Inclusive growth in world trade: APEC in a changing global landscape

by Victor C. Manhit, Businessworld, November 16, 2016

Peru’s hosting of this year’s Asia-Pacific Economic Cooperation (APEC) culminates with the economic leaders’ meeting this week. Designed to promote trade liberalization in the Asia-Pacific region, APEC has nevertheless prioritized agendas that underscore the importance of investing in human capital to build sustainable and inclusive economies. Fittingly, the 2016 theme of “Quality Growth and Human Development” builds on the priorities laid out by the Philippine government during its hosting last year.

This year’s agenda is timely: Around the world, populist leaders have come to power, riding on campaign promises that resonate with those who have missed out on the benefits of economic growth. The Philippines is part of this trend; Despite the economy growing by around 6.1% over the last six years, the last administration failed to reach their target poverty incidence of no more than 18-20%. Pervasive inequality helped usher in the rise of President Duterte, who vows to champion the neglected majority.

As world leaders are set to convene in Lima, we must reflect on the promise of growth, the future of trade, and APEC’s role in ensuring more people feel the benefits.

APEC’S GLACIAL PACE

In 1989, APEC was established as a forum to facilitate discussion on economic growth, trade liberalization, and investment opportunities. Today, its 21 members constitute 58% of the world’s GDP, 49% of total world trade, close to 40% of the global population, and include four of the world’s largest economies.

During the Philippines’ hosting last year, the group adopted two initiatives: on greater economic growth in the region and a framework for the services sector.

For its part, the Philippines held bilateral meetings with 12 leaders, signing 7 agreements and exploring cooperation in security, climate resiliency, and counter-narcotics. In trade, the most concrete outcome was an agreement with Russia establishing a Joint Commission on Trade and Economic Cooperation. Several leaders also endorsed the Philippines’ intention to join the US-led Trans-Pacific Partnership (TPP).

Critics have attacked APEC for producing vague pronouncements more than serious commitments. Nevertheless, there are now over 140 free trade agreements (FTAs) between APEC members and, since the group’s inception, trade barriers are estimated to have been reduced from 17% to 5%. Thus, despite its shortcomings, APEC remains an important platform for members to exchange ideas and discuss measures that promote trade — discussions needed for multi-country cooperation to come about, albeit slowly.

SHIFTING LEADERSHIP IN GLOBAL TRADE

Just 12 months ago, the TPP was widely seen as the first major step for APEC to solidify its vision of a regional free trade zone. This year, APEC discussions will feature the dismal future of the TPP.

With Donald Trump’s election win last week, anti-trade attitudes are expected to dominate the next US administration. China, which the US had excluded from TPP negotiations, is now poised to be the leading advocate of regional trade deals. It has its own Regional Comprehensive Economic Partnership to promote, but it excludes North America.

Due to its restrictions on foreign ownership, the Philippines had been excluded from TPP negotiations, but the country had signified its interest to join the deal.

If TPP pushes through without us, the country stands to lose out to included countries with similar comparative advantages. The Philippines should continue to engage TPP countries on meeting the standards of the agreement; ultimately, even if it should fail to pass in the short run, the TPP will have laid the groundwork for a trans-regional FTA.

The recent turn of events has signaled that a change in the global dynamic is inevitable. Whichever way the pendulum swings, the government must take a balanced approach, and avoid cozying up to one nation at the expense of another.

CAN APEC PROMOTE INCLUSIVE GROWTH FAST ENOUGH?

While trade clearly spurs economic growth, its impact on development is more muted. Theoretically, by improving growth, trade also boosts incomes and tax revenues that the government can invest in human capital development. Openness to trade increases business and consumer choices across a variety of goods and services. Empirically, indirect linkages between trade and inclusive growth reveal overall positive effects, although the better-off segments of society have benefited more from trade growth.

The development figures in the Philippines are promising: poverty dropped to 21.6% in 2015 from 25.2% in 2012, or by 1.4 million people. Meanwhile, unemployment is at a historical low at 5.4%. Despite the positive trajectory, however, the Philippines, like the rest of the world, should be mindful of whether these drops are fast enough to satisfy the population. There is still plenty of room for policy intervention.

APEC’s efforts in human capital development have been geared towards education and skills development, as well as harnessing innovation and technology to transition into knowledge-based economies. This year, there is once again a focus on MSMEs as a driver of inclusive growth and poverty reduction. Current discussions are centered on measures to modernize MSMEs and integrate them in the global value chain. It will be up to our country to set these words into action.

REAFFIRM CROSS-BORDER COOPERATION

APEC can still be a useful forum for leaders to conduct bilateral and multilateral meetings, but countries should emerge with a clear end in mind for their own people.

This year, the stage is set for Duterte to reach out to all countries, promote ties with existing partners, and establish them with “non-traditional” markets, like Latin America, to advance his pro-poor agenda. Rather than knee-jerk protectionism, the moment calls for us to reaffirm the importance of cross-border cooperation.

Prof. Victor Andres “Dindo” C. Manhit is the founder and managing director of the Stratbase Group and president of its policy think tank, Albert del Rosario Institute for Strategic and International Studies (ADRi). Prof. Manhit is a former chair and retired associate professor of Political Science of De La Salle University. He has authored numerous papers on governance, political, and electoral reforms.