Philippines as APEC chair – 20 years hence

When we last hosted APEC 20 years ago, in 1996, the world – and the Philippines for that matter - was a much different place than it is today. Our hosting in 2015, therefore, will test our ability to lead APEC to address contemporary challenges and put it on trajectory to meet the aspirations of leaders set 20 years ago but which today retain their relevance under very much changed circumstances.  

‘Quo Vadis’ APEC?

In 1996, APEC put its faith on its members to undertake voluntary unilateral liberalization, concerted preferably but not required, that would lead them to achieving the commitment they made in Bogor in 1994 of free and open trade by 2010 for developed economies, and 2020 for developing economies. That they would do so guided by the belief that this was in their self-interest.

The 1997 Asian financial crisis followed 20 years later by the 2007-2008 sub-prime financial crisis had economies thinking twice and started pulling back from further opening markets. The year 2010 has come and gone with the leaders declaring that “while more work still needs to be done, significant progress has been made in reaching the Bogor Goals”.

Actually I think it would be more accurate to state it the other way around, “while significant progress has been made, more work still needs to be done to reach the Bogor Goals”. The goal of 2020 is fast approaching, and even now some members have resorted to equivocation in defining what “free and open trade” means, while others want the endgame to go beyond 2020. The ideal of unilateral liberalization no longer seems to hold the answer. The business community proposed the idea back in 2008 and APEC members have now come to believe that a formal, contractual agreement – like the proposed Free Trade Area of the Asia Pacific (FTAAP) - is necessary if these goals are to be achieved.

In the meantime, there is a race to influence the shape that FTAAP will evolve into. There is the Regional Comprehensive Economic Partnership (RCEP), relatively less stringent in coverage and levels of commitment. Then there is Trans-Pacific Partnership (TPP) which aspires to be a so-called high-level “21st century agreement” which is another way of saying we are really more interested in barriers inside borders (well except maybe for agricultural products) like restrictions on investments like equity participation including on services, IPR protection, competition policy, and regulations affecting doing business among others. Now China has come in and effectively said, wait a minute, what about writing rules for FTAAP independent from these two? The APEC Chair 2015 will have to navigate the tricky path of striking a balance between these three approaches even though it has obviously its own preference. And then also the Chair must figure out how it can preserve APEC’s informal, non-contractual character which has served a useful purpose even while as currently structured it obviously is inadequate to achieve the Bogor Goals.  

Global value chains: Changing the rules of the game

Although not a new phenomenon, global value chains have gone on to become the dominant business model in the world today, propelled by the lowering of barriers to the flow of goods and investments, and to the development of technology that have overcome the limitations and costs imposed by distance. Research has shown that 70% of global trade is in intermediate goods that cross borders several times before they are assembled into the final product.

Much of the global value chain is orchestrated by multinationals which assign the process of bringing a product from design to production, to marketing, and servicing in a complex network where services account for a significant portion of the final cost of a product, to where they can be done cheaply and efficiently and move about free from friction. Those places happen to be where the cost and process of importing and exporting is cheap and efficient, which welcomes investments, makes doing business easiest, and has adequate infrastructure. The scramble to participate in the global value chain by providing these attributes has made this the catalyst for liberalizing trade and regulatory reform. The Philippines is a major participant already, but still not at the scale of its Asian neighbours and further faces the challenge of moving up the value chain. Although the right policy prescriptions are in the domain of the host economy, collective action in APEC, particularly in capacity building is indispensable. 

Climate change and disaster resiliency

Even though scientists and academicians have long fretted about the inevitability and danger of global warming, as recently as 20 years ago it had not entered the public consciousness as a serious development, and consequently did not translate into the mainstream of public policy, particularly in developing economies. It was not until 2007 that APEC leaders paid attention to climate change, although this was more in reaction to the United Nations Framework Convention on Climate Change meeting at that time and was focused on efficient use of energy.

The increasing incidence of natural disasters – 70 percent of which occur in the Asia-Pacific region- has prompted a more urgent response to this growing crisis which has become one of the greatest threats to the economic prosperity of the region. President Ramos said in a recent interview that “we share common enemies now and the economies of APEC are vulnerable, especially the Philippines to these modern day threats. These are climate change because of global warming and this is due to the abuse by people around the world of the environment through extravagant consumption and wasteful management”. Initiatives on green energy, facilitating trade in environmental goods and services and a collective front in global efforts to address climate change are areas where APEC can help. 

Now that natural disasters have become the “new normal”, ways must be found collectively, to minimize damage and loss of life, make business and the provision of services to be more resilient, and to facilitate recovery and rebuilding. APEC can provide a forum for addressing these issues in terms of capacity building to improve response to disasters by governments and business, and in facilitating and coordinating regional response to disasters.

Inclusive growth

Despite remarkable achievement in economic growth, the inequitable distribution of wealth continues to be a problem for almost all economies in the region, including the United States and not excepting the Philippines.

The country’s GDP has increased more than six fold and its per capita income quadrupled since APEC was founded in 1989, according to the World Bank. And yet poverty incidence has remained stagnant with little improvement. Housing, education, healthcare and nutrition are at the top of the list of concerns by households.

I understand President Aquino has made inclusive growth a priority for our chairmanship of APEC next year.  APEC has had a long history of concern for this objective. In fact when we last chaired APEC back in 1996, APEC leaders had declared then that the ultimate aim of their efforts to bring their economies closer and more integrated is to attain sustainable growth and equitable development of APEC economies, while reducing economic disparities among them and improving the economic and social well-being of our people. We have come full circle, and now we have to come up with solutions harnessing APEC’s collective resource to achieve this goal.

Next year promises to be a challenging, but exciting year for the Philippines when as Chair it has the twin responsibility of moving APEC forward closer to its goal of a tightly integrated, seamless Asia Pacific region while ensuring that it harnesses APEC’s collective strength to meet its own development objectives of sustainable and equitable growth.