COVER STORY • 4

NRoundtable with Dr. Takashi Hattori, Prof. Hikari Ishido, Prof. Mie Oba & Prof. Takashi Terada

ew Era of APEC &International Economic Orderin the Asia-Pacific Region

By Japan SPOTLIGHT
The war in Ukraine and the current US-China struggle for global hegemony suggests the world isincreasingly divided between power-based nations and rules-based ones. Japan, on behalf of the second
group and as a nation having benefitted most from a rules-based international order and hoping to do soin the future as well, must be a leading thinker on how to save the world from submitting to power-based
regimes. APEC, of which many economies are members including Russia and China, could be an excellent
venue for a rules-based approach, even without actual enforcement of the rules. Its soft-law approach
could be useful in resolving issues between the two camps.
To celebrate its outstanding performance since its foundation in 1989, we held a roundtable discussionof experts on APEC: Prof. Mie Oba of Kanagawa University, Prof. Takashi Terada of Doshisha University,and Prof. Hikari Ishido of Chiba University, with Dr. Takashi Hattori, the then deputy director-general for
trade policy at METI, as moderator.
(Online Roundtable on April 27, 2022)
Participants

Dr. Takashi Hattori

Prof. Hikari Ishido

Path of APEC & Changes to Its Environment
Hattori: APEC has been playing a pivotal role since its foundation in
1989 in building up the international economic order in the AsiaPacific region. With the Putrajaya Vision 2040 adopted in 2020 in
Malaysia, APEC is looking at a new era. We would like to have aroundtable discussion today titled “New Era of APEC andInternational Economic Order in the Asia-Pacific Region”.
First, Prof. Oba, who has been working on this region for a longtime, could you please initiate our discussion?
Oba: I have certainly been watching the birth and progress ofregionalism in the Asia-Pacific area for a long time. I believe what isthe biggest distinction between its founding at the first APEC
Ministerial Meeting in November 1989 and today is change of
https://www.jef.or.jp/journal/

Prof. Mie Oba

Prof. Takashi Terada

international norms on trade. During the three decades since 1989
when the Cold War ended, the idea that free trade is positive and an
open economic order with the free flow of goods, money, people andinformation beyond borders has become a norm around most of theworld.
However, in recent days, I think there have been headwinds
against such norms. One is the emerging concept of economic
security. Some countries do not hesitate to adopt protectionist
policies for their own economy, and others are taking aggressive
foreign policies to achieve their own goals through coercive
measures by taking advantage of economic interdependency andshutting it off or threatening to shut it off, so that their trading
partners have to adopt a course of actions in favor of their foreign
policy goals. We are thus living in a world where a nation can adopt a
political strategy by taking advantage of the mutual economic
Japan SPOTLIGHT • July / August 2022

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interdependency that has deepened under the free and open
economic order. This is most significant in the US-China conflict.
Japan also has no option but to adopt policies to observe economic
security in order to protect its own economy. Legal steps for theenforcement of economic security are under progress.
Another concern is the emergence of a variety of challenges
caused by the excessiveness of globalization driven by a free andopen economic order, regardless of economic security. We saw it
clearly for the first time in the global economic crisis in 2008-2009:
namely, the increasing income gaps in the world, the infringement ofworkers’ rights, and the increased burden on the environment. These
are negative aspects of globalization resulting from globalization
itself. Today’s economic order will be one where we need to deal withthese challenges resulting from globalization.
At the outset, APEC put emphasis on trade and investment
liberalization as well as facilitation, but today this is not the only
policy goal it should pursue. Our future agenda must be how topromote APEC economic cooperation with such new challenges.
Terada: I view the concept of “incubation” as indicating APEC’s
unique status in regional institutions. This term appeared for the firsttime in the Yokohama Declaration in 2010 when Japan was the Chair.
Ten years after that, in 2020, this concept re-emerged in the
Putrajaya Vision 2040 as well, that was adopted to replace the 1994
“Bogor Goals”. This is how you can see the importance of this termis being kept there.
APEC is not an institution for trade negotiation or making
economic rules with enforcement power and as is indicated in theword “incubation”, it maintains a function of creating ideas for the
long-term regional interest. It has been playing its role by selectingsome norms from among a wide range of policy issues in the AsiaPacific region, or more widely the global economy, and by
advocating for policy measures to realize them.
In terms of such an incubation function, open regionalism, whichapplies the benefits of liberalization agreements entered into bymembers to outsiders in the form of non-discriminatory, mostfavored-nation status, would be one example advocated by APEC.
This was distinctive and innovative, given liberalization approaches inNorth America and Europe were based on closed-regionalism withdiscrimination against outsiders. Another example was a concept ofconcerted unilateral liberalization employed at the 1995 APEC
meeting in Osaka allowing member economies to carry out tradeliberalization based on a country’s own specific timing andconditions while maintaining minimum consultations within the
APEC meetings.
However, the Asian currency crisis in 1997 hampered the tradeliberalization movements in APEC, which, together with the boggeddown WTO negotiations, catalyzed the proliferation of bilateral FTAs,
introducing the legally binding force with rules-based tradenegotiations in the Asia-Pacific trade regime. After the expansion ofbilateral FTAs in 2000s, the region came into the age of regional
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integration in 2010s, such as the TPP led by the United States andthe RCEP pushed by China. During this period, APEC’s role wasperceived to decline. Meanwhile, APEC has attempted to thrive by
adjusting itself to the reality of trade politics dominated by active
negotiations for bilateral FTAs and regional integration instead of
opposing them. Rather, APEC has been pursuing its uniquecontribution to this region’s economic prosperity by seeking optimal
supply chains based upon the development of those FTAs andregional integration. This is another example of APEC’s “incubation”
function.
Ishido: I joined the APEC Study Centers Consortium Conference in2003 in Phuket in Thailand as a researcher of the Institute ofDeveloping Economies in Japan, working on trade policy research.
Trade liberalization was discussed there and I was particularly
impressed by its key role in achieving economic prosperity in thisregion.
However, trade liberalization could provoke economic distortions
that lead to income inequality. Recently, such economic distortions
are beginning to be reviewed, and further issues to be discussed by
APEC must include the environment, human rights, the pandemic
and the most recent topics such as the war in Ukraine, as well as
Russia being a member. This is how APEC covers comprehensive
issues, though its core is trade policy issues. The Asia-Pacificregion’s characteristics are diversity, high growth and non-binding
rules leading to the possibility of a soft-law approach in this region.
It would be important to develop a framework that takes advantage
of its diversity and high economic growth. The next question should
be how feasible is it to achieve this with non-binding rules? In thislight, I am thinking we now need to look at APEC every decade or soafter the milestone of the Putrajaya Vision 2040.

Economic Security & APEC
Terada: With regard to economic security, it sounds better to make a
distinction between the economic security Japan is now taking aleading role in and the economic coercion behavior exercised by
China. What Prof. Oba suggested earlier should belong to the lattercase. The premise for economic coercion is excessiveinterdependence. Deepening mutual economic interdependence isconsidered not only to promote economic growth but also lead tostable international relations, according to the liberalism school ofinternational relations. But in the Asia-Pacific region, the argumenton the approach to economic coercion mentioned above started toprevail as an exception to this assertion of liberalism. Chinese
President Xi Jinping stated in April 2020, “We must enhanceinternational supply chains’ dependence on China and develop
powerful retaliation and deterrence capabilities against supply
cutoffs by foreign parties.” As in his words, China, which has now
become the largest trading partner to more than 130 nations in theworld, is in a position to exert influence for its own political andstrategic interests by using its vast market power. For example,
Australia has been struggling through a trade dispute with China, as
Beijing has been suspending imports of major Australian products.
The clash started after then Australian Prime Minister Scott Morrison
said on April 23, 2020 following the spread of Covid-19 infections,“We will need an independent inquiry that looks at what has
occurred” in Wuhan, China. His remark led to a strong backlash in
China, which feared that it could bring about a worldwide wave oflawsuits seeking compensation.
During the 2010s, Japan, the Philippines, Singapore and South
Korea also became targets of China’s economic coercion. A key
method for those nations to avoid being trapped by China’s
economic coercion would be to reduce their dependence on China
through diversifying their exporting directions by utilizing FTAs withmega-markets that have more trade diversion effects. In this regard,
it might be possible for a relevant APEC document to mention that
economic coercion or unjustified restrictive trade practices arecontrary to the objectives of APEC’s openness as a way of exerting“peer pressure” on China to abandon this approach. It is still to be
noted that at the APEC meeting in Papua New Guinea in 2018, when
the US was about to integrate a WTO reform proposal for disciplining
China over its domestic rules into the leaders’ statement, China
strongly opposed it, which resulted in failing to issue the statement
for the first time in APEC history. This incident may point to thepossibility of China’s rejection in dealing with economic coercion or
economic security issues in APEC.
Oba: I think it will be a crucial issue how we could restrict China’s
economic coercion policy. But, in addition, more fundamentally it istrue that headwinds are blowing against our existing common valuesof a borderless free flow of goods and money as sources of
economic prosperity, while we deal with the possible challenges
popping up in the course of liberalization. Some would say that
under a free trade system we would eventually excessively depend
upon the Chinese economy, and to avoid this we would need to build
up supply chains to reduce our dependency on China regarding key
invaluable items. More aggressively, some would say that we should
threaten a trading partner with pressure to shut off economic
relations with it. Both arguments are examples of politicalintervention in the economy. Such trends could be further
accelerated and create a gap between the norms of globalization onwhich APEC has been depending and the recent argument thatpolitics must be deeply involved in economic issues.
In thinking about how APEC can cope with this situation,
assuming that APEC is a regional governance framework to secure asoft-law approach, I believe that wording in the documents on aconsensus among the members is crucial and thus it will benecessary to prepare and include paragraphs with a set of norms orreservations for aggressive policies in joint communiques agreed
upon by the members. However, whether it can be accepted either by
China or the US is another question, and it would be a big one toresolve, as Prof. Terada said.
Ishido: In the international economy, the argument on Global Value
Chains (GVCs) is more or less a sort of interdependency throughsensitivity – how sensitivity to certain issues like oil price rises is tobe transferred to overseas without shutting off the system
connected. Meanwhile, we have another concept of vulnerability
interdependency. Economies have not assumed any threat to shut offsuch interdependency. Though having been convinced of sensitivity
interdependency being the sole working principle for GVCs, we are
now seeing this threat of taking advantage of vulnerability
interdependency emerge. As Prof. Terada said, political confrontation
between the US and China is invading APEC as well. This is how the
logic of politics is getting into the logic of economics. Or I would saythat though learning that the international economy was born alongwith the change from mercantilism to free trade, nations are starting
to come back to the old idea of mercantilism with a nation’s selforiented policies, considering exports good but imports bad.

Thinking About the US Approachto the Indo-PacificTerada: In 2023, the US is the Chair of APEC. Having withdrawn
from the TPP and not participating in the RCEP, the US has regarded
APEC as an important platform to engage in the Asia-Pacificeconomic agendas since it is the sole trade-oriented institution in the
Asia-Pacific area in which it participates. A key question would be
how APEC under the US Chair in 2023 can be linked with the IndoPacific Economic Framework (IPEF), launched in Tokyo in May 2022.
While the IPEF does not contain any market access issues, it is
President Joe Biden’s administration’s initiative to promote intraregion economic cooperation for building up an economic order in
the Indo-Pacific region. I presume the IPEF would particularly focus
on rule-making of digital trade in goods and services, as theadministration of President Barack Obama originally did in the TPP
negotiations. In the domain of rules on digitalization, however,Singapore, together with New Zealand, established the Digital
Economy Partnership Agreement (DEPA) with no legally binding
rules, and as such, China applied for membership. Seeing that rules
to prohibit demands for disclosure of source codes that were
pursued to be agreed upon in the TPP cannot be promoted in the
DEPA, the US, Japan and Australia have decided not to join it. In thisregard as well, the IPEF will develop as another institutional tool in
the US-China hegemonic competition.
Oba: There are still a number of issues to be clarified in the IPEF. The
US officially proposed it on the visit by Biden to South Korea andJapan in May. One of the pillars is connected economy. Setting
standards for labor, environment and digital economy would be built
into it. Resilient economy, including encouraging further resilience of
global supply chains, is another main pillar. Clean economy is a third
Japan SPOTLIGHT • July / August 202227

pillar. Decarbonization, clean energy, and the infrastructuredevelopment regarding them are the components of this pillar. Fair
economy is another pillar, including tax and anti-corruption. I think
APEC could contribute to the rules on digital economy and clean
energy. I think standards on labors’ rights are necessary and may
also be treated but these topics may not be handled well in APEC in
which many ASEAN countries participate. Meanwhile, there will be
issues which cannot be promoted easily by APEC, and these could
be promoted in collaboration with the IPEF.
What I am most concerned about is strengthening the resilience of
global supply chains. Leaving the economy as it is, GVCs will expand
anywhere in the world, including China. This would result in overdependency on China. We would like to avoid this and also secureself-provision of some key strategic materials. In other words,
strengthening resilience of supply chains would be in general totransform GVCs, and this would be different from the norms of APEC
which values a free and open economy. So I believe this argument on
economic security is naturally contradictory to APEC.
Another big concern of mine is that the US is not ready to open its
market and how this stance could affect US bargaining power. APEC
had its first Economic Leaders meeting in 1993 and in 1994 issued
the Bogor Declaration. Since then, it has been promoting trade andinvestment liberalization and the developing countries among APEC
members have agreed upon it to a certain extent. The US readiness
to open its market should be the principal reason for developing
members’ acceptance. In addition, Malaysia and Vietnam madenecessary concessions and joined the TPP largely because they
could expect expanded US market access. However, there is no US
commitment to open its market in the IPEF. Thus, I have the biggest
concern about US bargaining power to attract other APEC members’
concessions since the US is today taking a foreign policy for theinterest of middle-class Americans and is reluctant to open its
market, which is contradictory to the interests of the middle class.
In spite of this constraint in foreign policy, the US will need topromote economic cooperation with Asia-Pacific nations and thus
the IPEF contains essential elements such as digital economy, clean
energy and labors’ rights, so this is not to be considered wholly
negative. Therefore, as Prof. Terada said, in collaboration with
Australia or Singapore, we should make our own efforts to insert
what we would need to highlight to achieve a rules-based
international order into the soft law of APEC, such as joint
communiques.
Another concern of mine on the IPEF is that, though we are notsure yet exactly what this would look like in the end. China is notincluded from the beginning. Meanwhile, China and Russia aremembers of APEC. In such a framework of APEC, we need to have along-term perspective in thinking about how we can integrate various
elements in accordance with the direction of the IPEF into the softlaw of APEC.
Anyway, I am afraid that US bargaining power in the IPEF would be
extremely limited in a situation where opening markets cannot be
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used as a means for getting support from Asia-Pacific trading
partners.
Ishido: I hope the IPEF would be mutually supplementary to APEC
and not its rival. On trade and investment liberalization andfacilitation (TILF) in APEC terms, we have discussed thatliberalization would be difficult to be achieved either by the US or
China today. If so, we should focus on trade facilitation. APEC is nota venue for trade negotiations and as such we can introduce
technology for facilitating trade among each member without
coercing it. We can talk to each other about some digitaltechnologies about which consensus among the members could beachieved for trade facilitation. For example, if digital technology
examined in an APEC working group, such as Blockchain, is adopted
for common use among members, with this distributed ledger we
can achieve trade facilitation while avoiding data vulnerability. Thus
we could promote trade facilitation instead of trade liberalization
more easily. We can use APEC in this context without obliging themembers to use that technology.
Besides, there would be very few who would refuse facilitation. For
example, super express or linear motor cars would enable us toachieve rapid and environmentally friendly transportation of goods
and services. No country would reject the use of those technologies.
As such, a consensus would be easily achieved for the use of digitaltechnology for trade facilitation. Regardless of the market size ofeach APEC economy, all of them would pursue trade facilitation
rather than trade liberalization continuously. I believe this is amethod unique to APEC in achieving its goals without any conflict.
In such a way, I believe that Japanese eco-technology, ourstrength, could be utilized. We can propose it quietly while exploringoutcomes of discussions favoring us.
Terada: Chinese Taipei must be most interested in APEC since it is
one of the few international organizations in which it participates as
an official member economy. Owing to the hegemonic competition
with China, the US has worked to upgrade its relations with Chinese
Taipei, and in this light, who the US will invite for the APEC Summit
meeting in 2023 from Chinese Taipei will be a key political question.
We may need to consider some scenarios including the US decision
to invite President Tsai Ing-wen, as it would inevitably upset China.
In other words, the US may use APEC as a political means ofpressuring China, but it could harm the stability of economic order inthe Asia-Pacific region, APEC’s original goal.
On the question of APEC as a venue for a soft-law approach, I
believe that the assets APEC has built up during these three decades
are very important. For example, not only the governmental leaders,
but also even Ministers, have a meeting only once or twice annually.
On the other hand, among the officers at relevant ministries such as
trade, industry, and finance, related meetings and working groups
are organized many times every year through which policy
exchanges are conducted with counterparts in other member states,and in which a network for a secret information exchange to promote
cooperation is built in multi-layered forms for each policy. Moreover,
networks have been formed within the same country and among theofficers at different ministries who are in charge of the same regionalorganizations, contributing to the support of the APEC policy of eachmember economy. Opportunities for policy exchange and toestablish a network with trans-governmentalism and intragovernmentalism in terms of reducing the differences in policies
became an important part of APEC, and such networks cannot beeasily built up in the IPEF, even if IPEF members try to do so. Being
more conscious of this strength of APEC that has been developed
during its 30-year history, I think APEC should be more active fromnow on in a rules-based international economic system, utilizing its
soft-law feature.

Japan’s Role in the Economic Orderof the Asia-Pacific Region
Hattori: Finally, I would like to ask each of you to talk about what role
Japan should play in the economic order of the Asia-Pacific region.
Oba: The Japanese position has greatly changed between 1989 when
APEC was founded and today, not only globally but also in the AsiaPacific region. Japan was previously considered a great power not
ready to take a leadership role in spite of its strong economic power,
but now we have to say that it is not a great power leading theregional economy in a variety of aspects but a middle power. Being a
middle power, Japan cannot help but be more seriously engaged inmaintaining economic order now in its favor.
Therefore, it is true that explicitly legally binding agreements suchas the CPTPP or the RCEP are crucial for its national interest, but
APEC would be more important than ever for Japan as a venue forrule-making or the formation of norms. As Prof. Terada mentioned,
APEC’s 30-year history has particular significance. It has achieved avariety of outcomes that have enormous implications. As a result of
this history, APEC has developed the capacity to build up soft law
without making any treaties with legally binding force. Japan should
be more engaged in APEC as such than ever.
In the long run, we will need a pragmatic approach on each issue
in which a consensus among many countries could be easily
reached. For example, there must be a consensus among many
countries on the importance of rule-making in the areas of theenvironment and digital economy. APEC would be an importantvenue for starting to discuss such issues. The fact that Japan has
been participating in this important venue as an original member andkeeping its influence to a certain extent must be considered a foreign
policy asset which will become more important hereafter. APEC will
increase in importance for Japan as a middle power from now on,
since it will be a venue for building alliances with other nations
sharing the same values and interests as Japan.

Terada: I recently had a view expressed by an Australian scholar thatrecent Australia-China relations were getting worse and should not
become any worse than they were now, and that Australians should
study Japanese foreign policy, maintaining good relations with boththe US and China, which does seem to be an unusual compliment for
the Japanese.
This comment reminds me that the Japanese government once
often pointed out during the 1990s that the role of Japan in APEC
should be a “bridge” connecting Asian developing nations with the
Pacific Rim developed nations, such as the US and Australia in the
1990s. There must be a number of opportunities in need of such
Japanese bridging even now, such regionalism as the CPTPP and the
RCEP, as well as between the EU and Asia.
Above all, the most important and challenging task will be toprevent the US-China confrontation from getting worse. It sounds
rather difficult for Japan alone to achieve a compromise between thetwo, but strengthening the alliance among the middle powers, whoshare the concerns about the US-China confrontation, to exercise
peer pressure on China and the US can be a possible approach.
Japan and those middle-power partners should intensify theircoordinated efforts to avoid another occasion where an APEC
Summit joint communique could not be issued due to the clash of
two superpowers.

Ishido: As all of you said, APEC is a venue for a variety of themembers including Chinese Taipei, China, Russia, the US and Japan.
APEC’s working principle is that nobody is allowed to condemn or
criticize any other member for a specific policy or action andembarrass them, which they call “no name, no shame”. Whereas in
the RCEP or the TPP, hard-law rules are expected to play the role ofraising the rate of liberalization from the top, APEC is assisting
member economies in informal discussions and trying to lift theliberalization process from the bottom, whether it is noted or not bythemselves.
In addition, APEC’s leadership is referred to as “leadership frombehind”, meaning it is not led by top leaders like politicians but by
policy practitioners working on specific pragmatic issues. As Japanis assumed to be a middle power and cannot lead all as a leader, I
think “leadership from behind” should be an appropriate role forJapan.

Written by Naoyuki Haraoka, editor-in-chief of Japan SPOTLIGHT, with theassistance of TapeRewrite Corporation.

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