Apec and the bike theory of trade

There is a growing cottage industry that seeks to slam the Asia-Pacific Economic Cooperation (Apec), a grouping of 21 countries set up in 1989 to link up nations such as Australia, Peru, Singapore and the United States.

Indeed, many pundits criticise Apec as nothing more than a peripatetic photo-op, with "family photos" of Apec leaders dressed in the national dress of the host Apec country.

This year's Apec meetings in Manila were no different. Traffic in metro Manila - which has the most congested roads in Asia - slowed to a crawl, such that one woman had to give birth on the pavement. "When leaders talk, people walk," a Filipino tweeted as anti-Apec protests in Manila erupted.

And when it comes to deliverables, Apec leaders did not appear to have anything new to offer. They said that Apec would push ahead with a free trade area linking up the Asia-Pacific (that said, the US and China pushed for different versions), denounced the recent terrorist killings in Paris and vowed to fight climate change.

Still, if one tracks the grand arc of Apec and trade liberalisation in the past 15 years, one thing becomes apparent - the work of smaller countries and even individuals can make a big difference. In short, one should not despise the small things in the business of freeing up trade and intensifying trans-Pacific linkages.

If one tracks the grand arc of Apec and trade liberalisation in the past 15 years, one thing becomes apparent - the work of smaller countries and even individuals can make a big difference. In short, one should not despise the small things in the business of freeing up trade and intensifying trans-Pacific linkages.

In August 2000, Singapore and New Zealand started talks on a historic free trade agreement (FTA). The move was met with much resistance then, with many economists saying that such preferential deals undermined the multilateral trading system centred on the World Trade Organisation (WTO).

Three months later, in November, then Singapore Premier Goh Chok Tong pitched the idea of a historic Singapore-US FTA to then US President Bill Clinton at a night-time golf game in Brunei. After many air miles and hours of negotiations (lubricated by quintessential Singaporean diplomatic tools such as chilli crab, fish otak and Tiger beer), the deal was concluded.

By the mid-2000s, FTA momentum had grown. In 2005, the Trans-Pacific Strategic Economic Partnership (TPSEP) involving Brunei, Chile, New Zealand and Singapore was hatched. At that time, no one would have thought that it would become something much bigger.

In 2009, cheers at Singapore's Suntec City greeted the announcement by US Trade Representative Ron Kirk that the US would engage the four-nation TPSEP. The rest, as they say, is history. Six years later and after many more hours of negotiations in Atlanta, the ministers of 12 countries said last month that they had concluded talks for the 12-nation Trans-Pacific Partnership (TPP).


Activists clashing with police in Manila on Thursday. Apec has been slammed as nothing more than a peripatetic photo-op, with "family photos" of Apec leaders dressed in the host country's national dress. - PHOTO: EUROPEAN PRESSPHOTO AGENCY

Speaking at the Apec CEO Summit this week, New Zealand Prime Minister John Key said it has been nearly 20 years since the WTO's Uruguay Round. "It's a long time between drinks," he quipped, noting that the Singapore-New Zealand FTA built the small base for the TPP, which now encompasses cutting-edge FTA elements such as provisions for the digital economy and state-owned enterprises.

The momentum for trade looks set to continue, with countries such as Indonesia, Thailand and Colombia expressing interest in the TPP.

In this, the International Institute for Strategic Studies (IISS) has played a small but not insignificant part. At the IISS Cartagena Dialogue held in Colombia in March, Mr Cesar Purisima, the Philippine Finance Secretary, called for a revival of the historical galleon trade between Manila and Mexico. With Manila as a transshipment hub, new silver from Latin America was traded for porcelain and lacquerware from China.

During the opening dinner at the Cartagena Dialogue, IISS director-general John Chipman suggested to Mr Purisima that Colombian President Juan Manuel Santos go to the Apec meetings this week and attend an inaugural Apec-Pacific Alliance (PA) roundtable. Essentially, this would be a diplomatic backdoor into the 21-economy grouping. Unlike the Alliance's three other members - Chile, Mexico and Peru - Colombia is not part of the TPP or Apec.

Mr Purisima and President Santos agreed to the idea and, after many phone calls and Philippine President Benigno Aquino's approval, things took off. At the Apec-PA roundtable on Wednesday, all Apec members , including US President Barack Obama, expressed approval of Colombia's presence at Apec.

Whether this means that Apec's longstanding moratorium on new membership would be lifted is still uncertain. Thanks to some behind-the-scenes work, Bogota has now got a foot in the door. At the very least, Colombia would be able to attend another Apec-PA roundtable next year in Peru, Mr Purisima told me.

Again, no one should despise the small beginnings. The common perception of Colombia is that of a less developed economy riddled by drugs and crime. In fact, Colombia is tantalising close to settling a 50-year civil war whose end would set the economy for further growth. The Pacific Alliance is the world's eighth-biggest economy, with average growth of about 4 per cent and its exports constitute half the Latin American region's exports.

Not many would know that the entire country is now wired up with super-fast fibre optic cable, its young people are being trained to write basic apps, and that Medellin - a city once infamous for its drug crimes - was voted the world's most innovative city in 2013, ahead of Tel Aviv and New York.

In the long term, pushing through an Apec-wide Free Trade Area of the Asia-Pacific that Chinese President Xi Jinping proposed on Wednesday would be difficult. For now, the US and China offer different routes to that holy grail - the US with TPP and China via its Regional Comprehensive Economic Partnership with Asean and another five countries.

Small and medium-sized companies resent the "spaghetti bowl" effect of the many rules and regulations involved in FTAs, and ratification in national legislatures - in particular the US - would be a Herculean task.

And there is another layer of geopolitical complexity. The US and China are in a battle for influence in Asia, focused on China's military build-up in the South China Sea. And it is becoming increasingly clear that China is leveraging on its economic dynamism not so much to dampen regional tensions, but to attenuate perceptions of Chinese assertiveness.

Still, it is imperative that Apec economies focus on executing the so-called bicycle theory of trade - that unless one continues to power ahead in freeing up trade, all things will fall down.


•The writer is a Shangri-La Dialogue Senior Fellow for Asia-Pacific Security at the IISS

A version of this article appeared in the print edition of The Straits Times on November 21, 2015, with the headline 'Apec and the bike theory of trade'. Print Edition | Subscribe