The APEC summit showed that Russia – however unwillingly – is ready to support some of China’s trade and economic initiatives aimed at reducing the economic influence of the U.S. in Asia.
Russian President Vladimir Putin, left, is greeted by Chinese President Xi Jinping, center, who is hosting a welcome dinner for APEC leaders at the Beijing National Aquatics Center in Beijing, November 10, 2014. At right is Peng Liyuan, Xi’s wife. Photo: AP
The Asia-Pacific Economic Cooperation (APEC) summit, which brought together the leaders of 21 economies in the region, ended in Beijing with no clear breakthroughs. The main announcement under China’s chairmanship of APEC was the removal of trade barriers, in particular, the start of the process to establish a free trade area (FTA) inside APEC.
This FTA project is slated as Beijing’s alternative to the trade association that the U.S. has been lobbying for the past two years: the Trans-Pacific Partnership (TPP), which, through negotiations among the 12 largest economies of the region (including the U.S., Japan, Australia, and the ASEAN majors), seeks to substantially liberalize trade and remove both tariff and non-tariff barriers.
Washington is sure that the high competitiveness of U.S. products will outweigh the potential competition risks to its economy from opening up these markets. However, for China, with its state protectionism for sensitive industries that provide growth and employment (and, hence, the ones important for political stability), the terms of the TPP are unacceptable. Moreover, Beijing suspects the U.S. of wanting to create a trading bloc in Asia without China, so as to exclude it from the integration processes.
China initially tried to resist the TPP by promoting an alternative project: the Regional Comprehensive Economic Partnership (RCEP). In a tit-for-tat move, the talks on RCEP left out the U.S. However, in recent months the U.S. has made progress in developing the TPP. According to several participants in the APEC summit, the latest round of talks in Australia nearly came to a consensus on the text of the agreement — only a few points remain, the most contentious of which is the opening-up of the agricultural markets of Japan and several ASEAN countries.
It was against this backdrop that Beijing sought to use the APEC summit as a launch pad for the FTA, which is a less ambitious agreement in terms of tariff reductions, but larger in scope, involving all 21 APEC economies.
However, summit-goers say that Washington managed to drop a fly in China’s ointment. The communiqué adopted by foreign and trade ministers, and approved by APEC leaders, spoke of the start of negotiations to create a free trade area, but with no specific time frame — to Beijing’s great consternation. True, Washington for its part was unable to announce the creation of the TPP at the summit in Beijing. U.S. Trade Representative Michael Forman admitted that the signing of an agreement would have to wait “a few more weeks or months.”
Russia was officially involved in the launch of the FTA negotiations, but has yet to carry out a detailed analysis, according to Russian officials. Going into the summit, Moscow was lukewarm about both the TPP and the RCEP.
“It is not possible to create a trading bloc in Asia without China or the U.S., so both projects are non-starters. So why waste time?” says a senior official. For what it’s worth, the dynamics suggest that Russia is more likely to opt for the FTA. The U.S.-backed TPP is seen as a hostile project, and besides, Russia cannot fulfill the obligations to tariff and nontariff liberalization.
A similar tussle unfolded between the U.S. and China on a more specific matter: the promotion of infrastructure projects in the Asia-Pacific region. In October China announced the establishment of the Asian Infrastructure Investment Bank (AIIB), which is being groomed as an alternative to the World Bank and the Asian Development Bank, which are dominated by the U.S. and its allies. However, by no means all countries that were initially enthusiastic about the project ended up as cofounders — due to political pressure from Washington.
“Barack Obama phoned Prime Minister Tony Abbott, and his national security adviser, Susan Rice, called various officials to demand that Australia refrain from participation. And we acquiesced, which was a mistake,” says a member of the Australian delegation.
On the eve of the APEC summit, Chinese President Xi Jinping announced the creation of a $40 billion fund to finance infrastructure development projects for the proposed Great Silk Road Economic Belt. This alternative project, which Xi announced a year ago during a visit to Kazakhstan, provides for investments in transport infrastructure.
Some of the projects involved will link China’s center and northwest (where many companies are moving production from China’s eastern provinces because of the difference in wages) to the markets of Europe via Central Asia and Russia. Another portion of the funds will be invested in port and rail infrastructure in South East Asia.
Neither the AIIB nor the Great Silk Road project was initially to Moscow’s liking. The AIIB aroused suspicion, as does any China-dominated fund, while the Great Silk Road project was seen as a threat to plans to raise the capacity of the Trans-Siberian and Baikal-Amur railways. However, sanctions are causing Russia to rethink its position. Moscow is now seeking sources of external financing for its own infrastructure projects, and is therefore interested in the AIIB. These exact same considerations lay behind Moscow’s support for the BRICS development bank.
Beijing is trying to allay Moscow’s fears regarding the Great Silk Road project. At the September summit of the SCO, Xi proposed to Vladimir Putin that the Trans-Siberian and Baikal-Amur railways be included within the perimeter of China’s mega-project.
The tardy progress in multilateral projects was partly offset by an abundance of bilateral agreements. Even the U.S. and China, the summit’s chief competing powers, concluded an agreement on the liberalization of trade in high-technology goods after 18 months of wrangling. The biggest package of bilateral agreements was signed between Russia and China, including a framework agreement on the Altai gas pipeline (which stipulated the general conditions of supply, but not the price), as well as credit agreements between Russian and Chinese state-owned banks.
Russia was clearly unfazed by the multilateral nature of the discourse. While all the key APEC leaders traveled on to Myanmar to the East Asia Summit, Vladimir Putin went to Vladivostok. It was the fourth time in succession that Russia’s leader has not attended the summit, despite the fact that, since 2005, Moscow has been seeking to upgrade its observer status at this high-profile forum.