Further reduction of trade costs among Asia Pacific countries can counter sluggish global demand, which is expected to affect near-term trade and growth of the region, and can also boosts inflows of foreign direct investments (FDIs).
The Asia Pacific Economic Cooperation (APEC) Policy Support Unit (PSU) has launched the APEC Regional Trends Analysis (ARTA) coinciding the Ministers Responsible for Trade (MRT) Meeting in Arequipa, Peru from May 16 to 18.
PSU figures show that exports of goods in APEC registered -8.7 percent growth in 2015 from a 1.9 percent growth in 2014 while net FDI growth further dropped to -307.7 percent last year from -74.1 percent growth in its previous year.
Total gross domestic product (GDP) of APEC economies slowed down to 2.7 percent in 2015 from a 2.9 percent growth in 2014.
The ARTA accounted APEC’s declining external sector performance to significant slowdown in global demand, ongoing economic adjustments in China towards consumption- and services-driven growth, and decrease in commodity prices or the cyclical factors as well as the decelerating pace of expansion of global supply chains or the structural factor.
“Flourishing global value chains have been made possible by lower trade costs. The ability of a lead firm to separate their different stages of production across the globe in search of efficient locations for manufacturing or assembly is affected by the trade costs of their
business partner,” ARTA noted.
“Hence, lower trade costs is an enabling factor for a more efficient global production network, which affects the investment location decisions of firms,” it stressed.
PSU’s report also said cutting bilateral costs by 12 percent to 14 percent will increase bilateral FDI flows by 16 percent to 20 percent.
APEC has been at the forefront of trade facilitation with many initiatives in reducing trade costs.
In 2010, APEC initiated the Supply-Chain Connectivity Framework Action Plan (SCFAP) which identified eight chokepoints needed to be addressed in order to improve supply chain connectivity in the region and to boost trade among member economies.
The ARTA also estimated that APEC economies have achieved a reduction in bilateral trade costs with their 10 largest trading partners by 6 percent to 12 percent between 2010 and 2014.