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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