Global Policy Forum

By Alan Boyd

In the end it was left to Philippine President Gloria Macapagal-Arroyo to express Third World frustrations at another fruitless exercise in trade diplomacy. Taking aim at the annual gathering of Asia Pacific Economic Cooperation (APEC) leaders in the Mexican resort of Los Cabos, the Philippine leader accused the United States and Japan of abdicating their economic leadership. "They preach trade liberalization but they practice protectionism," she said, after the forum failed - for the 14th successive year - to match its stirring rhetoric with achievable reforms.

Less publicly, other Asian leaders were furious that the summit agenda had in effect been hijacked by US President George W Bush to galvanize support for his sagging military alliance against Iraq, while pressing economic issues were sidelined - issues such as the development of deprived regions that serve as breeding grounds for the same extremists that Bush claims were behind the September 2001 terrorism attacks.

While few doubted Bush's contention that terrorism and economic development are interlinked, many Asian delegations felt that the balance, with its overriding focus on security, was all wrong. As Arroyo noted, counter-terrorism measures such as border and trade restrictions often have the undesirable effect of weakening local economies and pushing more into terrorist ranks. "My concern is how the terrorists have shifted our attention away from how to work to make the global economy thrive. And if we neglect the economic imperatives at this time when we're so concerned with terrorism, we would be feeding on terrorism by promoting, hunger, disease and ignorance," she said.

APEC has always struggled to reconcile its regional focus with the more global vision of the United States, which wants to create an effective counterweight to Western European influence in the World Trade Organization. There has never been any dispute over the importance of the WTO linkage; rather, the problem is that this is being allowed to overshadow APEC's fundamental purpose of encouraging economic interdependency.

The forum's inability to advance much beyond an annual burst of consultation and dialogue reflects structural flaws that were imbedded in its charter by the 12 original members in 1989. Anxious to avoid the confrontational politics of the European Union, the founders adopted three core principles that have ultimately proved unworkable: consensus, voluntarism and unilateralism.

Membership in APEC requires a verbal commitment to reform and cooperation that is not enforceable. There are no formal agreements, and each state progresses at its own pace within self-determined parameters. If it sounds like the same state of inertia achieved by the Association of Southeast Asian Nations, then it probably is: ASEAN also comprises the biggest membership base for APEC.

Without a reporting mechanism for monitoring the level of individual progress, APEC lacks the means to formulate collective goals. A commendable reforms agenda is on the table, but always just out of reach. A particular source of discord is the forum's failure to honor trade- liberalization commitments that were made during the Uruguay Round of negotiations for the General Agreement on Tariffs and Trade (GATT), predecessor to the WTO. All of which undermines APEC's bargaining position as it lobbies the EU to support development goals that were adopted at the last WTO ministerial meeting in Doha, Qatar, last November.

This is not to suggest that APEC has been a failure. Dialogue has resulted in greater cooperation in such fields as education, health, telecommunications, small business, labor standards and environmental protection. The forum played the central part in the WTO's adoption of an agreement on information-technology products in 1996 that now covers more than 90 percent of the global trade in these goods. Technology transfers have been slower, but some regions have benefited. Even the summits themselves serve as a valuable conduit for building confidence and defusing potential trade conflicts.

But APEC's success will be judged against the lofty liberalization objectives that were set right at the start, and it is here that the questions are being asked.

"Even those sympathetic to APEC's vision, goals and methods ... have become increasingly concerned about the organization's lack of progress toward its stated goals," the World Bank reported in a recent study. "A greater prioritization of reform initiatives, a willingness to codify commitments and to back them up with strengthened evaluation and enforcement mechanisms, and, perhaps most important of all, a move toward collective rather than unilateral commitment to implementation will be needed to turn APEC's long- term goals into reality," the WB stated.

As it stands, the voluntary reform strategy encourages the more advanced countries to dismantle trade and investment barriers and open their markets by 2010. Developing states have until 2020 to meet these targets - if they wish. Average tariffs have already fallen from a high of 12 percent in 1995 to less than 8 percent, with two-thirds of goods imported within the APEC membership area goods now attracting duty of less than 5 percent.

However, these gains were partially achieved through parallel negotiations in the ASEAN Free Trade Area (AFTA) and the North American Free Trade Area (NAFTA), as well as a host of bilateral pacts.

It is the drift toward bilateral free trade zones (FTZs) that offers the clearest evidence of declining confidence in APEC, and for that matter the other regional trade groupings. Singapore, South Korea, Japan, and Australia were all involved in FTZ meetings on the sidelines of the Los Cabos summit, along with their Pacific partners. China discussed the timetable for a pending agreement with ASEAN. An "ASEAN Plus Three" dialogue is under way between the Southeast Asian states and China, South Korea and Japan that could create one of the world's biggest FTZs totally outside APEC.

Even Washington, which had remained aloof from the initial rush of bilateral negotiations, signaled that it was ready to establish a new market linkage with ASEAN that will probably become an FTZ. Collectively, these pacts have the potential to undermine the workings of APEC. But equally, they could create a more structured channel for unlocking reform bottlenecks and imposing a deeper sense of commitment. The US-ASEAN agreement is attracting particular attention, as it seeks to revive the original spirit of APEC within a more complicit framework. This time, US officials have said they want a definite timetable for compliance.

Yet it is the United States and Japan, the two biggest economies in a bloc that controls 60 percent of global gross domestic product (GDP), that will be expected to make the biggest compromises if APEC is to recover its reformist zeal. While the summit was calling on the EU to dismantle agricultural subsidies as part of the Doha Round, Washington and Tokyo were resisting pressure to open their own markets to more farm goods from APEC states.

Doha, which ends in 2005, could be a litmus test on APEC's future direction. If it fails to meet the latest targets, as many expect, the forum may have to broaden its appeal by evolving into an Asian equivalent of the Council of Europe.

"APEC must shed the perception that it is merely an adjunct of the World Trade Organization. Capacity-building needs to become a core APEC activity," former Thai trade diplomat Kobsak Chutikul said in a recent address.

"While trade and investment should remain the focus, APEC leaders in their annual talks must take up more routinely other facets of globalization, as well as any pressing political and security concerns that affect economic well-being in the region," Kobsak said.

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