BPC Policy Brief. The 22 nd Asia Pacific Economic Cooperation Summit. Monitor: January, 2015 Policy Brief - Vol. 5 Nº #02

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1 January, 2015 Policy Brief - Vol. 5 Nº #02 BPC Policy Brief Monitor: The 22 nd Asia Pacific Economic Cooperation Summit Eduardo Palma de Seixas e Carlos Frederico Pereira da Silva Gama

2 PUC-Rio RECTOR Pe. Josafá Carlos de Siqueira SJ VICE-RECTOR Pe. Francisco Ivern Simó SJ VICE-RECTOR FOR ACADEMIC AFFAIRS Prof. José Ricardo Bergmann VICE-RECTOR FOR ADMINISTRATIVE AFFAIRS Prof. Luiz Carlos Scavarda do Carmo VICE-RECTOR FOR COMMUNITY AFFAIRS Prof. Augusto Luiz Duarte Lopes Sampaio VICE-RECTOR FOR DEVELOPMENT AFFAIRS Pe. Francisco Ivern Simó SJ DEANS Prof. Luiz Alencar Reis da Silva Mello Prof. Luiz Roberto A. Cunha Prof. Hilton Augusto Koch City of Rio de Janeiro MAYOR Eduardo Paes MUNICIPAL CIVIL HOUSE Pedro Paulo Carvalho Teixeira INSTITUTO PEREIRA PASSOS Eduarda La Rocque

3 About the BRICS Policy Center The BRICS Policy Center is dedicated to the study of the BRICS countries (Brazil, Russia, India, China and South Africa) and other middle powers, and is administered by the Institute of International Relations at PUC-Rio (IRI), in collaboration with the Instituto Pereira Passos (IPP). All papers are submited to external evaluation before published. The opinions expressed herein are the sole responsibility of the author and does not necessarily reflect the position of the institutions involved. BPC Team GENERAL SUPERVISOR Paulo Esteves ADMINISTRATIVE COORDINATOR Lia Frota E Lopes ADMINISTRATIVE ASSISTANT Bruna Risieri DESIGN AND PUBLICATION Thalyta Gomes Ferraz Aline Aguiar de Oliveira BRICS Policy Center/Centro de Estudos e Pesquisas BRICS Rua Dona Mariana, 63 - Botafogo - Rio de Janeiro/RJ Telefone: (21) / CEP/ZIP CODE: / bpc@bricspolicycenter.org BPC Policy Brief. V. 5. N Janeiro/2015. Rio de Janeiro: BPC, p ; 29,7 cm / ISSN: International Relations. 2. Economic Cooperation 3. Asia-Pacific.

4 Summary Introduction... The Summit... Bilateral Meetings... Conclusion

5 Executive Summary The 2014 Asia-Pacific Economic Cooperation (APEC) summit was held on November 2014, bringing together 21 leaders from its member-states to Beijing, China. APEC represents 40% of the world s population, 54% of its economic output and 44% of international trade s APEC Summit had important ramifications on many fronts, including bilateral and multilateral negotiations. The FTAAP provides a window of opportunity to reignite WTO negotiations and consolidate Asia-Pacific as the world s economic locomotive. Environment agreements between the United States and China significantly impact multilateral negotiations on this issue area. The four-point consensus reached by China and Japan could mark the beginning of warmer relations between those Asian rivals. As the economic and political balance of power slowly shift towards East Asia, APEC s status as a regional forum is set to grow. Sumário Executivo A cúpula de 2014 da APEC ocorreu em Beijing, China, entre 10 e 12 de Novembro, reunindo 21 líderes de seus estados-membros. A APEC representa 40% da população mundial, 54% da produção econômica mundial e 44% do comércio mundial. O encontro de 2014 da APEC teve importantes desdobramentos em diversas áreas, incluindo negociações bilaterais e multilaterais. O FTAPP fornece uma janela de oportunidade para reativar negociações na OMC, consolidando a Ásia-Pacífico como a locomotiva econômica do planeta. Acordos em Meio Ambiente entre os Estados Unidos e a China afetam significativamente negociações multilaterais nessa área temática. O consenso de quatro pontos entre China e Japão poderia dar início a uma distensão nas relações entre os dois rivais asiáticos. À medida que o eixo político e econômico do planeta se desloca lentamente para o Leste Asiático, o status da APEC como fórum regional se agiganta. 5

6 BRICS POLICY CENTER BRICS MONITOR The 22 nd Asia Pacific Economic Cooperation Summit Eduardo Palma de Seixas e Carlos Frederico Gama Introduction The 2014 Asia-Pacific Economic Cooperation (APEC) summit was held on November 2014, bringing together 21 leaders from its member-states. The last time Beijing hosted such a gathering of foreign dignitaries was in August By then, China hosted the Summer Olympic Games. The idea of APEC was first introduced in 1989 by Bob Hawke, the former Prime Minister of Australia, as a response to the growing interdependence of Asia-Pacific economies and the advent of regional trade blocs in other parts of the world. The first time heads of state and heads of government convened, establishing the annual Economic Leaders meeting, was in 1993, when former United States President Bill Clinton held a summit on Blake Island, in the state of Washington. This is the second time China hosts the annual gathering (the first was in Shanghai, 2001), and since those days APEC, much like China, has grown in international prominence and influence. The regional grouping, which includes economic powerhouses like the United States, China and Japan, also comprises regional heavyweights Russia, Indonesia, Australia and South Korea, alongside Latin American economies like Mexico, Peru and Chile, ranked among the most open ones. APEC represents 40% of the world s population, 54% of its economic output and 44% of international trade. As the economic and political balance of power slowly shift towards East Asia, APEC s status as a regional forum is set to grow. This year s summit, the 22nd in APEC s history, was of significant importance, not only due to multilateral discussions, but also considering bilateral meetings that took place on the sidelines. China, as host, played a central role in the events that ensued, guaranteeing that proceedings followed the script. As this Monitor will show, the 22nd APEC summit could very well mark a milestone of economic, strategic and geopolitical significance for the Asia-Pacific region. 6

7 The 22 nd Asia-Pacific Economic Cooperation Summit 1. The Summit In 2011, when Hillary Clinton, US s former Secretary of State, announced Barack Obama administration s pivot to Asia, it was crystal-clear that the Trans-Pacific Partnership (TPP) would be the centerpiece of the pivot s economic dimension.¹ Up to 2014, 12 Asian-Pacific countries have signed on to negotiate TPP: the US, Japan, Australia, Brunei, Canada, Chile, Malaysia, Mexico New Zealand, Peru, Singapore and Vietnam. Noticeable is the exclusion of China. TPP countries have negotiated which areas should be covered by the agreement, including trade in goods and services, investment, and intellectual property rights, among others. Whether or not China is being deliberately excluded from the TPP is debatable. What is certain is that efforts undertaken to bring China in as a member have not been enough, most likely because the US wishes to set to stone TPP rules and regulations before China is invited. Beijing, on the other hand, has promoted the Regional Comprehensive Economic Partnership (RCEP), an initiative led by the Association of Southeast Asian Nations (ASEAN). A series of bilateral free trade agreements (FTAs) link ASEAN with six non-asean countries: China, South Korea, Japan, India, Australia and New Zealand. RCEP is, in essence, an attempt to bring all the FTAs together under the same normative umbrella, creating an integrated regional economic agreement. Analysts regard the two trade initiatives as another battleground for economic and political hegemony in the Southeast and East Asian regions, with the US and China on opposite sides. In many ways, the two regional trade pacts had similar objectives: trade liberalization and economic integration. To the surprise of many, Xi Jinping, China s president, urged APEC members to speed up talks on a trade liberalization framework called the Free Trade Area of the Asia Pacific (FTAAP). The FTAAP was first proposed in 2006, and in 2010 APEC leaders issued Pathways to FTAAP, and instructed APEC to take concrete steps toward realization of the FTAAP, as a major instrument to further APEC s regional economic integration agenda.² Speaking before the summit, president Xi warned that The Asia-Pacific stands at a crossroads. The increasingly close connection between Asia-Pacific economies has made regional economic integration all the more necessary and urgent. The impacts of the international financial crisis linger and recovery in some economies remains fragile. The Asia-Pacific has the daunting tasks of raising equality and efficiency of economy and in replacing old growth areas with new ones ³ With this in mind, APEC members agreed to launch a collective strategic study on issues related to FTAAP s consolidation, with results to be reported within two years. 1 CLINTON, H. America s Pacific Century, Oct.11, Retrieved from: americas_pacific_century. Access in: November 21st Annex A - The Beijing Roadmap for APEC s Contribution to the Realization of the FTAAP. Retrieved from: apec.org/meeting-papers/leaders-declarations/2014/2014_aelm/2014_aelm_annexa.aspx Access in: November 21st Xi: Asia-Pacific Stands at a Crossroads. Retrieved from: aspx Access in: November 11th

8 The 22 nd Asia-Pacific Economic Cooperation Summit With deadlocks on the Trade Facilitation Agreement (TFA), negotiated as part of the Bali Package at the Ninth Ministerial Conference of the World Trade Organization (WTO), the capacity of the organization s negotiating function had been seriously undermined. FTAAP, as envisioned by APEC members, could come to represent an alternative regional route towards unlocking TFA from its deadlocks on a global scale. This would be suitable for the motto of the 2014 summit: Shaping the Future through Asia-Pacific Partnership. As stated in the 2014 Leader s Declaration, In finding solutions to the implementation of the Bali decisions, APEC will exert creative leadership and energy together with all WTO members in unlocking this impasse, putting all Bali decisions back on track, and proceeding with the formulation of Post-Bali Work Program, as a key stepping stone to concluding the Doha Round 4 As FTAAP would include both developed and developing countries, as well as the world s three largest economies (US, China and Japan), any headway towards creating a regional free trade agreement of this magnitude would have serious impacts on future WTO negotiations. There are, of course, some important caveats. First, any multilateral free trade agreement that includes the US and Russia would be, at the very least, extremely problematic. Western economic sanctions against Russia, following President Vladimir Putin s decision to annex Crimea and Moscow s support of Ukrainian separatists, will be an immense obstacle in getting all parties to the negotiating table. Another stumbling block to be overcome will be negotiations regarding intellectual property rights, which has long been a source of tension between Washington and Beijing. Another sticking point will be Japan s reluctance to open its agricultural sector to foreign competition, already a sour issue between the United States and Japan during TPP negotiations. Finally, with negotiations for both the TPP and the RCEP running on parallel lines to the FTAAP strategic study, officials from concerned countries will keep up political and trade pressures on any future FTAAP agreement, using TPP and RCEP negotiations to push their own agendas. In spite of all these hurdles, the FTAAP represents the best possible short-term solution to unlocking global trade talks, due to its scope and vision. The annex to the 2014 Leader s Declaration, The Beijing Roadmap for APEC s Contribution to the Realization of the FTAAP, is the most substantial document to come out of APEC in a long time. As Gao Hucheng, China s Commerce Minister, put it, it is a a landmark document in the history of APEC. 5 4 APEC s 2014 Leaders Declaration. Retrieved from: Declarations/2014/2014_aelm.aspx Access in: January 6th APEC sketches out roadmap for FTAAP in Beijing. Nov. 08, Retrieved from: china/ /08/c_ htm. Access in: November 9th

9 The 22 nd Asia-Pacific Economic Cooperation Summit 2. Bilateral Meetings During the the summit, President Xi held important bilateral meetings, two of which are particularly noteworthy. The first was with President Barack Obama, which resulted in the U.S.-China Joint Announcement on Climate Change, 6 a milestone in the United States-China relationship, according to U.S. Secretary of State John Kerry. 7 Seeing as how those two countries are responsible for about 45% of the world s greenhouse gas emissions, any deal they may agree to regarding climate will have profound effects on next year s United Nations Climate Change Conference (COP 21), to be held in Paris. 8 The conference s goal is to achieve a legally binding and universal agreement on climate change efforts, and this bilateral agreement between the world s two biggest polluters will go a long way towards reaching that goal. To some, especially in the Republican-led United States Congress, the agreement is being interpreted as a Chinese victory, given that the biggest concessions will come from the United States. 9 The US plans reducing its emissions by 26 to 28% below its 2005 level until China, on the other hand, will be allowed to reach an emissions peak by 2030, and that the percentage of non-fossil-fuels in its primary energy consumption will rise to 20% by In other words, China will be allowed to keep on emitting greenhouse gases at a growing rate for the next 15 years. 10 The deal s importance rests on the fact that this is the first time China has agreed to peak its greenhouse gas emissions. 11 The other noticeable meeting was held with Shinzo Abe, Japanese Prime Minister, making this the first time the leaders of the two biggest Asian economies have met since Tensions between the two countries have been high ever since Tokyo s decision to nationalize the Senkaku Islands, which were, up until that point, the private property of the Kurihara family. Beijing, for its part, claims that the island chain, which in Chinese is called the Diaoyu Islands, is part of mainland China s territory. The nationalization of the islands was seen in Beijing as a provocation on the part of Japanese authorities. Since then, China has increased the number and frequency of air and naval patrols in the region, escalating tensions between the armed forces of both countries. China also declared an air defense identification zone above the islands, a controversial move since it demanded that all aircraft entering the area submit flight plans to China first. The US, for whom Japan is an essential component in its security calculations for the Asian continent, advised its civilian airlines to refrain from doing so. Going further, President Obama dismissed any lingering doubts over whether or not the Senkakus were covered by the US-Japan defense treaty. According to the US president, Our commitment to Japan s security is absolute and article five of the security treaty covers all territories under Japan s administration, including the Senkaku islands U.S.-China Joint Announcement on Climate Change. Nov. 12, Available at: Access in: November 19th Kerry, J. China, America and Our Warming Planet. Nov. 11, Retrieved from: opinion/john-kerry-our-historic-agreement-with-china-on-climate-change.html?_r=2. Access in: November 20th China, US unveil ambitious climate change goals. Nov. 12, Retrieved from: china/ /12/content_ htm. Access in: November 9th An uneven deal. Nov. 12, Retrieved from: Access in: November 14th China, US announce ambitious climate change goals. Nov. 12, Retrieved from: international_exchanges/2014/11/12/content_ htm. Access in: November 14th Hoye, M. and Holly Yan. US and China reach historic climate change deal, vow to cut emissions. Nov. 12, Retrieved from: Access in: November 17th McCurry. J. and Tania Branigan. Obama says US will defend Japan in island dispute with China. April 24, Retrieved from: Access in November 17th

10 The 22 nd Asia-Pacific Economic Cooperation Summit The territorial dispute also had economic ramifications. The Chinese consumers boycott of Japanese goods led to 3.9% drop in trade volume between the two countries in In 2013, this decline increased to 5.1%. Meanwhile, a decline in bilateral investment also took place. In 2013, Japanese direct investment in China fell 4.3%, while Chinese direct investment in Japan fell 23.5%. 13 A patch-up of bilateral relations was needed, on both geopolitical and economic fronts. While the meeting between President Xi and Prime Minister Abe lasted only 25 minutes, less than half the time usually given to formal encounters between heads of government, it was nevertheless an important step towards thawing diplomatic relations between the two Asian economic giants. The encounter resulted in a four-point consensus on improving China-Japan ties. 14 While Japan refrained from recognizing that there is a sovereignty dispute over the Senkaku Islands, it did accept that both countries ( ) had different views as to the emergence of tense situations in recent years in the waters of the East China Sea, including those around the Senkaku Islands ( ). 15 While it may not seem like much, this is the first time Japan has agreed to publicly discuss China s claim to sovereignty over the islands, which Japan has controlled since 1895, after its victory in the First Sino-Japanese War. 3. Conclusion 2014 s APEC Summit had important ramifications on many fronts, including bilateral and multilateral negotiations. FTAAP, if it does indeed come to fruition, will go a long way towards unlocking WTO negotiations. It will also further consolidate the Asia-Pacific region as the world s economic locomotive and speed up the transition of political power from the Atlantic (United States-Europe) to the Pacific (United States-China). The climate change agreement between the world s two biggest greenhouse gas emitters will have profound impacts on next year s COP 21 in Paris. Finally, the four-point consensus reached by China and Japan could mark the beginning of the relaxation of tensions between both countries, a move welcomed by the United States, Japan s ally, who would not like to see its resolve tested regarding its defense commitments in Asia. Whether or not APEC will be able to build on these accomplishments, only time will tell. What is certain is that expectations regarding APEC, as a regional grouping, are burgeoning. 13 Chang, G. The Chinese And Japanese Economies Are Delinking: Prelude To Conflict? Feb. 16, Retrieved from:: Access in November 20th Regarding Discussions toward Improving Japan-China Relations. Nov. 7, Retrieved from:: go.jp/a_o/c_m1/cn/page4e_ html. Access in November 20th Ibid 10

11 About the Authors Eduardo Palma de Seixas Currently an International Relations Master s candidate at Pontifícia Universidade Católica do Rio de Janeiro and intern at the BRICS Policy Center, responsible for the China Country Desk. Economics graduate at Pontifícia Universidade Católica do Rio de Janeiro. Carlos Frederico Pereira da Silva Gama Coordinator of Country Desks at the BRICS Policy Center. PhD and Master in International Relations, IRI/PUC-Rio. Currently post-phd researcher (FAPERJ, on BRICS and transformations in the contemporary international order ) and lecturer of International Relations at IRI/PUC-Rio. Rua Dona Mariana, 63 - Botafogo - Rio de Janeiro/RJ Telefone: (21) / CEP/ZIP CODE: / bpc@bricspolicycenter.org