▶ Emerging economies like China, India, and Brazil have seen their share of the global economy grow significantly from 12% in 2000 to 40% in 2023, while advanced economies’ share has declined.

▶ Under Peru’s leadership, APEC 2024 prioritizes trade and investment for inclusive growth, innovation for formal economic transition, and sustainable development.

▶ To stay relevant, APEC should enhance multilateral cooperation, facilitate dialogue amid geopolitical tensions (e.g., US-China rivalry), and build crisis response capacity.

In the last decade, the global economic map has experienced a shift along with rapid economic growth in emerging and developing countries. In 2000, the portion of the world economy in the largest emerging economies, Brazil, China, India, Indonesia, Mexico, Russia, and Turkey, only reached 12%; this figure increased to 40% in 2023. In the same period, the portion of the world's largest advanced economies, including the G7, fell from 44% to 30%. However, these countries also received the most significant impact from the dynamics and uncertainties of the global economy in recent years caused by increasing geopolitical & geoeconomic tensions, the climate crisis, and technological changes.

To address these crucial development challenges, under the leadership of Peru, the Asia-Pacific Economic Cooperation (APEC) 2024 focuses on three priority agendas that are very relevant for developing countries which are trade and investment for inclusive and interconnected growth, innovation and digitalization to promote the transition to the formal economy and the global economy, and sustainable growth for development resilience. The 2024 Leaders' Machu Picchu Declaration emphasizes the importance of ongoing APEC's works on trade and investment and beyond to achieve the APEC Putrajaya Vision 2040 for an open dynamic, resilient and peaceful Asia-Pacific community by 2040.[1]

One of the deliverables, the Ichma Statement on A New Look at the Free Trade Area of the Asia-Pacific agenda, lays some guiding elements to strengthen and foster more cooperation to address the evolving FTAAP agenda.[2] First, to conduct a more comprehensive work on the divergence and convergence in FTAs and RTAs practice. This effort explores emerging issues in customs procedures, investment, digital trade, competition policy, state-owned enterprises, trade and labor, trade and environment, intellectual property, and MSMEs. Then, the statement also mandated the improvement of the Information Sharing Mechanism Initiative on RTAs-FTAs and Capacity Building Needs Initiative to support peer learning, enhance transparency, and improve economies’ understanding and implementation of RTAs and FTAs. The other deliverable, Lima Roadmap to Promote the Transition to the Formal and Global Economies (2025-2040), aims to transform the informal economy to be a more productive, sustainable, and inclusive formal economy.[3]

Although APEC has succeeded in becoming one of the international organizations that has made major contributions to the region and the world, this forum faces increasing challenges regarding whether APEC has sufficient institutional capability to set an appropriate agenda in responding to global and regional dynamics.

APEC is an international organization that is based on voluntary and non-binding principles. This makes various commitments taken by members not supported by adequate implementation mechanisms. APEC also supports the concept of open regionalism, which allows various countries in the region to have diverse backgrounds and economic levels. Although this type of governance allows for inclusive regional integration and provides flexibility for members in determining their commitments, it must be equipped with adequate monitoring efforts and various assistance programs for still less developed members.

This is increasingly a challenge for APEC, which currently has extensive agendas. At the beginning of its establishment in the 1990s, APEC focused more on trade liberalization and investment facilitation issues. Currently, APEC has a variety of agendas that are increasing every year. To make these agendas run and produce results, more robust monitoring and capacity building must be done. Unfortunately, this has not been appropriately met, especially amidst the increasingly acute geopolitical and geoeconomic dynamics.

With the US election result earlier this month, the global economy braces for Donald Trump's 2.0 trade policy. During his previous term, the Trump administration started a trade war with China, moved out of TPP, and renegotiated NAFTA. In his campaign, Donald Trump has promised to impose a 10 or 20% across-the-board tariff for all imported goods and a 60% tariff on all Chinese imports. Trump also threatened companies that relocated from the US to Mexico with a 100 or 200% tariff.[4] All these efforts were fuelled by the ambition to bring all jobs and investment back to the US.

The shift in world geopolitical power with the increasing role of China, trade tensions, especially between the US and China, and increasing narrow nationalism and protectionism followed by the weakening of the multilateral order, make it increasingly difficult for APEC to achieve its various goals. Moreover, various parties related to the increase in geopolitical tensions are members of APEC, such as the United States, China and Russia. APEC will find it increasingly difficult to reach a consensus as has happened in recent years. Even when consensus and a common agenda can be agreed upon, it is increasingly difficult for APEC to gather strength and resources for its implementation, due to the lack of trust between member countries.

These challenges do not automatically make APEC lose its relevance. Governance based on volunteerism and open regionalism makes it an ideal platform to initiate dialogue on complex issues before they are brought to separate discussions between the parties involved. Bilateral and plurilateral meetings that occur on the sidelines of APEC meetings can be a means to improve understanding. This is a critical added value of APEC that is needed in the world right now.

What is the way forward? First, APEC should strengthen its commitment to multilateral cooperation in accordance with the original design of this organization as a complement to the multilateral order, not a substitute for it. One initiative that APEC member countries can support to improve the multilateral trading system is the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), an alternative to the dispute settlement system in the WTO, which is currently not functioning well. APEC member countries can also be actively involved in ongoing WTO reform efforts. To avoid conflicts of interest between APEC members with opposing aspirations, involvement in various multilateral initiatives can be carried out jointly between members with the same interests or like-minded economies only. They can utilize various sub-forums and related capacity-building programs to increase understanding of these multilateral initiatives.

Second, APECs should be used to build consensus amid geopolitical tensions. In the context of the US-China rivalry, for example, APEC needs to encourage constructive dialogue and facilitate negotiations to reduce tensions and avoid negative impacts on regional trade and investment. This can be done through more high-level meetings where leaders can directly discuss and commit to maintaining regional stability and economic openness. Hosting APEC meetings can help build understanding between members experiencing tensions, rather than simply introducing new agenda items that will be difficult to implement without better understanding among members. This idea would be tested when China hosts the APEC in 2026.[5]

Third, make APEC more responsive and strengthen its capacity to deal with crises. The world is facing sudden crises, such as the COVID-19 pandemic and accelerating climate change. In various crises, APEC is often unable to provide an appropriate response. APEC needs to increase its efforts to monitor crises and encourage the adaptability of its member countries by developing a coordinated rapid response mechanism for health, economic and environmental crises. This effort includes building capacity for disaster management, maintaining supply chain continuity, and ensuring equitable access to vaccines and medical equipment across the region.

Finally, APEC's success in addressing these challenges has not only enhanced economic prosperity in the Asia-Pacific region but has also made an important contribution to regional stability and security. Middle powers such as Australia, South Korea, Mexico and ASEAN countries can play a more active role in these efforts. As explained earlier, various APEC initiatives have benefited these countries' economic development and have successfully utilized the APEC platform to support national goals. Therefore, middle powers should utilize APEC strategically and continue strengthening its position in the Asia-Pacific region, gaining further benefits from this regional cooperation.