APEC Summit 2004 and regional trade agreements

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
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