The Asia Pacific Economic Cooperation (APEC) is back in Latin America for the first time since 2008, when Peru hosted the forum amid the global economic crisis. At that time there were concerns about raising protectionism across the region and increasing demands to reform the global financial system. In 2016, APEC takes place again in Peru, in a new context of economic growth in most of its member economies, but also during a moment when important structural reforms are taking place to secure better quality growth and better conditions for human development.
This article provides Canadian policy makers and businesses with a fresh perspective on APEC, its priorities in 2016, and the role and influence of Latin American economies. After a brief overview of APEC, the article provides context for Latin America-Asia relations, a matter of importance in view of Peru’s chairing of APEC in 2016. Peru’s dual chairing of APEC and the Pacific Alliance will potentially see Peru capitalize on opportunities for convergence between the organizations. The article then explains the APEC 2016 agenda with reference to the Latin American context, and concludes with a discussion of implications for Canada.
APEC in the regional scenario
The Asia Pacific Economic Cooperation (APEC) was established in 1989. The forum brings together a group of 21 of the most important economies on both sides of the Pacific Ocean, including the United States, China, Japan, and Canada. APEC’s members have over 2.8 billion people, 57 per cent of the world’s GDP and half of global trade.
APEC has become one of the most important forums for the interaction of economic leaders, policy-makers, business persons, and academics from across the region. During its 27 years of existence, APEC has served as a co-ordination mechanism for tariff liberalization in the region, facilitating trade and promoting investment. It has contributed to tariff reduction across the region, from 16.9 per cent in 1989 to less than five per cent in 2015. Trade among APEC economies has expanded at a fast pace: between 2005 and 2014, intra-regional exports doubled from US$3.3 trillion to US$6.2 trillion, despite the global economic crisis of 2008-2009. APEC’s achievements in terms of foreign direct investment and economic co-operation are equally impressive.
APEC priorities have evolved over the years, from an economic approach in the 1990s, toward a more comprehensive approach in recent years. During the 23rd APEC Economic Leaders' Meeting held last year in the Philippines, the group expressed its commitment to fighting terrorism, promoting equitable growth, reducing poverty and climate change, and continue to promote regional economic integration. These commitments were reflected in the Boracay Action Agenda to help SMEs access global markets, the Cebu Action Plan to promote entrepreneurial access to financial services, the finalization of the Renewed APEC Agenda for Structural Reform, and the approval of the APEC Services Cooperation Framework, among other initiatives.
Asia-Latin America relations
The location of APEC 2016 puts a spotlight on growing ties between Latin America and Asia. Trade in goods (exports and imports) between Latin America and APEC economies in 2014 reached a record high of US$1.3 trillion. From a Latin American perspective, APEC has served as a platform to boost its trade with the Asia Pacific economies and has paved the way for the successful negotiation of Free Trade Agreements (FTA) across the Pacific.
While the U.S. is still the most important trading partner for Latin America as a whole, some Asian markets – in particular China – are now strategic for the region. China is already the largest export market for important economies such as Brazil, Chile and Peru. Though most of this trade between Latin America and the Asian markets is still commodities-based, changes in the trading patterns have had deep economic and political implications for the region, leading, for the very first time, to concerted efforts to build institutional ties with Asian economies.
Peru as APEC Chair
Throughout 2016, APEC members will hold over 160 meetings at all levels in Peru, including the 24th APEC Economic Leaders’ Meeting scheduled for November 19 and 20. Peru will also host six ministerial meetings (Trade, Finance, Tourism, Education, SMEs, and Food Security) and a forum on women and the economy, as well as high-level dialogues on several regional issues, along with additional working groups and committees.
Peru has strong ties to the Asia Pacific. Because of its historical linkages and its trade relations, Peru often sees itself as a bridge connecting Latin America and the Asia Pacific. Based on COMTRADE figures, in 2015 Peruvian exports to APEC markets were valued at US$22.1 billion (about 58 per cent of Peru’s exports to the world) and imports from other APEC economies were valued at US$26.6 billion (close to 63 per cent of its total imports). Peru currently has FTAs with Canada, Chile, China, Japan, South Korea, Mexico, Singapore, Thailand, and the United States. Once the TPP is in force, it will have agreements with 14 out of the 20 APEC economies (five new markets are Australia, Brunei, Malaysia, New Zealand, and Vietnam).
According to Ambassador Luis Quesada, Peru’s High Representative to APEC, the country’s strategic objectives as a member of APEC are as follows:
- Consolidate Peru as the leading production and logistics hub between Asia and Latin America;
- Establish strategic alliances at the multilateral level, including the World Trade Organization (WTO); and,
- Deepen trade and investment relations between Peru and other economies in APEC.
Despite changes in government and political parties, Peru has maintained a long-term orientation towards economic liberalization and regional integration. The basic policy objectives laid out by Quesada have guided Peru’s participation in APEC since it became a member in 1998 during the government of Alberto Fujimori. They have stayed consistent throughout the subsequent governments of presidents Valentin Paniagua, Alejandro Toledo, Alan Garcia,and Ollanta Humala. This policy orientation is expected to continue no matter who wins the presidential election in April this year. It is, for instance, notable that presidential front-runners such as Keiko Fujimori, Julio Guzmán, and Pedro Pablo Kuczynski have all been linked to Peru’s APEC process in the past or worked on issues that have been a high priority on the APEC 2016 agenda.
Pacific Alliance and Peru’s dual mandate
The Pacific Alliance (PA), established in 2011 by Chile, Colombia, Mexico, and Peru, is one of the most dynamic economic liberalization processes among Latin American nations. This group seeks the gradual construction of a deep integration area among its members, leading to a free movement of goods, services, and capital, and a freer movement of people. Peru played a leading role in the inception and creation of the PA, as it hosted its first Summit of regional leaders in 2011.
In a few short years, the PA has already set a record of important achievements, including the negotiation of a trade liberalization protocol, the creation of the Integrated Latin American Market (MILA) Stock and Exchange Market, the establishment of a visa waiver program among its members, and a series of co-operation mechanisms on tourism, trade, and investment promotion. Moreover, after holding ten presidential summits, and despite the changes in the governments of Chile, Mexico, and Peru, this group is still leading regional integration.
Along with the objective to promote regional integration, PA leaders have expressed their interest in using the group as a platform of regional insertion to the Asia Pacific. They have long agreed to work together towards increasing trade, FDI and co-operation with Asian nations. In addition to its four member economies, the PA has 42 observer countries belonging to all regions of the world, including ten APEC members (United States, Canada, China, Japan, Singapore, South Korea, Australia, New Zealand, Indonesia, and Thailand), allowing them to serve as a key venue for Latin America-Asia relations.
Since Peru will be hosting both APEC and the Pacific Alliance during most of 2016, it will be looking toward the convergence of both economic associations in areas of mutual interest. As Julio Chan from the Ministry of Trade of Peru noted at a recent event at the Universidad EAFIT in Colombia, “Peru is at the forefront of the regional integration between Latin America and Asia Pacific. As such, hosting APEC and PA at the same time, provides us with a unique opportunity for the articulation of both mechanisms.”
Working towards the objective of creating stronger links between APEC and the Pacific Alliance, Ollanta Humala, President of Peru and President Pro Tempore of the Pacific Alliance, and Benigno Aquino III, President of the Philippines, co-chaired the APEC- Pacific Alliance Informal Dialogue in November 2015. This meeting served as a first approach between the two bodies. During this meeting, APEC and Pacific Alliance leaders agreed to promote co-operation in areas such as SMEs, human capital, food security, and economic integration. Co-operation in these areas will be developed along the lines of APEC 2016 agenda and priorities. The leaders also decided to create a venture capital fund that will start in 2017 with an initial investment of US$100 million.
There are at least four other potential areas of common interest for future co-operation between APEC and the Pacific Alliance:
- Trade liberalization and facilitation: identifying potential co-operation in sharing good practices in customs procedures, cumulative rules of origin, building regional production networks, and implementation of single-window systems that simplify the processing of regulatory documents associated with trade.
- Trade in services: eliminating barriers for FDI in the services sector, including banking, maritime transportation, tourism, and telecommunications.
- Mobility: sharing best practices on visa waiver programs to promote tourism, the implementation of advance passenger information systems, and the creation of a single visa to visit any Pacific Alliance member.
- Business networking: holding dialogue between the Pacific Alliance Business Council (CEAP, in its Spanish acronym) and the APEC Business Advisory Council (ABAC).
APEC 2016 regional agenda
Peru is planning to build upon the foundations established during the Philippines’ presidency last year. The theme for this year is "Quality Growth and Human Development." The APEC priorities in 2016 are:
- Advancing regional economic integration and quality growth;
- Enhancing the regional food market;
- Modernizing micro-, small-, and medium-size enterprises in Asia Pacific; and,
- Developing human capital.
1. Advancing regional economic integration and quality growth
Regional economic integration in the form of trade and investment liberalization has been at the centre of the APEC process since the establishment of the Bogor Goals in 1994. APEC has promoted the reduction of tariffs and other obstacles for trade in goods and services, as well as the implementation of instruments to promote the freer mobility of capital and people across the region. Since 2004, APEC leaders have put forward the negotiation of a Free Trade Area of the Asia Pacific (FTAAP) as a mechanism to consolidate such economic integration among its 21 member economies.
The Beijing Roadmap for APEC’s Contribution to the Realization of the FTAAP, launched in 2014 in China, established specific actions to promote the negotiation of this agreement, such as the creation of the Collective Strategic Study on Issues Related to the Realization of the Free Trade Area of the Asia Pacific (FTAAP). The results of this feasibility study are expected for this year’s APEC Economic Leaders’ meeting in November.
The results of the Collective Strategic Study come at a crucial moment considering there are several integration efforts underway across the region. This includes the recent establishment of the Economic Community among members of the Association of Southeast Asian Nations (ASEAN); the ratification of the Pacific Alliance Trade Protocol, which furthers economic co-operation among APEC’s three Latin American members; the conclusion of negotiations for the Trans-Pacific Partnership Agreement (TPP) among 12 APEC members; and the finalization of negotiations on the Regional Comprehensive Economic Partnership (RCEP) among several Asian economies, which is expected to happen in September 2016. Although these negotiations take place outside APEC, member economies must ensure these efforts point in the same direction.
2. Enhancing the regional food market
The second priority is food security, a matter of vital importance for many regional economies. Food security goes beyond the production of food to include its quality, supply, and affordability. Along these lines, Peru has decided to strengthen regional food markets, not only to ensure food supply and quality, but also to continue working toward the reduction of tariff and non-tariff barriers to food trade.
Food security has been addressed by APEC for several years now, with the establishment of the APEC Policy Partnership on Food Security (PPFS) in 2011. More recently, APEC defined the Food Security Roadmap Towards 2020 and celebrated the High-Level Policy Dialogue on Food Security and the Blue Economy in 2015.
During 2016, the APEC food security agenda will focus on the areas of sustainability, investment and infrastructure, and the promotion of services related to food trade and market access. This last issue is perhaps one of the most sensitive because of the political constraints found in many regional economies. Even though most of the FTAs negotiated among regional economies eliminate or reduce tariffs, there are still many obstacles in external markets. These include non-tariff barriers of the Sanitary and Phytosanitary type that are imposed to protect the health of the population, but are often times used as a protectionist measure.
3. Towards the modernization of SMEs in the Asia-Pacific
The third priority is the modernization of SMEs and their integration into global value chains. This is of key importance for developing economies in APEC, as these companies are the most important source of employment for their populations. However, often times these companies are not well integrated into the world economy because of their lack of knowledge, financial resources, access to distribution networks, or innovation.
Building on last year’s commitments, Peru has the responsibility to start the implementation of the Boracay Action Agenda to Globalize MSMEs (2015-2020). Because of this, Peru has defined four specific lines of action: enhancing innovation among SMEs, the promotion of Green SMEs, the development of infrastructure, and empowering women's entrepreneurship.
Access to technology is of particular importance for Peru, as its companies face the challenges that come with their distance from other APEC markets, in particular those in Asia. Better access to technology is expected to improve logistics, enhance governance, and insert SMEs into large global value chains through e-commerce.
4. Developing human capital
The fourth priority is the development of human capital in the form of education and the development of skills. This is essential for Peru and other developing nations in APEC as a mechanism to generate economic growth and human development. Peru aims to promote co-operation and capacity building in higher and technical education, to develop skills for work, and to promote sciences, technology, and innovation in the educational systems. These actions are based on the premise that, co-operation in the form of knowledge transfer and sharing good practices on education are seen as ways to raise the educational level in the region.
Conclusions: Opportunities for Canada to play a major role in APEC 2016
There are strong economic links between Canada and the Latin American economies in APEC. Canada was one of the first economies to become an observer to the Pacific Alliance in 2013. Trade in goods (export and imports) between Canada and the Pacific Alliance in 2015 was $US38.8 billion. Furthermore, Canada has FTAs in force with all its members, a condition few among the observers have. As such, Canada should be interested in following the process closely and identifying business and investment opportunities for its companies in this region.
As one of the TPP negotiators and an observer member to the Pacific Alliance, the potential negotiation of the FTAAP is an important matter for the Canadian government and business. The presentation of the results of the Collective Strategic Study on Issues Related to the Realization of the Free Trade Area of the Asia Pacific (FTAAP) next November, will help regional economies, including Canada, decide whether to pursue a new FTAAP regional trade agreement or expand on existing agreements such as the TPP or the RCEP. Agreements like the FTAAP will provide Canadian business with an expanded market, much larger than the TPP, but its negotiation will also revive old tensions in the agricultural and dairy sectors and raise concerns about intellectual property.
Canada is also one of the largest food producers in APEC, and as such it is in the interest of Canada to strengthen regional food markets. This would allow its products access to other regional markets free of tariffs and other technical barriers. Moreover, food security is an area where Canada could provide technical co-operation to developing economies in APEC, assisting them in meeting sanitary and phytosanitary requirements for food safety and improving their production standards.
As an education powerhouse in the region, Canada is at the forefront of innovation in education and professional training. Canada has the potential to co-operate with other APEC economies via initiatives such as the APEC Scholarship Program that funds a student from one APEC economy to study at a university or graduate school in another APEC economy. Canada is in a position to play a particularly important role in the promotion of education and training in entrepreneurship for women, based on the success of government and private-sector-led initiatives across the country, such as the RBC Canadian Women Entrepreneur Awards and the Start Up Women Entrepreneurship Fund.
Finally, with regard to SMEs, Canada could take a leading role in the identification of good practices and the promotion of incentives for their development. Moreover, Canadian SMEs, like their counterparts in developing member economies, also face restrictions when they access regional markets and need to further integrate into global value chains. As such, there is room for Canadian businesses to learn from the experience of companies across the region that have successfully integrated into the regional value chain via e-commerce.
Camilo Pérez-Restrepo serves as Professor in Asia Pacific studies and Deputy Coordinator of the Asia-Pacific Studies Center at Universidad EAFIT in Colombia.