Chapter 4 - Trade and investment liberalisation
The 1994 APEC Leaders’ Declaration at Bogor of free and open
trade and investment by 2010 for developed economies and 2020 for developing
economies was, in many respects, a continuation of trade and investment liberalisation
that had been occurring for some time among Asia Pacific economies.
Market extension or regional market integration is an important
development in expanding intra-regional trade. Different regions have adopted
different ways of integrating their individual markets. While the European
Union and North America have instituted market integration through treaties,
East Asian economies have adopted more informal trade liberalisation measures.
This reflects their more diverse economies, political systems and cultures. The
ASEAN economies have developed their own free trade agreement but, in practice,
have extended trade liberalisation on a most favoured nation basis soon after
introducing such measures within the group.
From the first meeting of APEC Ministers in
November 1989, trade liberalisation occupied an important place on the agenda.
At that meeting, the APEC Ministers focussed on ways of achieving greater trade
liberalisation on a global basis through the Uruguay Round multilateral trade negotiations. The Chairman, in his Summary
Ministers agreed that the Asia Pacific region has a long-term
common interest in promoting world-wide trade liberalisation. By working
together, the region can inject positive views into a range of important
international economic forums, including not only the GATT but the OECD, and
sectoral bodies (eg the International Telecommunications Union). It was
acknowledged that our regional economies would be better placed to show such
leadership if we can continue the recent trend of reducing impediments to trade
among ourselves, without discriminating against others.
At the APEC Ministerial Meeting in Singapore in July 1990:
Ministers agreed that a continuing central theme of APEC,
following the completion of the Uruguay Round, would be the promotion of a more
open trading system. They agreed in this respect that it was desirable to
reduce barriers to trade in goods and services among participants, so long as
any such liberalisation was consistent with GATT principles and was not to the
detriment of other parties.
At the Ministerial Meeting in Seoul in November 1991, Ministers gave
further consideration to the theme running through earlier meetings of
promoting a more open trading system by leading by example. This would also be
to the mutual benefit of APEC economies. Senior officials were directed to
continue work in this area and to give further consideration to the
establishment of an Eminent Persons Group ‘to consider the likely shape of
trade in the Asia-Pacific over the medium-term, and to identify constraints and
issues that would need to be addressed by governments in order to realise the
potential for trade in the region’.
The Eminent Persons Group was established at the
next Ministerial meeting in Bangkok in November 1992 to report initially to the Ministerial meeting in
November 1993. Ministers considered a report of the Informal Group on Trade
Liberalisation in the Region and gave further consideration to means of
encouraging trade liberalisation. Ministers ‘asked the Informal Group to look
ahead to emerging trade issues and endorsed the view that both longer term
measures and a shorter term action programme should be pursued’.
The initial Report of the Eminent Persons Group
was presented to Ministers at the next Ministerial meeting in November 1993.
The unanimous Report:
emphasized that APEC must accelerate and expand cooperation in
order to respond to three threats to the continued vitality of the region:
erosion of the multilateral global trading system; evolution of inward looking
regionalism; and risk of fragmentation within the Asia-Pacific region. The EPG
recommended APEC undertake initiatives in four areas: regional and global trade
liberalization; trade facilitation programs; technical cooperation; and
The Report of the Eminent Persons Group was
warmly received by Ministers and, following a wide-ranging discussion:
Ministers instructed Senior Officials to develop pragmatic
programs to implement the EPG recommendations on trade liberalization and
facilitation, technical cooperation, and the development of the APEC structure
and decision-making process. Ministers further requested Senior Officials
prepare a strategy and program to advance regional and global open trade,
identify mechanisms to achieve that goal, and report to Ministers at the next
At the inaugural Leaders’ meeting the next day,
the Leaders, in their Vision Statement, envisioned a community in which, among
other things, ‘We continue to reduce trade and investment barriers so that our
trade expands within the region and with the world and goods, services, capital
and investment flow freely among our economies’. The Leaders endorsed the trade
liberalisation goals of the Eminent Persons Group and asked APEC to undertake
work to broaden and deepen the outcome of the Uruguay Round and to strengthen
trade and investment liberalisation in the Asia Pacific region.
Up to this point, APEC had supported trade and
investment liberalisation in the region through the Uruguay Round multilateral
trade negotiations and by encouraging member economies to continue the
liberalisation process on a voluntary basis. These two approaches were
interlinked as APEC would not only benefit from a more integrated regional
economy but also from a successful outcome of the Uruguay Round negotiations.
Following the successful conclusion of the
Uruguay Round, which was due in no small way to the efforts of APEC, moves were
under way, largely at the urging of Australia, for APEC to go beyond the
rhetoric of liberalisation and establish specific liberalisation goals for
member economies. The new APEC Chair, Indonesian President Soeharto, was
persuaded to support these moves and he used his considerable influence in the
lead up to the Ministerial and Leaders’ meetings to garner support for them
from the other member economies.
At their meeting in Bogor, Indonesia, in
November 1994, the Leaders agreed not only to carry out all the Uruguay Round
commitments but also to accelerate the implementation of the Round and to work
towards broadening and deepening its outcome. The Leaders also agreed not to
take any measures that would have the effect of increasing levels of
protection. However, the Leaders went well beyond all previous commitments to
enhance trade and investment in the region by agreeing:
to adopt the long-term goal of free and open trade and
investment in the Asia-Pacific. This goal will be pursued promptly by further
reducing barriers to trade and investment and by promoting the free flow of
goods, services and capital among our economies. We will achieve this goal in a
GATT-consistent manner and believe our actions will be a powerful impetus for
further liberalization at the multilateral level to which we remain fully
We further agree to announce our commitment to complete the
achievement of our goal of free and open trade and investment in the
Asia-Pacific no later than the year 2020. The pace of implementation will take
into account differing levels of economic development among APEC economies,
with the industrialized economies achieving the goal of free and open trade and
investment no later than the year 2010 and developing economies no later than
the year 2020.
We wish to emphasize our strong opposition to the creation of an
inward-looking trading bloc that would divert from the pursuit of global free
trade. We are determined to pursue free and open trade and investment in the
Asia-Pacific in a manner that will encourage and strengthen trade and investment
liberalization in the world as a whole. Thus, the outcome of trade and
investment liberalization in the Asia-Pacific will not only be the actual
reduction of barriers among APEC economies but also between APEC economies and
non-APEC economies. In this respect we will give particular attention to our
trade with non-APEC developing countries to ensure that they will also benefit
from our trade and investment liberalization, in conformity with GATT/WTO
These decisions were broadly consistent with the
thrust of proposals put forward by the Eminent Persons Group and the Pacific
Business Forum. However, the APEC Leaders did not restrict the benefits of free
trade to member economies as recommended by the Eminent Persons Group, opting
instead for pursuing free trade goals on a most favoured nation basis. The
Group had recommended restricting benefits until reciprocity was achieved
through further multilateral trade negotiations.
Although the Leaders established long-term free
trade goals for member economies, it was left to each individual economy to
decide its timetable for achieving these goals. This reflected the different
levels of development and protection among member economies. Moreover, without
this flexibility, it would not have been able to get unanimous support for the
free trade goals. As it was, a few economies made statements after the meeting
that achievement of the goals was a voluntary matter for member economies.
The Leaders directed Ministers and officials to
prepare detailed proposals to implement their trade and investment
liberalisation decisions. As a result of their efforts, the Leaders considered
at their next meeting in November 1995, a program, known as the Osaka Action
Agenda, which was designed to implement the Bogor declaration on trade and
In the intervening period, there were
differences of opinion among members as to what the Bogor declaration actually
meant in practice. It was the principles underpinning the Osaka Action Agenda
that were the most difficult to resolve.
There was dispute over comprehensiveness of the
free trade goals, with Japan and Korea arguing that sensitive areas, such as
agriculture, should be excluded. Although agriculture was the most well known
area of sensitivity, all member economies had sensitive areas that would create
some domestic difficulties if the tariff and non-tariff barriers affording them
protection from external competition were wholly or substantially removed.
Ultimately, all member economies agreed not to exclude any particular sensitive
areas from the Bogor goals.
The principle of comparability, ‘the idea that
liberalisation plans should be roughly comparable, taking into account the
level of liberalisation already achieved’, was also strongly supported by
adherents of the Action Agenda.
The principles embodied in the Osaka Action
Agenda are set out in Table 4.1
Principles in the Osaka Action Agenda
All impediments to free and
open trade and investment to be addressed.
All liberalisation and
facilitation measures to be WTO-consistent.
Contributions to trade and
investment liberalisation by each economy to be comparable, taking into
account the level of liberalisation/facilitation already achieved.
Economies to endeavour to
apply non-discrimination among APEC economies and to reduce barriers with
non-APEC economies as well.
Each economy to ensure
transparency of laws, regulations and administrative procedures.
APEC members to endeavour
to refrain from measures which increase levels of protection.
continuous process and differentiated timetables.
APEC economies to begin
liberalisation at the same time and contribute continuously to
liberalisation, facilitation and cooperation.
Flexibility will be
available during the liberalisation and facilitation process.
Economic and technical
cooperation contributing to liberalisation and facilitation will be actively
Source: DFAT submission, p. 11.
Progress and implementation of
In 1995, the Osaka Action Agenda set out the
agreed principles on which these plans would be based. The Agenda stated that
‘the APEC process of liberalisation and facilitation toward achieving the goals
of the Bogor declaration will comprise ... actions by individual APEC
economies; actions by APEC fora; and APEC actions related to multilateral
Each plan would include, ‘concerted unilateral actions to be taken in line with
issue-specific guidelines and collective actions’.
Each APEC economy was asked to produce
Individual Action Plans (IAPs) and Collective Action Plans (CAPs). The IAPs are
each government’s action plan to meet the trade and investment liberalisation
and facilitation (TILF) agendas. CAPs are plans of actions that economies agree
to take collectively. The IAPs observe the commitment of APEC to allow
economies ‘...to liberalise in their own way at their own speed. They are
encouraged to action in the knowledge of belonging to a community of
like-minded nations: each knows that, as it opens its own markets, markets are
being simultaneously opened in partner countries around the region’.
The action plan process provides a structured
and transparent approach, which facilitates assessment of each economy’s
progress towards the Bogor goals. In Osaka it was decided that each plan would:
... contain specific and concrete details, with time frames, for
the near to medium term, while outlining the basic direction toward 2010 in the
case of industrialised economies and 2020 in the case of developing economies.
As required in Section C of the Osaka Action
Plan, the plans outline collective and individual action to be taken in the 15
specific areas of the TILF agendas. These areas are: tariffs; non-tariff
barriers; services; investment; standards and conformance; customs procedures;
intellectual property rights; competition policy; deregulation; government
procurement; rules of origin; dispute mediation; mobility of business people;
implementation of the Uruguay Round outcomes and information gathering and
Under the Ecotech agenda, the plans address actions to be taken collectively.
In Osaka, it was agreed that all IAPs and CAPs
would conform with the nine principles.
Each plan was to be developed after an informal
consultative process and submitted to the Subic Bay meeting in 1996.
Consultation would include consideration of the recommendations of the Eminent
Persons Group and the Pacific Business Forum. The Committee on Trade and
Investment (CTI) was given the ‘prime responsibility for progressing APEC's
trade and investment liberalisation and facilitation agenda’. It was responsible for
overseeing the majority of the CAPs and assisted the development of IAPs.
The IAPs and CAPs collectively became the Manila
Action Plan with implementation beginning on 1 January 1997. APEC Ministers
acknowledged ‘APEC's unique approach’ in establishing action plans. They noted
that the IAPs ‘... represented the members’ individual voluntary commitments
and the first concrete step taken by individual member economies to put into
action their commitment’.
In the absence of any legal requirement to
conform, the Osaka Action Agenda established the importance of continuous
review by providing for annual revisions of the IAPs and the CAPs:
... through a progressive and dynamic mechanism established by
the consultation process and reviews ... Action Plans will be revised ... in accordance
with the expansion and improvement of guidelines and collective actions.
This approach was confirmed in 1996 when the
Ministers noted ‘the rolling nature’ of IAPs’ and affirmed, ‘... the importance
of continuing consultations and annual review in order to sustain the process
of voluntary improvements to IAPs’. They took note:
... of the importance of ensuring transparency of and
comparability among the respective Action Plans and their implementation in
conformity with the principles set out in OAA.
Although implementation of the plans began in
January 1997, many of the economies had included in their early action plans
the commitments they had made in the Uruguay Round multilateral trade
negotiations. As such, a number of internal and external reviews have been
undertaken of the progress of the APEC economies towards their goals. The
discussion, which follows, outlines aims, objectives and comments on progress
in APEC trade liberalisation agenda.
At the Ministerial Meeting in November 1998,
were encouraged by the continued implementation and improvements
to the Plans, particularly by economies affected by the financial turmoil.
Ministers commended the commitment to specific action and timelines, adherence
to the 1997 revised format guidelines and consideration given to APEC Business
Advisory Council’s (ABAC) recommendations. Ministers also welcomed the
voluntary inclusion in a number of IAPs of financial sector reforms and other
measures taken in response to the situation of financial instability. Ministers
noted the usefulness of the current process of bilateral consultations and
voluntary peer review in providing feedback for further improvements.
In a paper presented to the APEC Study Centre
Consortium 1999 Conference, P.J. Lloyd stated:
First, it should be noted that some member countries have made
no substantial reduction in their IAPs in tariffs or non-tariff measures
affecting goods trade. These include the US and Japan, the two biggest traders
in the Asia-pacific region. The US has made none at all apart from commitments
made under the ITA and some reductions in agricultural support programmes in
1997 that were the result of agricultural reforms signed into law in April
1996. Japan has minor additions apart from their commitments under the Uruguay
Round and other WTO agreements ... Japan’s IAPs have put emphasis on trade
‘facilitation’ measures rather than on ‘liberalisation’ measures. In the Kuala
Lumpur Plans, the USA and Japan made no commitments on tariff reductions or
non-tariff measures other than commitments made under the Uruguay Round and
post-Uruguay Round WTO agreements.
Mr Lloyd also said that the main problem in
assessing the IAPs was identifying APEC’s contribution to trade liberalisation
as many of the listed items were GATT/WTO commitments. He also pointed out that
net additions were declining in the three years up to the Kuala Lumpur meeting.
He said that in ‘Kuala Lumpur, as well as the US and Japan, Canada, Korea and
Malaysia made no tariff cuts other than those committed under the WTO’.
In ABAC’s report to the 1999 APEC Chair, it
reiterated previous calls for greater transparency, specificity and
comprehensiveness of IAPs. It made the following recommendations:
The information contained in IAPs needs to be made even more
transparent and accessible in both language and format. The IAPs should be
laid out in a clear and straightforward manner, indicating not only the steps
which economies intend to take in the liberalisation process, but also the
policy intentions behind these measures. APEC should take further steps to
organise the information contained in the IAPs to allow comparisons between
years and between economies.
In ABAC’s view, the IAPs still contain too many vague references
to future plans to review policies and/or amend legislation. Instead,
commitments to future action must be set out in precise terms, including
specific objectives to be addressed and timelines for actual implementation.
Only then will the region’s business community develop confidence in the IAP
process and begin to factor the Action Plans into their own planning processes.
All liberalisation measures being undertaken by APEC economies
should be included in the IAPs. This includes actions being taken in response
to the recent economic crisis and action agreed as part of the EVSL/ATL
exercise. If IAPs are not seen to be comprehensive, their credibility is
compromised and their usefulness greatly diminished in the eyes of the region’s
business community. ABAC encourages APEC member economies to review all steps
which they are currently undertaking to liberalise their economies with a view
to ensuring that these developments are incorporated into their IAPs.
PECC, too, reviewed the IAPs in 1999, providing
an overall assessment rather than assessing the detail of individual IAPs. The
review was also done from a business and community perspective ‘to ensure that
APEC gained a market place view’.
The PECC Chair, Mr Roberto Romulo, said that:
The IAPs are not very accessible and user-friendly and we have
recommended that APEC give much greater attention to presentation as well as
substance. ... The IAPs must improve transparency and provide a clear record of
commitments but they don’t do either very well at this stage.
According to PECC, IAPs should be:
- Far reaching enough to give confidence and predictability to the
region’s business community, consumers, innovators and investors
- Challenging enough to the marketplace to reflect APEC’s
determination to achieve the Bogor goal
- Practical and tangible, containing measures to facilitate
international transactions by business and consumers and providing clear and
adequate information about policy change and regulation
- The means to show the rest of the world that the APEC economies
pursue openness and provide leadership within the multilateral trading system.
The overall impression from the IAPs is that actions to date
have been modest although PECC is aware of evidence from many other sources
which suggests more progress.
At the 1999 Ministerial Meeting, Ministers:
reaffirmed the central role of Individual Action Plans (IAPs) in
delivering liberalisation, facilitation and reform under the APEC process. In
1999, both APEC members individually and the Pacific Economic Cooperation
Council reviewed Individual Action Plans to gauge progress made since 1996
towards achieving the Bogor goals of free and open trade and investment. Both
reviews showed that progress was occurring under the IAP mechanism in terms of
each of the areas covered by the Osaka Action Agenda (OAA) with little
The Ministers went on to direct a work program
to improve transparency and guidelines. The Ministers also welcomed the
submission of IAPs for peer review by five economies, including Australia.
At the Leaders’ Meeting, the Leaders stated:
We reaffirm that individual actions by economies are the
principal means by which APEC’s goal will be attained. We acknowledge that
progress towards the Bogor Goals has been uneven, and undertake to continue
concrete actions to fulfil our commitment. We also accept the views of ABAC and
other business representatives who have called for action plans to be more
specific, transparent and comprehensive, and welcome the initiative by
Ministers to review and strengthen processes for individual and collective
actions under the Osaka Action Agenda.
The IAPs remain a key mechanism for assessing
the extent to which individual economies are meeting their APEC obligations by
progressing towards the Bogor goals. Although each member economy may progress
at its own rate, taking into account the particular circumstances of that
economy and prevailing economic and social conditions, members are still
obliged to adhere to the condition of comparability, to which all agreed as
part of the Osaka Action Agenda.
The Committee believes that the IAPs should be
as transparent as possible to ensure that backsliding does not occur and to
make it clear the extent of the progress actually made by individual economies.
The Committee notes the comments of both ABAC and PECC regarding the potential
for business to use the IAPs as business planning tools if they were more
transparent and comprehensive.
The Committee notes that five economies,
including Australia, have recently submitted their IAPs to peer review. The
Committee agrees that all economies should be encouraged to submit their IAPs
to peer review to enhance the transparency of the process.
The objective of each APEC member economy is to
‘achieve free and open trade in the Asia-Pacific region by progressively
reducing tariffs and ensuring transparency of APEC economies' respective tariff
regimes’. Collectively, each APEC economy agreed to:
- develop and keep a publicly accessible computerised tariff
database (now available);
- establish a database network drawing on WTO work;
identify industries for which the progressive reduction of
tariffs will have a positive impact.
In 1996, 14 of the member economies had also
committed themselves to improving the transparency of each reform measure that
is taken. This is important in all areas of APEC reform as it can:
... improve the knowledge of the APEC members about the regional
trading environment, assist policy development and facilitate trade by enabling
businesses to enhance their understanding and to access information at lower
In 1995, the PECC study showed that prior to the
action plans, liberalisation of tariffs and non-tariff barriers (NTBs) by
‘Australia, New Zealand, Chile, Korea and Indonesia, among others had been of
All of these economies continued to show progress in their 1997 action plans,
although DFAT reported Korea’s activity on tariffs as remaining ‘weak’ and
Indonesia’s as making limited progress in automobile and service reform. Chile
was commended for reducing tariffs across the board.
The 1996, Perspectives on the Manila Action
Plan for APEC was an ‘independent assessment’ which evaluated the progress
of APEC against the benchmarks of the Uruguay Round; the progress of other
economies and current levels of impediments in APEC. The assessment compared the
tariff reductions of each APEC economy to their commitments in the Uruguay
Round. The report found that the liberalisation reforms which had taken place
under APEC had been ‘a stronger impetus for lowering tariffs than the Uruguay
Overall, it was found that APEC's tariff reductions were, ‘all well on track’
and ‘the tariff reductions are faster and deeper’ than in the Uruguay Round. Hong Kong, Brunei and
Singapore were named in the report as ‘champions’ for being at or near the goal
of zero tariffs set by the Bogor declaration. Chile, China, Indonesia and the
Philippines were named as the economies whose commitment to extensive
reductions in tariff barriers put them in advance of the Bogor trend line. All of these economies
continued to make ‘satisfactory progress’ in 1997.
Table 1.2 below shows that for APEC economies,
the average unweighted tariff level was lowered between 1988 and 1996 from 15
per cent to 9 per cent.
In their IAPs, as at November 1996, seventeen of the eighteen economies had
committed themselves to reducing tariffs to the levels agreed to in the Uruguay
Round and beyond. Australia’s commitment to reduce the general tariff rate on
most products to 5 per cent by mid 1996 was achieved, mainly due to Australia's
involvement in earlier tariff reduction programs.
ABAC commented in 1997 that tariff reductions
‘vary greatly in terms of product coverage and the ultimate tariff levels to be
Furthermore, it noted that tariffs in sensitive sectors were still to be
addressed in several IAPs. Overall, however, the trend in the region is towards
lower tariffs and, in DFAT's view, most economies appear to be on track to meet
their tariff goals.
1.2: Unweighted Tariffs of APEC Economies, 1988–96
Source: PECC, Perspectives, 1996, p. 8.
In its most recent report, in 1999, ABAC
acknowledged that there had been a continued reduction in tariffs but more work
needed to be done in this area. It cautioned:
APEC against leaving ‘difficult sectors’, characterised by high
tariff levels, to later years. Indeed, given the complexity of dismantling
highly protected sectors, more time will be needed to address the challenges of
structural adjustment and it is therefore imperative these areas are tackled
sooner rather than later.
ABAC also recommended that economies remove
nuisance tariffs of less than two per cent.
Australia's tariff levels have been
progressively reduced since 1988 and most are now between nought and five per
cent. The major exceptions are textiles, clothing and footwear and passenger
motor vehicles. As ABAC observed, throughout APEC, tariffs remain high in
specific sectors, for example, textiles, clothing and footwear; and wood and
Tariffs are also high on a wide range of imported products of interest to
Australia such as fruit and vegetables and, as such, Australia stands to gain
significantly from tariff reductions.
Australia has reduced tariffs from 15 to 10 per
cent in four stages. As in other APEC economies there is still domestic
pressure in Australia to retain tariffs on the automobile, textiles, clothing
and footwear (TCF) and agricultural industries. A survey regarding the
Australian TCF industry showed 85 per cent of people were in favour of paying
more for products rather than cutting industry protection. Ninety-one per cent
thought lowering tariffs would result in significant job losses. This response suggests that
the Australian community is largely unaware of the benefits of the reforms
taking place under the auspices of APEC.
In trade reform, governments are generally
reluctant to change where there is domestic resistance to reform. APEC is addressing this
problem by agreements among smaller groups of APEC economies.
Research conducted for DFAT estimated that 80 to
90 per cent of the gains for Australia will come from its own liberalisation.
The Centre for International Economics estimated that full APEC liberalisation
will lead to an increase in Australian real GDP of 0.8 per cent by 2020 with a
long-term increase in real wages for Australia of 1.5 per cent. As a result,
employment gain is expected to peak at 0.5 per cent. As DFAT pointed out, however,
‘the modelling debate has not reached a definitive conclusion on the relative
gains from preferential versus MFN liberalisation.
Early Voluntary Sectoral
Early Voluntary Sectoral Liberalisation (EVSL)
began in November 1996 with an instruction by Leaders to the Trade Ministers to
‘identify sectors where voluntary liberalization would have a positive impact
on trade, investment and economic growth in the individual APEC economies as
well as in the region and submit recommendations on how this can be achieved’.
Following a meeting of Trade Ministers in May 1997, 41 sectors were nominated
by economies, from which 15 were selected for early liberalisation. The list
was divided into two tiers, the first of nine was selected for fast track
liberalisation. The nine sectors were: environmental goods and services; fish
and fish products; forest products; medical equipment and instruments; telecommunications
mutual recognition agreement; energy; toys; gems and jewellery; and chemicals.
The six second tier sectors were oilseeds and oilseed products; food; rubber;
fertilisers; automotive and civil aircraft
Ministers agreed to a framework for EVSL in June
1998, even though Chile and Mexico opted out of the agreement. At a separate
meeting in June 1998, the Ministerial Meeting on the Telecommunications and
Information Industry endorsed the proposal for the telecommunications sector.
However, Japan reneged on its previous
commitment to include forest products and fish and fish products in the
program. China, Indonesia, Thailand and Malaysia also did not support the
program. Ministers agreed that ‘APEC economies may implement immediately the
tariff commitments on a voluntary basis’ and to ‘commence implementation of
facilitation, ECOTECH and other initiatives according to the agreed schedule in
all 9 sectors. Additional facilitation and ECOTECH initiatives will be
developed and implemented on a continuous basis’.
Although Ministers left voluntary implementation
of the nine sectors to individual APEC economies, which none has done, it also
referred them to the WTO. As P.J. Lloyd reported:
It seems that the idea of referring the proposal to the WTO was
based on the precedent of the Manila Meeting which agreed that APEC members
would support a proposal from the US for WTO members to negotiate an
Information Technology Agreement at the First WTO Ministerial [Meeting] in
Singapore one month later. Agreement was reached at the Singapore Ministerial
meeting by a number of countries to eliminate tariffs on trade in information
technology on an MFN basis. This Agreement is a plurilateral agreement that
makes the commitment voluntary for members but binding when made. Only 8 of the
18 APEC economies at the time supported the ITA initiative; a number of Asian
member economies of APEC did not. Yet, the proposal still went forward to the
WTO and succeeded.
After a dissertation on sectoral liberalisation
in GATT and the WTO, Lloyd concluded:
The history of sector-based negotiations of restrictions on
international trade in both APEC and the GATT/WTO system has produced a poor
record. The essential problem is that of obtaining a balance of net gains for
each participant within one or a small number of sectors. There are other
problems. ‘Sectors’ may be defined narrowly, limiting the aggregate gains and
increasing the difficulties of obtaining balance among the participants.
Sub-sectors which are difficult to negotiate because of domestic opposition to
liberalisation may be left out.
In the light of this history, the failure of EVSL is not
surprising. The transfer to the negotiations of tariff cuts in these sectors to
the WTO may increase the chance of success as there is a greater set of
possibilities of trading off gains or losses in these sectors for losses or
gains in other traded goods when the negotiation of industrial tariffs covers
all industrial goods and other areas and issues. Given this experience,
sector-based negotiations is not an experiment which should be repeated in
EVSL may have been destined for failure but the
timing did not help, as 1998 was the height of the East Asian financial crisis.
There is no guarantee that the nine sectors will even be supported in another
WTO Round as support within APEC is not unified and there are other important
players in the WTO with their own agendas. However, even though consensus was
not achieved in APEC, many member economies supported EVSL, so there is still a
body of support for liberalising the nine sectors in another WTO Round.
Non-tariff barriers are trade barriers such as
export controls, bounties, recognition of qualifications and licensing
procedures. Different standards are the largest non-tariff barrier (NTB) and
can add five or ten per cent to an exporter's costs.
NTBs are particularly prevalent in the services
In services, all protection is in the form of NTBs. Their effects are difficult
to assess, but a study of NTBs done for the European Union found that NTBs
were, on average, six times the tariff only level. In 1995, PECC reported that
while there had been some decline in the incidence of NTBs, some sectors were
still ‘strongly affected’.
Each APEC economy is committed to reducing
non-tariff barriers (NTBs) and ensuring the transparency of the measures taken.
Between 1983 and 1993, non-tariff barriers were reduced by half, ‘declining
from 9 per cent of import coverage to 5 per cent. Collectively, APEC members
have agreed to exchange information and ‘develop guiding principles which would
exert pressure on members to alleviate non-tariff barriers’.
As at November 1996, twelve of the eighteen
economies had agreed to reduce or eliminate non-tariff measures (NTMs) and the
other six to review them. Fifteen economies undertook to improve the
transparency of their measures.
The United States and Canada stated that they would be implementing only their
Uruguay Round commitments.
Australia does not generally make use of
The most significant NTBs are used in agriculture. Other exceptions include a
limited bounty assistance to four products/sectors of Australian manufacturing
and export controls on minerals. The Australian Government is committed to
removing these non-tariff barriers but will keep controls on uranium to satisfy
Australia’s safeguard obligations
and on cultural objects to honour international treaty obligations. Australia
has no import or export levies; automatic import licensing; voluntary export
restraints; export subsidies or minimum import prices. 
The PECC review named Australia, together with
New Zealand, Chile, Indonesia and Singapore as economies where ‘the decline in
non-tariff protection has been dramatic leading to virtual elimination’. As at 1996, however, four
economies still had NTBs ‘of around 15 per cent or close to 40 per cent of
In its 1997 IAP, Chile is mentioned as having made no further new commitments
on NTMs, services or investment.
The conclusion of the 1996 PECC review was that
‘only very few economies clearly specify their intentions and include a
Further, although most economies were committed to removing non-WTO barriers,
only Australia, Hong Kong, Japan, Korea and the Philippines offered detailed
measures. Overall, PECC stated that it was difficult to assess the progress
made toward removing NTBs due to the problems of:
- defining NTBs and what measures should be included,
- agreeing upon a measure such as the frequency measure adopted by
UNCTAD, so that progress can be evaluated,
- prioritising the removal of NTBs by different measures or
- defining the goal and time schedule in the short, medium and
On the basis of these problems, the review
concluded that non-tariff measures must be transparent and run parallel with
the process of sectoral liberalisation. In this respect, the review noted that
APEC had agreed to establish a list of recognised non-tariff impediments and
the products that will be affected by them in 1998. The 1997 IAPs show that China
had accelerated its commitment to eliminate NTMs.
In its report to the APEC Leaders in 1997, ABAC
commented that as with tariff barriers, IAPs needed to be more specific about
NTBs. It expressed concern that economies that aimed to reduce NTBs to the
level specified by the WTO, still had NTBs at too high a level. ABAC pointed
out that major impediments, such as misuse of anti-dumping rules and misuse of
country of origin rules, still needed to be identified and addressed.
In its 1999 report, ABAC commented that some
economies had addressed NTBs but mainly through tariffication of various export
subsidies under WTO Uruguay Round implementation. It also regarded lack of data
on NTBs as a problem.
The Collective Action Plans for Tariffs and NTMs require APEC
members to incorporate information on NTMs into a future version of the APEC
tariff database and to compile a list of measures recognised as non-tariff
impediments to trade. The WTO also intends to incorporate data on non-tariff
measures into its database in the future. There may be opportunities for
future cooperation between APEC and WTO in the tracking of NTMs, allowing
members of both organisations to make only one submission of data to meet their
obligations in both organisations.
ABAC reported that there were still considerable
NTBs in the customs area. It recommended that ‘APEC members should undertake
concerted efforts to identify and address the NTMs associated with custom
procedures, including excessive paperwork, multiple entry procedures, and
Many APEC economies are making the transition
from manufacturing to service industries. According to a PECC survey in 1995,
services accounted for 25 per cent of trade in APEC. However, until the
establishment of a General Agreement on Trade in Services (GATS) in the Uruguay
Round multilateral trade negotiations, there had not been any multilateral
trading rules for services. The agreement effectively extends ‘the rules to
which all types of trade become subject, and provides the framework for
GATS limits the protection extended to the service sector. In accord with this
agreement, APEC members are now ‘progressively reducing restrictions on market
access for trade in services and progressively providing for inter-alia
most favoured nation (MFN) treatment and national treatment for trade in
National treatment is ‘the commitment by a country to treat enterprises
operating on its territory, but controlled by nationals of another country, no
less favourably than domestic enterprises in like situations’. MFN treatment applies to all
members who have met the basic WTO obligations.
The main services covered by the APEC action
plans are energy, telecommunications, tourism and transport. Each service area
not only affects other non-service areas but also each other. Investment
services, for example, are directly related to the provision of future energy
requirements and, as such, the Energy Working Group has a particular focus on
The APEC overview of the planned action plan activities states:
Huge amounts of investment capital will be required in the power
sector over the period to 2010 to meet the rapid growth in demand for
electricity. ‘Traditional’ sources of investment capital—government budgets and
multilateral lending agencies—will be inadequate to meet these investment
requirements and mobilising business sector investment will be crucial to
ensure that electricity supply does not act as a bottleneck to economic growth.
The Manila Action Plan report goes on to say
that the business sector make it clear that success in attracting investment
will in turn ‘depend on the success of electricity supply industry reforms and
In the area of energy reform APEC members have made a commitment to:
- adopt fourteen non-binding energy policy principles and identify
policies and arrangement to facilitate investment in 1996;
- implement work programs of the Ad Hoc Business Forum and the
Electricity Regulators’ Forum to mobilise capital for power infrastructure
The growing importance of services has led to an
increased interest in efficiency and a focus on the importance of
telecommunications. Examples of technologies and services, which are
transcending conventional national boundaries, include the provision of
distance education, the Internet and the mobile phone. Changes in technology
can inspire the need for regulation; outstrip the effectiveness of regulation
or cause regulations to inhibit responses to new services. The action plans in
the area of telecommunications aim to:
- bring about universal service provision in telecommunications;
- endorse the Information Technology Agreement;
- support the talks on telecommunications under GATS.
In the area of telecommunications, a number of
collective actions have been endorsed, including agreement to conform to the
APEC Guidelines for Trade in International Value-Added Network Service (IVANS)
by 1998 with China and Papua New Guinea complying within the Bogor timetable. Other collective actions cover
consistency of guidelines; harmonisation of administrative procedures;
development of mutual recognition arrangements; the reduction of market
restrictions; non-discriminatory treatment and the encouragement of private
sector investment. In a fully liberalised telecommunications sector, users
would have choice and ready access, suppliers would be able to extend their
business without restrictions and governments would have clearly defined
responsibilities for consumer protection and regulation.
Issues affecting the transport industry directly
are handled by the Transportation Working Group. The biannual meetings are
attended by officers from the Department of Transport and Regional Development,
representatives from the industry’s regulatory bodies and industry
Twenty-one senior industry representatives attended the second Ministerial
meeting in Canada in 1997. At this meeting, priority was given to: safe and
environmentally friendly transportation systems, trade facilitation, promotion
of a more competitive transportation operating environment, infrastructure
development, human resources development and new transportation technologies. APEC has the capacity to address a range of impediments which
increase exporter’s costs, cause delays or deny access to markets. These
impediments cover a wide range of business activities and include differing
business standards, customs procedures, investment regulations and restrictions
on business travel.
APEC’s important role in removing impediments to
the development of the transport industry was recognised in submissions from
the Department of Transport and Regional Development, the Australian Shipowners
Association (ASA) and Qantas Airways Ltd. The Association expressed its support
of APEC, commenting that when APEC was first conceived, there were few issues
of interest to the shipbuilding industry. This had changed. The Association was chairing the Asian Shipowners Forum, whose
participants operate and control approximately 40 per cent of the world’s
withstanding its support for APEC, the Association’s submission argues that
without ‘special fiscal treatment’ there would be no national shipping industry
The reform of air transport is an important APEC
concern. Qantas is the leading Australian airline servicing the APEC community
and accounting for 60 per cent of the passenger volume between APEC member
economies and Australia. In the Asia-Pacific region total passenger numbers
carried by Qantas doubled between 1986 and 1996 and visitor traffic from APEC
ports quadrupled. However, the share of the market held by Qantas has declined
reflecting ‘growth by existing foreign competitors, the entry of various new
foreign competitors and Ansett’s entry to various key APEC markets’. In its submission, Qantas
commented that it ‘identify with APEC’s broad goals and support them, in
However, it pointed out that there are sensitivities surrounding the issue of
The strain in the bilateral arrangements between Japan and the United States
was a factor which Qantas expected to slow down progress in liberalisation. The
Qantas submission favoured bilateralism in the air transport industry over
‘open regionalism’ stating that ‘...over the past fifty years bilateralism has
shown that it is flexible and capable of adaptation to a less regulated and
more liberal environment’.
Qantas suggested that APEC members should ‘proceed through bilateral
negotiations’ and as they do, similar efforts should be made to continue the
process of liberalisation in arrangements with countries beyond the region.
Australia’s 1999 Individual Action Plan
contained a range of commitments to service reform. The highlights included:
- privatisation of National Transmission Network;
- auction of new electromagnetic spectrum;
- privatisation of further 16 per cent of Telstra in 1999;
- further legislation to complete implementation of the Financial
system Inquiry recommendations;
- liberalisation of coastal shipping trades;
- sale of landside businesses of Government-owned shipping line;
- work to remove barriers to private investment in Australia’s rail
Action by APEC economies on service reform has
been variable. Under GATS, and prior to the establishment of APEC action plans,
only two economies, Japan and the United States, made more than 100 WTO
commitments out of a possible 155 possible sectoral commitments. Only four
economies, including Australia, made more than 80 WTO commitments. The 1995 PECC Survey of
Impediments report noted that the service sector remained ‘highly
regulated’ and some sectors completely closed.
The 1997 IAPs showed that Brunei, Chile and Indonesia in particular had done
little in the way of service reform.
In the 1996 PECC review, concern was expressed
that GATS may legitimate ‘a hubs and spokes' approach in which countries can
extract favourable conditions through discriminatory trading thus
disadvantaging ‘less influential players’.
‘Open skies’ agreements were cited as an example of this approach. The PECC
review stated that the test for the openness of such agreements is whether a
new member can join on the same terms and conditions as existing members. PECC suggested that the
problem of discrimination in GATS would be solved by extending GATT principles
to all services as the GATT principles ‘adopt the starting point that
discrimination will not be applied by members’.
It was also argued that one of the reasons for
the slow progress in this area is the sector by sector approach and that groups
of services should be combined for negotiating purposes. In summary, PECC made a number
of recommendations to:
- Support the extension of GATT (rather than just GATS) principles
to all services, including those left off the list of the existing GATS
agreement such as air transport and government services.
- Fill in the gaps in GATS schedules.
- Move service negotiations away from a sector by sector approach.
- Consider restricting the negotiations in the GATS to one mode of
- Not forget the other modes of delivery.
- Recognise that there are competition policies associated with the
liberalisation of trade but do not use these concerns as a reason for not
pursuing the gains from international exchange.
In its 1997 review, ABAC considered services and
stated that the work undertaken on telecommunications, in particular, confirmed
the effectiveness of GATS. It suggested such work should be extended to cover
finance. In general, ABAC was of the view that the IAPs could be improved ‘to
contain a structured, comprehensive approach to major impediments in services’.
In 1999, ABAC noted the efforts of some APEC
economies to liberalise services, particularly in telecommunications and
finance sectors, but considerable impediments to trade in services remained. It
encouraged APEC economies to allow services, which are restricted to domestic
service providers, to be subject to international competition, not only to
improve efficiency in those services but also to give consumers more options
and lower prices. It also recommended that:
To assist local service providers to adjust to a more open,
competitive environment, liberalisation in trade in services must be
accompanied by capacity building at the national level. This will also allow
for the implementation of proper policies governing competition.
Foreign direct investment flows in the
Asia-Pacific region increased four and a half times between 1985 and the early
1990s. However, APEC’s share of total investment inflows declined from 61 per
cent in 1987 to 40 per cent in 1992.
APEC’s role therefore in creating a favourable investment environment is a
vital one. APEC aims to assist investment growth:
... through facilitating flows of foreign capital to supplement
domestic savings; promote an efficient allocation of capital between competing
uses in the Asia Pacific region; reduce the day-to-day costs of doing business
through the adoption of more uniform and transparent foreign investment
regimes; and facilitate foreign direct investment, which should assist the
introduction and adoption of new technologies and production processes across
In 1995, the PECC Survey of Impediments
identified two main categories of impediments to investment:
- lack of wide application of market access and national treatment;
- widespread use of fiscal investment incentives and performance
requirements, often, but not always, in violation of national treatment.
In the 1996 PECC review, it was noted that there
was considerable competition among APEC economies for investment, resulting in
a number of incentives and promotional policies as well as bilateral
agreements. The review concluded that an APEC Investment Protection Agreement
binding all members should be introduced to address these problems.
As at November 1996, of the 18 APEC economies,
ten had agreed to liberalise investment specifying the measures to be taken and
two others without being specific. Fifteen were committed to transparency
measures and sixteen had agreed to facilitate investment through ‘technical
assistance and cooperation’.
APEC achievements in investment liberalisation as at 1996 included:
- agreement to specific liberalisation initiatives by almost half
of the APEC members;
continued improvement in facilitation and transparency measures;
- firm commitment to most favoured nation treatment;
- recognition of the national treatment principle; and
- enhanced dialogue with the business sector.
Although gains have been made, there were
concerns that ‘substantial impediments that affect international transactions
and that many undertakings were ‘vague and unclear’.
The Eminent Person’s Group recommended in 1993
the adoption of an Asia Pacific Investment Code. In 1994, this became a call
for an APEC Concord on Investment Principles, ‘a voluntary code to further
improve the environment for international direct investment and thus economic
growth throughout the region’.
The Pacific Basin Forum also called for an Investment Code to be established.
APEC agreed to introduce Non Binding Investment
Principles (NBIP) in 1994. The EPG conducted an assessment of progress in this
area in 1995. They found that five of the ten principles involved in NBIP
related to transfers of funds, capital movements, national treatment and right
of establishment, performance requirements and investment incentives. These
principles were assessed by EPG, to set standards which were below
Among their recommendations the EPG recommended that NBIP be strengthened and
converted into a voluntary code.
In their 1997 report, ABAC commented that APEC’s
agreement to NBIP should be included in future action plans. It acknowledged that the
national treatment clause of the NBIP is difficult for developing countries to
implement. On this basis, it suggested that it would aid business if the nature
of the impediments were clearly outlined in action plans.
The NBIP make it clear that health, safety and
environment regulations were not to be relaxed in order to encourage foreign
investment. The ACTU submission, however, was critical of the limited nature of
the NBIP and called for a social protocol for the APEC investment guidelines. The ACTU argument in part was
that social considerations, including reference to employment objectives, had
been omitted. The Construction, Forestry, Mining, Energy Union submission also
raised the concern that the ‘Multilateral Agreement on Investment’ would give
transnational corporations ‘an unrestricted right to buy, sell and move
businesses, and other assets, wherever they want, whenever they want...this
agreement would ban a wide range of domestic ‘foreign’ investment regulations.
The ACTU submission pointed out that the
Organisation for Economic Cooperation and Development (OECD) and the International
Labour Organisation (ILO) addressed the need to reconcile the obligations of
governments with respect to multinational corporations in the early seventies. The ACTU referred to the ILO
Tripartite Declaration of Principles on Multinational Enterprises and Social
Policy and the OECD Guidelines for Multinational Enterprises. The ACTU stated
that the ILO Declaration, in particular, provided:
... the only universal and comprehensive set of principles
formally negotiated and adopted by governments, worker and employers which
address the behaviour of MNCs.
The ACTU suggested that APEC endorse the ILO
Declaration, which already covers 95 per cent of APEC membership. It argued
that as these APEC members already report under this Convention regularly, the
extra work involved would be minimal.
The Uruguay Round resulted in the Agreement on
Trade Related Investment Measures (TRIMS). TRIMS covered four investment
requirements in domestic sales, local content, trade balancing and foreign
exchange balancing. As at 1995, only Indonesia, Malaysia, Mexico, the
Philippines and Thailand had made a commitment to removing these requirements.
The PECC, in its Milestones report (1995), suggested that the low number
of economies committing to removing requirements was ‘a reflection of the
limited performance requirements or operational restrictions that have been
included in TRIMS’.
Another issue of concern was the national
treatment principle. APEC members are obliged to phase in national treatment
for foreign and domestic investors. The PECC review noted that no timetable was
linked to this initiative.
In its assessment of action plans in 1997, ABAC
observed that MAPA contains few initiatives ‘pertaining to finance and
investment’. They suggested that ‘most economies need to go beyond the
commitment to “review” existing investment regimes’.
In its 1999 report to APEC Leaders, ABAC noted:
- the apparent demise of the OECD Multilateral Agreement on
- that investment might not be a initial focus of attention at the
next WTO round of multilateral trade negotiations, and
the shrinking of investment to developing Asia in 1998.
It therefore urged APEC economies to send a strong signal to
investors that they are willing to further liberalise their investment regimes
in order to attract investment for long-term recovery.
ABAC endorsed the new ‘menu of options’ approach
to investment liberalisation developed by APEC’s Investment Experts Group. ABAC
went on to report:
This new approach echoes the Non-Binding Investment Principles
but allows greater flexibility for economies to adopt measures suitable to
their individual circumstances. At the same time, the proof of member
economies’ commitment to investment liberalisation will be judged by their
IAPs. Whatever options for investment liberalisation and business facilitation
are chosen by APEC economies, these steps must be included in the Individual
Action Plans, along with a timetable for their implementation. Vaguely worded
promises, like adhering to ‘non-binding’ principles, will not sway investors.
Liberalisation of investment regimes may be a necessary
condition to attract direct investment, but it is not a sufficient condition.
Lower labour unit costs in emerging markets are no longer the dominant factor
influencing capital flows. Today’s foreign investors are instead looking for an
environment from which they can generate sustained productivity gains.
Benchmarks by which foreign investors judge potential hosts are becoming more
wide-ranging and complex. For this reason, investment liberalisation must be
undertaken in concert with establishing other ‘value-added’ benchmarks for
investors, including sound monetary and fiscal policies, low interest rates and
inflation, a sensible exchange rate policy, sustainable external and budgetary
The Committee believes that it is important for
APEC to continue to press forward with investment liberalisation through the
Individual Action Plan process.
APEC’s liberalisation agenda is being affected
by market growth occurring on an uneven playing field. Not only are APEC
economies progressing at different rates but also some have unacceptable
assistance by way of performance enhancing subsidies on protected sectors. The
United Nations Human Development Report 1997 stated:
Contrary to the post-Uruguay Round image of the world
agricultural market as a level playing field, the major exporters, notably the
European Union and the United States, have continued to subsidize production
and exports. In 1995 the industrial countries spent $182 billion on subsidies.
As poor countries open their economies, they expose many poor agricultural
producers to overwhelming and unfair competition from subsidized imports.
At the first meeting of the WTO in Singapore in
December 1996, developing countries repeated their concerns at the slow pace of
reduction of European Union and United States domestic support and export
subsidies in agriculture and remarked on the absence of significant reductions
in quotas on textile exports from developing countries. Experts have observed that
this ‘lopsided’ progression of liberalisation ‘tends to prejudice the growth
prospects of developing countries by discrimination against areas in which they
can achieve comparative advantage’.
Aid organisations have also recognised that
subsidisation destabilises potential benefits under APEC’s trade liberalisation
agendas and is the counterpoint to ‘equitable development’. ACFOA in
‘APEC—Winners and Losers’, its joint paper with Community Aid Abroad, thus
recommended that, ‘Any APEC agreement on trade liberalisation should include a
commitment to further reduce subsidies on agricultural exports, especially US
Dr Elek told the Committee that the
non-discriminatory trading system set up through GATT, which ensured all
trading partners were treated equally on commercial rather than political
grounds, had won wealth for the Asian Tigers. He emphasised that without this
non-discriminatory system, ‘there is no way the East Asian economies could have
traded their way out of poverty because the protectionist economies would have
picked them off one by one, and we still see that happening in the textiles
sector’. Non-protectionist and non-discriminatory rules based system, as
supported by APEC through the WTO, are thus seen to work for the
‘transformation of very poor countries to middle income countries’.
The National Farmers Federation saw the winding
back of subsidisation as essential if the benefits of trade liberalisation were
to be realised for Australian agricultural industries. Federation consultant, Dr
Andrew Stoeckel, explained:
First of all, common agricultural policies’ high support prices
encourage people to produce. The wrong policy is used and, in fact, they keep
on producing and produce too much. Once you have got too much, the only thing
you can do is export it but, having paid such a high price on the world market
for that, the only thing you can do to get rid of it is to dump it and
At their 1999 meeting in New Zealand, APEC
Leaders called on all WTO members to pledge that they would not impose new or
more restrictive trade measures for the duration of the negotiations, nor
before the Seattle WTO Ministerial meeting.
The lack of progress at the Seattle WTO
meeting sent a grim warning that the momentum for further liberalisation in the
short term, especially in more sensitive areas, such as agriculture, is waning.
It is important for APEC to have long-term
goals, such as the 2010 and 2020 Bogor goals, and to work consistently towards
them. They set out clearly the direction that APEC is heading and provide a
focus for annual work programs and the collective and individual action plans,
which are updated annually. It would, however, be idealistic to think that APEC
would achieve all its goals within the prescribed time limits by itself. There
are many factors militating against such an outcome.
The United States’ traditional position of
reciprocity in trade liberalisation, especially in relation to the European
Union, would make it difficult for the United States’ Administration and
Congress to set aside long-held principles in domestically sensitive trade
areas if the European Union did not voluntarily accept similar trade
APEC’s referral of the EVSL areas to the WTO in 1998
is a clearer indication of the difficulty APEC is having in achieving consensus
among members to extend liberalisation to areas that may be sensitive to some
Arguably, some trade areas, especially in
agriculture, were always going to be liberalised through negotiations in WTO
trade rounds rather than through unilateral action by APEC on an open
regionalism basis. In the WTO, the question of reciprocity could be negotiated
with all members, making it easier for governments to persuade their
legislative bodies and populations to support them.
APEC lobbied resolutely and effectively to bring
about the successful conclusion of the Uruguay Round of multilateral trade
negotiations, which resulted in the replacement of the General Agreement on
Tariffs and Trade with the WTO. Afterwards, APEC continued to play a part in
the implementation of the agreements reached in the Round, with members
including their implementation obligations in their Individual Action Plans. By
taking a prominent role in the Uruguay Round and its implementation, APEC was
not only helping to establish the new cornerstone of world trading arrangements
but also progressing its own liberalisation agenda. It was an arrangement that
worked well for both organisations.
Unfortunately, despite making resolutions and
declarations in support of a new round of multilateral trade negotiations, APEC
has made no concerted effort to win the backing of all WTO members for a new
round. APEC Trade Ministers had an opportunity at a meeting in Darwin in June
2000 to give some momentum to a new round but their calls for one lacked
conviction. In the absence of resolute leadership within the organisation, APEC
has not yet agreed to a unified position with which to lobby non-APEC members
of the WTO. Without internal unity in APEC, it is hard to see WTO making much
headway among the wider membership, including the European Union, especially on
agricultural issues, which are of particular concern to Australia and many
If some APEC members are reluctant to embrace a
new WTO round of trade negotiations, it is unlikely they will be forthcoming
within APEC to agree to similar liberalisation measures on an open regionalism
basis, if there is no expectation of reciprocity from major non-APEC economies.
Conversely, given APEC membership, the WTO will make heavy weather of future
negotiations unless the APEC members bring some unity of purpose to them, as
they did with good effect in the Uruguay Round. At that time, however, there
was more cohesion and a greater sense of purpose displayed in the organisation
than seems to be the case at present. APEC and the WTO need each other to
achieve each other’s goals.
Australia played a leading role not only in the
establishment of APEC but also in the formulation of APEC’s goals and long-term
strategies. In recent years, particularly since the onset of the East Asian
financial crisis, APEC has not performed as well as it might have done in
progressing its long-term goals. It is in Australia’s own interests that APEC
succeeds in its mission and, therefore, the Australian Government should take
all possible steps to assist in the reinvigoration of APEC.
Traditionally, where nations have grouped
themselves into a free trade bloc, they have restricted the free trading
arrangements to themselves and denied similar benefits to other nations with
which they were trading. Such agreements have been governed by formal
legally-binding treaties, which set out in detail the trading arrangements
among members. The European Union and NAFTA are examples of this type of
preferential free trade agreement.
Although many European countries embraced the
customs union theories developed after the Second World War by opting for
preferential free trade arrangements, Asia Pacific economies went down a
different path of economic co-operation. They realised that highly detailed
trading arrangements and restrictive trade practices did not suit their diverse
political systems and their economies in widely different stages of development
and sophistication. A more open multilateral trade system offered greater
opportunities for economic growth and national prosperity and for continuing
The concept of ‘open regionalism’ evolved from
these developments in trading arrangements among Asia Pacific economies.
The concept and the term were descriptive of an emerging reality
of regional economic integration in the Asia-Pacific region in the 1970s. Open
regionalism was articulated by the first Pacific Economic Co-operation
Conference (PECC) in Canberra in 1980.
DFAT described ‘open regionalism’ as:
APEC's approach to economic cooperation or, more specifically,
the modality for achieving the Bogor goal of free and open trade and investment
by 2010/2020. Central to the definition of open regionalism is the GATT
principle of non-discrimination; in addition, the term underscores APEC
members' commitment to liberalisation in a way which is consistent with, and
reinforces, a more open multilateral trading system. Implicit in the term open
regionalism, has also been members' opposition to the creation of a free trade
Open regionalism, as it has developed through
APEC, does not depend on treaties or legally-binding agreements. It is based on
voluntary undertakings by the member economies to adhere to goals and programs
within prescribed time frames agreed by consensus. Members may work toward
those goals at their own pace, thereby taking account of their different levels
of economic development, tariff regimes and domestic political circumstances.
This freedom and flexibility to determine their own timing to meet APEC goals
allowed members to agree to the broad objectives without having to become
heavily involved in detailed and prolonged negotiations on timetables for
achieving specific trade liberalisation and facilitation targets. Indeed, if
APEC had not followed the processes it did, there would have been no guarantee
that agreement on the Bogor goals would ever have been achieved.
From the very outset, there was never any
intention of APEC becoming a closed trade bloc. Prime Minister Hawke made this
clear in his speech in Seoul on 31 January 1989, when announcing moves by the
Australian Government which led ultimately to the establishment of APEC:
I must stress that my support for a more formal vehicle for
regional co-operation must not be interpreted as suggesting by code words the
creation of a Pacific trading bloc.
Australia's support for non-discriminatory multilateral trading
solutions in the GATT framework is clear, long-standing and unambiguous.
I have made it clear that a major priority of any regional
effort would be strengthening of the GATT system.
This point was emphasised by then Minister for
Foreign Affairs and Trade, Senator Gareth Evans, in his address at the opening
of the Twelfth Australia–ASEAN Forum in Perth on 15 May 1989:
But it is also important that I make very clear what we are not
trying to do. First and foremost, it has been firmly agreed by all those in the
region that we are not seeking to create an Asia/Pacific trading bloc. Nor
would we support such a development.
At the first APEC Ministerial Meeting in
Canberra on 6–7 November 1989, members reiterated their opposition to APEC
becoming a trading bloc. In the joint statement issued at the end of the
meeting, the Ministers stated:
Every economy represented in Canberra relies heavily on a strong
and open multilateral trading system, and none believes that Asia Pacific
Economic Cooperation should be directed to the formation of a trading bloc.
Since that first meeting of APEC Ministers,
member economies have maintained their opposition to APEC turning itself into a
preferential free trading bloc.
This 'new' regionalism in East Asia and the Pacific gives
priority to achieving substantive economic benefits over the construction of
elaborative administrative structures or formal international treaties. The
all-round benefits of early decisions for practical economic co-operation will
increase confidence in the benefits of working together and nurture a sense of
trust and a progressively wider set of shared interests among participants.
Accordingly, community-building has precedence over institution-building, and
persuasion preferred to compulsion.
DFAT informed the Committee that modelling work by
Australia's Productivity Commission and other agencies have shown that
non-members would gain only limited 'free-rider' benefits from APEC
liberalisation. The APEC Economic Committee reported in November 1997 that,
based on computable general equilibrium model simulations, the benefits arising
from a fully-implemented Manila Action Plan for APEC would amount to US$69
billion for APEC members while only US$2 billion for non-APEC members. It
concluded that free rider benefits to non-APEC members would be small and
should not be a concern. Although modelling results should be treated with
caution, the indicative modelling figures shown here, even if heavily
discounted for the sake of caution, demonstrate the benefits members are likely
to accrue from achievement of APEC’s goals.
Despite this, DFAT drew attention to the need
for reciprocity in trade liberalisation on the part of a number of economies.
The United States, for example, would be unlikely to liberalise in areas that
might provide the European Union with some benefit without the European Union
offering concessions of its own. This is partly due to the more limited share
of United States’ trade with East Asia (with almost 30 per cent of United
States’ trade with its NAFTA partners and over 20 per cent with the European
Union). It has, however, been possible to accommodate this approach in APEC—for
example through APEC’s involvement in the development of an Information
Technology Agreement, which was concluded in the WTO (thus drawing in the
A number of witnesses commented on the position
of the United States in relation to trade liberalisation. For instance,
Professor Snape told the Committee that the concept on reciprocity is ingrained
in United States tariff reduction policy and practice:
It might be noted that the United States has not reduced
virtually any tariff since the 1920s except on a negotiated reciprocal basis
with other countries. The principal exception to that is the preferences for
developing countries. But if you leave the preferences for developing countries
aside, every liberalisation in the United States—going from the average tariff
of 60 per cent, as it was in 1930, down to the current average tariff in the
United States of significantly below five per cent—has been on the basis of
negotiated reciprocity, and then extended on a general basis.
Professor Snape later said that the United
States has only been able to liberalise tariffs on the basis of a formal
agreement with another country or as part of a formal multilateral agreement.
He went on to say that:
So there has been an apparent inability to take a unilateral
liberalisation, or in fact to liberalise within the sort of framework which is
spoken about in APEC, whereas the Asian view in APEC is very much concerted
unilateralism: that we work together but we do not make actual commitments of a
legally binding nature in our individual action plans, but we encourage each
The United States is going to have real problem working within
that framework. There is a real barrier with Congress there. So you get this
tension between the two sides of the Pacific or, more specifically, between the
United States on the one hand and the Asian countries and Australia on the
other, with the United States ... interpreting the open regionalism to
allow for preferential commitments within the APEC framework, whereas on the
other side of the Pacific we are very much more saying that we want a concerted
unilateralism without that formal framework. That has been allowed to ride along
fairly well so far because we have not had to really confront the US to make
any serious commitments. But as we get closer to the Bogor time that question
is really going to have to be addressed fairly seriously, unless it gets
embraced, of course, within a WTO context.
Despite strong sentiments within APEC against
the formation of an APEC free trade bloc, the United States has not endorsed
unequivocally open regionalism for APEC. As the world's largest economy, the
United States would put at risk the work of APEC towards liberalisation of
trade and investment among members if it were to harden its position against
open regionalism. Without the United States' presence in APEC or without
consensus about the nature and goals of APEC, the organisation would probably
not be able to achieve worthwhile economic reforms to benefit both the region
and the global community.
According to Professor Drysdale and Dr Elek:
None of these features suit the characteristics of the Asia
Pacific, where governments understand that their future prosperity and security
depend on the future of the global economy. The objectives of Asia Pacific are
global as well as regional, as an increasingly integrated regional zone of
production and trade seeks accommodation in the global economic system.
They described APEC as follows:
APEC is an innovative and flexible form of co-operation designed
to accommodate the diversity of the region's economies, which differ remarkably
in terms of size as well as the density of their populations, incomes, cost
structures and natural resource endowments.
In other words, non-members will not be
discriminated against in trade with or investment in member countries.
Moreover, the APEC Leaders have agreed to an ambitious plan to achieve free
trade by 2010 for developed member economies and 2020 for developing member
economies. This goal goes significantly beyond the requirements of the WTO and
will be the basis of further negotiations towards liberalisation under that
Dr Elek told the Committee that:
To do GATT illegally would be fundamentally stupid; it would be
destroying the very thing we are trying to strengthen, so nobody is even
dreaming of it. To do it in a GATT consistent way is not easy. GATT is a very
detailed, legally binding agreement on all sectors to discriminate against the
rest of the world. East Asia has made it very clear it has never been
interested in it and it is not interested in it. Now we have Russia in, the
whole thing is a nonsense. Given that the bulk of its trading with Europe, it
is just impossible to start to conceive of APEC becoming a trading bloc in that
article 24 sense. It is just not a live option. It is futile to be beating it
The one country that keeps hankering after it is the United
States, because it understands reciprocity and no free riders and all that, but
there is no way, in any scenario that I can think of, that it can happen
between now and 2020.
Professor Garnaut told the Committee that:
Since the Bogor declaration in 1994, what has become of the
commitment to free and open trade in the region?
There has been considerable movement since that time towards
free trade. At the PECC meeting at the time of the Manila leaders summit at the
end of 1996, the PECC did some calculations on the rate of trade liberalisation
since the Bogor declaration and the rate of continued liberalisation to which
commitments had been made by member governments of APEC. What those
calculations showed was that, if you drew a straight line between the levels of
protection as they existed before the Bogor declaration and the target, 2010 or
2020, most APEC countries were ahead of target both in what had already
happened and in what had been announced to happen by the year 2000. That said,
it was surprising to most people when their sums were done at the time.
Professor Garnaut said that progress made
towards trade liberalisation in the region was not due solely to APEC. He said
that it already had a momentum of its own and that APEC’s role was one of
reinforcing this underlying trend. He said:
Whether the APEC goals of free and open trade by 2010 and 2020
continue to mean anything will depend, above all, on whether the western
Pacific economies are able to maintain momentum in trade liberalisation through
this period. I have mentioned that so far so good, but we have got to wait and
see what it looks like when the battles of ideas have gone further.
If there is continued progress in the western Pacific, then a
healthy APEC can be an important vehicle for bringing that progress to account
in the United States political discussion of trade policy. US polity, US
Congress, has a feeling that there is only one fair and free trade country in
the world and that everyone else is a free-rider on them.
The US polity is strongly committed to the concept of
reciprocity in trade policy matters. That is a different approach from the
approach that is common in the eastern Pacific and has become the basis of
APEC. That does not matter very much for as long as the US remains a relatively
open economy—relative to other APEC economies which have got a fair bit of
catching up to do.
As liberalisation proceeds further in the western Pacific, it is
important that the US becomes part of the APEC trade liberalisation. It would
require a very big change in US approaches to trade policy for some more
specific sense of reciprocity not to become important. But traditional
reciprocity within a free trade area will remain unrealistic and impractical in
the Asia-Pacific context.
How I see all of that coming together is: at that time, as the
US becomes more specifically engaged, then the APEC role can become larger in
introducing APEC commitments to free and open trade into the global arena
through the WTO.
The evidence received by the Committee pointed
out clearly that, for APEC, open regionalism is the only realistic option
available to it. The diversity of APEC member economies, in terms of political
systems, culture, populations and economic development, would make it
impossible for APEC to negotiate a preferential free trade agreement. Moreover,
from APEC’s conception to the current day, there has never been the political
will to negotiate a preferential free trade area. Although the United States
might have had a hankering for such an arrangement, as that has been its modus
operandi in trade matters, most other member economies have disavowed this
option. The flexibility of open regionalism is the strength of APEC. By not
binding members legally to any decision, members can be more readily amenable
to liberalisation proposals, knowing that the timing and manner of
implementation is in their own hands.
The other main argument against APEC becoming a
preferential free trade area is that it would duplicate and probably undermine
the work of the WTO. Furthermore, there is nothing to suggest APEC would be any
more successful in reaching agreement in sensitive areas under a rules-based
system than the WTO.
Open regionalism, with all its weaknesses, is
ideally suited to APEC’s disparate member economies. It is the trading system
that many of APEC’s members had embraced before becoming members of APEC. It is
also consistent with WTO principles and has had a beneficial effect on GATT and
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