Welcome to our brand new edition of APEC Currents
We have changed the Centre's newsletter to include more content on our recent activities. Dr Errol Muir remains as academic editor and can be contacted at firstname.lastname@example.org.
The last few months have been busy with the Centre delivering numerous projects within the region and several key pieces of research. In April, the Centre delivered a Public-Private Dialogue on Improving the Investment Climate for Global Value Chain Development, led by our Principal Research fellow Dr. Douglas Brooks.
A ‘wrap-up’ services symposium was held to complete the Centre’s significant piece of work in Services that drew upon the work of 8 sector specific services symposiums to produce an ‘APEC Compendium of Guiding Principles for the Services Sectors’. This compendium will be presented to APEC’s Group on Services and be the Groups key contribution to the APEC Services Competitiveness Roadmap.
June saw the Urban Infrastructure Network hold its biennial forum in Singapore and present its work to the network. This opportunity saw the network grow and develop its work, which will be presented at the APEC Friends of the Chair on Urbanisation meeting in August in Peru.
The Centre also hosted the APEC Policy Support Unit’s Technical Workshop on Services and Structural Reform and recently announced the recipients of the Australia-APEC Women’s Research Fellowship. This fellowship is now in its second year and continues to deliver remarkable opportunities for female researchers throughout the APEC region.
Finally, the Centre has completed its annual review for 2015 together with the updated and expanded E-payments report for 2016. I encourage you to read both of these important documents.
The Australian APEC Study Centre continues to support women in research
Ten researchers from across the Asia-Pacific have been chosen to undertake a research project with an Australian university as part of the 2016 ‘Australia-APEC Women in Research Fellowship’ program.
The Australia-APEC Women in Research Fellowship provides financial support for high-achieving female researchers from developing APEC economies to pursue research opportunities in partnership with Australian education and research institutions.
This exciting initiative, which was successfully launched in 2015, aims to encourage the mobility of post-doctorate female researchers throughout the APEC region.
It is designed to assist with the particular challenges female researchers face in undertaking cross-border research activities such as lack of flexibility and financial support for child care.
Each year up to ten fellowships are awarded to facilitate a research project of between one and four months. Within the pool of successful recipients, two fellowships are offered to early career researchers with less than five years’ of professional research experience.
As a result of the very high calibre of fellows in 2015 two places were set aside in 2016 for researchers at the beginning of their career with the aim of encouraging up-and-coming researchers to apply. We have also kept flexibility in mind with extra financial benefits offered to fellows who have dependent children, something that is usually a barrier to women researchers.
The 2016 winners are undertaking research across a variety of fields including: optical science, flora, wastewater treatment, media, marine law, energy efficient housing, industrial engineering, neurodevelopment disorders and gender based violence. One of these winners is Dr Cheryll Ruth R. Soriano from the Philippines who will be joining researchers at RMIT University examining new media use in slum communities.
The Australian APEC Study Centre administers the fellowship, which is supported by the Australian Government Department of Education and Training.
Click here to view all the 2016 Australian-APEC Women in Research Fellows.
Concentrated Trade In The Regional Comprehensive Economic Partnership
ASEAN has become very active in trade integration and liberalization in the last decade through free trade agreements (FTAs) with dialogue partners such as Australia, New Zealand, China, India, Japan and Korea. The five ASEAN+1 FTAs with these countries have all come into force. To take further steps from this, ASEAN+6 countries launched a new FTA negotiation in 2012 called the “Regional Comprehensive Economic Partnership” (RCEP). RCEP officials have been trying to work with other parties since then to conclude the negotiation by 2016. However, the latest negotiation round (the 13th ) which took place in Auckland, New Zealand last June showed no certainty that the deal could be concluded before 2017.
Despite the existence of the five FTAs between ASEAN and six major trading partners, the need for a more comprehensive and satisfactory trade deal is crucial because of the following reasons. First, the current ASEAN+1 FTAs have not created a fully liberalized region due to insufficiently high tariff liberalization and limited liberalization for rules of origin (ROOs) and services. Second, the existing ASEAN+1 FTAs creates a “noodle-bowl” (or “spaghetti-bowl”) situation in which firms’ usage of preferential systems could be hampered and the potential values of such FTAs could be impaired. Third, RCEP will help strengthen ASEAN position in the Asia-Pacific region2.
Until the 13th negotiation round, RCEP has not shown as high ambition as the Trans Pacific partnership (TPP) in terms of tariff liberalization. In the TPP almost 90% of the tariff lines are cut to zero. This paper focuses on the trade pattern of goods in RCEP and explores the concentration trends in RCEP trade. The findings of this paper then suggest there are still possibilities for RCEP to achieve medium high level of ambition.
For simplicity, this paper uses two-digit tariff lines for calculation. Under this classification, traded goods in RCEP can be broken down into about 98 products.
First, for most RCEP countries, goods exports to other RCEP members account for a significant part of their international goods export and are highly concentrated on a number of top traded products. As shown in Figure 1, ten countries in RCEP export more than half of their exported goods to other RCEP countries with four countries export more than 60 percent (Laos, Brunei, Australia and Malaysia). Also from this Figure, it can be seen that a major part of goods exports to other RCEP members come from 20 top-traded products and only a minor part comes from the rest (around 80 other products). This applies to all RCEP countries3, 4.
Second, 15 RCEP countries’ top exported products to other RCEP members have many products in common. Figure 2 shows the 20 products which are the most common in RCEP countries’ top-twenty lists of products exported to other members. For example, electrical and electronic equipment (HS code: 85) is one of the top-traded products (top twenty) to other RCEP members for all 15 RCEP countries while organic chemicals (HS code: 29) is one of the top-traded products to RCEP members for only 10 RCEP countries. In this paper, the top twenty
Products in Figure 2 shall be referred to as the most common top traded products across RCEP countries.
Third, the tariff rates for the most common top traded products across RCEP countries (list in Figure 2) are noticeably high. Figure 3 shows visually how non-negligible the tariff rates for these products are5.
First, if most of top traded products of a country are carved out in the tariff elimination or reduction’s coverage, the benefits that country could have otherwise gained will fall dramatically or in some cases will become insignificant. Take Australia as an example. Australia’s export to RCEP, which accounts for 76.64% of its international trade, has 79.28% of its value come from top 20 products. This implies that if these 20 products are carved out, the potential benefits from tariff elimination and reduction for Australia, which could otherwise hugely contribute to the country’s international trade gain, will fall remarkably. As another example. India’s exports to RCEP only account for 18.33% of its international trade with 76% of this amount coming from 20 top traded products. This means if most of the top traded products are carved out, the benefits left for India to enjoy from this trade deal are not so impressive.
Second, since a major part of the exports from each RCEP countries to other members come from a small number of products, if RCEP tariff elimination does not cover most of the tariff lines, it is highly possible for a country’s key products will be excluded from RCEP deal. This will then leave the countries with much lower benefits.
Third, if RCEP members cannot agree on tariff elimination and reduction for a majority of products and can only cover a number of products, as long as the most common top traded products across 15 RCEP countries are included (Figure 2), they can still make this trade deal fairly beneficial for their members. Figure 2 shows 20 products which are the most common top traded products across 15 RCEP countries and chart 3 shows the tariff rates for these products from 15 RCEP countries. It can be seen from figure 3 that these 20 products are subject to significant tariff rates from RCEP countries. What can be drawn from these two figures is that if tariff elimination and reduction are put on the right products, there is still a way to make this trade deal promising to RCEP members even if they can only agree on the coverage of a number of products.
2 Fukunaga and Isono (2013), Taking ASEAN+1 FTAs towards the RCEP: A Mapping Study, ERIA Discussion Paper Series
3 Data taken from International Trade Centre. http://www.trademap.org/Bilateral_TS.aspx
4 Myanmar’s data is not available.
5 Korea’s tariff rate for product 10 is excluded from this graph. The rate is 251 percent.
Trans-Pacific Partnership: a world trade revolution?1'2
The Trans-Pacific Partnership (TPP) agreement was signed on February 4, 2016. The treaty, yet to come into force, is an historic agreement that links together twelve countries 3 representing nearly 40% of global gross domestic product. It has the potential to change dramatically the face of world trade, both directly and indirectly. Firstly, the TPP is a tool enacting new rules and standards for trade and investment in Asia and setting a high standard which, for the time being, excludes China while it ensures US leadership. Secondly, as the TPP obliges China to develop its own approach to international trade and investment, China is going its own way with the Belt and road initiative. The TPP is revolutionary because it creates a line of fracture in trade regulation and policy in Asia which will oblige a number of countries to consider their accession to TPP while the role of WTO or China could be marginalised.
The TPP aims to remove trade and investment barriers to better connect its members. TPP Members are, at the same time, the source of raw materials, manufacturing hubs, and important markets for each other’s goods. TPP economies include mature markets, like the USA, Canada and Japan, and fast-growing markets in Asia and Latin America. Membership also includes countries rich in raw materials, like Australia, Brunei and Chile, as well as newly developing countries with large cheap labour resources, like Malaysia, Vietnam and Mexico. One can also identify financial hubs, like Singapore and the USA, and innovation and technology centres, like Japan and the USA.
The TPP can also be considered an attempt to avoid or manage some of the issues raised by China’s increasing economic power and recent economic slowdown. China has been the “world’s factory” since the 1980s, when it opened up its market to the world and increased exports based on cheap labour. Today, the situation is changing, and investors are looking for alternatives. For example, Vietnam has a population of 90 million, 40% of which are between 15 and 49 years old, thus providing a formidable work force. In addition, one-and-a-half million people join its labour force each year. Vietnam’s annual minimum wage is only half that of China. These factors make Vietnam, and other developing countries with similar characteristics, attractive replacements to China as manufacturing centres. Further, China is one of the world’s largest commodity importers and China’s recent lower growth has had negative effects on commodity demand and prices. The decline in the Chinese commodities demand has impacted negatively on trading partners like Australia4 which need to find a “new production line” for their raw materials.
For Japan and the USA, it is important to maintain access to the Asia-Pacific market, the fastest-growing market in the world with an 8% expected growth rate. The World Bank (WB) has estimated 5 that the TPP would generate smaller (percentage) increases in GDP for NAFTA members than developing countries like Vietnam and Malaysia. However, one cannot underestimate the dynamic interactions flowing from the TPP tariff reductions that can redirect international trade and investment. All in all, the TPP is an important step towards trade and investment liberalization which is expected to decrease costs and increase the world’s living standards. 6
The TTP has the potential to increase the USA’s economic influence in the Asia-Pacific region in its “Rebalance to Asia” policy.7 With the surge in China’s international trade and investment, the number of commercial disputes involving China has risen steeply, including many with the US. China is the respondent in 34 World Trade Organization (WTO) disputes, and is a party in commercial arbitration concerning thousands of disputes involving its state-owned enterprises (SOEs) and private companies. This continues to generate significant trade distortions increasing trade friction 8. The TPP, in Chapter 17, addresses for the first time some of the most controversial issues raised by the SOEs’ trade and investment activities. Many agree that this chapter has been a main barrier preventing China from joining the negotiation of the TPP. In the private sector, it is not uncommon for Chinese companies to fail to honour international contracts in the trade and investment area 9. The volume of transactions has made the issue significant. As China’s economic power increases, some countries will be in an unfavourable position when they do business with Chinese companies, The TPP set a new standard agreed on by many countries and may provide some basis to redress this imbalance by enhancing scope to develop rules base arrangements with China.
China is also extending its eco-political influence through its 14 signed preferential trade agreements and through a further 19 being negotiated.10 It has also signed more than 130 bilateral investment treaties. China joined Asia-Pacific Economic Cooperation (APEC) in 1991 and concluded the Framework Agreement between the Association of Southeast Asian Nations (ASEAN) and China in 2002. In recent years, moves are afoot to expand ASEAN+3 to a Regional Comprehensive Economic Partnership (RCEP) in which 16 Asia-Pacific countries are involved.11 China is an active member in these regional trade and investment cooperative ventures. Because China is a late-joining member of ASEAN+3 and APEC, its autonomy in setting the rules is limited. Thus, China has initiated its own strategic framework, the Belt and Road Initiative, to support more investments in roads, railways, ports and energy. Some of these investments China could finance unilaterally and others bilaterally, involving local partners. The Belt and Road Initiative covers more than 65 countries on three continents. China is the biggest fish in the pond, willing to set up a US$40 billion Silk Road Fund to kick-start the project; so it is therefore reasonable to expect that it is a China-centred international trade and investment strategy.12
One of the funding sources of the project is the Asian Infrastructure Investment Bank (AIIB), also initiated by China. The AIIB has been perceived to be a competitor of the WB and the Asian Development Bank (ADB) and some fear that it will dilute the transparency, labour and environmental standards which have been developed. However, the AIIB has been able to establish collaborations with institutions such as the WB and the ADB to finance projects related to the Belt and Road Initiative thereby attenuating those fears and setting a basis for maintaining high standards.13
A criticism of the TPP, especially from non-member countries, is that it may undermine the Doha Round of trade negotiations. The failure of the Doha Round has been attributed to several causes, but a key issue has been the requirement for a consensus of all of its 162 members, including that of developed and developing countries that have differing and often incompatible agendas. Under the WTO principles, members are able to develop bilateral or regional Preferential Trade Agreements (PTAs), so long as the contents of these agreements do not violate the WTO principles. The TPP is one such PTA. The relatively high standards within the TPP would not achieve consensus in the WTO. PTAs like the TPP can act as a bellwether to examine the feasibility of the high standards. Once shown to improve trade and investment, this may have a chance of gaining agreement within the WTO. There have been successful cases of service trade liberalization forming outside of the WTO regime, but later evolving to fall within the existing WTO service agreement. The TPP complies with WTO principles while existing outside of the WTO framework,14 thus avoiding deadlock in negotiation. On the other hand, the legally binding rules for tariff reduction and the dispute settlement mechanisms of the WTO are not replaced by the TPP. The WTO and the TPP can coexist and inform each other’s development.
So, on a number of fronts, the TPP has the potential to change the way trade and investments are conducted, and indeed the authors argue, is already doing so. It does, we believe, have the potential to be the start of a trade revolution.
1 This article summarises a number of the discussions at a recent conference which reviewed the TPP as a paradigm shift in trade regulation - http://webapp1.law.cuhk.edu.hk/2016conference/0516/conf/programme.php
2 Julien Chaisse is Professor, Faculty of Law and Director of the Centre for Financial Regulation and Economic Development (CFRED), The Chinese University of Hong Kong. PhD in Law, University of Aix-Marseille, France; LLM in European Law, University of Rennes; MPhil, University of Tübingen; LLB, University of Aix-Marseille. Ms. Xu Qian and Mr. Dini Sejko are Ph.D. Candidates, Faculty of Law, The Chinese University of Hong Kong.
3 The USA, Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru. For a comprehensive analysis of the challenges which the TPP agreement has had to address and the relationship with other regional agreements, see generally C.L. Lim, Deborah K. Elms and Patrick Low, The Trans-Pacific Partnership - A Quest for a Twenty-first Century Trade Agreement, Cambridge University Press, 2012; and Jansen Calamita and Mavluda Sattorova (eds) ‘The Regionalization of Investment Treaty Arrangements -Developments and Implications’ (London: British Institute of International and Comparative Law, Series ‘Current Issues in Investment Treaty Law’, Volume 5, 2014.
4 Peter Martin, ‘Australia has few tools left to fight recession, warns leading forecaster’, The Sydney Morning Herald, January 15, 2016, available at,: http://www.smh.com.au/federal-politics/political-news/australia-has-few-tools-left-to-fight-recession-warns-leading-forecaster-stephen-anthony-20160115-gm6j41.html#ixzz4BNP1f13x
5 World Bank, Potential Macroeconomic Implications of the Trans-Pacific Partnership, Global Economic Prospects, January 2016, available at https://www.worldbank.org/content/dam/Worldbank/GEP/GEP2016a/Global-Economic-Prospects-January-2016-Implications-Trans-Pacific-Partnership-Agreement.pdf
6 See Julien Chaisse: ‘Two Steps Forward One Step Back … The Trans-Pacific Partnership Investment Rules’ (2016) 47(4) Georgetown Journal of International Law (forthcoming).
7 See Advancing the Rebalance to Asia and the Pacific, The White House, Office of the Press Secretary November 16, 2015, available at https://www.whitehouse.gov/the-press-office/2015/11/16/fact-sheet-advancing-rebalance-asia-and-pacific. See also See, in Chinese 舒建中：《美国与“跨太平洋伙伴关系协定”：贸易权利的重构》，载《世界经济与政治论坛》2014年第6期，第30页。
8 See 2015 Report to Congress On China’s WTO Compliance, United States Trade Representative, December 2015, available at https://ustr.gov/sites/default/files/2015-Report-to-Congress-China-WTO-Compliance.pdf
9 See Jerome A. Cohen, Settling International Business Disputes with China: Then and Now, Cornell International Law Journal Volume 47, Issue 1 (2014) pp. 555-568
10 For a detailed analysis of the evolution of the international investment regime in the Asia-Pacific region and the role of China, see Julien Chaisse: ‘The Shifting Tectonics of International Investment Law - Structure and Dynamics of Rules and Arbitration on Foreign Investment in the Asia-Pacific Region’ (2015) 47(3) George Washington International Law Review 563–638, and for a Chinese perspective on the Chinese reactions to the TPP see余 楠：《新区域主义视角下的“跨太平洋伙伴关系协定”》 — 国际贸易规则与秩序的动态演变及中国之应对，载《法商研究》2016 年第1期，第137页。
11 RCEP brings together the ten members of ASEAN – Brunei-Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam with Australia, China, India, Japan, South Korea and New Zealand.
For a Chinese perspective on The Belt and Road Initiative, see 王义桅：一带一路的国际话语权探析 May 14, 2016, available at http://world.huanqiu.com/article/2016-05/8930524_2.html
13 Ian Talley, ‘U.S. Looks to Work With China-Led Infrastructure Fund’, March 22, 2015, available at http://www.wsj.com/articles/u-s-to-seek-collaboration-with-china-led-asian-infrastructure-investment-bank-1427057486, see also ‘China Focus: Multilateral lenders see room for collaboration with AIIB’, Xinhua, March 23, 2015, available at http://news.xinhuanet.com/english/2015-03/23/c_134090238.htm.
14 The WTO reports that by February 1, 2016, member countries have notified the existence of 625 RTAs (counting goods, services and accessions separately), and 419 of these agreements are in force.
Dispute Settlement Mechanisms in the Trans Pacific Partnership: Lessons for India and China
The long negotiation of the Trans Pacific Partnership (TPP) finally came to the end with the recent signing of the Agreement in New Zealand by member countries. As with any FTA, protests against the TPP agreement have also started in those countries. With the US presidential election around the corner, discussions have even started about the future of TPP, as none of the presidential candidates have shown unconditional support for it. Whatever its future, the TPP offers some new ideas and innovative rules, which should not be ignored. In particular, the dispute settlement mechanism of the TPP has taken the rules of state-to-state dispute resolution several steps forward.
As China and India are in process of negotiating FTAs with other countries, there are lessons for the two countries to learn from TPP dispute settlement system. Though China was never invited to join TPP and India has never shown an interest in joining TPP, nevertheless it is important that negotiators from China and India keep an eye on the trends set by TPP.
The first innovation in TPP dispute settlement is that a “proposed measure” of another party has been brought into the scope of being a State-to-State dispute if that measure would be inconsistent with an obligation under TPP. Such proposed measures may be the subject of Consultations in order to resolve disputes. However, a panel cannot be established on the request of a Party only on the basis of a “proposed measure” of another Party. This arrangement is very practical because at the Consultation stage a potential dispute related to the proposed measure may be avoided. At the same time, as the proposed measure is not concrete, there is no need to set a panel proceeding in motion for final determination. China and India are always making laws, by-laws, rules and orders etc (which are considered as measures) to boost their economy and to attract foreign investment, and adoption of rules similar to those in the TPP would facilitate consultation on those measures before a dispute arises out of the measure. It would also give an opportunity to India and China to test any potential disputes which might ensue out of a proposed measure and to correct them in time.
The second TPP innovation which both India and China could consider in their own FTAs may be seen in the composition of panel members in the dispute settlement mechanism. In the TPP a Roster of Panel Chairs and Party Specific Lists have been adopted for appointment of panel members and panel chairs. Such a lists based system is useful as default process and at the same time it respects parties’ autonomy in selection of panel members and the panel chair. In a situation when a party (usually responding party) does not appoint a panel member then the Party Specific Lists may be used as a default to appoint a panel member. Similarly, when disputing parties do not agree on the name of the panel chair then the two panelists may agree to appoint the chair of the panel from the Roster of Panel Chairs. In a situation where two panelists do not agree on the name of the panel chair, the disputing parties may use the Roster of Panel Chairs for appointment of the panel chair on random basis. In the TPP dispute settlement mechanism it is also possible to engage an independent third party to help appoint the panel chair from the Roster of Panel Chairs. Having a list based system for appointment of panelists and the panel chair may take care of all eventualities. When India negotiates with economies like Australia and the EU, having a list-based system will be useful. While China did not include a list-based system in the FTA with Australia, it could now consider including this system in negotiating FTAs with other partners.
As a third innovation, the TPP has proposed a dispute specific qualification requirement for panel members. For example in disputes relating to Labour, Environment, or Anti-Corruption, it is mandatory that panelists (except the panel chair) must have experience and expertise in labour law, environmental law and anti-corruption law respectively. Subject specific qualifications for panelists make the dispute settlement system more efficient and China and India could consider including this innovation in their future FTAs. Following the same line of argument, it is also possible for China and India to expand the subject specific qualifications in different fields including understanding of the partner’s country, economy and culture.
The fourth innovation in the TPP dispute settlement mechanism is the most laudable and a trendsetter for the future FTAs. As a default, all hearings before a panel are open to the public. Only with the agreement of disputing parties can hearings be in camera. In support of transparent hearings, the TPP Dispute Settlement mechanism also requires the disputing parties “to make best efforts to release to the public” all the documents related to disputes such as written submissions, a written version of an oral statement and written responses to a request or question from the Panel. All these documents should be made public as soon as they are filed and in any event, should be made public once the final report is issued. China and India are typically not very keen in bringing their disputes into the public. Following Asian tradition or culture they try to resolve disputes amicably or behind the curtain. Considering the trend toward increased transparency in dispute settlement, China and India could consider adopting the default mechanism of open hearings as adopted in the TPP dispute resolution system. The overriding provision to keep the hearing confidential with parties’ agreement may be able to induce China and India to consider using open hearing policy in their FTAs.
The fifth innovative step in the TPP dispute settlement mechanism is that the responding Party, in lieu of, the suspension of benefits, may use “monetary assessment”. According to this system, once the determination on suspension of benefits is made, the responding Party may make an approach to the complaining Party to pay a monetary assessment and to negotiate the amount of the assessment. The payment may be made in the U.S. dollars, or in an equivalent amount of the currency of the responding Party or in any other currency agreed to by the disputing parties. Disputing parties may even agree to create a fund with any monetary assessment paid into that fund to be used for “appropriate initiatives to facilitate trade between the Parties, including by further reducing unreasonable trade barriers or by assisting the responding Party to carry out its obligations under this Agreement”. The responding Party may initiate the discussion on the possible use of this fund. The complaining Party is then obliged to accord sympathetic considerations to the possible use of the fund.
It has been a concern for countries like India and China as to the use of public money to pay compensation, and how such money may be used. The TPP dispute settlement mechanism has now created an opportunity for the monetary amount paid by the responding Party to be used for the benefit of the responding Party itself. China and India could usefully adopt such an approach in their FTAs as it will help these countries to deal with their domestic political and economic concerns.
The TPP text, including its dispute settlement provisions, have been discussed and deliberated for a long time. No matter whether the TPP is finally adopted by the US Congress or not, the text of the TPP may serve as a baseline for future FTAs and its innovative provisions may serve as a trendsetter. The future FTAs of China and India could usefully adopt the innovative provisions of the TPP dispute settlement mechanism or modify them to suit their needs. The benefits of FTAs can only be realized if their dispute settlement systems are practical, efficient and effective. Innovative provisions of the TPP dispute settlement system have indeed made its dispute settlement mechanism practical, efficient and effective therefore, China and India should also consider adopting those provisions in its future FTAs.
A Survey Snapshot: Optimal Regional Free Trade Agreement Formation in East Asia
In negotiating Free Trade Agreements (FTA), the effective collection of business voices has always been one of the major interests for policy makers. With the trend to plurilateral FTAs, it has proved quite difficult to gather such voices from all relevant countries. In order to provide information on current FTA utilization and to identify key issues on improving FTA disciplines and actual operation, the Japan External Trade Organization (JETRO) and Japan Chamber of Commerce and Industry (JCCI) jointly conducted a “Survey on Optimal FTA formation in East Asia” from January to March 2016, under the framework of the East Asia Business Council (EABC) which is the designated business advisory body to the ASEAN+3 (China, Japan, Korea) Economic Ministers Meeting. This article provides a preview of the report on the survey.
As China and India are in process the target respondents were domestic companies in ASEAN+6 (ASEAN+3 plus Australia, India and New Zealand) countries, which are currently involved in the Regional Comprehensive Economic Partnership (RCEP) negotiation. The survey was conducted by questionnaire. 309 valid responses were received from all ASEAN+6 economies. Among these companies, 60.5% were Micro, Small and Medium sized Enterprises (MSMEs) with 39.5% classified as Large Enterprises (LEs). 74.8% of companies belonged to the Manufacturing sector. The questionnaire consists of 2 parts: questions on Trade in Goods (TIG) and Other Elements. In each part, we asked about current bottlenecks and requests for features which had been to authorities. The TIG section included a question to explore where companies had given up FTA utilization.
The survey has highlighted the importance of the RCEP region in terms of both procurement source and export destination. It has shown there is a lower FTA utilization rate by MSMEs stemming from insufficient internal business capacities; necessity of improving business access to FTA related information. It has highlighted the requirement for and identification of industry-wise business needs to further improve business-friendliness of specific FTA elements. These outcomes were reported to the 8th RCEP Trade Negotiating Committee in Perth on April 26, and the full report will be submitted to the ASEAN+3 Economic Ministers Meeting in the 1st week of August 2016. As a brief introduction of the report, in this article, I just would like to focus on the first point: respondents’ procurement and export structure for understanding the scope of the companies’ business activities.
The following figure shows the current/future procurement source and export destination, comparing the “RCEP region” with the “Non-RCEP region”. In this question, respondents were asked to identify the top 3 countries for which that company has currently/in the near future (next 3-5 years) procured/exported components and products. From this figure, it can be seen that nearly 80% of current/future procurement activity is occurring within RCEP region, and almost 75% of current/future exports are heading to the RCEP region as well. If we look at the procurement situation in detail for instance, in the RCEP region, China, Japan and Thailand were the top 3 current procurement sources, while Vietnam, instead of Thailand, comes as No.3 procurement source in the near future. With regard to exports, the current top 3 destinations would be China, US and Japan followed by Thailand, and in next 3-5 years, it is expected that Thailand will be replaced by Indonesia.
Figure: Procurement and Export Condition of the Respondents
The same tendency has also been observed in the JETRO’s other annual survey on Japanese affiliated companies in Asia. From the survey, it was identified that Japanese manufacturing companies in ASEAN (n=1,199) has procured 93.7% of materials and components from RCEP region, with 39.8% from countries where investments had been made, 33.2% from Japan, 9.6% from other ASEAN countries, and 8.6% from China. With regard to exports, these companies (n=1,046) has exported 80.3% of products to the RCEP region, which is also in line with our survey result this time.
While Japanese companies in the ASEAN region are typically considered as developing sophisticated supply chains in this region, this common trend indicates the possibility that companies in RCEP region in general have same business bottlenecks for utilizing FTAs. The detailed survey result including the analysis of such bottlenecks and business needs will be reported in a future edition.
1 The definition of MSME is following the criteria set by SME Agency of Japan; those who has less than 300 employees has been classified as MSMEs.
2 For more detail about the report, please visit;
Urbanisation – Major Development Challenge for The Asia Pacific Region
Urbanisation, the growth of cities and of corridors linking cities, creates massive challenges for economies of the region and globally at all levels of governments and administrations; state, regional and cities themselves. Population growth, the migration of people from rural areas to cities puts great pressure on governments at all levels to develop, plan and finance the infrastructure needed to meet even the basic needs of communities. Economic growth increasingly emanates from cities – 80% of GDP in Asian economies is generated by cities and the city share of GDP is growing. Cities are the magnet for economic and social activity and require increasing infrastructure investment and resources to provide for their efficient and effective functioning.
The pace of growth of cities is exceeding the capacity of governments to plan and build the infrastructure required to meet the needs of expanding urban populations.
APEC Leaders recognized the problems that urbanization creates and have set in place an APEC response. Urbanisation and the development of sustainable cities were a priority established under China’s APEC leadership in 2014. In October of that year, APEC Finance Ministers agreed a multi-year plan for infrastructure development and investment and the creation of the Asia Pacific urbanization partnership to promote sustainable cities. A roadmap to develop infrastructure investment through public private partnerships was a component of that response.
In Ningbo China, in early June this year, China organized the APEC High level urbanization forum to promote collaboration on inclusive and sustainable urbanization policies. Among others, the Ningbo initiative proposed the promotion of inclusive and dynamic urban growth, smart cities, green cities, urban regeneration and retrofit, innovation in urban development, good urban governance and APEC regional cooperation to achieve sustainable urban development.
Australia responded to the urgent need to prioritise urbanization as a major development challenge for the region when, in September 2014, it promoted the Urban Infrastructure Network (UIN). The concept was agreed and presented to APEC Leaders by the APEC Business Advisory Council (ABAC).
The UIN, a collaboration organized by the Australian APEC Study Centre at RMIT University, and including specialists from regional and global organisations, business and academics, has worked to develop a best practice policy framework for integrated urban planning, project and program development systems and ways to improve urban financing systems. The framework also covers the important matter of governance to in the oversight and management of urbanisation This work will be presented to ABAC and to an APEC Friends of the Chair Group in August with the intention of incorporating it in advice to APEC Leaders later in 2016. The report will propose action plans that APEC economies may wish to consider in upgrading their approaches to dealing with the daunting challenges of urbanization.
APEC’s call for regional cooperation on this wide ranging, many faceted and complex subject of urbanization is both timely and critically important. There are many specialist groups researching and proposing ways to improve the livelihoods of millions of people living and working in the great cities and metropolises of the region. The need is to capture this expertise and to share experiences in how to do respond to urbanization effectively and efficiently; how to ensure that we can create “liveable” cities for all citizens.
At a meeting convened in Singapore in early June, the UIN Forum discussion focused on the draft report of the best practices policy framework and proposed action plans noted above. Major points which emerged were:
i) Governance and Planning
- the availability of techniques to undertake specific urban projects but that ways to implement them effectively were not evident in any APEC economy;
- the connectedness of urban project planning and that no project is an island to itself;
- a systematic approach to project planning is needed and this should reflect the context that various levels of government in an economy face;
- looked at holistically, infrastructure needs to add value in terms of quality, access, the reduction of carbon intensity, the Paris agenda of UNFCC and Habitat lll ;
- priortitising urban infrastructure is critical and the UIN should help provide direction in which economies should travel;
- governance is critical to good planning, project preparation and implementation;
- severe gaps in the urban planning of secondary cities in Asia and the UIN should play a role in urban futures;
- move on from discussions on ceilings that confront city capacities and focus on infrastructure investment that can make a difference;
- data availability must be improved to enable better urban development;
iii) Coordination in APEC and in the region
- improving efficiencies in public funding is important and the private sector can assist with this;
- overall, in 2014/15 there was a downward trend in the number and value ofPPPs globally, compared with the average over the previous five years;investment in renewable energy is growing rapidly – there is now no premium mark up in renewable energy investment over fossil fuel investment;
- pooling investment for accessing capital markets by sub-national governments is occurring and this encourages sharing of access to markets and of fiscal responsibilities;
A summary report of the Singapore June meeting is available on the AASC web-site. The comments recorded above confirms the high relevance to the work of the UIN to the region and the contribution it will make to APEC economies in managing the challenges of urbanization.
- advanced technology transfer in infrastructure development is important and the Global Infrastructure Hub is promoting knowledge sharing, ways to strengthen financial instruments, risk management, prioritization and predictability;
- the UIN shouldcoordinate with the World Global Cities Summit of Singapore;
- a high level group has been formed in Chile to promote integrated planning and changes in governance structures relating to planning;the UIN draft best practice guidelines were most valuable in developing anawareness and policy responses in Chile;work by the UINin developing ways to priorities urban projects would be helpful to Mexico and Peru would benefit from UIN work in its pursuit of integrated planning processes;
- the China Centre for Urban Development of the National Development and Reform Commission notes the importance of intergovernmental and inter sector urban planning and the role of the UIN in these matters;
- the Cities Development Initiative for Asia (CDIA) supports prefeasibility studies an funding linked to MDB programs which have an emphasis on the environment and poverty reduction and it gives priority to city partnerships;
- while a more commercial approach to infrastructure planning and investment is emerging in Indonesiaa key challenge is the complexityin aligning national and local government urban priorities and in encouraging best practices in project preparation, capacity building and in the mobilization of finance;
- Socialising the work of the UIN would be important to urban planning in PNG as that economy assumes the chair of APEC in 2018;
- the UIN would add value to the work of UNESCAPand linkages exploited ; the UIN best practice framework to be considered asa source of expertise and key lessons learned from the regionwhich could support global processes;
- key areas of interest to the UN Global Cities Compact include governance, decentralization, procurement, the adaptation of cities to climate change and the issues confronting small Pacific Island states;the Compact involves deep collaboration with the private sector and through its links with RMIT University in Melbourne would collaborate with UIN in the region and globally;
- city mayors in the region meet regularly in various forums and urban planning and project developments are a priority;linkages with industry through ABAC and perhaps through the APEC Leaders’ Business Summit should be explored in developing deeper collaboration on urbanization.
The draft best practice guidelines and the proposed action plans, the subject of consideration at the Singapore meeting, will be revised to reflect the observations made at that meeting. Important to APEC’s ongoing consideration of urbanization and the role that the UIN could play in responding to the massive challenges of urbanization are the following:
- the “rightness” of economies in placing urbanization and its associated infrastructure planning, project preparation and financing as central to APEC’s agenda of sustainability and inclusiveness and in recognizing the needs of all people in delivering to them to the basic services for a decent livelihood;
- the value of integrated and flexible approaches to planning and project preparation between and across all levels of government in an economy;
- prioritization to the allocation of fiscal resources to funding agreed urban development;
- the critical importance of utilizing innovation in technology and finance in getting best value from urban investment;
- the importance of forging deep collaboration between public sector agencies and the private sector and communitiesin planning, project preparation and financing urban infrastructure