FREE TRADE FOR THE FUTURE

By+Bai+Shi

On the 25th anniversary of the founding of the Asia-Pacific Economic Cooperation（APEC）， Chinas capital city Beijing will host the 22nd annual APEC Economic LeadersMeeting （AELM） on November 10-11 with the theme Shaping the future through Asia-Pacific partnership. The meeting and other related events combined are known as the 2014 APEC Economic Leaders Week.

The AELM first came to China in 2001 when the meeting was held in the booming economic and business hub of Shanghai. At that time， China， though firmly on the fast lane of economic growth， was not yet a member of the World Trade Organization （WTO） until it was admitted a month later at the Fourth Ministerial Meeting of the WTO on November 10， 2001 in Doha， Qatar.

That ninth AELM in Shanghai achieved success， as APEC leaders reached consensus on many issues. For example， APEC adopted the Shanghai Accord and issued its first CounterTerrorism Statement following the attacks on the United States on September 11， 2001.

China has undergone huge changes in the last 13 years. It has become the worlds second largest economy and an important trading partner for the rest of the world. As the world economy is facing sluggish growth and many uncertain factors， Chinas role in promoting Asia- Pacific cooperation has caught the attention of regional economies.

Priorities of discussion

The economic leaders week is the high point for the 2014 APEC China year， with the APEC community holding great expectations for fruitful results.

At a think-tank forum in Beijing on October 29， Chinese Foreign Minister Wang yi said that there are over 100 cooperation proposals from all APEC member economies to be put forth at the annual economic leaders meeting. More than half of the proposals have been proffered by China.

“Many of Chinas proposals have been met with active response and support by other member economies， such as starting the negotiation process of the Free Trade Agreement of the Asia-Pacific （FTAAP） and charting a blueprint for promoting connectivity，” Wang said.

These proposals will strengthen the role of APEC in promoting regional economic cooperation， adding new momentum for Asia-Pacific development， Wang said.

Chinas proposals for the 2014 APEC meetings are practical and mutually beneficial. Some of the proposals have already been put into practice， Shen Minghui， an associate researcher of the Institute of Asia-Pacific Studies under the Chinese Academy of Social Sciences， told Beijing Review.

“Amid sluggish global economic growth， China needs to play a more active role in promoting economic cooperation and free trade in the Asia-Pacific region，” Shen said.

At a press conference in Beijing on October 16， Shen Danyang， a spokesman for Chinas Ministry of Commerce， announced three priorities of this years AELM： advancing regional economic integration， promoting innovative development， pushing economic reform and growth， and strengthening comprehensive connectivity and infrastructure development.

“After the preparatory work of the senior officials meetings and ministerial meetings， APEC members have developed extensive and indepth consensus on these topics，” Shen said.

As the host of this years AELM， China will work together with other members on following key directions—building FTAAP， supporting multilateral trade agreements and opposing trade protectionism， promoting connectivity of the global value chain and supply chain， as well as facilitating free trade and investment across borders， according to him.

This year also marks the 20th anniversary of setting the Bogor Goals—free and open trade and investment in the Asia-Pacific by 2010 for developed economies and 2020 for developing economies—at the Bogor AELM in Indonesia in 1994. Shen Danyang stressed that the 2014 AELM assumes the mission of achieving the goal and mapping out the direction of AsiaPacific economic cooperation in the future.

“Chinas proposal helps boost the confidence of APEC partners. It also shows that China is willing to advance regional economic integration in the Asia-Pacific region，” Wang Zhenyu， an associate researcher with the China Institute of International Studies （CIIS） ， said to Beijing Review.

China is making efforts to deepen reform， upgrade industrial structure and transform its economic growth model. Wang believes if China can achieve success in advancing growth through innovation and reform， the Asia-Pacific region will embrace new opportunities from Chinas development.

Prospects for FTAAP

The building of FTAAP is among the most eyecatching proposals to be discussed during the 2014 AELM.

The prospect of building FTAAP was first proposed as early as 2004. The proposal was written into the APEC Economic LeadersDeclaration eight years ago. APEC member economies have long discussed the issue.

At the Boao Forum for Asia in April， Chinese Premier Li Keqiang suggested that APEC member economies should consider beginning feasibility research on FTAAP to better facilitate trade and investment in the Asia-Pacific region.

“Now it is time to take actions. We will blow the horn at the AELM in Beijing. Starting the negotiation process of FTAAP will be an important goal for APEC this year，” Chinese vice Foreign Minister Li Baodong said at the Boao Forum for Asia on April 10.

Over the past decade， Asia-Pacific regional economic integration has embraced rapid development. A large number of bilateral and multilateral trade agreements have been signed between member economies.

However， despite the agreements， AsiaPacific economies are still divided into several groups rather than a broad and more general preferential multilateral framework for all.

For example， both of the two major multilateral trade agreements in the region are not fully representative. The United States-led TransPacific Partnership does not include China. The Regional Comprehensive Economic Partnership proposed by the Association of Southeast Asian Nations has China as a member， but the United States has yet to join it.

Many member economies have long been calling for APEC to play an active role in promoting the negotiation process for building FTAAP， Wang said.

Currently， protectionism remains a major barrier against free trade and investment across borders. Particularly in the aftermath of the global financial crisis in 2008， many economies have strengthened trade barriers and seen disputes occur frequently. “This situation hinders free trade and economic growth while deviating from the Bogor Goals，” researcher Shen Minghui commented.

Under these circumstances， the efficiency and effectiveness of the numerous free trade agreements in the Asia-Pacific region have yet to be tested. The China-ASEAN Free Trade Agreement， for instance， was initiated in 2010. However， only 35 percent of Chinese enterprises can fully utilize it for trade transactions， Shen Minghui said.

Moreover， China has not reached free trade agreement with some major trading partners of China in the region， such as the United States， Japan and Australia.

“If APEC can build FTAAP， then all member economies will benefit from it，” Shen Minghui said. But he admitted， given the large economic development gap between the 21 APEC member economies， it is difficult to cater to all tastes.

“FTAAP is a long-term prospect for APEC member economies. For now， all parties should take concrete steps to reach consensus on exerting efforts toward the goal，” Shen Minghui said.

Focus on global trade

Global value chain and supply chain discussions highlighted the APEC Ministers Responsible for Trade Meeting in Qingdao， east Chinas Shandong Province， on May 17-18.

The meeting passed two important proposals： the APEC Strategic Blueprint for Promoting Global value Chains Development and Cooperation， and the Strategic Framework on Measurement of APEC TivA Under Global value Chains.

Today， economic globalization has entered into an era of global value chains， trade and investment between APEC economies， and production networks in the Asia-Pacific region have become an important part of the global value chains， said spokesman Shen Danyang in an interview with Chinese media outlets.

The scope of trade has been not limited to goods， as service is accounting for an increasing proportion in trade of many developed economies. Moreover， trade has been more and more complicated to calculate because many economies are likely to be involved in a product from its design to production and sale， according to Shen Danyang.

He took the iPhone as an example to showcase the complexity of trade： The operating system is designed in the United States， its chip is produced in Japan， some components are produced in South Korea， and it is assembled in China and exported to the rest of the world.

“In the past， the large trade surplus came with large income. But it is less so today. The global value chain includes trade， service and investment. The measurement is helpful for economies to know its position in the global value chain，” he said.

China has long been called the worlds factory， and the large scale of trade often makes China a target for trade disputes. Shen Danyang pointed out， with measurements of the global value chain， it will be easy to find that Chinas trade surplus in fact does not really belong to it.

In addition， supply chain management is a new task for APEC in recent years. The production and trade chain between Asia-Pacific economies has reached a high level of integration. If the supply chain cannot be improved， it will bottleneck regional economic development， Wang from the CIIS said.

With the two framework agreements， APEC hopes to establish a cooperation mechanism on global value chains and promote it to the rest of the world， Wang said.

Promoting connectivity

Developing the Blueprint for Connectivity is a major task for this years AELM， Chinas APEC senior official Tan Jian said at the APEC Studies Center Consortium Conference on May 11 in Qingdao.

Connectivity has three pillars： physical or hard connectivity， which includes transport（land， maritime and air）， telecommunications and information and communication technology， and energy infrastructure； institutional or soft connectivity， which includes customs， supply chains， financial spheres， regulatory coherence and structural reform； and people-topeople connectivity， which includes business mobility， student and researcher mobility， tourism facilitation， labor and professional mobility， and cross-border education.

The blueprint will address the achievements and challenges to connectivity in this region， key initiatives for enhanced APEC connectivity and strategies for implementation.

Wang said that promoting connectivity is a task on which APEC member economies have continued to exert efforts.

In terms of people-to-people connectivity， for example， APEC developed a Business Travel Card several years ago. Holders of the card can travel visa-free between APEC member economies. It is expected to expand to other groups of people in the future， Wang said.

The proposal to strengthen connectivity， especially in terms of infrastructure investment， is greatly needed by many developing econo- mies in the Asia-Pacific region. China has been making efforts to implement this proposal， Shen Minghui said.

According to the Asian Development Bank， $8 trillion will be needed in 2010-20 for Asian economies infrastructure development. And according to the World Bank and the Organization for Economic Cooperation and Development， $55 trillion will be needed for global infrastructure development by 2030.

The multiple benefits of infrastructure construction are clear. However， promoting trade and investment， growing the economy， creating jobs and reducing poverty are harder to implement in many developing Asian economies. There are some principal bottlenecks， such as a lack of financing， and the return on investment is low while risks are high， Shen Minghui said.

On October 24， 21 Asian countries signed the Memorandum of Understanding on Establishing the Asian Infrastructure Investment Bank （AIIB） in Beijing.

The 21 AIIB founding members are Bangladesh， Brunei， Cambodia， China， India， Kazakhstan， Kuwait， Laos， Malaysia， Mongolia， Myanmar， Nepal， Oman， Pakistan， the Philippines， Qatar， Singapore， Sri Lanka， Thailand， Uzbekistan and viet Nam.

The memorandum of understanding specifies that the authorized capital of AIIB will be$100 billion and the initial subscribed capital is expected to be around $50 billion. The paid-in ratio will be 20 percent.

AIIB will be an inter-governmental regional development institution in Asia. As agreed， Beijing will be the host city for AIIBs headquarters.

It is expected that the Prospective Founding Members will complete the signing and ratification of the Articles of Agreement in 2015 and AIIB will be formally established by the end of 2015.

Jim yong Kim， President of the World Bank， said that AIIB would be a “welcome addition to the current situation” in light of the lack of funding for infrastructure in Asia.

Kim said he believes the World Bank will be highly capable of working well with the new bank.