APEC vision contains ambiguities

APEC vision contains ambiguities

Advisers of Asia-Pacific Economic Cooperation have recently
presented their report that incorporates proposals to achieve
APEC's vision to President Soeharto. Economist Hadi Soesastro
discovers ambiguities in this report that could have been
avoided.

JAKARTA (JP): It is useful, and perhaps, necessary for APEC to
have a vision. A vision gives its participants a sense of
direction, a sense of mission, and a basis for drafting a common
blueprint. Since November 1993, APEC has begun to develop a
vision of "free and open trade in the Asia Pacific". The region
should be thankful to the Eminent Persons Group (EPG) for
recommending this APEC vision in its First Report prepared for
the APEC leaders and ministers meeting in Seattle.

It is not clear whether this vision has been formally adopted
by APEC, but in their Economic Vision Statement the APEC leaders
said they "welcome the challenge ... to achieve free trade in the
Asia Pacific." This is sufficient to get the ball rolling. More
importantly, the EPG was asked to continue with its task,
particularly "to present more specific proposals on how the
recommended long-term vision might be realized".

The Second EPG Report, entitled "Achieving the APEC Vision",
however, is somewhat of a disappointment -- to put it mildly.

Specifically, on the issue of achieving free and open trade in
the Asia-Pacific, the Report failed to come up with modalities
that are unambiguously based on the idea of "open regionalism".
Open regionalism is the formally accepted principle and approach
used by APEC and is shared by the many other regional processes
such as PECC (Pacific Economic Cooperation Council) and PBEC
(Pacific Basin Economic Council).

On the basis of this principle, liberalization of trade and
investment in the region is to be pursued unilaterally as well as
in a concerted manner. It will be extended to the rest of the
world on an unconditional MFN (most favored nation) basis. The
philosophy behind this approach is that APEC's essential function
is to provide an environment to raise the confidence of its
members to further hasten their trade and investment
liberalization. The challenge that was entrusted upon the EPG was
to formulate strategies to develop this environment within APEC.

The political consideration behind the concept of open
regionalism are, at least, twofold. First, in relation to APEC
internally, negotiated liberalization within APEC is not feasible
and is clearly detrimental to confidence building in the region.
Second, with regard to APEC's external relations, it is dangerous
to use the FTA (free trade area) or trading bloc game in
international trade diplomacy.

The challenge that was entrusted to the EPG was to chart a
plan of action to liberalize trade in the region by taking into
account these political constraints. Instead, while denying that
it is in favor of a Free Trade Area, the recommendations in the
EPG Report amount to establishing a Free Trade Area except for
naming it so. More precisely, the Report has proposed the
creation of a three-stage Free Trade Area: the first stage is a
free trade area among APEC industrial members to be completed in
2010; the second stage is expanding the members to include APEC
NIE's (newly industrializing economies) to be completed in 2015;
and, the third and final stage to be realized in 2020 is its
further expansion to include all APEC developing members.

Throughout this process, until its completion in 2020, trade
discrimination will be applied among APEC members. The
introduction of new discrimination within APEC is clearly
divisive. At any point in time, the APEC liberalization will be
extended to non-members on the basis of reciprocity. Non-member
developing economies are favored but they too must meet
reciprocal obligations. Individual APEC members are free to
extend the benefit of its APEC liberalization on an unconditional
MFN basis.

This is, however, a redundant statement and will not hide the
basic fact that the adopted approach towards trade liberalization
is clearly that of FTA because it is essentially discriminatory
(conditional MFN). To deny this and, furthermore, to pursue this
will make the exercise not only GATT-inconsistent but also GATT-
illegal. If APEC liberalization is not through FTA, thus not to
be pursued by seeking approval under Article 24, it should also
not require exemption from Article 1 of the GATT.

The EPG could have avoided producing an ambiguous, confusing
report by explicitly describing the different -- and opposing --
options for achieving free trade in the region. It then could
examine and make explicit the pluses and minuses of each option.
This would have been more useful to policy and decision makers.
To produce a "compromised advisory" on things that cannot be
compromised is not helpful. In fact, if a compromise has to be
made this is definitely the task of the decision makers
themselves, namely our APEC leaders. If APEC policy and decision
makers conclude that open regionalism cannot be made to guide
APEC trade and investment liberalization they should go back to
the drawing board and re-examine APEC's fundamental principle.

Despite its deficiencies, the Second EPG Report still serves a
useful purpose as its readers will be forced to ask further and
critical questions on a number of its recommendations. In reading
the Report it also becomes clear that APEC trade liberalization
cannot be seen and be pursued without giving due attention to
trade and investment facilitation efforts as well as development
cooperation programs. These other two, of so-called "three
pillars" of APEC are essential in promoting and creating
confidence building measures in APEC and in the Asia Pacific
region at large.

APEC's 2020 Vision of free and open trade in the region can be
achieved through confidence building and workable, pragmatic
consensus. If the eight principles that are contained in the
Report's Executive Summary are followed through to their logical
consequence, the implementation of APEC trade and investment
liberalization can be pursued through the "soft path" rather than
the "hard-path" which involve exhortations, application of
threats, discrimination, and a lot of unproductive negotiations.

The tasks immediately ahead for APEC's trade liberalization
efforts are to ensure the ratification of the Uruguay Round
outcome and the successful launching of the World Trade
Organization (WTO). They should also push for the accelerated
implementation of Uruguay Round liberalization by APEC members on
an unconditional MFN basis and ensure the entry of both China and
Taiwan to the WTO as founding members. Finally, APEC should
encourage the European Union to work constructively with Asia
Pacific towards global liberalization. The best way to do so is
to lead by example, not needless confrontation.

The writer is executive director of the Centre for Strategic
and International Studies, Jakarta.

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