APEC: The Asian countries highway to free trade?
APEC: The Asian countries highway to free trade?
By Mohammad Sadli
JAKARTA (JP): At the APEC Summit in Osaka recently there was a battle of approaches or, if you want, "philosophies". The Americans want to take a "western" approach in moving towards a free trade area in the Pacific as was done in North America with NAFTA.
This approach relies basically on unambiguous understandings, negotiations, time tables and contractual obligations. The North America Free Trade Area framework consists of an agreement painfully and minutely negotiated for two years and enshrined in a document of 2,000 pages.
An APEC approach has to accommodate the majority of the Asia- Pacific Economic Cooperation members who live in Asia. To forge an agreement among 18 countries of very different sizes, stages of development and cultures is definitely much more difficult than hammering an economic agreement between three North American countries dominated by the United States.
Before the Blake Island Summit two years ago, APEC also looked like a loose association without much institutionalizing. The six ASEAN countries were very prominent at the birth of APEC and were accorded parity by the developed country members. Therefore, the annual congregations alternate between a place in an ASEAN country and in an industrial country. Hence we have Vancouver, Bogor, Osaka, Manila and after that a place in Canada.
The six ASEAN countries are developing countries, and so is the biggest country in APEC, China. The Newly Industrialized Economies often like to see themselves as still developing countries. They are not members of OECD as yet.
These developing countries have often mixed feelings about integrating their economies with industrial countries because their economies are so much weaker. They fear that when free trade prevails their young industries, without a strong technological basis, will be wiped out by the transnationals. And some industrial countries still want to protect their agricultural sectors.
In the end it is a matter of domestic politics. In some advanced countries the agricultural lobby is very strong. The nascent industrial lobby is also strong in many developing countries. This is evident in ASEAN where for 20 years there were efforts to set up a preferential trading arrangement, but the schemes were shot down by the industrial lobbies and their friends in the bureaucracy. If ASEAN cannot make true its promise of giving preferential trading privileges to neighbors, how can one expect that it will move more daringly in the Asia-Pacific region?
Well, there is at least one difference. The developing countries in the Asia-Pacific region needs greater access to markets in the U.S. and Japan and they are willing to pay a price. The advanced countries are eying the agriculture markets of the developing countries and want to gain uninhibited access to the great market for infrastructure hardware and related contracts, such as telecommunications and power plants.
The Americans are skeptical about the openness of Asian markets because in their eyes there has been too much protection and government intervention, with domestic companies favoring each other as in the Japanese keiretsu network.
Hence the Americans want explicit and specific commitments and are not embarrassed about using "unilateral" measures, or quid- pro-quo in order to secure access to Asian markets. For the Americans, this does not constitute unilateral action, but involves negotiations and contractual commitments through agreements. One can see this applied to Japan and to China. The U.S. does not regard China as having an unqualified developing country status, although their stated per capita income is lower than that of Indonesia. They see the coastal regions capable of exporting over hundred billion dollar per annum and possessing industrial country's capabilities. The U.S. does not see Indonesia (non-oil exports less than US$25 billion) in the same light.
Although the Uruguay Round agreement does not exempt agriculture, a number of Asian countries would feel more comfortable if this sensitive sector were excluded from the APEC accord. That would be against the spirit of the Bogor declaration (i.e., on comprehensiveness) and therefore the western countries in APEC are strongly resisting it. Indonesia is of the same opinion. The Indonesian argument is that once a "sensitive" sector can be excluded, other countries could also have their own "sensitive sectors", perhaps some service sectors and intellectual property rights. It would be like opening Pandora's box.
Fortunately, in Osaka the principle of "comprehensiveness" was upheld, although the host country, Japan, feared some domestic political backlash. That is why a new principle, that of flexibility, gained prominence in Osaka. Although agriculture cannot be excluded, Japan could undertake the liberalization of this sector "in a flexible manner", whatever that will mean. But the two deadlines of Bogor, 2010 for the advanced countries and 2020 for the developing countries, are still firmly enshrouded. Malaysia under Prime Minister Mahathir keeps insisting that the country does not feel bound by the Bogor and Osaka agreements. That is another face of APEC (Asian) flexibility. Nobody, however, worries because Malaysia is not known as a protectionist country.
President Soeharto likes to stress that Indonesia has 25 years to open up its markets completely and hence there should not be a worry that tomorrow all sluice gates will be opened. But the mental switching should start now.
This flexibility is certainly more of an Asian approach than an American one, but Washington has to live with it. The risk is that Washington will be turned off and loose interest in APEC. It is said that even the NAFTA agreement has come under fire. But the Asia-Pacific proposition has its own and great attraction. The East Asian market is the fastest growing market in the world and the Europeans are already discovering this. Witness the fact that flights from and to Europe are always fully booked.
The relations with Europe depict another difference in approach between East Asia and America. The U.S. does not like to give away market access, as in the principle of Most Favorite Nation. The Asians and Australia want to maintain the principle of "open regionalism" in nurturing free trade in the Pacific. The means that whatever trade and investment liberalization comes about, it applies also to non-regional countries. The Americans fear free riders, or countries that will benefit without making appropriate contributions. Japan and Asia still need European markets and do not want a trade war with it. That is why they insist on openness.
Before the Manila Summit, a lot of homework has to be done by the member countries of APEC to start delivering the promises made in Osaka. They have to observe comparability in down payments, a tricky business without hard negotiations. They have to rely on peer pressure. They have to move on three fronts: liberalization, facilitation, and development cooperation. And in the process the Asian feelings and the American sentiments have to be accommodated.
The writer is a prominent economist and a member of the Indonesian cabinet several times.