APEC trade liberalization: Towards open regionalism

APEC trade liberalization: Towards open regionalism

By Ippei Yamazawa

TOKYO (JP): At the informal Leaders Meeting in Bogor it is
expected that the Asia Pacific Economic Cooperation leaders will
announce a bold trade liberalization program for the APEC member
economies. However, the Asian leaders seem to be concerned about
the emphasis on trade liberalization and the seemingly hasty
political initiative taken by non-Asian leaders. The leaders'
trade liberalization proposal is related to the Eminent Persons
Group (EPG) report. The concerns raised in Asia are caused by two
misunderstandings.

First the EPG report does not just recommend trade
liberalization, but recommends endorsing a balanced package of
trade facilitation, technical cooperation and trade
liberalization. With regard to trade liberalization the EPG
report recommends that all three levels be liberalized;
multilateral, unilateral and APEC level. It suggests that the
APEC members start trade liberalization by the year 2000 and
complete it within ten, fifteen, and twenty years depending on
the member's stage of development.

The report also recommends that the APEC members should
strengthen the global trade regime through ratifying the Uruguay
Round agreements, implementing it as scheduled, and transforming
the GATT into the World Trade Organization (WTO). It also
encourages individual member governments to pursue their
unilateral liberalization for their own sake. The EPG report also
recommends that various programs for trade facilitation and
technical cooperation be implemented as soon as possible,
balancing the package of recommendations. Technical cooperation
programs are given top priority by the developing APEC member
countries.

The initiative for the bold liberalization program has come
from non-Asian leaders, but belief in the market mechanism
prevails widely in the Asia Pacific. This has been the driving
force underlying unilateral liberalization implemented by many
Asia Pacific economies. Thus, in principle the Asian leaders
should also support trade liberalization. Furthermore, the
motivation behind the non-Asian leaders' proposition are partly
shared by the Asian leaders as well. It is to send a signal of a
stronger political commitment to APEC and to offset and
accelerate the waning momentum for liberalization at the
multilateral level.

It is understandable that some leaders may hesitate to
undertake bold liberalization because of the adjustment problems
that will face some of their domestic industries. However, every
country has a few of these "sensitive" industries and the aim of
APEC is to help these industries adjust. Some Asian leaders are
uncomfortable with this ambitious program, but it will be
detrimental if these Asian members are left behind by the APEC
program. The APEC leaders should try hard to address to these
concerns in Bogor and modify the agenda to keep these hesitant
Asian leaders within APEC while encouraging them to join the
liberalization program.

It is hoped that the Bogor statement will declare APEC's
commitment to trade and investment liberalization as soon as
possible and to call for an immediate halt to trade restrictions.
The liberalization program should be adopted through a consensus
and implemented in a gradual, GATT-consistent manner. APEC should
also declare its commitment to fully implement the Uruguay Round
agreements and the change to the WTO.

APEC needs to commit to implementing cooperation programs
supplementary to trade liberalization at the earliest possible
time.

The Bogor Statement should also support China's and Chinese
Taipei's entry in GATT and the WTO so that trade liberalization
programs can be pursued by all APEC members in the emerging WTO
regime.

The leaders of the APEC member economies are expected to
give a signal of strong political will with regard to trade
liberalization in APEC in the Bogor Statement. However, the
details of implementation will be left to ministers and senior
officials after the Bogor meeting. The EPG Report suggested that
it should be up to individual members whether they will apply the
liberalization achieved within APEC to non-members on an
unconditional Most Favored Nations (MFN) basis or on a reciprocal
Free Trade Agreement (FTA) basis.

Two models have been identified for possible implementation
with different adjustment periods based on the present level of
protection in the individual member economies. The first is an
across-the-board reduction of tariffs and non-tariff barriers
(NTB) down to virtually zero. The second is a sector-by-sector
liberalization. The sectors will be selected by consensus and
will likely included the new areas of the Uruguay Round
negotiation as TRIPS, TRIMS, and services; and the eight
manufactured products (steel, medicine, construction machinery,
medical machinery, beer, spirits, agricultural machinery, and
furniture) agreed on by the Quadrilateral Trade Ministers for
reciprocal elimination of protection in July last year.

The latter model is more feasible considering both the
current level of momentum for liberalization among the APEC
members and their consistency with the GATT and WTO rules. That
is, sectoral liberalization can be conducted as an extension of
the Uruguay Round agreement without launching into another round
of negotiations as in the case of across-the-board
liberalization.

As for consistency with the GATT and WTO rules, across-the-
board liberalization is necessary under GATT Article 24 if
implementation is on the reciprocal FTA basis. On the other hand,
sectoral liberalization can only be implemented on an
unconditional MFN basis, consistent with GATT Article 1.

It is quite plausible that APEC may be able to persuade the
European Union (EU) to join the liberalization of the eight
manufacturing products since the EU agreed to it at the
Quadrilateral Trade Ministers meeting. APEC members are also
likely to apply liberalization in the new areas to non-members on
an unconditional MFN basis because they wish to invite foreign
capital and technology of either APEC member firms or non-member
firms.

It is important to realize that the new WTO regime will be
effected by APEC's liberalization program. If APEC adopts a
discriminatory strategy against the EU, the world economy will be
split into two groups. It will be imperative for APEC, with its
open regionalism, to encourage the EU to keep an outward looking
stance and promote mutual participation in each other's
development toward the 21st century.