APEC's Kuala Lumpur Meetings, 1998: Major Outcomes and Australia's Interests

Current Issues Brief 5 1998-99

Dr Frank Frost
Foreign Affairs, Defence and Trade Group
8 December 1998

Contents

Introduction

APEC since 1989

APEC's 1998 Meetings: Key Issues

Introduction

The Asia Pacific Economic Cooperation forum held its tenth annual series of meetings in Kuala Lumpur from 14-18 November. The meetings brought together the 21 members of the forum (with Russia, Peru and Vietnam attending for the first time) for a series of meetings of the members' senior ministers and heads of government. APEC's 1998 agenda included meetings of the APEC Business Advisory Council (ABAC), the Ministerial Meeting (14-15 November) and the informal leaders meeting (17-18 November).

The 1998 meetings were held under the shadow of the Asian financial crisis which has affected a number of APEC's members since mid-1997. While there have been some positive signs in late 1998, a number of states are experiencing severe problems, including South Korea, Thailand, Malaysia, and most seriously of all, Indonesia, which has been facing both an economic crisis (with GDP expected to decline by about 15 per cent in 1998) and a difficult political transition in the post-Suharto era. In this situation, in the lead up to the 1998 meetings, much attention was directed towards how APEC might be able to contribute to both short and longer term responses to the damage the crisis is continuing to impose. For Australia, which played a central role in initiating APEC and hosted its first meeting in 1989, the 1998 meetings were an opportunity to make an input into APEC's response to the regional crisis.

This paper provides a brief review of APEC's 1998 meetings, the major outcomes, Australia's interests, and APEC's position as it approaches its tenth anniversary.

APEC since 1989

APEC was established to help liberalise flows of trade and investment in the Asia Pacific and to foster communication and a sense of shared community among the diverse economies of the region. After years of debate on the need for cooperation in the Asia Pacific, APEC was inaugurated in January 1989 at the initiative of Prime Minister Hawke and the first meeting of 12 economies was held in Canberra in November 1989.(1) In 1991 at APEC's third meeting in Seoul, the Republic of Korea was able to negotiate the entry of China, Hong Kong and Taiwan, making APEC distinctive as the only major multi-lateral forum to include the 'three Chinas'. In 1993 Mexico and Papua-New Guinea joined and Chile joined in November 1994. The acceptance of Russia, Peru and Vietnam has brought the membership to its present level of 21.

APEC has been seeking to establish a character and role different from those of other regional and international groupings concerned with economic and trade cooperation. Unlike the European Union it has not been conceived as a preferential free trade area and has no ambitions to establish elaborate supranational institutions. Unlike ASEAN, APEC is seeking to bring together both developing and industrialised states of widely varying size in both Asia and the Americas on the 'Pacific rim'. APEC is also distinct from the World Trade Organisation (WTO) in that it does not have the charter to pursue formal trade negotiations on a global basis.

APEC's basic principles were agreed at the first ministerial meeting in 1989, particularly that:

• The objective of APEC is to sustain growth and development in the region to contribute to improving living standards and also to contribute to the growth of the world economy;
• APEC should seek to strengthen an open multilateral trading system and not to be directed towards creation of a regional trading bloc;
• APEC should focus on economic rather than political or security issues, to advance common interests and foster constructive interdependence by encouraging the flow of goods, services, capital and technology.

Since 1989, APEC has developed substantially but has sought to keep its activities flexible and minimise the development of a bureaucracy. APEC has been directed primarily by the annual ministerial meetings, of which the Kuala Lumpur meetings were the tenth. Following a suggestion by Prime Minister Keating in 1992, the APEC heads of government initiated in Seattle in November 1993 what has become a series of annual meetings, adding greatly to APEC's profile. APEC's ongoing activities are overseen by the Senior Officials meetings process, supported by a small secretariat in Singapore. APEC's major technical work is carried out by a series of working groups and by the Committee on Trade and Investment (CTI) which is the main forum within APEC for pursuing the liberalisation and expansion of trade and investment flows in the Asia Pacific region. The Committee has been pursuing work in a wide range of areas to help secure APEC's aims to both facilitate and liberalise trade and investment (for a summary of APEC's committees and working groups see Appendix A).

The APEC heads of government at their second meeting, in Bogor in November 1994, adopted as their goal the achievement of free and open trade and investment among their members by 2020 (with the developed economies reaching this target by 2010 and the less-developed members by 2020). This commitment was to be supported by a 'standstill' under which APEC members would not adopt any measures that would increase existing levels of protection, and continuing efforts to facilitate trade and investment by harmonising and simplifying customs procedures, standards and other regulations. The Bogor commitments are being pursued through 'individual action plans' by which members volunteer programs of liberalisation. These have been developed and reviewed since the Osaka meetings in 1995.

APEC's Initial Response to the Asian Financial Crisis

APEC was established in an environment in which the Asia Pacific economies were enjoying a remarkable pattern of rapid growth. This growth was accompanied by a widespread process of unilateral liberalisation by many APEC members: APEC's efforts towards trade liberalisation and facilitation were thus adding weight to trends already underway (for details on progress in the reduction of tariff levels among APEC members see Table 1). The onset of the Asian financial crisis from mid 1997, however, has created a new environment with which APEC has had to try to deal.

Note: Does not include calculation of non-ad valorum tariffs.

* Indicates trade-weighted advantage.

^ 1996 data.

Data source: Manilla Action Plan for APEC; Individual Action Plans, various (1997).

Table from: Department of Foreign Affairs and Trade, APEC Kuala Lumpur Meetings: Overview, November 1998.

As Professor Ross Garnaut (Australian National University) has recently pointed out, the 'Asian' financial crisis has not affected all major Asian economies equally, and in fact the two largest economies-China and India-have not so far suffered an economic downturn. However, from mid-1997 a number of East Asian countries have experienced severe problems, as a rapid loss of confidence among foreign investors precipitated sharp declines in currency values, major capital outflows, acute damage to companies and financial institutions, unemployment and increased poverty levels. As Garnaut has observed, 'The contraction of activity has deepened progressively since mid 1997, and is now the worst decline for many decades in Malaysia, Thailand, Korea and Japan, and the worst over a comparably short period ever in Indonesia'.(2) Falling economic activity and currency depreciations have led since 1997 to large reductions in imports in one country after another, cumulatively producing an implosion of intra-regional trade and an intensification of contractionary pressures. Garnaut warned that the Great Depression was transmitted from economy to economy through reduction of trade, driven by declining economic activity. While the analogy with the Depression of the 1930s is not precise, '...the transmission of contractionary tendencies in other economies through the implosion of import trade that was so damaging to the world as a whole in the years from 1929 has had parallels in the Western Pacific in 1998'.(3)

The financial crisis has posed severe challenges, not only for national governments, but for the regional associations they have formed in recent years to assist their growth and security. APEC has not found it easy to develop a credible and relevant response.

In the months after mid-1997, APEC governments contributed to IMF 'rescue packages' to support the foreign exchange reserves of economies whose currencies had come under challenge. While many APEC governments stressed the need to adhere to the IMF's programs, they were not able to act collectively to try to ensure that IMF programs were relevant to the economic conditions in East Asia. Meetings of APEC Finance Ministers were useful in providing opportunities for affected countries to exchange views and information and APEC launched some modest initiatives to try to ease the costs of the crisis. However, in the period before the 1998 meetings APEC was not able to take more active steps on what have been seen as major aspects of the crisis: for example, it was not able to initiate significant economic and technical cooperation to help member economies strengthen the management and structure of their financial sectors.(4)

In the lead up to the 1998 meetings there was also evidence of disagreement among member countries and observers on the relevance of APEC's major agenda so far-trade and investment liberalisation-to the requirements of the financial crisis. Indonesia's Foreign Minister Ali Alatas, for example, stated in late October 1998 that APEC should adjust to the reality of the region's economic troubles by shifting the focus of the Kuala Lumpur summit from trade reform to finding ways of overcoming the recession and the side effects of huge and sudden swings in capital flows: he commented, 'How can we talk about liberalisation without also realising that the economies are in severe crisis'.(5) This emphasis is also understood to have been supported by members including Japan, China and Malaysia.

Other members argued that the agreed APEC agenda for liberalisation (including the Early Voluntary Sectoral Liberalisation-EVSL-program agreed to at Vancouver in November 1997-see Page 7) should be maintained. The US Deputy Trade Representative Richard Fisher said in late October that the key emphasis in Kuala Lumpur must be the 'commitment made by all the member nations at the last summit to voluntarily liberalise the tariff regimes affecting nine major sectors of the economy', a view which was supported by members including Australia, Hong Kong, Singapore, and South Korea.(6)

APEC's 1998 Meetings: Key Issues

Even before APEC met, the 1998 meetings were widely seen as likely to be difficult and possibly fractious. In addition to the problems over differing attitudes towards the EVSL proposals, Malaysia's role as chairman and host nation was seen as potentially posing some challenges. APEC does not have an extensive standing administrative structure or a very large secretariat and the role and input of the chairmanship (which rotates annually) is particularly important. In 1993, for example, President Clinton had taken the initiative to establish the informal leaders' meeting, while in 1994, President Suharto's leadership was seen as important in helping to secure the adoption of the Bogor Declaration. In contrast to some other East Asian members (such as Singapore or South Korea) Malaysia has often been seen as one of the comparatively less intensely committed APEC members, and one which has stressed the importance of keeping the forum as a consultative and voluntary association which does not set any precise or binding goals for its members.(7) Prime Minister Mahathir Mohamed, in addition, has championed the concept of an alternative model for cooperation in the 'East Asian Economic Caucus', a grouping which would gather together exclusively countries from East Asia and not include those from the Americas, or Australia or New Zealand. The extent of Malaysia's long term commitment to the advancement of a high profile role for APEC was therefore an issue of some uncertainty: Dr Mahathir had in fact told the Australian writer Greg Sheridan in an interview in 1993 that, 'We have been very wary about APEC, simply because there have been so many powerful members who dominate it'.(8)

In 1998, in addition, Malaysia was experiencing a substantial internal political controversy over the arrest and trial of former Deputy Prime Minister Anwar Ibrahim, developments which had attracted criticism internally and externally. While APEC's focus is intended to be explicitly on economic cooperation issues, the Kuala Lumpur meetings were, to an unusual degree for APEC, accompanied by some contentious discussions on political issues.

Political Disharmony

Anwar Ibrahim was dismissed from his position as Deputy Prime Minister on 2 September 1998 and arrested on 20 September on charges of corruption and sodomy. Anwar's trial was initiated on 2 November but was suspended for the duration of the APEC meetings. The arrest and trial of Anwar has attracted widespread criticism both within and outside Malaysia. As a result of the Anwar case, some controversy was injected into the APEC meetings from the start. The United States and Canada declared that their heads of government would not hold the customary bilateral meetings with the leader of the host nation, Prime Minister Mahathir Mohamed. Moreover US Secretary of State Albright, Canada's Foreign Minister Lloyd Axworthy and Trade Minister Sergio Marchi, and Philippines President Estrada met publicly with Anwar's wife, Wan Azizah.

The Australian Government chose to handle the issue differently to the US and Canada. Australia's Foreign Minister Downer held a meeting with Wan Azizah, but in private. This was disclosed later by Prime Minister Howard, after he had held a bilateral meeting with Prime Minister Mahathir. In a comment before he left Kuala Lumpur, Mr Howard stated that he considered he had 'got the balance right' on these issues:

Additional controversy arose after a speech on 16 November by US Vice President Al Gore. Vice President Gore was attending the meetings in place of President Clinton, who withdrew shortly before the meetings were due to begin because of the pressures of policy in relation to Iraq. During his speech, Vice President Gore linked economic recovery in Asia to advancement in democracy and governmental transparency. Gore stated: 'Among countries suffering economic crisis, we continue to hear calls for democracy in many languages, 'people power', 'doi moi', 'reformasi'. We hear them today-right here, right now-among the brave people of Malaysia'.(10) Malaysian ministers reacted highly negatively to the speech: Trade Minister Rafidah Aziz called it 'disgusting' and Foreign Minister Badawi said that the US was 'trying to serve its own narrow political agenda'. Philippines President Estrada publicly supported the comments but other APEC senior ministers and leaders were either unsympathetic or reserved about what was termed 'megaphone diplomacy'. Gore's comments also received a cool response from some leading Malaysian commentators and opposition figures who expressed concern that the comments might be utilised to assert that protests in Malaysia are 'foreign-directed'.(11)

Prime Minister Mahathir himself downplayed the issue of Vice President Gore's comments, but the exchanges of opinion over Gore's speech added a note of contention to the context of the APEC meetings.(12)

Trade Issues and 'Early Voluntary Sectoral Liberalisation'>

Trade liberalisation is at the heart of APEC's agenda. The 1998 meetings reviewed APEC's progress towards this goal and recommitted the members to the goals set out in the Bogor Declaration. APEC, however, experienced difficulties in reaching agreement on the program of enhanced progress towards liberalisation which it had set for itself at its last round of meetings in Vancouver in 1997.

At the November 1997 Vancouver APEC meetings, the members had sought to add pace and impetus to their commitment towards trade liberalisation by identifying 15 sectors in which liberalisation could be sought at a schedule in advance of the Bogor targets of 2010 and 2020. Nine sectors were to be pursued first: chemicals, energy, environmental goods and services, fish and fish products, forest products, gems and jewellery, medical equipment and instruments, telecommunications mutual recognition arrangements, and toys. Six other sectors were also identified and it was suggested that these might be considered by APEC leaders in 1998: automotive products, civil aircraft, fertilisers, food, natural and synthetic rubber, oilseeds and oilseed products (for a summary of the EVSL proposals see Appendix B). The EVSL involved a wide range of trade enhancing measures including market opening (through the liberalisation of tariff and non-tariff barriers), trade facilitation (such as the harmonisation of product standards), economic and technical cooperation (such as training of customs officials), and liberalisation of trade in services (in the energy and environment sectors).

The EVSL proposals were adopted in 1997 before the impact of the Asian financial crisis had become fully apparent to APEC members. As has been noted above, in the lead-up to the 1998 meetings reservations about the desirability of pursuing the program as specified began to arise. APEC had been able to make good progress in seven out of the nine specified sectors. However, Japan had strong objections to the proposals in two politically-sensitive sectors, forestry and fishing, and was not prepared to agree to these elements of the EVSL proposals. Faced with this opposition, APEC ministers agreed to a compromise in which sixteen of APEC's members would pursue the EVSL package in the World Trade Organisation.(13) US officials were reported to have expressed the hope that a global accord covering all nine sectors could be reached in 1999. However Japanese officials were reported to have said privately that the nine sectors would need to be part of another round of comprehensive trade negotiations, one that is due to start in the year 2000 but may well last for several years.(14)

While Japan was identified as the main obstacle to reaching agreement on EVSL, discussions during the APEC meetings indicated that the US's own support for the process was qualified. The US Special Trade Representative Charlene Barshefsky, in a press conference on 15 November 1998, said that the US administration had always held the view that agreement on EVSL by APEC would be a useful catalyst, but that wider agreement was needed for the measures (particularly by Europe) in order for sufficient 'critical mass' to be achieved if the measures were going to receive US endorsement. Ms Barshefsky noted that the US cannot legally unilaterally cut US tariffs, that binding agreements on measures like EVSL are needed in order for the US to endorse them, and that the WTO is the appropriate avenue to achieve such agreements.(15) These comments suggested that even if Japan had agreed to all nine EVSL provisions, the US would still have sought wider endorsement through the WTO.

The decision to refer the EVSL program to the WTO has inevitably been seen as a setback for APEC in that it was not able to maintain support for a set of proposals it had itself nominated as important.

The Regional Financial Crisis and Domestic and International Financial Reform

A major question in 1998 was whether APEC could develop some concerted approaches towards alleviating the regional financial crisis which has so badly affected some of its members. Before the meetings, a number of suggestions were advanced by private sector groups and think tanks. The Panel of Independent Experts, led by Professor Fred Bergsten (Institute for International Economics, Washington) advanced a proposal called the Concerted Asian Recovery Program, which recommended that APEC members take action to boost demand by cooperating to cut interest rates and boost domestic demand.(16) Other analysts suggested that APEC could play an important role in taking a leadership position on ways in which the international financial system could be reformed. APEC might also be able to take a leadership role in mobilising support for the provision of funds to support restructuring of companies and financial institutions in the region which have been devastated by high levels of bad debts: the G 7 group was reported in October 1998 to be trying to develop a plan to deal with this issue, and it was considered that APEC could contribute to these efforts.(17) In the event, APEC did take a number of useful steps, while not necessarily meeting all the wishes and expectations of its supporters and advisers.

After their two days of discussions on 17-18 November, APEC's leaders issued a declaration in which they resolved to pursue a cooperative growth strategy to hasten recovery.(18) The statement outlined measures to ease the burden of debt on companies and banks, strengthen financial systems, revive investment and growth, and cushion the impact of recession on millions of people, especially the poor. However, the statement did not seek to set precisely delineated goals or set out a detailed strategy on how these aims might be achieved and funded.

The APEC leaders' major recommendations included:

• On the issue of proposals for reform of the international financial system, the leaders declared that they welcome the work undertaken in several fora to strengthen the international financial system. They took note of proposals made to improve transparency and accountability, to strengthen national financial systems, and to improve co-ordination and involvement of the private sector in the prevention and orderly resolution of international financial crises. The leaders recommended that this work should be continued by a forum such as an expanded G 22.(19)
• In relation to national financial systems, the leaders called for the adoption by member economies of international best practice principles for the supervision of banking systems and securities markets, including the Basic Principles of Effective Banking Supervision and the International Organisation of Securities Commission standards. In this context, the leaders welcomed Australia's Economic and Financial Management Initiative, which provides $A50 million over a three year period to help APEC economies take practical measures to strengthen their economic and financial management. Examples include training of central bank officials and technical assistance for prudential supervision programs (for further details see Appendix C).
• Agreement was reached on the need to set up a task force to examine transparency and exposure standards amongst private sector financial institutions involved in international capital flows, including investment banks, hedge funds, and other institutional investors. It was argued that the task force should examine the operations of leveraged offshore institutions, as well as the need for strengthened prudential regulation of financial institutions in industrialised economies, in order to promote secure and sustainable capital flows.
• A second task force was agreed on to examine the issue of crisis management, including orderly debt workout arrangements for the private sector.
• The leaders called for a review of the activities of international credit rating agencies, which in recent months have been the focus of strong criticism in East Asia for their downgrading of corporate and sovereign debt. Such downgrades have raised significantly the costs of raising funds for companies and governments in the region.
• The leaders endorsed the need for increased social safety nets: they supported greater flexibility in IMF assistance programs and welcomed the increase in social sector lending by the World Bank and the Asian Development Bank.
• The APEC leaders welcomed two initiatives made by individual APEC members to assist in the recovery of the region's economies. The first is a commitment made by Japan in September 1998 to provide $US 30 billion as an aid package for East Asia. The package aims to provide short term financial support for Asian economies, enhance their access to capital markets and help stabilise currencies. The second initiative is a commitment by the US and Japan to provide $US 10 billion (announced during the APEC meetings) to recapitalise East Asian banks and help them dispose of non-performing loans, as well as aiding distressed companies in Indonesia and elsewhere which are burdened by large domestic and foreign currency debts. The US-Japan proposal would need to be pursued in cooperation with the World Bank and the ADB and many details have yet to be arranged. However these two initiatives together did constitute a substantial concrete offer of assistance to the task of restoring viability and confidence to the financial systems of the APEC members affected adversely by the Asian financial crisis and was therefore possibly the most important single issue considered and endorsed by the 1998 meetings.

Economic and Technical Cooperation

Economic and technical cooperation has been an important part of APEC's focus from its early years. This area of cooperation, often called 'ecotech' in APEC discussions, has been seen as especially important in the context of the regional financial crisis, when skilled personnel are needed to implement policies to restore investor confidence and secure renewed growth.

To promote this area, the APEC leaders endorsed the Kuala Lumpur Action Programme on Skills Development. The Programme seeks to 'contribute towards sustainable growth and equitable development while reducing economic disparities and improving the social well-being of the people, through skills upgrading/improvement'. The Programme also aims to gain participation in funding through the business sector where possible. 'Smart partnerships' between the public and private sectors will also be encouraged, along with development of an APEC network of skills development centres.(20)

Electronic Commerce

A further area of cooperation in 1998 was electronic commerce. Under the APEC Blueprint for Action on Electronic Commerce, government and business cooperation will be expanded to help facilitate expansion of this area of trade among the culturally diverse APEC economies. In particular, the Blueprint calls for government-business cooperation on the development of communication infrastructure, effective industry self-regulation, and encouraging consumer confidence, including by providing appropriate protection for consumers.

Australia, APEC and Kuala Lumpur

Since APEC's inauguration in 1989, Australia has seen the forum as a way of advancing key economic and some wider political interests, both in the Asia Pacific and globally. Over the past decade Australia's exports to APEC economies have grown at an annualised rate of 8.5 per cent, compared with 6.7 per cent for the rest of the world. 73.2 per cent of Australia's exports now go APEC members, up from 69.9 per cent a decade ago. Some two-thirds of Australia's services exports, which are of increasing importance for Australia's overall trade, go to APEC economies. Just over half of Australia's stock of inward and outward investment is sourced from or located in APEC countries.(21)

The financial crisis in Asia has clearly affected growth rates and intra-regional trade adversely. However despite the developing impact of this crisis, Australia's exports to East Asia for 1997-98 still increased by 5.5 per cent over 1996-97 (to a value of $47.2 billion). Although exports to the most seriously affected economies (including Indonesia, South Korea and Thailand) declined significantly in 1997-98, exports to some other countries in East Asia in fact increased substantially (to China, Hong Kong, Chinese Taipei, Japan and Vietnam).

From the Australian Government's perspective, the slowing of growth in a number of regional economies makes progress in liberalisation of trade even more important. Hence APEC's potential to add to progress in liberalisation makes it very important for Australia's interests. A recent Department of Foreign Affairs and Trade briefing on APEC argued that:

Australia can gain from liberalisation in a number of ways: from increased growth driven by advantages flowing from lower trade barriers, through improved market access, through improved transparency of trade and investment regimes, and from lower transaction costs in doing business (ranging from simpler business visas to faster processing of shipping). For all these reasons, Australia has supported APEC's cooperative efforts towards liberalisation and facilitation of trade and investment.

APEC has been designed to focus on economic and not political or security issues. Nonetheless, successive Australian governments have seen major advantages in the development of a forum which includes China along with Hong Kong and Chinese Taipei, and the two largest economies in the Asia Pacific, the US and Japan. The annual leaders' meetings provide a unique opportunity for Asia Pacific leaders to hold discussions-even if they do not always agree-and the APEC meetings also provide the venue for many bilateral discussions which otherwise might either be more difficult to organise or which might not otherwise occur at all.

This combination of economic, political and strategic issues makes APEC of substantial importance for Australia's foreign policy and trade interests.

For the 1998 Kuala Lumpur meetings the Australian Government hoped to see continued progress made with APEC's agenda for trade liberalisation, especially through the EVSL. Australia also sought to advance the idea that recovery would be facilitated through improvements in APEC governments' standards of economic and financial management. APEC, it was hoped, could also help galvanise efforts through the G 7 and G 22 and other forums to promote the reform of the international financial system.(23)

In the event, the Australian Government was disappointed with the decision to pass the EVSL program to the WTO; Prime Minister Howard described this as 'second best from an APEC point of view'.(24) The Government however saw a number of positive outcomes from the meetings. The Minister for Foreign Affairs, Alexander Downer, said in Parliament on 24 November that the APEC leaders had agreed to a number of proposals advanced by Australia:

Mr Downer also expressed satisfaction at progress on several other areas, including the Individual Action Plans, the endorsement of a blueprint on electronic commerce, cooperation on the 'year 2000' problem, and on APEC's endorsement of an Australian initiative to improve community awareness of the benefits of open markets. He also emphasised the political importance of the leaders' meetings as a venue for discussion of regional and global issues.(26)

Conclusion

APEC experienced considerable difficulties at its 1998 meetings. The non-attendance at the leaders' meeting by President Clinton (his second absence since he initiated these meetings in 1993) was a disappointment. It also quite possibly had a significant impact on the tone of the meetings, since it seems unlikely that the President would have delivered exactly the same kind of speech which the Vice President presented on 16 November. The discord over Gore's speech clearly was not in the spirit of Asia Pacific community-building which APEC aspires to foster. APEC's inability to agree on further immediate progress in the EVSL process which it had set out for itself just a year ago was a setback for the substance and image of APEC cooperation. In relation to the regional financial crisis, while APEC endorsed a number of important principles and initiated some useful processes of research, it was not itself able to place its own 'stamp' on any substantial proposals.

However APEC's Kuala Lumpur meetings can nonetheless be seen to have offered more evidence of progress than some observers have suggested. In spite of the obvious difficulties, the leaders of the member economies were able to reinforce a consensus on a recovery strategy based on market forces, domestic financial reform, the return of private capital flows, trade liberalisation and stronger economic governance. The meetings also reinforced a wide range of economic and technical cooperation programs which will gain added value if private sector participation can be increased in line with the aims of the Kuala Lumpur Programme on Skills Development. The commitment of funds by Japan and by the US and Japan jointly-while not specifically an 'APEC initiative'-were given heightened prominence by the meetings and are an important step forward for the Asia Pacific region. The $US 40 billion which was committed may only constitute about 20 per cent of the total funds needed for restructuring and debt alleviation, but the funds are nonetheless an important contribution to support those countries committed to reform and restructuring of their financial systems.(27) Moreover, the 1998 meetings took some additional useful initiatives, particularly by deciding to pursue agreed goals in relation to electronic commerce, in endorsing the Australian proposal for improved economic governance and in committing the members to develop human resources and enhance the base of skills among the members.

APEC clearly should not be assessed solely on the basis of one set of unusually difficult meetings. APEC is valued by its members, not least because of the unique opportunity for dialogue that its annual leaders'meetings offer a region which has very few cooperative institutions at governmental level. APEC, however, was developed in a climate of rapid and widespread growth in the Asia Pacific region. In the current climate of economic problems and uncertainty APEC faces some significant challenges about its identity and direction. In 1998 APEC's trade liberalisation agenda has encountered problems and its major recent set of proposals (EVSL) has been referred to the WTO. APEC made some useful commitments about international financial reform, but it is recognised that the appropriate forum to deliberate on these issues is the G 22 or a variant of it. An important question for APEC-as it approaches its second decade as a regional group and its next series of meetings in Auckland in September 1999-is whether it can make a distinct contribution towards the new task of promoting and supporting recovery and renewed growth. In a paper delivered on 7 October 1998, shortly before the Kuala Lumpur meetings, Dr Andrew Elek summed up the ongoing challenge for APEC:

Endnotes

2. The twelve original participants were Australia, Brunei Darussalam, Canada, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, The Philippines, Singapore, Thailand and the United States.

3. Ross Garnaut, 'The Way out of the Western Pacific Crisis', Address to Australia Japan Business Co-operation Committee, Melbourne, 19 October 1998, p. 2.

4. Ibid., p. 3.

5. Forging New Partnerships: Economic and Technical Cooperation and the APEC Process, Brisbane, Foundation for Development Cooperation, Brisbane, 1998, p. 10.

6. Michael Richardson, 'APEC's free trade push in jeopardy', The Australian, 27 October 1998.

7. Ibid.

8. For example, in November 1995 Malaysia's Minister for Trade and Industry, Rafidah Aziz, said, 'We do not want APEC to be a negotiating process. No way will we allow the APEC process to trading partners to start negotiating trade-offs to liberalisation or even to have negotiations on tariff cuts and demand reciprocity for example. APEC should be an agenda everybody can subscribe to, not an agenda that belongs to a select group' ('Malaysia supports Mahathir on APEC', The Weekend Australian, 4 November 1995).

9. Greg Sheridan, Tigers: Leaders of the New Asia Pacific, Sydney, Allen and Unwin, 1997, p. 199.

10. Ross Peake, 'Fischer swipe at Gore "play for cameras" ', Canberra Times, 20 November 1998.

11. Keith B. Richburg and Paul Blustein, 'Gore's remarks in Malaysia stir dispute', The Washington Post, 18 November 1998.

12. Chen May Yee, 'US support makes anti-Mahathir movement uneasy', Asian Wall Street Journal, 18 November 1998.

13. Thomas Fuller, 'Foes of Mahathir see US misstep', International Herald Tribune, 19 November 1998.

14. The five members not participating in the EVSL process are the three new members Peru, Russia and Vietnam (who only joined at the time of the Kuala Lumpur meetings) and Chile and Mexico.

15. Michael Richardson, 'Economic turmoil means lower expectations for APEC', International Herald Tribune , 20 November 1998.

16. 'USTR Barshefsky briefing on APEC ministerial outcomes', 15 November 1998, p. 4.

17. Paul Kelly, 'Blueprint to rescue Asia', The Australian, 21 October 1998.

18. Michael Dwyer and Tony Boyd, 'Corporate debt rescue for Asia', Australian Financial Review, 26 October 1998.

19. APEC Economic Leaders' Declaration, Kuala Lumpur, Malaysia, 18 November 1998.

20. The 'G 22' refers to a meeting of Finance Ministers and Central Bank Governors first convened by the US in April 1998. The aims of the meeting were to examine issues relating to the stability of the international financial system and the efficient operation of capital markets. The meeting was attended by both the US and Australia, along with Argentina, Brazil, Canada, China, France, Germany, Hong Kong-SAR, India, Indonesia, Italy, Japan, Korea, Malaysia. Mexico, Poland, Russia, Singapore, South Africa, Thailand and the United Kingdom. Three working groups were established to take the work of the meeting forward, in the areas of transparency and accountability, strengthening financial systems, and managing international financial crises. Australia has participated directly in the first and third working groups.

21. 'Kuala Lumpur Programme on Skills Development (Attachment to the APEC Economic Leaders' Declaration, 18 November 198).

22. The following paragraphs draw from Department of Foreign Affairs and Trade, APEC Kuala Lumpur Meetings: Overview, November 1998.

23. Ibid., p. 7.

24. Prime Minister John Howard, Hansard, 12 November 1998, p. 303.

25. Peter Alford, 'APEC backs reform plan', The Australian, 19 November 1998.

26. Minister for Foreign Affairs Alexander Downer, Hansard, 24 November 1998, p. 441.

27. Ibid.

28. These comments are based on a discussion with Dr Andrew Elek, 1 December 1998.

29. Andrew Elek, 'ECOTECH at the Heart of APEC: Economic and technical cooperation for financial sector recovery, and the facilitation and liberalisation of trade and investment in the Asia Pacific', Presentation to an international conference on APEC liberalisation and the

Appendix A: Asia-Pacific Economic Cooperation-Organisation and Process

Appendix B: Proposals for Early Voluntary Sectoral Liberalisation

Sectors Selected for Early Voluntary Sectoral Liberalisation

Source: 'APEC Australia Brief: Trade and Investment Liberalisation', Department of Foreign Affairs and Trade, Canberra, November 1998.

Sectors Selected for Early Voluntary Sectoral Liberalisation (Continued)

Appendix C: Australian Economic and Financial Management Initiative

Source: Australian Agency for International Development.