 years. First, both developed and developing economies in the region are committed to economic restructuring and reform. Second, APEC has made well-known progress in macro-economic policy coordination, trade and investment liberalization and facilitation, connectivity, eco-tech as well as functional cooperation. Third, the bilateral and regional free trade arrangements have established new areas, new standards and new methods, which can serve as very good inputs in the design of long-term goals. Finally, TPP, RCEP and other regional free trade arrangements can be useful references for a new regional arrangement. 

So long as APEC takes actions to promote FTAAP, it will create opportunities to combine open regionalism and competitive liberalization. It should be created on the basis of consensus for a FTAAP framework defining its objectives, principles, standards and contents with explicit measurable indicators and draft a 10 to 15-year timetable to achieve FTAAP. As possibly important components of FTAAP, TPP and RCEP should be first covered by a mechanism of communication, interaction and coordination so that they may work together towards FTAAP. 

China is hosting the 22nd APEC Economic Leaders’ Meeting. The theme of the meeting will be “shaping the future through Asia-Pacific partnership,” and one of the three topics will be “advancing Asia-Pacific regional economic integration”. If the meeting reaches a consensus in developing a framework for regional economic integration and putting in place the Beijing Goals that will guide future development, an Asia Pacific partnership will be greatly promoted. 

Tang Guoqiang, Chairman, China National Committee for Pacific Economic Cooperation. 

Wang Zhenyu, Associate Researcher, China Institute of International Studies.

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