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Op-ed

APEC and Trade Liberalization: Towards Greater Integration

by Jeffrey J. Schott, Peterson Institute for International Economics

Op-ed in the Business Times, Singapore
November 10, 2009

© Business Times


Trade is the lifeblood of the Asia-Pacific economies. The 21 members of the Asia Pacific Economic Cooperation (APEC) forum account for almost 60 percent of world trade; bilateral trade among the APEC economies represents two-thirds of that total, valued at about $4,250 billion in 2007.

APEC's 20th anniversary is a fitting time to remember and reinvigorate its founding goal of economic cooperation.

Not surprisingly, APEC members—right from the outset when the group was formed in 1989—have been in the forefront of pushing for trade liberalization in bilateral, regional, and multilateral forums to create more opportunities for their enterprising industries and workers.

APEC's first decade was marked by several notable achievements.

First, APEC members worked together in late 1993 to push for the successful completion of the Uruguay Round, which was subsequently concluded and signed in April 1994.

Second, APEC leaders committed to a broad vision of regionwide free trade and investment at the Bogor Summit in 1994. In their Bogor Declaration, APEC leaders set a bold, albeit overly ambitious, goal of creating free trade and investment in the Asia-Pacific region by 2010 for the developed members and 2020 for the developing countries.

Third, following the lead of major business groups and the APEC Business Advisory Council (ABAC), APEC helped incubate a global agreement to eliminate barriers to trade in information technology products in 1996. The pact now has 70 signatories, and a substantial share of the $1.5 trillion in world trade in information technology products is now tariff free.

At first, APEC members sought to advance their liberalization agenda through a policy of "concerted unilateralism." Rather than negotiate commitments to lower trade barriers as traditionally done in the various global rounds of trade talks in Geneva, APEC members adopted a strategy of coordinating the incremental trade reforms that each country would pursue, on its own timetable, to progress toward the longer term Bogor Goals. Members developed "independent action plans" (IAPs) that were the subject of APEC reviews so that all could gauge the progress of others as they pursued their unilateral reform programs. In the event, IAPs fell victim to the crisis of the moment and failed to achieve their desired effects.

Concerted Bilateralism

While APEC members talked about concerted unilateralism, in practice they began to pursue an increasingly active policy of bilateralism. Since 2000, the APEC region has produced a large number of preferential trading pacts among subsets of its member economies, and still more are under negotiation or subject to preparatory studies. APEC's vision of regional free trade became increasingly blurred as this process of "concerted bilateralism" took off in Asia.

To some degree, these initiatives reflected a reaction to the Asian financial crisis of 1997–98 and the desire to develop regional responses to regional problems. To some extent, the interest derived from a desire to emulate the United States, which followed up on its own regional pact, the North American Free Trade Agreement or NAFTA, with new deals that spanned the Pacific with Singapore, Australia, and South Korea.

But while the United States is often "credited" with leading the advance of bilateralism in the region, the Asian countries actually have been more active than the United States, and China has been the catalyst of much of this commercial diplomacy.

China propelled the advance of Asian regionalism, starting with its overtures to the Association of Southeast Asian Nations (ASEAN). Japan and Korea emulated the Chinese initiative, leading to the existing array of agreements between the 10-member ASEAN and China, Japan, and Korea (the "10 + 1" pacts) and to speculation that the three major economies tied to ASEAN would in turn link up with each other into a "10 + 3" accord uniting the Northeast and Southeast Asian countries into a large Asian trading bloc.

Some applauded this growing integration of Pacific Asia; others worried that it would "draw a line down the center of the Pacific" and weaken US economic and political engagement in the region.

Reenter APEC, spurred by a few APEC members and business leaders who wanted to avoid an East-West fissure in the Asia-Pacific region and to rekindle interest in the original Bogor Goals of regional economic integration. In 2004 ABAC suggested that APEC revisit the original Bogor Goals and explore the feasibility of a "Free Trade Area of the Asia Pacific." Soon after, other proposals were vetted to expand existing bilateral trade initiatives into broader regional integration plans in East and Southeast Asia and across the Pacific. Japan then proposed a broader Asian integration scheme that could be subsequently linked to those in North America. APEC was charged with conducting a series of studies on these competing liberalization proposals, and the topic will be on the agenda of the forthcoming APEC Ministerial Meeting this week.

Broader Vision

Interestingly, the countries that led the formation of APEC two decades ago are now at the core of members seeking to revive its broad vision of economic cooperation and trade liberalization. Australia organized APEC and pushed the vision of Asia-Pacific economic integration; its current leader, Prime Minister Kevin Rudd, is now calling for a new Asia-Pacific community. Singapore has long been in the forefront of integration efforts in Asia and across the Pacific and is now participating in the evolving Trans-Pacific Partnership (TPP). The TPP seeks to harmonize the bilateral pacts already in force among participating countries, building on the ideas first put forward by its visionary minister, George Yeo, more than a decade ago.

APEC's 20th anniversary is a fitting time to remember and reinvigorate its founding goal of economic cooperation. Serious consideration should be given to how to transform the "concerted bilateralism" of the past two decades into an integrated Asia-Pacific pact. The process would almost surely have to be incremental, but such new initiatives could revive the Bogor vision of free trade and, more importantly, its fundamental goal of improving the economic welfare of all the people in the region.


RELATED LINKS

Speech: Should APEC Focus on Trade Liberalization? May 6, 2010

Speech: The Future of APEC and Its Core Agenda December 9, 2009

Paper: Submission to the USTR in Support of a Trans-Pacific Partnership Agreement January 25, 2010

Speech: Trade and the Global Economic Crisis: "If It's Not Part of the Solution, It's Part of the Problem" July 17, 2009

Policy Brief 09-16: Pacific Asia and the Asia Pacific: The Choices for APEC July 2009

Policy Brief 07-2: Toward a Free Trade Area of the Asia Pacific February 2007