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. [1]
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
megawati.wijaya@gmail.com.
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