What next after Osaka summit?

From: The Jakarta Post

By Hadi Soesastro

The following is the second of two articles on the progress of the Asia Pacific Economic Cooperation.

JAKARTA (JP): The action agenda for the trade and investment liberalization and facilitation (TILF) as contained in the Osaka Action Agenda is a set of collective trade and investment facilitation measures and the implementation of individual trade and investment liberalization actions. Some collective actions may also become appropriate in APEC's trade and investment liberalization.

Osaka agreed on an "action process," which describes how "concerted unilateralism" is supposed to work. The first step is the development of individual action plans (IAPs) by each APEC member. In the process there will be ongoing consultation to facilitate exchange of information on progress, to ensure transparency, and to contribute towards attaining the comparability of respective IAPs.

The IAPs will be submitted to the Ministerial Meeting in the Philippines in November 1996, and the overall implementation will begin in January 1997. A review process will be conducted by the Senior Officials Meeting (SOM) on the basis of reports from the Committee on Trade and Investment (CTI). The review, as part of the "peer-pressure mechanism", should result in the continuing voluntary improvement of the IAPs. In addition, efforts will be made towards the expansion and improvement of the guidelines. These also apply to the collective action plans (CAPs).

It has been widely suggested that the collection of IAPs could form the APEC trade liberalization package on the basis of which APEC could take the lead in strengthening the open multilateral trading system and enhancing the momentum for global liberalization. APEC could take its trade liberalization package to the WTO Ministerial Meeting in Singapore in December 1996, as a way to induce others, the European Union (EU) in particular, to broaden, deepen and accelerate their Uruguay Round commitments. To be able to do so, the IAPs must be credible.

The package could consist of two parts. First, specific and concrete details of tariff reductions and efforts to eliminate trade and investment impediments which will be a significant improvement of the initial actions (the so-called down payments) made at Osaka, for instance, for the period between January 1997 to January 2002. Second, an outline of the basic direction towards achieving free and open trade and investment in 2010 in the case of developed economies, and 2020 in the case of developing economies.

To be able to produce such a trade liberalization package, and for the concerted unilateral approach to work, APEC needs champions (or heroes) to undertake unilateral liberalization. The U.S. is unlikely to be in the driver's seat here. Washington has been pushing hard for liberalization but its ability to deliver is far from certain, especially in an election year. It has been suggested that the adoption of concerted unilateralism by APEC has permanently weakened U.S. leadership in APEC. An important question to ask is whether the U.S. will be less interested in or committed to APEC if it is not in the driver's seat.

This need not be the case. Indeed, the adoption of concerted unilateralism has shifted the leadership of APEC liberalization to East Asia. What this means is that East Asia should continue with its own liberalization without worrying about the application of the principle of comparability to U.S. liberalization efforts. It was the U.S., and not East Asia, that insisted on comparability.

East Asia should allow the U.S. an essentially free ride, that is, to do almost nothing for a number of years to come. This can be justified by the fact that the U.S. economy is already much more open than many East Asian economies. Japan must continue the leadership it displayed in Osaka. It can do so by continually undertaking significant unilateral liberalization and deregulation. The Philippines, the chair of APEC in 1996, is fully aware of the burden of undertaking a similar task, and is preparing itself to do so.

The leadership in APEC essentially rests with the economy that assumes the chairmanship of APEC. This is the beauty of APEC. With the involvement of the leaders since Seattle, the APEC chair can assert even greater leadership. This is an important development which will also help assure that the concerted unilateral approach towards APEC trade liberalization will work. Leadership, however, is also required in other areas of APEC cooperation, such as the ETC.

The Philippines is equally interested in playing a leadership role in the area of ETC or development cooperation. ETC is seen as imperative because of the diversity of APEC. Development cooperation, in terms of developing safety nets for the people, is also seen as necessary to support APEC's move towards a region of free and open trade and investment. Hence, the Philippine government hopes to see the APEC meetings in Manila and Subic in November 1996, develop a set of principles and a coherent plan for development cooperation.

Development cooperation was brought to the APEC agenda when Indonesia chaired APEC in 1994. However, the process leading to Bogor was overwhelmed by the trade liberalization agenda. In the APEC Ministerial Meeting in Jakarta in November 1994, Japan, then the next chair, proposed to strengthen APEC's development cooperation agenda through an initiative called Partnership for Progress (PFP). It was hoped that the PFP would be fleshed out in Osaka. This also did not materialize.

Initially, the PFP program appeared to be just an extension of Japan's conventional development cooperation in building infrastructure through official development assistance. This was objected to by a number of APEC members. It has been proposed that the PFP initiative should incorporate all three types of development cooperation, which involve technical cooperation (such as training), development cooperation in the narrow sense (public infrastructure development), and sectorial cooperation (securing energy supplies, the efficient use of resources, and protecting the environment).

Further development of the PFP has highlighted a number of its essential (new) elements:

(a) that it should help enhance the process for new donors (for example Korea and Chinese Taipei) to emerge;

(b) that it should replace the traditional donor-recipient relationship;

(d) that more actors should be involved; these would include the business sector, NGOs and local governments. Nonetheless, the PFP initiative continues to be ill-defined.

The Third Report of the APEC Eminent Persons Group (EPG) did propose an ETC action plan for Osaka, and suggested that a set of guiding principles be adopted to embark on an APEC Initiative. The report sees the importance of development cooperation:

(a) as a way to create the enabling environment for, and as a vital building block in, APEC's agenda for complete trade and investment liberalization; and

(b) to fill the gaps in technology, management, planning and administration among APEC's diverse members.

The Osaka Action Agenda states that development cooperation will be pursued in order to attain sustainable growth and equitable development in the Asia-Pacific region, while reducing economic disparities among APEC economies and improving economic and social well-being. It further states that such efforts will also facilitate the growth of trade and investment in the region. The basic principles for development cooperation contained in the Osaka Action Agenda are:

(a) mutual respect and equality;

(b) mutual benefit and assistance;

(d) consensus building;

(e) voluntary contributions;

(f) development of an environment favorable to the effective operation of market mechanisms;

(g) integration of the business/private sector and other pertinent institutions in the cooperation process;

(h) integration of environmental consideration in all relevant cooperation activities.

The Osaka Action Agenda has begun to formulate common policy concepts, joint activities and policy dialogs, defined as the three essential elements of ETC, in 13 activities which are undertaken through the various APEC working groups.

After Osaka, the main task is to make development cooperation in APEC more coherent and more prominent. There is the danger that development cooperation might become lost in the APEC process. In fact there are a number of reasons why this is so.

First, within APEC there is no full support for development cooperation because:

(a) development cooperation has no place in APEC, which is essentially a forum for trade liberalization, and its inclusion will only dilute APEC's trade liberalization agenda;

(b) it provides a vehicle for Japan to dominate APEC; and

Other reasons have also been identified. These include:

(a) development cooperation does not attract the attention of politicians and the media and tends to be overshadowed by the trade liberalization agenda;

(b) the new, non-traditional development cooperation programs are difficult to formulate; and

(c) there is a lack of bureaucratic or institutional structures in member economies to manage APEC development cooperation programs. Most notably, however, is the fact that APEC's structure itself does not provide a place for a coherent development cooperation program to evolve.

The adoption of the Osaka Action Agenda has implications on how APEC should structure its activities. This may or may not involve further institutional development.

The modality for implementing trade and investment liberalization as based on concerted unilateralism requires continuous and systematic monitoring and review of the progress. This responsibility will now rest with the SOM, assisted by the CTI. Is there a need for a more permanent kind of a "blue-ribbon panel" of eminent persons to provide independent review and assessment of the liberalization process? Or will it be sufficient for the SOM and the CTI to undertake this task with the aid of a systematic survey conducted on their behalf by an independent (and tripartite) body such as the Pacific Economic Cooperation Council?

Trade and investment facilitation programs appear to be adequately handled by the CTI, which reports and can bring the matter up to the SOM and in turn to the Ministerial Meetings.

The various ETC or development cooperation programs, currently undertaken by the working groups, lack a coherent "institutional home" and therefore are devoid of a mechanism to bring the matter up to higher levels of decision making in APEC. Does this not suggest the need for such a mechanism?

The discussion of APEC development cooperation suggests that there are two main groups of activities. One relates to cooperation in areas that have direct bearing on trade and investment facilitation.

The other encompasses issues of managing sustainable growth and ensuring equitable development in the region. This area of cooperation would address the emerging important issues for APEC, namely population, food, resources, energy and the environment. The first group of activities can be channeled through the CTI.

But what about the second group of activities? Should they be entrusted upon and channeled through a separate committee. If so, APEC may want to establish a new committee, or, with some minor restructuring, it can make use of the existing Economic Committee.

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

Window A: There is the danger that development cooperation might become lost in the APEC process.

Window B: The adoption of the Osaka Action Agenda has implications on how APEC should structure its activities.

JP/What next after Osaka summit?