Kevin Rudd: India's APEC Opportunity

Remarks at the launch of ASPI's report India's Future in Asia: The APEC Opportunity

Kevin Rudd speaking at the Embassy of India in Washington, D.C. (Daryl Morini / Asia Society)

On March 1, 2016, the Asia Society Policy Institute released a report entitled "India's Future in Asia: The APEC Opportunity." This is a transcript of ASPI President Kevin Rudd's keynote remarks, as delivered, at the report's launch event at the Embassy of India in Washington D.C. 

Thank you for your hospitality and for having us here at this wonderful house of India in Washington, D.C. As a friend of the United States’ and as a friend of India’s, it’s nice to be here and to have a chance to look for a moment at the extraordinary photographs on the wall of a young president Kennedy, and a slightly less young Prime Minister Nehru. Prime Minister Nehru, the first Prime Minister of independent India, and John Fitzgerald Kennedy, determined to fashion a new America. These are important historical reflections for us all.

My name is Kevin Rudd, I’m from Australia and I’m here to help. The reality is, I head the Asia Society Policy Institute in New York and it’s good to be here in Washington, D.C.…

Ambassador, we regard you as a good friend of the Asia Society, and a good friend of the Asia Society Policy Institute. We know that you’ve spent a long time in the United States of America. This is a country that is complex in its politics and advanced in its global influence, as the extraordinary superpower that it still is. And we know that India’s interests in the United States are held very safely in your very capable hands.

I’ve visited India many times over the years, both as prime minister, foreign minister, and now as global citizen at large. For me, it remains an extraordinary country. Over the course of the last twelve months, having been president of the Asia Society Policy Institute, I’ve had the privilege of being in Delhi on at least three occasions, and had the great privilege of meeting with Prime Minister Narendra Modi and other senior ministers of the Indian government.

Of course, if anything happens in India, we all pay attention. Yesterday, in Delhi, was budget day. When the government of India releases a budget, the world sits up and notices, because, as the ambassador reminded us, this is a significant economy. The decisions you take, through the instrument of your annual budget, are important for us all. And therefore, the world stands up and pays attention.

Tonight I’m here to talk about a report we have released today, on India and the Asia-Pacific Economic Cooperation forum (APEC), and the future which we believe lies ahead to be shared between both these entities.

My position, from the very outset, is that I believe that India should be in APEC. I don’t wish to be equivocal about it. That’s my view; it’s been my view for a long, long, long time. In my modest way while in office, I often sought to do what I could to promote that enterprise.

For those of you not familiar with APEC, it has been around since 1989. We Australians had a little bit to do with its origins. It was an initiative of one of my predecessors, Prime Minister Hawke, who apart from everything else, held the Oxford University beer drinking competition award and still lies in the Guinness Book of World Records for fastest downer of a pint in the world. So, that’s what it takes to succeed in political office in Australia.

APEC began under Prime Minister Hawke’s initiative and was a good piece of regional diplomacy on Australia’s part at the time. Then it began as a mission of how do we promote the cause of trade, investment, and economic integration within the Asia-Pacific region. Today, APEC economies represent almost 60 percent of the world’s GDP, and nearly 50 percent of world trade. APEC's total trade has increased more than 700 percent since its inception. APEC has created a culture of constructive economic cooperation and dialogue, a far cry from the contentious trade negotiations we generally hear about in the world trade round.

I certainly believed for a long time that it makes little sense for an Asia-Pacific economic grouping of 21 economies to not include India, which is not just Asia’s third-largest economy in terms of market exchange rate, but as the ambassador reminded us, based on purchasing power parity, is the third-largest economy in the world.

APEC membership would help the world, I believe, in two concrete ways. It would bolster India’s economic development, which is of course the number one priority of the current government. And secondly, India’s inclusion in APEC would facilitate greater regional trade and investment, and would lead India to play a greater role in the region at large.

With this in mind, the Asia Society Policy Institute launched a high-level international task force last July, to look into this issue and to help devise a pathway towards India’s inclusion in APEC. That task force has included Ajay Banga, CEO at Mastercard and Ambassador Shyam Saran, India’s former Foreign Secretary, as my co-chairs. Seven other senior leaders from India and APEC economies have also been members.

The Confederation of Indian Industry (CII) serves as our partner in India on this initiative. ASPI Senior Fellow for India, Marshall Bouton, who will be known to many of you in this room, has managed the project. Harsha V. Singh served as senior advisor to this initiative, and together with ASPI senior program officer, Anubhav Gupta, who sits in the front seat here, worked actively on the crafting of this report.

The report, entitled India’s Future in Asia: The APEC Opportunity, is informed by the taskforce’s deliberations and numerous consultations that we have held over the past several months with business and policy leaders in India, and a number of APEC economies. It outlines the significant benefits, which we believe would accrue over time to India, APEC, and the region-at-large as a result of India’s membership. It also lists the challenges and concerns facing India’s bid, and lays out potential steps that India and APEC could take to address legitimate concerns that many might have about taking this important step forward.

Let me tell you why Indian membership is critical, in my judgment, and the judgment of our task force. First, the Indian economy is particularly important today, because the global economy is facing sluggish growth, and a number of fundamental challenges. China’s economic challenges have impacted directly on the global economy, and the Asia-Pacific economy. India stands to fill some of that gap in the future. Second, regrettably, global trade is on the wane. Global trade contracted more in 2015 than it has in any year since the financial crisis. It’s a figure we do not often debate, but one that should be sobering in our reflection — given the significance of trade in generating activity, growth, and employment. Third, countries like India that are not members of the Trans-Pacific Partnership might suffer from trade diversion once it comes into force.

What is needed alongside the TPP is an effort to identify and support key new drivers of economic growth and integrate them more fully with the regional and global economy. I know that India’s growth rate is projected in the budget at 7.6 percent — high by global standards, higher than most economies in the world, and certainly the highest of any significant economy in the world.

APEC is perfectly suited to that role because it has long helped its members access global trade and investment flows, and become part of the supply chains that drive global commerce. APEC needs to find new frontiers to further its mission of regional integration.

These, I believe, are core reasons why we need to see India as a fully-fledged member of APEC.

The truth is, India’s trade with the region and the world has increased significantly over the past 15 years. Moreover, the significance of the traded sector of the Indian economy has also grown. The trade sector has grown from 26 percent of GDP in 2000 to 49 percent in 2014, hugely lifting growth, activity, and employment.

Furthermore, Prime Minister Modi’s economic agenda for India is closely aligned with what APEC is all about. And APEC members are already trying to strengthen their own economic and other engagements with India. India has, or is, negotiating free trade agreements or comprehensive economic partnership agreements with all but four APEC members. Countries like the United States have wanted India to become more engaged in the Asia-Pacific. Under Prime Minister Modi’s “Act East” initiative, India shares that objective.

APEC and its members will themselves benefit economically from India becoming a member. Let’s be very clear about where the benefits lie. APEC members will have easier access to India’s rapidly growing consumer market. India’s middle class consumption expenditure will be the third highest in the world by 2030. India will also provide investment opportunities for APEC members. There is a lot of investment potential in India, in fields of infrastructure, energy, healthcare, and communications. And India needs, in its own assessment, $1 trillion dollars to fund its infrastructure needs by 2020. APEC members can also utilize India’s growing labor force as the ambassador has just indicated. Some APEC economies may face labor shortages in the future due to aging populations. India, whose labor force will be the largest in the world by 2030, can help fill that gap.

For India, the advantages are also clear in terms of APEC membership. APEC membership will reinforce the Indian government’s agenda to boost Indian economic growth. APEC mechanisms and best practices will help India attract the large levels of investment that it itself has identified as necessary for the future. Second, India is trying to become better integrated with global value chains, something where APEC helps its members concretely. Third, APEC mechanisms and best practices would also help India in many of its own flagship programs, such as Make in India, Digital India, Smart Cities, Skills India, and more.

Fourth, APEC would also prepare India for a changing global economy. APEC facilitates business-to-business interactions that would help Indian companies enhance their competitiveness. APEC would help India diminish trade diversionary impact from agreements like the TPP. APEC membership would provide India a pathway to potential future membership of the TPP or a Free Trade Area of the Asia-Pacific (FTAAP), if India chose to go in that direction.

Critically, APEC will allow India to pursue change in a non-binding, voluntary fashion. In a democratic polity like India — and India celebrates its democracy in the same riotous way as we see it celebrated in countries like the United States and Australia — where polities are particularly sensitive to external pressure, APEC’s consensus-based process might be more conducive to change, in terms of the fundamental directions of the Indian economy.

The truth is, however, that some APEC members are not yet in favor of India joining the forum because they perceive India as not sufficiently supportive of trade liberalization and regional integration. There are concerns about India’s position in trade negotiations, both bilaterally and at the WTO. There are concerns about India’s hesitancy in negotiating ambitious bilateral investment treaties. There are concerns also about the pace of domestic economic reform in India.

Furthermore, let’s just face some facts, there is also considerable domestic resistance in India. Protectionist elements in the Indian business, political, and bureaucratic communities, which may be hesitant about opening India further to trade, have made it difficult for the government to pursue policies that would diminish international concerns about India.

Finally, APEC politics and procedures also raise obstacles for India. Members may not be keen to expand the size of the group beyond 21. Other economies are in the running and might argue that they have a stronger basis for inclusion than India. For example, Colombia. I, to put it on the record, am a strong supporter of both India and Colombia, and certain other states being members of APEC.

These considerations also need to be borne in mind — the complex processes of domestic political consideration in India, domestic political considerations in various APEC economies, and of course, the procedures and rules of APEC itself.

To conclude, the report outlines all of these benefits and challenges in some considerable detail, and I would recommend this report to all of you. Take a moment, read it, absorb it. You will be stimulated by it. Alternatively, it will put you to sleep. Either way, it could be very useful.

APEC has included a wide variety of economies in its history. Think of its membership — China, Russia, Vietnam, the United States. I couldn’t think of a more diverse bunch myself. Because from the outset, we’ve understood that joining APEC would enable these economies to make the kind of changes that would further APEC’s mission, but at a pace which works for them. That is a critical point. APEC, in this respect, is both a policy process, as well as a policy destination. It is designed to be flexible even as it holds out the very ambitious goal of pan-regional economic trade integration over time.

After weighing the benefits and drawbacks of Indian membership in APEC, the report unabashedly concludes that it’s time for India to be included in APEC. Indian membership in APEC, we believe, is good for India, good for APEC, good for the region, and good for the world.

We also think that this is a particularly opportune moment to push forward for India’s membership in APEC. Once enforced, the Trans-Pacific Partnership agreement will impact institutions like APEC to make decisions about their own future direction. It is also likely to create a sense of urgency in countries, including India, that are not members of TPP and may be worried about getting left out of the Asia-Pacific trade picture for the future.

Furthermore, the United States, China, Japan, and Russia — 4 key APEC economies — have welcomed, formally, India’s interest in becoming a member of APEC. Prime Minister Modi has developed constructive relationships with many of these countries, and this can prove useful in building support for Indian membership.

There is therefore, in my judgment, a striking alignment between APEC and India at this moment. The stars may have aligned. However, for the stars truly to align, it takes a strong need to identify that fact and then to navigate and work our way through as a result. I hope this report of ours might just nudge our friends in India and in the APEC economies to take advantage of this time.

I thank you very much for your attendance. I’m happy now to take questions.