What remains to be done after APEC?

Leaders of 18 nations grouped in the Asia Pacific Economic Cooperation (APEC) forum have just concluded their meeting in Manila. Economist Mari Pangestu presents her views.

JAKARTA (JP): Given the media reporting, it would appear that the success or failure of APEC depended on all APEC economies supporting the Information Technology Agreement (ITA), which would reduce tariffs on information technology products (from hardware to software products) to zero by the year 2000.

The rather vague conclusion "that would substantially eliminate tariffs by the year 2000, recognizing the need for flexibility as negotiations in Geneva proceed" was the compromise reached. While the benefits of an open information technology market are clear, one could perhaps question the approach. What should have been a collective action plan, brought about through consensus resulting from discussions through the year, became what looks like a belated U.S. agenda in post-election mode.

More importantly, using the rather vaguely worded statement about substantial reductions in tariffs by the year 2000 while recognizing the principle of flexibility as a barometer to measure the achievement of the Manila Action Plan for APEC (MAPA) is shortchanging APEC.

There is more to the results of the APEC meetings this year than the ITA. We are now entering the first act of the APEC drama of a true Asia-Pacific community. MAPA provides the first glimpse of how economies will collectively or individually reach the long-term goals of the Bogor meeting.

This is where APEC as a process takes over from the vision and political will of leaders, and is the true test of the APEC approach of voluntary initiatives to liberalize and facilitate trade through individual action plans (IAPs) and collective action plans, as well as undertaking joint activities to promote economic and technical cooperation.

This idea of peer pressure, review and revision as an ongoing proceeding is at the crux of this unique APEC process. Therefore, the assessment of MAPA needs to be completed in this light: that we are only seeing the first step and we should assess whether it has been a significant one and, more importantly, determine what remains to be done.

Will there be free trade and investment? It is useful to remind ourselves why the answer is important. For governments, it implies needed policy changes and the necessary anticipation and institutional strengthening that comes with them. For businesspeople, it means both having to compete in their own markets as well as taking advantage of the opportunity to enter other markets. For housewives and consumers, it will mean more choice in terms of price, quality and type. For workers and professionals, it will mean the continuous need to upgrade productivity and keeping up.

The progress on reduction of tariffs offered in their IAPs, as well as a result of the unilateral program of liberalization, indicate that individual APEC economies are all well on track towards the Bogor goal, and the tariff reductions are mostly faster and deeper than under their Uruguay Round commitment. Furthermore, there are a number of "champions" -- Chile, China, Indonesia and the Philippines -- who are committed to extensive tariff reductions, so that they are set to move ahead of the Bogor track. If the reduction trajectory is followed and the standstill is adhered to, then all members will reach low average tariffs of 0-5 percent by 2010/2020.

The progress on non-tariff barriers is less evident, with no specific commitments, but only general commitments to review and reduce such barriers. Likewise, in investment liberalization, there were no specific commitments for further liberalization, although some economies, such as Korea and the Philippines, announced removal of restrictions by a certain time frame. Of course, it should be noted that some APEC economies already have open investment regimes to begin with.

However, there has also been progress in reducing costs of doing business, or what is known as the second APEC pillar of "facilitation". A number of important results in this regard is the move towards a paperless customs system by the year 2000, with some results already expected to be felt in 1997; developing mutual recognition of standards for products; simplifying business visas for business travelers; greater transparency in government procurement and developing best practices and deepening public-private partnerships in infrastructure.

What else needs to be done to have free trade and investment? The first thing is to continue on track towards progressive tariff reductions, and ensuring that standstill on new protection is adhered to.

Second, defining and refining the goals of free trade and investment, which would in turn create the policy certainty needed for businesses to operate and to lock in policy from vested interests. Such goals could be average tariffs at 0-5 percent, with minimum exceptions; identifying for removal core non-tariff barriers by 2010/2020 and fulfilling the national treatment principle in its respective investment regime by 2010/2020.

Third, reducing true impediments to trade will necessitate reducing peak tariffs in certain sectors, such as the automotive and textiles and garments sectors, and removing prevalent non- tariff barriers. Fourth, monitoring progress in facilitation and identifying areas where there are bottlenecks. Fifth, reducing the danger of trade diversion and further discriminatory actions under the guise of the World Trade Organization's consistent rules instruments, such as rules of origin and antidumping investigations.

APEC has also achieved an important beginning towards the third pillar in APEC by coming to an agreement on a set of goals, guiding principles, and priorities for strengthening economic and technical cooperation, resulting in mutually beneficial and joint activities aimed at focused outcomes. The challenge ahead is in the actual implementation of these principles, and in ensuring that there is adequate resources for the joint activities of policymakers: process, soft negotiations.

The writer is head of the Economic Department at the Centre for Strategic and International Studies and a lecturer at the University of Indonesia.