Prospects for Asia Pacific Economic Integration

As a critical component of economic globalization, Asia Pacific regional economic cooperation has attracted worldwide attention. It has wide coverage and a huge economic scale, but it also now has sharp contradictions between developing and developed economies and complicated integration mechanisms. Today, regional economic cooperation in the Asia Pacific region is once again at a crossroads. The Trans-Pacific Partnership Agreement (TPP) and the Regional Comprehensive Economic Partnership (RCEP) are both under discussion with clear timetables, the former excluding China and the latter excluding the United States. The Free Trade Agreement of the Asia Pacific (FTAAP), proposed by the Asia Pacific Economic Cooperation (APEC) in 2006, remains but a mere “vision.” By looking back at the evolution of regional economic cooperation in the Asia Pacific region, this paper will unpack the relationship between the TPP and the RCEP, compare their advantages and disadvantages,and discuss the mission of APEC and how it can facilitate the FTAAP.

I. Evolution and Characteristics of Asia Pacific Regional Economic Cooperation

The concept of Asia Pacific regional economic cooperation can be traced back to the 1960s and 1970s, a time when the Pacific and Trade Development Conference, an academic meeting, was working alongside the Pacific Basic Economic Council, a business association,in order to develop and promote economic cooperation in the Asia Pacific region. The founding and development of ASEAN provided policymakers with a template for system building, while the thaw in Sino-American relations and China’s Reform and Opening provided the setting for Asia Pacific economic cooperation. The Pacific Economic Cooperation Council (PECC) initiated by former Australian Prime Minister Malcolm Fraser and former Japanese Prime Minister Masayoshi Ohira connected governments, businesses and academics across the region, thus laying the foundation for Asia Pacific economic cooperation. Following PECC, the first APEC ministerial-level meeting was held in Australia in 1989, marking the beginning of significant Asia Pacific economic cooperation. The cooperation process can be divided into three distinctive stages: open regionalism from 1989 until 2001; division between 2001 and 2008;and reintegration beginning in 2008.

1. Open Regionalism

The establishment of APEC in 1989, especially the first APEC Leaders’ Informal Meeting in 1993, facilitated multilateral trade talks and played a key role in completing the GATT Uruguay Round.In 1994, APEC leaders convened an informal meeting to select the Bogor Goals: that developed members would “achieve free trade and investment” by 2010, while developing members would reach that goal by 2020. The Osaka Action Agenda was released at the 1995 APEC meeting, setting objectives for trade liberalization and economic and technical cooperation. The Agenda also established the principle of voluntary action and helped encourage unilateral liberalization. In 1996, APEC outlined the Manila Action Plan to boost free trade and investment and the Declaration on an APEC Framework on Strengthening Economic Cooperation and Development to boost economic and technical cooperation. Despite these successes, the United States was dissatisfied with APEC’s unilateral action and fought to facilitate trade and investment liberalization through negotiation.In 1997 at the APEC Vancouver meeting, it presented the Early Voluntary Sectoral Liberalization (EVSL) plan. During the Asian financial crisis of the same year, APEC’s “weak institutionalization”was fully exposed. In 1998, the collapse of EVSL revealed the conflicts between open regionalism and the promotion of regional economic cooperation through negotiation, posing a huge obstacle to APEC trade liberalization.1Michael Sutton, “Asia Pacific Regionalism in the 1990s: Cooperation, Consensus and Conflict,”Ritsumeikan Annual Review of International Studies, 2006. Vol.5, pp.59-83. http://www.ritsumei.ac.jp/acd/cg/ir/college/bulletin/e-vol.5/SUTTON.pdf.

Consequently, Asia Pacific regional economic cooperation tended to be rather divided. East Asian countries began to unite even more for self-strengthening and ASEAN conducted in-depth dialogues on economic cooperation with other East Asian economies. In November 2000, finance ministers from ASEAN member countries convened with their counterparts in China, Japan and South Korea to start the Chiang Mai Initiative, which was an attempt to improve East Asia’s capacity to prevent financial risks. ASEAN increased its interactions with northeast Asia, intending to establish an FTA. As early as 1998, the United States proposed having free trade negotiations between itself, Australia, Chile, New Zealand and Singapore with the intention of “spurring Asian members of APEC into action on trade liberalization.”2Ann Capling, “Multilateralising PTAs in the Asia Pacific Region: A Comparison of the ASEANAustralia-NZ FTA and the P4 Agreement,” Paper for Asia Pacific Trade Economists’ Conference,ARTNeT, United Nations Economic and Social Commission for Asia and the Pacific, Bankok,November 2-3, 2009.Some scholars pointed out that the United States would only aim at enclosed free trade arrangements, even if they were within APEC.

It is worth noting that in its early stages through the dawn of the 21st century, APEC was the only economic cooperation mechanism in the Asia Pacific region to connect Asia with the other side of the Pacific.On the one hand, East Asian countries have come to favor APEC’s open regionalism; but on the other hand, they remain committed to unilateral liberalization and multilateral trade arrangements. Apart from the ASEAN Free Trade Area (AFTA), there has not been much regional or bilateral free trade arrangements in the Asia Pacific, not to mention FTAs among northeast Asian countries.

As a result, APEC was the main platform for Asia Pacific regional economic cooperation in the 1990s. At the time, APEC was guided by the philosophy of “open regionalism,” while the United States was compelled towards a strategy of “competitive liberalization.” Despite facing some difficulties, “open regionalism” was reinforced by the collapse of the EVSL, and APEC continued to engage in consensusbased decision-making. It also continued to follow the voluntary and non-binding principles, boosting the liberalization of trade and investment as well as economic and technical cooperation.

2. Stage of Division

The year of 2001 was of critical importance in the history of Asia Pacific regional economic cooperation. First, the events of September 11th moved the United States’ attention to the Middle East and Afghanistan, thus reducing its input in the Asia Pacific region for the following years. For the first time ever, anti-terrorism was included among the topics covered by APEC. Alongside efforts to boost trade and investment, as well as economic and technical cooperation,APEC introduced the “Pathfinder” initiative to motivate economies ready to initiate and implement cooperative arrangements. The“Pathfinder” initiative was in line with the Bogor Goals and APEC’s existing principles.3APEC, “ APEC Economic Leaders’ Declaration,” Shanghai, China, October 21, 2001, http://www.apec.org/Meeting-Papers/Leaders-Declarations/2001/2001_aelm/appendix1_shanghai.aspx.China’s accession to the WTO also boosted economic cooperation in the Asia Pacific region, while China and ASEAN together proposed the establishment of a “China-ASEAN Free Trade Agreement” (CAFTA).

In the following years, sub-regional and bilateral free trade agreements in the Asia Pacific region took shape in large numbers.One after another, East Asian countries such as China, Japan and South Korea established FTAs or Comprehensive Economic Partnerships with relevant economies. In particular, East Asian free trade arrangements with ASEAN served as a great stimulant for regional economic cooperation. Shortly after launching bilateral FTAs among regional economies, East Asian countries immediately sensed the necessity of establishing a regional economic cooperation mechanism. The integration process, however, was delayed due to China and Japan’s fight over whether to favor the East Asia Free Trade Area (EAFTA) or the Comprehensive Economic Partnership in East Asia (CEPEA). Some small economies also followed the pattern. For example, Brunei, Chile, New Zealand and Singapore swiftly established the “Trans-Pacific Strategic Economic Partnership Agreement.”

The United States gradually came to realize the new changes in the Asia Pacific region and consequently worried that a line would be drawn through the middle of the Pacific.4C. Fred Bergsten, “Imbedding Pacific Asia in the Asia Pacific: The Global Impact of an East Asian Community,” Speech at the Japan National Press Club, Tokyo, September 2, 2005, http://www.piie.com/publications/papers/bergsten0905.pdf.In response, the United States proposed the “Free Trade Agreement of the Asia Pacific”(FTAAP) in 2006 and included the proposal in the Declaration of APEC Leaders’ Informal Meeting. The proposal, however, did not attract enough attention and was even viewe din diverging ways within the United States.

At this stage, Asia Pacific regional economic cooperation mainly featured bilateral trade arrangements, while sub-regional and cross-Pacific arrangements were far from reaching maturity. Since the United States named this strategy “competitive liberalization,” this stage can be referred to as the “competitive liberalization stage.”

3. Stage of Reintegration

Beginning in 2008, the United States took advantage of the “P4”and launched the “Trans-Pacific Partnership” (TPP) negotiation.This move has been viewed as an important part of the United States’ so-called “return to Asia” strategy. In the following years,TPP negotiating countries increased from nine to twelve. By 2013,TPP members had completed 19 rounds of negotiations and had reached consensus on a range of different areas: trade facilitation,animal and plant inspection and quarantine, technical trade barriers,mobility of business people, telecom, labor, laws and institutional issues and cooperation on capacity building. Meanwhile, they had achieved progress on rule of origin, investment, trade remedy, crossborder service, financial service, e-business and dispute settlement.Despite all of their success, they remained far away on issues of market access, intellectual property rights, competition policy,environmental protection and government procurement. The newest TPP intellectual property text is teeming with “square brackets”- issues to be negotiated - an indication of the huge differences between participating countries. Since the remaining issues will be tough to crack, high-level political decisions must be made in order to reach agreements. Some are predicting that negotiations could be completed in 2014, but others worry that a rushed settlement of the TPP negotiations could result in a disappointing and “terrible agreement.”5“Farmers Don’t Want A ‘Quick and Dirty’ TPP Trade Deal,” Radio New Zealand, October 10, 2013, http://www.radionz.co.nz/news/rural/224234/farmers-don%27t-want-a-%27quick-anddirty%27-tpp-trade-deal.

The emergence of the TPP severely hampered East Asia’s integration and resulted in the “catfish effect.” At the same time,East Asia’s regional economic cooperation has continued to develop.ASEAN strove to maintain its ”centrality” in regional cooperation;China and Japan mended some of their differences and no longer struggle over whether to favor “ASEAN +3” or “ASEAN+6.” All of these factors helped promote East Asia’s integration. In August 2012,economic ministers from ten ASEAN Member States agreed with China, Japan, South Korea, India, Australia and New Zealand to build a “Regional Comprehensive Economic Partnership” (RCEP)and conclude negotiations by 2015. In May 2012, China and Korea launched FTA negotiations that are supposed to be completed by 2015. In November of the same year, China, Japan and South Korea announced the launch of FTA negotiations. These two FTAs will fill the gap in northeast Asia and help promote the RCEP. Though some people became pessimistic regarding the RCEP as the TPP gained momentum, official commitment and efforts on the RCEP have remained constant.

The RCEP plays an important part in integrating various“ASEAN+1” free trade agreements, while the TPP helps integrate the bilateral FTAs among negotiating members. The RCEP and TPP present two competing tracks in the Asia Pacific region. Despite some overlapping members, the TPP excludes China while the RCEP excludes the United States. As a result, these so-called solutions will not help advance regional economic integration.

II. Theoretical Exploration and Redeeming Qualities

At their core, fights over different pathways in Asia Pacific regional economic cooperation are fights over the guiding principles of regional economic cooperation and development. Namely, they are fights between favoring “open regionalism” or “competitive liberalization.”These two principles must be distinguished.

1. Open Regionalism

The PECC has advocated open regionalism since its establishment in 1980. At that time, the economies of the Western Pacific were dedicated to domestic reform and opening policies. Under the consensus of “concerted unilateral liberalization,” these economies appealed to establish a “non-discriminatory international trading system” as well as an open and non-discriminatory trading bloc. As a result, unilateral liberalization and non-discriminatory regional organizations became the core and defining features of “open regionalism.”

It should be noted that open regionalism is typically likened to the ASEAN way, which is define d by unilateral liberalization, voluntary and non-binding principles and consensus based decision-making.

APEC then fine-tuned its definition of open regionalism. Under the guidance of the United States, APEC attempted to redefine open regionalism in the first Eminent Persons Group (EPG) report in 1993. It put forward the “non-mut ually exclusive four-part formula,”6APEC Eminent Persons Group, “A Vision for APEC Towards an Asia Pacific Economic Community,” APEC EPG Report to APEC Ministers, October, 1993.including the maximum possible extent of unilateral liberalization,a commitment to reducing barriers to non-member countries, a willingness to extend its regional liberalization to non-members on a mutually reciprocated basis and a recognition that any individual APEC member can unilaterally extend its APEC liberalization to non-members.

The r eport focused on the “principle of reciprocity,” swaying far from the original intentions of open regionalism. In fact, the east and west sides of the Pacific tend to hold different views on the subject of open regionalism. The United States, which shifted from unilateralism to bilateralism or exclusive regionalism, has been eager to make use of the principle of reciprocity to practice trade liberalization and discrimination. The countries of the western Pacific, however, were vigilant in reasserting open regionalism, as well as the voluntary and non-binding principles at the 1995 Osaka Meeting and the 1996 Manila Meeting. This difference has sowed the seeds of trade liberalization setbacks in the Asia Pacific region.7Garnaut, R. “A New Open Regionalism in the Asia Pacific,” Paper presented at the International Conference on World Economy, Colima, Mexico, November 25, 2004.

After the failure of the EVSL, open regionalism conformed more closely with the East A sian approach. Some experts pointed out that since East Asia is economically dependent on external markets, interregional cooperation and intra-regional cooperation should both be addressed. Members of the region should thus be allowed to make external cooperation arrangements in their own interest. For instance,FTAs should be constructed inside and outside of the region, and in terms of security cooperation, the existing bilateral agreements or alliances should be recognized and new parallel cooperation frameworks should be non-exclusive. Such a view corresponds with the ideas of many experts and scholars in the region. For example,Jusuf Wanand, an Indonesian expert in international studies,emphasizes the idea of “functional cooperation”8Jusuf Wanandi, “Remodeling Regional Architecture,” PaC Net, February 18, 2009, http://csis.org/files/media/csis/pubs/pac0913.pdf.; Amitav Acharya,an expert in East Asian issues, has put forward the concept of “soft regionalism”9Amitav Acharya, “Ideas, Identity, and Institution-Building: From the ‘ASEAN Way’ to the ‘Asia Pacific Way’ ?” The Pacific Review, Vol.10, No. 3, 1997, pp. 319-346, http://cc.sjtu.edu.cn/G2S/eWebEditor/uploadfile/20120223132810_313610800416.pdf; Amitav Acharya, “Multilateralism:Is There An Asia Pacific Way?” NBR Analysis, Vol. 8, No. 2, http://www.nbr.org/publications/nbranalysis/pdf/vol8no2.pdf.; and Motoshige Itoh at the University of Tokyo has proposed the “bicycle theory”, which states that FTA negotiations also promote regional integration. Such perspectives demonstrate the openness and inclusiveness of regional institution building in East Asia, while highlighting the fact that the pragmatic and progressive“East Asian Way” prioritizes process over models.

Because open regionalism features “weak institutionalization,”it naturally helps narrow the gap between Asia Pacific member countries, fostering a family-like atmosphere and promoting trade and investment liberalization and facilitation in developing economies. Nonetheless, open regionalism was unable to meet the practical demands of developed countries. Since Asia Pacific regional integration has gathered pace, the imbalance of regional trade has also been exacerbated. In the United States-led developed economies,the appeal of “fair trade” overcame “free trade.” With rising political pressure, developed economies all resorted to the concept of“competitive liberalization.” In other words, open regionalism was unable to meet the demands of developed economies.

2. Competitive Liberalization

Fred Bergsten of the Peterson Institute for International Economics first introduced Competitive Liberalization strategy,10Fred Bergsten, “Competitive Liberalization and Global Free Trade: A Vision for the Early 21st Century,” Working Paper 96-15, Peterson Institute for International Economics, http://www.iie.com/publications/wp/wp.cfm?ResearchID=171.arguing that because a unified process is hard to achieve, all parties should participate in and promote regional free trade and investment according to their own interests and capabilities. From a long-term perspective, competition plays a positive role. In reality however, the insufficient consideration given to development and cooperation between economies has led to overlapping arrangements and disputes over institutional leadership.

Large economies are capable of practicing competitive liberalization, but small economies often join FTAs not only to acquire market share and avoid trade dispersion but also for security reasons. Some Southeast Asian countries, for example, attempted to prevent the United States from forming an FTA with them. Small countries promised large economies that they would keep opening up. For example, Mexico’s accession to NAFTA was viewed as a lock in reform. Small countries establish FTAs in a tit-for-tat way in order to fight against negative influences. These are the predominant motives for developing countries to establish South-South FTAs with one another.11Jagdish Bhagwati, Termites in the Trading System-How Preferential Agreements Undermine Free Trade, Oxford University Press, 2008.All in all, large countries are so strong that they build hub-and-spoke FTA networks in which they are centralized and others are marginalized

Some medium-sized countries vigorously promote bilateral FTAs that put themselves in favorable positions. For instance, Professor Richard Baldwin o f the Geneva Graduate School of International and Development Studies predicted that China and Japan would become two hubs in East Asia.12Richard Baldwin, “The Spoke Trap: Hub and Spoke Bilateralism in East Asia,” Working Paper No 2009/28, May 2009, Swiss National Center for Competence Research, http://phase1.nccr-trade.org/images/stories/publications/IP3/baldwin_2009-28-SpokeTrap.pdf.In fact, South Korea and ASEAN first formed such a structure and played an active role in regional economic cooperation.

Certain conditions are imposed upon small countries when they enter FTAs led by large countries. As a result, small countries tend to adopt “unilateral payment” strategies. This strategy demonstrates their original intention to unite with other developing countries,which allows them to obtain more bargaining chips and increase the willingness of non-members to make unilateral payments. This approach seems to explain the strategies adopted by small countries in the P4’s evolution into the TPP. Since these small countries are trivial to United States trade, they are willing to unilaterally pay the United States not only to acquire market share, but also so that it can increase its bargaining chips when negotiating with to-be members and impose unilateral payments upon non-members.

Overall, once a large country begins the competitive liberalization process, other economies soon follow suit, making their own FTA strategies based on maximum benefits and minimum losses. This is the FTA landscape in the Asia P acific and beyond. Nearly every economy has its own free trade agreements with different degrees of coverage, levels of liberalization and methods of implementation,and nearly all of them claim to meet Article 24 of GATT and Article 5 of GATS. In a nutshell, the Asia Pacific region’s competitive liberalization process has maintained countries’ commitments to free trade and investment liberalization. What has changed is their way of realizing this commitment.

The second and third stage of Asia Pacific regional economic cooperation shows that competitive liberalization has inherent advantages. By participating in “sub -optimal” regional or bilateral free trade arrangements, economies are able to carry out market liberalization reforms that suit their own realities. On the whole, the Asia Pacific region’s economic integration has become more diversified and extensive, but it has also revealed more inherent defects.

First, there is the “Noodle bowl effect.” Free trade agreements are preferential trade arrangements, but they are also discriminatory arrangements. Each FTA originally set its own rules of origin(ROO) to prevent non-members from “hitchhiking.” But as FTAs continue to grow, ROOs are increasing in number and becoming more complicated. The “noodle bowl effect” is thus created, putting more pressure on exports and reducing the efficiency of free trade arrangements.

Second, experts have observed the fragmentation of regional economic cooperation. Competitive liberalization has imposed severe impacts on ASEAN, but on the other hand, the TPP’s accelerated negotiation has decentralized some ASEAN members. This had a harmful effect on ASEAN’s cohesiveness and thus made it difficult to exert “centrality” in regional economic cooperation.

Third, it aggravated geopolitical tensions. The potential for a TPP without China and an RCEP without the United States has drawn a line straight through the middle of the Pacific. This is not the result that China, the United States or any other economy would have wanted.

Fourth, it has distracted negotiation resources. Multiple FTA negotiations are going on simultaneously among Asia Pacific economies. This will lead to a shortage of negotiating teams among major economies, not to mention smaller countries.

Taking into account the realities of the Asia Pacific region, open regionalism can hardly lead to integration, but neither can competitive liberalization, with its inherent drawbacks. It is therefore worth advocating for open regionalism and competitive liberalization to reinforce and complement one another. Competitive liberalization will help enlarge the intersection of coverage and the standards of free trade arrangements, while open regionalism will help consolidate those intersections and extend them to non-members.

III. Two Pathways and Their Pros and Cons

The focus of Asia Pacific regional economic cooperation is now on how to deal with relations between the TPP and the RCEP, and this requires having the knowledge of the pros and cons as well as the mechanisms behind the respective agreements. Only in this way can the future of Asia Pacific regional economic cooperation be carefully figured out.

Both the TPP and RCEP are high-level free trade arrangements that involve market access for goods, rules of origin, trade facilitation, animal and plant inspections and quarantines, nontariff trade barriers, service trade and investment. However, the two arrangements differ in many respects. For example, the TPP, which is led by the United States, is a service-oriented arrangement that will help bolster economic institutions, intellectual property rights and innovation capabilities. The RCEP, on the contrary, is a free trade arrangement that has stricter standards and wider coverage.Led by East Asia’s emerging economies, the RCEP mainly caters to manufacture-based and export-oriented emerging economies. Led by the United States, the TPP has the ulterior motive of steering Asia Pacific regional cooperation. By setting the rules, the United States will be able to increase the competition costs of developing economies, provide advantages for American companies seeking to access developing markets, attract foreign investment and increase domestic employment. The RCEP, in essence, seeks to improve the East Asian manufacturing network by setting rules and meeting development demands through open development, comprehensive arrangements and step-by-step progress. The competition between the TPP and the RCEP demonstrates the conflicting principles of the United States and Asia Pacific economies when it comes to regional economic cooperation. The TPP features “selfish hegemony”and places an emphasis on “reciprocity.” It is highly closed, nontransparent, inflexible and unadaptable. On the contrary, the RCEP inherits the open regionalism and cooperation spirit of APEC. It is open, flexible, adaptable and highlights cooperation.

The competition between the TPP and the RCEP mirrors conflicts between developing and developed economies in the region. The strong arguments of the two camps are evidence of the confrontation between developing and developed economies that were on display during the Doha round. The deadlocked WTO negotiations are also a result of the same contradictory mechanisms.

Even if the TPP is able to finally reach an agreement, it would not include all of the Asia Pacific economies. The TPP is thus bound to remain unpopular. For the RCEP to make a difference, it will need to make full use of negotiations and APEC methods. In addition, the success of the RCEP will also hinge on whether ASEAN fully exercises“centrality,” whether East Asia withstands the TPP’s fragmentation and whether East Asia’s geopolitical situation will improve.

Given their multiple overlapping members, the TPP and RCEP are highly complementary. Their union will appeal to most members. However, with different institutional arrangements and interests, the TPP and RCEP will be hard to unite as one. Professor Cédric Dupont of the Geneva Graduate School of International and Development Studies believes that ASEAN’s unwillingness to lose its centrality in the TPP makes it impossible for the RCEP and TPP to unite together.13Cédric Dupont, “ ASEAN+, RCEP, TPP: A Clash of Integration Concepts,” The Future of the World Trading System:Asian Perspectives, Center for Economic Policy Research and the Asian Development Bank Institute, 2013, pp. 107-115.

American economist Peter Petri has a positive outlook on a union between the RCEP and the TPP. According to Petri, the mutually reinforcing Asian pathway and cross-Pacific pathway are both in competition and cooperation with one another. The two pathways, with increasingly similar frameworks and languages, lay the foundation for the Asia Pacific region’s economic cooperation.

An evolutionary and constructive approach needs to be adopted towards these two free trade arrangements. They will be unable to fully merge together, but they can coexist and meet the demands of different economies. In addition, it is possible to integrate the common areas between these two arrangements. To this end, APEC can work as a platform for the launch of an FTA information exchange mechanism to foster a landscape in which the TPP, RCEP and other FTAs are able to interact and complement each other,where value chain management rules and rules of origin can be unified. In sum, Asia Pacific economies will uphold the principles of openness, inclusivity and transparency in order to facilitate economic integration in the Asia Pacific region.

IV. Creating New Regional Trade Arrangements Suitable to the Asia Pacific

Since the outbreak of East Asian financial crisis, the pessimism and discontentment of Asia Pacific countries regarding APEC has been unceasing. Developing economies complained that economic and technical cooperation programs had little effect or scale, while developed economies failed to accomplish the Bogor Goals by 2010.They complained about the consensus-based decision-making, as well as the voluntary and non-binding principles. In recent years,APEC skepticism has remained widespread and the organization is trying everything possible to increase its relevancy.

An in-depth look, however, reveals that APEC continues to play a critical role in Asia Pacific regional economic cooperation.

First, there is no replacement for APEC in the Asia Pacific region.As for its structure, APEC retains a structure that is unparalleled in the region, consisting of the Informal Leaders’ Meeting, the Ministerial Meeting, the Senior Officials Meeting and the Thematic Seminar,as well as the Secretary-General and Policy Research Groups that were introduced after the reform. As for coverage, APEC touches on every area of the economy and APEC activities engage all economic departments in all member countries. Dialogues and negotiations between departments have gained momentum for regional economic cooperation. Furthermore, APEC still has a largest number of Asia Pacific members. It is thus of critical strategic importance to all parties.

Second, in the past 25 years, APEC has working towards the Bogor Goals and was the first organization to put forward the idea of establishing the FTAAP. It mapped out the List of Environmental Goods, conducted cooperation on global value chains and supply chains, greatly facilitated and liberalized trade and investment and advanced regional integration. In addition, APEC formulated economic growth strategies, boosted the Asia Pacific region to become the world’s economic engine and raised the region’s geopolitical prominence. With its emphasis on economic and technical cooperation, APEC has successfully improved the trade and development capabilities of its members.

After 25 years of development, the Asia Pacific region now boasts 25 cooperation mechanisms and 56 FTAs, a large increase from the three cooperation platforms and three FTAs that existed at APEC’s founding. Over such a period, it is inevitable that APEC experience a decline in its social status and function. However, as the primary platform of Asia Pacific regional economic cooperation, APEC has to reinvigorate itself and map out a future for the Asia Pacific region.

The year of 2014 marks the 20th anniversary of the Bogor Goals;it also is seven years away from the deadline for completing the Goals. This means that all parties need to continue implementing their goals. They also need to begin considering the post-2020 APEC agenda and create new regional trade arrangements suitable to the Asia Pacific region.

First, Asia Pacific regional economic cooperation is far away from reaching success in 2020. In the long-term, achieving the Bogor Goals is only a part of the Asia Pacific region’s overall integration. Whether or not the Bogor Goals are reached, the Asia Pacific region will need more high-level and in-depth trade and investment liberalization in order to strengthen the Asia Pacific family and community.

Second, dual-track free trade arrangements will be long-lasting.Without coordination or guidance from APEC, regional economic cooperation will become even more fragmented. Competitive liberalization requires open regionalism for guidance, corrections and supplements. In this way, the effective interaction between competitive mechanisms will be achieved in an open, cooperative and win-win manner.

Third, in order for the Asia Pacific region to act as the world’s economic engine, it has to promote internal restructuring and integrate the industrial chain with the value chain. This goal will not come true as a result of the Bogor Goals. It will only be realized through deeper reforms in which new regional trade arrangements play a lock-in and anti-driving role.

Fourth, the Asia Pacific region will continue build multilateral trade systems that suit common interests. An early formulation of the post-2020 agenda will help boost the WTO. Otherwise, economic cooperation in the Asia Pacific region will lose momentum after 2020. Practically speaking, APEC is qualified to formulate a post-2020 agenda.

First, both developed and developing Asia Pacific economies are all committed to economic restructuring and reform. They carry the same impulse that they did in the 1980s at the time of APEC’s establishment, but today they are faced with difficulties of a greater depth and scope. They realize that the “low-hanging fruits” are already taken, leaving only more challenging goals to be attained. With this in mind, they have entered a new era of consensus building.

Second, APEC and other regional free trade arrangements have broadened the field of cooperation and accumulated rich experiences after years of development. APEC has taken remarkable steps in macroeconomic policy coordination, trade and investment liberalization and facilitation, economic and technical cooperation,as well as functional cooperation. Bilateral and regional free trade arrangements develop new fields, new standards and methods,providing ingredients to design a post-2020 agenda based on new regional arrangements.

Third, as a frame of reference, the TPP and RCEP both help make new regional arrangements more specific and divide them into stages, avoiding the ambiguous language that was used in the Bogor Goals of 1994. As a result, ambitious and insightful goals will be set for Asia Pacific regional economic cooperation. Positive, practical and effective results will be assured.

V. The FTAAP and its Feasibility

In 2004, the APEC Business Advisory Council first put forward the idea of an FTAAP. Two years later, the Declaration of APEC Leaders’Informal Meeting pointed out that despite practical difficulties,the FTAAP should be seriously considered. The Declaration also instructed APEC senior officials to research relevant approaches and methods to realize their long-term goals. In 2007, the Declaration stated that pragmatic and step-by-step measures must to be taken in order to verify the prospects of the FTAAP. In 2008, the Declaration of APEC Leaders’ Informal Meeting wrote that in spite of the huge benefits that the FTAAP would bring to the region, the FTAAP would nonetheless face multiple challenges. The Declaration called for further research on “prospects, pathways, economic influence and capacity building.” The 2009 Declaration of APEC Leaders’Informal Meeting once again mentioned the FTAAP, with not much difference from the 2008 version.

In 2010, the Declaration of APEC Leaders’ Informal Meeting attached Pathways to FTAAP as an appendix and explained relevant issues. The FTAAP is defined as a comprehensive, high quality mechanism that incorporates and addresses “next generation” trade and investment issues. Meanwhile, ASEAN+3, ASEAN+6 and TPP are seen as the foundation of the FTAAP. The Declaration also defined relations between APEC and the FTAAP, saying that APEC will act as an incubator for the FTAAP by providing leadership and intellectual input. It needs to facilitate cooperation between sectors in order for the FTAAP to develop. In implementing the FTAAP, one must also consider the changing contours of APEC, the non-binding and voluntary nature of the organization, APEC’s longstanding support for a multilateral trading system and APEC’s attention to cooperation.

In 2012, APEC’s Declaration emphasized the importance of transparency in FTA negotiations and pointed out that more transparency will pave the way for the FTAAP. In 2013, APEC’s Declaration proposed enhancing policy dialogues and communication among FTAs. It also attempted to strengthen APEC members’ largescale negotiation capabilities in order to reach an FTAAP agreement.

FTAAP has been valued by APEC for the past eight years and become a part of APEC’s vision and goals. There is consensus among APEC members that the FTAAP is the future tendency of Asia Pacific integration and a goal worth fighting for.

Studies indicate that the FTAAP is the arrangement that brings the greatest economic benefits to the Asia Pacific region. In 2009,a research project jointly undertaken by Australia, China, South Korea and New Zealand showed that the FTAAP would help APEC member countries’ GDPs grow by 0.55 percent, 2.26 percent and 2.33 percent respectively under the circumstances of liberalization of trade in goods, liberalization of trade in goods in addition to trade facilitation, and tariff elimination, trade facilitation and liberalization of trade in services. Simulated results from a Japanese scholar indicate an increase of 1.9 percent and 2.3 percent under the first two circumstances. Research by Peter Petri shows that the TPP (with its 11 members), RCEP and FTAAP will increase APEC’s GDP by 0.14 percent, 0.94 percent and 3.48 percent. The FTAAP,however, brings 2.7 times more benefits to China than the RCEP,while it also brings 2.7 times more benefits to the United States than the TPP (if expanded to 16 countries).14APEC, “Further Analytical Study on the Likely Economic Impact of an FTAAP,” Paper prepared by Australia, China, Korea, New Zealand, October 2009, http://aimp.apec.org/Documents/2009/SOM/CSOM-R/09_csom_r_010.pdf; Kenichi Kawasaki, “The Macro and Sectoral Significance of an FTAAP,” August 2010, Economic and Social Research Institute, http://www.esri.go.jp/jp/archive/e_dis/e_dis250/e_dis244.pdf.

At present, the FTAAP remains a vision. To further promote the FTAAP agenda, APEC needs to set up an FTAAP framework,a guiding principle and implementing methods on the basis of the 2010 Pathways to FTAAP. Whether APEC leads or merely supports the FTAAP, it will have to take practical steps rather than simply engaging in lip service.

Opinions on the FTAAP pathway differ across academia. Some believe that the FTAAP should be attained through the TPP, and that an expanded TPP will be able to coordinate free trade arrangements within Asia. If China enters the TPP, then the TPP will become the major pathway to the FTAAP. They argue that the TPP “gold standard” will be fine-tuned to meet the concerns of the agricultural and development sectors. The FTAAP will thus have to be a “hybrid.”15Jeffrey J. Schott, “Roadmap for the FTAAP: Take the TPP Turnpike,” December, 2009, http://www.iie.com/publications/papers/schott1209ppt.pdf; Jeffery Schott, “Getting to the FTAAP via the TPP Turnpike,” October 2010, http://www.iie.com/publications/papers/schott20101025ppt.pdf;Jeffrey Schott, “An APEC Action Agenda to Support Regional Economic Integration and the World Trading System,” December 9, 2013.

Others believe that while the TPP will lay the foundation for the FTAAP, the FTAAP will have to be achieved through the RCEP. They believe this because the TPP denies ASEAN’s centrality and excludes some ASEAN members, as well as China and India. It would not make sense for the FTAAP to not include those economies. The RCEP can either merge with the TPP or be taken over by the TPP and become the FTAAP. The outcome will depend on the political will of Asia Pacific economies. Namely, will developing economies be willing to join high-level, free trade arrangements with complete coverage? And will the United States be willing to accept China as a responsible trade and investment partner?16Masahiro Kawai and Ganeshan Wignaraja, “Asian FTAs: Trends, Prospects, and Challenges,ADB Economics,” Working Paper Series, No. 226, October 2010, http://www.un.org/esa/ffd/msc/regionalcooperation/ADB_WPs.pdf; Masahiro Kawai and Ganeshan Wignaraja, “Asian Free Trade Agreements: Trends, Prospects and Challenges,” Geneva, March 11-12, 2013, http://www.wto.org/english/res_e/reser_e/wts_future2013_e/Kawai_Wignaraja.pdf.

Others have proposed alternative pathways. First, some say that the RCEP and TPP should co-exist and expand for a long period before either of them evolves into the FTAAP. And second, some say that if the TPP fails, the United States will join the RCEP in order to achieve the FTAAP goals.

Peter Petri put forward another pathway, in which the United States and China, after signing the Bilateral Investment Treaty, drive the RCEP and TPP to evolve into the FTAAP.

The current discussion on the FTAAP pathway falls into four issues: scope, standards, leadership and membership.

In terms of scope and standards, the RCEP and TPP are regarded as two frames of reference. Since the scope and standards of the FTAAP lie somewhere between the two arrangements, the FTAAP will either draw closer to the developed economies or the developing ones. Relevant discussions show that academic circles are reaching a consensus to balance the appeals of developing and developed economies.

Fights over leadership once stalled the East Asia FTA process.Learning from past mistakes, the fight over leadership should be downplayed when promoting the FTAAP. No single economy or FTA can dominate the FTAAP process. Since APEC put forward the FTAAP initiative, it should become the force pushing the FTAAP.

In terms of membership, TPP members are all part of APEC.RCEP members such as India, Cambodia, Laos and Myanmar are not part of APEC, while to-be TPP members in Latin America may not be APEC members either. Naturally, the FTAAP may have more members than APEC. As a result, APEC will either adapt to the FTAAP through expansion or the FTAAP will proceed independent of APEC. Some scholars think that if APEC does not expand, it will hold the FTAAP back. To solve this problem, full participation from APEC will not be necessary and “APEC-X” can be adopted for initial FTAAP negotiations.

Once APEC takes steps to promote the FTAAP, open regionalism and competitive liberalization will be free to emerge. APEC will design the basic framework on the basis of consensus; and APEC members or non-members will also participate in negotiations on a voluntary basis. After the FTAAP negotiation, APEC will help members implement arrangements in capacity building and cooperation, while also introducing qualified potential members.

For this reason, APEC should formulate an FTAAP framework that clearly defines the goals, principles, standards and content of the agreement. It must also include a ten to fifteen year timetable that is broken down into two or three stages. The timetable will take the implementation and regional integration of the Bogor Goals into account. Based on differences between Asia Pacific and other regions,APEC needs to consider the diversity of the Asia Pacific economies and the feasibility and adaptability of certain FTAAP goals. APEC must also include the TPP and RCEP - two critical components of the FTAAP - in an interactive and coordinated mechanism that will be mutually reinforcing and complementary.

In 2014, China will host the 22nd APEC Leaders’ Informal Meeting. The theme of the meeting is the construction of a futureoriented Asia Pacific partnership, and one of the three major topics will be the promotion of Asia Pacific regional integration.Participating members are hopeful that substantial progress will be made in formulating a framework for regional economic integration in which all parties can reinforce and complement one another.