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Regional Trade Agreements in the Asia-Pacific: An Evaluation

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The World Bank defines a regional trade agreement (RTA) as a “treaty between two or more governments that define the rules of trade for all signatories.” There has been a substantial increase in the formation of RTAs over the last few decades. While only 50 RTAs were in operation in 1990, more than 300 had come into being in 2020. There is an increasing global interest in RTAs. It is essential to see the commitment and involvement of Asia Pacific countries towards economic agreements to realize the objective of trade liberalization in the region.  In doing so, the Asia Pacific Economic Cooperation (APEC) will be useful as a case study for the reasons that it includes the majority of economies in the region as well as it is easy to maintain the needed data for evaluation.

The Asia Pacific region is no exception. Since 1990, RTAs have been seen to overcome economic isolation and cut costs of trade. Moreover, negotiating as a region with potential trading partners offered greater leverage and better deals. The formation of Asia-Pacific Economic Cooperation (APEC) in 1989 helped accelerate trade liberalization and opened up more economic opportunities for the member countries.

Pertinently, during the Shanghai summitof APEC leaders in 2001, a declaration was made to promote free and open trade. The leaders reached an agreement, which allowed members to proceed faster in their trade liberalization if they chose to do so. Since then, APEC leaders have endorsed RTAs even at sub-regional and bilateral levels.

It is important to note that APEC is akin to a forum. It is not a supranational entity like the European Union. APEC allows member countries to take different perspectives and approaches to trade liberalization. Countries like Singapore and South Korea set strict deadlines to complete discussions of trade liberalization trade process with other nation members. Others take it slow.

In the late 1990s, Japan reversed its position on RTAs and began to pursue bilateral trade deals with several countries in the Asia Pacific. The Japanese tended to strike free trade agreements mostly with other members of APEC, including Singapore, Mexico, the Philippines, Malaysia, Chile, Thailand and Indonesia.

The recent surge in RTAs in the Asia Pacific region indicates a political momentum for APEC economies to accelerate regional and unilateral trade liberalization. APEC member states have a clear intention for extensive trade liberalization that acts in parallel with the World Trade Organization (WTO). Therefore, APEC has the potential to boost global trade and be strategically significant to developed countries like Japan, China, the US and Australia for their trade goals.

Most importantly, during the Shanghai summit of APEC leaders in 2001, a declaration was made to promote free and open trade. The agreement allows members to proceed faster in trade liberalization. As a result, APEC leaders have endorsed RTA strategies — including sub-regional and bilateral — that are already effective in the Asia Pacific. Consequently, APEC economies have joined the global market trend toward bilateral and sub-regional preferential trade agreements. Yet this approach ran directly counter to APEC’s free trade and liberalization that should be open to all members. Even as RTAs proliferate, it worth noting that not one free trade agreement signed in the Asia Pacific region since the foundation of APEC lives up to the Bogor Goals.As per this declaration,signed by APEC leaders in 1994, the Asia Pacific region aims for “free and open trade and investment … no later than 2010 for developed countries and the year 2020 for under-developed countries.”

A real issue has been discussed on the trade agreement functions in APEC. For instance, Australia has different types of agreements with various countries within the region.  The Thailand-Australia deal, under this agreement, Australia is permitted to extend no nuisance tariffs — very low tariffs that are costly to collect — on textiles, clothing and footwear beyond 2010. On the other hand, the Australia-US free trade agreement offers no new Australian market access in sugar and fast ferries for American companies, and it places limitations on other goods that break with the spirit of the Bogor Goals. As a result, APEC’s functions have become more and more unclear as there is no unification of trade agreements among APEC economies. This is to show that some economies within the region still practicing protectionism and in some sorts contradict the free and open trade targets.

Fourthly, it is well known that RTAs are very extensive and often cover many trade bases, like the focus on small and medium-sized enterprises and their role in increasing free trade and cooperation. However, reducing and eliminating tariffs is still the leading indicator of measuring the level of cooperation and free trade. The tariff reduction as a mechanism of realizing open trade can also be seen as a way of measurement in instead to evaluate APEC performance. The table below shows the APEC countries’ tariff reductions from 1995 till 2018.

Table. APEC Progress on Tariffs Reduction, 1995-2018.

Members 1995 (%) 2010 (%) 2018 (%)
Australia   7.6 3.3 3
Brunei Darussalam   3.8 3.1 0.2
Canada   9.4 2.9 2.5
Chile   11 6.0 6.0
People’s Republic of China   23 9.3 9.5
Hong Kong, China   – – –
Indonesia   16.2 7.3 8.6
Japan   3.7 2.9 2.8
South of Korea   7.8 7.4 7.5
Malaysia   11 6.5 6.2
Mexico   13.3 7.5 5.7
New Zealand   6.4 2.7 2.4 (2017)
Papua New Guinea   — 3.2 2.2
Peru 13.3 (1997)  5.5 2.8
The Philippines   19.9 6.0 5.7
Russia   12.2 8.6 5.8
Singapore   – – –
Thailand   21 8.9 8.4 (2015)
United States   5.8 3.9 3.8
Vietnam 16.3 (1999)  9.1 8.7

Source: Based on the World Bank database(1995; 2010; 2018).

Average tariffs in APEC countries declined significantly from 16.6% in 1989 to 6.4% in 2005. Moreover, average taxes are now less than 5%. Aside from Hong Kong and Singapore, which both have 0% tariffs, there are eight members — Australia, Japan, Brunei, Canada, Papua New Guinea, the US and New Zealand — that have tariffs at less than 4%. On the other hand, six countries — Chile, South Korea, Indonesia, Russia, the Philippines, Malaysia, and Mexico — have a tariff between 5% and 8%.As of 2018, China has the highest tariff at over 9.5%. The Middle Kingdom is still protective of its domestic production. Peru remarkably cut its rate from 13.3% to 2.8% between 1995 and 2018. Thailand also made a noteworthy reduction from 21% in 1995 to almost 8% in 2015. Malaysia reduced its tariffs from 11% in 1995 to 6.2% in 2018.

The above statistics show that protectionism still active in some countries like China, Indonesia and Mexico, Vietnam, Chile and Russia. Therefore, the goals of free trade were not realized as the countries agreed, 2010 and 2020. However, the current situation of coronavirus pandemic cannot be an indicator of economic type or approach as all countries in the world are trying different solutions to protect the whole economy from being collapse. However, the pro-pandemic era can showcase in the Asia Pacific that can change the bilateral and regional relations as countries may cooperate more and open their economies to overcome the cost of COVID-19.

Even the reduction on tariffs and free trade, however, the free trade objective is not fully complete for the bilateral relationships between economies where there are FTAs in force. According to Inter-American Development Bank “When the criterion is expanded to include all applied advalorem tariffs of 5% or lower, the shares expand to 82 percent and 56 percent, respectively, a significant improvement, but still well short of all trade.” Therefore, APEC economies need to work more on bilateral relations by engaging the advantages of FTAs.

The simple average applied dutieson all products have fallen from 6% to 4% in the five APEC industrial economies and from 13% to 7% for the 16 APEC developing economies. Moreover, these reductions in applied rates do not take into account some of the multilateral trade successes over the last few years. For example, the conversion of non-tariff barriers to import duties and increases in binding coverage contribute to trade predictability. As a result of that, this can increase the trade among the countries in the Asia Pacific, as well as; it can give more opportunities for Direct Investment. The smooth movement of investment and non-tariff barriers have increased the level of employment in the region. For example, a lot of companies have moved from China, Japan and Australia to Singapore, Malaysia and Thailand. This movement has allowed more job opportunities to be fixed on receiving countries.

On the other hand, the ongoing trade liberalization in the Asia Pacific countries has been progressively moving to access RTAs in the region. The reduction of tariffs is the central feature of APEC’s progress toward trade liberalization. For instance, APEC economies have pursued tariff reductions by implementing commitments made in RTAs since the Bogor declaration in 1994. They have been successful in accomplishing the agreement despite differences between countries in implementing tariff reductions based on different approaches used.

Not only have achievements been made in cutting tariffs, but countries have also increased the proportion of goods imported tariff-free and reduced non-tariff measures. Furthermore, countries in the Asia Pacific are trying to open up more services, expand trade and liberalize investment through facilitation initiatives.

Yet new challenges could derail the process. The COVID-19 pandemic and the ensuing lockdowns, in particular, could potentially harm the future of RTAs and trade liberalization as it will increase the protectionism approach among some countries like China, Indonesia, Vietnam, Chile and Russia. However, the current situation can also be an opportunity for more open trade to overcome the economic cost and issues raised during the pandemic, as well as, it may give a new direction to RTAs and cooperation in APEC region…

Ramzi is a Researcher, Consultant and Trainer in International Relations, with a focus on regional studies and economic cooperation. A PhD holder from the International Islamic University Malaysia (IIUM), in Kuala Lumpur, he is currently an Assistant Professor at IIUM. He is also the author of The Asia-Pacific Economic Cooperation (APEC): A Study in New Regionalism, 1989-2009, as well as several articles and chapters on Regional Studies, the Asia-Pacific region and Middle East regionalism.

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Economy

Digital Futures: Driving Systemic Change for Women

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Authors: Erin Watson-Lynn and Tengfei Wang*

As digital technology continues to unlock new financial opportunities for people across Asia and the Pacific, it is critical that women are central to strategies aimed at harnessing the digital financial future. Women are generally poorer than men – their work is less formal, they receive lower pay, and their money is less likely to be banked. Even when controlling for class, rural residency, age, income, and education level, women are overrepresented among the world’s poorest people in developing countries. Successfully harnessing digital technology can play a key role in creating new opportunities for women to utilise formal financial products and services in ways that empower them. 

Accelerating women’s access to the formal economy through digital innovations in finance increases their opportunity to generate an income and builds resilience to economic shocks. The recently issued ESCAP guidebook titled, Harnessing Digital Technology for Financial Inclusion in the Asia Pacific, highlights the fact that mechanisms to bring women into the digital economy are different from those for other groups, and that tailored policy responses are important for women to fully realise their potential in the Asia-Pacific region.

Overwhelmingly, the evidence tells us that how women utilise their finances can have a beneficial impact on the broader community. When women have bank accounts, they are more likely to save money, buy healthier foods for their family, and invest in education. For women who receive Government-to-Person (G2P) payments, there is significant improvement in their lives across a range of social and economic outcomes. Access to safe, secure, and affordable digital financial services thus has the potential to significantly improve the lives of women.

Despite the enormous opportunity, there are numerous constraints which affect women’s access to financial services. This includes the gender gap in mobile phone ownership across Asia and the Pacific, lower levels of education (including lower levels of basic numeracy and literacy), and lower levels of financial literacy. This complex web of constraints means that country and provincial level diagnostics are required and demands agile and flexible policy responses that meet the unique needs of women across the region.

Already, across Asia and the Pacific, governments are implementing innovative policy solutions to capture the opportunities that come with digital finance, while trying to manage the constraints women often face. The policy guidebook provides a framework to examine the role of governments as market facilitators, market participants and market regulators. Through this framework, specific policy innovations drawn from examples across the region are identified which other governments can adapt and implement in their local markets.  

A good example of how strategies can be implemented at either the central government or local government levels can be found in Pakistan. While central government leadership is important, embedding tailored interventions into locally appropriate strategies plays a crucial role for implementation and effectiveness. The localisation of broader strategies needs to include women in their development and ongoing evaluation. In the Khyber Pakhtunkhwa province, 50,000 beneficiary committees comprising local women at the district level regularly provide feedback into the government’s G2P payment system. The feedback from these committees led to a biometric system linked to the national ID card that has enabled the government to identify women who weren’t receiving their payments, or if payments were fraudulently obtained by others.

In Cambodia and the Philippines, governments have implemented new and innovative solutions to support remittance payments through public-private-partnerships and policies that enable access to non-traditional banks. In Cambodia, Wing Money has specialised programs for women, who are overwhelmingly the beneficiaries of remittance payments. Creating an enabling environment for a business such as Wing Money to develop and thrive with these low-cost solutions is an example of a positive market intervention. In the Philippines, adjusting banking policies to enable access to non-traditional banking enables women, especially those with micro-enterprises in rural areas, to access digital products.

While facilitating participation in the market can yield benefits for women, so can regulating in a way that drives systemic change. For example, in Lao People’s Democratic Republic and India, different mechanisms for targets are used to improve access to digital financial products. In Lao People’s Democratic Republic, the central government through its national strategy, introduced a target of a 9 per cent increase in women’s access to financial services by 2025. In India, their targets are set within the bureaucracy to incentivise policy makers to implement the Digital India strategy and promotions and job security are rewarded based on performance.

These examples of innovative policy solutions are only foundational. The options for governments and policy makers at the nexus of market facilitation, participation and regulation demands creativity and agility. Underpinning this is the need for a baseline of country and regional level diagnostics to capture the diverse needs of women – those who are set to benefit the most of from harnessing the future of digital financial inclusion.

*Tengfei Wang, Economic Affairs Officer

This article is the second of a two-part series based on the findings of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) Policy Guidebook: Harnessing Digital Technology for Financial Inclusion in Asia and the Pacific, and is jointly prepared by ESCAP and the Griffith Asia Institute.source: UNESCAP

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Empowering women-led small businesses in Nepal to go digital

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People walk down a street of shops in Kathmandu, Nepal. (file) photo World Bank/Peter Kapuscinski

Authors: Louise Anne Sophie Lavaud and Mitch Hsieh*
Throughout the years, Laxmi Shrestha and her husband saw the opportunities that opening an online shop could bring to her family business.

“Looking at the trend of TikTok and other sites, we thought selling online could help us but we weren’t technically sound,” said Laxmi, the owner ofLaxmi Hastakala Store, in Banepa, Nepal, and part of a family of artisans.

As she learned about selling online, she picked up on how to market her shop digitally and, according to Laxmi: “It has surely given our business a push we always wanted. Recently we started selling our products online and we also receive payments online.”

Laxmi Hastakala Store is among the 1,800 women-led micro, small and medium enterprises (MSMEs) in Nepal being trained on digital and financial literacy by Sparrow Pay – one of the winners of the Women Fintech MSME Innovation Fund launched in 2019 by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) and the United Nations Capital Development Fund (UNCDF).

Sparrow Pay has created a local digital marketplace where women-led MSMEs can offer products and services to its existing 800,000+ digital payment service users. Additionally, Sparrow Pay is supporting these women entrepreneurs in adopting digital payments and creating a payment history to support access to additional financial services.

MSMEs are a vital source of employment and a significant contributor to a country’s GDP. However, more than 45 per cent of MSMEs in Asia and the Pacific are constrained from accessing finance and other support for their businesses. Socio-cultural norms mean women-led enterprises have to overcome gender-specific barriers to access institutional credit and other financial services.

ESCAP and UNCDF aim to encourage easy access to digital finance for MSMEs in Asia and the Pacific, break the financial barriers surrounding women-led enterprises and support entrepreneur-centric growth and inclusiveness throughout the region. Initiatives by the 10 winning fintech companies are currently supporting more than 9,000 women-led MSMEs in Bangladesh, Cambodia, Fiji, Myanmar, Nepal, Samoa and Viet Nam.

Just like Laxmi, these women business owners plan on successfully growing their companies in the digital area.

The Women Fintech MSME Innovation Fund is part of a regional programme “Catalyzing Women’s Entrepreneurship: Creating a Gender-Responsive Entrepreneurial Ecosystem,” which seeks to support the growth of women entrepreneurs in Asia and the Pacific by enabling a policy environment for such business owners, providing them with access to finance and expanding the use of ICT for entrepreneurship.

*Mitch Hsieh Chief, Communications and Knowledge Management Section

UNESCAP

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Is It Possible to Lift Sanctions Against Russia? — No

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Every conflict sooner or later ends in peace. Such is the conventional wisdom that can often be heard from those who, amid the current situation of the sanctions tsunami and confrontation with the West, are trying to find hope for a return to “normality”. The logic of such wisdom is simple. At some point, the parties will cease fire and sit down at the negotiating table. The end of hostilities will lead to a gradual reduction in sanctions pressure on Russia, and our businesses will be able to return to work with Western partners.

We have to disappoint those who believe in such a prospect. Sanctions against Russia, for the most part, will not be lifted even in the event of a ceasefire in Ukraine and a peace agreement. There will be no return to “pre-February normality”. Instead of remembering a lost past, we will have to focus on creating a new future in which Western sanctions remain a constant variable.

Why is the lifting of Western sanctions on Russia extremely unlikely? There are several reasons.

The first reason is the complexity of the conflict between Ukraine and Russia. It has every chance of being prolonged for a long time. There may be pauses in active hostilities. The parties may conclude temporary truces. However, such truces are unlikely to remove the political contradictions that gave rise to the conflict. Currently, there are no parameters for a political compromise that would suit all parties. Even if an agreement between Moscow and Kiev is reached, its sustainability and feasibility are not guaranteed. The experience of Minsk-2 shows that the mere appearance of agreements does not automatically resolve political problems and does not lead to the lifting or easing of sanctions. The Ukrainian problem can smoulder and flare up again for decades, partly because both sides are limited in the possibilities of a decisive military victory and complete surrender of the enemy. Relations between Russia and Ukraine are at risk of entering the ranks of long-term conflicts, similar to relations between India and Pakistan, or North and South Korea. The complexity and longevity of the conflict guarantee Western sanctions for the long term.

The second reason is the stable nature of the contradictions between Russia and the West. The conflict in Ukraine is part of a larger Euro-Atlantic security palette. An unstable system of asymmetric bipolarity has formed in Europe, in which the security of Russia and NATO can hardly be indivisible. Russia has no way to crush the West without doing unacceptable damage to itself. However, the West, despite its colossal superiority, cannot crush Russia without incurring unacceptable losses. Containing Russia is the best strategy for the West. Ukraine is doomed to remain one of the areas of containment. For Russia, the strategy of asymmetric balancing of Western superiority remains optimal. It is possible that part of such a strategy will be a course towards a radical territorial redistribution of Ukraine, tearing away from it the eastern and southern parts. But in itself, such a redistribution will not remove the problems of Western sanctions.

The third reason is the institutional features of the sanctions policy of the initiating countries. Experience shows that sanctions are relatively easy to impose but very difficult to lift. Thus, with regard to Iran, a whole “web of laws” has formed in the United States, which significantly limits the administration’s ability to lift sanctions. Even if the sanctions are not enshrined in law, their cancellation or mitigation still requires political capital, which not every politician is ready to spend. In the US, such steps will cause criticism or even opposition in Congress, and in the EU – disagreements among member states. Of course, individual restrictions are lifted or relaxed in the interests of the initiating countries themselves. The experience of sanctions pressure on the Republic of Belarus shows the existence of the “sanction remissions” when restrictions are eased. However, the legal mechanisms of sanctions themselves remain and can be used at any time.

The fourth reason is the quick reversibility of the sanctions. Often, their abolition is accompanied by political demands, the implementation of which is a complicated process. For example, the Iranian nuclear deal required several years of complex negotiations and significant technological decisions. However, the return of sanctions can be carried out overnight. There is an asymmetry in the fulfilment of obligations. Fulfilling the requirements of the initiators requires significant changes, while the return of sanctions requires only a political decision. Rapid reversibility breeds distrust among target countries. It is easier for them to continue to live under sanctions than to make extensive concessions and risk receiving new sanctions. Historical experience shows that the initiators of sanctions tend to play the game of “finishing” the opponent. After the concessions come new, more radical political demands and the threat of new sanctions. The “Pompeo 13 Points” – a list of US demands on Iran beyond the limits of fulfilling the terms of the nuclear deal – have already become a textbook example. The Iranian lesson, apparently, was well learned in Moscow. Iran itself is actively working to achieve its goals in the field of nuclear arms. Ultimately, this shows the ineffectiveness of sanctions in terms of influencing the political course of the target country. But questionable effectiveness does not negate the fact that sanctions continue to be applied and enforced.

The fifth reason is the ability to adapt. Without a doubt, Russia will suffer enormous damage from the restrictive measures which have been introduced. However, the possibility of it adapting to the sanctions regime remains high. Russia has the chance, first, to partially make up for the shortfall in supplies from abroad with the help of its own industry, although this will require political will and the concentration of resources. Second, it has access to non-Western markets, as well as alternative sources of goods, services and technology. The key conditions for solving this problem will be the creation of reliable channels for financial transactions that are not related to the US dollar, the Euro, or Western financial institutions. Such a task is feasible both technically and politically, although it will also require time and political will. Iran’s experience shows that sanctions have seriously hit the country’s development opportunities. However, they did not interfere with the development of agriculture, industry and technology. The modernisation of the Soviet Union also proceeded under severe Western sanctions. The ability to adapt reduces the motivation for concessions to the demands of the initiating countries, especially given the risk of playing for “finishing”.

These reasons make the prospect of lifting or significantly reducing sanctions pressure on Russia extremely unlikely. The US, EU and other initiators have already introduced the most severe restrictions on Moscow. But the upward wave of sanctions escalation has not yet been exhausted. In addition, the achievement of the ceiling of the applied measures is unlikely to mean the abolition of those already introduced. However, the sanctions also do not mean the “end of history” of the Russian economy. It found itself in new conditions that will require adaptation and the search for new opportunities for development and growth.

From our partner RIAC

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