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.