Approaches to APEC free trade<\/p>\n
By Suhadi Mangkusuwondo<\/p>\n
JAKARTA (JP): APEC Economic leaders will have their third
\nconsecutive meeting in Osaka next month.<\/p>\n
Many businesspeople in this region and elsewhere are closely
\nwatching the preparations for the important meeting. The skeptics
\nexpect nothing substantial will come out of Osaka now that APEC
\nhas gone beyond the easy stage of declaring its long-term vision
\nand goals and move into the decisive stage.<\/p>\n
They have grave doubts about the ability of the diverse Asia-
\nPacific economies to agree on any common concrete program,
\nparticularly in such a sensitive area as trade liberalization.<\/p>\n
Sympathetic observers, on the other hand, hope that in Osaka
\nAPEC will agree on substantive issues that will move the process
\nof closer regional cooperation forward. They recognize that APEC
\nhas reached a critical point in its short history. Osaka will
\nprove whether APEC is a viable proposition, able to play a
\nleading role in preserving and strengthening the global trading
\nsystem.<\/p>\n
In Seattle in November 1993, the APEC Leaders adopted the APEC
\nVision of a community of Asia-Pacific economies based on the
\nspirit of openness and partnership, and ensuring stability,
\nsecurity and prosperity for its peoples. The leaders envision
\ntrade continuing to expand within the region and the world, and
\ngoods, services, capital and investment to flow freely.<\/p>\n
Last year in Bogor, Indonesia, the APEC leaders adopted the
\nlong-term goal of free and open trade and investment in the
\nregion. They agreed to achieve that goal no later than 2020 for
\nthe developing member economies, and no later than 2010 for the
\nindustrialized economies.<\/p>\n
In Osaka this coming November, the leaders must decide how to
\nachieve the goal of free trade and investment by the agreed
\ndates. Experience shows that it isn't easy to agree on a
\nblueprint or an action agenda for trade and investment
\nliberalization. It took the Uruguay Round more than three years
\nto agree on its negotiation agenda, which was launched in 1986 in
\nPunta del Este. It took another seven years for the round to wind
\nup the negotiations.<\/p>\n
APEC has only had one year to produce a blueprint for action.
\nDue credit must be given to the able and hard working Japanese
\nofficials who are responsible for ensuring that a draft action
\nagenda and action plan will be ready by the time the ministers
\nand leaders meet in Osaka.<\/p>\n
The APEC action agenda will cover much more than just trade
\nliberalization. It covers trade facilitation, and economic and
\ntechnical cooperation. It may also cover macroeconomic and
\nmonetary policy cooperation .<\/p>\n
The senior officials therefore face a formidable task. As the
\nAPEC Eminent Persons Group stated in their latest report, it
\nwould not be sufficient for Osaka to deal only with the complex
\nissues of principles, procedures and modalities.<\/p>\n
Osaka must also deal with substantive actions that can be
\nimmediately taken as the first installments towards realizing
\nAPEC's long-term goal.<\/p>\n
To achieve its goal, APEC seems quite clear about what it does
\nnot want to do, but less clear about what it does want. It does
\nnot want to create a new inward-looking, protectionist economic
\nbloc. It also does not want to create another regional
\npreferential trading area, like the European Community or NAFTA.<\/p>\n
APEC wants to strengthen the multilateral trading system. One
\nway to do that is through open regional cooperation. However, it
\nis not clear what is meant by open regionalism. Some people
\ndefine open regionalism as applying all regional liberalizations
\nto members and non-members on an Most Favored Nation (MFN) basis.
\nBut this is not likely to be acceptable to a number of member
\neconomies. They will insist on some reciprocity from non-members,
\nparticularly from the Europeans.<\/p>\n
Others define open regionalism as liberalization among the
\nmembers, accompanied by some lowering of barriers for non-
\nmembers. In addition, members will have the option to
\nmultilateralize their liberalization to other countries on an MFN
\nbasis. But this implies that APEC should be prepared to enter
\ninto an agreement to set up a preferential free trade area in
\norder to be consistent with existing GATT rules; something which
\nit has so far tried to avoid.<\/p>\n
In formulating APEC's action agenda the senior officials are
\nconsidering two concurrent approaches to trade liberalization:
\nconcerted unilateral action and collective action. Presumably,
\ncollective action would apply mostly to trade and investment
\nfacilitation, while concerted unilateral action would be applied
\nto the liberalization of tariffs and non-tariff measures.
\nOther approaches to liberalization should also be considered:<\/p>\n
a. Multilateral liberalization through the World Trade
\nOrganization. Although the prospect for starting a new round of
\nmultilateral trade negotiations under the WTO at present looks
\nrather slim, APEC should keep this option open. Acceleration,
\ndeepening and widening of the Uruguay Round commitments is part
\nof that wider multilateral effort.<\/p>\n
b. Unilateral liberalization by individual members. This should
\nbe encouraged, by allowing them to credit their unilateral
\nactions to their contribution to the concerted APEC action.<\/p>\n
c. Sub-regional trade liberalization. Individual APEC members and
\nexisting sub-regional groupings in the region should be persuaded
\nto extend their sub-regional trade liberalization to other
\nmembers and non-members. An example of this is what has been done
\nby Indonesia through its liberalization package of May 1995.
\nIndonesia extended its ASEAN Free Trade Area commitment to lower
\ntariffs to between zero and 5 percent by the year 2003 to APEC
\nmembers not in ASEAN. The free trade agreement permits this since
\nASEAN's ultimate goal is to expand trade not only within ASEAN
\nbut with the rest of the world.<\/p>\n
d. Sectoral liberalization. Comprehensive liberalization covering
\nvirtually all sectors and all industries may be delayed because a
\ncouple of sectors are considered sensitive by some members.
\nSectoral arrangements should therefore be considered to allow
\nprogress in other non-sensitive areas to move forward.<\/p>\n
One single approach is not likely to be effective in achieving
\nopen and free trade in the region. Since each approach has
\nstrengths and limitations, a combination of different approaches
\nmay be necessary.<\/p>\n
A willingness to try approaches that suit the region's diverse
\neconomies, from open economies to economies where state
\nenterprises play a major role, is needed to push APEC ahead.<\/p>\n
The highly structured, legalistic methods used in the
\nnegotiations establishing the European Community and the North
\nAmerican Free Trade Area may not suit predominantly Asian region.
\nOn the other hand, the informal and very loose structure
\npreferred by many Asian countries may not be effective for
\nreaching the desired goals at the desired pace. The challenge to
\nAPEC leaders is to find suitable ways to enable the diverse
\nregion to move convincingly forward towards its stated
\nobjectives.<\/p>\n
APEC should not allow the whole process to be grounded because
\nof unresolved \"philosophical\" questions, such as conditional
\nversus unconditional MFN, and whether or which sectors or
\nproducts are exempted from the liberalization package. As we
\nknow, the problems of agriculture, services, competition policy,
\nare and will remain contentious. However, these issues should not
\nbe allowed to block progress in other areas of cooperation, such
\nas trade and investment facilitation, development and technical
\ncooperation, and cooperation in macroeconomic and monetary
\npolicy. In these areas there is plenty of scope for immediate
\nforward movement. Leaders should agree on a substantial \"down
\npayment\" in all these areas to maintain momentum and APEC's
\ncredibility.<\/p>\n
The strength of the \"contagion effect\" of liberalization
\nshould not be underestimated. Once a country or group of
\ncountries start liberalizing, that in itself will create pressure
\non other countries or groups to follow for fear of losing their
\ncompetitiveness and their market share.<\/p>\n
Examples are easy to find. When APEC leaders agreed in Bogor
\nto achieve free trade in the region by a certain date, Latin and
\nNorth American countries were pushed toward agreeing to create
\nthe Free Trade Area of the Americas. APEC's resolve also affected
\nASEAN, which subsequently decided to move forward the date for
\nthe completion of its liberalization scheme from the year 2008 to
\n2003. A process of competitive liberalization can be observed.<\/p>\n
APEC must use this essentially voluntary and spontaneous
\nliberalization, not negotiated reciprocal liberalization (within
\nAPEC or regarding other countries), as the driving force for its
\nlong journey towards free trade and investment in the region.<\/p>\n
The writer is with the Institute for Economics and Social
\nResearch, School of Economics, University of Indonesia and a
\nmember of the APEC Eminent Persons Group.<\/p>\n
Window: The challenge to APEC leaders is to find suitable ways to
\nenable the diverse region to move convincingly forward towards
\nits stated objectives.<\/p>",
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