As US and China meet at APEC summit, a drama involving billions in trade

President Obama goes to Beijing this weekend for an APEC summit known mostly for cuddly group photos of world leaders in native costumes. But this year China and the US are quietly duking it out.

President Barack Obama and other world leaders arrive in Beijing Monday for the Asia Pacific Economic Cooperation annual summit. This year, an unusual amount of drama has surrounded the preparations, as China and the United States are battling for regional clout and hundreds of billions of dollars' worth of trade.

Here's a briefing on key questions surrounding the conference, which is marking its 25th birthday.

What is APEC and what does it do?

As the world’s center of economic and political gravity shifts eastwards, APEC’s 21 member countries will be setting the pace of global prosperity in the 21^st  century. Already they account for 53 percent of the world’s GDP and 44 percent of its trade.

When they hear of APEC, many people think of the annual “family photos” of world leaders looking awkward together in the host country’s national dress – from gaudy batik shirts in Bali to ponchos in Peru. (US President Bill Clinton started the tradition in 1993, handing out bomber jackets to his guests.)

But there is, of course a serious side. APEC’s central goal is to encourage freer trade and easier investment among members as a route to greater wealth: 20 years ago, it set itself a target of “free and open trade” within the Pacific Rim (which it has not yet met).

The regional grouping has no enforcement powers, and it is not even a forum for negotiation. While agencies such as the World Trade Organization organize negotiations about binding rules, APEC plays a more informal role. “Other regional organizations’ modus operandi is ‘negotiation plus law,’ ” says Mei Xinyu, a researcher at the Chinese Commerce Ministry’s think tank. “APEC operates by consultation and independent action” by its members.

So does APEC even matter?

Because it has no authority to impose anything, “APEC has always faced the challenge of justifying its existence,” says Deborah Elms, founder of the Singapore-based Asian Trade Centre, a new think tank.

APEC officials note that average trade barriers in the region have fallen drastically since the group launched in 1989 – from 16.9 percent to 5.8 percent. “But they cannot claim a lot of the credit for that,” says Gary Hufbauer, a trade expert at the Peterson Institute for International Economics in Washington. “Countries have done that unilaterally.”

APEC is very useful, though, in greasing the wheels of regional trade and unblocking bottlenecks. It does a great deal of nuts and bolts work in facilitating the export and import of things – making ports and customs offices run better, for example, or encouraging regionwide accounting standards.

But it is APEC’s annual summits that are seen as one of its biggest selling points, offering a chance for leaders from North and South America, Asia and the Pacific to get together informally and chew the fat.

“Hopefully they develop warm and fuzzy feelings about their geo-political differences,” says Mr. Hufbauer. “That’s the main payoff.”

But APEC’s role on this front has been somewhat eroded by the plethora of new get-togethers that world leaders can go to. When they leave Beijing next week, for example, some leaders will go on to an East Asia Summit meeting in Myanmar. Others will head to the G20 meeting in Brisbane.

Everyone is coming to the APEC meeting in Beijing. But then, this is Beijing, heart of the Middle Kingdom. Will all 21 leaders feel the same compulsion to show up in Manila next year, or in Lima in 2016?

What’s happening now on the Asia and Pacific trade front?

You might not expect it, but this is where things get interesting. Asia-Pacific is more than a region – it is an alphabet soup of potential free trade deals. But the letters in that soup now spell out a fiercer rivalry between China and the United States.

Washington is pushing the Trans-Pacific Partnership (TPP), a trade deal under discussion by 12 countries. China is conspicuously not one of them.

Resentful at its exclusion, China is championing a rival grouping, the Regional Comprehensive Economic Partnership (RCEP) that includes Beijing, the Association of South East Asian Nations (ASEAN), and five other regional nations.

China wants to use this year's APEC summit, where it is host, to launch the Free Trade Area of the Asia Pacific (FTAAP, pronounced eff-tap), open to everybody in APEC. This has been on APEC’s agenda since 2010, with the TPP and RCEP seen as two pathways to reaching the broader goal of an all-inclusive regional deal. 

Washington was once an FTAAP booster. But the White House now wants the focus to stay on TPP instead. US negotiators have been fighting hard in preparatory APEC meetings to stop the Chinese from including anything in the final communiqué that might suggest negotiations on an FTAAP are imminent.

“The US is stiff-arming FTAAP because it doesn’t want to roil the picture in Congress" – always suspicious of trade deals, especially if they include China – “in case the TPP comes up for a vote,” says Hufbauer.

Meanwhile the Chinese have become less fearful than before of TPP being used as a weapon aimed at isolating them economically in their home region, not least because they wonder whether the US-sponsored TPP talks will ever bear fruit.

What can we expect to come out of the summit?

The Americans hope to prove the TPP doubters wrong. The governments that have been negotiating a treaty have kept the details close to their chests. But Ms. Elms and Hufbauer, who have closely followed the five-year talks, both believe they might announce a deal at the Beijing summit.

The 12 trade ministers "have been working unbelievably hard,” says Elms. “I think ... they will try to substantially conclude” this week, she adds, though some contentious issues of market access may need to be resolved next year.

If TPP doesn’t happen in the next few months, she predicts, it will never happen. Congress would never vote for a trade bill in the run-up to a presidential election, and that could mean the steam goes out of the process.

The Chinese summit hosts would not be happy if a US-led TPP deal upstaged their own plan for a new FTAAP, and stole their thunder. But they are hoping to benefit in profitable ways from the meeting.