Tuesday, September 18, 2007

Apec should get real

Sadly, hopes that Apec would provide a valuable arena in which to pursue the goal of open markets for trade and investment have fizzled. As the trade agenda has weakened, interest in Apec around the region has waned, and some nations have turned their attention to other regional or bilateral agendas.—Edward B. Lincoln, Brookings Institution, Washington DC, December 2001

The conclusion of the meeting by Apec leaders about two weeks ago was pure ho-hum that it didn’t even merit any story from prominent newspapers like Wall Street Journal. It was as if the meeting didn’t happen at all. The International Herald Tribune online did banner the story in its Asia-Pacific section, but the article said it as what the meeting really was a junket for politicians that “fizzled into an inconclusive end.”

The ministers actually managed to come up with some vague statements on climate change, energy security and a code of conduct on corruption. But observers read these statements with a yawn as these simply highlighted the lack of tangible progress on trade and investment liberalization, the raison d’etre of the organization.

The last Apec summit should be a big disappointment for many who see it as a possible forum for resuscitating the Doha Round of trade negotiations that gave so much promise to the developing world.

Apec actually played that role when the Uruguay Round of trade negotiations under the General Agreement of Trade and Tariff (GATT) was sputtering due to the continued resistance of the European Community to subject agriculture to the trade-reform effort.

When Apec economies, however, issued the Bogor Declaration on November 15, 1994, calling for Asia-Pacific free trade starting 2010, Europe noticed and started softening on the draft agreement in agriculture, leading to the conclusion of the Uruguay Round of Trade Agreement (Gatt) in Marrakesh, Morroco, in 1994. That day, developed economies promised to do away with trade and investment barriers by 2010 and the developing economies by 2020.

In 1997 Apec members decided on the acceleration of the removal of tariffs on information-technology products, a landmark agreement that was eventually adopted by the World Trade Organization (WTO).

Since then, however, Apec started to drift into irrelevance as it has started moving away from its economic thrusts, especially after 9/11, when America’s attention shifted to the “war on terror.”

Some analysts, however, have been saying the problem lies in the structure of Apec itself, especially on how it does its business.

One such weakness is Apec’s belief in “open regionalism.” It means that members of Apec are supposed to eliminate barriers to trade and investments on a “most-favored-nation” basis, meaning that members and nonmembers alike benefit from the trade reform.

Economists would love this concept, but it appears to be naive since other countries wouldn’t have the incentive to offer concessions in return since they enjoy free-rider benefits. Let’s face it, even the most ardent admirer of free trade thinks like a mercantilist when it comes to trade talks.

Compounding this problem is its adoption of the principle of “concerted unilateralism. Under the WTO, countries negotiate concessions from each other. In Apec, members are supposed to voluntarily remove investment and trade barriers through individual action plans (IAP).

The results have been that most IAP simply echoed their commitments with the WTO, with no real tangible results except annual photo-ops of presidents and prime ministers wearing national costumes of the host country.

It has become a social club where leaders are not supposed to tax each other’s patience with real demands for real reforms in trade and investments, an annual masquerade ball that is fast drifting into irrelevance. Proof of this is the growth of the bilateral free-trade agreements between and among Apec members, a process that has undercut the influence of Apec as an economic forum.

Solution? Experts like Alan Oxley from Monash University think the economic grouping should now have a new mission focused on “growth and productivity.” That is certainly a laudable objective, but such a thrust would simply undermine further Apec’s relevance.

If its members want to remain relevant, it should stay within its core objective of promoting trade and investment liberalization, where growth and productivity are certainly assumptions.

It should consider reforming its ways of doing things and adopt what Edward Lincoln and Kenneth Flamm (analysts from the Washinton DC-based Brookings Institution, a think tank) consider as “open reciprocal regionalism.” Members should start negotiating among themselves, and the benefits of trade reform should accrue to all who reciprocate such reforms.

This way Apec could achieve three things. First, members would get serious in preparing their trade and investment-liberalization action plans. Second, the group would be able to address the free-rider problem inherent in its current setup. And third—who knows, Europe and the rest of the world might yet be interested in reviving the stalled Doha Round.

And why not? Apec certainly has the pull for it accounts for more than half of world trade and counts among its members the world’s largest and fastest-growing economies, including the US, Japan, Australia, Korea, Taiwan, China and India.

All Apec needs to do now is get real.

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