Chapter 9 - Subregional groupings—stepping stones or stumbing blocks?
In this chapter, the Committee addresses term of
reference c)—Australia in relation to APEC with particular reference to ‘the
importance to APEC of subregional groupings including the Association of South
East Asian Nations (ASEAN), North American Free Trade Area (NAFTA), Asia-Europe
Meeting (ASEM), East Asia Economic Caucus (EAEC) and Australia-New Zealand
Economic Relations Agreement (CER)’.
In addition to the groupings named above, the
Committee will also include in this chapter the proposed Free Trade Area of the
Americas (FTAA); the ASEAN Free Trade Area (AFTA) as part of its examination of
ASEAN; and the AFTA-CER linkage.
The first section of this chapter reviews the
general debate on regional trade groupings and whether they support or
undermine the multilateral trading system. The second section examines APEC’s
objectives and assesses its role as a trading group within the global setting,
particularly its relationship to the WTO. The third section analyses the
importance of subregional groupings to APEC’s objective of promoting free and
open trade. The last section looks at the implications that the subregional
groupings in the Asia Pacific region have for Australia’s economic and trade
Overview of regional trading
Over the last decade, regional trading
arrangements have proliferated. Since GATT came into force in 1947, 194
regional trading agreements have been notified to that organisation or its
successor the WTO.
The extension of the European Union and APEC, the formation of NAFTA, and
Mercosur, proposals for a Trans-Atlantic Free Trade Area and moves to establish
a Free Trade Area of the Americas as well as a range of initiatives to set up
trading groups, such as the AFTA-CER linkage, suggest that the trend toward the
formation of regional trading groups has not abated. Indeed, since the creation
of the WTO in 1995, 67 additional arrangements have been notified to the WTO,
some of which are in the area of trade in services.
Regional trading groups—building
The emergence of trading groups especially in
the first half of this decade caused widespread concern. In 1990, the then
Prime Minister of Singapore, Mr Lee Kuan Yew, referred to the possibility of three
great trading camps forming, one centred on the Deutsche Mark in Europe,
another on the United States Dollar in the Americas and the third on the Yen in
Three years later the APEC Eminent Persons Group maintained that the global
trading system was at risk. They pointed to the increase in trade protection;
the rapid rise in the number of trade disputes; and the escalation of
In particular, they noted recent signs that the European Community was turning
inward and shirking its global responsibilities and that the proposed NAFTA
would be a preferential trading arrangement indicating that the United States
might be abdicating its traditional role as leader of the global trading
The fear that the world economy would fragment
into trading blocs subsided with the successful conclusion of the Uruguay Round
in 1994 and the establishment of the WTO. Observers began to acknowledge that
regional arrangements could support multilateralism.
In 1995, a report by the OECD suggested that the
formation of regional groupings may stimulate rather than frustrate the
multilateral trading system. It argued that regional trading groups could:
- reduce protectionists’ pressures by acting as a model for
multilateral trade and investment liberalisation—negotiations can be more
easily and expeditiously managed where fewer parties are involved;
- encourage economies to be more competitive and
better prepared to accept, economically and politically, multilateral
contribute, through a greater awareness of interdependence, to a
greater acceptance of international rules and more independent procedures for
their enforcement; and
- act as a regional laboratory or test bed for multilateral
agreements—regional trading groups could be seen as a preliminary step towards
multilateral implementation of rules or procedures facilitating the synergy in
negotiations and the cross-fertilisation of ideas between regional and
Put simply by Mr Fred Bergsten:
As the urgency of competitive liberalization accelerated over
the last decade or so, however, the regional approach has increasingly come to
dominate the process. It simply turns out to be less time-consuming and less
complicated to work out mutually agreeable arrangements with a few neighbours
than with the full membership of well over 100 countries in the WTO. Moreover,
regional groupings are demonstrably willing to proceed much more boldly: many
of them have decided to adopt totally free trade...whereas none of the global
conclaves to date have even considered such an ambitious goal.
He further asserted that ‘the fears of some observers that
regionalism would derail globalisation have been demonstrably overcome’.
A number of witnesses appearing before the
Committee shared the view that regional groups complement multilateralism.
Professor Ravenhill told the Committee that there is little evidence that
trading blocs have inhibited world trade. He argued that the emerging trend
shows an overall movement on tariffs to be downward and that trading blocs are
not encouraging foreign investors to come in behind high tariff walls. Put
succinctly, the overall movement on tariffs has been downwards. Indeed, the MTIA submitted that
regional trading groups are a supplement and not an alternative to
Despite the view that regional trading
agreements tend to support the multilateral trading system, niggling doubts
about possible long-term trends persist. There is a natural tendency for
countries or economies excluded from a trading arrangement to be wary of such a
group. Non-members may interpret the establishment of a trading group as an
attempt to form an exclusive inward-looking body with the potential to
implement discriminatory measures against them. Moves to form such trading
groups could in turn erode the mutual trust necessary to underpin the
maintenance of a healthy multilateral trading system and contaminate an
environment conducive to free and open trade and investment.
Members of a regional trading group may develop
a ‘fortress mentality’ and come to regard their strengthened regional market as
a substitute for participation in the multilateral system. Also, membership of
a regional trading group may lead to a greater reliance on protectionism and
ultimately come to be accepted as an alternative to the global trading system.
This in turn may lead to escalation in global protection if other countries
retaliate by erecting barriers to trade. Thus, some commentators believe that
regional trading groups, with their potential to turn protectionist and
discriminatory, create a climate of fear and uncertainty that inhibits the
development of an open multilateral trading system and poses a threat to the
global trading economy.
Mr Robert D. Hormans, Vice Chairman of Goldmans
Sachs International (1994) stated:
Unless structured to complement the global thrust for open
markets, regional free-trade groupings could turn inward and erect
protectionist barriers that would cripple the potential growth of the world
economy. In itself, parochialism could be a source of major friction and
conflict, hence the need for strong countervailing leadership during the hiatus
between multilateral negotiating rounds.
Mr Hormans noted that when competitive imports
threaten a sensitive industry in a free-trade area, there is a tendency to
protect that industry at the expense of outside imports. He also pointed out
that foreign fears of losing regional markets may divert investment into those
markets for defensive reasons; and that recessions and structural
uncompetitiveness can ‘turn a trade region’s vision inward’.
Moreover, Mr Renato Ruggiero, the
Director-General of the WTO (1997), raised doubts about the motives behind the
dramatic expansion of regional arrangements. He suggested that in some cases
these initiatives are less about promoting regional economic efficiency or
cooperation and more about securing regional preferences—‘even regional spheres
of influence, in a world marked by growing competition for markets, for
investments and for technology’.
He stressed the importance of ensuring that the foundation of the trading
system is non-discriminatory and regionalism and multilateralism ‘converge in
their goals and aspirations’.
An OECD workshop held in 1995 added a note of
caution to the view that regional trading arrangements may support the
multilateral system. It accepted the strong argument that regionalism has
tended to nudge forward the multilateral process—that regionalism and multilateralism
have been generally complementary. Nonetheless, some participants drew
attention to the possibility that regional trading groups ‘may turn inward,
whether for political or perceived economic reasons, and in such cases they may
restrict the trade of third countries.
The workshop warned that a key challenge was ‘to seek to enhance and extend
the mutually reinforcing nature of this complex relationship’ and that
regionalism’s largely positive contribution to date should not go unquestioned
for the future.
Further, it highlighted the need for ‘continued vigilance on the impact of
regional arrangements on the health of the multilateral trading system’. In
summary it noted that:
multilateral surveillance of regional integration arrangements
was a desirable objective, but that procedures for doing so needed refinement.
This issue about the formation of regional
trading groups and their implications for the global economy was also raised by
the WTO. In its annual report for 1996, it expressed misgivings about the
growth of regional trading arrangements and their compatibility with the
multilateral trading system. It also took note of the emerging trend toward
continent-wide free trade agreements and identified two main concerns:
- the fragmentation of the multilateral trading system; and
- the shifting of political momentum from multilateralism to
The WTO told its members that they were
confronted with the problem of how to ensure the complementarity and mutual
strengthening of regionalism and multilateralism. Accepting the irreversibility
of the trend towards regionalism, the WTO established a Committee on Regional
Trade Agreements in February 1996. The Committee is to ensure that regional
trade agreements conform to WTO Rules and, in a wider sense, reinforce, not
undermine, the multilateral system.
Despite the force of the argument that regional
trading arrangements tend to reinforce the objective of free and open trade;
the underlying concern about their potential to weaken the multilateral system
remains. Thus, while the debate over the impact of regionalism on the world
global trading system has intensified since the 1990s, the findings, though
positive, are not conclusive.
APEC—part of the global trading
The debate over whether regional trading
arrangements help or hinder the multilateral trading system is relevant to APEC
both in the context of where it stands in the global multilateral system; and
whether subgroups among its own members support its commitment to open and free
trade or complicate its place in the world trading system.
Commitment to free and open trade
in the Asia Pacific region and in the global economy
The founding members of APEC made clear their
understanding that APEC would not be a trading bloc. The Chairman in his
summary of APEC’s inaugural meeting in 1989 emphasised one of the core and
enduring commitments undertaken by APEC members—that the continuing economic
success of the region ‘depends on preserving and improving the multilateral
trading system through progressive enhancement of, and adherence to, the GATT
From the outset, APEC was intended to encourage regional economic cooperation
in a way that would foster an open multilateral trading system. This commitment
remains rock solid.
Thus, in the Seoul Declaration of 1991, in which
Ministers spelt out APEC’s goals, each of the four key objectives related not
only to the Asia Pacific region but to the world economy as well. The
- to sustain the growth and development of the region
for the common good of its people and, in this way, to contribute to the growth
and development of the world economy;
- to enhance the positive gains, both for the
region and the world economy, resulting from increasing economic
interdependence, including by encouraging the flow of goods, services, capital
- to develop and strengthen the open multilateral
trading system in the interest of Asia-Pacific and all other economies; and
- to reduce barriers to trade in goods and
services and investment among participants in a manner consistent with GATT
principles, where applicable, and without detriment to other economies.
In 1994, APEC leaders in a forthright statement
again clearly placed their regional goals within the global setting. They said:
We, the economic leaders of APEC, came together at Bogor,
Indonesia today, to chart the future course of our economic cooperation which
will enhance the prospects of an accelerated, balanced and equitable economic
growth not only in the Asia-Pacific region, but throughout the world as well.
We wish to emphasize our strong opposition to the creation of an
inward-looking trading block 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
APEC members clearly felt that together they
had, at various stages of difficulties during the long drawn out Uruguay Round
of negotiations, assisted in securing a satisfactory conclusion to the Round.
Witnesses before the Committee agreed that APEC
had helped to bring the Uruguay Round negotiations to a successful conclusion
and has consistently promoted unilateral trade liberalisation and transparency
in trade. They saw APEC not merely as a complementary subset of the WTO but as
an effective lobby group able to assume a leadership role in the WTO and to
accelerate the pace of global trade liberalisation and facilitation.
Their view was upheld by the Director-General of
the WTO who acknowledged APEC’s contribution to the global trading system. He
told APEC Trade Ministers in 1997, ‘APEC is well placed to play a leading and
creative part. As a new configuration in international economic relations, APEC
has played a very valuable energizing role, at the multilateral level as well
ABAC representatives agreed that APEC has and
could serve as a ‘ginger group’ for multilateral agreements. They felt that the
way in which the links between APEC and the WTO develop will be important; that
APEC and the WTO have great potential to feed off one another.
APEC has come to realise in its short history that we have
considerable influence over developments within the WTO.
APEC’s less formal structure allows it to take an ambitious
position on multilateral liberalisation issues and APEC leaders and ministers
have made good use of this in their agreement to increase the pace of
The Information Technology Agreement (ITA)
stands as an example of APEC’s ability to take a definite and successful part
in developing regional agreements and in hastening the adoption of
international standards. The agreement was nurtured in APEC but agreed to and
implemented in the WTO.
As pointed out by the Director-General of the WTO ‘no one should underestimate
the role played by APEC in shaping the outcome of the Agreement.’ Alan Oxley simply remarked
that APEC certainly gave the ITA a lot of horsepower in the WTO. The WTO’s Agreement on Basic
Telecommunications Services provides another example of how APEC has
successfully lobbied support in the WTO. Similarly, APEC initiatives in the
area of customs procedures are having a much broader influence.
More recently the relationship between APEC and
the WTO has been further reinforced. In 1998, APEC Ministers in Kuala Lumpur
agreed to refer the early voluntary sectoral liberalisation initiative to the
WTO. The push for APEC to take on a major role in developing the WTO’s future
agenda gathered momentum after this meeting.
The United States, in particular, throughout 1999 promoted APEC as a ‘launching
pad’ for the new round of WTO negotiations due to commence soon after the APEC
Leaders’ meeting in Auckland.
The United States Ambassador Susan Esserman maintained that the Auckland ‘will
be a key meeting for helping to set the agenda for the WTO’.
Within APEC there is also growing support for a
number of their members China, Russia, Chinese Taipei and Vietnam, to be become
members of the WTO.
The United States is particularly keen to see China a member of the WTO.
Having enunciated plainly their objectives to
support the multilateral trade framework, APEC members are also conscious of
the trading groups that have formed within their region and of the implications
that such subregional arrangements have for APEC. The subregional trading
arrangements that take in the Asia Pacific region include—the North American
Free Trade Agreement (NAFTA) and the proposed Free Trade Area of the Americas
(FTAA), ASEAN and AFTA, the East Asian Economic Caucus (EAEC), and the Closer
Economic Cooperation (CER).
Some important linkages have also been forged between regional groups such as
the AFTA-CER link and the Asia Europe Meeting (ASEM). Opinion is divided about
whether they pose a threat to APEC’s goal of free and open trade.
In 1994, APEC’s Eminent Persons Group (EPG)
identified a twofold risk in the growth of subregional trading arrangements in
the Asia-Pacific region. It stated:
In the short run, it creates new trade discrimination within the
broader region. Hence it could generate important economic costs to non-members
of the groupings and new sources of divisiveness. In the longer run, it could
create new entrenched interests that would resist broader liberalization and
hence impede APEC-wide (or global) agreements.
Continued subregional proliferation could thus dim the prospects
for APEC (and global) liberalization. This suggests that the organization may
face a narrow window of time within which to bring the trade preferences
maintained within the subregional arrangements into a broader framework.
Our recommendation that Leaders and Ministers move promptly
to launch the APEC-wide initiatives proposed in this Report is reinforced by
the need to accommodate the subregional groupings into broader APEC
The EPG did recognise, however, a positive side
to the emergence of subregional economic groups. It suggested that if these
groups possessed an outward orientation, they could ‘act as a powerful stimulus
to move toward free trade in APEC as a whole’. It argued that this could be
achieved by ensuring consistency between the subregional groupings and the
APEC Leaders asked the EPG to investigate further the interrelations between
APEC and the existing subregional groupings and to explore options that would
promote consistency in their relations and prevent any conflict between them.
In responding to this request, the EPG conducted
further studies into subregional groupings in the APEC region. It concluded
that APEC’s goal of free and open trade in the region would ultimately
eliminate all margins of preference that now existed between APEC economies and
hence between subregional groups within APEC. The EPG, however, was concerned
about the intervening period and the implications for APEC should the
subregional trading arrangements (SRTAs) accelerate their own liberalisation
program and should individual SRTAs establish links.
Again the underlying uncertainty about regional
trading groups surfaced. The EPG accepted that the acceleration of
liberalisation in SRTAs and linkages between individual SRTAs represented means
through which the Bogor commitment to free trade could be pursued. It was also
aware, however, that such arrangements could:
divert member economies from achieving APEC-wide free trade by
offering an alternative that some might view as more comfortable and even as
The EPG recognised that both the acceleration of
liberalisation in SRTAs and coalitions of SRTAs posed the following fundamental
question for APEC—would they be trade-creating or trade-diverting? It could see
Both SRTA acceleration and SRTA linkage would produce the usual
conflicting effects on trade flows. On the one hand, they would increase
margins of preferences between members and non-members. Some trade would be
diverted from non-members to members as a result. On the other hand, further
integration could be expected to increase economic growth among the members and
thus create additional trade opportunities for non-members.
The APEC Economic Committee conducted a study on
the impact of subregionalism on APEC in 1997. It found that SRTAs on balance
have generated a net trade-creating effect, providing political momentum for
the multilateral process and creating competitive pressures amongst each other
for more rapid and deeper liberalisation.
Mr Darby Higgs, from the Australian APEC Study
Centre, accepted that subregional groupings within APEC have the theoretical
potential to cause trade diversion, and hence slow the pace of economic
integration and the benefits that flow from it. Even so, he argued that, in
practice, the influence of the subregional groupings reinforces the move
towards trade liberalisation.
This view was supported by the findings of Mr Satoru Okuda from the APEC Study
Center in Japan. He found that the level of trade diversion created by NAFTA
countries had levelled out after 1980 and remained the same after NAFTA’s
launch in 1992. In addition, he found that the effect calculated for AFTA and
CER was positive ‘which means that they did not radiate a trade diversion
effect, but instead a trade creation effect against non-members’. He concluded,
‘So the enhancement of sub-regional trade agreements in APEC proceeded quite
well, in light of the “principle of Open Sub-Regionalism”’.
The second set of issues regarded as important
by the EPG was the effect of SRTAs on the dynamics of trade policy. In
considering whether SRTAs had the potential to either foster or inhibit the
move for trade and investment liberalisation in the APEC region, the EPG
concluded that there was:
no a priori basis on which to judge whether acceleration
of SRTA liberalization and/or SRTA linkages would contribute to, or detract
from, implementation of the Bogor commitment to achieve free and open trade and
investment in the Asia Pacific region. Such steps could either promote or deter
the process. The cardinal issue is how any such initiatives are pursued.
In order to determine whether SRTAs were to
assist APEC’s progress toward free and open trade, the EPG set down a minimum
requirement. It stressed that any SRTA acceleration or linkage must be fully
consistent with the WTO. To fulfil this requirement, the EPG pointed out SRTAs
- cover substantially all trade among the economies involved;
- include substantial sectoral coverage of services; set a target
date for completing the process; and
- avoid the creation of any new barriers to non-members.
Subregional groupings within
In the following section, the Committee looks at
the subregional groups within APEC, their histories, objectives and the extent
to which they support APEC’s objectives. It establishes how firmly they have
set themselves on the road to regional and global free and open trade and how
willing they are to assist APEC along this route. The Committee has used as a
reference the minimum requirements set down by the EPG to determine whether
SRTAs complement APEC’s progress toward an open trading system. Overall,
though, the Committee was by evidence that showed the extent to which SRTAs are
equipped or intend to minimise all sources of discrimination in trade and
investment against outside economies and their endeavours to ensure that they
keep in step with APEC’s goals.
Negotiations for a free trade agreement between
the United States, Canada and Mexico started in Toronto, Canada in June 1991
and were completed in August 1992 in Washington D.C. The agreement, which
formally established a free trade zone between the United States, Canada and
Mexico, was signed on 17 December 1992 and supplemented in 1993 by the
negotiation of ‘side agreements’ on labour, the environment, and safeguards.
The respective legislatures gave their approval and NAFTA and its side
agreements came into effect on 1 January 1994.
The principal objectives of the agreement are:
- to eliminate barriers to trade in, and facilitate the
cross-border movement of, goods and services among the three countries;
- to promote conditions of fair competition in the free trade area;
- to increase substantially investment opportunities of the
The NAFTA is a detailed and complicated
agreement that incorporates special arrangements for some sensitive sectors
such as automobiles, clothing and textiles, electronics and agricultural
products. Allowing for the differences in trade patterns among the member
economies, NAFTA contains separate bilateral agreements on products such as
automobiles, clothing and textiles, telecommunications and agriculture. The
agreement provides for the progressive elimination of tariff and non-tariff
barriers between the three countries over a period of up to 15 years although
it allows members to phase out these barriers according to different
timetables. The phase-out period varies among sectors with some of the more
sensitive sectors extending for the full period. NAFTA covers most products
except some agricultural products. A product must satisfy the specified North
American rules of origin before being eligible for tariff preference.
Professor Richard Snape described NAFTA as a
very ambitious initiative, incorporating countries with markedly different
living standards, legal systems and traditions. The agreement goes well beyond
the traditional area of frontier barriers to goods, and draws in the deeper
issues of integration. According to Professor Snape the agreement:
...attempts to lock in Mexican economic reforms, to manage trade
in difficult products, to grant preferential access to each other’s markets for
goods, services and investment, to upgrade Mexico’s intellectual property
protection regime, and to secure enforcement of each country’s environmental
and labour laws—which in intent refers mainly to Mexico.
The agreement is also notable for its specific
inclusion of a number of new issues such as investment, financial services,
competition policy, labour and the environment. These provisions exceed the
level and scope of commitments reached in the Uruguay Round agreements and
could provide an incentive for other regions to push the boundaries of trade
reform beyond those set down in the Uruguay Round. Of particular note is the
inclusion of dispute settlement procedures designed to provide expeditious and
effective means to resolve disagreements. Ms Doble noted that, ‘one immediate
lesson which can be learned from NAFTA is that although gains or concessions
may be difficult to come by, negotiations on a range of issues is, in fact,
permissible within the context of trade discussion’.
Clearly, NAFTA is intended to promote and
facilitate trade and investment flows among the three member countries. The
members, however, also took cognizance of their place in the world trading
system. In the preamble to the agreement they resolved:
- to contribute to the harmonious development and expansion of
world trade and provide a catalyst to broader international cooperation; and
- to build on their respective rights and obligations under the General
Agreement on Tariffs and Trade and other multilateral and bilateral
instruments of cooperation.
One of their stated objectives was to ‘establish a framework
for further trilateral, regional and multilateral cooperation to expand and
enhance the benefits of this Agreement’.
Despite this formal commitment to support the multilateral trading system and
to extend the benefits of the agreement, some observers have expressed
reservations about discrimination to non-members.
In 1994, DFAT acknowledged that doubts still
lingered about the future impact of NAFTA. It stressed that a key determinant
of NAFTA’s impact on outside countries would be what happens to its external
Three years on, DFAT observed:
...there is only limited evidence that NAFTA members are extending
the benefits of preferential arrangements. The increase in Canada’s foreign
investment threshold review was a NAFTA initiative which was extended to all
WTO members. Mexico has also extended NAFTA-initiated tariff cuts on machinery
and electronic inputs to non-NAFTA members. However, were the MFN tariff rate
for NAFTA member economies to remain at current levels of 7 percent for Canada,
13 percent for Mexico and 6 percent for the United States, there would be
significant likelihood of trade diversion as tariffs are eliminated within the
DFAT was particularly concerned about NAFTA’s
rules of origin. It noted:
...restrictive rules of origin for a number of sectors, including
motor vehicles and textiles, have the potential to divert trade and investment
away from excluded countries. Expansion of NAFTA to the rest of Latin America
could restrict external market access to the whole Western Hemisphere.
Similarly, the Pacific Economic Cooperation
Council (PECC) accepted that one of the main potential limitations with regard
to greater market access was NAFTA’s restrictive rules of origin of products,
especially the specific rules for the automotive, textiles and high technology
sectors. It pointed out that the difficulties of administering rules of origin
could amount to administrative barriers.
Mr Bijit Bora supported this view. He noted that
the process with respect to border measures ‘is extremely limited because of
the restrictive rules defining the origin of products’. He suggested that the
objective in applying these rules of origin was not to liberalise trade but ‘to
restrict incoming trade, to build national industries in sectors regarded as
strategically important, and to encourage incoming investment’. In summary, he
stated that the net effect of the rules of origin was to raise external
Mr Bora took account of the argument put forward by NAFTA members that their
agreement is consistent with the GATT since it conforms to Article XXIV.
Nevertheless, he argued that even those in agreement with the basic thrust of
NAFTA draw attention to its rules of origin as a major flaw in the agreement.
He warned that ‘a volatile political environment can alter specific provisions
and even the intent of an agreement...rules of origin more than any other
provision can be abused by protectionists’.
NAFTA’s complicated and, in some sectors, most
restrictive rules of origin, are not compatible with the principles of free and
open trade. A WTO study found that ‘rules of origin have been recognised as
being more susceptible than other, more transparent, measures to influence by
domestic protectionist interests. Moreover, the administration of rules of
origin imposes additional transaction costs on traders seeking to document
whether they satisfy rules of origin’.
The hub and spoke structure of NAFTA has also
raised doubts about its potential to complement the world trading system. Some
people see the possibility of it developing into a structure that will hinder
rather than foster free and open trade.
Professor Richard Snape expressed his concern
about the hub and spoke model of NAFTA and the likelihood that new members
would be added by some form of ‘docking’ on to the existing agreement. He gave
warning of ‘the possible development of a discriminatory hub and spoke system
with the hub setting and interpreting the rules, and its subsequent evolution’. He predicted:
The more discriminatory it becomes the greater the temptation
for excluded countries to join—and the temptation could extend across the
Pacific. If NAFTA is to be the hub for dockings by other countries, there will
be a strong temptation for these other countries to have preferential and
discriminatory trade agreements with each other also.
Adding weight to this argument, Professor David
Robertson told the Committee that the hub and spoke system of some trading
...does contain the threat that the big fellows—whether it is the
US or the European Union—will, in fact, use their bargaining power to extract
things from individual countries without forming an overall free trade area.
They just have a centre and a lot of rays going out. So there are dangers that
lurk in this hub and spoke approach to regionalism which is evident in the US.
NAFTA has the potential to contribute to APEC’s
objectives of free and open trade. It is ambitious in scope and may offer
leadership by providing prototypes such as its dispute settlement and
environmental provisions. It has formally recognised the importance of the
multilateral trading system and given a commitment to meet WTO obligations.
NAFTA has set a definite timetable in which to achieve its objectives. Its
complex and restrictive rules of origin, however, do not contribute to the
climate of openness and cooperation conducive to building a free and open
trading system and its hub and spoke structure does not fit comfortably with
APEC’s ethos of ‘open regionalism’.
The Free Trade Area of the Americas
In December 1994, 34 leaders from countries in
the Western Hemisphere met in Miami and resolved to start immediately to
construct the ‘Free Trade Area of the Americas’ in which barriers to trade and
investment would be eliminated.
They were committed to bringing the negotiations to a conclusion by no later
than 2005 and agreed that substantial progress toward meeting this objective
would be made by the end of the century.
In their plan of action, the leaders agreed:
- to work toward balanced and comprehensive agreements that
maximise market openness;
- to achieve concrete progress by the end of the century;
- to further secure the observance and promotion of workers’
- to make trade liberalisation policies and environmental policies
mutually supportive. 
Together with their commitment to pursue
economic integration and free trade in the hemisphere, they also resolved to
build on their strong commitment to multilateral rules and disciplines. They
endorsed full and rapid implementation of the Uruguay Round and active
multilateral negotiations in the WTO. They also included in this endorsement
the full and prompt implementation of bilateral and subregional trade
agreements, and other trade arrangements that are consistent with the provisions
of GATT/WTO and that do not raise barriers to other nations.
The extent of their commitment to WTO
obligations is significant. All countries within the proposed FTAA, with the
exception of the Bahamas, are members of the WTO. At the Denver Trade
Ministerial Meeting in June 1995, the Ministers reiterated that the FTAA would
be WTO-consistent; that it would apply WTO obligations as the baseline for
Mr Miguel Rodriguez, Director of the Trade Unit, Organization of American
States, explained that ‘FTAA cannot contain measures that conflict with
members’ obligations to the World Trade Organization (WTO)’. In other words, he
argued that ‘while the FTAA should enhance the terms of trade between countries
in the Americas, it cannot do so by erecting market barriers to other
His message that the FTAA was not to be an inward-looking bloc, designed to
build barriers to non-participants was clear. He expected that the FTAA would
endeavour to strive towards higher liberalisation that would move ahead of
present global standards.
Moreover, he suggested that the FTAA could ‘serve as a vehicle to “lock in” the
market-opening measures of the 1990s and make a return to protectionism a less
His view that FTAA members would seek to go
beyond WTO commitments had support. The Deputy United States Trade
Representative, Ambassador Richard Fisher, suggested that the developing
countries in the hemisphere, which had been given longer periods to meet their
WTO commitments, should accelerate meeting these commitments by 2000. He stated
that this would allow the FTAA to be built on a WTO ‘floor’. He went further by
stating: ‘there is no reason to negotiate an FTAA if we stop at existing WTO
provisions. The FTAA will thus build well beyond the WTO and be future
Mr Cesar Gaviria, Secretary General,
Organization of American States, argued in 1998 that the FTAA would send a
strong signal to trading partners outside the region. He asserted:
Since last year we have clearly established that the Free Trade
Area of the Americas will not raise barriers to trade or investment...Rather than
closing markets, they contribute to maintaining an open trading environment.
Rather than curtailing investment, they cultivate them. This is not an
inward-orientated integration but an endeavour aimed in part towards increased
trade with the rest of the world.
At the Santiago Summit in April 1998, the
leaders of the countries of the Americas reaffirmed their determination to
conclude the negotiations of the FTAA no later than 2005 and asserted that the
agreement would be WTO-consistent. Mr Renato Ruggiero, Director-General of the
WTO, saw promise in the development of the FTAA and was sure it would ‘become a
powerful force in favour of the global path when the time will be right’.
FTAA has barely left the drawing board and it is
too early to anticipate its final form. Nevertheless, its members’ commitment
to the WTO and to international economic cooperation suggests that as it takes
shape, it will be well placed to contribute to the multilateral trading system.
As with NAFTA, the FTAA is looking to address broader issues dealing with
education, the environment and labour. Again it may provide innovative ideas
for APEC and other regional trading groups looking to broaden their scope
beyond trade and investment liberalisation.
ASEAN and AFTA
The Association of Southeast Asian Nations
(ASEAN) was established on 8 August 1967 with the signing of the Bangkok
Declaration. The five founding members were Indonesia, Malaysia, the
Philippines, Singapore and Thailand. Brunei Darussalam joined in 1984, Vietnam
in 1995, Laos and Myanmar in 1997, and Cambodia in 1999. ASEAN is a voluntary
association with ‘no requirement or intention to cede any powers or regulation
or enforcement to any supra-national institution’. The principles underpinning
ASEAN are ‘openness, mutual respect, mutual benefit and evolution through
encouraging a convergence of views in ways which reflect shared interests’.
In January 1992, at the fourth ASEAN Summit in
Singapore, the ASEAN Heads of Government agreed to establish a free trade area.
In doing so, they acknowledged that in part they were seeking to safeguard
their ‘collective interests in response to the formation of large and powerful
economic groupings among the developed countries...’
The agreement sought to increase ASEAN’s competitiveness as a production base
geared for the world market. At the same time, ASEAN ministers recognised that
a critical step toward this goal would be the liberalisation of trade in the
region through the elimination of intra-regional tariffs and the removal of
non-tariff barriers. But rather than forming an
inward-looking trading bloc, ASEAN leaders made clear that they would uphold
the principles of free and open trade and work towards maintaining and
strengthening an open multilateral trading system.
The ASEAN Free Trade Area (AFTA) officially came
into operation in January 1993 and uses the Common Effective Preferential
Tariff (CEPT) as the mechanism to reduce tariffs. Under this scheme, the ASEAN
countries received uniform preferential treatment in intra-ASEAN trade and were
required to reduce tariffs, over a 15-year period, on all manufactured items.
The AFTA has been reviewed and renegotiated at
subsequent meetings of ASEAN Economic Ministers. Most importantly, with the
conclusion of the Uruguay Round, the emerging significance of APEC and the
NAFTA arrangement, the original AFTA agreement had its time frame trimmed back
and the scope of the agreement broadened. In September 1994, at the Fifth AFTA
Council Meeting in Chiangmai, the Council decided to accelerate AFTA by
reducing tariffs to 0–5 per cent within ASEAN by the year 2003 instead of 2008. The protocol to amend the CEPT
Scheme was signed in 1995. The product coverage of CEPT was broadened to
include unprocessed agricultural products.
AFTA members do not see their trading group as a
protective trading bloc. It is consistent with the GATT and is intended to be
an outward-looking arrangement that does not raise trade barriers against
CEPT allows for an ASEAN country that reduces it tariffs to 0–5 per cent on a
most-favoured nation basis to enjoy the CEPT concessions from other ASEAN
members. This provision facilitates both intra-ASEAN liberalisation as well as
liberalisation on a most favoured nation basis. AFTA has a
40 per cent value-added rule of origin that allows cumulation between
two or more countries within the ASEAN.
Some witnesses were concerned that AFTA would
emerge as a preferential trading group that discriminated against non-members.
The Queensland Government noted: ‘all evidence points towards organisations
such as AFTA and NAFTA proceeding with trade liberalisation at a pace faster
than that being achieved under APEC’.
Professor Robertson argued that AFTA is a conventional regional trading
arrangement that depends on trade discrimination to raise economic welfare. He
suggested that AFTA is not consistent with the APEC creed of ‘open regionalism’
and could lead to complications in the long run.
Mr Mitchell Hooke, Chief Executive Officer,
Australian Food Council, spelt out the implications of trade liberalisation
within AFTA. He suggested that ‘AFTA will provide for tariffs of between zero
and five per cent on nearly all intra-ASEAN trade by 2003 and will establish
preferential margins in the order of 55 to 60 per cent to the detriment of
non-AFTA suppliers, including Australia’.
He stressed that these are ‘pretty substantial walls to be climbing over’.
On the other hand, Dr Soesastro argued that AFTA
is never going to become a closed trading bloc—‘it just cannot afford to become
one’. Rather, he observed that the trend over recent years is for AFTA to act
as a training ground for ASEAN countries to open up their markets. He told the
If one looks at the schedule of tariff reductions that each of
the ASEAN countries has introduced, at the same time that they are reducing
their AFTA preferences—the tariffs that apply to the other ASEAN countries—they
are doing it unilaterally for the rest of the world as well. It could either be
done at the same time or with a lag time of around six months or one year. That
has become the pattern.
Professor Ravenhill endorsed Dr Soesastro’s
viewpoint—that as economies within ASEAN have attempted to meet their
obligations under the AFTA, they have also tended to offer these trade
concessions to non-member states as well. He noted, ‘it is not in their
interests to create a closed trading bloc which accounts for only 20 per
cent of their trade’.
Professor Snape agreed with this finding. He told the Committee that most of
the liberalisation that has been done in AFTA has been extended to other
countries as well, ‘so it has not in fact been forming a markedly preferential
Professor Garnaut further underlined the point
that AFTA has in practice reinforced tendencies to externalise liberalisation.
He maintained that ‘Malaysia thoroughly and explicitly and others more or less
implicitly, have minimised discrimination against outsiders as the external
tariff has been reduced within AFTA’.
Thus, he asserts, AFTA can be accepted as a subset of APEC’s open regionalism
in the global context. DFAT also argued that, by and large, when ASEAN
economies have removed or reduced their tariffs they have done so on a MFN
basis. DFAT submitted:
Some AFTA economies are minimising or eliminating the
preferential element of the arrangement by committing themselves to reduce
their MFN tariffs at the same time as they cut preferential rates. The
Philippines 1996 IAP outlines a tariff reduction scheme which will see its MFN
tariff on most products fall to the preferential rate by 2004. Its intention is
to have a single tariff rate for all products imported from anywhere in the
world by 2005. Indonesia is committed to reducing its MFN tariff on most
products to a maximum of 10 percent by 2003. Intentions in some other ASEAN
economies are less clearly marked.
Ms Fayle from DFAT explained to the Committee
that the degree of preferential treatment emerging at the moment is fairly
minimal, and the greater impact ‘has been on investment flows rather than trade
flows in the sense that international investors have often been investing in
ASEAN in order to get behind the perceived preferential walls that they expect
to build up rather than investing in other locations, such as Australia’.
MTIA agreed. It argued, ‘While barrier
reductions under AFTA are undertaken on a preferential and reciprocal basis, it
has been the case that AFTA members have in some instances also reduced
external tariffs for selected items on a most favoured nation basis’. It added,
however, the following qualification—‘there is no guarantee that
non-discriminatory reductions in tariffs will keep pace with the preferential
and reciprocal reduction in tariffs under AFTA’.
ASEAN and APEC principles are mutually
reinforcing. ASEAN strongly influenced the formulation of the principles
underpinning APEC and continues to support them. It made clear its
understanding of APEC and of its own guiding principles when it set down terms
for its participation in APEC. At the twenty-third ASEAN ministerial meeting in
July 1990, ASEAN ministers asserted:
...APEC should continue to be a loose, exploratory and informal
consultative process, that APEC process should not dilute ASEAN’s identity and
that it should not be directed towards the establishment of an economic trading
bloc, as this would be contrary to ASEAN’s support for the establishment of a
more fair and freer multilateral trading system.
AFTA has demonstrated that it is an effective
and valuable subgroup of APEC and the world trading system by: actively
promulgating its views on the benefits of free and open trade; providing
leadership and support for international organisations such as the WTO;
implementing practical measures that clearly demonstrate the benefits of free
and open trade; and allowing some of the benefits of its agreement to extend to
non-members. The AFTA agreement offers transparency and a degree of certainty
that it will keep in step with APEC’s progress. There is the potential for it
to broaden its agenda to take up issues such as services and investment.
Clearly some witnesses were unconvinced about the readiness of AFTA members to
dismantle their barriers to trade but the trend so far is encouraging for free
trade and investment in the region.
In December 1990, the Malaysian Prime Minister,
Dr Mahathir Mohamad, proposed the formation of an East Asian Trade Group. The
group was intended to counter what it perceived as protectionist trends in the
European Community and in the Americas. It was to include ASEAN countries, Hong
Kong, China, South Korea, Taiwan, Japan and other countries in the Indochina
According to Dr Mahathir, Australia and New Zealand are part of Australasia and
not East Asia, and since EAEC was to be a geographical grouping they would not
qualify for membership.
Although the US, Canada and Australia were to be excluded, EAEG was not
envisaged as a trade bloc but rather:
a low level economic alliance, a mutual protection society, a
pressure group or a “megaphone to magnify” the group’s voice at the Uruguay
Round for instance.
At the ASEAN Trade Ministers Meeting in Kuala
Lumpur in October 1991, Ministers supported EAEC as an ASEAN initiative after
Indonesia was successful in having the name changed to East Asian Economic
In 1994, Dr Mahathir asserted that any East Asian scheme for economic
cooperation, including the East Asian Economic Caucus, ‘must be wedded to this
idea of open regionalism’.
He stated further, in November 1995, that EAEC ‘is merely a caucus, not a
structured organisation. It will enable the countries of East Asia to discuss
problems, which would then be brought to APEC’. At the Thirtieth ASEAN
Ministerial Meeting in July 1997, the Foreign Ministers approved of the
increasing cooperation among ‘potential EAEC members and were hopeful that the
Caucus would soon be formally instituted for the benefit of members’. It should
be noted that DFAT underlined the point that EAEC has never met—‘it is a
proposal that is around but there has never been a formal meeting of that
Australia and the United States objected
strongly to the suggested formation of such a group, and Japan has given the
proposal lukewarm support.
Dr Hadi Soesastro argued that Indonesia and Japan, both influential members of
any likely EAEC, are ‘never going to accept this grouping being turned into a
trading bloc. It is more or less a club’.
Thus, to date EAEC has not taken a prominent role in the region, rather it
remains a consultative body under the umbrella of APEC and discussions about
its role continue within and outside APEC.
A number of witnesses, however, looked warily
upon the emergence of EAEC. Professor Ravenhill spoke of a fault line beginning
to emerge in APEC ‘which brings on the one side the likes of the United States
and Australia with a number of other countries on the other side, Malaysia in
particular but...including the Philippines, and with a number of countries sitting
on the sidelines and that includes Japan’.
He suggested that should tensions and differences intensify, the East Asia
group in due course will become more feasible. He further drew attention to
the intentions of Dr Mahathir who, as host of the thirtieth anniversary of
ASEAN, took the opportunity to invite China, Korea and Japan to the meeting.
Professor Ravenhill told the Committee:
My understanding is that there was a general sense, yet to be
formalised, that that summit of those countries—ASEAN plus three—will be, in
due course, institutionalised. In fact, I would be very surprised if they were
not to meet again later this year in 1998. So it may well be that we may be
seeing slowly an East Asian economic caucus emerging but by another name and with
a less formal structure. That too will have very significant implications for
APEC should that come to pass.
Professor Snape also raised concerns about
tensions between some APEC members. He pointed out that should frustration grow
in Asia with the trade tactics of the United States, or with a discriminatory
expansion of an Americas trade bloc, North East Asia economies could show more
interest in the East Asia Economic Caucus and AFTA could provide an existing
trade agreement basis for development of the EAEC. A countervailing force, he
pointed out, is the very concept of EAEC which may help to discourage
unfriendly trade policies on the Eastern side of the Pacific.
Professor Peter Drysdale saw the problem in
light of ‘reciprocitarianism’ in Washington trade politics and how that might
affect the cohesion of APEC. He submitted:
The tendency of the United States to conduct aspects of its
trade relations bilaterally, and to see bilateral reciprocity in its trade
negotiations, is well known. It is also understandable. For a hegemonic
power—which the United States still is—there is a natural temptation to use
muscle to force market opening (in the name of both self-interest and the
general good). APEC has been a useful forum in which tensions between the United
States and Japan, resulting from such actions by the United States, can be
diffused and calmed.
Should the trade tactics of the United States get out of
hand, he wondered whether the resulting friction would ‘tend to fracture that
APEC process into the East Asian side, strengthening the idea of an East Asian
economic caucus, or whether or not it could be managed within the framework of
multilateral systems and negotiations’.
Professor Joe Camilleri argued that if EAEC were
to gather momentum and attract institutional backing or infrastructure, then
the world trading system would be approaching the three trade blocs idea—one
based on NAFTA, one based in the European Union and one based in East Asia. He
APEC was meant to be an answer to that question by locking in
the NAFTA countries and this potential East Asian economic grouping into one
where their differences and competing interests would somehow be negotiated and
He maintained that APEC is ‘first and foremost an OECD
edifice’; that APEC reflects the perspectives and priorities of advanced
industrial economies. He stated that by contrast ASEAN bears very much the
imprint of the newly industrialising and less developed societies of the
region. He suggested that the friction that has arisen in response to the
Malaysian proposal for an East Asia economic grouping is ‘but the symptom of a
deeper but as yet poorly articulated fault line’.
At the moment EAEC does not pose a threat to
APEC—it is not a formal trading group and it has not formally met. Even so,
some witnesses view it as a storm cloud and a potential source of discord in
APEC. But EAEC is more likely to react to shifts in the United States’ trade
policy. Should NAFTA become a closed trading bloc or the United States favour a
more protectionist policy, Asian economies, which view EAEC as an ‘insurance
policy’, may look to EAEC as a ‘fall back option’. Thus, EAEC continues to be
significant ‘conceptually if not in form’.
The Closer Economic Relations Agreement between
Australia and New Zealand (CER also known as ANZCERTA) came into effect on 1
January 1983. It replaced the New Zealand Australia Free Trade Agreement
(NAFTA) which had been in operation since 1 January 1966. CER is a free trade
area with a clearly stated objective of removing all border restrictions on
trade in goods. The objectives of CER as given in Article 1 are:
- to strengthen the broader relationship between Australia and New
- to develop closer economic relations between the Member States
through a mutually beneficial expansion of free trade between New Zealand and
- to eliminate barriers to trade between Australia and New Zealand
in a gradual and progressive manner under an agreed timetable and with a
minimum of disruption; and
- to develop trade between New Zealand and Australia under
conditions of fair competition.
In the preamble to the agreement, both countries
declared that the free trade provisions are part of a more fundamental desire
to maintain closer economic relations and to strengthen and foster links and
cooperation in fields such as investment, marketing, movement of people,
tourism and transport. They believed that a closer economic relationship would
lead ‘to a more effective use of resources and an increased capacity to
contribute to the development of the region through closer economic and trading
links with other countries, particularly those of the South Pacific and South
East Asia’. Both countries also acknowledged their rights and obligations under
In a joint communique issued in 1985 after a CER
ministerial meeting, ministers emphasised that the agreement was
outward-looking and established a basis from which closer economic relationship
could be advanced to the benefit of both countries and the region.
Although some areas of the agreement could be
further improved, CER has been a notable success and provides a model which
others may wish to follow. A study undertaken for the Committee for Economic
Development of Australia detailed the progress made to date as follows:
|Free trade in goods
||Achieved by CER in 1990
|Free trade in services
||Promising beginning made in 1990, and much progress since then, though serious difficulties now being experienced in a small number of sensitive service sectors
|Free movement of labour
||Traditional feature of trans-Tasman relations covered by the Trans-Tasman Travel Arrangements
|Free movement of capital
||Significant reduction in impediments resulting from unilateral liberalisation by each partner, but no specific bilateral agreement to remove remaining impediments.
In addition, CER has made significant headway in
removing non-tariff barriers to trade and investment flows. Marked progress has
also been made in areas such as liberalisation and integration of government
purchasing procedures, harmonisation of standards, conformance procedures and
aspects of business law; streamlining and harmonisation of customs procedures;
and agreement to refrain from direct government supports. The replacement of
anti-dumping regulations by harmonised provisions in relevant sections of the
two countries’ competition laws was an innovative move. CER applies rules of origin
which require a 50 per cent domestic content test.
Another feature that marks CER as a progressive
regional trading arrangement is the tendency whereby bilateral liberalisation
within CER has been accompanied in both Australia and New Zealand by
progressive unilateral reduction of trade impediments against third countries.
According to Professor Lloyd:
CER is the most outstanding example of an open regional trading
arrangement. The success of CER prepared the way for unilateral liberalisation
of trade in goods and services with third countries on a most favoured nation
In 1999, Australia and New Zealand established a
Joint Prime Ministerial Task Force on Bilateral Economic Relations to examine
ways to build on the strong economic foundation already existing through CER.
In August 1999, both countries discussed broadening the scope of the agreement
and agreed to consider extending the agreement to other countries or regional
CER has also created a climate that has
generated within business a sound appreciation of the benefits to be obtained
from free and open trade. PECC concluded that ‘the demonstrated success of
ANZCERTA and of the ability of firms to gain export experience and to compete
in export markets through expansion of trans-Tasman trade has had a significant
effect in shifting the balance of business opinion in both economies to take a
more favourable view of trade liberalisation and deregulation’.
CER supports APEC objectives:
- it covers a comprehensive range of products and services;
- its rules of origin are straightforward; it does not seek to
create any new forms of discrimination against a third country,
- it has demonstrated a preparedness to break down existing
barriers to trade and investment for non-members; and
- it has established a clear schedule for trade liberalisation
which allows for scrutiny and transparency.
Two major linkages involving APEC SRTAs have
been initiated—the AFTA-CER linkage and the Asia-Europe Meeting (ASEM). One of
the main objectives for establishing linkages between regions would be to find
ways of tapping into the differing strengths and comparative advantages of both
regions for their mutual benefit. Such an association enables the two regions
to promote themselves as a cohesive and dynamic economic force, and to boost
their economic growth and development. Regional linkages provide an ideal training
ground on which to trial an initiative.
Dr Elek recognised that linking the preferential
trading arrangements contained in existing subregional agreements would require
substantial and difficult negotiations and create new sources of
discrimination, division and tension among APEC members. Nevertheless he could
see the potential in initiating fruitful links between existing groups. He
...such links could extend the understandings reached in each
sub-regional arrangement on issues such as international investment, dispute
settlements and some product standards. Correspondingly, it is feasible to
consider the extension of such understandings to the whole region, based on
those already contained in some current agreements, adapting them as necessary
to conform to the principles of transparency, non-discrimination and national
The proposal for an AFTA-CER link has recently
been explored. On 9 September 1995 at an informal consultation between the
ASEAN Economic Ministers and Ministers from the CER countries, Ministers
reaffirmed their commitment to the multilateral trading system. They also
agreed on the need for both regional arrangements to reinforce the process of
liberalisation within the WTO framework. They agreed to establish a link
between the two regions promoting the ‘open regionalism’ concept of AFTA and
CER. The Ministers anticipated that the ASEAN-CER linkage should ‘provide
tangible benefits to their business communities and would build upon existing
complementarities between the two free trade areas’. It was intended that the
linkage would focus on practical, business-oriented ways to remove impediments
to doing trade and business between the two regions and lead to greater trade
and investment flows between them.
The ministerial consultations are the nucleus of
the AFTA-CER linkage. They provide a valuable opportunity for the Ministers to
exchange views on a range of regional and global issues, to establish
priorities for their association and to determine the future direction of the
linkage. At the second informal consultations between Economic Ministers from
AFTA and CER countries held in Jakarta in September 1996, Ministers signed a
Memorandum of Understanding to promote cooperation on standards and conformance
between ASEAN and CER countries.
The Ministers underlined the value of such arrangements as the foundation for
future collaborative work under the AFTA-CER linkage.
The communique from that meeting called on the
private sector to identify constraints on business that hinder trade in goods
and services and investment flows in order to ‘enhance understanding and to
create a climate for a more liberal and freer trade and investment access
between both regions’.
Cooperation between AFTA and CER has focused on trade facilitation rather than
liberalisation and has generally involved technical assistance and information
Mr Peter Walsh, General Manager, Standardisation
Policy and Development, Standards Australia, saw great value in strengthening
regional alliances, such as a linkage between Australasia and ASEAN. He told
We think that there would be some increased value in that
[alliance] perhaps as a mechanism for regional alignment of standards based on
international standards rather than necessarily through the total APEC
environment because of the differences of the big players...
MTIA also appreciated that benefits would come
from an AFTA and CER association including higher levels of economic activity,
exports and real consumption. It maintained that these benefits would result
- expansion of trade as a result of the removal of tariff and
- improvement in productivity as a result of dynamic effects
including more competition, and the exploitation of economies of scale;
- fostering of closer business links, cultural exchange and
increased investment; and
- complementary effect of an AFTA-CER free trade area on trade
liberalisation under APEC and the World Trade Organisation.
It believed that an AFTA-CER free trade area
would ‘present the opportunity to AFTA members to implement trade reforms in
some sensitive sectors of the economy in preparation for the processes of wider
liberalisation under APEC and the WTO’. Further, it stated that the manner in which
AFTA is being implemented and the way in which CER operates, complements and
facilitates multilateral trade. It submitted:
An AFTA-CER free trade area, by encouraging members of the
respective arrangements to build institutional arrangements for addressing
regional trade issues, has the potential to provide an important stimulus to
APEC liberalisation and the 1999 WTO negotiations.
Professor Robertson pointed out that one of the
serious confusions in the AFTA-CER discussion is the absence of a clear definition
of the type of institutional linkage under consideration. He noted:
When ASEAN industrialisation and growth were rampant and when
preferences among AFTA members threatened market access for Australian and New
Zealand producers, business organisations in the CER countries showed strong
interest in the formation of closer links with AFTA. However, the nature of
these proposed ‘links’ was never defined. ASEAN ministers were reluctant to go
beyond trade facilitation.
Ms Pamela Fayle, DFAT, agreed that the agenda
had focused on trade facilitation issues more than the liberalisation issues.
She thought that that was partly due to a desire not to overlap with activities
in APEC and WTO and other forums and not necessarily because of a reluctance or
a resistance on the part of ASEAN Ministers.
Although the AFTA-CER link, to the moment, has
concentrated on trade facilitation measures, particularly standards and
conformance, it nonetheless is laying solid foundations on which to build and
expand cooperation into other areas covered by the APEC agenda. In October
1999, the association moved to deepen their economic relationship and to
develop a clearer understanding of their objectives with an agreement to
establish a high-level AFTA/CER Task Force to look into the feasibility of
establishing a free trade area by 2010. Without qualification, the Ministers
asserted that the proposed free trade area should be WTO-consistent. As both AFTA and CER are
committed to free and open trade, they form a substantial supporting base from
which APEC can push ahead with trade reform.
In March 1996, the inaugural Asia-Europe Meeting
(ASEM) was held in Bangkok. The heads of state and government from ten Asian
and 15 European nations attended the gathering. The meeting recognised ‘the
need to strive for a common goal of maintaining and enhancing peace and
stability, as well as creating conditions conducive for economic and social
development’. The meeting forged a new comprehensive Asia-Europe Partnership
for Greater Growth which aimed at strengthening links between Asia and Europe.
The meeting recognised that the economic
dynamism and diversity of Asia and Europe offered great potential for synergy
between the two regions. It noted that opportunities exist for the regions to
expand the market for goods, capital equipment and infrastructure development
projects, and to increase the flow of capital, expertise and technology.
As well as stating its resolve to generate
greater two-way trade and investment flows between Asia and Europe, the meeting
agreed that the ASEM process should complement and reinforce efforts to
strengthen the open and rules-based trading system embodied in the WTO.
Furthermore, it agreed to undertake facilitation and improvement of customs
procedures and standards conformance to promote greater trade and investment
between Asia and Europe.
The meeting stressed the need to improve
development cooperation between the two regions, giving priority to poverty
alleviation, promoting the role of women and cooperating in the public health
As stated by the Commission of the European Communities:
ASEM should primarily function as a political catalyst for
achieving mutual understanding and enhanced awareness through dialogue. The key
characteristics of the ASEM process include its informal nature, its high-level
participation and its multi-dimensionality, and it is these which will define
the added value which ASEM can offer, and on which its unique potential for
reinforcing Asia-Pacific links will be based.
At the ASEM Economic Ministers’ Meeting in
September 1997, ministers reiterated their commitment to the primacy of the
multilateral trading system and emphasised its importance in meeting the twin
objectives of ASEM business and economic dialogue and cooperation. Seven months later, at the
second Asia-Europe Meeting in London, ASEM Leaders reaffirmed their early
agreement that the ASEM process should be ‘an open and evolutionary process;
enlargement should be conducted on the basis of consensus by the Heads of State
They agreed to strengthen the WTO ‘as the main forum for negotiation and to
provide the means for further global liberalisation of trade with the
Dr Elek acknowledged that ASEM could help Europe
and the Asia Pacific identify their shared economic interests and to promote
practical initiatives to facilitate trade and investment between and within the
two regions. He suggested that it could also serve as a means to promote
cooperation in the WTO to dismantle remaining border barriers to trade and
Traditional restrictions on trade, such as tariffs or quotas are not the only
strategic obstacles to economic integration and he sees ASEM as an excellent
initiative by Asia to tackle some of the non-traditional barriers to trade. He
envisages ASEM as evolving into a forum where the two regions can start to
harmonise European standards with Asian standards in a more pragmatic, sensible
Dr Soesastro maintained that ASEM is ‘more or less an attempt to build bridges
across two regions, whereas APEC is the creation of a new region’.
Dr Rikki Kersten had strong concerns about the
exclusive membership on the Asian side of the linkage. She pointed out that
although the overlapping and interlocking membership of ASEAN, NAFTA and CER
with APEC has ‘the potential to strengthen the integration of the larger
Asia-Pacific region and influence the region’s collective commitment to open
multilateralism, subregional groupings like the EAEC and ASEM tend to reinforce
what are essentially fading divisions between Asia and Western communities’.
The thrust of the East Asia Economic Caucus (EAEC) and the
exclusion of Australia from the Asia-Europe Meeting (ASEM) summit is that
culture is a criterion for exclusion and by extension, that a functional,
meaningful regional entity must be designed along the lines of race/ethnicity.
This clearly goes against all that APEC stands for. APEC is a pioneering
regional and multilateral entity in that it is the only one that combines
geographical regions and economies in different stages of development in a
forum based on equality of status and consensus.
The ASEM process is significant; it is of value
to East Asia in developing and maintaining open trading links with Europe. As
with the AFTA-CER linkage, ASEM provides ideal opportunities for the two
regions to work through and enter into cooperative agreements that may in turn
pave the way for the steady evolution of region-wide or global agreements. The
work being done in ASEM supports the commitment of APEC to build a more open
and freer trading system. The issue of Australian membership is taken up later
in this chapter.
The Committee has found that in the main SRTAs
have supported APEC’s objectives both for the region and the world economy. To
date they have:
- cultivated a climate in which members are encouraged to pursue
the goal of free and open trade and to participate actively in implementing
measures that will further this goal;
- adopted and strengthened the rhetoric and policy agendas of trade
liberalisation and have issued joint statements that instil confidence about
the future development of world trade—such actions and statements lessen the
fears about fragmentation and foster a general acceptance of free and open
trade as a worthy goal;
- established a timetable for implementing trade reform and
disseminated information about their short and long-term goals which has
provided greater transparency and certainty about the direction of trade policy
within the group—this works against economies reneging on commitments and
encourages other trading groups to support the multilateral trading system;
- pioneered agreements and set new benchmarks which could pave the
way for other regions to follow suit;
- built on the momentum generated by the Uruguay Round and offered
leadership by breaking new ground—SRTAs not only support the WTO but could also
push the ambitions and the work of the WTO beyond its current boundaries; and
- implemented practical measures, particularly in trade
facilitation, that showcase the real benefits to be gained from removing
barriers to trade and investment.
Linkages between subregional groupings have also
tended to reinforce APEC’s commitment to free and open trade. Their emphasis to
date on achieving mutual understanding, on consensus-building and on promoting
cooperation suggest that they are preparing the groundwork that will encourage
the work of SRTAs, of SRTA linkages and APEC to complement one another.
Nonetheless, the Committee feels that there is
no room for complacency and recommends that the government maintain its
endeavours both bilaterally and multilaterally to encourage all countries and
groups of countries to pursue the APEC goal of free and open trade.
Dr Elek suggested that managing cohesion would
be one of the major challenges facing APEC. He argued that subregional
groupings within APEC, such as ASEAN, are likely to deepen and broaden their
cooperation and that new clubs will also form in response to shared interests. He
argued that the emergence of such clubs can help accelerate the progress of
region-wide cooperative arrangements as long as they take account of the
interests of all participants.
The Committee paid close attention to Dr Elek’s
views and agree that members of any new regional trade agreement must act
carefully to avoid harming the interests of non-members. Nevertheless, the
Committee is aware of the potential of SRTAs to turn inward-looking should
tensions between trading nations develop and agrees that new arrangements
should be transparent, should not lead to any new forms of discrimination and
should allow, if not encourage, others to join.
Australia: ‘a natural partner’
The debate about the role of subregional
groupings has direct relevance for Australia. As a medium sized country,
geographically separate and culturally distinct from its neighbours, Australia
is politically and economically sensitive to shifts in the world trading system
particularly the emergence of trading arrangements in the Asia Pacific region.
This report examines in particular the importance that AFTA and ASEM have for
Membership of AFTA or AFTA-CER
A number of submitters considered that the trade
liberalisation process within AFTA could seriously disadvantage Australian
traders. MTIA stated that Australian business people are concerned about the
gap between tariffs levelled for ASEAN members and for non-members and that a
priority of Australia’s foreign and trade policy must be for Australia and New
Zealand to obtain membership of AFTA.
The Department of Industry, Science and Tourism
also noted that it would be an advantage for Australia to be a member of AFTA
...it would place Australian industry on an equal footing in
competing for investment and market opportunities in the region. It would also
form the basis for a strong negotiating position in persuading other countries
to enter into mutually beneficial trade agreements.
Ms Fayle, DFAT, however, believed that members
of ASEAN would not reach consensus and agreement on inviting Australia and New
Zealand to join and that Australia is not pursuing membership at this stage.
She suggested that the AFTA-CER dialogue is ‘a way to keep Australia’s options
open in this regard’. Further, that this additional layer of dialogue that
Australia has with the AFTA members is quite useful in pursuing the broader
aims Australia has in APEC.
Dr Soesastro, a visiting fellow to the ANU and
Director, Centre for Strategic and International Studies, Jakarta, agreed. He
maintained that Australia need not be concerned about being left out of ASEAN
and AFTA, because AFTA ‘is really becoming a very open arrangement’. Instead, he sees the AFTA-CER
association as a niche for Australia to come into the economic realm of South
East Asia in a significant and important way. He thinks that from a South-East
Australia is a very natural partner through which we can learn,
and your experiences can also be transferred to us more readily. On the other
hand, from Australia’s point of view, it should be very important from a medium
and longer term perspective if we can begin to harmonise our rules, regulations
and so on. That is the most natural way to bring economies together.
He maintained that there is real substance to the
cooperation between ASEAN and CER because of the great need on the part of
South East Asian countries to ‘go into areas beyond liberalisation...and to move
to more essential areas of managing economies and formulating regional
Although the Department of Industry, Science and
tourism would prefer Australia to be a member of AFTA, it could see the
advantages to be gained in cultivating a closer AFTA-CER association. It
AFTA’s target date for free trade is well ahead of that set by
APEC. The different time frames mean that the ASEAN trading bloc countries will
have a strong impact on trade and investment within the region. Countries
outside the AFTA agreement (including Australia) may be disadvantaged in terms
of market access and investment opportunity. Australia is looking to strengthen
its ties with AFTA through the AFTA-CER dialogue process to be in a better
position to access the ASEAN market. The AFTA-CER link is, therefore, an
important contribution to Australia’s broader APEC agenda.
MTIA, which also canvassed Australian membership
of AFTA, approved of strengthening the ties between AFTA and CER. It pointed
out that the most immediate threat and opportunity to market access for
Australia is AFTA, and thus argued that it is critical for Australia to give
‘urgent priority in its trade, foreign and economic policy to forging a link
between CER and AFTA.
An AFTA-CER link would serve to more closely integrate Australia
with a market region of primary importance in the global economy and reinforce
perceptions of Australia as an integral part of the region. It would further
strengthen the influence of the region on international trade and economic
issues and importantly, could be expected to counter the investment flows away
from Australia as a result of preferential trade liberalisation within AFTA.
MTIA stressed that the private sector must take
responsibility to drive an AFTA-CER free trade area and that the success of the
private sector initiative depends on supportive government policy. It noted that the process to
move ahead has already begun with the establishment of two working committees
at the March 1997 meeting of ASEAN and CER business leaders. MTIA has also established the
ASEAN-CER Liaison Secretariat which will coordinate, under the specific ASEAN
(AFTA)/CER linkages program, Australian industries’ interface with the
Australian Government and the New Zealand business sector.
Professor Robertson was less enthusiastic than
industry bodies about the AFTA-CER association and suggested that the AFTA-CER
link offers small returns and that ASEAN concerns about political solidarity
and the uncertainties about the financial crisis seem to have closed this
option for the present. He acknowledged that Australia had a brief opportunity
to establish economic links with South East Asia and that APEC offered a formal
bridge between South East Asia and the western Pacific economies. An AFTA-CER
link could be a formal foundation for that bridge.
Professor Robertson tied the importance of an
AFTA-CER linkage with the geographical expansion of APEC membership in 1997 to
include Russia, Peru and Vietnam. He argued that the increased membership
diluted the focus of the forum in East Asia and that CER countries are becoming
more isolated. Furthermore, he pointed out that ‘excluded from ASEM and likely
to become a smaller voice at APEC’, AFTA-CER may well become the subject of
The AFTA-CER linkage offers Australia and ASEAN
countries practical means to improve the trading environment for business in
the region, especially in the nuts and bolts area of standards and conformance,
customs and quarantine and transport infrastructure. It also provides many
opportunities for Australia to participate in projects that will deepen and
broaden economic and technical cooperation not only between the two groups but
throughout the region. It is yet another means for Australia to strengthen its
credentials as a valuable partner the Asia Pacific region. The agreement reached
in October 1999 to establish a taskforce to explore the feasibility of an
AFTA/CER free trade area by 2010 is an encouraging indication of the commitment
of both groups to build stronger economic cooperation and to support each other
in achieving free and open trade and investment in the wider region.
Membership of ASEM
The Queensland Government warned that should
momentum within APEC falter, Australia risks being excluded from what may
emerge as the most important regional grouping—ASEM. It argued that ‘as ASEM
offers opportunities for Australia to maintain engagement with key regional
trading partners, efforts should be directed to seeking Australian involvement
in the forum’.
Mr Matt Ngui also believed that ASEM could be the means for Australia to forge
constructive ties with Europe. He stated that ASEM would allow Australia ‘to
link some of the benefits of APEC to the European Community not only in terms
of trade but also in terms of links in technology, education and training’. To date, however, Australia
has not been invited to join ASEM despite showing a keenness to do so.
Dr Elek suggested that our ‘grovelling and
begging to be allowed in’ to ASEM was counterproductive and that Australia
should be looking to rebuild its reputation as a natural member who would be
‘an asset to have in those discussions’.
DFAT pointed out that a number of the existing members of ASEM have pursued
Australian membership on Australia’s behalf. Ms Fayle told the Committee:
They are very supportive of Australia joining. So it is not so
much a matter of Australia grovelling or banging on the door to be let in; it
is rather a number of other members of ASEM seeing benefit in Australia
participating and being a member and supporting that view on our behalf.
She acknowledged that part of the strategy in
convincing Asian members to allow Australia to join ASEM is for Australia to
demonstrate its credentials for belonging to such regional organisations. The next opportunity for
Australia to be considered for membership of ASEM will be at the ASEM Leaders’
meeting in Seoul in 2000. During the Senate estimates hearings in June 1998, Mr
Warner from DFAT stated that for the immediate future the department has no
plans to talk to anyone in any detail about ASEM and Australia’s membership. He
told that Committee, ‘for the moment we would be happy to sit back and look at
the situation and see how views develop, then some time in the next six months
or in the next year to 18 months look again at how we would approach the
The Committee agrees that Australian membership
of ASEM is an important objective; that Australia has strong claims for
membership; and that its exclusion from the group is disappointing. The
Committee accepts the view that Australia should continue to demonstrate its
worth as a potentially valuable participant in ASEM.
The Committee recommends that every endeavour should be
made to build on Australia’s strong reputation in the region and to further
develop its standing as ‘a natural partner’ in the Asia Pacific basin.
Overall, the Committee is confident that the
subregional groupings in APEC are moving in the same direction toward the
promotion of free and open trade and investment. It appreciates that there are
tensions between groupings and between trading partners within groups and
within APEC itself that could undermine the cohesion of APEC.
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