APEC group faces battle for its own survival

By Teruaki Ueno

TOKYO (Reuters): APEC leaders meeting in the tiny sultanate of Brunei next week need to consider dramatic reforms to stop a slow slide into irrelevance for the group, whose members account for almost half the world's trade.

That is the view of analysts who say the Asia Pacific Economic Cooperation (APEC) group is increasingly overshadowed by the World Trade Organization (WTO) and mushrooming regional trading blocs in Europe and the Americas.

As a result the role of APEC in promoting free trade is diminishing and its very survival -- at least as more than a talk shop for Pacific Rim politicians and a useful mechanism for businesses and bureaucrats to exchange information -- is at risk.

"The biggest task of the upcoming APEC ministerial gathering is to find ways to stop APEC itself from declining," said Fukunari Kimura, professor of international trade at Tokyo's Keio University.

If history is any guide, the Nov. 12-13 ministerial meeting in Brunei will set the agenda and to a large extent determine the conclusions of the summit there on Nov. 15-16, when presidents and prime ministers make their appearance.

Such leaders as U.S. President Bill Clinton, Japanese Prime Minister Yoshiro Mori and Russian President Vladimir Putin will strut their stuff, but analysts say their powerful presence belies weaknesses in the underlying APEC structure.

First established as a loose 12-member forum in 1989 to promote open markets and globalization, APEC has been a catalyst to removing trade barriers on a wide range of goods in the region, and has expanded to 21 members.

Now grouping the United States, Japan, Russia, Canada and China, the other big economies around the Pacific and a number of the minor ones, APEC accounts for 60 percent of global gross domestic product and 45 percent of world trade.

But due to its emphasis on consensus as well as face-saving for each member, analysts say it has stopped short of forging effectively binding agreements on free trade and investment, unlike the WTO.

"The role of APEC has been constantly diminishing as the number of member countries has increased and more and more countries tend to strike bilateral trade agreements," said Takeshi Nobehara, general manager at the Center for the Asia Research at the Japan Research Institute.

"Under the present structure, it is difficult to carry out something specific," he added.

APEC's landmark target, agreed in Bogor, Indonesia in 1994, is to establish free trade and investment in the region -- by 2010 for developed member economies and 2020 for developing ones.

But few people are serious about the ambitious deal, analysts say.

"I am one of those who've been frustrated by the sense that APEC has lost its sense of direction and some of the early energy," said Bruce Stokes, senior fellow at the Council on Foreign Relations based in New York.

"To my knowledge there is absolutely no one in Washington or no one in Tokyo who takes that goal seriously and is doing anything about it," he added.

Analysts say APEC's survival would depend largely on commitments to free trade by the world's major economic powers such as the United States and Japan.

"If the U.S. and Japan don't have free trade by the year 2010, the rest of the region is kind of irrelevant on that issue because we are such a dominant portion of the industrial economy of the region," Stokes said.

"APEC needs, it seems to me, to deliver if it is to have credibility," he said.

In an example of the difficulties APEC faces, at its meeting in Kuala Lumpur in 1998 the group failed to reach agreement on opening markets, or "early voluntary sector liberalization" for nine of 15 industries, representing $1.5 trillion in trade, after Japan balked at cutting tariffs on fish and forestry products.

Keio University's Kimura said APEC had grown too big to discuss complicated issues freely and openly within the group.

"APEC even failed to discuss problems that the North American Free Trade Agreement (NAFTA) caused to other countries," he said. NAFTA is a trade bloc among the United States, Canada and Mexico.

While advocating free trade based on most favored nation status, APEC has cast a blind eye on discriminatory measures taken by countries in some trading blocs, he said.

Unless APEC took action to promote free trade in the region, Asia would be left out in the cold and lose its competitive edge in global markets, Nobehara said.

"Now is the time to review what APEC should do," he said.

Apart from NAFTA, other trading blocs are emerging in Europe and the Americas, putting Asian countries in a more difficult position, Nobehara said.

In the U.S. presidential election campaigns, both Vice President Al Gore and Texas Governor George W. Bush have said they were committed to continuing work on a Free Trade Area of the Americas (FTAA) from Tierra del Fuego to Alaska. The deadline on negotiations for FTAA comes around in 2005.

The European Union is to launch free trade negotiations with Latin America's Mercosur bloc on Tuesday. Mercosur groups Brazil, Argentina, Uruguay and Paraguay.

The idea of a Transatlantic Free Trade Area (TAFTA) linking America and Europe has been floated in recent years although it remains unclear whether such an ambitious plan would be realized.

"East Asia could become the outer edge of the grand alliance of the Atlantic," Keio University's Kimura said.

APEC groups Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Russia, Singapore, Taiwan, Thailand, the United States and Vietnam.