APEC faces risk from WTO failure

APEC faces risk from WTO failure

By Tony Hartono

JAKARTA (JP): Integrating liberalization and economic and
technical cooperation objectives into a balanced agenda would
sustain the momentum of the Asia Pacific Economic Cooperation
forum in Brunei, because it would meet the needs of both its
developed and developing member countries.

The 21 APEC leaders will meet in Brunei from Nov. 15 to Nov.
16, only this time it will be different. This time the forum
gathers in the shadow of the failed attempt to launch a new
global trade round at last year's World Trade Organization
meeting in Seattle.

Amid this inauspicious atmosphere there are grave doubts about
the APEC summit's ability to achieve anything.

Before the 1996 Manila Declaration, APEC had achieved
significant progress. It set a timetable for liberalization by
2010 and 2020, and developed an action plan to meet the target
dates.

The progress continued until APEC had trouble implementing the
action plan involving tariff reductions on 15 products.

New Zealand Prime Minister Helen Clark has described APEC as
out of steam and unlikely to make much progress at the Brunei
meeting. She has good reason to say this, particularly because of
disillusionment with the U.S. and the internal conflict within
APEC.

These two issues must therefore be carefully addressed if
APEC's momentum in Brunei is to be sustained.

Disillusionment with the U.S. stems from the indirect impact
of the 1985 Plaza Accord on the Asian economic crisis from 1997
to 1999. Under the accord, the U.S. appealed to Japan to allow
the yen to appreciate with a view toward eliminating its trade
deficit with Japan.

However, the accord did not reduce the U.S. trade deficit, but
rather had a hand in the depreciation of other Asian currencies.

The strength of the yen caused a rise in Japan's production
costs in terms of U.S. dollars, thus making Japanese exports less
competitive. This, in turn, forced Japan to relocate its
industries, particularly labor-intensive ones, to other Asian
countries such as Indonesia, Thailand, Malaysia and the
Philippine, where labor costs were cheaper.

This relocation greatly stimulated economic growth in these
countries, leading to the so-called "Asian miracle". But the host
countries became addicted to the high rates of growth and sought
more overseas funds, until their currencies fell as overseas
investors withdrew.

In the aftermath of the crisis, the feeling has emerged that
the U.S. has been less supportive than it might have been.
Instead of establishing an Exchange Stabilization Fund as it did
for Mexico in 1995, the U.S. left the International Monetary Fund
(IMF) to deal with the crisis, perhaps seeing it as an
opportunity to liberalize the Asian economies.

As it has done to debtor countries elsewhere, the IMF has
taken dramatic steps by adopting tight fiscal and monetary
policies, combined with a freeing up of Asian economies. Although
the IMF has succeeded in stabilizing Asian currencies, the
deflationary nature of its remedies has added to massive
unemployment, rising global poverty and other social costs.

If this current trend continues, says UN Secretary-General
Kofi Annan, global poverty will not decline until 2015.
Protesters campaigning against poverty and globalization during
the IMF/World Bank meetings in Prague last month strongly
criticized the IMF, accusing it of increasing global poverty.
They want IMF reform and separate roles for the IMF and the World
Bank.

In Bangkok in July, a meeting between the member states of
ASEAN and Japan, China and South Korea established a Currency
Swap Agreement (CSA). Many international commentators mistakenly
saw the CSA as a latent trade or currency threat to the rest of
the Asia Pacific. Like the ESF, the CSA is not a trade or
currency bloc.

It was created partly to prevent another Asian crisis as a
result of external disturbances and partly to alleviate the
impacts of the IMF's deflationary measures on worldwide social
costs. The APEC senior officials and ministers' meetings should
take into account this issue when shaping the agenda for the
eighth leaders' meeting in Brunei.

The conflict within APEC has arisen because of the failure of
Japan, the U.S. and other APEC members to agree on various trade
issues at the WTO meeting in Seattle last year.

Japan and Korea, for the sake of their food security, were
reluctant to reduce their subsidies on farm products, while
Australia, New Zealand and Thailand demanded just the opposite,
arguing export subsidies created unfair competition.

Except for Singapore and Brunei, other developing APEC
economies, including China, have felt that liberalization has
gone too fast, resulting in a widening income gap.

They say environmental and labor standards have been used as
disguised barriers to block their exports to rich markets.

The U.S., meanwhile, protected its steel industry by refusing
to change its antidumping policy and imposed tariffs on New
Zealand and Australian lamb to reduce its large trade deficits
with the countries.

The APEC trade ministers' meeting in Darwin earlier this year
considered eliminating the internal conflict as a precondition
for relaunching the next round of WTO trade talks. This could be
done by treating APEC's pillars of the Trade Investment
Liberalization Facilitation, known as "liberalization", and the
Economic and Technical Cooperation, known as "ecotech", in an
integrated manner rather than as separate processes.

However, a perception has emerged that developed APEC members
have focused heavily on the "liberalization", accusing ecotech
champions of blurring the free trade goal. Some ecotech projects
in developing APEC economies, such as human resources
development, poverty reduction and development of small and
medium enterprises were put on hold, while liberalization
projects such as standard and customs procedures have gained a
high priority.

Integrating liberalization and ecotech objectives into a
balanced agenda will sustain APEC's momentum in Brunei, because
it meets the needs of both developed and developing APEC member
countries.

However, floating the balanced agenda idea is challenging for
small APEC member countries like Brunei, the chairman of APEC
this year. Yet it is essential, not only to realize trade
liberalization in the Asia-Pacific region, but also to reduce
poverty, unemployment and other social evils.

Dr. Tony Hartono is a former senior economic researcher with
the ASEAN Secretariat in Jakarta and is currently employed by The
Open University, Department of Economics, Wellington, New
Zealand.