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Asia-Pacific Magazine
No. 2 May 1996
pp. 44-46.

The APEC Initiative: Maintaining the Momentum in Manila

by Peter Drysdale

The proximate context in which political commitment to APEC emerged was the end of the Cold War in 1989 -- not the end of history, but the beginning of a new epoch in world affairs.

The coincidence of these historical events does not mean that there was any simple causal relationship between them. The origins of APEC are buried deeper, in the forces of East Asian industrialisation -- from its beginnings in the Meiji Restoration in 1868 to its remarkable acceleration in the last four decades -- and in the change in the structure of global economic power, with all the implications for the world political order, including the end of the Cold War, that flowed from that industrialisation.

Australia was inevitably and deeply caught up in this change, not only in recent times, but long before and, of course, during the Pacific War. The change in East Asia and the Pacific now dominates Australia's international economic and political priorities.

The main goal for Asia-Pacific economic cooperation is a conservative one, which derives directly from the forces of East Asia industrialisation. It is to preserve the conditions needed to sustain the positive trend of rapid economic growth and the market-driven integration of Asia Pacific economies which derives from that growth.

APEC goals are both economic and political. The economic priority, and indeed the political ambition, of East Asian states -- most recently and remarkably of China --is prosperity after the style of Western industrial nations. Political stability is likely in the region only if this big political ambition for prosperity is not seriously frustrated, whatever other conditions may be necessary to achieve it, such as maintaining the sovereign integrity of China.

It is worth recalling that the American achievement after the Second World War was to provide a framework for seeking both prosperity and stability (for at least half the world). This achievement was built on America's political and military strength but, perhaps more fundamentally, it was built on the power and persuasiveness of an American idea or set of ideas - embodied in the Atlantic Charter.

What, then, are the pre-conditions for successful Asia Pacific cooperation? The nature of Asia and the Pacific demands three preconditions for regional cooperation. By cooperation I mean here essentially productive consultation and communication on economic and other related policy priorities, not tightly institutionalised economic or political integration.

Foremost is the need for a rules-based international economic system that attaches primacy to non-discrimination in policy stances. This was the gift of the Atlantic Charter (framed in the 1940s) that established the postwar international economic order -- avoiding the disastrous discrimination against Japan and other countries which prevailed in the interwar years.

The principle of non-discrimination remains essential to East Asian economic diplomacy -- to the economic transformation of China, Indonesia and Indochina and beyond, in South Asia, to India. Its implementation has never been perfect but it remains the central guiding principle in a region in which all depends upon the opportunity and the freedom to catch up with the rest of the industrial world, and equal access to international markets.

The second precondition is continuing reform of the region's economies and polities. This is a huge challenge to the whole region, but once the commitment to economic reform has been made there is a certain inexorability about its dynamic and its logic. Economic reform can go wrong in many ways (as it did for Japan in the interwar period or the Philippines in the postwar period) but it is unlikely to be stoppable.

Removing the impediments to transactions among Asia-Pacific economies reinforces domestic commitment to reform and enhances the chances of success. This was the essential point of the Bogor Declaration on free trade and investment in 1995. These two pre-conditions explain the importance of open regionalsim in the implementation of the Bogor commitments.

It was to reinforce domestic commitments to economic reform in Indonesia that President Suharto so enthusastically committed his country to that course in the Bogor Declaration.

Open regionalism has both an economic and a political dimension. In economic terms there is the primacy of most-favoured-nation treatment in trade and other economic transactions. In political terms open regionalism involves active cooperation among a plurality of economic, political and cultural systems, and the accommodation of new players in a huge process of economic, social and political reform.

The third pre-condition is continued American engagement. US military strength and political influence are important to avoiding uncertainties -- at least over the coming decades -- about security and arms build-up and to defending the open order.

There will be a continuing evolution in the political and security order which underpins East Asia's economic success.

There is no point hankering after an age that is past. The Asia-Pacific region of the future can be dominated by no single nation alone -- not by Japan, despite its large and continuing economic influence; nor by China, despite the scale of its industrial promise; nor, any longer, by the United States of America.

This is why -- many years before it was rational to dream of the end of the Cold War -- the foundations were carefully laid for APEC and collective leadership of a region in a constant process of dynamic economic and political change.

In fact, what the Osaka APEC meetings of 1995 revealed was how low key the American role in APEC of necessity must be -- especially over the coming few years. This was not just because President Clinton, pre-occupied by the budget stalemate at home, did not attend the leaders meeting in Osaka. It was because all the initiative in forming the Osaka agenda for APEC -- a critical step in defining the way forward on the liberalisation of goals of APEC -- and the principles upon which the agenda was based came from the other members of APEC, located in the Western Pacific. It was also because the United States was in no position to make any significant `downpayment' on liberalisation of the kind undertaken by other APEC members.

This is why the architecture of Asia-Pacific cooperation has to be imaginative and new. The structure of regional economic power and political circumstance demands it. There have to be parallel economic and political frameworks, not a neatly convergent framework as in Europe. There is no Brussels in the Pacific; nor can there be any supra-national authority to impose economic or political will and order -- cooperation depends upon the power to persuade and commitment to act in concert; not the power to coerce, legally or politically.

There is now a helpful and important intersection of economic priorities and political interests in APEC leaders' meetings. That is a valuable beginning.

Leadership is, after all, as much about the power of ideas as about the power of weaponry. Vietnam taught us all that great lesson in modern times. In East Asia and the Pacific it is leadership over the choice of economic regime -- the choice of a regime based on preferential and exclusionary dealing (the free trade area approach) or one based on non-discrimination and inclusion (the open regionalism and multilateral approach) -- that is the critical test.

The only way forward, consistent with meeting the three pre-conditions for successful cooperation in Asia and the Pacific, is through an open economic association, the three key elements of which are: (1) openness; (2) equality (in dealings among members); and (3) voluntary independent commitment (an evolutionary step-by-step approach).

APEC has already, in its brief history, made huge progress. APEC influence was decisive in the conclusion of the Uruguay Round. The Bogor commitments are in place. Now Osaka has been an impressive success and has defined a practical way forward with the principle of concerted unilateralism on trade and investment liberalisation in Asia and the Pacific.

So what are the problems? In fact, two major issues for APEC seem to have been resolved at Osaka.

The first was the question of comprehensiveness, or whether some sectors in APEC economies should be excluded from the Bogor liberalisation goal. This was principally a problem for Japan, but Korea, Taiwan and China followed behind seeking to exempt agriculture from trade liberalisation. The Osaka Declaration explicitly dealt with this issue, agreeing that all sectors would be included in the implementation of the Bogor Declaration.

The second was the question of non-discrimination, which is the core of the argument about how to move forward comprehensively on liberalisation in APEC. The issue here was not primarily about the establishment of a formal free trade area, but about the equal treatment of China and entrenchment of the principles of non-discrimination in APEC commitments to liberalisation. This remains principally an American problem.

The rest of APEC may need to continue stressing to Japan that comprehensiveness is central to Japan's agenda in APEC.

The rest of APEC also needs to continue stressing to America that the accommodation of China is central to strategic economic and political interests in APEC and that Jackson-Vanek (the amendment to US trade law originally directed against the former Soviet Union on human rights and freedom of emigration) should not become an obstacle in asserting the MFN principle towards China.

What are the challenges at Manila and Subic Bay in 1996 for maintaining the momentum in APEC? The most immediate challenge is to transform the Action Agenda from Osaka into a credible set of Action Plans for liberalisation of trade and investment -- towards achievement of the Bogor goals. This will require early and fast work to build up trust and confidence in what is called comparability of commitment to liberalisation.

Comparability is one of the key code words underpinning the Osaka Action Agenda; so too is flexibility. Unilateral liberalisation of trade and non-trade impediments to exchange among APEC members and independent definition of the paths to liberalisation by each member economy require some fundamental comparability of effort as well as flexibility in implementation in the non-formal negotiating environment in which the goals of Bogor are to be initially delivered.

In all, there are nine important principles that will have to be kept in mind in Manila and which must guide the dismantling of impediments to economic transactions among the Asia Pacific economies:

1. comprehensiveness
2. WTO - consistencycomparability
3. non-discrimination
4. transparency
5. standstill (or no increases in existing barriers)
6. simultaneous start, continuous process and differentiated timetables
7. flexibility
8. economic and technical cooperation (to assist the liberalisation process).

Every detail of liberalisation through to 2010 and 2020 does not have to be determined in 1996, but a clear set of undertakings over the next five years or so will be critical. It will be important to have countries prepared to act as leaders in this process -- Western Pacific economies, the Philippines (doing what is in its own best interest, as President Ramos has said), Japan and others. Another challenge is engaging the United States.

The United States is the APEC member least comfortable with a voluntary approach to economic cooperation. American policymakers are more accustomed to international cooperation based on formal structures and negotiations leading to binding and enforceable agreements. This is the style of the GATT/WTO negotiations and the complex legal basis of NAFTA. American policy has little understanding of or trust in the process of East Asian economic reform and commitment to liberalisation as a basis for serving its own market access interests in the region.

There is a particular problem with US commitments to APEC in 1996 since the APEC meetings come so close on the heels of the presidential elections. These circumstances make it difficult for the United States to deliver on its Bogor commitments at this time, and underscore the weakening potential for America to play a leadership role in APEC.

East Asian and Western Pacific leadership is now central to maintaining the momentum in APEC and APEC's role in global negotiations.

It is important -- and quite possible -- for East Asia and Western Pacific participants in APEC to take the early lead on unilateral liberalisation (in the Action Plans for Manila and beyond), while the United States `free-rides' by doing no more than implementing its existing GATT/WTO commitments. Other APEC members should be relaxed and confident in allowing the United States to lag behind in traditional trade liberalisation because tariffs are already low in the United States and because its Uruguay Round commitment to phase out the Multifibre Agreement represents a substantial easing of restrictions on East Asian trade.

The beginnings of the East Asian dialogue with Europe in March this year and the forthcoming WTO meeting in Singapore provide useful vehicles for entrenching open regionalism in Asia and the Pacific and the global objectives of APEC.

The reality is that Dr Mahathir's East Asian Economic Caucus strategy, -- despite its earlier and more narrowly regionalist overtones -- has kept the vision of open regionalism and global objectives to the forefront and is now rather central to maintaining the momentum in APEC.

Further reading:

• Peter Drysdale, International Economic Pluralism: Economic Policy in Asia and the Pacific, Allen & Unwin, Sydney, and Columbia University Press, New York, 1989;
• Peter Drysdale and Ross Garnaut (eds), Asia Pacific Regionalism: Readings in International Economic Relations, Harper Educational Publishers, Sydney, 1994;
• Yoriuchi Funabashi, Asia-Pacific Fusion: Japan's Role in APEC, Institute of International Economics, Washington, 1995.
• Asia-Pacific Economic Cooperation - APEC Secretariat WWW page.
  http://www.apecsec.org.sg/

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