ASIA-PACIFIC ECONOMIC COOPERATION (APEC) IN YEAR SEVEN OSAKA SUMMIT: A TIME OF RECKONING

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Recommended Citation

Robert A. Manning and Paula Stern, "ASIA-PACIFIC ECONOMIC COOPERATION (APEC) IN YEAR SEVEN OSAKA SUMMIT: A TIME OF RECKONING", EASSNet, June 24, 1995, https://nautilus.org/eassnet/asia-pacific-economic-cooperation-apec-in-year-seven-osaka-summit-a-time-of-reckoning/

APEC's credibility will be tested when topleaders gather in 
Osaka, Japan in mid-Novemberfor its annual meetings. After 
six years ofworking advisory groups, visions, 
blueprints,agendas, and action plans, APEC has had 
nomeasurable impact on the trade, investment, oreconomic 
growth of its 18-member economies.1Yet APEC has laid the 
groundwork for makingvaluable trade-enhancing progress, 
whileproviding a consultative forum in a regionwith few 
multilateral institutions. But APECalso has inflated 
expectations by deciding atBogor, Indonesia to center its 
efforts onforging regional free trade. Theseexpectations are 
unlikely to be met and maydivert its energies from more 
modest, butachievable goals, accelerating Uruguay 
Roundcommitments in tariff and non-tariff areas andcreating 
business facilitation measures suchas harmonizing standards 
and customsprocedures. Unless the Osaka summit results 
inconcrete action to remove impediments to tradeand 
investment, APEC's role as an instrumentfor advancing the 
global free trade regimeshould be reassessed.

The overwhelming conventional wisdomamong APEC 
cognoscenti is that the Bogorinitiative is an unassailable, 
shining visionof free trade throughout the Pacific. Toquestion 
this admirable goal is consideredheresy. But close inspection 
of the devil inthe details suggests that revisiting the Bogoridea 
may be the best way to both ultimatelyrealize the trans-Pacific 
free trade goal andstrengthen APEC as an enduring institution.

Since its inception in 1989, APEC hasstruggled with differing 
notions of itspurpose: some members see it primarily as 
aforum for economic consultation; othersenvision it is an 
important mechanism forsustaining economic growth and 
managingregional economic integration largely byfacilitating 
liberalized trade and investmentand lowering transaction 
costs. Suchmultifaceted views are not 
necessarilyincompatible, but a consensus is required onwhat 
APEC's purpose and priorities should be.

These differing visions linger as asource of tension between 
its 18 members.Indeed, as ministers and heads of state 
fromPacific Rim capitols prepare for the Osakameetings, it is 
tempting to dismiss APEC aslittle more than a grand 
schmooze, a forum ofsenior officials and heads of state 
withlittle practical consequence. Since itsinception, APEC has 
widened its membership butnot consolidated its purpose or 
itsinstitutional discipline.

APEC and the American Agenda

The raison d'etre of any regional economicgrouping should be 
to advance prosperitybeyond the benchmarks of the 
currentinternational trade regime of the GeneralAgreement on 
Tariffs and Trade (GATT)/WorldTrade Organization (WTO). 
Indeed, it can beargued that APEC's 1993 Seattle Declaration 
insupport of finalizing the trade accord helpedprod the 
European Union (EU) and others towrap up the protracted 
Uruguay Round. However,if the standards adopted by a 
regionalgrouping are lower than those of the WTO, 
thegrouping runs the risk of diverting trade andinvestment 
rather than advancing economicprosperity. The vision of 
APEC's advisoryEminent Person's Group as a beacon for 
theworld trading system, absent concrete results,could be 
more of a chimera than an operativereality in the trading 
world.

For American interests, APEC offerspromise as a mechanism 
for enhancing economicgrowth, addressing impediments to 
trade in amultilateral context, and deepening U.S.integration 
into a trans-Pacific economy. Thesuccess of American foreign 
policymakingshould be measured by how well it 
enhancesAmerican economic prosperity and maintains 
theUnited States' global leadership role. Thus,the seemingly 
arcane topic of APEC'seffectiveness is part of much bigger 
issues:(1) anchoring the United States in the Asia-Pacific 
region in a post-Cold War world; and(2) the importance of the 
role currentlyplayed by foreign trade in the U.S. 
economy.Some statistics illustrate the importance offoreign 
trade to U.S. prosperity:

O      The  United States is the world's largest exporter, with 
12.8 percent of all global trade, as compared to 10.5 percent 
for Germany and 9.9 percent for Japan. U.S. exports are 
projected to experience double-digit growth in 1995 according 
to U.S. Commerce Department estimates.

O     U.S. two-way trade across the Pacific reached $425 
billion in 1994. East Asian economies, already collectively 
equal in size to that of the United States, are projected to grow 
at least twice as fast  as those of European countires over the 
next decade.

O    Foreign trade is a vital source of employment. Already, 
exports to the Pacific Rim economies support  some 3.1 
million U.S. jobs.

For the United States, the question isnot whether APEC is 
worth participating in,but how APEC fits into a global 
economicstrategy. APEC at present lacks the clarityand 
standards (e.g., labor and environment) ofthe North American 
Free Trade Agreement(NAFTA) and the more comparable 
political andlegal systems and levels of economic 
development of the EU. And it is instructive that theU.S. and 
EU have decided that a trans-Atlanticfree trade area is overly 
ambitious, optinginstead for more modest trans-Atlantic 
tradeliberalization. APEC should be viewed as partof a 
triangular (NAFTA/APEC/EU) or balancingstrategy to apply 
mutually reinforcingpressure via regional groupings to go 
beyondcurrent global standards.

The trade benefits brought by 50 years ofpost-war U.S. free 
trade policy could not havebeen achieved without bipartisan 
cooperationand can not be sustained unless our electedleaders 
have the vision to modernize thecurrent trade system. In 
particular, continuedlarge, bilateral trade deficits with much 
ofthe Asia-Pacific underscore the need for morereciprocal 
market access. After more thanthree decades of near double-
digit growth,Pacific Rim economies have come of age. 
Alongwith Japan, the "Four Tigers", Singapore, HongKong, 
Taiwan, and South Korea, have joined theranks of 
industrialized economies. Malaysia,Thailand, and Indonesia 
may follow early inthe next century.

Access to relatively open U.S. marketshas been a particularly 
important factor inthe East Asian success story. Over the 
pastfour decades, the United States has been thelargest single 
market for exports from thesePacific economies_until recently 
absorbingmore than 30 percent of exports from most 
EastAsian economies. And today, the United Statesaccounts 
for nearly 40 percent of China'sexports. The growth of intra-
Asian trade andinvestment, however, has begun to reduce 
Asiandependence on U.S. markets: intra-Asian tradeis 
approaching 50 percent of their totalcommerce; excluding 
Japan, Asia as the sourceof Asian investment grew to 45 
percent by1993.

This burgeoning reality makesliberalizing Asian markets 
imperative ifcurrent levels of economic growth in thePacific 
rim are to be sustained. Indeed, theregion recently has seen 
some encouragingexamples of unilateral trade and 
financialliberalization by Indonesia, the Philippines,and 
Thailand. Whether private-sector leddynamics are sufficient to 
accomplish this, orwhether regional trade liberalization 
effortssuch as APEC can catalyze a new wave ofliberalization, 
or if a new global trade roundis necessary_or some 
combination of allthree_remains to be seen.

APEC's Challenge

Last November at Bogor, APEC leaders issued adeclaration 
pledging to realize trans-Pacificfree trade by the year 2020. 
The APECDeclaration, unlike NAFTA, announced 
itsobjective of "free trade" without clearlydefining what the 
concept meant or how tomeasure mutual progress towards that 
goal. Thevague term "concerted liberalization" as thechosen 
method for achieving free trade,underscores the difficulties in 
attaining it.During the two years that preceded 
APEC'sdecision, PPI argued that a less grandiose andmore 
tangible agenda for building freer tradestep-by-step, with 
timetables for action thatare realistic for business, would 
bepreferable.

The world's two largest economies, theU.S. and Japan, go to 
Osaka with seriouspolitical constraints that imperil 
theirleadership if not their credibility. Withoutfast track 
negotiating authority, whatcommitments can President Clinton 
make on a"down payment" to begin implementing the 
Bogorfree trade pledge? Worse still, APEC's host,Japan, has 
been actively lobbying its Asianpartners to exclude agriculture 
as a"sensitive sector." And China, by somemeasures the 
world's third largest economy, issome distance from even 
meeting the criteriato join the WTO.

An APEC vision of broad, far-offobjectives of free trade_by 
the year 2010 fordeveloped nations and by 2020 for 
developingnations_will only reinforce 
congressionalperceptions of the absence of reciprocity byour 
trading partners. NAFTA barely passedCongress, even though 
Mexico's economy is only4 percent the size of ours, and it 
remains atopic of heated controversy; APEC 
includeseconomies which together are roughly the sizeof the 
United States economy with the world'slargest pools of low-
wage labor. Moreover, theUnited States continues to run 
massive tradedeficits with East Asian economies_nearly 
$100billion a year with China and Japan alone. Onecan 
imagine Congress's reaction if anadministration were to ask 
them to ratify afree trade agreement based on a vague 
hopethat a decade later other members wouldreciprocate! 
Indeed, since the November 1994election, modest but 
concrete achievementsthrough APEC have become essential 
in order topersuade Congress that granting fast trackauthority 
for Asian-Pacific-related activitieswill yield positive results 
for the UnitedStates.

In retrospect, less vision and moretangible accomplishments, 
however modest, mayhave been a wiser course for APEC. 
ThePresident's Advisory Committee on Trade Policyand 
Negotiations (ACTPN), which representsbusiness, labor, and 
other trade interests inthe United States, has pointed out in 
itsrecommendations the need for APEC to achieveconcrete 
results within a time frame thatbusinesses could appreciate. 
Many American andother international companies want 
Washingtonto set achievable, short-term goals for 
APEC,rather than focus on grandiose, long-termobjectives 
which consume limited negotiatingresources without yielding 
adequate benefits.

To its credit, the Clinton Administrationhas been pressing for 
an action agenda forthis November's APEC meeting that 
emphasizesmajor "milestones" that countries shouldachieve 
and timetables that are meaningful tothe business community. 
The administration isproperly focusing on getting APEC 
members totake modest, but practical steps: first, toimplement 
the commitments made in the UruguayRound and second, to 
initiate a dialogue onareas where we can begin to move 
beyond ourmultilateral commitments. But it is alsohewing the 
Bogor free trade vision despite theconsiderable obstacles to a 
serious processrequired to realize it.

One ACTPN recommendation, for example,could help jump-
start the process: The U.S.chemical industry views APEC as a 
uniqueopportunity to improve its long-term businessprospects 
in the Asia-Pacific region. It isconsidering fostering private 
sectordiscussions among senior chemical industryleaders from 
APEC countries. Such aninitiative would be aimed at 
developing andproviding to the APEC governments a list 
ofaction items from the industry's prospective.Such a list is 
likely to include: (I)acceleration of Uruguay Round tariff 
cuts;(ii) acceleration of other Uruguay Roundcommitments, 
such as protecting intellectualproperty rights and liberalizing 
foreigninvestment rules; and (iii) harmonizing APEC'scustoms 
procedures applicable to chemicals andchemical products. It is 
precisely this sortof concrete goal that will yield an 
immediatepayoff for all parties and demonstrate thatAPEC 
can indeed produce more than dialogue andpaper 
commitments. Telecommunications andinformation services 
industries are key, highvalue-added sectors where the United 
States isvery competitive, and would also be goodcandidates 
for such action.

Now that the administration seems to beseeking to build a 
path to freer trade brickby brick simultaneously with the 
larger freetrade scheme, the task is how to convince theother 
members of APEC that these moredeliberate steps are a win-
win proposition forall. Market-opening initiatives enhance 
thefortunes of all nations; they do not representa mercantilistic 
conspiracy by developedcountries to dominate vulnerable 
markets indeveloping countries. Convincing other 
APECmembers that liberalization is self-rewardingwill not be 
easy. Reluctance on the part ofseveral countries who are part 
of theAssociation of Southeast Asian Nations (ASEAN)to 
embrace last year's ambitious plan for freetrade by 2020, is a 
measure of their fear of ahidden agenda by the United States. 
However,now that the agenda includes more near-termgoals, 
some of the most vocal developingnations, including 
Indonesia, Singapore, andThailand are also calling for APEC 
to deliverconcrete achievements_openly criticizing thevague 
approach to liberalization that has beensponsored by Japan's 
Ministry of InternationalTrade and Industry.2

As agreed upon by senior officialspreparing for the Osaka 
meeting, APEC membereconomies will each present national 
plans fortrade liberalization on sectoral issues basedon an 
undefined "comparability" of the sectorsfor their respective 
national economies. Theseplans will be evaluated at the Subic 
Baymeeting in 1996 with the hope of gainingmutual 
acceptance no sooner than 1997. Unlessthere is a serious 
review process to evaluate"comparability," actual 
implementation on aregular basis, and some mechanism 
todiscipline economies failing to deliver ontheir commitments, 
it is difficult to see howpolitical support for such a vague 
andunwieldy process can be sustained.

What is to be Done?

Perhaps the most prudent, if unwelcome,suggestion might be 
to rethink the Bogor plan.APEC could be better served by 
loweringexpectations and fashioning goals that reflectthe art 
of the possible rather than to facedisappointment as a result of 
excess ambition.In lieu of that, we suggest the 
followingagenda for APEC to consider as it maps out 
itsblueprint for action:

O      Sector liberalization  plans should include mechanisms 
for evaluating and measuring progress on a regular basis. This 
could be done by creating a commission tasked to issue 
periodic report cards and to mediate and redress claims by 
APEC members that others are failing to meet their goals. To 
address the "free rider" problem economies outside APEC 
should be offered access on the basis of some reciprocity, not 
simply on a Most Favored Nation basis.

O      Adopt the harmonization of customs procedures agreed 
to by senior officials for implementation in 1996, and consider 
a single APEC business visa, as the Pacific Business Forum 
has proposed.

O     As part of a commitment to expedite measures to lower 
transaction costs, agree to conclude Mutual Recognition 
Agreements on toys and foods before 1997,and decide on a 
timetable for acceptance and adoption of other international 
standards for other categories of products, particularly 
telecommunications and cosmetics.

O     Either strengthen APEC's nonbinding investment 
principles or push for accelerated Organization of Economic 
Cooperation Development negotiations on binding rules. The 
current APEC investment code is substantially weaker than 
those in U.S. bilateral accords and that of NAFTA. APEC 
economies must commit to transparency in investment rules, 
nondiscriminatory treatment of foreign investors, and consider 
adopting the Hong Kong model of "one-stop shopping" 
investment authority.

O    In regard to the new trade agenda of competition policy 
(e.g., antitrust and deregulation), labor, and environmental 
standards,  APEC should place on the agenda of the next 
leaders' meeting a discussion of  how these issues would be 
best addressed, either within APEC or as part of a new global 
round of the WTO.

There is no consensus as to the nextsteps in liberalizing global 
trade. Thecurrent international trade regime may 
bestrengthened by advances pioneered by regionalgroupings 
such as APEC, NAFTA, or trans-Atlantic efforts. But there is 
growingconsensus that the cluster of issues listedabove 
comprise the next wave of tradeliberalization. For APEC's 
part, carrying outthe Uruguay Round commitments of its 
membereconomies is a starting point; 
acceleratingimplementation of those commitments 
ispreferable.

APEC clearly has a role to play in a U.S.global trade strategy. 
However, the hopes ithas raised with its Bogor agenda may 
provecounterproductive: governments may sour onAPEC as 
they are faced with the harrowingdetails of a grandiose free 
trade scheme.Redefining APEC's agenda along more 
modestlines which stress near-term, concreteachievements as 
suggested above, may provemore valuable both in solidifying 
APEC as aninstitution and contributing to the largergoal of 
global free trade.

This is a Progressive Policy Institute PolicyReport of 
November 6, 1995. Mr Manning is aformer State Department 
official of the Bushadministration and is active in Pacific 
Forumactivities. Dr Stern is former Chair, USInternational 
Trade Commission. The Instituteis based in Washington D.C.

_______________________________ 

APEC's members are: Australia, Canada, China,Hong Kong, 
Japan, South Korea, Brunei,Indonesia, Malaysia, Philippines, 
Thailand,Singapore, Taiwan, U.S., New Zealand, PapuaNew 
Guinea, Mexico, and Chile.

"APEC Sapporo Meeting Fails to DraftTrade Liberalization 
Proposals," BNA DailyReport for Executives (July 12, 1995), 
A-6-7.As one leading Asian newspaper commented:

To allow each member to set its own pace of progress is to 
invite procrastination and, ultimately, dissensions. 
Dismantling trade barriers takes considerable time and effort. 
The time to begin is now and not 20 to 25 years from now.

"APEC's Excruciating Pace of Inaction," Bangkok Business 
Day, July 5, 1995, p.6.

 


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