A- A A+

"Bilateral Trade Deals will Gain Prominence instead of Plurilateral Ones", a Commentary by Sanchita Basu Das

2016/76, 29 November 2016

As Peru concludes its 2016 APEC Chairmanship, one key message of the Leaders’ Declaration is ‘to support free and open trade and investment, sustainable economic growth and shared prosperity in the Asia-Pacific region’ (Source: APEC). The annual Opinion Leaders survey conducted by the Pacific Economic Cooperation Council shows that despite the generalized perception that protectionism is on the rise, the private sector continue to demand trade arrangements and support APEC’s work on trade policies (https://www.pecc.org/publications/697-state-of-the-region-2016-2017).

One wonders how APEC, as an organization, can deliver on its promise of free trade. The latest progress report on the Bogor Goals concludes that ‘tariffs have fallen significantly, but non-tariff measures have increased’ (Source: APEC). The organisation is challenged by the way it functions, i.e. as a governmental voluntary economic and trade forum that lacks a central enforcement mechanism. It discusses the elimination of trade and investment barriers without requiring its members to enter into legally binding obligations, which reduces APEC’s effectiveness as a regional organisation.

APEC has received much attention since 2014, when China, as APEC Chairman, announced that a Collective Strategic Study on the Free Trade Area of Asia-Pacific (FTAAP) would be carried out. While several of the APEC economies volunteered to contribute to the study, China and the US worked on the overview and the concluding chapters, thus showcasing their combined leadership. The study and its recommendations were endorsed by the APEC Leaders in the recently concluded summit (Source: APEC). But if FTAAP is the next regional trade vehicle to work towards an open trade regime, it may face problems. This is not only due to APEC’s nature of functioning, but also the current rhetoric from the US’ next top leadership. Donald Trump has repeatedly flagged his distaste for regional trade agreements, and is unlikely to work towards gathering domestic political support for another one.

So discussions over bilateral trade pacts might accelerate. Donald Trump, while reiterating his intent to withdraw from TPP in a recent video clip, mentioned that he would ‘negotiate fair bilateral trade deals that bring jobs and industry back’ (Source: The Guardian). As per the trade pundits, bilateral trade deals are relatively easy to negotiate and can closely match with countries’ domestic interests. Similarly, China, continuing with its aspiration for global leadership, may follow through on FTAAP on a bilateral basis. This model will go well with its Belt and Road initiative, which, though a regional plan, is being pursued through bilateral arrangements. There are also existing models which strengthen China’s resolve to undertake FTAAP on a bilateral basis. For example, the EU is signing bilateral FTAs with ASEAN countries, considering them as building blocks towards a future region-to-region agreement (Source: EC-Europa).

Also, one should not discount a bilateral trade pact between the US and China. The possibility has already surfaced in the media last week (Source: Caixin.Com; CNBC.Com). Indeed, Trump has threatened to punish China for unfair trade practices. But he may not follow through on it as a trade war between the US and China will hurt both, with the US the greater affected. Alternatively, both countries could sit down to iron out their differences over border tariffs and investment issues and may also work on how an economically strong China can compensate the US for its growing trade deficit.

Hence, as complexities emerge in concluding plurilateral trade deals, we are likely to witness a race for bilateral ones, not only to prevent an isolationist stance on globalisation but also to match national interests.

Ms. Sanchita Basu Das is Fellow and Coordinator at the Singapore APEC Studies Centre at ISEAS - Yusof Ishak Institute.

The facts and views expressed are solely that of the author/authors and do not necessarily reflect that of ISEAS - Yusof Ishak Institute.  No part of this publication may be reproduced in any form without permission.