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News Release

Implementation of Free Trade Program Proposed for Upcoming APEC Summit

August 25, 1995

Contact:    C. Fred Bergsten    (202) 328-9000
    Gary Clyde Hufbauer    (202) 328-9000

Washington, DC—At their summit conference in Indonesia in November 1994, the eighteen member countries of the Asia Pacific Economic Cooperation forum (APEC)—which account for one half the world economy—decided "to achieve free and open trade and investment" in the region by 2010 (for the industrial countries that make up 85 percent of its trade) or 2020 (for the developing countries). When they meet again in Japan on November 19 of this year, the APEC heads of government should take the following steps to begin implementing that commitment:

  • acceleration by 50 percent of the reductions in tariffs and other trade barriers that they already agreed in the Uruguay Round at the GATT;
  • installation of a Dispute Mediation Service to help resolve the trade conflicts that pervade the region;
  • coordination in applying their national antitrust policies to the corporate practices that lie at the heart of many of the current disputes, especially between the United States and Japan;
  • harmonization of product standards and testing procedures to facilitate greater trade and investment in the region; and
  • strong support for a new "early warning system" and Emergency Financing Mechanism at the International Monetary Fund to protect the region against Mexico-type financial crises.

These are five of the major recommendations of the Third Report of the APEC Eminent Persons Group (EPG). The EPG presented its Report today in Tokyo to Prime Minister Tomiichi Murayama of Japan, this year\'s chairman of APEC, who will convey it to the Leaders of the other member governments. Entitled Implementing the APEC Vision, the Report is being released simultaneously in all APEC member countries.

The first APEC summit, hosted by President Bill Clinton at Seattle in November 1993, launched the "community of Asia Pacific economies" and "welcomed the challenge ... to achieve free trade in the Asia Pacific" presented in the initial EPG Report. The second APEC summit, hosted by President Soeharto in Indonesia as noted above, adopted the EPG proposal to commit the region to achieve free trade by a date certain. On that occasion, the APEC Leaders asked the EPG to provide them "with assessments of the progress of APEC" and for "further recommendations for stepping up our cooperation." The new Report provides proposals for consideration at this year's summit, which will be attended by President Clinton and the Leaders of the other APEC members.

Accelerating Trade Liberalization

The APEC Leaders decided in Indonesia "to accelerate the implementation of our Uruguay Round commitments." The EPG recommends that they do so via a "50 percent rule":

  • the industrial countries should cut in half the period for reducing their tariffs (from 4 years to 2), their agricultural subsidies (from 6 years to 3) and/or the value of imports covered in each stage of the 10-year phaseout of their textile and apparel quotas; and
  • the developing countries should cut in half the period for their accepting the agreed international rules on intellectual property rights (from 4 years to 2), trade-related investment measures (from 5 years to 2 1/2) and/or export subsides (mainly from 8 years to 5).
  • Trade disputes, notably between the United States and Japan but between many other pairs of countries as well, threaten both economic progress and overall relations in the Asia Pacific. Hence APEC should immediately install a Dispute Mediation Service that would:
  • supplement the dispute settlement mechanism of the World Trade Organization, which excludes issues not covered by the WTO (including antitrust and most investment and government procurement policies);
  • emphasize mediation and conciliation rather than legalistic arbitration; and
  • feature "shuttle diplomacy" by a respected mediator attempting to resolve differences between the disputants and foster agreement between them.

The APEC Leaders in Indonesia decided "to undertake work aimed at deepening and broadening the outcome of the Uruguay Round." The EPG recommends that they do so initially by directing their governments to:

  • terminate abusive implementation of national antidumping policies;
  • cooperate immediately in applying their national competition (antitrust) policies and launch a comprehensive examination of the prospects for reducing differences in those policies over time;
  • align national product standards with international norms, and negotiate mutual recognition agreements on acceptance of test data and product certification to achieve the goal of "tested once, accepted everywhere in APEC"; and
  • strengthen the "nonbinding investment principles" (NBIP) agreed by APEC in 1994 in the five areas where an EPG assessment found them to fall short of desirable international standards, then apply them in national investment policies and finally convert the NBIP into a voluntary code and perhaps ultimately a binding APEC agreement.

Toward Open Subregionalism

The APEC summit in Indonesia also asked the EPG to "review the interrelationships between APEC and the existing subregional arrangements"—NAFTA, the ASEAN Free Trade Agreement (AFTA) and the Australia-New Zealand Free Trade Area. The EPG also considered the relationship between APEC and the Free Trade Area of the Americas that was agreed by the 34 nations of the Western Hemisphere at Miami in December 1994. The Report concludes that:

  • the subregional trading arrangements (SRTAs) can support the broader APEC (and global) liberalization process only if pursued within the principles of "open subregionalism";
  • this requires them to be fully consistent with the rules of the WTO, to submit to review of their performance by both the WTO and APEC itself, and to offer the benefits of their trade liberalization to other APEC members on a reciprocal basis;
  • if these conditions cannot be met, there should be no acceleration in the activities of the existing SRTAs nor linkups between them.

Other Issues

The EPG also recommends that APEC members deepen their cooperation on macroeconomic and monetary issues, as already begun via the first two annual meetings of their Finance Ministers. In the wake of the Mexican crisis of late 1994-early 1995, which adversely affected a number of other APEC countries as well, the Report proposes that the Osaka summit lend strong support to the initiatives proposed in this area at the G-7 summit in Halifax in June 1995. The APEC countries themselves should:

  • provide and publish full and timely data on their own economies, to increase transparency and thereby enable the private financial markets to perform more effectively;
  • support conveyance of sharper and franker IMF advice to countries that appear to be avoiding necessary adjustment actions; and
  • where consistent with their capabilities, contribute resources to help fund the new Emergency Financing Mechanism at the IMF (and be afforded a corresponding role in the decisionmaking process on using those funds and on international monetary issues more broadly).

Finally, the EPG recommends that APEC launch a four-part program to promote development and technical cooperation among its members:

  • adoption of a set of governing principles for APEC development cooperation;
  • application of the principles to a new APEC Technical Cooperation Initiative;
  • liberalization of APEC\'s decision-making in this area; and
  • launching an APEC Infrastructure 2020 program, on a priority basis, to build both human and physical capacity in the region that will support the process of trade and investment liberalization.

Conclusion

The membership of APEC accounts for about 40 percent of the world\'s population and one half its economic output. Its Bogor Declaration of November 1994, by agreeing to achieve free trade and investment in the region, was potentially the most far-reaching trade agreement of all time.

APEC has thus concluded the first stage of its evolution: setting goals and objectives. It is now entering its second, more difficult, stage: translating those goals into reality. The Osaka summit will represent a key step along that path.

APEC has already recorded several noteworthy achievements: a decisive impact in bringing the Uruguay Round to a successful conclusion in the GATT in late 1993, agreement on the investment principles in 1994, further unilateral liberalization and deregulation by a number of it members, annualization of its summit meetings and extensive progress on a wide range of highly practical trade facilitation issues. The EPG concludes that it is essential for the APEC Leaders to build on this progress by agreeing at Osaka on both the process for achieving free trade, which is being worked out by the senior officials of the member countries, and on initial substantive steps-the "down payment" on liberalization—as recommended in its new Report.

The promise of APEC is enormous. However, disputes in the region are extensive. Deviations from multilateral norms are frequent. It is thus urgent that the Osaka summit renew the momentum of Seattle and Bogor and provide convincing evidence that APEC can make a major contribution to regional and global trade liberalization, and thus to the creation of a true community of Asia Pacific economies.