How will APEC reach its targets?<\/p>\n
By Anwar Nasution<\/p>\n
The following article is based on a paper presented at the
\nConference on the Future of Asia-Pacific, held in Tokyo, 30 May-2
\nJune 1995, jointly organized by George Washington University and
\nYomiuri Shimbun.<\/p>\n
TOKYO: The Asia Pacific Economic Cooperation forum (APEC) is a
\nrelatively young and experimental inter-governmental group for
\nforging economic integration in Asia Pacific. Unlike the European
\nUnion or North American Free Trade Area (NAFTA) or the ASEAN Free
\nTrade Area (AFTA), APEC is not a well defined paradigm. It is
\nneither a treaty nor an agreement. During the past six years
\nsince its inception in 1989, APEC's accomplishments have been
\nmore in politics and psychology than economics.<\/p>\n
The annual meeting of APEC economic leaders and regular
\nmeetings of ministers, senior officials and business leaders have
\nbegun to nurture a sense of regional identity among a fast and
\ndiverse assembly of members of the Asia Pacific Community.<\/p>\n
On substance, however, it is still searching for its own
\npurpose and identity. Its principle is ambiguous and most of its
\ndecisions are unbinding in a legal sense.<\/p>\n
It has set the year 2020 as the target date for achieving its
\ngoal of free and open trade and investment in the APEC region,
\nbut the operational \"blueprint\" for achieving this objective has
\nyet to be invented. APEC remains a non full-fledged organization
\nin the traditional sense and is supported by a small and modest
\nsecretariat.<\/p>\n
Unlike other regional groups, APEC includes economies in
\nvarious stages of development along the Pacific Rim. They are
\nglued together by the same philosophy and global interests. It is
\nan organization of relatively and increasingly open and rapidly
\ngrowing economies in the Asia-Pacific region, deeply and
\nincreasingly integrated with each other, benefiting from large
\nand expanding economic relations with the rest of the world.<\/p>\n
Their economies were built by private enterprises operating in
\nmarkets, not by governments. The sole purpose of APEC is,
\ntherefore, to strengthen the market-driven economic growth in the
\nPacific Rim area through trade and investment liberalization,
\ntrade facilitation and development co-operation. APEC adopts the
\nprinciple of \"open regionalism\" as the ultimate objective of this
\ngroup is to encourage multilateral global liberalization. The
\nboundaries of APEC are defined by its economic characteristics
\nand interactions and not by the assertion of collective
\ninternational political will.<\/p>\n
As in any other regional organization, politics and psychology
\nare as important as economics in the APEC process. The political
\ningredients in the APEC process have been increased since the
\nfirst informal forum, or the APEC Economic Leaders Meeting
\n(AELM), held in Seattle in 1993. The informal APEC forum has now
\nbecome institutionalized and is likely to take place once a year.
\nTo have greater psychological impact, the AELM rotates from one
\nmember country to another.<\/p>\n
Like any other regional organization, APEC also has external
\nobjectives. It is an instrument of economic diplomacy vis-a-vis
\nother regions both on trade and investment related issues and
\nprobably international monetary issues in the future. The Vision
\nStatement of the Seattle forum in 1993, which spoke of \"the
\ncommunity of Asia-Pacific economies\" and welcomed the challenge
\nto achieve free trade in the Pacific Rim, contributed
\nsubstantially to the successful conclusion of the Uruguay Round.
\nThe Declaration of Common Resolve of the Bogor forum in 1994
\ncharts \"the future course of our co-operation, which will enhance
\nthe prospects of an accelerated, balanced and equitable economic
\ngrowth not only in the Asia Pacific region but throughout the
\nworld as well\". Specifically, it calls for a \"further
\nmultilateral liberalization\". This is likely to initiate a new
\nround of trade negotiations which will move beyond the Uruguay
\nRound agreements.<\/p>\n
Internally, however, APEC is still a ship the in making. The
\nfollowing are a number of basic issues to be resolved to put more
\nsolid macro and micro economic ballast before it can start
\nsailing.<\/p>\n
APEC calls itself as an organization for trade and
\ndevelopment. But it is not very clear how much of it is for trade
\nand what development co-operation is taken to mean. The modality
\nof economic co-operation is also not clear. Prof. Yamazawa of
\nJapan represents the view of Asian countries which are afraid
\nthat America may use APEC to promote liberalization along the
\nNAFTA line and use APEC liberalization as a leverage for pushing
\nglobal liberalization.<\/p>\n
Some less developed economies are afraid that America may use
\nAPEC to push internal political and social reforms in their
\ncountries. In the Kuching consensus of 1990, ASEAN countries
\nexpressed their commitment to preserving their own identity and
\ncohesion in APEC.<\/p>\n
To the advanced member countries, APEC is mainly a trade
\norganization and mostly deals with trade liberalization and trade
\nfacilitation. They recognize the importance of development co-
\noperation to increase the technological and managerial
\ncapabilities of the less developed member countries. To the
\nAmericans, development co-operation should be focused on trade
\nfacilitation such as harmonization of technical, economic and
\nsocial standards.<\/p>\n
In fact, intensification of bilateral trade disputes between
\nAmerica and Japan have been centered around economic issues, such
\nas the domestic competitive policy.<\/p>\n
The core of American trade conflicts with less developed
\neconomies in Asia is political and social issues such as human
\nrights in China and labor rights in Indonesia. To the Japanese,
\ntechnical co-operation should be limited to technical issues such
\nas training of customs officials, transferring advanced
\nquarantine and testing technology.<\/p>\n
To the less developed member countries, trade liberalization,
\ntrade facilitation and development co-operation are inseparable
\nand a mutually reinforcing package. APEC should also serve as an
\norganization for development co-operation.<\/p>\n
As the current chairman of the Non-Aligned Movement, President
\nSoeharto of Indonesia would like to see APEC as a model for
\nNorth-South dialog. Aside from market access, typically less
\ndeveloped countries usually need capital and technology from the
\nmore advanced nations.<\/p>\n
As a matter of fact, six of the existing APEC working groups
\ndeal with development issues and only two with trade related
\nmatters. The Seattle forum spoke of the establishment of an APEC
\neducational program. When Indonesia took over the APEC leadership
\nin 1994 it added other development issues, including human
\nresource development, investment in infrastructure, small and
\nmedium size enterprises and private sector participation in APEC.<\/p>\n
APEC has not addressed the question of how to help finance
\neither infrastructure projects or liberalization programs in less
\ndeveloped member countries. Without an adequate infrastructure,
\nless developed economies cannot attract private sector investment
\nand increase trade to reap the benefits of economic co-operation.
\nThis financing issue is entrusted to normal official aid
\nmechanisms and market channels. Emphasis is given to private
\nsector investment, both direct and portfolio investment.<\/p>\n
The recent financial crisis in Mexico and alignment of major
\ncurrencies indicate that the existing mechanism may be
\ninadequate, given the increasing uncertainties in the current
\ninternational monetary system. The special forum for annual
\nmeetings of APEC's ministers of finance and central bankers,
\ncreated by the Seattle forum, has no power to directly address
\nthese financial and macro economic issues because their mandate
\nis limited to exchange of information. The absence of resources
\nfor financing temporary illiquidity because of economic
\nliberalization will slow down the pace of economic deregulation,
\nparticularly investment and capital movements, in less developed
\ncountries.<\/p>\n
The recent Mexico crisis reminds us that liberalization of
\ntrade, investment and capital movements in less developed
\neconomies can cause major economic problems unless corresponding
\nchanges are made in the exchange rate and other macro economic
\npolicies. Liberalization of imports can lead to increase in trade
\ndeficits. Liberalization in the asset market could encourage
\nmassive private sector capital inflows attracted by higher yields
\nthan in industrialized countries. The massive capital inflows can
\nmask the onset of serious imbalance as such inflows can quickly
\nreverse into outflows that produce severe financial problems and
\neven greater economic crisis.<\/p>\n
The second lesson from the Mexico crisis is that the market
\npsychology can produce contagion effects in other emerging
\nmarkets through which many innocent bystanders, such as Chile,
\nThailand and Indonesia, are seriously affected even if their own
\neconomic conditions and policies are unlikely to create problems
\ndirectly.<\/p>\n
The problems are magnified by the currency realignment,
\nparticularly for those countries with large foreign debts whose
\nimport bills are denominated in the appreciating currencies. The
\nlast lesson from the liquidity problem in Mexico is that
\nstabilization programs in less developed economies require
\nsupport from the international community.<\/p>\n
To achieve the target dates, the Bogor Declaration spoke of
\ncommitments of APEC member economies to pursue further unilateral
\nderegulation by accelerating the implementation of their Uruguay
\nRound commitments. The Declaration includes a weak standstill
\ncommitment that speaks about \"best endeavors\" to avoid any
\nincrease in trade protection. However, it is up to an individual
\ncountry to determine the coverage and the speed of its
\nderegulation program. Moreover, APEC has no mechanism to co-
\nordinate and review the progress of the programs in its member
\ncountries.<\/p>\n
Because of the expensive economic and social costs of the
\nliberalization process in developing economies, Thailand and
\nMalaysia had a point when they submitted their reservations to
\nthe strong wording of the Bogor Declaration. These two countries
\nonly committed themselves to the liberalization process in
\nconsonance with their GATT\/WTO commitments. Based on the same
\nreason, Malaysia further proposed to allow each APEC member
\ncountry to undertake the liberalization process on a best
\nendeavor basis commensurate with the country's capacity to
\nundertake such a program and the level of its development.<\/p>\n
APEC's first and only achievement so far in this area is the
\nadoption of the APEC Non-Binding Investment Principles by the
\nMinisters Meeting in November 1993 in Seattle. Movements are
\noccurring on customs harmonization and other aspects of trade-
\nfacilitation. The investment principles are consistent with
\nGATT\/WTO principles and contains eight items, namely: (1)
\ntransparency; (2) most-favored nation treatment; (3)
\nestablishment of investment; (4) national treatment; (5)
\ntransfers; (6) nationalization and compensation; (7) performance
\nrequirements; and (8) taxation and investment incentives.<\/p>\n
Both politics and psychology play central roles in the APEC
\nprocess. The APEC unbinding principles and commitments are not
\nhollow and useless documents. They have helped the political
\ndynamics within individual member countries speed up their
\nrespective unilateral broad based deregulation programs.<\/p>\n
As the foundation of their market-driven economic growth has
\nbeen the open multilateral trading system, every APEC member
\ncountry is fully aware that its prosperity depends on the
\nprogress of its internal economic deregulation.<\/p>\n
The more efficient their economies the higher the rewards they
\nreceive. The rewards are: high capital inflows, low unemployment
\nrates, and rapid rates of growth of both exports and national
\nproduct.<\/p>\n
The less disciplined and more distorted economies will be
\npunished by the market mechanism. However, a number of internal
\nissues have to be resolved and its institutions strengthened to
\nachieve its goal in creating a free trade area in the Asia-
\nPacific region by the year 2020.<\/p>\n
Dr. Anwar Nasution is a professor of economics at the
\nUniversity of Indonesia, Jakarta, and the Sasakawa Distinguished
\nProfessor for the Chair in Development Policy at the United
\nNations University, World Institute for Development Economic
\nResearch, Helsinki, Finland.<\/p>",
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