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Talking Trade blog

Trump fallout reaches Peru—the future direction of APEC?

Published 17 November 2016

Officials from the 21 economies in APEC are getting ready to head to Lima, Peru, for the annual summit in APEC. Typically, these meetings are most memorable for the costumes worn by leaders in the official photographs.

This year’s meeting was expected to be another fairly routine event.  But the election of Donald Trump in the United States adds an interesting twist to the proceedings in Lima.

The Lima meetings are set to feature a report on the pathways to the Free Trade Area of the Asia Pacific (FTAAP).  This report is really about the future direction for APEC itself. 

APEC was originally set up in 1989 with the goal of fostering regional integration. While economic growth has been impressive, over time, some member states have gotten impatient with the non-binding, voluntary nature of APEC commitments. 

Hence, in 2010, leaders endorsed the idea of FTAAP.  APEC would provide “leadership and intellectual input into the process of its development, and [play] a critical role in defining, shaping and addressing the ‘next generation’ trade and investment issues that an FTAAP should contain.” 

In 2014, when China was host, it pushed for a comprehensive study on how a 21 member agreement might take place.  This study is coming out now.

Officially, leaders have endorsed several pathways to reach FTAAP.  APEC has no ability to negotiate directly, so the institution requires an outside mechanism to reach a deal.  Two of the officially sanctioned pathways to reach the FTAAP are the 12 party Trans-Pacific Partnership (TPP) and the 16 party Regional Comprehensive Economic Partnership (RCEP). 

The study will say that FTAAP is an excellent idea that APEC should pursue.

The original plan—certainly by the Americans—was to say that the study was nice, but since both pathways were currently in progress and moving ahead nicely, there was no need to push forward with FTAAP at this point.  After all, TPP was finished but in the domestic ratification stage and RCEP remains under negotiation.  Why jump to the next phase while the building blocks are still being built?

Now the situation has changed.

Trump will not even be present, yet his shadow will loom large because his election has called into question the viability of the TPP pathway to FTAAP. 

If the TPP is not going to happen, then RCEP becomes the default path to FTAAP. 

That, in turn, opens whole new sets of issues.  In no particular order, it means that:

1.  The management of FTAAP has been turned over to the RCEP negotiating countries.  While President Obama had repeatedly warned that, absent the TPP it would mean other countries “setting the rules of the game,” it may not have been quite so clear what he meant.  The link between RCEP and FTAAP, however, will make this point quite startlingly clear. 

2.  RCEP will need to be as strong as possible.  It is now not just the megaregional trade agreement for Asia, but potentially the baseline for an FTAAP binding together 21 members spanning the Pacific.

This is partly why Japanese Prime Minister Shinzo Abe has arranged a meeting with President-elect Donald Trump on his way to the Lima meetings.  He wants to know many things about Trump’s future policies, but critically important at this moment is whether the TPP is really “dead” for Trump.  If so, Abe needs to quickly decide how to respond vis-à-vis the FTAAP study report.  How hard should Japan throw its weight behind RCEP?

3.  The membership issue in APEC is about to be thrown open again.  While all 12 members of the TPP are also APEC members, the 16 members of RCEP are not.  Cambodia, Laos, Myanmar and India are not currently APEC members.  If RCEP is the pathway to FTAAP, they will need to be admitted to APEC. 

If the membership issue in APEC is “live,” other candidates have expressed interest, including Columbia.  Columbia is a member of the Pacific Alliance, which is also pressing to be included as a possible pathway mechanism for FTAAP.

4.  If RCEP becomes the only pathway to the FTAAP, it may mean changes to the way RCEP is negotiated.  Certainly, it should be harder to justify keeping RCEP negotiations so quiet.  If these talks are, indeed, going to be the baseline for the future, it will be important to have greater information about what is happening.  It may even mean allowing APEC countries to have observer status in the negotiations.

5.  Or, alternatively, APEC members may want a hard rethink about the entire “pathway” process to reaching an FTAAP with 21 member countries.  If the eventual goal is to have a trade agreement that includes all APEC members, it might be best to start with all members in the room to negotiate a deal that actually includes all member countries from the beginning.   Of course, members can always draw upon their experiences in other settings and pull relevant materials from different contexts. 

In short, what was meant to be a rather routine meeting in Lima by leaders has suddenly turned into an interesting debate about the future of the APEC institution—triggered by one election in one member state. 

As the saying goes, “Hold onto your hats—it’s going to be a bumpy ride!”

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Dr. Elms is Head of Trade Policy at the Hinrich Foundation in Singapore.  Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).

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