By Faisal Ahmed
Lima is ready to host the leaders’ meeting of Asia-Pacific Economic Cooperation (APEC), a congregation of 21 countries bordering the Pacific Ocean. The APEC region constitutes of vibrant and promising economies amid geopolitical overtones. Yet, this meeting offers enough policy space for deliberations on key issues to promote regional-building and economic integration. The outcomes related to trade and integration pursuits, however, is going to reflect the uncertainty in no uncertain terms. But hope has to triumph; after all, the region contributes approximately half of the world trade.
A key integration initiative in the region has been the Trans-Pacific Partnership (TPP) agreement. It had a humble beginning in 2005 as a free trade agreement (FTA) among four APEC countries viz. Brunei, Chile, New Zealand and Singapore, but has enjoyed the status of a much-hyped geopolitical force in recent times. Donald Trump’s presidential victory and his apparent disliking for free trade in an urge to protect American interests, is already shaping popular perceptions. Nevertheless, this is of course going to redefine the policy discourse too in days to come. TPP seems to be entering into a stalemate, since it is yet to be ratified by the Congress. We need to keep our fingers crossed to see what the United States pushes for while in Peru: still an ambitious TPP or preferring to shy away from it! Also, we hope that Lima has assured China that the South China Sea dispute will not surface on the agenda this time.
Amid all such concerns and permutations, there are some looking keenly toward Lima for pragmatic outcomes. They comprise of the 2.6 billion strong consumer base of the Asia-Pacific region, waiting to see the benefits of trade and integration translate into sustainable livelihoods. So, whether the TPP remains sans America or goes back to square one (i.e. to its original status that does not calls for TRIPS-plus etc.), APEC as a congregation must maintain its legitimacy by focusing on the Bogor Goals.
To enable its consumers to enjoy the benefits of globalization, APEC ought to focus on critical issues relevant to trade and integration. Most importantly, APEC should encourage the development of global value chains (GVCs) as the region offers huge potential by dint of sectoral competitiveness and national comparative advantages. Enough opportunities for GVC development and participation exists across the region in sectors like apparel, processed food, minerals, petro-chemical products, aeronautics, automobile, pharmaceuticals and electronic goods, among others.
An intense level of engagement brought together by the sectoral GVCs will also support APEC’s flagship agenda of having a Free Trade Area of the Asia Pacific (FTAAP), which is now being projected as a key deliverable. Also, an enhanced GVC participation will help countries in negotiating what is seen as the China led Regional Comprehensive Economic Partnership (RCEP), which comprises of ASEAN and six other countries with whom it has trade agreements. RCEP thus has 16 countries, most of which are APEC members as well. The inclination of these APEC countries toward RCEP is much higher given the fact that RCEP, unlike the TPP, does not intend to populate member countries’ policy space with binding commitments and stringent conformances. This should in fact be a key consideration for APEC while negotiating its FTAAP. President Kuczynski, who is hosting the summit, has already expressed his desire to enter into trade deals with other countries, some of whom are RCEP members, if TPP is sidelined by the incumbent regime in the United States.
Moreover, APEC constitutes of several developing countries viz. Peru, Chile, Indonesia and Vietnam, among others, who are striving hard to increase their exports and annual growth rate. Integrating their micro, small and medium enterprises (MSMEs) into the GVCs shall definitely be a key trade policy instrument for them worth pursuing. Interestingly, statistics reveals that 97% of all enterprises in the region are SMEs, and they have been playing a pivotal role. So, along with the national governments, the APEC Business Advisory Council can play a critical role in assessing the sectoral potential and preparing a concerted roadmap for their upgradation and modernization, an issue which is already on the table.
The impediments that the MSMEs of the region face are either due to lack of sectoral comparative advantages at the macro-level or inept organizational learning at the firm-level. Also, there are other considerable challenges pertaining to market access, SME financing etc. but the solutions can be found within the region itself. For instance, Japan has specialized private banks called Shinkin banks that are meant to finance SMEs. Such best practices are worth replicating in developing countries of the region as well.
In September, APEC has already endorsed its Strategic Plan 2017-20 for MSMEs that furnishes a roadmap for innovativeness, addresses credit needs for expansion, and calls for improved market access. Such initiatives will increase their export-orientation and integrate them with existing and potential GVCs, as desired by the Philippine-led Boracay Action Agenda 2014 as well. The benefit of this enhanced participation will consequently translate into labour market opportunities and sustained growth for the consumers. It will bring the MSMEs into the mainstream of international trade, wherein intermediate goods constitute a major chunk of global merchandise trade today.
Through its policy and institutional frameworks, APEC need to create an enabling environment for linking the MSMEs with the lead firms, which are generally large multinational companies controlling the GVCs. Reforms like harmonizing or even simplifying the rules of origin and leveraging information and communication technology as a developmental tool would be highly beneficial for the MSMEs as well for the consumers.
Thus, APEC’s mandate is development and integration, and it should not allow geopolitical uncertainties to deter its region-building efforts at this crucial juncture.
Dr. Faisal Ahmed is Associate Professor of international business at FORE School of Management, New Delhi. Views are personal.