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Working Paper 96-12

APEC in 1996 and Beyond: The Subic Summit

by C. Fred Bergsten, Peterson Institute for International Economics

© Institute for International Economics

At their initial summit in Seattle in 1993, the APEC leaders decided to create "a community of Asia Pacific economies" and spurred the successful conclusion of the Uruguay Round in the GATT. In Indonesia in 1994, the leaders agreed via their Bogor Declaration "to achieve free and open trade and investment in the region" by dates certain--2010 for the industrial countries that make up 85 percent of APEC trade and 2020 for the rest. This is potentially the most sweeping trade agreement in history, committing half the world economy to eliminate all barriers to exchange among them. In addition, APEC has consistently pledged to promote further liberalization of the global trading system under its doctrine of "open regionalism."

These bold initiatives provide APEC with a clear vision and policy goal. The next step is implementation. The Osaka summit in 1995 began the process by adopting an Action Agenda that sets out the principles, the menu of issues and the timetables through which APEC's political commitments will be translated into tangible results. The leaders at Osaka pledged to commence APEC liberalization in January 1997.

The Subic summit in the Philippines in November 1996 will be a crucial milestone in the evolution of APEC. It will be the first real test of whether the member countries mean what they have said. The leaders at Osaka directed their ministers and officials to prepare Individual Action Plans (IAPs) through which each country is to specify by Subic how it intends to move toward free trade by 2010/2020. The officials are also to develop Collective Action Plans (CAPs) through which the group will move together to facilitate trade and investment in the region. A chief goal of the Subic summit is to approve and implement both.

APEC faces another important challenge in late 1996. Shortly after Subic, the new World Trade Organization (WTO) will hold its first Ministerial Conference in nearby Singapore to chart the course for the global trading system into the early twenty-first century. APEC's commitment to continue playing a leadership role in the multilateral system, as well as to effectively carry out its own regional program, will thus be tested as well in the very near future.

Under the chairmanship of the Philippines, the APEC members have spent most of 1996 preparing their IAPs and CAPs. The tasks are complex, both intellectually and politically. They are necessarily laborious and timeconsuming. It would be too much to expect comprehensive liberalization programs to emerge in a single year.

But the results to date are disappointing. The United States and Japan, the two largest economies in APEC (and the world), faced nationwide elections and have thus resisted significant new liberalization. Indonesia, whose leadership was pivotal in forging the Bogor Declaration in 1994, adopted illiberal policies in several key sectors. A few of the smaller countries have taken constructive first steps. But the IAPs seem unlikely to provide convincing evidence that APEC is moving ahead, and could instead trigger widespread skepticism about the seriousness of the exercise.

The CAPs are likewise proceeding slowly. Useful progress will be made toward harmonizing and modernizing customs practices throughout the region. Some countries may adopt a "business visa" to speed commercial travel. There is a start toward forging Mutual Recognition Agreements (MRAs) to reduce the adverse trade impact of differing national standards. Here too, however, little tangible progress can be reported.

Nor has APEC yet coalesced around a leadership position for the WTO Ministerial in Singapore. Its trade ministers met in July but produced only vague generalizations. The European Union and others continue to ask whether APEC will actually do what it says it intends to.

There is thus a serious risk of failure at Subic. On present readings, the members will have very little to implement in January 1997. As noted, last year's outcome at Osaka was largely procedural; its intention of producing "down payments" on tangible liberalization to complement the Action Agenda elicited little response. A second year of inaction will raise serious doubts both within APEC countries themselves and around the world.

The obvious remedy is for the APEC leaders to again lead, as they did at Seattle and Bogor. (They were precluded from doing so at Osaka both by the technical nature of the Action Agenda and by the Japanese leadership style, where bureaucrats make virtually all the decisions and leave little or no room even for their own leader.) They must reach beyond the menu handed them by their ministers and officials, as they did on both those occasions, to revive the momentum and credibility of the APEC process.

Several ways to do so have already been proposed. The members of the Association of South East Asian Nations (ASEAN) could galvanize APEC's own liberalization by extending to all of APEC the move to free trade by 2003 already worked out in their own subregional arrangement (the ASEAN Free Trade Arrangement, or AFTA). The Philippine chair and Indonesia have already moved substantially in this direction on their own and should be able to win agreement from their partners to do so, in light of ASEAN's desire to maintain its central position in APEC. Such a challenge from APEC's developing countries would surely stimulate the richer members to fulfill their liberalization pledges as well.

APEC could also adopt an Information Technology Agreement (ITA) to eliminate by 2000 all tariffs in this critical sector, ranging from semiconductors through consumer electronics to computer hardware and software. This has been the main trade initiative of the United States in 1996, utilizing most of its existing Congressional authority. It would be of great benefit to every APEC country, most of which export such products and all of which would gain from cutting the cost of such critical inputs to their own economies.

A successful ITA would need to include the European Union and a few other countries, however, so APEC should condition its adoption on their full participation. APEC could agree on such a strategy at Subic and take the proposal into the WTO at Singapore, simultaneously indicating its readiness to enact tangible liberalization in a sizable sector and its willingness to globalize its initiatives.

With its credibility established through such a concrete proposal, APEC could simultaneously broaden its challenge to the world trading community by inviting the WTO as a whole to emulate APEC's own commitment to achieve free trade by 2010/2020. Over 60 percent of world trade is already free, or en route to complete liberalization, through regional trading arrangements ranging from the European Union through NAFTA and AFTA to the Free Trade Area of the Americans and APEC itself. There is a strong case for moving now to globalize the free trade approach, to avoid the inconsistencies that will otherwise increasingly occur across the regionals and to avoid the risk of conflict among them. APEC could also propose the early launch of a comprehensive new WTO negotiation, which would inevitably be called the "APEC Round," to begin moving toward this ultimate objective.

The combination of such free trade proposals and an ITA would have a dramatic impact on both APEC and the WTO. APEC would decisively demonstrate its fidelity to "open regionalism." It would assert leadership of the global trading system. It would silence the skeptics who doubt its willingness to act decisively as well as to set ambitious goals. It would achieve major triumphs at both Subic and Singapore.

The APEC agenda of course ranges beyond trade and investment liberalization. As already noted, it pursues trade facilitation as well. It seeks broader economic cooperation among its members. It is trying to build a true community in the region. It has held nine ministerial conferences in 1996, across a wide range of topics, and nine more are scheduled for 1997.

But APEC has captured the imagination of both its own members and the rest of the world by its bold liberalization initiatives. It played a crucial role in the final success of the Uruguay Round. It has set the most ambitious liberalization goal in history. The Subic summit will inevitably be judged primarily by APEC's ability to sustain and reinforce the momentum from those earlier breakthroughs. The proposed initiatives are well within the grasp of the leaders. Their adoption would install APEC definitively as a permanent bulwark of regional cooperation and a decisive force for world prosperity and stability.


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