APEC faces both internal and external challenges to its relevance in the Asia-Pacific regional architecture. Its internal challenges arise from conditions such as slow progress in regional integration; diverse membership; soft institutional structure and lack of focused and concrete agendas. Externally, it faces competition from other vehicles for regional economic cooperation like the ASEAN Economic Community (AEC), the ASEAN+1 Free Trade Agreements (FTAs), the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP). Since APEC and TPP are both trans-pacific arrangements, it is important to consider whether or not TPP is a consequence of APEC's limited integration progress. TPP certainly exhibits almost the reverse of APEC's weaknesses. However, APEC's relevance is not expected to fade. There are several political economy reasons for this. APEC has several achievements such as the lowering of tariff in multiple sectors and its work on trade and investment facilitation. While TPP can address the next generation of trade issues, APEC will continue with its more accommodating approach of trade and investment liberalization. From the United States’ perspective, APEC will continue to be a key economic forum where the leaders of the United States and China can meet on an annual basis. What APEC needs to address are the challenges arising out of diverse membership. It has to minimize conflicts among member economies, work on its soft institutional structure, and redefine its relevance for the future regional economic architecture. It should identify its “niche” and continue with business, trade and investment facilitation to generate concrete “deliverables”.

Between 2010 to 2020, Asia needs to invest a total of around US$8 trillion in overall national infrastructure and an additional US$287 billion in specific regional infrastructure projects. Financing such national and cross-border infrastructure projects for economic integration in the Asia-Pacific region is challenging and complicated. In general, there are several sources of infrastructure finance — Government Budget, Multilateral Development Banks, Commercial Bank Credit, Capital Markets, Sovereign Wealth Funds and Public-Private-Partnership. But each of these has its own features and certain limitations. While national government budgets will continue to be the mainstay for financing infrastructure, it will need to be supplemented by Multilateral Development Banks in the future. Asian governments must put their collective work to mobilize their large pool of savings for regional infrastructure investments. Strengthening national and regional bond markets — through vehicles like the Asian Bond Market Initiative and the Asian Bond Funds — is one of the few steps in narrowing the infrastructure financing gap. The Asian region's forex reserve, including those in the Sovereign Wealth Funds, could also play an important role. Public-Private Partnership may play a bigger role in the near future. What is needed is substantial work to address the challenges to build and implement the PPP models. Asian governments need to act together and develop “bankable” projects for attracting the private sector.

ASEAN adopted the Regional Comprehensive Economic Partnership (RCEP) framework in November 2011, with an ambition to join its ten members with six nations — Australia, China, India, Japan, Korea and New Zealand — that are currently enjoying five separate FTAs with the grouping. The participating countries are aiming for a modern, comprehensive, high-quality and mutually beneficial FTA. Although currently, ASEAN has five “plus one” FTAs, they are significantly different from each other. First, the five FTAs were signed in different time periods. They differ from each other in terms of way of negotiation and economic coverage. Second, the tariff elimination coverage is also different: while six ASEAN states have committed to eliminate tariffs in more than 90 per cent of the products, the rest have committed to between 80 and 90 per cent. For FTA partners other than India, all have committed to eliminate more than 90 per cent of tariff lines vis-à-vis ASEAN. The end-year for each ASEAN+1 FTAs’ tariff elimination is different, making it an important consideration for RCEP negotiation. Third, there are four major methods of origin determination used in the various ASEAN plus one FTAs: Wholly obtained, Regional Value Content, Change in Tariff Classification and Specific Process Rule. The services chapter of existing ASEAN+1 FTAs is still in its early stage of development.

The RCEP is expected to address most of these differences in ASEAN+1 FTAs. The RCEP, if successfully negotiated, is likely to generate a GDP of US$26.2 trillion (32 per cent of the world), effecting about 3.5 billion people (48 per cent of the world population). It will further entrench ASEAN Centrality and demonstrate ASEAN's capability to bring together its own ten members and external partners for economic growth, development and harmonization.

With the deadline of 31 December 2015 looming ever closer, there are increasing discussions on the form and bearing of the ASEAN Economic Community (AEC) on labour markets. AEC's impact on the region's employment prospects comes from two channels — first from the structural changes in domestic economies; and second from the AEC's promotion of free movement of skilled labour through the establishment of Mutual Recognition Arrangements (MRAs) of professional services.

With structural change overtime, the AEC can potentially boost the region's GDP by 7.1 per cent by 2025 and generate 14 million jobs in the process. However, the gains will not be evenly distributed across countries, sectors or skill groups. As for the MRAs, although they have been signed for eight professions, their effectiveness in promoting greater flows of professional services within the region is negligible, as the individual economies are yet to align their domestic rules and regulations to the regional initiative.

Although the changes in the labour market will take time to materialize, policymakers need to start preparing for them now. They should come up with coordinated and coherent policies for both regional and national levels in order to ensure inclusive and fair outcomes. For MRAs to work effectively, much will depend on unilateral actions of member economies and their willingness to change domestic laws to facilitate the movement of professionals. Even if these happen, policymakers will subsequently need to clearly communicate their policy directions and convince their professional bodies to share the same objective and vision.

Riding on the wave of connectivity discussions since 2009, China seized the moment with its Finance Ministry proposing the idea of the Asian Infrastructure Investment Bank (AIIB) in early 2013. In October 2014, twenty-one members from different parts of Asia signed a Memorandum of Understanding to establish the AIIB. As of now, AIIB has attracted expressions of interest from almost sixty countries. With the AIIB being launched within four years of the adoption of Master Plan of ASEAN Connectivity (MPAC), policymakers are beginning to ask how this new source of funding can be deployed to resolve some of ASEAN's financing needs. This paper argues that the AIIB may not provide a complete solution for the MPAC. This is because the AIIB is first and foremost an Asian bank, rather than one focussed on Southeast Asia and its membership ranges from countries in Asia to Europe and Latin America. It is highly likely that this regional development bank will have a pan-Asian coverage. However, to the extent AIIB is viewed as a tool to advance Chinese strategic interests, ASEAN countries should ensure that they maintain Chinese interest in the region. Currently, there are significant trade and investment relations between ASEAN and China, especially because ASEAN economies contribute to Chinese-oriented production networks. These should be further strengthened. In addition, any infrastructure project that can contribute to ASEAN economies’ linkage to China is likely to be viewed positively by the Chinese-led multilateral bank. Moreover, ASEAN countries should cooperate rather than compete with each other to attract AIIB financial support. As most MPAC projects belong to multiple ASEAN countries, the member countries should have a cooperative stance towards regional requirement. Even projects that are domestic in nature should be developed for regional benefits. This gives all the more reason for ASEAN to strengthen its collective decision-making processes in the near future to effectively manage China's interactions with the region.

For the last year, China has been occupying headlines about improving connectivity in the region. This can be viewed as a three-pronged strategy to counterbalance the United States’ 2011 announcements of a “Pivot to Asia” and the launch of the negotiations of the Trans-Pacific Partnership. The three-pronged strategies could be seen as: (a) Disclosing the physical routes — China announced its “One Belt, One Road” initiative in 2013, referring to the New Silk Road Economic Belt and the 21st Century Maritime Silk Road. The initiative underlines Chinese initiative to share its development experience, leverage on its development assistance and to export its technologies and production capacity. (b) Financing the routes — The second aspect relates to the instruments through which China aims to finance these plans. A Silk Road Fund worth US$40 billion has been set up, together with two proposed multilateral lending banks — the Asian Infrastructure Investment Bank (AIIB) and the BRICS New Development Bank (NDB). (c) Feasibility of the routes — The third aspect is to make the announced physical routes viable by increasing the volume of trade and investment along the routes. This can be observed during the 2014 APEC Summit when China championed the idea of a Free Trade Area of the Asia-Pacific (FTAAP) among APEC countries.

China's role in promoting the AIIB agenda could be seen as a pathway to: match the shift of global economic weight from the West to the East with commensurate influence in the governance of multilateral development banks; explore avenues to invest China's foreign exchange reserves which are safe and can provide returns higher than U.S. treasuries; and satisfy the infrastructure gap in the region so as to support future economic growth and stability.

The paper attempts to explain five facts about the ASEAN Economic Community (AEC). First, the AEC was not developed on the basis of the European Union (EU) model, though there are some learning experiences to be gleaned from this process. For ASEAN governments, the AEC is a gradual process with long-term aspirations and is pursued in areas where it is felt necessary. Second, although AEC is a regional initiative, its implementation is carried out by the national economies. At the national level, implementation faces difficulties as each initiative is not the sole preserve of any one ministry, but rather multiple government ministries and other agencies. In the domestic economy, the AEC also generates proponents and opponents of integration, slowing down the pace of implementation further. Third, AEC is not the sole cause of increasing competition. For any single country, heightened competition is a part of the globalization process and there are other trade frameworks too — bilateral, regional and multilateral — that further economic liberalization. Fourth, ASEAN economic cooperation is a top-down initiative and hence awareness among stakeholders is low and uneven. With the looming deadline of 2015, voices from the private sector have begun to be heard. However, the advocacy for trade initiatives is not unanimous in nature and is often driven by the relative strength of particular firms that bring in more foreign direct investment to the country. Fifth, AEC should be seen in conjunction with the ASEAN Political-Security Community and ASEAN Socio-Cultural Community. As a result, it should not be seen in isolation when judging whether ASEAN can deliver on its community-building commitments.

Globalization has increasingly made economic diplomacy a key component of foreign policy. Since production decisions made by Transnational Corporations (TNCs) are influenced by various domestic factors, the role of host governments has become important, for example, in keeping transaction costs low. Participating in free trade agreements (FTAs) that go beyond trade and include non-tariff barriers, government procurement, competition policy, and intellectual property protection is one key mechanism for keeping such costs low and through this attract foreign direct investment (FDI).

FTAs involving ASEAN countries have introduced a structured and government-to-government form of cooperation that is redefining the balance of economic power. This can be observed in the growing number of such arrangements that symbolizes not only greater economic opportunity but also closer political ties. ASEAN states have adapted to this new trend of diplomacy at four levels (global, transregional, regional and bilateral) and its related strategic and political alignments. The positive effects of growing ASEAN economic diplomacy, in addition to lowering business costs, are also observed in technology and skills transfer and infrastructure investment.

Economic diplomacy is said to have its advantages. It generates higher economic growth, efficiency, transparency and ease of doing business in a country. However, its benefits face risks as well. Going forward, one should note that economic diplomacy is a dynamic process that changes with new realities. However, to succeed in economic diplomacy, a country needs a skilled pool of policymakers and private sector actors who can understand and negotiate key economic and trade issues. For the ASEAN economies, assuming the status quo, as long as they continue to deliver on robust economic growth and there is a cooperative stance towards each other, economic diplomacy can be seen as a “positive-sum” game in the years to come.

The Trans-Pacific Partnership (TPP) is envisioned to be a “comprehensive and high-quality” FTA to liberalize trade in goods and services, encourage investments, promote innovation, economic growth and development and support job creation and retention. The absence of China in the TPP negotiations has led many to speculate that the TPP is an economic tool for the United States to contain China's rise in East Asia. However, the evolution of TPP does not indicate any such intention. Moreover, China and the current TPP members have strong trade linkages. TPP can be seen as a regional initiative where member countries have to follow certain guidelines and standards for conducting economic activities so as to ensure a level playing field for interested parties. In the short run, China is more likely to be abstain from the TPP agreement as it may not be ready to uphold the types of obligations currently negotiated in the agreement. Other than that, China will continue with its efforts to deepen economic cooperation with its Asia-Pacific neighbours. These can act as “building blocks” for deeper FTAs with TPP signatories in the future.