APEC: Evolution, consolidation and diversity

APEC: Evolution, consolidation and diversity

Andrew Elek assesses the Vancouver meetings.

The November 1997 meetings of APEC ministers and leaders in Vancouver marked yet another positive stage in the evolution of the APEC process. They took place in the midst of a serious short-term financial crisis affecting several East Asian economies. The region's response began to take shape even before the leaders gathered in Vancouver, demonstrating that APEC is a continuous process of community-building, rather than merely an annual photo opportunity.

A growing sense of shared economic interests assured a prompt and collective response to the crises. Regular communications among senior finance officials and ministers from APEC economies had led to a good understanding of their medium-term prospects, allowing a rapid assessment of the need for, and the logic of, international support. The swift and substantial contributions of many APEC governments to IMF-managed currency swaps also illustrated how regional and global institutions can work together. However, by January 1998, it became clear that further adjustments are needed. These will need to involve all major Asia-Pacific economies, not just those directly affected by the sudden loss of investor confidence. APEC leaders will need to consult further throughout 1998 in order to avoid needlessly severe disruption to economic activity while the financial sectors of the region are reshaped and consolidated.

Liberalizing trade and investment:

APEC governments have implemented the undertakings for 1997 in the Manila Action Plan for APEC, while the prospects for sustaining the pace of reform have been improved in several ways. Firstly, by strengthening the Individual Action Plans of APEC economies; secondly, by the nomination of 15 sectors, ranging from energy, chemicals to food and telecommunications for early voluntary liberalization. Proposals for individual and collective actions in nine of these sectors are expected to be endorsed by Trade Ministers in mid-1998. (The full list of these sectors may be found in the attachment on early voluntary sectoral liberalization to the joint statement of the Vancouver Ministerial Meeting).

Independent studies, including by the Pacific Economic Cooperation Council indicate that, if sustained, the pace of liberalization of border barriers to trade is on track for meeting the 2010/2020 deadlines agreed in Bogor in 1994.

The potential collective influence of APEC economies to promote global as well as regional market-opening has already been demonstrated. WTO agreements to liberalize trade in information technology products and in financial services have followed rapidly after APEC initiatives in these fields in 1996. If further APEC initiatives for early liberalization are agreed during 1998, they would confirm the ability of Asia-Pacific governments to work together to define the international economic agenda.

The sectors agreed for early liberalization do not include the most sensitive sectors such as agriculture or clothing. However, it is realistic to apply new approaches to sectors where consensus is expected to be easier to reach. Moreover, early agreements will prevent these from becoming the "sensitive" sectors of the future, while building the basis for tackling other difficult areas as the 2010/2020 deadlines loom closer. If non-APEC governments, especially in the European Union, continue to agree to WTO-wide application of APEC initiatives, then the prospects for comprehensive liberalization will be greatly enhanced.

Facilitating trade and investment:

Recent efforts towards facilitating trade and investment have focused on economic infrastructure. The Vancouver Framework for Enhanced Public-Private Partnerships in Infrastructure Development recognizes that the bulk of financing of new infrastructure will need to come from private sources. The prospects for such investment are to be considerably improved by coordinated voluntary decisions of Asia-Pacific governments to deepen capital markets and to develop stable and transparent policies which provide appropriate protection of investments, while promoting adequate competition to ensure efficient performance.

In the short-term, the implementation of the Blueprint for APEC Customs Harmonization by 2000 will reduce the time and cost of customs clearance and ease congestion at the harbors and airports of the region. Other initiatives, such as the streamlined issue and processing of business visas, being adopted by more and more APEC governments, and mutual recognition of telecommunications standards will also help.

Economic and technical cooperation:

Productive work by APEC committees and working groups continued, paving the way for future cooperative policy action. The collective response to the short-term macro-economic problems of some East Asian economies and the public-private discussions on infrastructure leading to the Vancouver Framework demonstrated the wider potential of APEC to promote economic cooperation and development. However, only marginal progress was made towards implementing new opportunities for sharing information, experience, expertise and technology, which are essential to foster a growing sense of community among the people of the Asia Pacific as well as to put into practice many proposed options for facilitating trade or investment.

APEC's own budget can fund, at most, a small proportion of the many economic and technical cooperation opportunities it has already identified. APEC leaders and officials will need to do much more to persuade the private sector, as well as to direct existing development agencies to become involved in funding and managing more of such activities. In its 1997 report, the APEC Business Advisory Council (Abac) has proposed a Partnership for Equitable Growth, to act as a catalyst for business/private sector participation in APEC's economic and technical cooperation activities. Governments now need to respond promptly and positively to this offer.

Wider participation:

Peru, Russia and Vietnam have joined APEC, marginally increasing the number of participants from 18 to 21, but dramatically increasing their economic, geographical and political diversity. Such diversity certainly implies that APEC will remain a flexible, voluntary process of co-operation.

The "(21-x) principle" agreed in Osaka encourages those economies ready to implement cooperative activities to do so, with others joining later. This principle can allow cooperation to intensify in depth as well as scope, even with a growing and more diverse set of participants. However, such flexibility also carries some risks. Some governments may be tempted to slow the pace of politically difficult reforms if others are also holding back.

Encouraging some to move ahead of others can set positive examples, but could also sow the seeds of division and confusion if cooperative arrangements among some Asia-Pacific economies neglect, or damage, the interests of others.

Russia's economic links to Europe are far stronger than its current links with Asia-Pacific economies. Russia will certainly continue to explore ways of strengthening its links with the European Union as well as with other APEC participants. This makes it obvious that APEC will stay with open regionalism, rather than attempt to form a traditional preferential "free trade area". At the same time, care will need to be taken that Russia's links with European Union members, who are more accustomed to discriminatory forms of economic co-operation, do not damage the interests of other APEC participants.

More generally, APEC leaders will need to think about how initiatives for closer cooperation with non-APEC economies will affect the cohesion of APEC. The issue is relevant not only to Russia's future relations with Europe but also with potential cooperative economic arrangements which are likely to emerge from the ASEM process. APEC leaders will need to endorse new principles which build on those of the Osaka Action Agenda to ensure that the variable geometry of co-operation among APEC economies and between them and non-APEC economies evolve in ways which avoid creating tensions and divisions.

Dr. Andrew Elek is Executive Director, Bellendena Partners and Research Associate, Department of Economics, Research School of Pacific and Asian Studies, Australian National University.