Clock winds down on APEC
By Megawati Wijaya
SINGAPORE - When government and business leaders meet this week at
the 20th Asia-Pacific Economic Cooperation (APEC) annual summit in
Singapore, they will face the uphill task of renewing the
grouping's commitment to free trade amid rising protectionism among
its 21 member countries.
Even with economic recovery on the global horizon, various APEC
member countries, including most crucially the United States and
China, are locked in trade disputes marked by the imposition of
escalating tit-for-tat tariff and non-tariff measures. As a key
deadline for market opening approaches next year, APEC's broad goal
of establishing the world's largest free trade area is in
jeopardy.
When APEC leaders met last year in Lima, Peru, the global economy
faced its worst financial crisis in recent history. APEC priorities
were temporarily shifted to achieving economic stability and
recovery, including backing for extraordinary monetary and fiscal
stimulus measures, rather than pushing the grouping's primary
free-trade agenda.
APEC leaders then vowed not to resort to protectionist measures to
cushion their falling economies, including a vow to refrain for a
calendar year from raising new barriers to investment or trade or
new export restrictions. They also followed through on an ambitious
and balanced conclusion to the Doha Development Agenda World Trade
Organization negotiations to provide the basis for more
trade-driven global growth.
Those commitments were consistent with APEC's broad goals and
ambitions. In November 1994, former US president Bill Clinton and
the leaders of APEC's then 18 member countries signed a declaration
in Bogor, Indonesia, setting a goal to establish free and open
trade in the Asia-Pacific region for developed countries by
2010.
The same goal for developing countries was set for 2020. In the
following meeting in Osaka, Japan, APEC identified trade and
investment liberalization, business facilitation, and economic and
technical cooperation as the measures needed to achieve regional
free trade.
To be sure, there has been substantial progress. Average tariffs
among APEC economies have been slashed from 17% in 1989 to 5.5% in
2004. Freer trade and more-open economies have sparked robust
economic growth. Today APEC is home to 10 of the Group of 20's
member countries and members account for 40% of the world's
population and 70% of its economic growth.
Protectionist tide
Still, APEC has failed to stem rising protectionism among its
member states, while other often preferential bilateral and
multilateral agreements have recently trumped many countries'
commitment to APEC's aims and ambitions.
The move towards more APEC protectionism was ushered in earlier
this year when the US House of Representatives passed "Buy
American" provisions to the country's massive fiscal stimulus
package, including requirements that public works projects use only
US-made steel, iron and other manufactured goods.
Since January, the Barack Obama administration has also launched
over a dozen anti-dumping of countervailing duty investigations
against various Chinese imported products. Last week, for instance,
Washington imposed preliminary anti-dumping duties ranging up to
99% on US$2.63 billion of Chinese-made oil-well pipes, representing
the biggest US trade action against China in terms of volume. The
US had earlier imposed countervailing duties on the product ranging
from 10.9% to 30.69%.
In September, the US imposed safeguard duties on Chinese-made tires
after a complaint by US unions that cheap Chinese imports had
forced many US factories to close down. In return, China launched
anti-dumping and anti-subsidy investigations into its imports of US
poultry and automotive parts.
In August, the US claimed that China had curbed the import and
distribution of foreign publications and audiovisual products in
violation of its commitments to the World Trade Organization. The
US won its claim, though China may yet appeal.
Former Chinese vice minister of commerce Wei Jianguo said in a
recent interview with current affairs magazine Southern Wind that
China, "must make preparations to fight a trade war". "Every
country opposes trade protectionism but in reality their actions
are not as they claim ... China must be decisive and not at all
polite," he said.
Overcoming these protectionist threats will top APEC's agenda.
Christopher Dent from the East Asian Studies of the University of
Leeds says that textiles, footwear, petrochemicals, steel and other
sensitive trade sectors will be "hard rocks" in the path of
concluding new free trade deals.
Sri Adiningsih, chairwoman of the Asia-Pacific Study Center of
Indonesia's Gajah Mada University, says that the fear of liberalism
and threat of protectionism will prevail as long as there are
economic disparities among APEC member economies. She says that
while APEC had been on the right track for the past decade in
moving towards free trade, once a crisis emerges its member
countries go back to their old protectionist stances. She predicts
that the current surge in non-tariff protectionism will continue
until economies recover more firmly and unemployment statistics
ease.
APEC works based on voluntary and non-binding principles and takes
decisions through consensus. At the APEC 1997 summit in Vancouver,
Canada, leaders introduced an Early Voluntary Sectoral
Liberalization (EVSL) framework to encourage member economies to
pursue voluntary liberalization of certain non-sensitive sectors.
Yet APEC has no means to enforce its free-trade principles upon its
members.
"Some members may just quit the group, and APEC may collapse,"
predicted Johnny Chiang, deputy executive director of the Chinese
Taipei APEC Study Center.
Competing FTA's
Indeed, the failure of APEC to establish a regional free-trade
area has opened the way for the proliferation of numerous
free-trade agreements (FTA) in the Asia-Pacific region. Dent notes
that the region has become host to the world's fastest-growing
concentration of new FTAs.
In 1997-98. there were only eight FTA projects in the entire
Asia-Pacific region, including the North American Free Trade
Agreement (NAFTA) formed in 1993 and the Association of Southeast
Asian Nations (ASEAN) AFTA project. By the end of 2002, the region
was host to a total of 45 FTA projects in various stages of
development, and by 2007 there were close to 150 bilateral FTA's
that were concluded or works-in-progress.
The FTA phenomenon has become a new defining feature of the
Asia-Pacific region's political economy, and bilateral FTAs are now
seen as the most viable way to advance freer trade in the region,
says Dent. They also constitute new mechanisms for cultivating
closer economic and political ties, such as the bilateral FTA
between Japan and South Korea that is playing an integral role in
the political reconciliation process.
Analysts say these FTAs have arisen from APEC's failure to play a
more assertive in pushing regional trade liberalization. Although
FTA's theoretically achieve the same free trade goals set out at
Bogor, they have challenged the guiding principles and modus
operandi of APEC's "open regionalism", said Dent.
APEC members have shown a preference for simultaneous and direct
quid pro quos in bilateral and multilateral trade deals, rather
than voluntarily contributing to a common pool of trade liberation
benefits from which all contributors may draw.
APEC's goal of concerted unilateral liberalization and the
voluntary EVSL program have been displaced by more bilateral
approaches to liberalization. FTA's preferential provisions,
analysts say, run against the fundamental multilateral principles
of both APEC and the WTO. FTA negotiations are time and resource
intensive and their growing number in the region may divert focus
from bigger regional groupings such as APEC or the WTO's Doha
Development Agenda, said Chiang.
The plethora of bilateral and regional trade agreements in the APEC
region is commonly referred to as the "noodle bowl" of agreements,
invoking the image of intersecting, overlapping-and potentially
confusing-trade arrangements that economies make with one another.
Such arrangements, which allow countries to more carefully
calibrate each trade relationship, make political sense for
governments. But from a trade perspective, the sheer number of
treaties increases the complexity, cost, and administrative burdens
of doing business in the region.
Various recommendations have been made, either within formal APEC
processes or on the informal sidelines, to keep APEC relevant and
its free trade goals on track. At a pre-summit symposium in Mexico
held in 2002, free-trade economist and long-standing APEC advocate
Fred Bergsten proposed that the organization should adopt a new
broad goal of realizing "shared prosperity in the region" in
parallel to the Bogor goals.
That, he said, would help to overcome entrenched resistance to
liberalization driven by the different backgrounds and stages of
development of APEC's member countries. Although the proposal did
not recommend fiscal redistribution among member states, or even a
move towards a European Union-type trade bloc, APEC leaders then
sidestepped the proposal and simply pledged "to continue and
accelerate" its movement towards the Bogor goals.
At the 2006 APEC meeting in Hanoi, Vietnam, the APEC Business
Advisory Council (ABAC), consisting of private sector members from
the region, called on APEC leaders to develop a trade and
investment alternative in the Asia-Pacific region in the form of an
overarching Free Trade Agreement Asia Pacific (FTAAP) to counter
the over-proliferation of regional and bilateral FTAs. APEC country
leaders agreed to discuss the feasibility of an FTAAP at the 2007
summit in Australia, but until now its framework has not
progressed.
At this week's summit, APEC chair Singapore has put a new emphasis
on supply-chain connectivity and aims to help trade by removing
various logistical barriers. While the topic is widely viewed as
practical to the APEC trading community, it will do little to
advance the more ambitious aim of creating an Asia-Pacific
free-trade bloc. But with a rising tide of protectionism among its
members, it's not clear how much time APEC has left.
Note:
1. The 21 members of APEC are: Australia; Brunei Darussalam;
Canada; Chile; People's Republic of China; Hong Kong, China;
Indonesia; Japan; Republic of Korea; Malaysia; Mexico; New Zealand;
Papua New Guinea; Peru; The Philippines; Russia; Singapore; Chinese
Taipei; Thailand; the United States, Vietnam.
Megawati Wijaya is a Singapore-based journalist. She may be
contacted at [email protected]
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