APEC and the World Trading System

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.