APEC in 1999


The Effectiveness of APEC in Promoting Regional Economic Cooperation and Supporting the World Multilateral Trading Order

Introduction

              The objective of this paper is to evaluate the likely effectiveness of APEC (Asian-Pacific Economic Cooperation) as a means for promoting regional economic cooperation and supporting the world multilateral trading order. This paper is pursued to answer these following questions: Is APEC really a means for promoting regional economic cooperation and supporting the world multilateral trading order? If the answer is yes, then as a means for promoting regional economic cooperation and supporting the world multilateral trading order, what are the factors that probably make APEC effective? If the answer is no then what are the factors that probably prevent APEC from being effective? The examining of APEC’ s structure and initiatives with reference to the current political–economic situation in the Asia-Pacific region can be applied in helping us understand the effectiveness of APEC.

Conceptual Framework

              There are two aims in this context: promoting regional economic cooperation and supporting the World multilateral trading order (henceforth be known as the same as WTO (World Trade Organization)). The only one means to these two distinct aims is APEC. Below is the model that is fit with the conceptual framework of this paper.
           

              Both aims are the APEC’ s commitment. It is clear since the inaugural ministerial meeting in Canberra in 1989 that APEC’ s objective is to sustain growth and development in the region and to contribute to the growth of the world economy. The meeting in Singapore in 1990 established several work projects to foster the habit of cooperation and to demonstrate the benefits of economic cooperation. APEC ministers in Singapore issued a declaration underlining their commitment to a completion of the Uruguay Round as a demonstration of APEC’ s support for a strong, open multilateral system. The meeting in 1993 in Seattle which elevated the process of cooperation to the highest level of government put an affirmation of the importance of an open multilateral trading system and the determination of Asia Pacific leaders to lead the way in taking concrete steps to produce the strongest possible outcome from Uruguay Round (Drysdale, Elek and Soesastro 1998: 110). Again in 1994 Bogor Declaration stressed that the targets of free and open trade and investment in the region within 2010 for industrialized economies and within 2020 for developing economies were to be achieved in a GATT consistent manner. To this context, indicators telling us that APEC supports WTO are such as non-discriminatory trading arrangement, positive or no impact on non-member countries, reduction of trade barrier, elimination on tariff and non-tariff, unconditional principle of most-favored-nations and process of liberalization (Sassoon 1997).                             

Factors that make APEC effective


The conformity between the principle and APEC’ s nature structure

              APEC offers a new model of regional integration, quite different from the models of the European Union and the North American Free Trade Agreement. As agreed at its inaugural meeting in 1989, APEC is expected to be a more flexible and outward-looking regional forum, suited to the realities of Asia and the Pacific, which can be described as an “open economic association.” An OEA is (Drysdale and Elek 1997: 43-44)
- open in that its structure and policies do not lead to discrimination against trade and investment with nonmembers.
- economic in its primary policy focus on maintaining the high-growth performance of the region
- a voluntary association in that its members do not cede powers of regulation or enforcement to any supranational regional institution.
              The OEA is in compliance with the unique nature of APEC. The unique nature of APEC is not only the differences between APEC’ s members in term of economic level but also the differing political concept. The Anglo-American nations- the US, Canada, Australia and New Zealand- embrace the concept of liberalism, while in most of East Asia nations embrace the concept of state intervention (Beeson and Jayasuriya 1998: 323). Beeson and Jayasuriya (1998: 330) concluded that the lack of congruence within the Asia-Pacific region helps explain the ambiguous and contradictory discourse that accompanies APEC’ s reform agenda. The notion of “open regionalism”(Drysdale, Elek and Soessaatro 1998: 104-108), which encourages unilateral liberalization and an extension of APEC’s benefits to other nations on either a conditional or an unconditional basis, is designed to accommodate the interests of both the East Asians and the US.  Regarding to non-discrimination principle of APEC and the difference within APEC between the East and the West, Elek (1995) suggested that APEC must avoid a conventional discriminatory free trade area because the substantial elimination of trade barriers through the negotiation of a free trade area within a period of time would be divisive and delay the process of liberalization it was supposed to promote. Drysdale, Elek and Soesastro (1998: 107) proceeded that it would corrode the objective of community building and lead to the exclusion of major players inside the region as well as outside.
              The initiative of APEC’ s principles has taken into account the nature structure of APEC since the beginning. The conformity between the principles and the nature structure of APEC shares the elements of APEC’ s effectiveness.
 

Market driven integration of Asia-Pacific economic and unilateral liberalization

              One of unintentional activities that helps APEC stimulate the promoting of regional economic cooperation and supporting of the WTO is the market-driven integration of Asia-Pacific economies across political boundaries, which create even larger zones of integrated production for global markets. The most visible examples of this trend are the increasingly intertwined economies of Hong Kong, Taiwan and southern China and the “growth triangle” that links Singapore to neighboring parts of the Indonesian and Malaysian economies. Other less visible “production zones” are also evolving, driven by region-wide investment from Northeast Asia. These developments are fully consistent with the trend toward globalization of production and investment (Drysdale and Elek 1997: 40-41 and Lloyd 1996: 31).
              ASEAN (Association of Southeast Asian Nations) has demonstrated the patient confidence and consensus building can breed successful cooperation among diverse members. The ASEAN post-ministerial conferences are a productive forum involving most of APEC’ s original 12 participants (Drysdale and Elek: 41). An important feature of ASEAN is that its strength is based on building confident economic relations with the rest of the World, not on integration focused on intra-ASEAN trade (Drysdale and Elek: 68 footnote3). ASEAN countries have generally adopted fairly liberal trade regimes. The level of protection in these countries has been relatively low by developing standard (Ariff 1997:84).
              In the 1996 Manila Action Plan for APEC, ASEAN governments confirmed that, as well as liberalizing trade within AFTA (ASEAN Free Trade Area), they will also continue to lower tariffs unilaterally against all trading partners. Some of them, including Indonesia and the Philippines, have indicated that they will extend the liberalization committed with AFTA to all members of the WTO (Drysdale, Elek and Soesastro 1998: 121). Ariff (1997: 85) concluded that AFTA exercise is consistent and compatible with the globalist approach.
              Also, both Australia and New Zealand have lower trade barriers against the rest of the world while eliminating barriers to bilateral trade (Drysdale, Elek and Soesastro 1998: 121). Although NAFTA are not expected to extend the liberalization within preferential trading arrangement to other countries, in the long run NAFTA are committed to eliminate border barriers to trade and investment in the Asia Pacific (Drysdale, Elek and Soesastro 1998: 121). According to Bora (1996: 180), there was an announcement in Indonesia in 1994 that a Free Trade Area of the Americas was to be formed by 2005. 
              With reference to GATT’s statistics, there are countries in APEC that have undertaken unilateral reduction in protection (Lloyd 1996: 30, 38) such as Japan, South Korea, China, Indonesia, Thailand, the Philippines, Malaysia, Singapore, Australia and New Zealand. Many of the reductions in Asian countries have been substantial.

APEC’ s long-time experience concept

              APEC started in November 1989 but the concept behind APEC was long before (Funabashi 1995, Soesastro 1994, Woods 1993, Drysdale 1988). As Drysdale and Elek (1997:39) pointed out, the region’s strong commitment has provided the intellectual formation for every major initiative for economic cooperation in the Asia-Pacific region for more than thirty years, from the formation of the Pacific Basin Economic Council (PBEC) and the Pacific Trade and Development Conference (PAFTAD) series, through the formation of the Pacific Economic Cooperation Council (PECC) and the APEC process. The essential idea was that the complementarily between the advanced industrial economies and the developing economies of the region meant that there were large gains to be secured through increased trade (MacIntyre 1997: 226). PECC brought together tripartite teams of academic economists, business people and government officials (participating in an unofficial capacity) from twenty countries around the Pacific in which representatives of both PAFTAD and PBEC were included. PECC was, in effect, the forerunner to APEC. The key change that came with the launching of APEC was the agreement among participating countries to elevate regional economic cooperation to a fully fledged and exclusively intergovernmental institution. PECC continue to formation as an important source of ideas for APEC, but the creation of APEC as an institute bringing government ministers and now heads of state together was indicative of a desire for greater policy action (MacIntyre 1997:227) and greater effectiveness of APEC.

Serious coordination, step-by-step development, and flexibility

              From the beginning in 1989 to 1998 APEC has shown its step by step development, and serious and flexibility to the current political-economic situation in the Asia-Pacific region. These factors have contributed to the effectiveness of APEC.
              The meeting Canberra in 1989 at the time of uncertainty in Uruguay Round and at the time of East Asia economic prosperity agreed on the basic principles which would guide APEC, focused on economic issues to advance common interests and foster constructive interdependence by encouraging the flow of goods, services, capital and technology. The establishment of several work projects had shown a significant development in APEC as it promoted the initiation of regional networks among various government agencies. The meeting in Singapore issued a declaration underlining their commitment to the Uruguay Round as a demonstration of APEC’ s support for a strong, open multilateral system. The meeting in Soul in 1991 stated that APEC’ s mode of operation (including exchange of information and consultation on relevant economic policies; development of strategies to reduce impediments to trade and investment; and promotion of economic and technical cooperation) is based on mutual benefit, a commitment to open dialogue and consensus building and cooperation through consultation and exchange of view. At that time it was the first time that the three Chinas were admitted as members- China, Hong Kong and Taiwan. In Bangkok in 1992, the meeting agreed to set up permanent international secretariat located in Singapore (APECSEC 1999a). In Seattle in 1993 it was the beginning of the highest level of government’ s meeting of APEC. In this meeting, sample of initiatives included the convening of meeting of APEC finance ministers, of APEC ministers involved with small and medium-size business enterprises, the establishment of a Pacific Business Forum (now the Asia Pacific Business Advisory Council (APBAC)) and the development of a non-binding code of principles covering investment issues (APECSEC 1999b).
              A sign of seriousness in Indonesia in 1994 is the setting of goal of free and open trade and investment in the region by no later than 2010 for industrialized economies, and no later than 2020 for developing economies (APECSEC 1999c). The meeting in Japan, the Philippines and Canada in 1995, 1996 and 1997 respectively shown a step by step development following the meeting in 1994 by producing an Action Agenda forcing APEC process to be on track, indicating the elimination of all border barriers to trade and investment and the reduction of all other impediments to international economic transactions. Both individual and collective action plans make APEC’ s development in promoting regional economic cooperation and supporting the WTO more substantial (APECSEC 1999d).
              In term of flexibility here, it is not only regarding APEC’ s flexible approach that makes it possible for Asia Pacific governments to set their own priorities and schedules for liberalization (Drysdale, Elek and Soesastro 1998: 119) but also regarding APEC’ s flexible approach that makes it coincide with the current political-economic situation in the Asia-Pacific region. In Malaysia in 1998 APEC showed its flexibility by preoccupying its discussion topic into the financial crisis (APECSEC 1999e).
              In conclusion, APEC is not just a tentative annual meeting of regional foreign ministers; there are regular meeting, various senior officials meeting, more than a dozen “working groups” dealing with different sectoral issue (such as Trade and Investment Data group, Trade Promotion group, Human Resource Development group, Energy Cooperation group, Tourism group, Investment and Industrial Science and Technology group, etc.), a small secretariat, a private sector advisory organization (the APEC Business Advisory Council), and independent research capabilities through designated APEC studies centers in universities around the region (MacIntyre 1997: 229)

Factors that make APEC not effective


Differences in concept of thought between the East and the West

              Around the time of the fifth annual meeting of the foreign and trade ministers of the APEC forum, held in Seattle in November 1993 the US seemed to put forward an agenda for institution building (Watanabe 1995: 192): the establishment of decision-making mechanisms that would make possible binding international agreements among APEC members addressing economic issues (notably trade and investment). The US’ s initiative was given a cool reception, however, by an Asian contingent wary of hastily institutionalizing APEC, which had originally been formed as a loose consultative forum (Watanabe: 192). Most of the members have shied away from talk of rapid institutionalization and shown a marked preference for a process-oriented rather than a result-oriented approach to regional cooperation. This paper is not to argue that APEC should or should not forward itself to the process of institutionalization. The point here is that the different thought about APEC may lead to the difficulty in making consensus in fulfilling the APEC’ s aims or, in other words, lead to ineffectiveness of APEC. As MacIntyre (1997: 227-8) went on further that the ASEAN states were – and, as will be seen, in some respects remain – ambivalent about the creation of APEC. One of their worry was that APEC would be dominated by the West, especially the US (Snape 1996: 59). However, because ASEAN was the only relevant and coherent subregional association in the Pacific, South-East Asia enjoyed an enhanced bargaining position in the early years of APEC’ s existence. For example, it was clear at the outset that unless the ASEAN states collectively were satisfied with the proposed framework for APEC, it could not proceed because of their potential to impose a bloc vote veto.  Southeast Asian concerns to guard against the possibility of APEC becoming a forceful and strictly rules-based organization dominated by the advanced industrial economies were strongly reflected in the original agreement reached in Canberra in 1989, and were codified shortly after in early 1990 with the adoption of a formal ASEAN policy document (MacIntyre 1997: 230). Moreover, in a direct sign of guarding against the US, in December 1990 the Malaysian Prime Minister, Dr. Mahathir Mohamad, floated a proposal for an alternative regional organization for Asian only: an East Asian Economic Group (EAEG). In the context of the apparent slide towards protectionism and defensive regionalism in Europe and the Americas at the time, this move was generally interpreted as an alarming challenge by the Western countries of the region and encouraged images of a discriminatory Asian trading bloc (MacIntyre 1997: 230).

Paradox of its own concept

              The initiate concept of APEC from the beginning do not strictly put APEC into a forceful regional institution. Two of the core organizing principles of APEC were the notions of “open regionalism” and governance by voluntary and consensus basis. In essence, open regionalism refers to a pattern of regional economic cooperation which is open to all comers and does not discriminate against other countries. APEC stands in contrast to the organizing principles of the other major frameworks for international economic cooperation (such as EU, NAFTA). APEC operates on a voluntary and consensual basic, rather than in a formalized manner governed by binding ruling. The logic behind the consensus principle is to guard against the possibility of unwanted commitments being forced upon members (especially ASEAN countries and the other East Asian members) (MacIntyre: 236).
              MacIntype (1997:236) cited a number of writers (Aggarwal 1994; Kahler 1994; Fane 1995; Ravenhill 1995) who had argued that these organizing principles are politically naÃŊve and effectively preclude the possibility of  APEC making significant headway with economic policy coordination. They argued that without specific reciprocity requirements the incentives for individual countries to free ride on the back of the efforts of those who volunteer to liberalize first will be such as to undermine the whole process of cooperation. Countries which do liberalise will be unwilling to move further if their concessions are not reciprocated. This problem of incentives for cooperation is further compounded by the fact that APEC rules extend benefits not just to APEC countries, but to any country at all (MacIntyre: 236). Furthermore, if it is true that participants in Asia Pacific has gone liberalization unilaterally, then it is not necessary for APEC to exist (Fane 1995 and Ravenhill 1995).
              More examples of paradox of APEC’ s own concept could be drawn here.
-If APEC’ s principle is voluntary, why APEC set the deadline for its trade liberalization. Since APEC’ s flexible approach makes it possible for Asia Pacific governments to set their own priorities and schedules for liberalization, so why there are such deadline.
-The principle of comprehensiveness combined with the principle of flexibility confirm that while members can determine the sequence of policy adjustments, “sensitive” sectors and policy issues will not be excluded from the agreed target dates for free and open trade and investment (Drysdale, Elek and Soesastro: 111). In this sense, the conflict is that “comprehensive” is a matter of compulsory while “flexibility” is a matter of voluntary.

Uncertainty of the cooperation

              Uncertainty of the cooperation among APEC members could be expected. Entrenched attitudes to trade negotiations and resentment against the small fraction of the potential benefits which would accrue to non-participants might preclude APEC- wide non-discriminatory initiatives --this is the so-called free-rider problem. Even subregional agreements within APEC may be even harder to achieve, due to the greater share of potential gains accruing to free-riders (Elek 1994: 215).
              To some academists, they have seen a lack of institutional development as indicating limited progress at best in regional economic cooperation. For an effective cooperation, they must be based upon formal rules, international treaties and implementing or enforcing organization. To this logic, it is uncertain for effectiveness of APEC – cooperation that are based on informal contractual agreements – to fulfill its aims.

Conclusion  

              The likely effectiveness of APEC cannot be drawn in a clear line. In static term or in the short run, there is no clear answer that yes, APEC is effective; or no, APEC is not effective. Therefore, it is appropriate to implant the level or degree of APEC’ s effectiveness as shown in this paper’ s conceptual framework. The answer to the effectiveness also depends must on how one interprets the outcome/performance/meaning/idea concerning APEC. Harris (1993: 271) put it this way: the benefits of economic cooperation are obviously greater if cooperation is interpreted widely rather than narrowly. Those seeking increased economic cooperation in the Asia-Pacific region would certainly argue against a narrow interpretation.
              In general, it is difficult to set criteria in judging the effectiveness of an international organization or regional economic agreement. Actually, we do not know which regional economic agreement is the best one that is fit to all kind of regional arrangements. Each regional economic agreement has its own history, nature and experience. If we said that the EU is the best regional arrangement and should be set as criteria for other regional arrangements, APEC would never be effective. APEC is unique in its own nature. Its objective is not only to promote regional economic cooperation but also to support the world multilateral order. If APEC’ s objective were only to promote regional economic cooperation, it would be, to some extent, close to the EU or NAFTA. If APEC’ s objective were only to support the WTO, it would be regarded as WTO’ s subsidiary.
              By considering both factors that probably make APEC effective and not effective, APEC in dynamic term or in the long run would be able to share the high level of APEC’ s effectiveness in promoting regional economic cooperation and supporting the WTO. In the long run, factors that make APEC not effective would be faded for following reasons:
1.In the long run, policy makers in both the West and the East would realize that less formal methods of collective action, based on conventions and collective understandings of the rules of conduct, may be workable as guides to international cooperation. Even the General Agreement on Tariffs and Trade (GATT) or WTO, although a formal contractual arrangement, depends upon such informal understandings and guidelines (Harris, 272).
2.Given the growing intra-regional trade and investment links, the need for further stimulation of closer economic cooperation may seem redundant. Yet because countries in the region are becoming economically integrated in production as well as trade, policies being developed nationally for each economy in the region increasingly impinge upon other economies in the region. Activities in one regional country are, therefore, becoming more sensitive to developments elsewhere in the regions. Globally much of the underpinning of economic interaction, and the channels of communication which provide and diffuse the information flows on which market transaction depend, reflect extensive networks of business, professional and scientific contacts. In the Asia Pacific region, as elsewhere, professional, business or scientific bodies with regional-wide groups or subgroups contribute to greater understanding among the countries of the region, or help expand information flows (Harris, 276). In short, information gap between the West and the East will be diminished.
3.Because in the Asia-Pacific region there are wide differences in political systems, institution and economic systems, there remains a limited region-wide congruence of economic objectives or understanding. Nevertheless, as with trade policy, experience has indicated that over time some convergence of expectations and understandings can be achieved to facilitate common interpretations of actions and, increasingly, their future coordination. Considerable time will be required, however, before the common acceptance of objectives and practices experienced in Europe or North America is achieved (Harris, 284).

  








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