ASIA-PACIFIC ECONOMIC COOPERATION (APEC) IN YEAR SEVEN OSAKA SUMMIT

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

ASIA-PACIFIC ECONOMIC COOPERATION (APEC) IN
YEAR SEVEN OSAKA SUMMIT:

A TIME OF RECKONING

Robert A. Manning and Paula Stern


 

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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