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.