Stabilizing Asia-Pacific economic, trade foundation

The global economic and trade landscape is undergoing profound restructuring, with geopolitical tensions becoming increasingly complex and a new round of technological revolution and industrial transformation gathering pace.

As challenges such as climate change and demographic shifts become increasingly intertwined, Asia-Pacific Economic Cooperation economies face a shared imperative — to build a fair, rational and sound rule-based system, stabilize the Asia-Pacific's economic and trade fundamentals, and strengthen the resilience of industrial and supply chains.

Against such a backdrop, advancing the Free Trade Area of the Asia-Pacific, or FTAAP, represents a viable pathway and strategic choice to address development bottlenecks, consolidate the foundation for coordinated regional development and foster sustainable economic growth across the Asia-Pacific.

As the most inclusive regional cooperation mechanism in the Asia-Pacific, APEC has adopted flexible and diversified cooperation modalities and continued to focus on emerging areas such as the digital economy and green development.

Yet APEC is not a legally binding framework for a free trade agreement, and still faces constraints in rules enforcement, institutional enforceability and implementation effectiveness. This has limited its ability to serve as the anchor for deeper regional economic and trade integration.

It is against such a backdrop that APEC has identified building the FTAAP as a core strategic theme and has steadily advanced the process since 2004. Nevertheless, given its large membership, diverse development stages and divergent interests among members, it has been challenging to build consensus across all parties, and no major breakthrough has yet been achieved toward the realization of the FTAAP.

Fortunately, APEC economies share long-standing economic and trade ties and have maintained relatively stable bilateral and multilateral relations over the years. This has cemented a solid economic foundation and a sound basis for political mutual trust for FTAAP consultations and negotiations.

The key to advancing the FTAAP process lies in exploring innovative pathways and building a practical cooperation framework.

Its development should fully leverage and build on existing regional cooperation initiatives, and advance in a phased and iterative manner. The APEC Economic Leaders' Meeting has delivered a wealth of valuable, forward-looking cooperation themes, which should be systematically and effectively incorporated into the rule-based system of the FTAAP.

In terms of implementation, the FTAAP development process should combine bottom-up and top-down approaches, with the former serving as the mainstay and the latter as a complement.

The bottom-up approach — driven by voluntary and independent initiatives among member economies — can help accurately identify practical pain points and bottlenecks in Asia-Pacific economic and trade cooperation. The top-down approach, meanwhile, can provide overarching regional guidance, facilitate early breakthroughs in areas where consensus is strong and offer forward-looking insights on emerging themes, including digital trade and green trade.

Moreover, the development of the FTAAP should fully draw on the cooperative spirit embodied in APEC's Pathfinder Initiatives and further translate it into FTAAP pathfinder modules.

Under such an approach, interested member economies could conduct pilot thematic negotiations in selected sectors. Outcomes reached by consensus could then be incorporated into a future FTAAP legal framework, creating binding rule-based obligations for participating parties.

Participating parties may proceed with implementation and pilot application upon completing domestic legislative approval and relevant procedural reviews. Should the pilot achieve notable outcomes, relevant practices may be replicated and extended to other economies, paving the way for the gradual accession of new member economies.

For underperforming pilots, the participation scope may be appropriately scaled back, and relevant member economies may withdraw, so as to preserve institutional flexibility and maintain leeway for adjustment.

China's practical explorations in advancing institutional opening-up also tell us the importance of remaining process-oriented and advancing pragmatically for fostering FTAAP cooperation.

For instance, China has formally applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and Digital Economy Partnership Agreement. Although accession is still under negotiation and consultation, China has already used its pilot free trade zones to proactively benchmark against the open, inclusive and high-standard rules embodied in the two agreements, while carrying out pilot programs and stress tests.

Through this process, China has worked to drive deeper reforms and deliver concrete results. Proven and effective measures have also been replicated beyond the pilot free trade zones.

FTAAP cooperation is, by nature, a long-term process involving a broad agenda and complex interests. In this context, a pragmatic approach — adopting useful rules first, implementing while negotiating and expanding successful pilots over time — may offer a more efficient and practical pathway for advancing FTAAP cooperation.

Looking ahead, efforts to build the FTAAP should take a forward-looking approach to strengthening institutional competitiveness.

First, institutional opening-up should serve as an anchor for improving rule-based systems that promote trade and investment liberalization and facilitation in traditional sectors.

In goods trade, efforts could start with reducing nontariff barriers and advancing mutual recognition of standards and rules. Services trade could then be further opened through a negative-list approach, supported by whole-chain rules covering fair market access, fair competition in business operations and orderly market exit.

On investment, economies could explore a communication and coordination mechanism for dispute settlement, with consultation, mediation and joint expert panels serving as priority channels.

Second, as new drivers of growth continue to take shape, the Asia-Pacific should develop more refined rules for the digital economy and green, low-carbon development.

In the digital economy, efforts could focus on building an Asia-Pacific digital trade framework that clearly defines data-related sovereignty, facilitates orderly cross-border data flows, lowers market barriers and helps narrow digital divides.

Third, greater emphasis should be placed on rules that strengthen the resilience and security of industrial and supply chains.

The region could work toward an Asia-Pacific supply chain community underpinned by stability, diversification, coordination and emergency response capacity. Such a framework should encourage APEC economies to avoid excessive concentration in key industrial chains, and enhance the overall stability of supply chains.

It could also explore a regional reserve-sharing and reallocation mechanism for key components, energy resources, food and medical supplies, so as to better cushion short-term shocks arising from supply shortages.

Finally, stronger rules are also needed to support small and medium-sized enterprises, with a view to fostering a more enabling institutional environment for business growth across the Asia-Pacific.

APEC economies could advance the development of a one-stop service platform for SMEs, providing end-to-end services such as policy information, market matching, cross-border settlement, legal consultation and credit-enhancement support for financing.

Exclusive incentives and simplified procedures for SMEs in the areas of tariff reductions, customs clearance facilitation, government procurement, digital transformation, and green certification could also be promoted.

To conclude, Asia-Pacific economies are deeply interconnected, with shared interests and a common future. The realization of the FTAAP will be a long-term and demanding task. All member economies should remain committed to openness, inclusiveness, mutual benefit and win-win cooperation, seek common ground while shelving differences, and take pragmatic steps forward.

The writer is president of the University of International Business and Economics.

The views do not necessarily reflect those of China Daily.