APEC: SHAPING THE REGION AND THE WORLDOutcomes from the APEC Summit 2013

WHO IS IN APEC?

21 member economies

55% world GDP

44% global trade

40% world’s population

600 million people

10 countries

2.4 trillion GDP(around 1/3rd of China’s)

WHO IS IN ASEAN?

CONTENTS

1. Scene Setting: Key Themes

2. Tangible Outcomes: What came out of the APEC Summit?

3. The Big Conversation: Free Trade

4. Conclusions: Global Trade Dynamics

BIG WINNERS: INDONESIA AND BALI• Indonesia and Bali have

seriously boosted their international standing – pulling off a huge international summit well, with all the world’s media looking on. The 9th

WTO Ministerial Conference talks will soon follow in December.

• Bali is also a big winner, with a brand new airport and infrastructure – not to mention global media exposure. Future tourism boost…

US-CHINA POWER SHIFT• China was left largely unopposed to work

its agenda at APEC this year, as the US was preoccupied with political dysfunction at home…

• China’s successful APEC came hot on the heels of key state visits to Jakarta and Kuala Lumpur, as well as boosting support for “upgrading” the ASEAN-China Free Trade Area (ACFTA) at the East Asia (ASEAN) Summit, following APEC.*

• China is looking very closely at building its ties with ASEAN and enhancing connections between the two. Talk of a modern ‘silk road’ is doing the rounds…* The East Asia Summit involves the 10 ASEAN members plus the US, China, Russia, Japan, India, Australia and New Zealand.

OBAMA DI MANA? (WHERE IS OBAMA?)

• The US suffered serious international embarrassment as President Obama was unable to attend APEC and put forward his personal push for the Trans-Pacific Partnership (TPP); a huge free trade agreement being pushed for by the US government.

• Further questions are being asked of the US’s supposed “Asian pivot”: a foreign policy or a PR strategy?

• Political gridlock at home is increasingly hurting perceptions of American power and influence abroad…

US STILL RELEVANT

• Despite the absence of Obama and the intense media hype, US power is “diminished” not removed entirely…

• Many countries in the region are still more favorable to the US than China; China has a number of ongoing territorial disputes with other states in the Asia-Pacific region. This makes some of these states much more partial to US influence.

• Chinese influence is growing in the Asia-Pacific…

• They are also making inroads in ASEAN…

• This is to the detriment of the US, and to a smaller extent, Japan.

• Russia enjoys the status it gets in a special relationship with China at APEC, but Russian influence over APEC member policy is limited.

Image: APEC 2013

HOWEVER….

CHINESE CHEER

• President Xi Jinping’s trip to South East Asia was undoubtedly a success.

• President Xi concluded his first visit to South East Asia, rounding of separate bilateral trips to Indonesia and Malaysia with the APEC Summit.

China signed $28.2 billion worth of trade and business deals with Indonesia

China signed a five year trade deal to triple two-way trade to $160 billion by 2017, with Malaysia

RCEPTPP ACFTA

China backed trade agreements include the Regional Comprehensive Economic Partnership (RCEP), between

16 Asia-Pacific nations – the 10 ASEAN states plus Australia, China, India, Japan, South Korea and New

Zealand. The RCEP is slated to operate from the end of 2015.

The RCEP includes more than 3 billion people, has a combined GDP of around $17 trillion, and makes up about

40% of world trade.

Also the ASEAN-China Free Trade Area (ACFTA), which would create an economic area of 1.9 billion people and a

regional GDP of around $10.2 trillion.

Both would give China unrivalled market access to ASEAN and the Asia-Pacific, and exclude the US! The US is backing the TPP – which China does not support and refuses to join.

CHINA, APEC AND ITS FREE TRADE AGREEMENTS

DON’T KNOW YOUR TPP FROM YOUR RCEP?

Trans-Pacific Partnership (TPP)

(12 Nations)•Australia •Brunei•Canada•Chile•Japan•Malaysia•Mexico•New Zealand•Peru•Singapore•US•Vietnam

Regional Comprehensive Economic Partnership

(RCEP)(16 Nations)

•Australia•China•India•Japan•South Korea•New Zealand•(PLUS THE ASEAN 10)•Brunei Darussalam•Cambodia•Indonesia•Laos•Malaysia•Myanmar•Philippines•Singapore•Thailand•Vietnam

“We’ve gone from 5 free trade agreements in the region to 75

and another 82 being negotiated.” –

Singaporean Prime Minister Lee Hsien Loong, on bureaucracy of free trade (FTA) agreements in the Asia region.

THE FTA PYRAMID

TPP - 12 countries – mirrors Transatlantic Trade and Investment Partnership (T-TIP) between US and EU.

The TPP is “wide and deep” in its scope.RCEP – “ASEAN+3”

(China, Korea, Japan) + India, Australia and New Zealand. This is the only time India appears in a major Asia

regional FTA.

WTO – BASELINE GLOBAL TRADE RULES!

TANGIBLE OUTCOMES

THE APEC WAY…

APEC is not a binding forum…

Remember,

APEC’s role is to form political agreement and consensus on economic issues and trade.

Its members can work as willingindividual nations or groups of nations to pursue bilateral, regional or multilateral agreements, especially on trade issues.

PLEDGES TO FACEDOWN PROTECTIONISM

A commitment was made to extend through the end of 2016 an agreement to reduce and roll back protectionist measures – such as tariffs, import bans and quotas.

APEC MINISTERIAL MEETING

• Indonesia got three of its proposals in the bag during the Ministerial Meeting:

A connectivity framework; Multi-year plans for investment in infrastructure

development; A study of products that could contribute to

poverty alleviation, (and therefore should have tariffs reduced), as they promote rural development and sustainable growth.

• The latter is a real breakthrough for Indonesia, as it tries to get crude palm oil (CPO) and rubber in a list of tariff reduced or exempted goods; both are major Indonesian products. (A breakthrough on this certainly would benefit Indonesia, Malaysia, and Singapore's big palm oil producing companies).

• This moderate success is also good political PR for

Indonesian Trade Minister Gita Wirjawan, who has Presidential aspirations for 2014.

Image: APEC 2013

A RENEWED FOCUS ON INFRASTRUCTURE

• Boosting connectivity

is a must for Asia and APEC; poor infrastructure is increasingly impeding the growth potential of the region.

• Connectivity is already

a big issue in ASEAN – the primary focus ahead of the ASEAN Economic Community 2015 is connectivity – the question is how to make it happen…

In APEC/ASEAN speak,

connectivity means roads, rail

& ports

ARE PPPs THE ANSWER?

• Public Private Partnerships (PPPs) are frequently touted as the answer, but suffer from capacity gaps, a lack of finance, legal uncertainty, regulatory impediments and less than certain government guarantees. These are major barriers to the private sector…

• Ensuring that PPPs have a solid legal framework will be the main challenge in getting projects up and going.

• Legal systems will need strengthening. Investors need to know they have solid legal ground for the lifecycle of the project – often decades long…

A PPP PILOT CENTER AND EXPERT PANEL

• A greater emphasis on private sector involvement through boosting the Public-Private Partnership (PPP) mechanism, was one of the key announcements.

• Indonesia has announced a pilot PPP center, supported by an expert panel, which will bring together national, regional and international financial institutions to boost PPP projects within APEC.

PPP PILOT CENTER REMIT

1. Provide technical expertise to the economy for any stage of the project cycle, covering technical, economic and financial questions;

2. Ensure coordination by developing and reviewing project structures, removing bottlenecks, filling gaps and identifying problems in the delivery of particular infrastructure projects; and

3. Assist to raise the capacity of relevant entities in the economy to develop PPPs.

OTHER INFRASTRUCTURE ANNOUNCEMENTS

• The APEC infrastructure framework and multi-year plan is hoped to expand similar work already carried out by ASEAN and broaden its scope.

• In the last few days, China has also announced that it will set up and provide funding for an Asian Infrastructure Investment Bank, to help facilitate regional connectivity and infrastructure development in the Southeast Asian region.

• Japan has also made a similar announcement to provide infrastructure support and technical assistance to the region – focusing on energy and transportation.

• Both China and Japan are maneuvering for leverage and power within the increasingly economically critical ASEAN area – not to mention the US – so, while so far, PPP has had variable take-up around the APEC region, (and is particularly weak within ASEAN), this bodes well for scaled-up participation…

APEC CEO SUMMIT

• According to the PWC 2013 APEC CEO Survey – which surveyed CEOs working in the Asia-Pacific region – there is still growing business confidence, despite global economic challenges.

• The China, Indonesia and the United States were cited as the three most likely destinations for FDI in the region…

• 68% of CEOs will be increasing their investments in APEC economies over the next 12 months.

• The finding that the US is the 3rd largest beneficiary of investment is also significant. As costs invariably rise in a more wealthy and aspirational Asia, some jobs and output will be cheaper for US firms to “bring back home”. This reminds us that Asian economic success, while highly probable, is not a birth right.

THE BIG CONVERSATION: FREE TRADE

The Trans-Pacific Partnership (TPP)

A $28 trillion area of annual

economic output

PROGRESS ON THE TRANS-PACIFIC PARTNERSHIP

• Moves to push forward the TPP went ahead without the clout of Obama, but supported strongly by Secretary of State, John Kerry, and Secretary of Commerce, Penny Pritzker.

• Despite the White House spin, many nations are in less of a hurry to get the TPP to fit an artificial US timetable (end of 2013 as a sign of economic progress), and are putting more emphasis on getting a good deal rather than a fast one.

• The US business community has also voiced its continued concern over rushing through a watered down TPP, which would leave in place room for currency manipulation and IP infringement (this division of priorities between the White House and US Business was very apparent at the APEC CEO Summit.) US businesses want a strong rule-based agreement.

CONTINUED ROADBLOCKS TO THE TPP

• Malaysian Prime Minister Najib Razak, (note Malaysia backs TPP), said the year-end deadline for completion may not be met and warned some areas of the talks are cause for “great concern”. Mexico also voiced doubts about the timeline.

• Issues such as competition rules from Vietnam and procurement rules from Malaysia are also still negotiation hurdles.

• Indonesia has stated a growing interest in the TPP, but has said that it still needs time to reform its economy and build its “supply side capacity” (also, Indonesia, which so far has not joined TPP talks, currently would unlikely be able to meet many of the standards and free trade rules set down in the TPP).

• It is interesting to see how Malaysia’s position on the “wide and deep” TPP in some ways mirrors Indonesia’s on aspects of the RCEP. This reminds us that, in any regional trade agreement, not all countries are at the same level of development and each has specific concerns, which is why they are nervous. It is within this reasoning that Indonesia wants success at the WTO Bali talks; the WTO sets the world trade baseline.

• Whether the TPP agreement is really “on track” for the end of this year remains uncertain…

SOME (SMALL) PROGRESS ON THE NEXT WTO ROUND

• A Commitment to make progress in the upcoming WTO Doha Free Trade Talks (better than no commitment). APEC may give the WTO a lifeline…

• APEC trade ministers expressed hope of achieving a “trade facilitation small package” for the 9th WTO “Doha Round” Ministerial Conference talks, to be held in Bali in December. This will consist of trade facilitation, and some breakthroughs on elements of agriculture and food.

The three main components include: - trade facilitation - food security

- the development dimension

• Indonesia is talking up the idea that this will be a limited “Bali Package”, but nonetheless, an agreement.

• Restoring credibility to the WTO is a must for it to remain relevant. Multilateral trade institutions and agreements are becoming increasingly overshadowed by regional and bilateral agreements of “willing partner nations”.

CONCLUSIONS

Image: APEC 2013

INTERPLAY OF TRADE AGREEMENTS

WTO

RCEP

TPP

• There is a mounting interplay between bilateral, regional, and global multilateral trade agreements.

• From the ACFTA*, RCEP, TPP, and the next WTO meeting – agreements are increasingly overlapping and interwoven. We are also seeing a real increase in trade agreements being used as vehicles for regional influence – i.e. US vs. China.

• Arguably, APEC itself is yet another intersecting trade focused forum that also overlaps/complements the WTO.

*ASEAN-China Free Trade Area (ACFTARegional Comprehensive Economic Partnership (RCEP)

Trans-Pacific Partnership (TPP)World Trade Organization (WTO)

NATIONS ON FORM

LATIN AMERICA AS A DRIVING GLOBAL

FORCE•This APEC showed that it is not just an Asia-US focused forum.•Latin American countries are very engaged and leading from the front. Mexico and Chile were big vocal forces, driving agreements on free trade.•Both countries however are reliant on strong leaders, who project their nations influence. For example, will President Piñera’s (President of Chile) successor be as effective on the world stage?

A RESURGENT JAPAN

•Japan’s PM Shinzo Abe was on superb form at APEC. He described himself as a “drill bit” fixed on reform and breaking up encrusted anti-competitive regulations. The Japan he espoused was a more open and invigorated nation, ready to give way on some longstanding protectionist measures. Abe gave one of the strongest APEC performances. •A Japanese Minister also demonstrated Japan’s strong backing for the TPP, stating that he viewed the trade deal as the “fourth arrow” in Abe’s bid to breathe new life into the previously stagnant Japanese economy, through his set of “Abenomics” policies.

SINGAPORE: CONTINUING TO PUNCH

ABOVE ITS WEIGHT•Despite being a small city-state, Singapore was another leading player at this year’s APEC.

•Singapore’s PM Lee Hsien Loong spoke strongly about the need for countries to push for free trade, open markets and resist protectionism, but was also frank in stating that while many businesses may push for free trade publicly, they privately lobby for protectionist measures in their home markets. Lee said the test of government was to resist these calls.

•Singapore’s influence is multiplied by having a set of very bright, able and vocal leaders. It is perceived as an honest broker within the international arena.

*Counting Abe’s Arrows: Japanese Prime Minister was elected on a platform of three arrows to boost Japan’s economy: a $110 billion stimulus package; a new inflation Central Bank 2% inflation target ,to combat deflation and structural and regulatory reforms. Some people regard the recently-announced doubling of consumption tax to be a ‘fourth arrow’, but technically it is part of arrow one.

APEC’S CONTINUED IMPORTANCE

• APEC continues to play an important role as a forum for economic discussion, strategy and direction.

• It brings many people to the tent; this is an achievement in itself. Talking shops play a valuable role in building consensus; consensus building takes time. Free trade agreements don’t just happen.

• APEC has also lent the next global WTO free trade talks a lifeline. A small focused “Bali package” is better than the potential WTO void that was expected pre-APEC. Disaster averted? We will see…

Stephen LockEdelman Indonesia

THANK YOU