APEC & FREE TRADE AGREEMENTS IN THE ASIA PACIFIC

by Jane Kelsey

This conference provides a useful opportunity to reflect on the present and possible future role of APEC (Asia Pacific Economic Cooperation). In recent years, veteran APEC-watchers have rather complacently dismissed the grouping as irrelevant. But we may have under-estimated its contribution to the new matrix of economic alliances that are emerging within the region.

APEC is easy to dismiss. It has no institutional structure or binding legal agreements and sets ambitious goals for free trade and investment that most of its members appeared to have no intention of meeting. Yet its informality and flexibility may be its major advantage, as its proponents have often claimed. The top-down approach of negotiating ever-expanding formal regional treaties in Europe and the Americas is stalling in the face of popular and political opposition to the neoliberal agenda, the loss of sovereignty and the dominance of superpowers. When APEC tried to present itself as the regional equivalent of the EU and NAFTA it faced similar opposition from member governments and popular movements.

The more recent strategy, led by evangelical neoliberal governments in the region, has been to work less visibly from the 'bottom up'. That has helped create a new momentum that is much more difficult to mobilize against. Yet focusing only on this momentum disguises fundamental problems. These agreements reflect different models for regional capitalism, and the competing power politics and hegemonic aspirations of larger powers in the region. Their coverage and terms are uneven, making integration of the multiplicity of agreements almost impossible. Moreover, if governments try to implement all the current and proposed agreements they will create major social, economic and political conflict. These contradictions echo and are likely to intensify the instability and vulnerability of the multilateral 'trade' agenda.

A Brief History of APEC
APEC's history can be divided into four periods. The original proposals for a regional economic grouping came from Australia, supported by Japan and New Zealand, in 1988. This was a response to the paralysis of the Uruguay round and predictions that the world would split into three axes: Europe, the Americas and Asia (Africa was deemed irrelevant). At that time the Asian tigers were predicted to be the powerhouse of the 21st century, but there was no effective regional economic mechanism. ASEAN was seen as limited and ineffective, especially by Australia, New Zealand, South Korea and Japan who were excluded. China was barely on the radar screen. The US bullied its way in to this arrangement, despite opposition from Australia, but with support from Japan who felt it would otherwise be targeted as the sole superpower in the grouping. Unlike the EU and NAFTA, APEC's rhetoric of 'open regionalism' was designed to act as a catalyst for the global agenda, rather than create a preferential regional bloc. Interest in APEC was hard to sustain once the Uruguay round got moving after 1990 and their next few annual meetings of trade ministers were non-events. President Clinton reluctantly convened the first leaders' summit in 1993, so that the US had something to show for hosting the meeting. There were limited protests in Seattle that mainly involving North American NGOs and unions.

From 1994 to 1996 APEC became infamous for the extravagance of its meetings and its rhetoric. The host 'economy' in 1994 was Soeharto's Indonesia. Under the strong influence of the US, Indonesia got APEC members to adopt the voluntary and non-binding 'Bogor Goal' of achieving free and open trade and investment by 2010 for its 'developed' member economies and 2020 for 'developing' economies. Mahathir immediately signaled Malaysia's dissent. In Osaka in 1995 member governments produced their first Individual Action Plans setting out the steps they would take to achieve the Bogor goal and a Collective Action Plan to develop common policy positions on key issues. This was built on in Manila in 1996.

Over this time, a split became apparent between the aggressive free trade and investment agenda of APEC's Anglo-American members and the economic integration approach of the Asian governments, led by Japan. That internally paralysed APEC. Externally, APEC faced mounting opposition at the annual ministers and leaders' summits. Building on a small gathering of activists in Indonesia in 1994, regional NGOs met in Osaka in 1995 to analyse and oppose these developments. Popular movements, as well as NGOs, held mass mobilizations in the Philippines in 1996. Connections were made with structural adjustment at the national level and the newly created WTO. Media scepticism helped foster a major credibility crisis for APEC.

In 1997 most commentators were writing APEC's obituary. The Vancouver leaders' summit came shortly after the collapse of Indonesian and Thai economies and Malaysia's intervention in currency markets. During the meeting itself the South Korean economy also collapsed. Proposals led by the Anglo-Americans to boost the WTO through Early Voluntary Sector Liberalisation failed to gain support (although some of that groundwork has resurfaced in the sectoral negotiations on non-agricultural products (NAMA) in the Doha round). Bitter divisions continued through 1998 when Malaysia was the APEC chair and the US boycotted the annual meeting. Vancouver saw the last of the major regional protests against APEC: the British Columbia provincial government hosted a mass-scale, politically moderate 'NGO Olympics' in Vancouver that provided little momentum for ongoing regional activism. The small-scale protests in Kuala Lumpur in 1998 blended with the local politics of the reformasi movement.

Since 1999 APEC has slowly emerged from this near death experience in a different, but temporarily more effective, form. This was not immediately apparent. The 1999 meeting was only saved from being a disaster for the New Zealand host by the brokering of a political deal with Indonesia on East Timor. This set a precedent for political, rather than economic, issues to dominate the leaders' meetings. That political element intensified after September 2001 as the US insisted that security and terrorism took centre stage. APEC was portrayed by its defenders as a low-key regional version of the G-8. At the same time, governments still insisted that they were meeting as 'economies', screening out broader considerations of social justice and human rights, and produced market-driven strategies such as the STAR initiative (Secure Trade in the APEC Region).

The role of APEC in promoting neoliberal globalization refocused on what New Zealand officials dubbed the 'Trojan Horse' strategy. The idea was to achieve the Bogor goals and revitalize the WTO from below by negotiating WTO-plus agreements among APEC's neoliberal evangelists. This was part of an international response to the crisis in the WTO and a desire for 'insurance' if multilateralism broke down (1988 revisited). Current research on this trend by Chris Dent from Leeds University reports 16 FTAs operating internationally in 1990; 72 by 1997; and some 178 in 2004, with many more being negotiated or proposed. By the end of 2004, 72 FTA projects were underway that involved APEC members.

The ambitious proposal for a Pacific 5 (Singapore, New Zealand, Australia, Chile and the US) was promoted by New Zealand soon after the Vancouver APEC meeting in 1997 had failed to agree on voluntary sectoral liberalisation and the East Asian crisis altered perceptions of the regional and global economy. The US and Australia were unenthusiastic. So New Zealand and Singapore as small country evangelists began negotiations for a bilateral agreement. Singapore was especially keen to distance itself from the 'failed' East Asian economies. Australia, Chile, Thailand, Mexico and Hong Kong China subsequently embraced the bilateral strategy. Meanwhile, the US was pursuing FTAs with many of the same countries, outside APEC, as part of its own geo-political strategy.

A number of ASEAN governments (notably Indonesia, Philippines and Malaysia) did not support the 'Trojan Horse' strategy, seeing FTAs as breaking down ASEAN's solidarity and the prospects for an East Asia Economic Caucus - an idea actively promoted by Malaysian' Prime Minister Mahathir since the mid-1990s with implicit support from other ASEAN countries. This has been slowly moving forward. The ASEAN-plus-3 dialogue was institutionalised in 1999.

Thailand, under WTO Director-General-elect Supachai Panitchpakdi, was more favourably disposed to FTAs in general, including within ASEAN. The region's new economic powerhouse, the People's Republic of China, was also warming to the idea. Promoted by Supachai and Chinese Premier Zhu Rongji a China-ASEAN Framework Agreement on Comprehensive Economic Co-operation was signed in 2002. This agreed to an 'early harvest' of tariff cuts by China in favour of ASEAN, ahead of those for other WTO members, and a China-ASEAN FTA (CAFTA) to be implemented in 2010. This would potentially create the third largest free trade area in the world.

The Anglo-American lobby was once again worried about being left out. In 2004 at the annual trade ministers meeting in Chile, the US, Australia, New Zealand, Chile, Singapore, Taipei and Canada pushed to blend these initiatives into an Asia Pacific FTA - something the APEC business lobby (APEC Business Advisory Group or ABAC) had argued for as a way to overcome the 'spaghetti bowl' effect of the FTAs. China, Japan, Malaysia and Indonesia sunk the idea. However, Australia and New Zealand did secure agreement from ASEAN in November 2004 to launch negotiations for a combined FTA in 2005.

As of 2005 almost all APEC members are involved in some kind of FTA negotiations. Governments still routinely commission crude econometric studies that produce fanciful predictions of the gains; but they commonly downplay claims that tangible economic gains will be made. The motives are more strategic than economic. Negotiations between the US and Chile, Singapore, Thailand and South Korea have been largely influenced by geo-political relationships. China and Japan have competing hegemonic aspirations that are apparent in their approach to regional deals, with China in the lead. Countries that agree to negotiate with China, especially ASEAN, seem more concerned about the process of developing their relationship than they are about the economic (and social) outcome. Singapore and Chile justify the agreements as a way to sell themselves as platforms into their regions by providing to foreign investors with guaranteed 'high quality' neoliberal regimes. There is also an ideological 'demonstration effect'. The neoliberal evangelists believe that creating a critical mass will help them pressure other countries to join for fear of being left out, and reduce the influence of domestic opposition.

The result is a competitive form of liberalisation. As occurred within APEC itself, there are competing models of FTAs that cannot be integrated. The US demands agreements that reflect its political, economic and strategic interests. Japan and South Korea are more selective, seeking external opportunities while responding to domestic interests. China is primarily concerned to establish precedents, learn from negotiations that are relatively insignificant or secure their energy supplies. The neoliberal evangelists promote pure WTO-plus bilateral agreements, which they hope can be expanded to cover more parties; they cite the extension of the Singapore/New Zealand agreement, which became the Pacific Three with Chile and ultimately the Trans-Pacific Closer Economic Partnership in 2005 after Brunei joined. Sub-regional initiatives are also underway. Increasingly, these involve governments in a mix of models: notably ASEAN/CER (Australia and New Zealand), ASEAN/China, and the less developed ASEAN-plus-three.

The resulting web of agreements and negotiations is fragmented, unco-ordinated and uneven in content and coverage. It remains unclear whether governments actually intend to implement all these agreements, especially when rich country models are being pushed on poorer Asian countries where the economic, social and political consequences will be severe.

APEC is currently playing four roles in this new regional dynamic:

1. Regular meetings of regional trade and finance ministers and political leaders provide triggers to advance the process at the multilateral and bilateral levels. APEC's 'open regionalism' is premised on the primacy of multilateral negotiations. Since the first WTO ministerial meeting in Singapore in 1996, APEC meetings have acted as rolling WTO mini-ministerials where key WTO players can broker deals and pressure reluctant governments behind closed doors. However, APEC meetings are just one of many opportunities for mini-ministerials and the deep ongoing divisions among APEC members and difficulty of gaining consensus on the Doha round programme means they have had limited impact.

APEC meetings have been much more important as catalysts for the FTAs and RTAs. Evangelical governments use APEC to ratchet up the process. The desire of Trade Ministers and Leaders for headlines that can show some outcome from these meetings has produced opportunistic deadlines for negotiations that require officials and ministers to overcome the obstacles. Sometimes, one government will finesse the process: New Zealand announced conclusion of the FTA with Thailand during APEC in Chile in 2004, even though negotiations were yet concluded, because it feared the Thai government's commitment was weakening in response to domestic pressure.

2. The 'Bogor Goal' of free and open trade and investment by 2010/2020 is used as justification for neoliberal policies and FTAs. Neoliberal evangelists in Chile, New Zealand, Singapore, Australia and Hong Kong cite the Bogor Goal as justification for unilateral, bilateral and regional liberalisation. It is referred to in the preamble and/or text of most agreements involving APEC members, so as to legitimize the agreement and justify built in reviews that will extend the original level of liberalisation. It is also used to justify peer pressure within APEC to ensure that bilaterals comply with WTO requirements for FTAs and the WTO-plus APEC objectives and various non-binding principles and guidelines. As part of the 'mid-term stock take' (half way to 2010) it has been agreed that each APEC government's Individual Action Plan is to include a chapter on FTAs, with a template for reporting on existing and proposed agreements that cover APEC's wide-ranging neoliberal agenda. The Trade Ministers meeting in 2005 also called for an active information exchange and forwarding of the APEC best practice guidelines to the WTO.

3. APEC's internal work programme is increasingly focused on promoting and shaping FTAs & RTAs to achieve 'high quality' liberalisation and consistency. Best Practice guidelines for FTAs were developed in 2004 and endorsed by the Ministers and Leaders meetings. The Australian government also produced a handbook on FTAs for a workshop on FTA negotiations in December 2004, which includes a section on how to sell the agreements at home. This is part of the Australian government's 'capacity-building' activities in APEC that are funded by AUSAID. Australia's Department of Foreign Affairs and Trade also published a negotiating guide to FTAs in 2005, which includes the best practice principles and a stylized FTA.

In 2003, 2004 and 2005 APEC has held policy dialogues on FTAs at Senior Official level. More are planned, specifically to share the experience of the Trans-Pacific CEP (Chile, New Zealand, Singapore, Brunei) as a model for integrating bilateral FTAs. Training programmes have been organised to build micro-networks of officials, with several of the APEC Study Centres playing a key ideological role.

4. APEC's ever broadening programme is used to justify WTO-plus FTAs and coherence with the neoliberal agenda of the international and regional financial institutions. Coverage of FTAs and Closer Economic Partnerships routinely reaches much further than current WTO agreements. This creates precedents that become new base lines that can be used to ratchet up the coverage and the rules in the next phase of FTAs and flow on to the WTO negotiations. Liberalisation of services has overtaken goods as the primary element of FTAs, with increasingly use of a negative list approach, which some governments now claim, has become the norm. Other chapters cover the 'new issues' that were explicitly rejected in Cancun.

This is often justified by reference to 'voluntary and non-binding', 'best practice' principles, guidelines and policies that have been produced by secretive and undemocratic APEC committees for many years. They cover investment, competition, government procurement, structural adjustment, privatization, fiscal austerity, monetary regimes, and more. Most of these have been produced through a combination of trade officials from evangelic governments, plus the Pacific Economic Cooperation Council (combining private sector, academics and officials 'acting in their personal capacity') and consultants from the APEC Study Centres. They also often involve collaboration with the Asian Development Bank. World Bank, IMF and OECD. These examples of 'best practice' are increasingly referred to in agreements to justify texts or as the basis for future negotiations.

Strategic Responses
So-called 'free trade' agreements are really strategic initiatives that are driven by a combination of political allegiances, ideology, hegemonic objectives and fear of marginalization. APEC's claim to be a body of member economies, and its myopic objective of 'open regionalism' to achieve free trade and investment by 2010/2020, excludes any critique of neoliberal globalization and hides the critical contradictions that are intrinsic to
- competing models of capitalist expansion;
- competing strategies for regional economic integration; and
- competing power politics and hegemonic goals.

If APEC is basically a pimp for the WTO and FTAs, is it worth the ongoing attention of activists in the region? In the past there have been gains from targeting APEC meetings: local awareness raising, challenges to an agenda that would otherwise have gone unchallenged, and providing leverage to debate the broader agenda that APEC represents locally, regionally and in the media. What form these challenges took was largely a reflection of local priorities and capacity. By the late 1990s they had been superseded by a new focus on the WTO. Successive meetings in Brunei and China also made mobilization impossible. Since then, activities around the annual meetings have been muted, except for anti-FTAA activities in Chile in 2004 and potentially South Korea this year.

The effectiveness of anti-APEC activities can also be seen as a product of the 1990s. Since the crisis in the WTO, and the current blind panic to sign up bilateral agreements, it has become much more difficult to derail the APEC agenda and hence those bilateral deals. This new role for APEC may be short lived. It is likely to become less significant again in the future, once the deals have been done or negotiations have collapsed - especially if ASEAN/China unleashes a new dynamic. New divisions are likely to emerge between Asia/Latin America/ the US and Australia/New Zealand and between the neoliberal evangelists, Chinese and Japanese hegemonic interests, economic nationalists, and US imperialists.

Is there is anything to gain from targeting APEC over the next few years and if so why, how and where? Could a focus on its activities through a revival of popular and media pressure and visibility slow the current process in the short term? Could it put the spotlight on FTAs where that is not impossible within the countries concerned? Is it possible for this pressure to heighten the internal contradictions that ensure that integration of these agreements is impossible in the longer run? Are there forthcoming meetings where the national politics and strength of local organizers makes this possible? Is it a priority for regional movements, given other competing priorities?

Prof Jane Kelsey
Action, Research and Education Network of Aotearoa (ARENA)

* Paper to the Asia Pacific Research Network Policy Research Conference on Trade, Hong Kong, 11-13 July 2005

http://www.arena.org.nz/apecftas.htm
Selected references:

ABAC, 'The First Decade Since Bogor. A Business Assessment of APEC's Progress', Hong Kong: ABAC 2004 www.abaconline.org

APEC, 'Best Practice for RTAs/FTAs in APEC', 16th APEC Ministerial Meeting, 17 November 2004, Santiago, Chile 2004/AMM/003

APEC 'Bogor Goals Mid-Term Stocktake Symposium Summary', Trade Ministers Meeting, 2-3 June 2005 Jeju, Korea 2005/MRT/006anx7

APEC Committee on Trade and Investment, 'Proposed IAP Chapter on FTAs and RTAs', 29-30 September 2004, Santiago, Chile 2004/SOMIII/CTI/007

APEC Finance Ministers' Meeting '2004 Policy Themes: Conclusion Report by the Chair', 2-3 September 2004, Santiago, Chile 2004/FMM/006

APEC-OECD Integrated Checklist on Regulatory Reform: Addressing Regulatory, Competition Policy and Market Openness Policy Issues' Trade Ministers Meeting, Jeju, Korea 2-3 June 20052005/MRT/006anx7

APEC 'Participant's Handbook, Workshop on Negotiating Free-Trade Agreements', 13-15 December 2004, Brunei Darussalam

APEC Ministers Responsible for Trade 'Statement of the Chair' 2-3 June 2005, Jeju, Korea 2005/MRT/008

Australian Government Department of Foreign Affairs and Trade, 'Negotiating free-trade agreements: a guide', Canberra: APEC Branch/DFAT 2005

Dent, Christopher 'Bilateral Free Trade Agreements: Boon or Bane for Regionalism in East Asia and the Asia-Pacific?' (forthcoming)

Kelsey, Jane 'Whither APEC?' in Wesley Pue (ed) 'Pepper in Our Eyes: The APEC Affair' Vancouver: UBC Press 2000

McKay, John (Australian APEC Study Centre) 'ASEAN Plus Three & Alternative Visions of Economic Cooperation: Implications for APEC', APEC Study Centres Consortium, May 2005, Jeju, Korea

PECC, 'Asia-Pacific RTAs as Avenues to Achieving the Bogor Goals: Analysis and Ways Forward' SOM Policy Dialogue on RTAs/FTAs, 27 May 2003 Khon Kaen, Thailand 2003/SOMII/RTAs/FTAs/012

Scollay, Robert 'Preliminary Assessment of the Proposal for a Free Trade Area of the Asia-Pacific (FTAAP). An Issues Paper for the APEC Business Advisory Council (ABAC)' Auckland: New Zealand APEC Study Centre 2004

Soesastro, Hadi 'Trends and Issues of RTAs/FTAs in East Asia', SOM Policy Dialogue on RTAs/FTAs, 27 May 2003 Khon Kaen, Thailand 2003/SOMII/RTAs/FTAs/015

Soesastro, Hadi 'APEC's Trade Policy Challenges: The Doha Development Agenda and Regional/Bilateral FTAs', SOM Policy Dialogue on RTAs/FTAs, 27 May 2003 Khon Kaen, Thailand 2003/SOMII/RTAs/FTAs/008