Time to bust myth that India doesn’t belong in APEC

Sandeep Gopalan
Pro VC (academic innovation), Deakin University, Melbourne, Australia

The  2018 Asia Pacific Economic Cooperation (APEC) summit ended in a stalemate with countries unable to issue a final statement for the first time in the summit's history. The unprecedented impasse was blamed on tensions between China and the United States - part of the emerging new Cold War. APEC should admit India as a member — both in recognition of the country's status as a major market and as a means to avoiding a similar impasse in future. 

Here’s why.

APEC was established as a forum for regional economic cooperation in 1989 and has 21-member countries: China, Vietnam, the Philippines, Japan, Russia, PNG, Malaysia, Australia, Chile, Canada, New Zealand, South Korea, Singapore, Peru, Chinese Taipei, Thailand, Brunei Darussalam, Indonesia, Hong Kong, Mexico, and the US. 

The major omission is India. 

The grouping came into existence at the initiative of the legendary Australian Prime Minister Bob Hawke, who mooted it in a speech in South Korea. Hawke called on countries to "be prepared openly to discuss obstacles to trade" within the region and expressed the idea that “the success of the newly industrialising economies is an enormous opportunity,” both for Australia and regional economies. He argued for “coordinated policymaking” to “better capitalise on the extraordinary complementarity of the economies in the region.” As countries were apprehensive about reaching an impasse over trade liberalisation during the Uruguay round of the GATT negotiations, Hawke's message gained traction.

Australia became a founding member with 11 other countries when the idea came to fruition later that year. China was admitted in 1991. 

To be sure, the omission of India in 1989 may be understandable — the country was trapped in a socialist economic model, it was not a major trading economy, and its foreign policy posture was dominated by a particularly unappealing brand of post-colonial dogma. The club was expanded in 1998 with the admission of Russia, Vietnam and Peru, but no new members have been allowed in since that time.

Advantages of including India

India’s continuing exclusion doesn’t square with the club’s goals. The group seeks to enable the free movement of goods and services through harmonisation of regulations, faster customs processing, and common standards. 

Its key achievement has been in reducing transaction costs and enabling more efficient trading relationships among members. It has prioritised the ease of doing business and improvements have been observed in areas such as establishing business ventures, time and cost of setting up a business, and obtaining construction permits. Few countries have committed to improving the ease of doing business as India in recent years — it has shot up the charts by taking determined steps to reduce redtape and enable e-governance. 

India's admission into APEC would advance its broader poverty alleviation and inclusion missions. The Indian economy is the fastest growing major economy in the world — at about 7.3 per cent, surpassing even the growth rate of China, which has been slowing. There is still plenty of room for reducing bureaucratic hurdles to stimulate greater economic activity and improve the lives of millions of people. 

And it is also showing signs of innovation - patent publications have grown to rank four amongst the Asian countries. 

Whilst these developments are encouraging, the reality is that inequality has also been growing and India is earning the dubious distinction of becoming one of the most unequal societies in the world. APEC's strong record in reducing transaction costs could be highly beneficial to India as it leverages open market policies to create jobs for millions of young citizens. 

For APEC members, greater integration with India could offer an alternative source for manufacturing goods — offering an antidote to China. India’s large labour market also offers advantages for sourcing services — in IT, financial services, etc.

US-China chink in APEC

This year’s APEC summit brought to fore tensions between America and China in a way that transcends the relationship between the two powers. US Vice-President Mike Pence used a speech to business leaders to attack China’s Belt and Road Initiative as an instrument of entrapment for vulnerable countries in Asia and Africa. Small countries in the Asia-Pacific region such as Papua New Guinea (PNG), Tonga, and Sri Lanka have learned harsh lessons from projects sold as win-win scenarios. Sri Lanka had to transfer sovereign territory following the construction of an expensive port development and there are questions about Tonga, Pakistan, PNG being able to repay Chinese loans. 

These risks are not fearmongering —Malaysia’s election of the shrewd Dr Mahathir Mohamad as Prime Minister was immediately accompanied by that country scrapping several expensive Chinese projects following an assessment of repayment viability. Other countries may not have the luxury of such bold and cold-headed leadership.

In such a milieu, India offers another model of partnership for APEC members. India’s foreign policy initiatives are benign in comparison whilst offering a comparably large market for APEC exports. The growing cooperation between Japan, India and Australia could find an outlet in APEC to moderate tensions between the US and China. As the major power in the Indian Ocean — through which much of the world's energy and other seaborne trade has to pass — India could provide a balancing counterweight to China for smaller Asian countries that may be wary of the alternative provided by the US.  

India's entry into the APEC has been blocked due to opposition under various pretexts, including its traditional unfriendliness to foreign business entities. However, as evidenced by India's recent rise in the doing business index, high growth rates, the declining perceptions about corruption amongst international businesspersons, stable policy posture, and strong rule of law supported by independent institutions, these objections are no longer sustainable. 

It is time to bust the myth that India does not belong in APEC. Countries that oppose its admission must be called out and asked to explain their posture. And given the tensions between China and other APEC members, there may be no better time to press for India's admission. APEC’s key founding members —Australia, the US, Singapore, Japan, Indonesia, and Canada — should take the lead to admit India. As Bob Hawke noted in his speech in Seoul almost 30 years ago, it will be in their collective interests to seize on the complementarity of their economies with India’s high-growth economy.