Trade facilitation in APEC

By Mari Pangestu

JAKARTA (JP): The recent reports and emphasis of late on the progress of APEC have focused on the more "meaty" subject of trade liberalization. Since the Eminent Persons Group (EPG) announced their recommendations for achieving trade liberalization in the area, much of the debate has been on what is meant by trade liberalization? What are the modalities? Should liberalization be on an unconditional Most Favored Nation (MFN) basis or a reciprocal Free Trade Area basis? Should there be a time frame and should it be flexible according to the level of development of the member country? These are complex questions with much at stake in making commitments. Decisions about trade liberalization involve sensitive sectors and political implications.

Let us not get the Asia Pacific Economic Cooperation (APEC) process bogged down by expecting that these difficult issues and differences in position by members can be resolved by the coming Bogor meetings. It will require many more meetings to clarify and agree on the various issues since APEC decision making works on a consensus basis.

Let us also recognize that this does not mean that APEC is not making any progress. A lot of progress towards the goal of enhancing trade and investment flows in the region can be achieved through trade and investment facilitation programs.

These are agreements to cooperate on technical issues and policies to "facilitate" trade and investment flows by reducing transaction costs and technical obstacles. On the surface such cooperation is less contentious as it involves agreeing on standardizing or harmonizing technical standards, definitions and procedures, as well as minimum acceptance of some universal principles. The acceptability of such programs lies in voluntary participation by countries.

Such cooperation as harmonization of technical standards may sound trivial, but in reality these nuts and bolts issues are what lead to a more predictable and open trading system. Most of the trade facilitation issues are covered in various Uruguay Round agreements and will be an important feature of the World Trade Organization (WTO) work agenda. However, implementation of these agreements is of course another issue and many gray areas remain which could hinder the smooth flow of trade by being misused as protectionist measures.

Therefore APEC could play a key role in ensuring implementation and in certain areas APEC might even agree to go beyond the Uruguay Round commitments.

Under the official APEC program, there are at present three facilitation programs that have been under serious discussion. One is the non-binding investment principles (discussed in Bora's piece on page 12). The other two in the trade facilitation area are the customs and customs procedures harmonization and harmonization of standards. While the outcome and progress are not known yet, the essence of the trade facilitation programs can be described as follows.

Customs harmonization in the first instance requires agreeing on the same customs classification to reduce search time. Other issues relate to harmonizing inspection and reporting procedures, pre-inspection and valuation of imports and corresponding duties, agreeing on classification of new products and so on.

The Pacific Business Forum (PBF), the group of eminent business people asked to provide input to APEC, has also recommended specific programs such as electronic documentation and processing of entry documents, training and education of customs officers, and development of an APEC electronic database.

Settling these issues in a substantive way could lead to the development of an APEC customs code as recommended by PBF. Whereas harmonization of standards and conformance testing has harmonization of product safety, health and systems standards as a long term objective. In the short run, some limited agreement on harmonization can be achieved, but it is likely to take a long time to achieve the long run objective. Under the new Uruguay Round commitments transparency of use of standards and technical regulations and APEC can certainly contribute to the implementation of this agreement and not use standards and technical barriers for protection purposes. Mutual recognition of testing facilities and conformity assessment procedures would also facilitate trade and reduce the cost of product testing for small and medium-scale enterprises.

Other than these two areas which are already under discussion in APEC, several other trade facilitation measures have been recommended by the EPG, PBF and researchers. There measures could be in the future APEC program.

In brief they are, first ensuring transparency and discipline in use of anti dumping measures. Improper application of the new anti dumping rules and procedures under the new WTO can still lead to trade diversion. Furthermore this recommendation is important given the increase in anti dumping investigations and actions by some developed country members of APEC, namely the United States, Canada and Australia.

Second is the recommendation to create an APEC Dispute Settlement Mechanism to resolve trade disputes arising in the APEC region. The idea being that member countries in a dispute can try to mediate in the APEC forum before bringing it up to the WTO. This recommendation can be useful for trade disputes that lie outside the scope of the new WTO or reflect the wish of APEC members to settle the specific disputes within the region rather than at the GATT level. However, there is the danger of rendering the GATT dispute settlement mechanism useless and also put smaller countries in APEC at the mercy of larger countries; the very reason that the arbitration through WTO was created.

Therefore, one must design the mechanism very carefully to avoid all these pitfalls.

Third is to relax visa requirements to facilitate the flow of people between the countries in the region. This is not simply because of the rise in tourism, but also due to business needs, such as in the services sector. While control of entry for safety, security and other reasons are still needed, much can still be done to simplify and relax visa requirements, granting of multiple entry visas or a smart card systems for frequent travelers, and to make it easier to obtain temporary work permits and visas for business and training needs.

Fourth is harmonization and simplification of rules of origin. Rules of origin are used to identify the origin of goods from a customs territory or country. There has been a proliferation of rules of origin due to the creation of free trade areas, preferential schemes and efforts to prevent circumvention and anti-dumping penalties. Misuse of rules of origin stands out as a possible source of technical barriers to trade. The long term objective of any work on rules of origin would be to ensure the adoption of as minimal and transparent as possible rules of origin. APEC can contribute to ensuring discipline in this area should participate actively in the GATT three year work program to harmonize rules of origin. However GATT harmonization only covers trade on an MFN basis and not trade under regional or preferential agreements, so that APEC can also complement efforts by the WTO by looking at rules of origin in the latter context.

Admittedly much more work and thought still needs to go into developing these various trade facilitation programs. Its voluntary, and often non-binding nature has also been criticized as reducing the effectiveness of such agreements. The optimistic response is that the fact that APEC countries are attempting such an exercise in itself is already a sign of progress. APEC is a process; who knows how and what will be the process of evolution, but in the final analysis it is hoped that there is a realization that progress achieved in the area of trade and investment facilitation could lead to substantial tangible benefits and will enhance the credibility of APEC.