Political and business leaders from Asia-Pacific and the Americas are making final preparations for the last Asia-Pacific Economic Cooperation (Apec) leadership summit that outgoing United States President Barack Obama will attend on Friday and Saturday in Lima, Peru. The election of Donald Trump will shape atmospherics and China has made explicit that it will seek to push competing trade pacts to the US-led Trans-Pacific Partnership (TPP) whose prospects of ratification in the US Congress now appear dead.
Presidents, prime ministers and CEOs, including Facebook chief Mark Zuckerberg, will attend not just from the US and China, but also from Australia, Canada, South Korea, Taiwan, Japan, New Zealand, Singapore, Brunei, Malaysia, Philippines, Thailand, Mexico, Papua New Guinea, Chile, Russia, Vietnam, Indonesia and hosts Peru. Collectively, these states account for more than 50 per cent of global gross domestic product and nearly half of world trade.
It is the anticipated demise of TPP and China’s alternative vision for a Free Trade Area of Asia Pacific (FTAAP) plus a pact — for which discussions have been underway since 2012, known as the Regional Comprehensive Economic Partnership (RCEP) — will be the key economic and geopolitical undercurrents of the session. Chinese Deputy Foreign Minister Li Baodong said last week that “protectionism is rearing its ugly head ... China believes we should set a new plan to ... sustain the momentum for the early establishment of a free trade area”.
While FTAAP is a project that has been under debate since at least 2004, it has assumed new importance for Beijing since the Obama administration began championing TPP. According to Chinese President Xi Jinping, the FTAAP would provide a greater economic boost than TPP (which would have comprised the US, Singapore, Australia, New Zealand, Japan, Canada, Brunei, Chile, Peru, Vietnam, Malaysia and Mexico, but not China) and he has encouraged Apec in the past to “vigorously promote [FTAAP], setting the goal, direction and roadmap and turn the vision into reality as soon as possible”.
While Xi has said that FTAAP and RCEP do not “go against existing free trade arrangements”, at the heart of the debate on this issue are contrasting US and Chinese visions to shape the regional order and cement their influence in it. And Beijing’s push for FTAAP and RCEP (which comprises the 10 Association of Southeast Asian Nations plus India, Australia, Japan, South Korea and New Zealand, but not the US) thus provide alternative models for regional economic integration to that previously favoured by the Obama administration.
Presuming TPP is now dead with Trump’s election, and no alternative is proposed by his administration, there could now be significant new momentum behind FTAAP and RCEP. In the final communique of the 2014 Apec leadership meeting in Beijing, countries agreed to a study, looking into the feasibility of establishing an FTAAP that was welcomed by Xi as a “historic” decision. And at last November’s Apec summit in the Philippines, Beijing announced initial findings of the research with the intent, as Deputy Finance Minister Wang Shouwen asserted, to “complete the joint strategic study and to present operable suggestions and recommendations to the leaders at this year’s summit”.
This underlines why the potential seizing of the trade initiative now by Beijing could be a major long-term blow to US influence in the region and potentially beyond. For instance, US Trade Representative Michael Froman has despaired that Washington “is the one going to be left of the sidelines as others move forward if [TPP] doesn’t happen”.
A key ambition for Obama with TPP — a quarter of a century after Washington helped create APEC — had been embedding a new international framework to enhance US influence. TPP would thus have been only the latest example of a global institutional-building project that began in the post-Second World War period on a largely bipartisan basis, at least until the election of Trump, to encourage growth of democracy and open markets across the world.
From 1945, US administrations have helped create and nurture key bodies that exist to this day from the United Nations to the International Monetary Fund and World Bank.
Inspired by this success, the administrations of former US presidents George H.W. Bush and particularly Bill Clinton sought to respond to the collapse of Soviet Communism by encouraging creation of a range of economic institutions, including not just Apec, but also the World Trade Organisation and North Atlantic Free Trade Agreement too.
From China’s perspective, RCEP and FTAAP would be much more conducive to its national interests (not least because it would be explicitly part of the new economic agreements and shape their design) by creating free trade areas with China potentially at the centre. In the past, Beijing has also expressed hope that FTAAP could ultimately evolve into a broader regional cooperation blueprint in areas such as transportation from air traffic to highways and railways.
By playing a lead role in championing FTAAP and RCEP, Beijing aspires to burnish its regional leadership credentials. This is sensitive given that some neighbouring countries remain wary of its future ambitions as a nascent superpower, as indicated by territorial spats over the South China Sea, through which, some $5 trillion (Dh18.39 trillion) of ship-borne trade passes each year.
At a time when Beijing is looking to intensify its diplomatic charm offensive on FTAAP and RCEP, it would be infuriated if South China Sea issues become key discussion points at the Apec summit this week. China has proclaimed territorial sovereignty over a significant portion of the sea, while the US is pushing for freedom of navigation and other countries are also exercising claims in the sea, including Brunei, Malaysia, Taiwan, Vietnam and the Philippines.
Taken overall, with TPP now apparently dead, following Trump’s election, the momentum could pick up fast for RCEP and FTAAP, especially if Beijing ramps up its diplomatic offensive. China could therefore now assume the upper hand in the competition for the regional economic integration agenda, which may damage US influence not just with local allies, but potentially those well beyond.
Andrew Hammond is an Associate at LSE IDEAS (the Centre for International Affairs, Diplomacy and Strategy) at the London School of Economics