APEC Summit 2004 and regional trade agreements

Aziz, Munich, Germany

It is quite stunning to witness the growth of Free Trade Agreements (FTA) around the world over the last ten years. Following the rise of capitalism over socialism, since the collapse of the Soviet Union regime, trade and investment liberalization has become a major global program. Free access to the market and the elimination of entry barriers, both tariff and non-tariff, are advocated to promote more investment, more trade and ultimately greater prosperity.

But, looking at a handful of FTA in place, and progressing, all over the world, this form of liberalization may be too much now. For example, the United States alone has almost 23 different FTAs, mostly as bilateral agreements. Pivotal, as the main force behind this development, was aggressive U.S. policy.

Robert Zoellick, the U.S. Trade Representative, had initiated an impressive record of negotiations with partner countries over the possibility of signing bilateral agreements with the U.S. And then this become contagious all over the world.

Singapore, as a member of the regional ASEAN Free Trade Area (AFTA), signed another bilateral agreement with the U.S. in 2003, in addition to bilateral agreements with Chile, Mexico, Canada, Korea, Japan, India and also Australia and New Zealand. This network of bilateral, regional and multilateral agreements somehow creates what could be called a "matrix of confusion", popularly known as the "spaghetti bowl" to illustrate the complexity of such agreements.

A multi-layered agreement, by definition, is contradicting because the objective of a multilateral agreement is to eliminate -- to the extent possible -- discrimination or restricted access. Meanwhile, a bilateral agreement that naturally gives preferential treatment to the signing partners does exactly the opposite.

Probably, within this perspective, the Ministerial Meeting prior to the APEC Summit 2004 on Sunday, strongly called for the harmonization of Free Trade Agreements with transparency and the adoption of "the best practices".

At this stage it is interesting to ask a critical question: Does this myriad of agreements reflect the failure of the WTO in its regulatory function, and at the same time, liberalize world trade? C. Fred Bergsten, a leading figure in international economics and former chairman of the APEC Eminent Persons Group, provided some insight as to why countries seek to establish Free Trade Agreements, whether as bilateral, regional or multilateral agreements (Bergsten 2002, Competitive Approach to Free Trade).

Regardless of the stage that their economic system or economy has reached, many countries head in the same direction, toward Free Trade Agreements, because of competitive liberalization, i.e. that if a country fails to compete aggressively for footloose international investment it loses the golden opportunity to spur its economic growth. Phrased simply: if they do not compete, another country will take over.

Concurrently, Prof. Shujiro Urata from Waseda University, Japan, in his paper Globalization and the Growth in Free Trade Agreements (2002) concludes that "if Japan does not actively participate in Free Trade Agreements, and instead chooses to 'cherry pick' from the full range of agenda items, there is a danger that it will not be considered by other countries as a worthwhile Free Trade Agreement partner. If so, Japan will suffer the consequences of being excluded from other Free Trade Agreements."

Back to the original question -- even when regional and bilateral agreements are considered more as complementary to multilateral agreements in the WTO, and not as substitutions, the harmonization of these three levels of agreement must be sought. The harmonization of Free Trade Agreements sounds more realistic and reachable than the ambition to form Asia Pacific Free Trade Agreements as envisaged by the Bogor Goals, issued in 1994, to achieve the liberalization of foreign trade and investment by 2010 for industrialized members, and, for developing members, by 2020.

APEC was never set up as a binding organization, therefore participation is voluntary. With too many interests, many people are skeptical of having one agreement to cover the Asia Pacific region, which accounts for 60 percent of total world trade.

The U.S. must consider that neighbors in the American continent and Asian countries do not want to leave out the European Union as another important world trade partner. But trying to bring America, Europe and Asia -- which account for more than 85 percent of world trade -- together at one table would just mean the establishment of another WTO! In this light, the call for transparency and the adoption of "best practices" by the Ministerial Meeting must be applauded.

Now we arrive at the question of Indonesia's position as a player. Mari E. Pangestu, a well-known economist with specialization in international trade, was recently appointed as Minister of Trade. Apart from political considerations, her appointment shows that Susilo Bambang Yudhoyono has placed an important emphasis on how trade -- domestic and international -- can help in the restoration of the economy. During the APEC summit, Susilo has expressed Indonesia's interest in attracting more investors, and pledged to show commitment to strengthening security and economic cooperation.

Nevertheless, how far Indonesia is prepared to go with free trade is still under question. Although the negotiation of free trade is usually far from the common person's understanding, the implications can be very pervasive. For example, the U.S.- Singapore bilateral agreement essentially nullifies barriers in virtually every aspect -- goods, services, investment, government procurement, intellectual property -- and provides for groundbreaking cooperation in promoting labor rights and the environment.

Amid the dynamics of enthusiasm for FTA, it might be worthwhile to note that from 239 Regional Trade Agreements (RTA) that existed in September 2001 (100 of which were made after the Uruguay Round, 1995), only 162 agreements were in tact by the end of 2002. In the future, as in the past, the direction will be determined not by theory but by the policies of the main players. The next assignment for Indonesia is to be meticulous in determining which agreement is substantial and which one is prestigious in name only.

Perhaps not much can be expected from the President's first trip to the APEC forum. However, the recognition of the good intentions and goodwill of other global leaders may be considered sufficient, as much work awaits Susilo on his return. After all, international trade would mean nothing in the absence of a strong, efficient government and top-quality leadership.

The writer is a post-graduate student in Sustainable Resource Management at the Technical University of Munich. He can be reached at aziz9672@yahoo.com ---------