APEC free trade is likely to remain an illusion

Asia-Pacific seems headed toward free trade as a result of a meeting among the leaders of the vast region last year, but development economist Walden Bello is pessimistic in this column for Inter Press Service.

BANGKOK: Back in November last year, when the leaders of 18 Asia-Pacific nations signed the Bogor Declaration in Indonesia, the momentum toward free trade in the region appeared irreversible.

The occasion was a summit of Asia-Pacific Economic Cooperation (APEC) leaders, but the smiles and handshakes that accompanied the show of unity proved illusory.

The ink of the signatories to the agreement had hardly dried when Malaysian officials announced that the declaration was "non- binding". Thai trade officials agreed with the Malaysians, and so did the Chinese.

Circumspect as usual, the Japanese trade bureaucracy said nothing. But its position was soon surmised from comments in the Japanese press.

Said one newspaper: "Japan should help promote development in the region while respecting its diversity. At the same time, it should warn non-Asian developed nations against rushing into Asian markets."

Embarrassed by the post-summit disunity, U.S. and Australian free traders nevertheless tried to accentuate the positive.

They opined the move by Indonesian President Soeharto in climbing aboard the free-trade bandwagon made the whole meeting worthwhile since his is the most influential voice within the Association of Southeast Asian Nations (ASEAN).

But even this support became questionable amid indications that, on the free trade issue, Indonesia was following a two- tiered foreign and economic policy, with the presidential office going one way and government ministries another.

Some six months since the Bogor summit, very little has been done to move toward the vision of APEC becoming a free trade area by the year 2020.

This is not surprising since Japan, the host of the next summit in Osaka later this year, is setting the pace for the association.

Perturbed by the lack of movement, U.S. trade officials accused Japan of not really being committed to realizing the 2020 free-trade program.

Japan, they said, was interested mainly in harmonizing product standards and administrative procedures among APEC countries, not in reducing trade barriers.

The U.S. officials are not far off the mark because, when the Japanese first proposed the establishment of APEC in the late eighties, they had in mind an organization mainly for consultation and technical cooperation along the lines of the Organization for Economic Cooperation and Development (OECD), not a regional economic bloc.

It was Canberra and Washington that moved APEC toward a free trade area, much to the consternation of Tokyo.

Japan viewed the demand for free trade as a weapon wielded by the United States to reestablish a significant trading and investment presence in a part of the world that had spun out of the U.S. economic orbit in the 1980s and 1990s.

The Japanese felt especially targeted since investment and trade by their corporations had become dominant in the region by the late 1980s, thanks to such U.S.-inspired moves as the Plaza Accord.

This move in 1985, which forced the appreciation of the yen relative to the dollar and other hard currencies, led Japanese corporations to transfer many of their production facilities to cheap-labor areas in Northeast and Southeast Asia in order to remain competitive.

Between 1985 and 1990, for instance, some US$41 billion worth of Japanese investment raced through the Asia-Pacific region in one of the most rapid and massive outflows of direct investments to the developing world in the recent history.

It had such a profound impact that by the early 1990s, much of the region had been integrated, trade, technology, and investment-wise, into the Japanese economy.

It is this de facto trading and investment bloc created by Japan that Tokyo sees the United States as trying to dismantle in its crusade for integration via free trade.

The economic elites of neighboring countries have shared in this boom of Japanese investment, developing as manufacturing and service providers that were complementary rather than in competition with Japanese investors.

Thus, they see themselves as having more of a strategic economic partnership with Japan than with the United States, a perspective that was reinforced by the tough bilateral pressure to which they were subjected by Washington since the early '90s in its attempt to pry open their domestic markets.

To the elites in Northeast and Southeast Asia, APEC represents the 'multilateralisation' of the U.S. bilateral agenda that has been directed at them separately, and they view the 2020 program with much the same suspicion and distaste as Japan.

Malaysian Prime Minister Mahathir Mohamad's proposal to create an East Asia Economic Caucus (EAEC) within APEC -- which would exclude the United States, Australia and other non-Asian countries -- is an expression of the strong sense of partnership developing among China, Japan, and ASEAN.

The reason for U.S. apprehension is that EAEC's strategic intent is to foster greater integration of national markets in order to make the Asia-Pacific region itself, rather than the United States, the main market for regional production.

This would lessen the region's economic dependence on the United States and marginalize it even more.

But the battle over APEC's strategic direction is not about markets. It is about conflicting paths to capitalist development.

Asian technocrats may sing the praises of the free market when in the company of the Americans and Australians. They know, however, the reason for the success of their economies is not the so-called magic of the free market.

Rather, it is 'state-assisted capitalism' that has bootstrapped them to an annual growth rate of eight to 10 percent through protectionism, development targets, and subsidization of industries considered strategic.

What economist Narongchai Akrasance has labeled the 'Anglo- Saxon' free trade campaign is seen by Asian government and business elites as basically a campaign to dismantle the institutions of Asian economic success under the pretext of creating a level playing field.

Australian newspaper commentator Kenneth Davidson wrote in The Age that the strategic agenda of Canberra and Washington was "to try to get the Asian winners of the economic game to deny the cultural basis of their success in order to create the conditions whereby the losers can become winners".

When at their most candid, the Americans do not, in fact, seek to dispel this impression.

U.S. Undersecretary of Commerce Jeffrey Garten recently stated that the Clinton administration must draw the line on the sand and counter "the demonstration effect Japan is having on the rest of Asia ... it's already been made into a model for China and other up-and-coming countries".

With such high stakes riding on its strategic direction, consensus in APEC will remain evanescent at best and the 2020 free trade vision proclaimed in Bogor is likely to remain just that -- a vision.

The writer is co-director of Focus on the Global South, a Bangkok-based research organization for North-South issues and author of Dragons in Distress: Asia's Miracle Economies in Crisis.

-- IPS

Window: Malaysian proposal to create an East Asia Economic Caucus is an expression of the strong sense of partnership developing among China, Japan, and ASEAN.