Liberalization takes step toward free trade<\/p>\n
By Hadi Soesastro<\/p>\n
JAKARTA (JP): Trade liberalization, trade facilitation and
\ndevelopment cooperation can be viewed as the three main
\ncomponents of the Asia Pacific Economic Cooperation (APEC) forum.<\/p>\n
They are essential to achieving the APEC vision of free and
\nopen trade and investment in the region. The APEC Eminent Persons
\nGroup (EPG) in their second report, submitted to President
\nSoeharto at the end of August 1994, proposed that this goal be
\nachieved by the year 2020. In mid October, 1994, another advisory
\ngroup of APEC, the Pacific Business Forum (PBF), also submitted
\nits report to President Soeharto. The PBF, representing the views
\nof the business community, supports the APEC vision and has
\nproposed an earlier date for its realization, namely by the year
\n2010.<\/p>\n
It is almost certain the APEC vision of free and open trade
\nand investment in the region will be endorsed by APEC ministers
\nand leaders in their coming meeting in Indonesia in November
\n1994. Although supporting trade liberalization, the Chinese have
\nmade known that they are opposed to the setting of a binding
\ntimetable. APEC ministers or leaders may engage themselves in a
\ndiscussion to reach some consensus on this issue, but this should
\nnot detract them from the more fundamental problem of how to
\nachieve free and open trade in the region. Perhaps they will
\nleave this to further deliberations, and certainly they are well
\nadvised to do so.<\/p>\n
It is certain, however, that the question of the different
\npace for the developing countries will be addressed, since its
\nimportance has been indicated by President Soeharto. This concern
\nhas been well taken care of in both the EPG report and the PBF
\nreport. The EPG suggested the developed members of APEC complete
\ntheir liberalization by the year 2010, the newly industrializing
\ncountries by the year 2015, and the developing countries by the
\nyear 2020. The PBF proposed that the developed countries
\ncompleted their liberalization by the year 2002 and the
\ndeveloping countries by no later than the year 2010.<\/p>\n
There are other important principles to achieving free trade
\nin the region that may or may not be settled at the meetings in
\nIndonesia. In its report, the PBF suggested a framework for free
\ntrade and investment liberalization that include such measures as
\nthe full implementation of the existing Uruguay Round
\ncommitments, further unilateral liberalization, liberalization
\nwithin the existing sub-regional free trade areas in APEC, and an
\nAPEC-wide negotiation covering all goods and services,<\/p>\n
It may be useful to briefly examine the various possible ways
\nto achieving the APEC vision. To begin with, it may be necessary
\nto define what constitutes free and open trade in the region. Is
\nit realistic to expect that tariffs and non-tariff barriers (NTB)
\nbe totally eliminated?<\/p>\n
If Singapore is taken as an example of a country that
\nvirtually practices free and open trade, the following criteria
\ncan be offered: (a) that 99 percent of all tariff lines under the
\nnine-digit Harmonized System (HS) level be bound at a zero rate;
\n(b) that the average Most Favored Nation (MFN) tariff rate not
\nexceeds 0.5 percent and that import tariffs be imposed only for
\nhealth, social and environmental purposes; (c) that NTBs (to be
\npermitted only in the form of import bans) be applied only for
\nreasons of national and public security as well as environmental
\nprotection; (d) that the services sectors be fully opened with an
\nallowance for the imposition of very limited restrictions for
\nreasons as mentioned above. It should be noted that Singapore has
\nreached this degree of openness through unilateral
\nliberalization.<\/p>\n
The immediate question is whether APEC should from the outset
\nagree on a set of criteria of free and open trade in the region
\nand how this can be negotiated. The answer may depend on the
\nmodality for achieving free and open trade in the region that
\nwill be agreed upon by APEC. The following is a brief examination
\nof the various options.<\/p>\n
The first option (Option I) amounts to an APEC support for
\ncontinued unilateral liberalization by its members. Consultation,
\ncooperation and trade facilitation efforts among APEC members
\ncould help ensure that they fulfill their Uruguay Round
\nliberalization commitments. APEC could then encourage its members
\nto accelerate implementation of their commitments and undertake
\nfurther liberalization beyond their Uruguay Round commitments.
\nHere, peer pressure will be the main instrument. Perhaps this
\napproach will be accompanied by some commonly agreed progressive
\nliberalization schedule which functions as a guidance for
\nmembers' unilateral liberalization efforts. This option can be
\nseen as the \"softest\" approach towards free and open trade in the
\nregion.<\/p>\n
The second option (Option II) is a modality for regional trade
\nliberalization which has been originally conceived of by the
\nproponents of the concept of \"open regionalism\". Under this
\nmodality, APEC initiates concerted reduction of barriers and
\nextends this regional liberalization to non-members on an
\nunconditional MFN basis. This approach can be implemented on a
\nsector-by-sector basis. The main issue here is on the selection
\nof sectors to be included in this regional initiative.<\/p>\n
The third option (Option III) is that of a Free Trade Area
\n(FTA) in which APEC members negotiate and implement regional
\nliberalization under Article 24 of the GATT. It was made clear,
\nat the time of its establishment in 1989, that APEC will not be
\ntransformed into a trading bloc and therefore, this option cannot
\nbe considered unless APEC leaders return to the drawing board and
\nto come to a new consensus.<\/p>\n
The EPG has offered an approach towards free and open trade in
\nthe region (EPG Option) which includes Option I and some mixture
\nof Option II and III. The EPG proposal strongly supports further
\nunilateral liberalization. In addition, it proposes that members
\nundertake regional liberalization--called APEC liberalization --
\nthat can be extended to non-members only on a mutually reciprocal
\nbasis. It further suggests that individual members can
\nunilaterally extend its APEC liberalization to non-members on an
\nunconditional MFN basis.<\/p>\n
This proposal needs some further clarification: If this APEC
\nliberalization is undertaken under GATT Article 24, what
\ndistinguishes it from the FTA approach? If, however, this APEC
\nliberalization is not undertaken under GATT Article 24, isn't
\nGATT illegal?<\/p>\n
As referred to earlier, the EPG proposal also suggests a
\nthree-way differentiation in the timetables for liberalization.
\nWhat was initially somewhat unclear was, whether during the
\nprocess, discrimination will be applied amongst APEC members.
\nThis is so because the Report recommends that \"flexible
\nimplementation\" be adopted as a principle in carrying out APEC's
\nliberalization, meaning that members who are liberalizing at a
\npace slower than the general liberalization schedule will not
\nreceive reciprocal benefits. If, indeed, this is applied to the
\nAPEC liberalization, the region may end up with a scheme that
\ncontains a three-stage FTA. Fred Bergsten, the EPG Chairman,
\nstated for the record that the EPG proposal for liberalization
\namong APEC members is on an MFN basis (non-discrimination).<\/p>\n
There certainly are other options. In the final analysis,
\nhowever, APEC leaders are confronted with the following
\nfundamental questions:
\n (1) is the region only ready to accept Option I or is it
\nwilling to go beyond this and undertake negotiated
\nregional trade liberalization?
\n (2) should regional trade liberalization be extended to non-
\nmembers on an unconditional (Option II) or unconditional
\nMFN basis (Option III and the EPG Option)?<\/p>\n
Unless these questions are unambiguously answered it will not
\nbe easy to agree on the modality to achieving APEC vision of free
\nand open trade in the region. It seems there is, as yet, no
\nconsensus within APEC on those issues. Even within ASEAN there is
\na wide divergence of views. Indonesian Minister Moerdiono
\nrecently explained to President Soeharto that free trade in the
\nregion means free trade not only among APEC members but free
\ntrade that would benefit all countries in the world. This could
\nmean that APEC liberalization should be extended to non-members
\non an unconditional MFN basis.<\/p>\n
Malaysia's Prime Minister Mahathir Mohamad also strongly
\nopposes the creation of a trade bloc. However, Singapore's Prime
\nMinister Goh Chok Tong is of the view that APEC liberalization
\nshould be extended to non-members only on a reciprocity
\n(conditional MFN) basis.<\/p>\n
In view of these different ideas, it is not surprising that in
\ntheir recent meeting President Fidel Ramos of the Philippines and
\nThailand's Prime Minister Chuan Leekpai proposed that an informal
\nmeeting of ASEAN government heads be held prior to the APEC
\nleaders meeting to formulate ASEAN's common position on APEC's
\nfuture development. This is certainly in ASEAN's own interest but
\nit will also be critical to APEC's success.<\/p>\n
The writer is executive director of the Jakarta-based Center
\nfor Strategic and International Studies.<\/p>",
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