Will APEC experiment work?

Will APEC experiment work?

The excitement of the Asia Pacific Economic Cooperation
meeting has just ended and the leaders of 18 economies are back
home. Noted economist Mari Pangestu, who attended the
talks, look at the tasks lying ahead for each country.

JAKARTA (JP): How should one view the results of the Osaka
APEC meeting? The answers differ according to one's expectations
about APEC, as well as the understanding of the relevance of the
APEC process itself.

If one expected big "bang" statements about liberalization in
trade and investment to occur in Osaka then one was surely
disappointed with the results. However, viewed in terms of the
APEC process, the results achieved were very positive. Seattle
delivered the vision, Bogor provided the goal and Osaka succeeded
in preparing the action agenda. For most of the next year the
policy makers, will be busy cooking up a palatable action plan to
be served up in Subic Bay by October.

In other words, the results of Seattle and Bogor were on what
can be termed the first track toward heading the process in the
direction of an open and rules-based system of international
transactions, which is crucial to the continued dynamic growth in
this region and in the world.

With Osaka and Subic Bay, we are back on the usual track of
ensuring that everything necessary is done toward achieving a
more open trading system.

The work centers on agreement on the principles under which
liberalization and facilitation measures should be undertaken,
and then defining the actual schedules and commitments based on
those principles. The fact that consensus was reached on the
principles and that there is a commitment to start the action
plan of liberalization by Jan. 1, 1997 is a remarkable
achievement.

What are the principles that govern the process of
liberalization and facilitation? In the first instance they are
consistent with multilateral principles: WTO-consistency, non-
discrimination and transparency. In line with the commitments
made in Bogor, there is also the commitment to bring protection
to a standstill. APEC has also shown a forward looking approach
by agreeing on comprehensiveness which basically means that "all"
impediments are to be reduced.

In order to get the developing and Asian economies on board,
the principles of flexibility and cooperation are important.
Flexibility refers to taking into account different levels of
economic development, as well as in dealing with issues arising
from the liberalization and facilitation process, whereas
cooperation is often referred to as the third "leg" in APEC,
meaning actions other than liberalization and facilitation. The
third leg involves economic and technical cooperation to support
the liberalization and facilitation processes of developing
economies in particular.

The main questions that are yet to be answered follow. Is it
possible for such a process of concerted unilateral
liberalization based on "voluntary" and non binding commitments,
a flexible approach, and no sanctions to work? How do you define
comparability, flexibility and substantial progress anyway -- and
thus prevent "back loading" or even exclusions (albeit temporary)
whereby sensitive sectors such as Japan's agriculture sector;
U.S.'s textile sector, and the automotive sector for many
economies, will not be liberalized until the very last? How do
you measure the achievements of APEC if there are no binding
commitments?

Believers in the APEC process maintain that it will work
because of peer pressure and confidence building to undertake
unilateral liberalization between the APEC economies. In fact in
the last year and even in Osaka we have seen some significant
"down payments" by the APEC economies, especially the developing
economies. The May trade deregulation package announced by
Indonesia this year is seen as a down payment to the action plan.

We do not know whether the APEC experiment will work. However,
some factors should be considered to facilitate the experiment.
First is that there should be a continuation of APEC economies
who will be willing to be the champions in undertaking unilateral
liberalization every year to push the process along.

Second, one can predict that the issue of comparability and
substantial progress will not be an easy one to be solved by the
senior officials. A continuous review and monitoring of progress
undertaken by APEC economies in liberalization and facilitation
will be needed to assist in ensuring these principles are met and
to "operationalize" the peer pressure in more concrete terms.

Finally the experiment will work if leaders, policy makers and
the private sector believe that ultimately liberalization and
facilitation can bring net positive gains to their economies, and
is the only way to strengthen their economies to become more
competitive and innovative in this ever changing and increasingly
competitive world. And at the same time be cognizant and prepare
to offset the possible negative effects of liberalization such as
on the environment, and dislocation of workers and small and
medium enterprises.

The writer is head of the Economics Department at the Center
for Strategic and International Studies.