Shankaran Nambiar

From November 12 to 18, Papua New Guinea will host the APEC Economic Leaders Week, culminating in a summit bringing together leaders from the 21 Asia-Pacific Economic Cooperation (APEC) members. The annual summit, hosted by a different APEC member each year, provides an opportunity to make progress on economic, trade, and financial issues facing the region – and to take stock of previous efforts.

Ahead of this year’s meeting, Shankaran Nambiar, senior research fellow at the Malaysian Institute of Economic Research, discusses what to watch for in Port Moresby and how regional economic integration is progressing amid broader global trends of protectionism.

What are some of the key things we should expect from this year's APEC summit meetings in November?

I think there are two big questions that will be discussed at the upcoming APEC summit: connectivity and structural reform. These two big questions will, together, add up to address the issue of regional integration. Fundamentally, APEC member countries realize the crucial importance of creating a coalition of nations that want greater economic integration in its many forms. They will try to address it by examining how connectivity and structural reform can contribute to the process.

Connectivity will go beyond mega infrastructure projects to encompass the digital economy. In so doing, the path will be laid for industrial revolution 4.0.

Structural reform, on the other hand, will include a whole host of issues that will reduce barriers to doing business and increase trade and investment among APEC member countries. In order to foster trade and investment, more attention should be paid to a more liberal economic environment and removing the obstacles to such an environment. This implies a reconsideration of the regulatory framework and the removal of unnecessary regulatory burden, which extends to the removal of non-tariff measures.

Aside from that, the creation of more inclusive growth and greater participation of economic agents in the economy, be they women or small and medium enterprises, will have to be given due attention.

Speaking of regional integration, this November marks six years since the official launch of negotiations for the Regional Comprehensive Economic Partnership (RCEP), an envisioned trade pact including the 10 ASEAN member states as well as Australia, China, India, Japan, New Zealand, and South Korea. How would you assess progress on RCEP so far?

It appears as if progress toward the completion of RCEP is rocky. There is broad consensus that RCEP is essential – and undeniably so under existing conditions. The path is problematic. One cannot deny that there are differences of opinion and conflicting interests. I expect that the contentious global environment will press forth the need for an agreement such as the RCEP.

I fondly hope that the agreement will be concluded by the end of 2018. Even if it isn’t, I don't see that as a major failing, so long as discussions are underway and there is a strong commitment to conclude the agreement. The latter is certainly present and likely to overcome the centrifugal forces.

The other major transregional agreement is the Trans-Pacific Partnership, which received new life after the U.S. withdrawal in the form of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). How is the CPTPP faring thus far? Are member countries generally satisfied with how things are playing out, and is there any interest from other potential members?

The absence of the U.S. has long been factored in, so there’s no surprise there. Although the present administration has ideas of its own, business in the U.S. surely realizes the need for something like the CPTPP. Senior civil servants in the administration know how useful the CPTPP can be, for business, as a mechanism for strengthening political ties, and as a building block for a strong trading environment that could extend beyond its current membership.

Tokyo and Canberra have been playing a quiet but effective role in keeping the momentum going. They have been holding the CPTPP together and making sure that it does not deviate too much from the original agreement. The suspension of certain clauses has been helpful in that respect.

I’m sure they’ll be geared toward creating interest in the CPTPP from other potential members. Strong candidates to join the arrangement include Thailand, Indonesia, Columbia, South Korea, and Taiwan. Further down the horizon, one could expect the U.K., Sri Lanka, and the Philippines to warm up to the idea of getting into the deal.

To what extent does rising U.S.-China competition impact the options Asian countries have for trade and investment? What is the role of other major actors, including Japan, in this context?

I don’t expect the U.S.-China competition to go on indefinitely. Beyond a point, both countries will awaken to the fact that this is a mutually disastrous game to play. Both will get themselves burnt; both will lose; and in the process markets will be disturbed; businesses and supply chains will have to undergo a process of dislocation.

There will be some trade diversion as a consequence of the tension between both countries. Also, there are fears of import dumping. But, as I mentioned earlier, there will be a greater understanding of the merits of being glued together under an umbrella like the RCEP or CPTPP. A union of RCEP and CPTPP could be a long-term goal.

Abe had earlier tried to impress upon Trump that the TPP is not such a bad idea. Abe should continue to prevail upon Trump that the U.S. should not tread the path of isolationism. It should be impressed upon Trump that U.S. business will benefit from stable U.S.-China economic relations.

Within the broader regional context, what is the role of ASEAN in terms of wider trade and investment trends in the Asia-Pacific? What are the significant initiatives ASEAN is taking that observers should take note of, and how do you see these playing out in the coming years?

ASEAN continues to be a fast-growing region. The potential from the CLM countries (Cambodia, Laos, and Myanmar) is yet to be explored. Indonesia is underperforming given its size and population. These are two examples to point out that despite the growth rate of the region, the possibilities have not been fully tapped.

There are numerous initiatives within ASEAN that will cement the region and make it better prepared to take advantage of trade and investment opportunities.

Singapore as chairman of the 32nd ASEAN Summit is geared toward taking ASEAN forward. Pursuing the theme of a “resilient and innovative ASEAN” is, in itself, a progressive push. Bold moves such as developing the ASEAN Digital Integration Framework and the ASEAN Innovation Network are indicative of ASEAN’s sensitivity to the ubiquitous nature of the digital economy. These are early steps that suggest a readiness to participate in industrial revolution 4.0. As an extension of the digital theme, ASEAN has agreed to establish an ASEAN Smart Cities Network.

Even as ASEAN looks internally and works towards strengthening itself, I would expect ASEAN to enthusiastically build on its bonds with its partners. ASEAN’s relations with Japan, India, Australia, and China are particularly noteworthy. ASEAN convened successful summits with India and Australia, and it also held dialogue relations with Japan.

These efforts will be further supported by the Indo-Pacific strategy and Quadrilateral Security Dialogue in making ASEAN a stable, peaceful and prosperous region.

Malaysia is a key actor in the Asia-Pacific and the wider Indo-Pacific, and it has seen a new government come to power with the return of Mahathir Mohamad. In his previous tenure, Mahathir advanced several economic programs and initiatives not just nationally but also regionally. What can we expect this time around in terms of Malaysia's economic policy at home and abroad?

Prime Minister Mahathir Mohamad has a huge task ahead in cleaning the country up and trying to achieve a reasonable level of growth against the constraints the economy faces. The external environment is not at its best; internally, the fiscal challenges are tough, what with high debts, stalled infrastructure development, and the need to bring the cost of living down.

His previous regime was characterized by mega projects such as the Twin Towers, the national car project, and a tilt to heavy industry. Prevailing conditions will require a different approach.

On the external front, one can expect Mahathir to take a pragmatic, nonaligned approach. If one were to have a hierarchy of preferences, Mahathir would opt for a two-stage voting process. Mahathir’s first choice would be to vote for whatever benefits Malaysia. Having done that, he would then vote for whatever promotes ASEAN. I don’t think his suspicion of the West has abated, neither has his fear of “neocolonialism,” or colonialism in new guises.

Since Mahathir’s mark was not represented in RCEP negotiations, I presume he would want to bring to the table some of his concerns. Since RCEP hasn’t been completed, there would be space to accommodate his concerns. The situation is less clear on the CPTPP. He can be expected to want to re-examine the CPTPP. On the one hand, he would be concerned about the credibility that would be at stake if Malaysia withdraws from the agreement. On the other hand, he probably thinks that the standards are too high for a country like Malaysia, and that Malaysia, being a lesser developed country, should not be expected to open up in the way that developed countries expect it to.