APEC and the World Trading System

Mari E. Pangestu Centre for Strategic and International Studies Jakarta

The recently concluded Asia-Pacific Economic Cooperation (APEC) meeting in Bangkok sent out mixed signals regarding the world trading system.

On the one hand there was strong endorsement of, and commitment to, the multilateral trading system under the auspices of the World Trade Organization (WTO). There was recognition that unless talks on the Doha Development Agenda (DDA) resume, there will be great uncertainty and the emergence of protection amid the economic recessions faced by a number of major members.

APEC ministers and leaders committed to restart the stalled Doha Development Round by the mid-December deadline and to this end agreed on accepting the draft text of Cancun as the starting point, rather than going back to ground zero. Furthermore they also agreed to "work toward abolishing export subsidies", an area of major contention in the negotiations.

APEC has often been credited with providing the breakthrough in the logjam on agriculture between EU and U.S. in 1993 and delivering the Information Technology Agreement (ITA) for reducing tariffs on IT goods to zero in 1996. However, one should be under no illusion of the "power" of APEC to provide similar breakthroughs. In fact APEC has made similar calls for successful negotiations without yielding results, and it has even made a call to eliminate export subsidies before, in 2001. Ultimately political will by the major players, especially on agriculture, and various groups of developing countries will be the decisive factor.

On the other hand, as has been increasingly the case, various APEC members used once again the occasion of the APEC meeting to announce various bilateral Free Trade Agreements. The announcement of these agreements also came on the heels of the ASEAN Summit in Bali earlier this month, with progress being made on intra ASEAN economic integration and various ASEAN wide agreements.

What is a layman and business person supposed to make out of this alphabet soup of agreements? There is WTO, APEC, ASEAN, ASEAN+3(China, Japan, South Korea), Asia European Meeting (ASEM), ASEAN Free Trade (AFTA) and many more to come. What will all these agreements do to the world and the regional trading system facing Indonesia? What is the role of APEC, if any, amid all these agreements?

The world trading system is indeed in a state of flux. The multilateral trading system has been in trouble since Seattle. There are still sharp differences between developed and developing members, as well as within developed and developing member groupings. All this is happening amid slow growth in many major economies and regions. Despite Director General Supachai's optimism -- that he shared at the APEC CEO Summit -- that negotiations would be completed by the deadline of January 2005, realistically speaking the negotiations are likely to go on for longer. One view is that the real deadline is 2007, the end of the fast-track negotiations in the U.S.

Therefore, negotiations in the WTO are likely to continue for another four years or even longer and it is crucial to ensure that there is progress. The world, and developing countries like Indonesia, cannot afford the multilateral trading system to fail because the alternative is worse. A world divided by discriminatory trading blocs and protectionist barriers will hurt developing countries.

To understand what is meant, take the worrying and inconsistent trend of the proliferation of bilateral and regional agreements by a number of APEC members. While all profess that these agreements are consistent with the WTO and the APEC framework, the truth of the matter is that articulating this in operational terms is no easy task. Consistency with the WTO essentially means complying to Article XXIV of the GATT (General Agreement on Tariffs and Trade) and Article V of the GATS (General Agreement on Trade and Services) which essentially talks about substantial coverage of the agreement and not raising barriers to non members.

The WTO Regional Trading Agreements Committee has in fact only been able to rule on one out of the close to two hundred RTAs that they are reviewing. There are numerous problems of interpretation and the fact that no committee member wishes to rule against an RTA as being inconsistent, for fear of reprisal when it is their turn to be reviewed.

As for complying to the APEC architecture, implicitly this means that the preferences given to members under the RTA or bilateral agreement, will be given to all countries on a most favored nation (MFN) basis by the 2010 or 2020 Bogor Goal deadlines of free and open trade and investment for developed and developing countries. Therefore all agreements need to explicitly include these deadlines for the Bogor goals. This aspect is yet to be seen.

It is of great concern that there has been little discussion on these issues, and little open dialogue on the potential downside risks and costs of these bilateral and RTAs. Instead there appears to be too much of a follower or "me too" strategy and being driven by political needs. For politicians and bureaucrats negotiating these agreements, it is concrete and deliverable and "money in the bank" (these last words were used by Prime Minister Howard at a Press briefing on the Australia- Thailand Free Trade Area). What are some of the risks and costs that are often glossed over?

They include, among others, the following. First, is that the proliferation of agreements will increase the complexity of the number of regulations and agreements that a business person must face to sell the same product in different markets. This will hurt smaller and medium sized firms more. Enforcement and administration costs will also impose a heavier burden on developing country's governments. Second, is that it is likely that a hub and spokes pattern will emerge with major markets such as the US as a hub.

Third, it could lead to increased tensions between neighboring countries which are already part of regional agreements, and affect regional stability.

What then is the role of APEC? There is a great deal of scope for APEC to contribute to the process through what it does best, dialogs to reach a common understanding, without negotiating to bridge differences between developed and developing members, and the diversity of members' interests.

For instance the so called Singapore issues, which are still trying to make it on the WTO agenda, are already on the APEC agenda. So discussions can certainly start on the feasibility of including them on the WTO agenda for instance. APEC should also improve on what it is capable of, that is on capacity building. Most of the negotiating groups in the WTO are represented in the APEC working groups such as market access, services, intellectual property rights, trade facilitation, competition, and investment.

The current agenda and work program of APEC should be refocused on multilateral trading issues, as well as building confidence and peer pressure for members to continue their concerted unilateral liberalization and facilitation efforts.

For APEC to be relevant -- and to prevent the collapse of the world trading system into a confused alphabet soup -- APEC needs to reform itself. APEC has become an unwielding series of meetings, proliferation of committees and sub committees, and an exercise of reporting rather than holding true dialog.

If it does not restructure itself, refocus, streamline and go back to the basic vision and goals of APEC, the members are likely to treat APEC just as an annual party -- and render the process in between meetings as irrelevant.