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#4834, 13 February 2015

Regional Economy

India and the APEC
Amita Batra
Chairperson and Professor of Economics, Centre for South Asian Studies, School of International Studies, JNU, New Delhi

The foreign ministers of Russia, China and India at the end of their deliberations in Beijing last week issued a comprehensive joint communiqué that included a recommendation for India’s inclusion in the Asia Pacific Economic Cooperation (APEC) grouping. Earlier in January, a joint strategic vision document that was issued during US President Obama’s visit to India on its 66th Republic day also contained a line welcoming India’s interest in joining APEC. While this was the first formal statement of support by the US for India’s membership in APEC, the Chinese President Xi Jinping had extended an invitation to India in July last year to attend the Beijing APEC summit.

APEC is a twenty one member regional economic grouping that was established in 1989 with its main focus on trade and investment liberalisation and facilitation. The grouping follows the principle of ‘open regionalism’. There are no binding commitments and treaty obligations. Commitments are undertaken on a voluntary basis and capacity-building projects help members implement APEC initiatives. Representing 40 per cent of the world population, 47 per cent of global trade and 57 per cent of global GDP in 2012, the grouping aims at leveraging the economic strength of the 21 member economies for regional prosperity and economic integration. As the world’s third largest economy in PPP terms India would no doubt be a valuable addition to the economic grouping and announcements towards positive support for its inclusion in the APEC are therefore not surprising. What needs emphasis and due recognition is the fact that India’s application for membership to the regional body has been pending for long and even after the moratorium was lifted in 2010. Over this period India has undertaken systemic economic reforms including trade and investment, the positive outcome of which was amply reflected in close to a double digit rate of growth in India accompanied by stable macroeconomic fundamentals. During this period India has also made progress with its regional economic integration agenda participating in not just bilateral trade agreements across sub-regions but also as a member of regional groupings like the East Asia summit and RCEP alongside a plurilateral FTA with the ASEAN.

It may be pertinent to ask therefore if membership of the APEC, for which India has waited for long, now holds any significance, particularly when there is an ongoing debate about the relevance of APEC in the process of regional economic integration. 

As discussed in some of the earlier columns in this series, the Asian region is witnessing a consolidation of competing mega regional trade agreements. The US led Trans Pacific Partnership (TPP) agreement with twelve members aimed at ‘WTO plus’ provisions is in the final stages of its negotiations. The RCEP, the other regional economic formulation that brings together the six FTA partners of the ASEAN, with the latter as its nucleus, is expected to be complete its negotiation process by end 2015. In the context, the APEC with its soft institutional structure and voluntary action programmes, having missed its first deadline towards achieving free trade and investment between the advanced economies of APEC by 2010 under the Bogor goals and no closer to achieving the second, of member-wide trade liberalisation agreement by 2020, is yet far from its declared objective of taking forward the idea of economic integration in the region through the ‘next generation’ free trade area of the Asia-Pacific (FTAAP). Slow progress of and internal weaknesses in the APEC appear to be clearing the way for alternative mechanisms like the RCEP and TPP to emerge as predominant formulations in the regional economic integration process. There is in fact a prevailing view that the slow moving APEC has pushed its more committed members to embark on the TPP.

Notwithstanding the challenges that APEC is faced with, India can gain through what can be identified as a core objective and achievement of the APEC, that is, trade facilitation. According to official APEC data, the region’s total trade has increased seven times over the period 1989 to 2012, with two-thirds of this trade occurring between member economies. APEC’s Trade Facilitation Action plan that includes streamlining customs procedures led to a successive reduction of 5 per cent in region-wide costs at the border between 2004 and 2006 and 2007 and 2010. Since the launch of the single window clearance initiative APEC has been able to significantly accelerate the movement of goods across borders. The trade facilitation reforms of the APEC can thus be of great assistance to India now that it is required to ease out the customs procedures and other barriers ‘at’ and ‘behind the border’ as part of implementing the Trade Facilitation Agreement accomplished at the ninth ministerial meeting of the WTO in December 2013. According to the Asia Pacific Trade and Investment Report 2014, single window clearance is not just one of the most far reaching of trade facilitation reforms but also the most complex measures in the TFA. The APEC experience will thus help India design and monitor a national trade facilitation programme.

Much, of course, will depend upon APEC’s ability to sort its long standing dilemma over expansion and appropriate representation of different sub-regions in the forum as also India’s ability to take advantage of possible future membership through prior domestic trade reform. 

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