by Rajiv Biswas, Asia-Pacific Chief Economist for IHS Global Insight
Key Points:
- With APEC exports having declined sharply in the 2016 YTD, the APEC Economic Leaders Summit that took place in Lima, Peru on 19-20 November was dominated by discussions about the changing US political landscape which could create greater headwinds for further trade liberalisation.
- FTAAP:Faced with the prospect that the Trans-Pacific Partnership (TPP) agreement may stall, APEC leaders reaffirmed their commitment to move forward with planning for a Free Trade Area of the Asia-Pacific (FTAAP), an initiative for greater trade liberalization proposed by China at the APEC Summit in 2014, with next steps announced in the Lima Declaration on FTAAP. The Lima Declaration reaffirmed that the FTAAP would be realized outside of APEC but in parallel with the APEC process, creating flexibility for an alternative architecture in case some APEC members do not wish to pursue the FTAAP vision.
- APEC countries are already facing a deteriorating trade outlook with the total value of exports by the APEC member countries having contracted by 6.4% in the first eight months of 2016 compared to the same period a year ago.
- The bleak situation facing Asia Pacific exporting nations was highlighted by the news today that Japanese exports contracted by 10.3% year-on-year in October, the 13thsuccessive month of declining exports.
- Chinese exports also contracted in October, falling 7.3% year-on-year in USD terms, and down 7.7% in the first ten months of 2016 compared to the same period a year ago. South Korean exports contracted by 3.2% year-on-year in USD terms in October, while Singapore’s non-oil domestic exports slumped by 12% year-on-year in SGD terms in October.
- A key concern influencing the APEC Summit discussions was the potential impact of significant future shifts in US trade policy under the incoming Trump Administration. In his election platform, Trump had strongly opposed the TPP deal and signaled greater use of countervailing tariff measures to tackle unfair trade practices.
- TPP:While APEC leaders reaffirmed their commitment to free trade and further trade liberalization, there was also recognition by many leaders that the TPP agreement is likely to now be stalled, with the US unlikely to ratify the deal. For a number of Asian TPP negotiating partners, including Japan, Vietnam and Malaysia, the TPP had been expected to bring significant economic benefits.
- NAFTA:Two APEC member countries, Canada and Mexico, also face the prospect that the Trump administration may seek to renegotiate the terms of NAFTA (North American Free Trade Agreement) which has been implemented since 1994.
Implications of the APEC Leaders Summit Declaration:
Competitive Currency Devaluations: APEC leaders have pledged to refrain from competitive currency devaluations at the Lima APEC Leaders Summit, reaffirming similar pledges that have regularly formed part of the statements in previous APEC Summits in recent years. However, the issue of competitive devaluation has become a red hot political issue since Trump won the US presidential election, since he has stated as part of his election platform that he intends to declare China as a currency manipulator once he takes office. The weakening of the yuan against the USD to its weakest level in eight years is likely to renew the incoming Trump Administration’s scrutiny of this issue. A key part of Trump’s election platform on trade had been to use countervailing tariff measures as a defense against unfair trade practices used by trade partners, such as export subsidies and currency manipulation. One of the key policy platforms of the Trump election platform on trade is to bring trade cases against China to tackle its unfair trade behavior. However, the Trump Administration would also be likely to take similar steps against other countries that are perceived to be using unfair trade practices, and this could include other Asian nations.
Trade Protectionism: Although APEC Leaders committed to fighting all forms of protectionism and pledged to keep their markets open, there has been a rising political backlash in the West against trade liberalization initiatives such as TPP, and this was an important issue in the US presidential election. Public sentiment in the West has become more hostile due to perceptions that trade liberalization is resulting in job losses and eroding living standards for workers in affected industries. Certain aspects of the new trade agreements have also been highly controversial politically, such as the investor-state dispute settlement provisions in the TPP investment chapter. If the incoming Trump Administration significantly alters its trade policies with Asia by abandoning TPP, escalating countervailing tariffs against various Asian countries and re-visiting bilateral FTAs, this could catalyze greater intra-Asian trade liberalization initiatives.
RCEP: A number of Asia Pacific countries including China, the ASEAN ten members as well as Japan, South Korea, India, Australia and New Zealand have been negotiating the Regional Comprehensive Economic Partnership (RCEP) trade agreement since 2012. The scope of the RCEP covers trade in goods and services as well as investment, intellectual property and e-commerce. With the TPP agreement expected to stall, this may galvanize momentum for the successful conclusion of the RCEP, with China and ASEAN playing more central roles in strengthening the APAC trade architecture. Asia Pacific nations may also focus on strengthening their networks of bilateral FTAs, as reflected in the recent FTAs concluded between China and South Korea, and between and China and Australia. At the Lima APEC Summit, both Peru and Chile, two of the TPP member countries, were reported to have expressed interest in joining the RCEP negotiations.
WTO TFA: Despite setbacks to further trade liberalization for APEC members who are also part of the TPP agreement, one important area of positive progress on global trade liberalization has been the WTO Trade Facilitation Agreement (TFA), and APEC Leaders welcomed progress by WTO member countries towards acceptance of this agreement and called on APEC countries that have not yet accepted to WTO agreement to do so by the end of 2016. The TFA could reduce trade costs for WTO members by an average of 14.5% and could potentially boost global merchandise exports by between $750 billion and $1 trillion per annum when it is fully implemented, with developing countries’ exports estimated to increase by between $170 billion and $730 billion per annum based on WTO projections.
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