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.