Does APEC bode well or ill?

Does APEC bode well or ill?

By Bob S. Hadiwinata

BANDUNG (JP): The meeting of 18 world leaders in Bogor on Nov.
15 is pivotal in that it serves as a test case on how far the
Asia-Pacific countries are willing to go in setting up order
under increasingly cut-throat global economic conditions.

Great hopes are pinned on the success of the APEC summit in
creating investment liberalization and free trade area for the
entire Asia-Pacific region. The Pacific Business Forum (PBF), a
business advisory group of APEC, suggests that the forum should
accelerate trade and investment liberalization. More
specifically, the PBF raises an optimistic view by maintaining
that trade and investment liberalization in the region can be
completed by the year 2002 for developed economies, and no later
than 2010 for developing countries.

From a single country's point of view, investment
liberalization and free trade are also important. Australian
Prime Minister Paul Keating insists that the APEC forum must
achieve free trade in a way that is consistent with the General
Agreement on Tariffs and Trade and World Trade Organization (WTO)
principles and that it contributes to further global trade
liberalization.

What is the benefit of trade liberalization for a particular
country? It is obvious that developed countries will gain more
through the adoption of free trade since their economic power and
technological excellence will enable them to shift their
activities to more profitable sectors with no serious casualties.
In this case, developed countries can compete in the world market
based on comparative advantage.

What is the option for the developing countries in a free
trade arrangement? Shortly before the Bogor summit commenced,
Indonesia's House of Representatives (DPR) ratified the
establishment of WTO, the body that will administer the GATT by
January 1995. The WTO ratification will allow more Indonesian
exports to enter the global market, while at the same time
opening the country's domestic market.

An estimation made by Indonesian Ministry of Trade projects
that the adoption of the WTO principle will raise the market
share of Indonesian exports to developed countries to the range
of four and seven percent. More importantly, another estimation
predicts that Indonesia's per capita income will be quadrupled to
around US$2,660 by the year 2019.

With this in mind, it is not surprising that the Bogor summit
has generated optimism among state and business leaders in the
Asia-Pacific region.

Apart from this optimistic view, one should be aware of the
fact that current global economic competition is much more
complicated than ever.

In many cases, the complexity of international economic
relations involves non-economic factors. Indeed, there are some
reasons not to be too optimistic when considering the possible
outcomes of APEC. First, given the fact that the Asia-Pacific
region consists of a large number of diverse countries in terms
of culture, political systems, economic policy orientation, and
level of industrialization, one can easily anticipate the
possibility of a "tug-of-war" between different national
interests.

There are three prevailing opinions with regards to economic
policy orientation and level of industrialization. For the United
States and Australia, both proponents of economic liberalism,
the creation of investment liberalization and a free trade area
in the Asia-Pacific region is a kind of sine-qua-non.

Both the United States and Australia have long been annoyed by
the excessive trade barriers imposed by Japan and other
industrializing Asian countries. As their economic power enables
them to compete according to the principle of comparative
advantage, one cannot deny their preference for free trade.

On the other hand, countries such as Japan, Canada, New
Zealand, South Korea, Hong Kong, Singapore, Taiwan and China
expect the Asia-Pacific economic forum to reduce transaction
costs and to coordinate policies. In other words, these countries
expect APEC to provide a more favorable atmosphere for their
export strategies.

The third category is represented by the less-powerful APEC
members such as Mexico, Indonesia, Malaysia, Philippine,
Thailand, Brunei, and Papua New Guinea. These countries expect
APEC to serve as a development cooperation forum, to provide them
with foreign investments and to open new markets for their
products.

Another point worth considering has to do with the growing
linkage of trade practices with non-economic factors such as
human rights issues and democracy.

With regard to human rights and democracy, the Asia-Pacific
region is rife with potential conflicts. Some countries in the
region champion liberal democracy while others refuse to identify
their political systems with what they call "Western" liberal
democracy. Tensions between the United States and China and
Indonesia, from early this year, reflect the direct threat posed
by human rights linkage to trade relations between APEC members.

The main reason for those tensions seems to be a conflict
between universalism and particularism. The defenders of liberal
democracy feel obliged to protect individual human rights all
over the world as a part of their duty to maintain universal
values. On the other hand, some other countries feel that it is
their particular right to develop their own version of democracy
and their own definition of human rights.

Indeed, short term business interests have prevented APEC
members from coming into too much conflict with each other. Yet,
how far they will sacrifice their universal or particular claims
for the sake of business activities remains unclear. Therefore,
there is no guarantee that trade-human rights linkage can be
completely solved in the near future.

Finally, many countries in the Asia-Pacific region tend to
adopt free trade principles more in rhetoric than in their actual
economic policies. Most countries agree to commit to the
principle of free trade only in the sectors they already control
in the international market, but not in the more competitive
sectors. Those who can easily shift their production activities
to different sectors think that free trade is fair because it
grants them opportunities to specialize in sectors that where
production is cheaper. On the contrary, those countries that are
unable to shift production activities due to the lack of
technology and human resources think that free trade is not fair
trade because their industries cannot compete on the basis of
comparative advantage.

Under these circumstances, the establishment of a free trade
area in the Asia-Pacific region appears to be an enigma. Just a
few weeks prior to the Bogor summit, China and Malaysia cautioned
against the adoption of free trade in the Asia-Pacific region and
warned APEC against developing too fast.

On the Indonesian side, despite the ratification of WTO
principles, there are signals made by Indonesian economists for
the need to protect local medium and small scale industries as
well as service sectors.

All in all, many Asian members worry about any APEC trade deal
that would allow developed economies to exploit free trade
principles for their own benefits.

These problems should not necessarily curtail the positive
mood established by APEC members in the preceding summits. Yet,
given the complexities of economic relations in the region,
leaders of the Asia-Pacific countries should be aware of the
broad dimension of trade-related issues.

Just as they realize that current trade problems are more
political, moral and ethical rather than simply technical, they
should also anticipate the extension of the scope of consultation
to include more non-economic factors for a long term solution.

The writer is a graduate of Monash University, Australia, and
lecturer for the Department of International Relations,
University of Parahyangan, Bandung.