Foreign Policy In Focus: Asia Pacific Economic Cooperatio

Foreign Policy In Focus: Asia Pacific Economic Cooperation
November 1998, Vol. 3, No. 35

Written by John Gershman, Institute for Development Research Edited by Tom Barry (IRC) and Martha Honey (IPS)

Key Points

* APEC is the largest, most diverse trans-Pacific forum of its kind.
* APEC has adopted a declaration that envisions elimination of all trade and investment barriers by 2010 for the wealthiest countries and 2020 for the poorer ones.
* APEC is in crisis due to the region's social and economic crisis and the growing opposition to the U.S.-dominated trade and investment liberalization agenda.

Asia Pacific Economic Cooperation (APEC), founded by a dozen countries in 1989, has become a forum of twenty-one countries that addresses economic issues in the Asia-Pacific region. This diverse group includes the U.S., Canada, China, Taiwan (officially Chinese Taipei), Hong Kong, Japan, Australia, New Zealand, the Philippines, Thailand, Singapore, Indonesia, Malaysia, Brunei, South Korea, Mexico, Papua New Guinea, and Chile. At the
November 1998 meeting, three additional countries-Peru, Russia, and Vietnam -will join as full members.

Together, the APEC countries account for over 50% of the world's merchandise trade, half the global GNP, and two-fifths of the world population. Operating from a modest secretariat in Singapore, APEC sponsors regular meetings and annual summits of senior government officials and heads of state. APEC operates by consensus rather than through binding agreements and the type of legalism evident in the North American Free Trade Agreement. In this process of "concerted unilateralism," APEC members define broad regional goals but leave the specific aspects of implementation to each nation.

APEC consists of three occasionally overlapping processes. The first is economic and technical cooperation promoting economic and human resource development, or "Eco-Tech." Second is trade and investment liberalization, an agenda that emerged at its 1993 meeting when President Clinton invited the 18 APEC leaders to Blake Island, Washington, for the first-ever APEC Economic Leaders Meeting. The Bogor Declaration, adopted in 1994,
proclaimed the elimination of all trade and investment barriers by 2010 for APEC's wealthiest countries and 2020 for its poorer ones. Subsequent meetings led to a refinement of these goals in terms of Individual and Collective Action Plans that were to provide the actual liberalization commitments.

At the 1997 Vancouver meeting, APEC leaders agreed to liberalize trade in nine sectors on a fast track basis covering $1.5 trillion in trade (known as Early Voluntary Sectoral Liberalization). Those sectors include: chemicals, fisheries, forestry, energy goods and services, environmental goods and services, gems and jewelry, medical equipment, toys, and a telecommunications mutual recognition agreement. Of these, the last was approved in June 1998, while liberalization in fisheries and forestry remain actively resisted by Japan.

The third-and weakest-process is the sustainable development agenda, which also emerged within APEC in 1993. To date, this process has been characterized by a flurry of small-scale, capacity-building projects and little else beyond statements of principles and a meeting on marine resources earlier this year.

The weakness of the sustainable development agenda has five major causes: poor leadership by the wealthier countries, most prominently the United States; popular opposition to APEC's free trade agenda; the failure to connect the trade, investment, and environmental tracks; the weakness of prosustainable development forces within negotiating governments (most of which are dominated by commercial interests); and the inability of pro-sustainable development forces from civil society to penetrate the national and regional processes of policy formulation.

The challenge of working with diverse economies and varying perspectives on trade and investment regulation gives APEC a certain informality and lack of cohesiveness. Although the APEC forum has declared its support for free trade, many members oppose mandatory implementation schedules for comprehensive tariff and quota reduction. Indeed, some
countries-principally Malaysia and Japan-have insisted that the liberalization goals be nonbinding and have opposed the U.S. demand that all economic sectors be opened to foreign trade and investment. Countries that oppose the U.S. in its drive to convert APEC into another free trade area would prefer that APEC remain a consultative organization that
facilitates technical cooperation on economic matters.

Both APEC's inability to develop a positive response to the ongoing Asian crisis and U.S. criticism of recent interventions by Hong Kong, Malaysia, and China in currency and portfolio capital markets set the stage for a clash at the 1998 APEC meeting over the scope of appropriate responses to the economic crisis and the utility of APEC itself.

Attention by nongovernmental organizations (NGOs) to APEC has been growing since the first Heads of State Summit in 1993. The Indonesian government blocked a planned NGO forum in 1994, but NGOs success-fully organized parallel summits in 1995 (Osaka), 1996 (Manila), and 1997 (Vancouver) and plan to do so in Kuala Lumpur (1998) and Auckland (1999).

Problems With Current U.S. Policy
Key Problems

* Washington's free trade model for the Asia-Pacific region has met with resistance from countries less enamored by the ideology of economic liberalization and determined to maintain their own development strategies.
* U.S. policy in APEC promotes an economic model that downplays human rights and sustainable development.
* U.S. policy has focused on enhancing U.S. corporate interests rather than addressing the social and ecological costs of the current economic crisis.

Between 1989 and 1992, APEC had a relatively low profile within U.S. foreign economic policy. During that period, NAFTA and the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) were Washington's top free trade priorities. The 1993 Seattle APEC meeting, hosted by President Clinton, marked both a higher priority U.S. role in the Asia-Pacific region in general and a more coherently articulated free trade and investment
agenda for APEC. Clinton's free trade vision received strong backing from Australia and New Zealand, but other countries-notably Malaysia-were less than enthusiastic.

For the U.S. government and business community, APEC offers an opportunity to exercise economic leadership in an important world region. U.S. economic objectives, however, have been at variance with those of a number of the Asian members and with the goals of NGOs that are trying to get a voice at the table in order to raise issues about human rights, labor, and democratization. Washington regards APEC as an instrument to assert its
economic liberalization agenda, reduce its merchandise trade deficit with the region, and build a regional free trade bloc with strong U.S. participation, while serving to discourage Asian nations from organizing into an exclusive trading bloc.

The Asia-Pacific region has surpassed Western Europe to become America's largest regional trading partner-both as a supplier of U.S. imports and as a customer for its exports. Like NAFTA, APEC is regarded by the U.S. both as a regional bulwark against advances of the European Union and as a lever to strengthen Washington's economic liberalization agenda at the World Trade Organization (WTO). By developing initiatives supported by a significant group of APEC members, the U.S. uses APEC to build a "critical mass" for incorporating its global liberalization agenda into the WTO.

Washington has not been entirely successful in promoting its economic goals in the Asia-Pacific region. In the context of the economic crisis, the U.S. trade deficit with the region has been rising, but the U.S. has been able to boost its share of foreign direct investment (FDI) in those countries hardest hit by the crisis.

The primary resistance to expanding NAFTA into a hemispheric Free Trade Area of the Americas (FTAA) comes from opponents within the U.S. who either oppose the free trade agenda or oppose attaching labor and environmental agreements to new trade accords. In the Asia-Pacific region, however, opposition to the U.S. free trade juggernaut comes from both governments and citizens of the region. Although the Clinton administration has succeeded in winning rhetorical commitments to free trade, its proposals for the establishment of a mandatory timetable for the implementation of a free trade area have been consistently rejected.

The Clinton administration's continued insistence on liberalization-especially in the face of a massive economic crisis-is widely reviled in the region as a vulture strategy. Rather than trying to address the social costs of the crisis, Washington has focused on pursuing policy reforms that would enable U.S. corporations to pick at the choice carcasses of Asia's economic crisis. The U.S. had harsh words in particular for the 1998 host, Malaysia's Prime Minister Mohamad Mahathir, for his use of capital controls.

Washington's narrow economic approach to APEC is problematic. The U.S. argues that economic liberalization, democracy, and security in the region are all mutually reinforcing (forming "three pillars" of foreign policy in Asia). But with the scramble for market share dominating the U.S. agenda, other issues get short shrift. U.S. policy demonstrates no abiding concern for the patterns or effects of either economic growth or crisis in the region, and Washington is a recalcitrant supporter, at best, of the calls for demo-cratic reform from the region's citizens.

Absent liberalization, the U.S. has no serious proposals to offer at APEC regarding the economic crisis beyond those already proposed by the G-7. A former member of APEC's Eminent Person's Group, C. Fred Bergsten has proposed that APEC formulate a neo-Keynesian program to spend the $30 billion Japan recently offered the troubled Asian economies. The Japanese, stung after the U.S. denounced a similar plan just over a year ago, are likely to gracefully decline if such a proposal is offered.

While the U.S. concentrates on overcoming the objections to what regional leaders see as Washington's agenda for a U.S.-dominated pattern of globalization, other problems raised by U.S. citizen groups and regionally based NGOs receive little attention. A central complaint is that APEC is opaque and undemocratic. As a result, citizen organizations have difficulty raising their concerns about the development process in the Asia-Pacific region.

Although the U.S. has raised concerns about human rights and environmental degradation in the region, it still allows its commercial ambitions to overshadow these issues. This is clear in the current U.S. drive for liberalization in forestry and fisheries. Rapid liberalization, in the
midst of a massive economic crisis and without regulations insuring sustainable harvests, will only accelerate the region's rates of deforestation and overfishing, already among the world's highest.

Toward a New Foreign Policy
Key Recommendations

* Washington should drop its insistence on comprehensive trade and investment liberalization and recognize the validity of a plurality of development models and priorities.
* The U.S. should support initiatives to develop rules for regulating short-term capital flows and to address the social and ecological costs of the current crisis.
* The U.S. should insist that APEC become more transparent, participatory, and accountable.

As the liberalization locomotive within APEC is stalled and new, large-scale free trade agreements are unpopular at home, Washington could seize the opportunity to pursue a less narrowly focused policy agenda toward APEC. Trying to force liberalization on APEC member states has failed, and maintaining it as the centerpiece of U.S. policy in the region
is counterproductive to Washington's stated goals of promoting democracy, equity, and environmentally sustainable development. At a time when even mainstream economists endorse capital controls, U.S. policymakers should rethink their commitment to comprehensive economic liberalization.

The conflicts over appropriate responses to the crisis have challenged APEC's raison d'etre. As the world's broadest regional economic institution, APEC is worth preserving if it can do two things:
1) catalyze constructive action on the important regional and global policy issues raised by the current crisis (such as regulating short-term capital flows and addressing the social and ecological costs of the crisis) and
2) move toward a more balanced sustainable development agenda. As first steps, the U.S. could gain support for such an agenda by abandoning its liberalization-for-everyone approach, increasing its support for capacity-building efforts at the national and regional levels, and leading by example at home.

U.S. policy should focus simultaneously on improving the transparency of APEC negotiations and on expanding the APEC agenda to include issues of concern to civil organizations other than Chambers of Commerce. Any effort to make the APEC process more transparent and participatory should encourage more citizen involvement at the national level (particularly in the U.S.) in discussions about APEC policy. Also important is the
participation of nonbusiness citizen groups at the committee and working-group level. Although the Clinton administration has occasionally included NGO representatives in some U.S. delegations, this sporadic inclusion falls short of the steps needed to open up the U.S. policymaking process. Within APEC, the U.S. should facilitate NGO access to meetings and
should make documents publicly available.

Human rights issues, while not on the formal APEC agenda, are slowly forcing their way onto the backdrop of the meetings. This is primarily because of demands by citizens in the region for democratization and respect for human rights, including demands by groups in the 1998 host country, Malaysia. Human rights have also been highlighted when previous host governments have harassed NGOs or citizens engaged in protest or parallel activities. The Philippine government banned Nobel Peace Laureate José Ramos Horta and other potential "troublemakers" from attending the Manila People's Forum in 1996, and Canada is in the midst of an investigation of police repression of protestors that may implicate the Canadian prime minister. The Malaysian government has made it clear it will tolerate no "unruliness."

The informal bilateral discussions that parallel the multilateral meetings enable U.S. officials to raise issues not on the official APEC agenda. These are prime opportunities to raise issues regarding the social and environmental impact of the economic crisis and to emphasize respect for human rights. While it is laudable that Clinton will not meet with Prime Minister Mahathir to protest the detention of former deputy Prime Minister Anwar Ibrahim, the inconsistency and hypocrisy that characterize U.S. policy in the region reinforce regional sentiment that America's promotion of democracy, worker rights, and environmental protection are self-serving in nature. To overcome these criticisms and to chart a more responsible foreign policy toward APEC and its member countries, Washington should indicate that the U.S., too, needs to improve its own practice regarding the environment and human rights.

Specifically, we recommend that Washington take the following actions:

* Stop insisting on comprehensive trade and investment liberalization and recognize the validity of Asian development models that allow for the judicious intervention of government as a legitimate strategy in pursuing industrialization and food security.
* Support regional mechanisms to scale-up successful strategies of community-based natural resource management, encourage the transfer of clean production technologies, and promote energy conservation.
* Consistently implement existing labor rights provisions in U.S. trade legislation, such as GSP provisions regarding the Export-Import Bank, Overseas Private Investment Corporation (OPIC) operations, and the IMF.
* Create citizen advisory groups paralleling APEC working-groups to enable NGOs and citizens to participate in the formulation of U.S. policy within APEC.

John Gershman (jgershman@igc.org) is a Research Associate at the Institute
for Development Research.

Sources for More Information

APEC Education Network
Box 353690
Seattle, WA 98195
Voice: (206) 543-0663
Fax: (206) 616-1978
Email: Hellman@u.washington.edu
Website: http://www.apec.org/
Contact: Donald Hellman

APEC Secretariat
438 Alexandra Rd.
Alexandra Point
Voice: (65) 276-1880
Fax (65) 276-1775
Website: http://www.apecsec.org.sg/

Asia Pacific Center for Justice and Peace
110 Maryland Ave. NE, Box 70
Washington, DC 20002
Voice: (202) 543-1094
Fax: (202) 546-1094
Email: apcjp@igc.apc.org
Website: http://www.apcjp.org
Contact: Andrew Wells

Asian Human Rights Commission
Unit D, 7 Floor, 16 Argyle St.
Mongkok Commercial Centre
Kowloon, Hong Kong SAR
Voice: (8522) 698-6339
Fax:(8522) 698-6367
Email: ua@hk.super.net
Website: http://www.hk.super.net/~ahrchk

Focus on the Global South
c/o CUSRI, Prachuabmoh Bldg.
Chulalongkorn University
Phyathai Road
Bangkok 10330
Voice: (662) 218-7363
Fax: (662) 255-9976
Email: admin@focusweb.org
Website: http://www.focusweb.org
Contact: Walden Bello

Nautilus Institute for Security and Sustainable Development
1831 Second St.
Berkeley, CA 94710
Voice: (510) 204-9296
Fax: (510) 204-9298
Email: lzarsky@nautilus.org
Website: http://www.nautilus.org
Contact: Lyuba Zarsky


Vinod K. Aggarwal and Charles E. Morrison (eds), Asia-Pacific Crossroads: Regime Creation and the Future of APEC (New York: St.Martin's, 1998).

Walden Bello and Jenina Joy-Chávez-Malaluan, APEC: Four Adjectives in Search of a Noun (Philippines: Manila People's Forum on APEC, 1996).

Focus on Trade, an electronic magazine produced by Focus on the Global South.

Donald C. Hellman and Kenneth B. Pyle From APEC to Xanadu: Creating a Viable Community in the Post-Cold War Pacific (New York: M.E. Sharpe, 1998).

Lyuba Zarsky, "APEC and the `Sustainable Development' Agenda," Asian Perspectives, 1998.

World Wide Web

APEC Education Foundation

APEC Secretariat

Good links on APEC

Human Rights Watch

U.S. State Department Bureau of East Asian and Pacific Affairs

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