Increasing Sub-regionalism within APEC and the Bogor Goals

Document Sample
Increasing Sub-regionalism within APEC and the Bogor Goals Powered By Docstoc
					       Increasing Sub-regionalism within APEC and the Bogor Goals:
                    Stumbling Block or Building Block?




                                          By

                                    Sung-Hoon Park
                     Professor of Economics and International Trade
                        Graduate School of International Studies
                                    Korea University
                      Tel: +82-2-3290-2405; Fax: +82-2-929-0402
                               Email: shpark@korea.ac.kr




* A paper prepared for presentation at APEC Study Center Consortium Conference
2005/PECC Trade Forum 2005 on “Building an Asia-Pacific Economic Community”, co-
hosted by Korea Institute for International Economic Policy (KIEP), Korea Committee for
Pacific Economic Cooperation (KOPEC) and Graduate School of International Studies
(GSIS), Korea University on 22-25 May 2005, Hotel Shilla, Jeju, Korea.
** This is a draft version. Do not cite without the author’s permission.
I. Introduction


Since Asian financial crisis in 1997, APEC has been facing two crises. Identity crisis refers to
APEC member economies’ losing confidence and weakening commitment to the APEC
process. Credibility crisis refers to APEC’s inability to generate momentum for both internal
liberalization and contributing thereby to multilateral liberalization. The achievement of the
Bogor Goals, therefore, has encountered enormous difficulties over the last 10 years. APEC
launched several approaches to achieve these goals, and any of them did not produce any
tangible success until now. It would be premature to judge this as failure, but APEC has been
running the risk of being termed “a failed venture”.
         It is the observation of the author that open regionalism stands at the core of these
problems. Member economies’ efforts to achieving the Bogor Goals have been burdened by
the unspecific and ambiguous definition of open regionalism, which gave wide room for
individual interpretations. Together with non-binding characteristics of cooperation scheme,
the problems attached to open regionalism have been one of main reasons for the “identity
and credibility crisis.” Consequently, the achievement of the Bogor Goals has so far been not
well prepared. Increasing participation of APEC member economies in Regional trade
agreements (RTAs) has become an additional headache for policy makers of APEC on their
roads to the Bogor Goals. Increasingly complex network of FTA arrangements of APEC
economies – both with other APEC members and non-APEC countries – has emerged and
intensified over the last five years or so.
         The purpose of this paper is to elaborate on possible ways of achieving the Bogor
Goals, focusing on the increasing regionalism initiatives involving APEC economies.         The
main discussion is divided into five parts, following after the introduction section. Section II
discusses the background of open regionalism and investigates its relationship to the Bogor
Goals. Section III takes stock of increasing FTA initiatives involving APEC economies, and
discusses challenges and opportunities of such development. Section IV then examines
possible ways and previous attempts of APEC economies to achieve the Bogor Goals. Section
V examines the relationship between increasing intra-APEC FTAs and the Bogor Goals, and
discusses both negative and positive impacts of the former onto the latter. Section VI is a
concluding part, and elaborates on how to make the increasing FTA initiatives help the APEC
process on its way to the Bogor Goals. Finally, challenges and opportunities facing the option
of developing APEC into an FTA are analyzed.




                                               1
II. Open Regionalism and Bogor Goals of APEC


1. Background of Open Regionalism


It is widely known that APEC was born in the late 1980s, in the midst of conflicting interests
of trading nations on the progress of then ongoing Uruguay Round (UR) negotiations.1 At the
time of APEC’s formation, multilateralism, which was represented by GATT, was running
the risk of losing momentum, mainly due to the prolonged UR negotiations. In 1986, the
European Community (EC) also announced an ambitious plan to start its efforts of
establishing the Single European Market (SEM) and complete this by the end of 1992. In
response to these changing international economic environments, an increasing number of
countries resorted to regional integration agreements, with the view of reaping the benefits of
liberalization first in the regional context, and later in the multilateral context, if UR were
successfully concluded.2 Twelve founding member economies of APEC wanted to address
this problem, with its concept of open regionalism. One of their main objectives of forming a
trans-regional group called Asia-Pacific Economic Cooperation was to bring the UR
negotiations to a successful end.3 Especially, the US attempted to use APEC as the leverage
in the difficult negotiations with the EC.
          The concept of open regionalism with its many trade policy implications for APEC,
therefore, can be regarded as an important conduit between the WTO and APEC.4 Relevant
questions to be discussed are as follows: First, it has to be clarified whether open regionalism
is an “oxymoron”, which combines the two seemingly contradictory theoretical concepts of
‘openness’ and ‘regionalism’, or it deserves more reality-related interpretations, as suggested
by APEC’s Eminent Persons Group (EPG) that took the responsibility of defining long-term
vision of APEC. Second, APEC has to decide whether open regionalism be interpreted in the
way as Garnaut (1996) proposed, or it is more appropriate to adopt broad-based
interpretations as Bergsten (1997) and APEC’s Eminent Persons Group (EPG) suggested.5


1
  See Drysdale (1998) and Garnaut (1996).
2
  As Saxonhouse (1997) and Drysdale (1998) pointed out, the change of US external economic policy in favor
of regionalism has influenced this new trend of regionalism since the mid-1980s.
3
  Bergsten (1997) seems to acknowledge this positive contribution of APEC, whereas Drysdale (1998) was
rather skeptical about it.
4
  For discussion on the relationship between regionalism and multilateralism and the role of open regionalism,
see Bhagwati (1996), Bergsten (1997) and Park (1998a; 1999b).
5
  For Garnaut (1996) and Drysdale (1998) open regionalism in the Asia-Pacific context has to be interpreted
only as forming ‘regional economic integration without discrimination against outsiders’. In contrast, Bergsten

                                                      2
Third, APEC member economies have to build up a consensus as to whether they will stick to
the concept of open regionalism in the new millennium, focusing on the TILF agenda, or they
are better advised to abandon it and follow a rather straight-forward way of enhancing
regional economic cooperation (rather than integration) through a strengthened involvement
into Ecotech agenda. Fourth, APEC has also to calculate the costs and benefits of developing
an APEC-wide regionalism, with the consequence of open regionalism to be discarded.
Answering these questions by APEC will largely shape the direction of trade policy of many
APEC member economies in the future. Specifically, this will be decisive to the question
whether or not and how the Bogor Goals should be pursued and achieved.


2. Bogor Goals as Long-term Vision of APEC


The Bogor Goals of APEC were agreed upon by the Bogor Declaration adopted at the Second
APEC Summit Meeting in 1994, which set out commitment of APEC member economies to
realization of the vision of trade and investment liberalization in the Asia-Pacific region.
Taking the different levels of member economies’ economic development into consideration,
two different target years of full liberalization in trade and investment have been set up: by
2010 for developed and 2020 for developing members. In the course of the ten-year efforts to
achieve these goals, APEC member economies have had enormous difficulties. Most
importantly, the difficulties to motivate enough number of member economies to do unilateral
liberalization and to avoid free-rider problems within and outside APEC have burdened
APEC-wide liberalization attempts. As will be elaborated in a later chapter of the paper,
APEC started several initiatives for achieving the Bogor Goals so far. However, none of them
was proved effective and successful as of today, which seems to be closely related with the
ambiguity rested in the “open regionalism” concept.
        From a more practical point of view, it can be said that despite these difficulties
APEC member economies have been gradually, but continuously approaching the Bogor
Goals over the last ten years, and acknowledged these goals as long-term vision of APEC.
After a series of intense APEC-internal discussions about whether and how the goals should
be pursued, the following three principles have been adopted as modalities of achievement of
the Bogor Goals. First, the liberalization of trade and investment regime of member
economies should be in line with the process of “open regionalism”. Second, the achievement


(1997) and Eminent Persons Group, whose second report was issued in APEC (1994), use a number of
alternative definitions open to practical interpretation.

                                               3
of Bogor Goals has to be pursued in such a way as to strengthen the multilateral trading
system and contribute to its increasing openness. Third, in the course of nearing the Bogor
Goals, the member economies have to take into full consideration the nine basic principles of
APEC adopted by the Osaka Action Agenda (OAA).6


3. The Relationship between Open Regionalism and Bogor Goals


Open regionalism as such can be understood in different ways.7 Especially in the context of
finding ways to achieve the Bogor Goals and making contribution to the strengthening of the
multilateral trading system under the WTO, three contrasting views deserve a detailed
discussion.
        First, open regionalism can be interpreted as the practical form of applying the
principle of unconditional most-favoured nations (MFN) treatment.8 This implies that APEC
member economies first agree upon internal trade liberalization measures with the view of
achieving the Bogor Goals, and extend them to outsiders, regardless of their willingness to
offer appropriate reciprocal liberalization measures. Although Garnaut (1996) and Drysdale
(1998) praise this interpretation of open regionalism as the only precise way of achieving the
Bogor Goals, there have also been a number of counter-arguments. The opponents of this
interpretation point out the following two practical difficulties in member economies’
implementation of Bogor Goals based upon the principle of unconditional MFN. On the one
hand, the diversity of member economies in terms of the stage of economic development, the
size of their economies, and the status of trade liberalization led to disagreements on the
coverage, modality and speed of internal trade liberalization.9 On the other hand, at the time
when the Bogor Goals were adopted as APEC’s long-term vision, there was no consensus
found among members over the extension of the benefits of internal liberalization to non-
members on the basis of unconditional MFN treatment. In fact, open regionalism in the
interpretation as unconditional MFN was never seriously elaborated or pursued in the APEC
process so far.


6
  See, for example, APEC (2003).
7
  For a detailed discussion, see APEC (1994), Garnaut (1996) and Bergsten (1997).
8
  Garnaut (1996) regards this interpretation as the only precise meaning of open regionalism in the Asia-Pacific
context, whereas both APEC (1994) and Bergsten (1997) regard it as one of many options. Garnaut (1996)
expresses his suspicion that the architects of APEC wanted to open the door to develop APEC into an
institutionalized form of regional integration at a later stage.
9
  This explains the very divergent specifications regarding the coverage and speed of liberalization in member
economies’ individual action plans (IAPs).

                                                       4
        Second, open regionalism can also be operated in the form of conditional MFN
treatment, as Bergsten (1997) suggested. This operational definition, however, is in a clear
violation of the non-discrimination principle of the GATT/WTO system, as long as APEC
does not develop itself into a regional integration arrangement (RIA), such as free trade area
(FTA) or a customs union (CU), as stipulated in GATT Article XXIV.10 It was suggested in a
consistent manner in the official track of the APEC process that the Bogor Goals should not
be interpreted as the vision of APEC to develop itself into an exclusive trading bloc by
2010/2020.11 In addition, the proposal by Bergsten (1996) to establish APEC-wide FTA by
2015 was also never seriously discussed at any official track of APEC process. Furthermore,
there is at the moment no immediate necessity to implant another paragraph into the GATT
Article XXIV that allows reciprocal liberalization as an additional precondition to allow
APEC’s open regionalism in this interpretation as an exception to non-discrimination
principle. This implies that APEC and its member economies have to abide by the principle of
unconditional MFN treatment, when they want to liberalize their trade policy regime, with a
practical consequence for this second interpretation of open regionalism (‘conditional MFN’)
to be ruled out as a feasible way of achieving the Bogor Goals.
        Third, APEC can also pursue internal liberalization at the same speed and with the
same coverage as it happens at the WTO.12 If successful, APEC member economies do not
have to worry about outsiders’ taking advantage of free-riding, which in turn has the potential
to strengthen members’ readiness towards internal liberalization. This approach was once
successfully applied by APEC in bringing the information technology agreement (ITA) to a
successful conclusion in the WTO. However, all other attempts, such as Early Voluntary
Sectoral Liberalization (EVSL) package and the Accelerated Trade Liberalization (ATL)
initiative during the period of 1997-1998, failed. Judging from these mixed experiences of
APEC, criteria for a successful practical application of this interpretation can be derived:
APEC has to first reach an internal consensus over its own liberalization, and mobilize
enough number of WTO member countries that support the APEC’s liberalization initiative,
thereby forming a ‘critical mass’ for global liberalization. The ITA, on the one side, and the
EVSL and ATL, on the other, provide us with quite contrasting achievements in this regard.
        Whichever operational definition APEC would adopt in the future, the concept of
open regionalism would critically influence the achievement of Bogor Goals of APEC

10
   FTA and CU are allowed exceptions to unconditional MFN treatment, for which they have to fulfill several
prerequisites provided in Article XXIV of GATT. For a detailed discussion, see Park (1998a).
11
   See, for example, APEC (2003).



                                                    5
member economies, and continue to be positioned at the center of interconnection between
the WTO and APEC.


III. Current Status of Sub-regionalism within APEC


1. Increasing Worldwide Regionalism and the Asia-Pacific


Regionalism has become increasingly prevalent in the world economy, especially since the
beginning of 1990s. While the WTO reports no new RTAs (Regional Trading Agreements)
entering into force in the first 10 years of GATT operation (1948-1957), and only a handful in
the following period until the beginning of 1970s, the increase in the number of effective
regionalism has been observed since then. A special attention should be given to the
reinforcement of regionalist forces from the beginning of 1990s. The trend of increasing
worldwide regionalism over the last six decade is shown in Chart 1.


Chart 1: RTAs in Force by Date of Entry into Force (1948-2005)

                                          A
                              Number of RT s entering into Force

                           80

                           60

                           40                                                                 76
                                                                                       60
                           20
                                                 12     9
                             0        2     3
                                    1950s 1960s 1970s 1980s 1990s 2000-
                     A
         Number of RT s                2            3          12           9          60     76

     Source: WTO (2005), Regional Trade Agreements notified to the GATT/WTO and in Force,
             in: http://www.wto.org/english/tratop_e/region_e/region_e.htm.



          As Park (1999) noted, there seem to have been two periods of strong regionalism in
the post-war era: 1970s and 1990s onward. Whereas the first wave of regionalism in 1970s
can be characterized by South-South or North-North integration agreements confined within
same regions, the second wave of regionalism since the beginning of 1990s, the force of

12
     Bergsten (1997) terms this interpretation of open regionalism “global liberalization”.

                                                          6
which seems to continue until now, shows several new features. First, there have been an
increasing number of South-North or North-South agreements, with NAFTA, Australia-
Thailand FTA being representative examples. Second, many FTAs that entered into force
since the beginning of 1990s – the so-called new-generation FTAs – pursue comprehensive
cooperation agenda, including areas other than the traditional tariff reduction such as
environment, labor standards, trade remedy measures, etc. Third, Asian countries, which had
been long immune to intensifying regionalist tendency until the mid-1990s, have become
actively involved in this worldwide tendency. Especially, they have been intensifying their
attempts to pursue both intra-regional and trans-regional FTAs since their recovery from the
Asian financial crisis in 1997.
        With increasing number of Asian countries pursuing FTA initiatives, the region Asia-
Pacific has become burdened with an increasing complexity of concluded FTA agreements,
specifically in the light of APEC member economies’ continued attempts to achieve the
Bogor Goals of trade liberalization by 2010 and 2020. On the one hand, the horizon of freer
trade within Asia-Pacific has become widened,13 and consequently the readiness of APEC
member economies to liberalize their trade regime – not necessarily within Asia-Pacific –
strengthened. On the other hand, this has led to an increasing complexity of network of sub-
regionalism within APEC, thus making the achievement of the Bogor Goals a more
complicated venture than it was 10 years ago when the Bogor Declaration was officially
adopted in APEC.


2. Increasingly Complex Cobweb of Sub-regionalism within APEC


With the increasing interest of East Asian APEC member economies in their own regionalism
initiatives, the structure of sub-regionalism within APEC has become increasingly complex.
The following are main characteristics of such sub-regionalism within APEC. First, when the
Bogor Goals were adopted in 1994 as ambitious long-term trade policy agenda for APEC
member economies, we had only three sub-regional trade agreements in place: ASEAN Free
Trade Area (AFTA), North American Free Trade Agreement (NAFTA) and Australia-New
Zealand Agreement Closer Economic Relations (CER). However, the number of such




13
   A similar assessment can be found in WTO (1995) and OECD (1995) that investigated the relationship
regionalism and multilateralism, and came to the conclusion that regionalism had been supportive to
multilateralism by widening the horizon of freer trade in the multilateral trading system.

                                                 7
agreements increased rapidly to at least 14 by the beginning of 2005.14 Second, besides these
regional trade agreements already in force, there have been observed numerous other FTA
initiatives within APEC, as well, that are in different stages of consultation, feasibility studies,
negotiation, etc. Appendix Table 1 illustrates the current status of sub-regionalism within
APEC.
         Appendix Table 1 and additional observation of worldwide regionalism activities
also illustrate several noteworthy features of current sub-regionalist tendency within APEC.
First, broken down into seven sub-regions, two sub-regions of APEC - namely Southeast Asia
and Latin America – have shown above-than-average FTA activities. Besides the FTA
initiative between ASEAN and China, which is reported to have entered into force already in
2003,15 individual ASEAN member countries concluded FTA agreements with other APEC
economies. Also, Latin American APEC member economies have entered into at least 4 FTA
agreements with other APEC member economies.
         Second, in contrast to these two sub-regions, the sub-region Northeast Asian
countries have been actively soliciting the potential of their own regionalism, which led each
of three major economic powers of the region – China, Japan and Korea – to conclude one
FTA agreement with ASEAN, Singapore, and Chile. It is noteworthy that there are numerous
other initiatives either involving or among Northeast Asian countries, which have potential to
develop into more serious future engagements among the countries in the region.
         Third, a number of APEC member economies have concluded and maintained FTA
agreements not only with APEC partners, but also with non-APEC countries. It seems that
national FTA strategies of APEC member economies appear quite different from each other,
especially in their selection of partner countries. For example, Chile is reported to have
concluded 13 FTA agreements as of May 2004, and only 5 of them are with APEC member
economies (US, Canada, Mexico, Korea and Peru). In case of Mexico, only three of eleven
FTA agreements in force are with APEC member economies, whereas Singapore concluded
four of five FTA agreements in force with APEC economies. These few examples show
different strategic approaches of individual APEC member economies in using FTAs for their
own trade policy purposes, which might entail potential to make the APEC’s efforts to
achieve the Bogor Goals a more complicated task than it was expected 10 years ago. It is also
noteworthy in this context that two APEC member economies – Chile and Singapore –


14
   APEC (2004a) reported that the number of notified FTA agreements within APEC region was 14 as of May
2004, and another 14 agreements were under negotiation.
15
   According to WTO (2005).

                                                  8
officially declared to use intra-APEC FTAs as an instrument to achieve their trade policy
commitments with regards to the Bogor Goals.16


IV. Alternative Ways and Previous Attempts to Achieve the Bogor Goals


1. Possible Ways of Achieving the Bogor Goals


There are a number of ways for APEC member economies to pursue the Bogor Goals of trade
and investment liberalization within Asia-Pacific. As elaborated in a previous section, APEC
would not be allowed to conduct liberalization based on conditional MFN treatment, unless it
develops into a regional trade agreement (RTA), such as FTA or customs union. Also,
whether or not APEC member economies are already WTO members should be taken into
consideration, when deciding the proper modalities of delivering liberalization within APEC,
as noted by Park (2005). In principle, the following three have been identified as practical
ways of pursuing/achieving the Bogor Goals: unilateral liberalization; multilateral
liberalization; preferential liberalization.17


(1) Unilateral Liberalization


Countries that liberalize their trade policy unilaterally do so in order to capture the benefits of
trade liberalization, without expecting or requiring reciprocal liberalization by their trading
partners. In practice, these countries are normally small ones whose economic growth is
highly dependent on international trade relations, and have no power to influence their terms
of trade. For example, Hong Kong, Macau and New Zealand, have been maintaining their
trade barriers at relatively low level, and tried to continuously reduce tariffs and eliminate
non-tariff barriers at their own initiatives rather than forced to do so.
           In the context of Bogor Goals and their relationship to open regionalism, the
unilateral liberalization with unconditional application of MFN treatment constitutes the best
way to achieve these goals. However, unilateral liberalization within the APEC context has so
far been only pursued on an individual-country basis, and not as an APEC-wide initiative. As
will be elaborated in a more detail in a later section of the paper, the current initiative of peer
review process of individual action plans (IAPs) can be regarded as a scheme to increase the

16
     See APEC (2003).
17
     See APEC (2003), pp. 3-5.

                                                 9
degree of collective actions of what in principle are individual country’s actions. For
unilateral liberalization to be practiced as an instrument to achieve the Bogor Goals, two
preconditions have to be fulfilled: critical mass of APEC economies doing the same;
willingness of non-APEC countries to reciprocate APEC’s liberalization. Whether these
conditions are satisfied can be debated.


(2) Multilateral Liberalization


Multilateral liberalization can also lead to the achievement of Bogor Goals, if its speed and
coverage is the same as the liberalization taking place within APEC. This can be done in two
alternative ways: First, APEC member economies can make the internal liberalization to keep
pace with multilateral trade liberalization, as was the case with information technology
agreement of the WTO. Second, APEC member economies can take an active part in the
multilateral trade negotiation, and try to persuade their liberalization package to be adopted as
a multilateral liberalization package, as the same was attempted by APEC in 1998 with the
ATL package after the failure of EVSL liberalization. One difficulty of this method is to
motivate the majority, and if possible, all of APEC members to be locked in an initial APEC
liberalization package, which then can serve as a basis for multilateral liberalization.
         In the reality, the multilateral liberalization in the context of achievement of the
Bogor Goals was only once successful in the case of ITA negotiation under the auspices of
the WTO. APEC has contributed to a successful UR+ liberalization in information technology
sector. In all other similar attempts, APEC either failed to reach an internal agreement to
liberalize (the case of EVSL in 1997) or was not in the position to mobilize enough number of
its trading partners to accept and/or reciprocate with their own schedule of liberalization (the
case of ATL in 1998). With the Doha Development Agenda currently going on, and APEC
not having been able to produce any own liberalization packages, multilateral liberalization
appears to be an unrealistic option to achieve the Bogor Goals.


(3) Preferential Liberalization


With intensified regionalism activities of APEC member economies – both within APEC and
with non-APEC countries – preferential liberalization has become an alternative way of
achieving the Bogor Goals. Especially, the two APEC member economies – Singapore and
Chile – are known as having declared to make use of the expansion of intra-APEC FTAs as


                                               10
an instrument to achieve the Bogor Goals. Basically, we have to distinguish between
preferential liberalization done by individual member economies and the same done by APEC
as a whole. In the former case, the benefits of liberalization would be extended to a limited
number of APEC member economies only, if the preferential liberalization is done with other
APEC member economies. However, if preferences are exchanged with non-APEC countries,
the participating APEC member will have done absolutely no contribution towards the Bogor
Goals. But, if the preferential liberalization is done by APEC as a whole, the Bogor Goals will
have been achieved effectively.
         In the reality, there have been observed a very rapidly increasing number of APEC
economies that are actively pursuing FTAs with other countries. As we have seen in the
former section, FTAs between APEC member economies have also been increasing. Whereas
there were only three intra-APEC FTAs in 1994 when the Bogor Goals were adopted as long-
term vision of APEC, the recent inventory shows 13 or more FTAs that are already in force,
and many more initiatives that are in the stage of either official negotiation or feasibility study.
In fact, the cobweb of intra-APEC FTAs has become increasingly complex, and the
achievement of the Bogor Goals has correspondingly become increasingly complicated. What
impacts the increasing FTA agreements by APEC member economies is expected to exercise
on the Bogor Goals is addressed in Section V as a main part of the paper.


2. Previous Attempts to Achieve the Bogor Goals


There are a number of ways for APEC member economies to achieve the Bogor Goals of
trade and investment liberalization within a set timeframe.


Ever since the Bogor Goals were adopted as APEC-wide trade policy agenda, APEC member
economies have started a number of attempts to achieve these goals, although its deadline was
set to be achieved by 2010 for developed and 2020 for developing APEC members. In fact,
issues surrounding the Bogor Goals – such as whether and how to achieve these goals –
constituted an important part of yearly Summit Meetings of APEC over the last decade. It
should be noted that APEC’s pursuit of the Bogor Goals and APEC’s declared principle of
open regionalism were in an inevitably close relationship. Therefore, the elaboration in this
section is focused on the analysis of continuous APEC attempts to implement open
regionalism.




                                                11
(1) First attempt: Unconditional MFN


At the initial stage of APEC's substantial progress in official economic cooperation, which
was around the time of its first Summit Meeting held in Seattle in 1993, APEC pursued open
regionalism based on the principle of unconditional MFN as proposed by the EPG in its
second report. However, this initiative failed to gain momentum because of the rising member
economies’ concern over free riding by non-member countries. The developing member
countries of APEC were also not ready to accept an extensive liberalization package, even
within APEC, and therefore opposed to adopt unilateral liberalization which should be
extended unconditionally to non-members of APEC.


(2) Second attempt: Conditional MFN


Second attempt by APEC to implement open regionalism, and thereby achieving the Bogor
Goals, was based on the principle of conditional MFN. The (unofficial) transition from
unconditional MFN to conditional MFN seems to have been motivated by the afore-
mentioned difficulties. However, APEC has encountered another serious obstacle in this
attempt: In order to make it possible under the provisions of Article of XXIV of GATT,
APEC had to go another step forward in its way of achieving the Bogor Goals. In other
words, under the condition that APEC would not develop itself into an FTA or CU, it was not
at all possible for APEC to practically apply conditional MFN treatment to non-members.
        The declaration adopted in Bogor Summit Meeting in 1994 (“Bogor Declaration”)
did not suffice to provide APEC with the legal status of an FTA or a CU, which would have
opened a possibility to apply conditional MFN treatment to non-APEC member countries. In
fact, had APEC adopted a clear vision of developing into such RIA, APEC’s attempt to
implement open regionalism in the form of conditional MFN would have been possible,
especially through conclusion of agreements to establish FTA or CU with non-members. The
reluctance of member economies to do so has complicated APEC’s road to Bogor Goals in
many ways.




(3) Third attempt: Concerted Unilateral Liberalization




                                             12
With the first two attempts having failed due to concerns over free-riding and insufficient
readiness for liberalization (unconditional MFN) and reluctance to develop APEC into an
FTA and related difficulties to conform with WTO rules governing regionalism (conditional
MFN), APEC adopted the so-called “concerted unilateral liberalization” approach as a third
attempt to achieve the Bogor Goals. Instead of pursuing agreed liberalization, APEC opted to
pursue liberalization in a “concerted” way, in a move to address concerns over free riding and
to be in line with the WTO rules.
        Concrete steps taken by the member countries were to prepare individual action plans
(IAPs) and to agree on collective action plans (CAPs) to liberalize trade and investment at
individual level and collectively, as agreed upon in the Osaka Summit Meeting in 1995. In
other words, at this stage APEC pursued voluntary and non-binding liberalization, and wanted
to extend such initiatives to non-members, with the hope that problems with both "free riding"
and "unconformity with the WTO rules" would be solved at the same time.
        Even though APEC member countries welcomed this approach and since then
submitted their IAPs and adopted CAPs each year since 1996, a number of other problems
emerged, mainly due to the inherent ambiguity of such non-binding procedures and the
inability to reach an agreement on the degree of “concertation”. In reality, especially in early
stage of implementing Osaka Action Agenda, a number of member countries’ IAPs contained
only liberalization steps that they had already committed in the framework of the WTO, with
the hope of enjoying the free-rider status, taking advantage of other member economies’
possible liberalization measures. Eventually, this attempt did not produce any remarkable
progress towards liberalization of trade and investment policies.
        It is since 2001, when APEC Ministers agreed that the peer review process applied to
IAPs needed strengthening to increase objectivity and transparency, that the approach of
“concerted unilateral liberalization” became a more powerful instrument to bring member
economies’ trade and investment regimes closer to Bogor Goals. By appointing a formal
review team for each peer review exercise and commissioning an expert to conduct
independent in-country research and analysis together with presentation of a written analytical
report. The involvement of the APEC Business Advisory Council (ABAC), an independent
private sector advisory group established by APEC Leaders, in the peer review sessions has
increased the effectiveness of the whole procedure, as well. All the APEC economies have
completed their IAP Peer Review Process under the revised scheme in the beginning of this
year at the outskirt of 2005 SOM I Meeting held in Seoul, Korea.




                                              13
          Considering this new development and the scheduled process of mid-term
stocktaking of the Bogor Goals, which will be taking place throughout this year under the
Korean presidency, it is the observation of the author that the approach of “concerted
unilateral liberalization” with the IAPs/CAPs and the related Peer Review Process at the
center may prove instrumental to produce a progress towards the Bogor Goals.


(4) Fourth attempt: Early Voluntary Sectoral Liberalization (EVSL) and Accelerated Trade
Liberalization (ATL)


With the failures of previous attempts, member economies of APEC have come to realize that
they need to be more specific on the degree of bindingness in order to address the problem of
ambiguity rested in the Bogor goals and open regionalism. After a long process of internal
debates, APEC adopted in 1997 the "Early Voluntary Sectoral Liberalization (EVSL)".18 The
EVSL package can be viewed as an advanced form of concerted liberalization with detailed
procedure of liberalization and enhanced degree of binding elements. A total of 15 (9 for 1998
and 6 for 1999) sectors were selected as candidate sectors for which trade within APEC
should first be liberalized. The agreement among APEC members provides that the APEC-
internal consensus on the coverage and speed of liberalization in these selected sectors should
be relayed to the multilateral negotiation channels for further negotiations – preferably in the
WTO – with the final view of achieving global liberalization with APEC’s liberalization
package serving as point of departure of discussion.
          However, in the process of selecting sectors for early liberalization, sharp
disagreements among member economies have emerged. In addition, even after the agreement
was reached on the sectors to be liberalized, disagreements on the coverage and extent of
liberalization became increasingly burdening the process. Due to these difficulties and
reluctance especially of Japan to accept liberalization in fisheries and forestry, the
implementation package of EVSL could not be adopted officially in the Kuala Lumpur
Summit Meeting of APEC in 1998.
          Had the EVSL package brought about success in liberalizing the selected 15 sectors,
it would have been the second success of such attempt, with the first being the Information
Technology Agreement (ITA) of 1997. In fact, ITA was only possible because there had

18
    As was the case with the ITA in the WTO, the procedure of this interpretation is to initiate global
liberalization by reaching an agreement to a certain level within APEC or creating a critical mass through APEC,
first, and then negotiate with non-APEC members through the WTO prior to implementing the liberalization
measures.

                                                      14
already been an agreement, albeit unofficial, among the Quad members of the WTO, before it
was negotiated within the APEC. In the case of EVSL package, such pre-agreement among
the leading trading nations of the world was fairly non-existing, and some APEC members
feared about free-rider problem in the case of EVSL’s failure in bringing about global
liberalization in these selected sectors.
           Even though the EVSL initiative failed within APEC, it was renamed to ATL and
then submitted to the WTO as the basis for multilateral negotiations on trade liberalization. In
the course of further discussions, APEC failed to mobilize enough number of WTO members
to support the ATL initiative. APEC’s failure with both the EVSL and the ATL illustrates
how important it is to first reach an internal consensus within APEC on the one hand, and to
gather a ‘critical mass’ among WTO member countries that support the APEC’s liberalization
initiative on the other.


V. The Relationship between Increasing Sub-regionalism and the Bogor Goals


Two APEC member economies – Chile and Singapore – are outstanding in their attempts to
make use of intra-APEC FTAs as an instrument to achieving their Bogor Goals. However, as
stated before, the increasing complexity of FTA agreements concluded by APEC member
economies – both with APEC and non-APEC member economies – do make achieving the
Bogor Goals an uneasy venture.
           There has been a relatively intensive discussion of relationship between
multilateralism and regionalism in the world trading system.19 Similar discussion can be
scaled down to the relationship between APEC’s liberalization towards the Bogor Goals and
increasing sub-regionalism. The issue at stake is whether or not the increasing FTA
agreements both within APEC and with non-APEC member countries contribute to achieving
the Bogor Goals. In principle, sub-regionalism can be both stumbling and building block, as
has been elaborated in the case of relationship between regionalism and multilateralism.20


1. Potential of Increasing Sub-regionalism to be Stumbling Block to the Bogor Goals


First of all, increasing sub-regionalism within APEC can become stumbling block on APEC’s
way towards the Bogor Goals due to relatively high degree of heterogeneity of the concluded

19
     WTO (1995) and OECD (1995) provide a thorough analysis of this issue.
20
     See, for example, Park (1998b).

                                                     15
agreements. This can be illustrated by Appendix Table 2. Although all the agreements listed
contain all the first four items (Initial Provisions, General Definitions, NT and Market Access
for Goods and Rules of Origin Procedures) in a standardized sample agreement, the degree of
usage of other items differ from agreement to agreement. Especially, provisions on labor and
environment are found in only 3 agreements, those on financial services and accession clause
in only 7 agreements among a total of 14 agreements. Also, such trade policy issues as
sanitary and phytosanitary (SPS) measures and technical barriers to trade (TBT), which are
integral parts of the WTO agreement, are regulated in 9 and 10 of 14 concluded intra-APEC
FTAs, respectively. APEC (2004A) reported also that even in such areas as trade remedy
measures and dispute settlement mechanism, which are contained in 13 and 8 of 14 concluded
agreements, respectively, there were strong divergence in the detailed contents.
         Appendix Table 2 reveals different strategic approaches of individual APEC member
economies, as well. Whereas FTA agreements concluded by Chile, Singapore, the United
States and Australia tend to be rather comprehensive, economies such as Peru and Japan
appear to exclude sensitive trade policy areas from the agreements. Also the fact that two
economies (Chile and Mexico) account for nearly 60% of 40 FTAs concluded by APEC
members – within and with non-APEC members – suggest different trade policy orientations
of individual members.21 These differences found in the coverage of FTA agreements and in
national FTA strategies of individual APEC member economies can become stumbling block
on APEC’s way towards the Bogor Goals.


2. Potential of Increasing Sub-regionalism to be Building Block to the Bogor Goals


There also are potential for intra-APEC FTAs to function as building blocks towards APEC-
wide liberalization. As have been raised often in the related literature, there are at least three
possible contributions of regionalism to multilateral liberalization process, which can also be
applied to the relationship between intra-APEC sub-regionalism and APEC-wide
liberalization. First, increasing sub-regionalism itself, if the sub-regional agreements within
APEC were concluded in consistency with WTO rules governing regionalism, then the
overall degree of liberalization of APEC would increase, thereby leading to an “expansion of
horizons of freer trade” within APEC region. Compared to the situation with no such sub-
regional agreements, increasing sub-regionalism has the potential to bring APEC closer to its
long-term vision of trade and investment liberalization within the region.



                                               16
         Second,     countries    concluding      sub-regional     agreements      can    “experiment”
liberalization with a selected number of trading partners, thereby gathering experiences of its
real impacts on their economies. This information can prove instrumental when they
participate in liberalization with more countries, possibly at the venue of APEC. In a sense,
sub-regionalism can be a useful “laboratory” for APEC-wide liberalization.
         Third, participation in sub-regionalism inevitably involves negotiations on the
coverage, scope and speed of liberalization, which also imply “learning process of negotiation
skills” for government officials and expert groups. The accumulated negotiation skills can be
utilized so as to reflect national positions better into the agreements, thereby strengthening the
confidence of APEC members to liberalize their trade and investment regimes.


VI. Achieving the Bogor Goals through Expanding FTA Initiatives


1. Making APEC’s Sub-regionalism a Building Block towards the Bogor Goals


Considering the afore-mentioned positive and negative impacts of increasing sub-regionalism
on the APEC-wide liberalization process, it would not be an easy task to find ways to make
Sub-regionalism a building block towards the Bogor Goals. Related discussion and literature
that can be used for elaboration are scarce. However, the discussion so far in this paper leads
me to make the following proposals.
         First, it is advisable for APEC to discuss more seriously the negative impact of
different types of intra-APEC FTA agreements, develop useful manual of concluding such
agreements and devise meaningful and effective mechanism to persuade member economies
to comply with this manual. The manual should contain measures that are more concrete and
have stronger enforcement power than those listed in APEC (2004b).22
         Second, the possibility should paid attention to that too different degree, scope and
coverage of liberalization, and too different national FTA strategies have the potential to
divert member economies’ interests from APEC-wide liberalization (achieving the Bogor
Goals), and to strengthen sub-regional initiatives. Therefore, the manual to be developed
newly should serve as a basis for making – at least gradually – the already concluded
agreements harmonized, as well.

21
   See APEC (2004a).
22
   APEC (2004b) recommends a total of 12 characteristics to be included in RTAs/FTAs involving APEC
economies, thereby supporting the achievement of the Bogor Goals. However, they seem to be too unspecific
and possess no meaningful enforcement power to be effective.

                                                   17
           Third, it seems imperative that APEC be given some degree of authority to be
involved in discussion on the newly emerging intra-APEC FTA initiatives, and make
intervention in case of the possibility that APEC’s Bogor Goals can be damaged. This
monitoring and consulting activity of APEC may be facing resistance by member economies,
but would be a necessary precondition, had they ‘really’ strong commitments to Bogor Goals.
           To adopt and implement these three proposals that are expected to prove useful to
make increasing intra-APEC FTAs supportive to achieving the Bogor Goals will require a
quantum spring in ways of member economies to view the APEC process. Considering the
track records of APEC member economies’ involvement in and commitments to APEC’s
TILF agenda, it is maybe premature to expect they adopt them. What remain then left as
feasible alternatives?


2. Developing APEC into an FTA


Developing APEC gradually to an FTA provides an alternative way of achieving the Bogor
Goals through increasing FTA initiatives. Though an extremely difficult and complex venture,
developing APEC into an FTA is suggested in this paper as an alternative strategic option that
APEC can take to achieve the Bogor Goals. This alternative option would be acceptable only
if APEC economies build up consensus to do so, and would be effective only if they discard
open regionalism as one of principles in pursuing free trade and investment in the region. As
stated before, open regionalism, with its unspecified definition and thus possibility of diverse
interpretations, has burdened the process. Especially as the target years of the Bogor Goals
become closer, debates on how to interpret open regionalism have become incrementally
unproductive. Sticking to the open regionalism principle seems to have been one of main
reasons for the current “credibility and identity crisis” of the whole process.23
           Building up APEC-wide consensus is not easy, but rather an extremely difficult task.
The conditions, however, seem to have improved substantially, compared to 10 years ago
when the Bogor Goals were adopted as long-term vision of APEC. In 1994, there were only
three RTAs in operation within APEC and APEC member economies did not possess long list
of concluded RTAs. This changed since the outbreak of Asian financial crisis, and as of May
2004 APEC member economies are partners in more than 40 RTAs, and have been involved




23
     See Park (2004).

                                               18
in more than 34 RTA negotiations.24 The number of intra-APEC FTAs has risen to 14, as
well. This suggests an increased readiness of increasing number of APEC economies to
liberalize their trade and investment regime, which can be sometime expanded to
liberalization at the APEC level, possibly through the channel of “laboratory”, “negotiation
skills”, and “expanded horizons of freer trade” as elaborated in an earlier part.
         Increasing intra-APEC FTAs lead to increasing complexity of FTA networks
established within APEC region. One of main consequences of this new development is that
there is an increasing degree of overlap among the existing and new FTA initiatives, which
might make positive contribution towards an APEC-wide FTA in the mid- and long-term.
Overlapping FTAs would increase the costs of maintaining them, and the need to harmonize
and possibly the merge could emerge as a result. Therefore, with increasing number of APEC
economies participating in FTAs with other APEC partners, and with increasing overlap of
these intra-APEC agreements, the possibility of developing APEC into an FTA increases as
well. APEC (2003) elaborates on possible routes of developing APEC-wide FTA starting
from the current situation of increasing intra-APEC FTAs, and suggests a three-stage
approach: Creation of a comprehensive web of bilateral PTAs!Gradual expansion of existing
PTAs!Amalgamation or convergence of existing PTAs.
         Establishing an APEC-wide FTA prerequisites discarding open regionalism as a
principle of pursuing the Bogor Goals, and this, in turn, makes APEC-wide FTA more
effective. If APEC, however, would like to stick to open regionalism and contribute to
worldwide trade liberalization through it, then APEC is advised to adopt the EU’s open
regionalism concept: “opening regionalism”, as Park (1998b) suggested. Opening APEC’s
regionalism prerequisites the establishment of an APEC-wide FTA, and concluding another
FTA agreement with other countries and/or regions. The recent FTA strategy of the European
Union provides a powerful example of this kind.




24
    APEC (2004a) reports these figures based on submissions of only 11 of 21 member economies. The real
strength of APEC economies’ involvement in RTAs, therefore, must be substantially higher than these numbers
duggest.

                                                    19
                                      <References>


APEC, 1993, "A Vision for APEC", Report of the Eminent Persons Group to APEC
   members, Singapore.
APEC, 1994, "Achieving the APEC vision", Second Report of the Eminent Persons Group,
   Singapore.
APEC, 1995, "Implementing the APEC vision", Third Report of the Eminent Persons Group,
   Singapore.
APEC, 2003, “Asia-Pacific RTA as Avenues to Achieving the Bogor Goals: Analysis and
   Ways forward”, submitted by PECC, 2003/SOM II/RTAs/FTAs/012.
APEC, 2004a, “Main Characteristics of FTAs-RTAs Subscribed by APEC Economies: An
   Overview”, 2004/SOMII/FTAs-RTAs/003, May 30.
APEC, 2004b, “Best Practices for RTAs/FTAs in APEC”, 2004/AMM/003, November.
Bergsten, Fred C., 1996, "Competitive Liberalization and Global Free Trade: A Vision for the
    Early 21st Century", IIE Working Paper 96-15.
Bergsten, 1997, "Open Regionalism", IIE Working Paper 97-03.
Bhagwati, Jagdish, 1996, "Preferential Trade Agreements: The Wrong Road", in; Law and
    Policy in International Business, vol. 27, no. 4,p. 865-871.
Drysdale, Peter, 1998, “APEC and the WTO: Complementary or Competing?”, a paper
    presented at the APEC Roundtable 1997 on APEC – Sustaining the Momentum, August
    6, 1997, Singapore.
Garnaut, Ross, 1996, “Open Regionalism and Trade Liberalization. An Asia-Pacific
    Contribution to the World Trade System”, Institute of Southeast Asian Studies, ISEAS
    Current Economic Affairs Series.
OECD, 1995, “Regional Integration and the Multilateral Trading System. Synergy and
   Divergence”, Paris.
Park, Sung-Hoon, 1998a, "Making APEC’s Open Regionalism consistent with the WTO”,
     Korea Institute for International Economic Policy, APEC Studies Series No. 7,
     KIEP/KOPEC, Seoul. (in Korean)
Park, Sung-Hoon, 1998b, “Liberalizing the World Trade Through Open Regionalism: Options
     for APEC in the 21st Century”, a paper presented at the APEC Study Center Consortium
     Meeting/Conference hosted by the Malaysian ASC on August 11-13, 1998.
Park, Sung-Hoon, 1999, “Regionalism and Economic Integration in East Asia: Current Status
     and Future Policy Options”, A paper presented at the International Conference on “Asia-
     Europe on the Eve of the 21st Century”, organized by the Centre for European Studies
     (CES) at Chulalongkorn University and the European Studies Programme (ESP)
     supported by the European Commission in collaboration with the Institute of Southeast
     Asian Studies (ISEAS), Singapore, on 19-20 August 1999 in Bangkok, Thailand.
Park, Sung-Hoon, 2004, “Alternative Long-term Scenarios of APEC and Korea’s Strategy”, a
     Paper presented at the Policy Seminar on APEC, hosted by Busan City Government and
     APEC Studies Center of Korea, August. (in Korean)
Park, Sung-Hoon, 2005, “IAP Study Report of the Russian Federation”, submitted to APEC,
     March.


                                            20
Saxonhouse, Gary R., 1997, “Regional Initiatives and US Trade Policy in Asia”, in; Asian-
    Pacific Economic Literature.
WTO, 1995, "Regionalism and the World Trading System", Geneva.
WTO, 2005, “Regional Trade Agreements notified to the GATT/WTO and in Force”, in:
   http://www.wto.org/english/tratop_e/region_e/region_e.htm.




                                           21
                                                      Appendix Table 1: Cobweb of Current Intra-APEC FTAs
                                                                                                                 Latin
    Region               North East Asia                            South East Asia                  Polyn.                  North America     Oceania    Other
                                                                                                                America
  Members       KOR     JPN    CHN     TWN     HK     THAI   MAL   IDN   SIN    VIET   PHI    BRUN   PNG      CHL    PERU   US    CAN   MEX   AUST   NZ   RUS
         KOR
         JPN    Nego
NEA      CHN    Study
         TWN
         HK
         THAI           Nego
         MAL
         IDN
 SEA     SIN    Nego    FTA    FTA                                   ASEAN
         VIET
         PHI            Nego           Study
         BRUN
Polyn.   PNG
         CHL    FTA            Study                                     Nego
 LA
         PERU                                         Nego                                                    FTA
          US                                          Nego               FTA                                  FTA    Nego
 NA      CAN                                                             Nego          Nego                   FTA                NAFTA
         MEX            Nego                                                                                  FTA    Nego
         AUS                   Study                  FTA                FTA                         FTA                    FTA
Ocean.
          NZ                   Study           Nego   Nego               FTA                                  Nego   Nego                     FTA
Other    RUS
  Source: Various documents from SOM II of APEC.
     Appendix Table 2: FTAs/RTAs Concluded in APEC Region
                                                ANZCERTA PATCRA   AUS-SING CAN-CHL   NAFTA   CHL-KOREA CHL-MEX CHL-PERU CHL-USA   JAP-SING NZ-SING SING-USA USA-AUST   PERU-MEX

Chapters/Agreements                                1       2         3       4        5         6        7        8       9         10       11       12       13        14
Initial Provisions                                 √       √         √       √        √         √        √        √       √         √        √        √        √         √
General Definitions                                √       √         √       √        √         √        √        √       √          √       √        √        √          √
National Treatment and market Access f                               √       √        √         √        √        √       √          √       √        √        √          √
or Goods
                                                   √       √
Rules of origin Procedures                         √       √         √       √        √         √        √        √       √          √       √        √        √          √
Customs Administration                             √                 √       √        √         √        √        √       √          √       √        √        √
Sanitary and Phitosanitary measure                                   √                √         √        √        √       √
                                                   √                                                                                         √                 √
s
Technical Barriers to Trade                        √                 √                √         √        √        √       √                  √        √        √

Trade Remedies                                     √       √         √       √        √         √        √        √       √                  √        √        √          √

Government Procurement                             √                 √                √         √                 √       √          √       √        √        √

Investment                                         √       √         √       √        √         √        √        √       √          √       √        √        √
Cross-Border Trade in Services                     √                 √       √        √         √        √                √          √       √        √        √

Financial Services                                                   √                √                                   √          √       √        √        √
Telecommunications                                                   √       √        √         √        √                √          √       √        √        √
Temporary Entry for Business Peopl                                   √       √        √         √        √                √          √       √        √
                                                   √
e
Electronic Commerce                                                  √                                                    √          √       √        √        √
Competition Policy, Designated monopolies and                        √       √        √         √        √                √          √       √        √        √
 State Enterprise
Intellectual Property Rights                       √                 √                √         √        √                √          √       √        √        √
Labor                                                                                                                     √                           √        √
Environment                                                                                                               √                           √        √
Transparency                                                         √       √        √         √        √        √       √                  √        √        √          √
                                                           √         √                √         √        √        √       √                                    √          √
Administration of the Agreement                    √                                                                                         √
Dispute Settlement                                 √       √         √       √        √         √        √        √       √          √       √        √        √          √
Exceptions                                         √       √         √       √        √         √        √        √       √                  √                 √          √
Final Provisions                                   √                 √       √        √         √        √        √       √          √       √        √        √          √
Accession Clause                                   √       √         √                √                           √                          √                            √
Source: APEC (2004a).




                                                                                               1

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:39
posted:4/9/2010
language:English
pages:24
Description: Increasing Sub-regionalism within APEC and the Bogor Goals ...