APEC 2023: An Old Foundation for New Architectures

The United States will host the Asia-Pacific Economic Cooperation (APEC) forum in 2023. Under APEC’s 2023 theme, Creating a Resilient and Sustainable Future for All, the United States will spearhead efforts on “key issues such as supply chain resilience, digital trade, connectivity, opportunities for small and medium-sized enterprises, climate change, and environmental instability.” In addition, the United States will bring attention to issues such as health, food security, and anti-corruption. Over the next few months, officials and ministers will meet in Honolulu, Palm Springs, Detroit, and Seattle to discuss pressing issues that economies across the Pacific are facing. The forum will culminate in an APEC Leaders Meeting in San Francisco during the week of November 12, 2023.

The Asia-Pacific Economic Cooperation (APEC) forum was established in 1989 as a regional economic forum aimed at “[leveraging] the growing interdependence of the Asia-Pacific.” The forum has 21 members, including Australia, the United States, the People’s Republic of China, Taiwan, Russia, Japan, and Association for Southeast Asian Nations (ASEAN) countries.

In 1994, APEC leaders gathered in Bogor, Indonesia, and announced they would set a “long-term goal of free and open trade and investment in the Asia-Pacific . . . no later than 2020.” These “Bogor Goals” intended to push member economies to lower tariffs. APEC decisions are consensus-based, and each member economy voluntarily abides by agreed-upon commitments. Through the reduction of tariffs and trade barriers throughout the Pacific, APEC has contributed significantly to the expansion of regional economic growth and trade.

Q1: What have APEC economies accomplished?

A1: In the past few decades, APEC has catalyzed economic growth. Trade barriers were reduced significantly since its inception in 1989: average tariffs fell from 17 percent to 5.3 percent on average in 2018. GDP among member economies increased from $19 trillion in 1989 to $49.6 trillion in 2018, and per capita income rose by 74 percent. The dynamic growth attributable to APEC initiatives contributed significantly to the development of a growing middle class in the developing Asia-Pacific region. APEC economies’ 2.9 billion citizens make up roughly 60 percent of global GDP. As of 2018, they represented 48 percent of global trade.

APEC’s Trade Facilitation Action Plan, designed to streamline customs procedures between member economies, “reached its target of region-wide reduction in costs at the border by 5 percent between 2004 and 2006,” followed by an additional 5 percent decrease between 2007 and 2010. Its Ease of Doing Business Action Plan, launched in 2009, made successful headway in improving ease of business across areas such as “starting a business, getting credit, or applying for permits.” APEC economies have improved their average ability to quickly issue construction permits, dropping 18.7 percent from 169 days to 134 days over the last four years. In addition, APEC economy business starting procedures fell by 20.2 percent since 2009.

Perhaps most importantly, APEC has contributed significantly to “behind-the-border” trade barriers. At the heart of trade issues are the effectiveness of the governments and bureaucracies that make enforceable complex negotiations and agreements. APEC initiatives have worked to “foster transparency, competition, and better functioning markets in the Asia-Pacific through regulatory reform, improving public sector and corporate governance, and strengthening legal infrastructure.” APEC focuses on the importance of “predictable and transparent regulatory practices” within the region.

In the last decade, APEC has made significant progress in environmental goods and in digital privacy regulation. Its 2012 List of Environmental Goods aimed to “reduce tariff rates of 54 [environmental] goods to 50 percent or less by the end of 2020,” aiming to broaden environmental technology access and “contribute to green growth.” This laid the framework for the Indo-Pacific Economic Framework’s (IPEF) “Clean Economy” pillar, which expands on APEC’s commitments toward clean energy, decarbonization, and green infrastructure development. The APEC Cross-Border Privacy Rules System, initially proposed by APEC Leaders in 2005 and updated in 2015, aims to “ensure that regulatory differences do not block businesses’ ability to deliver innovative products and services.” Consequently, companies and governments can work in tandem to protect personal information as it “moves across borders” among the APEC economies.

Q2: What are high-priority areas for the United States in APEC this year?

A2: APEC is important to the United States, not only as a platform with which to tout its vision for a rules-based trading system, but for its exports as well. In 2021, 60 percent of U.S. goods exports went to APEC economies. Seven of the United States’ top 10 trading partners are APEC members. The United States, a participant in several APEC-like Indo-Pacific organizations, wants to deepen its relationship with APEC economies.

This year, the United States will focus heavily on cooperation through interconnection, joint innovation, and inclusivity. Among the challenges shared by APEC economies are Covid-19 recovery, strengthening supply chains, combating food insecurity, and mitigating the effects of climate change. During her remarks at the 2022 Leaders Meeting in Thailand, Vice President Kamala Harris proposed a new initiative on energy transitions for the region, complete with new sustainability goals for reducing carbon emissions from the power sector. Harmonization of digital trade rules will also be a key U.S. priority.

Q3: Where is alignment most likely and with which partners?

A3: The specter of great power tension between the United States and China, as well as the ongoing fallout from the Russian invasion of Ukraine, overshadows the APEC economies in 2023. As such, there are likely three distinct APEC “blocs.” The United States can expect support from partners such as Canada, Japan, Taiwan, South Korea, Thailand, Australia, New Zealand, Chile, Peru, Mexico, and the Philippines. It can expect little to no cooperation on significant issues from Russia or China.

Assuming that Putin does not attend APEC 2023 due to Russia’s ongoing conflict with Ukraine, Xi and Biden’s bilateral balancing act will be put on display for the world. The increasingly divergent approaches to international trade between China and the United States will likely manifest in diplomatic slights and pointed statements from present officials. With the increasing erosion of Hong Kong’s autonomy, it is likely that Hong Kong will side with China. Lastly, as in IPEF, many countries will find themselves in the middle of heated Sino-American tensions. ASEAN countries with significant foreign investment from China and the United States, such as Indonesia, Malaysia, Singapore, Vietnam, and Brunei, as well as non-ASEAN neighbor Papua New Guinea, will play as “moderate” parties seeking to hedge their interests between the two sides.

Where will these blocs align? The appeal of food security and health, especially in the wake of the Covid-19 pandemic, will likely inspire broad alignment among APEC economies. Supply chain resilience will greatly appeal to economies such as Thailand, Vietnam, and the Philippines, who are seeking to capitalize off U.S. companies’ decoupling from China. Southeast Asian countries with exponentially booming digital economies will be keen on expanding upon APEC harmonization on digital standards. In addition, Southeast Asian countries, which are some of the “most vulnerable regions to climate change,” will have a vested interest in collaboration on sustainable growth, environmental sustainability, and climate change initiatives.

Q4 : Can the United States balance APEC with IPEF?

A4: U.S. under secretary of state for economics, growth, energy and the environment Jose Fernandez stated that the Biden administration aims to complete IPEF this year, although the Commerce Department and the Office of the United States Trade Representative (USTR), which are chairing negotiations, will be the main drivers of the IPEF timeline. In an increasingly multipolar world, the United States should recognize that it no longer has the influence it had in the 1990s. The United States has designed IPEF, like APEC before it, to serve as the U.S. vehicle for spreading its vision of a rules-based trading system within the region. It remains unclear how the administration will balance APEC with IPEF.

With so many areas of overlap between APEC and IPEF, the most logical way forward is to use APEC to expand its IPEF appeal to a wider audience. Though IPEF’s lack of concrete deliverables thus far has produced skepticism about the likelihood of a strong agreement, its pillar flexibility and unique opt-in model reflect the consensus-based model favored by many Indo-Pacific nations. Following the example of Indonesia’s successful G20 chairmanship, the United States can double its efforts to present itself not only as a reliable global partner, but as a flexible partner. The United States’ 2023 APEC priorities are very similar to Indonesia’s 2022 G20 goals of improving global health architecture, ensuring a sustainable energy transition, and ushering in a new area of digital transformation. U.S. APEC priorities are also similar to India’s “One Earth, One Family, One Future” theme that prioritizes digitalization, global health infrastructure, anti-corruption, and energy transitions.

In the face of growing influence of the G20, APEC could benefit from a major infusion of support. The United States can achieve that by prioritizing the following goals as it hosts the 2023 Summit of Ministers (SOM):

1. Sustainability through promotion of a circular economy to slow climate change

2. Continuing progress on digital standard harmonization throughout APEC economies

3. Strengthening regional supply chains

The dissolution of the Soviet Union emboldened the United States to promulgate principles under the “Washington Consensus” that were uncomfortable for developing economies. Pursuing priorities more in line with developing partners throughout the APEC region would demonstrate its growing receptivity to issues crucial to countries like Indonesia and non-APEC economies like it, such as Brazil and India.

Like many initiatives undertaken during the Biden administration, the United States can leverage its host powers as an influencer to proclaim its “return” to the world stage. During its host year, the United States should use APEC as a platform to shore up support for its broader regional agenda. Though not all APEC members are IPEF members, the United States’ host year can be used as a platform with which it can advance IPEF initiatives and differentiate itself from its increasingly powerful competitors. Like Vice President Harris did last year, the United States will use the platform to differentiate itself from China. Last year, Vice President Harris assured APEC leaders that U.S. investment in the region is “high-standard, transparent, [and] climate friendly.” Gesturing toward the example of Sri Lanka, she emphasized that the United States’ investments do “not leave countries with insurmountable debt.” In reinforcing its role as a guarantor of a global rules-based order through APEC, the United States can further boost its credibility to IPEF partners and APEC economies alike.

Japhet Quitzon is a program manager and research associate with the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Emily Benson is a senior fellow with the CSIS Scholl Chair in International Business in Washington, D.C.