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The impact and importance of APEC

  • Malaysia wants free and fair trade, not the kind of trade where international dispute mechanism favors politicians and businessmen of the major powers.

By Datuk Hj Rais Hussin Hj Mohamed Ariff

The strength of APEC, beyond a show of solidarity in the local costumes of the host, lies in the willingness of all countries not to force each other to open their markets through "managed trade".

The latter is a concept from the administration of President Bill Clinton, when US Trade Representative Mickey Kantor, insisted to Japan in 1992, that Tokyo must buy certain quota of US goods.

No one knows the true ideological leanings of President Donald Trump, since he was once a registered Democrat before switching to the Republican party to clinch the US presidency in November 2016.

But the conclusion of the USMCA agreement on October 1 -- which President Trump had originally wanted to call USMC in recognition of the US Marines -- has thrown a spanner in the NAFTA agreement anyway.

By 2020, NAFTA would be dead, once all the US, Mexican and Canadian Congresses ratified, and replaced it with US Mexico Canadian Agreement or USMCA.

Under the USMCA, the automobile sector in US was a major winner. All cars that want to enjoy zero US tariffs in the US markets have to build 75 per cent of the 4000 components made in the United States, Canada and Mexico; this from a current threshold of 62.5 per cent in NAFTA.

Given the logistical connectivity and proximity of US, Canada and Mexico, the three countries have cornered the automobile market of the North America and South America. Where does that leave future car producer like Geely and Proton except our Asian or Asean market? The USMCA Agreement, therefore, brings sharp and urgent question on APEC, of which Malaysia is a member.

As can be seen, a marked increase of 16.5 per cent in any one of the three countries is a huge victory for Trump, and may just swing the mid November 2018 congressional election in the favor of the Republican party that is under attack due to Trump's inconsistent behavior between February 2017 and September 2018.

Up to 40 per per cent of the automobile workers would have to be paid with a minimum wage of US$16 per hour in the new USMCA Agreement. At these rates, only the best or most compact cars can be built in the United States, the world's largest automobile market.

If Canada and Mexico want to export their cars into the US, they can, but if they want to build their cars in US, they will have to consider the cost, and manage it well. Japanese and Asian car manufacturers would be at a disadvantage, since both are forced to up their cost of production.

Thus, Japanese or other foreign car manufacturers in Mexico -- if they still want a piece of the large automobile market in US -- would have to seriously consider moving back to the United States, and bite the bullet of the above terms.

While the cars they built may be smaller, to reduce the cost, smaller car producers like those in Malaysia, such as the pair up of Geely and Proton, would have no chance to benefit from UMSCA since it involves the actual process of moving to Canada, Mexico and US. This makes Malaysia wonder what is the point of being in Asia Pacific Economic Cooperation (APEC) too?

When APEC was formed in 1989, at the urging of Prime Minister Bob Hawke of Australia, followed by his successor Paul Keating, the goal of APEC was to attempt inter sectoral or phased liberalization in win-win manner.

The spirit of that modus operandi was encapsulated in the Bogor Declaration in 1992 in Indonesia where all member states in APEC would mutually help each other break the tariff and non-tariff barrier of the Asian Pacific economy through discussions, especially forums like the Pacific Basin Economic Cooperation (PBEC) or APEC CEO Business Councils.

Yet with the conclusion of USMCA that appears to mimic the "managed trade" of Mickey Kantor, or, the "crowbar diplomacy," once described by Thai statesman Khun Thanat Khoman, it seems the US is exercising all it's might in any which way it sees fit; with Canada and Mexico in tow. Yet all three are members of APEC too. Have the three betrayed their APEC ideals?

In recent months, US has launched a trade war against China, even Japan and South Korea. By unilaterally pulling out of Trans Pacific Partnership Agreement (TPPA), the US has compelled Australia and Japan and many believers in TPP to stick to Comprehensive Transpacific Partnership Agreement (CPTPP).

Malaysia believes that neither TPPA nor CPTPP can be democratically implemented in a win-win manner unless US first climbs down from the high horse of ultra or unilateral trade nationalism. This is why while Tun Dr Mahathir originally agreed with his cabinet on the importance of CPTPP, he and Professor KS Jomo in particular, are now either doubtful, or unsure, if this is such a good thing, especially the likes of NAFTA can suddenly be phased out and significantly revamped.

Thus, Malaysia should go back to the basics of asking if East Asian Economic Caucus (EAEC), which spawned Asean Plus 3 that saved the region from Asian Financial Crisis in 1998, should now be discussed with even greater intensity, especially when the intra regional trade in East Asia has reached 65 per cent, which is almost equal to the intra-regional trade in European Union (EU).

And, if EAEC is relevant, and backed by East Asian Summit at the end of the year, why not allow APEC and future CPTPP to come under East Asian Summit led by Asean instead? The growth rates of US can be higher than 3 per cent now.

But so is the growth rate of Asean, which is above 5 per cent anyway, and collectively, it is the 4th largest GDP.

Air Asia has proven its mettle and success in Asean. This should be a major tell tall signal of the power of Asean alone. Besides, Indonesia, or the chair of Asean of any each year, and Singapore, are members of G20 too.

Asean also has the Asean Community and decades of institutional building to make Asean and East Asian Free Trade more predictable, purposive and poised, to help the poor, especially given the existence of the Asean Master Connectivity Plan 2020 that is consistent with the Belt and Road Initiative and the initiative of the Quads formed of Australia, India, Japan and India? Lest one forgets Asean has a common Asean Bond Surveillance Scheme.

The key is "managed trade" is dangerous whether it is practised by US or any great powers, as they inject tariff and non tariff barriers that may not be consistent with World Trade Organization's rules of origins.

If APEC is now bushwhacked by USMCA, then Japan and Australia that are promoting CPTPPP to the rest of the region should clarify where or how does CPTPP plan to react to USMCA first, before asking Malaysia to join, indeed, before telling APEC to be a part of it too.

Malaysia wants free and fair trade, not the kind of trade where the rules of engagement can change mid-stream, where the international dispute mechanism favors the politicians and businessmen of the major powers, leaving Malaysia in the trail of the smoke.

Enough is enough. Let's return to the basics of Asian Pacific and East Asian trade. The US, Canada and Mexico Trade Agreement cannot be the gold standards, period.

Source: The Washington Post

(Datuk Hj Rais Hussin Hj Mohamed Ariff is PPBM policy and strategy bureau chairman.)

 

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