Gary Hufbauer on the APEC

Hufbauer has written extensively on international trade, investment, and tax issues. He is coauthor of Bridging the Pacific: Toward Free Trade and Investment between China and the United States (2014), and has contributed or authored more than a dozen other books. Gary Clyde Hufbauer, Reginald Jones Senior Fellow since 1992, was formerly the Maurice Greenberg Chair and Director of Studies at the Council on Foreign Relations (1996–98), the Marcus Wallenberg Professor of International Finance Diplomacy at Georgetown University (1985–92), senior fellow at the Institute (1981–85), deputy director of the International Law Institute at Georgetown University (1979–81), deputy assistant secretary for international trade and investment policy of the US Treasury (1977–79), and director of the international tax staff at the Treasury (1974–76). He was interviewed by Jenifer Hanki '20 on Nov. 14, 2017.

Since its founding in 1989, what would you consider are the greatest achievements of APEC? What are the biggest disappointments? Is APEC becoming just another talk shop?

The biggest achievement is that leaders get together, every couple of years or so at the host city, and they schmooze and talk and have a corny photo taken in national dress. That’s APEC’s greatest achievement. Talking seriously, I do think these occasions reduce latent tensions, and there were lots of reasons for tension between countries, even before Trump came into office. Now that Trump’s among the leaders, there are a lot more reasons. With China pushing into the South China Sea, and continuing disputes between Malaysia, Singapore, the Philippines and other Southeast Asian countries, these meetings and the preparations for them tend to dampen down tension. That is the big payoff. It’s very hard to quantify, but we haven’t had any wars since the 1980s. The Asia-Pacific region is quite peaceful. That’s a big achievement of APEC.

Now for the big disappointment. The disappointment is that those of us who have followed APEC since the early days have been expecting hard economic commitments in the Asia Pacific, but that didn’t happen. We do have the TPP agreement and that’s important, and you could say that that APEC gets some credit for nurturing the TPP, which of course started in New Zealand, Singapore and Chile. But APEC itself as a negotiating forum for economic issues has not succeeded. It was tried, without success, and at most APEC has been a breeding ground for other trade agreements in the region. APEC is more than a talk shop, even though there is a lot of jabber between the parties. That’s just part of diplomacy. It’s inevitable.

This is the second time Vietnam hosted the APEC summit. Is there any significance for giving Vietnam this special honor?

The first time when the APEC meeting was hosted by Vietnam, in 2006, was the symbolic conclusion of US bitterness over the Vietnam war. At the time, Senators McCain and Kerry, as well as other leading figures, emerged from the shadow of war and preached reconciliation. Vietnam as the APEC host was a way of recognizing a moment of change in history. Now, this time, in 2017, I don’t really know what the special feature was. It seems to me that the location of the summit is announced two years in advance. Two years ago, Obama was in power and no one believed that Trump would take office. Vietnam had made very large concessions in the TPP talks and maybe that was part of the reason. Vietnam, more than any other country, had agreed to change its internal governance to become a market-oriented country in the TPP agreement. Welcoming Vietnam as a market-oriented country was perhaps the largest reason for giving Vietnam the honor of hosting the APEC summit. But I’m not too sure if there’s a lot of competition to become the host country for APEC summits. I know that the meetings are an expensive proposition, and I suppose that Vietnam had to agree to pony up a fair amount of money, by its standards, to become the host. Perhaps for a country like Australia or Mexico, it’s not as burdensome a proposition as it is for Vietnam. I assume that it costs $10 million or more to host these summits.

What are the major differences between this meeting in 2017 and the last time an APEC committee, particularly regarding the Business Advisory Council, met in Vietnam in 2006? One of that committee’s goals was to “Build stronger societies and a more dynamic and harmonious community?” What does that look like? Is that just fancy wordplay or did the countries actually pursue these ends?

Well, I’ve been around these meetings for 40 years or so – a large part these declarations are definitely just fancy wordplay, and the statements kind of put you to sleep. At that time, in 2006, even informed people were not anticipating the financial crisis which was around the corner. It was a good period in terms of the world economy and people still thought that the Doha Round World Trade Organization talks would succeed. People also thought APEC would be able to reach the Bogor goals of free trade in 2010 for advanced countries and 2020 for the rest. Additionally, we were beginning to see the germ planted for the TPP partnership. To summarize, the world was anticipating friendly alliances and trade partnerships. To add, I don’t think China had initiated its territorial disputes in the South China Seas or the Senkaku Islands. It was a more harmonious time.

This situation could not be more different today. It’s a complete reversal.

We have Trump’s speeches that he gave to APEC delegates and to the attending business leaders. Basically, he said that the U.S. has been a victim in all of its trade partnerships. Trump enjoys using rhetoric that describes the U.S. as a “victim” – he often claims that the U.S. has been taken advantage of, and that it has suffered from “dumb” American trade negotiators. His core statements were anything but harmonious. One good thing happened, however: the TPP-11 came together at the APEC Summit. That was quite remarkable. At the Peterson Institute we’ve been urging that outcome since the U.S. withdrew. The other countries saw the good sense of going forward with the agreement. We’re heartened by their decision.

The APEC Business Advisory Council (ABAC) seeks to achieve the Bogor goals (free trade for developed nations by 2010 and for developing nations by 2020). Has ABAC made any meaningful differences? Are the Bogor goals realistic given the current backlash against globalization?

Yeah. I’ve been to ABAC meetings! And to be honest… they haven’t made a meaningful difference towards accomplishing he Bogor goals. Here’s what I think ABAC actually does.

It’s a networking council for establishing personal relationships that undergird supply chains that crisscross the Pacific. Recent research suggests it’s very difficult to write a complete contract that covers all aspects of a business relationship. When I was a graduate student, experts thought you could write everything down in an agreement, and courts would ensure that each party lived up to the contract. Economists have now convincingly argued that it doesn’t matter how much writing there is in a contract, it’s never complete in the sense that the contract seldom covers all possible contingencies. Mutual trust supplies the ingredient for dealing with unforeseen contingencies. Trust is created between business persons by knowing each other, meeting from time to time, dealing over a period of years. ABAC is a forum for building trust between business firms that are separated by great distances. It’s a place to create connections and ensure that business ties are well-grounded.

It’s also true that ABAC makes recommendations to governments. Governments listen to business as they do to any other constituency, but governments probably listened more to business in the early days of ABAC than they do now. Populist voices claim that big corporations have taken advantage of big governments. Anti-business sentiment is widespread. Even so, government leaders still listen to what ABAC recommends, but leaders may not act. Way back in APEC history, there was an early voluntary liberalization movement commended by business; it was the idea that countries should voluntarily make liberalization commitments that would benefit the global economy. It never really happened. Governments said they would but they didn’t follow through. I give ABAC credit for getting business firms together and suggesting solutions, but I would say without much success on policy. ABAC’s success has been in the realm of business-to-business relationships.

At this year’s APEC summit, TPP-11 (the original 12 countries minus the U.S. that signed the Trans Pacific Partnership Agreement) almost succeeded in reviving TPP. But they failed to reach an agreement at the last minute. What are the prospects of a TPP-11? Will TPP-11 have a real impact on regional integration in the Asia-Pacific?

My view is that the TPP-11 countries actually did reach an agreement. I know that Canada never liked U.S. ideas on biologic products and other intellectual property rights. Canada objected to the U.S. demand of 12 years for bio-data exclusivity. Canada and other countries eventually agreed to 5 years of data exclusivity, with a possibility of 8 years in some circumstances. Their arms were twisted by the U.S. Now, since the U.S. is no longer part of the TPP party, Canada wants to drop the data exclusivity provision. It also wants to drop other intellectual property protections that the U.S. pushed.

Likewise, each of the other TPP-11 countries wants a little bit of change, usually on issues that were part of the U.S. agenda. I’m expecting that the 11 will come together next year to hammer out their differences. I forecast that the document will be akin to gold standard for other trade agreements under negotiations. And it will be an agreement that the U.S. will, in one way or another, eventually adopt – possibly in bilateral pacts, perhaps even with China. If U.S. negotiates a trade agreement with Japan -- which Trump is very much pushing -- my guess is that it will be similar to the new TPP-11 agreement. The RCEP (the big China initiative) will not be as rigorous as the TPP but will cover many of the same topics, such as state-owned enterprises. Very importantly the Pacific Alliance (a Latin American trade bloc) is pushing forward as well. I was with the Brazilian ambassador for lunch the other day, and learned that Brazil is considering joining this alliance as well – again with a view to TPP-11 provisions. In terms of trade policy, TPP-11 is the biggest thing going, even though the U.S. is no longer a member.

Beyond the official APEC meetings, there will also be a lot of interactions and engagements on the side including a variety of actors (including major CEO’s and corporate interests). Do any of these other events hold weight? If so how?

Well in the way I said earlier, they do hold weight. You get a lot of academics coming to the side meetings. These academics often have never met each other, and the meetings which surround the official APEC gatherings lead to international collaboration among researchers, particularly in economics or political science. That’s quite useful. The other thing that is useful is you get a lot of mid-level civil servants coming together, in preparation for APEC Summits, and that’s very useful because otherwise they would never have known each other. Permanent civil servants in most countries have great influence on policy over a period of time. Of course, the big leaders often have their own hot topics, but permanent civil servants have great influence in the long run. While not a part of APEC, military officers in the region also get together, talk to one another, which also reduces tension. For example, U.S. military officials often meet with their Chinese counterparts. In addition, other pairs try to mitigate piracy in the Straits of Malacca. On this agenda, there’s close cooperation between Indonesia and the U.S.

In 2011 the US invited India to be an observer to APEC, but in recent years India has become an even greater economic powerhouse. On his trip to Asia, President Trump used the term Indo-Pacific, implying greater involvement of India in Asia-Pacific affairs. What will be India’s future contribution to Asia-Pacific’s economic integration?

The problem is that India is a very protectionist country. Moreover, India is quite afraid of domination by China, economically as much as militarily. Indian leaders seem to think that by maintaining protection they can avoid domination by China. One of my colleagues wrote a book a few years ago trying to promote U.S.-Indian collaboration during the Obama administration. Yet, this never happened. The American and Indian business leaders tried to promote the idea, but Prime Minister Modi, just like his predecessors, is very wary of economic liberalization to the external world. Even though Modi’s chief economic advisor is a former colleague of ours, there has been no progress. Regarding the idea of “Indo-Pacific,” there are three very serious problems. One, India is worried about China. Two, Indian leaders really believe in protection, so in that sense Trump agrees with Modi. Three, India wants to maintain close relations with Russia. Given these obstacles, it’s hard to see “Indo-Pacific” coming to fruition on the basis of freer trade and investment.

If you talk Indo-Pacific and include other countries, it gets even more problematic. What do I mean by that? Myanmar. You’ve read what they’ve been doing to the Rohingya. On the human rights basis, it’s just awful. Though this isn’t genocide, it’s pretty close. So I think the Trump administration is going to have a hard time embracing Myanmar. Another example, Bangladesh – a very poor country scrambling as much as possible, but definitely struggling. Their exports are concentrated in textiles. Textiles are highly protected in the United States. Hence the U.S. collects more tariff duties from Bangladesh than they it does from France. Free trade with Bangladesh seems impossible given the orientation of the Trump administration. Going further west, you get to Pakistan. When I was working in Lahore in the late 1960s, it was a happier time for Pakistan. Now it’s pretty troubled. I guess you can speculate that, from Trump’s standpoint, a relationship with all of these countries might help counterbalance China. The Japan-India-U.S, relationship may counterbalance China, but it’s hard to see the logic elsewhere in the region. For example, Pakistan’s greatest friend is China, which is helping build electrical infrastructure in a big way.

Regarding your last point about India’s future contribution to Asia-Pacific economic integration, this will not happen until India has a change of mind. The Modi government is trying to integrate India’s internal economy. The internal economy is quite fragmented, and that has been Modi’s big effort with tax reforms and other measures. Modi is trying to limit corruption that bedevils trade within India, and he is making progress. But it’s a decade-long project, not something he can accomplish right away. Perhaps once India deals with its own internal problems, it can then look to liberalize its own economy to the external world. But this is not the moment.

Jenifer Hanki CMC '20Student Journalist

By Gobierno de Chile (Flickr: 05-09-2012 / 09-09-2012 Cumbre APEC Rusia) [CC BY 2.0 (], via Wikimedia Commons

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