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.