What next after the Osaka summit?

By Hadi Soesastro

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

JAKARTA (JP): APEC after Osaka is about implementing a set of action plans as outlined in the Osaka Action Agenda. Japan's prime minister, Murayama, proudly proclaimed that Osaka marked the transition from concept to action. This is a big challenge for APEC.

Member governments must seek ways to ensure that collectively their "individual action plans" produce significant results and that their "collective action plans" are both feasible and acceptable. It is this combination of individual and collective action plans that is unique to APEC and from now on will characterize the APEC process.

Skeptics question how a process that rests on the implementation of individual action plans could make progress in establishing free trade. Some have described the Osaka Action Agenda as "no action, no agenda."

Osaka was a close call. There was concern that Japan could not provide the necessary leadership to create the road map for APEC to implement the much heralded Bogor Declaration. Yet Japan was successful. The leadership may have come not so much from the top but largely through the careful planning and efforts of the bureaucrats. Their success was in their ability to form a consensus, which definitely involved compromises by all members.

Those that have been involved in APEC cannot deny that Osaka was a success. Leaders and ministers made an important agreement on the principles for trade and investment liberalization. The modality of APEC trade liberalization, which hitherto remained vague -- perhaps unavoidable at the initial stage -- is now clear.

Osaka is regarded a success not only because it produced an Action Agenda but because it has brought the APEC process back on track. A number of APEC members, Malaysia in particular, were concerned that since the Seattle meeting APEC had embarked on the wrong road: a road which may have ended with the creation of a free trade area.

Nowhere in APEC documents is it stated that forming a free trade area is the objective of cooperation. In fact, the Bogor Declaration expressed the leaders opposition to the forming of an inward-looking trading bloc. However, there was the worry that APEC trade liberalization would be pursued along the same process that would lead to the creation of a free trade area, namely through negotiated schedules of tariff reductions and the application of discrimination against nonmembers. Some APEC members thought that this was the way to go.

Osaka put an end to the uncertainty by adopting a set of nine principles: (1) comprehensiveness, (2) World Trade Organization- consistency, (3) comparability, (4) nondiscrimination, (5) transparency, (6) standstill, (7) simultaneous start, continued process and differentiated timetables, (8) flexibility, and (9) cooperation. To be sure, these principles are a result of compromises and some of the wordings allow for differing interpretations.

Of importance is that the APEC process, which is acceptable to all, is now clearly recognized as being based on open regionalism, voluntary and nonbinding commitments, unilateral actions, decision by consensus, and the role of peer pressure and enlightened self-interest.

The modality of APEC trade liberalization is now popularly known as "concerted unilateralism". This approach is grounded in voluntarism and collective initiative. In essence, under concerted unilateralism, APEC liberalization will be driven by the collective peer pressure of action plans implemented by each economy at its own pace. APEC post-Osaka will have to be able to demonstrate that this process works. However, APEC cannot fail because there is no alternative approach.

In addition to this issue of modality, there is also the concern that the APEC process has been too focused on trade liberalization. It has been clear from the outset that America's support of APEC is largely driven by its interest in opening up markets in the region. The U.S. has effectively used bilateral means to do and it is hoped that with the strengthening of the World Trade Organization the U.S. will make greater use of this multilateral forum.

Should the U.S. also use APEC? It is widely believed that U.S. negotiators would like to see APEC as a multilateral crowbar for prying open East Asian markets. Such an attitude is likely to backfire because APEC would then be seen as the superpower's trade policy instrument, while many East Asians on their part would perceive the playing field as being essentially tilted against them.

Trade is a contentious issue. It is not that APEC should not deal with it, but it is a matter of how to approach it. It has been argued that trade liberalization should not be the test of APEC's success or failure. By using trade as a measuring stick APEC would become hostage to economic interest groups, and APEC is not so firmly established that governments would sacrifice important issues for APEC's sake.

On paper APEC believes in the importance of having a balanced agenda and that APEC should rest on three legs, namely trade and investment liberalization; trade and investment facilitation; and economic and technical (or development) cooperation. However, there is a strong tendency to view facilitation and development cooperation as subordinate to trade and investment liberalization. This should not be the case. APEC is not fundamentally about liberalizing trade and investment. APEC is much more; it is first and foremost about community building.

There has always been this discrepancy between the broad view and the narrow view of APEC. The broad view sees the importance of APEC as a vehicle for community building in the Pacific, including the structuring of a healthy and strong trans-Pacific relationship. The strategic value of APEC is that it could intensify U.S. economic engagement in the Asia-Pacific region as a way to strengthen the basis for its presence in the region.

However, APEC also serves as a forum for engaging China constructively in the regional and international arenas. This is of strategic importance to the region in view of China's history of isolation and revolutionary adventures. Both the U.S. and China are two big nations for whom multilateralism does not come naturally.

The implementation of the Osaka Action Agenda should always be viewed in the broadest context of APEC's development. The broad view of APEC also suggest that besides emphasis of cooperation among regional countries, emphasis should equally be given to areas of population, food, resources, energy and the environment. APEC's task ahead is to translate these challenges into a balanced agenda. This is indeed a tall order. In due course further development of APEC's institutional structure may be necessary. If the rationale is clear and derived from the broad view, members should be less hesitant in supporting the institutional development of APEC.

Since Osaka, in line with the structure of the Osaka Action Agenda, perhaps it is now more appropriate to talk about APEC's two pillars rather than its three legs. The two pillars are: (1) trade and investment liberalization and facilitation; and (2) economic and technical cooperation, also described as development cooperation.

Window: Those that have been involved in APEC cannot deny that Osaka was a success. Leaders and ministers made an important agreement on the principles for trade and investment liberalization.