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.