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No. 18 — May , 1999

 

Feature Article

WHAT HAPPENED TO APEC? A DECADE OF TAKING TWO STEPS FORWARD, ONE BACK by Marc Castellano

Summary

November 1999 will mark the 10-year anniversary of the founding of the Asia Pacific Economic Cooperation forum. A decade ago, the organization provided no more than a consultative framework for a dozen Pacific Rim countries, but just five years later, the forum seemed to be on track to become a powerful vehicle for economic liberalization in the region.

However, since APEC's landmark Bogor Declaration which, in 1994, proclaimed the goal of establishing free trade and investment among member countries by 2020, the organization has struggled to overcome a number of barriers, some ultimately insurmountable. Most recently, at the November 1998 summit in the Malaysian capital of Kuala Lumpur, members failed to advance a key tariff-reduction initiative. Nor did the meeting, further tarnished by heightened tensions over political differences, produce anything to refute the notion that APEC had largely ignored the plight of the victims of the East Asian economic crisis. All this has prompted calls to reexamine the purpose of the 21-member organization; some critics say it should be abandoned altogether.

Without a doubt, APEC has suffered a number of setbacks during its short life span, especially recently. Nonetheless, it also has made valuable contributions to the Asian Pacific community. The forum has promoted free trade, established an annual leaders' meeting and endeavored to bring the disparate nations in the region closer together. Although the group may have fallen short of some proponents' expectations, it will remain an important regional institution. Its future role as a trade liberalizer, however, likely will become less potent. Instead, APEC may focus on such other areas as promoting standardization, facilitating information flows and harmonizing regulatory regimes — issues that may be less exciting but still are important to business and regional integration.

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Weekly Review

CLINTON LAUDS OBUCHI FOR ECONOMIC POLICIES, ISSUES WARNING ON STEEL by Barbara Wanner

If, as the old saying goes, "timing is everything," the scheduling of Prime Minister Keizo Obuchi's May 3 summit in Washington with President Clinton could have been better. The first state visit to the United States by a Japanese premier in 12 years undeniably was overshadowed by the Yugoslav government's release the previous day of three American prisoners of war and other developments involving the crisis in Kosovo. Coming so soon after the high-profile visit to the capital of Chinese Premier Zhu Rongji and the 50th anniversary and summit of the North Atlantic Treaty Organization did not help either. In fact, most major American newspapers relegated stories about the Clinton-Obuchi talks to inside pages.

 

JAPAN INCREASES AID FOR KOSOVO, SEEKS ROLE IN RESOLVING CRISIS by Marc Castellano

The cabinet of Prime Minister Keizo Obuchi approved a plan April 27 to allocate an additional $185 million to help manage the Kosovo crisis. This aid comes on top of an April 1 pledge of $15 million (see JEI Report No. 14B, April 9, 1999), bringing Japan's total financial contribution to $200 million. Half of this money will be used to assist displaced Albanian Kosovars, neighboring countries offering them refuge and Japanese nongovernmental groups involved in the relief effort. The remaining $100 million will go to the Human Security Fund at the United Nations, a program established last year at the initiative of Mr. Obuchi. Those funds will be used to facilitate the rebuilding of Kosovo and the resettlement of refugees after a peace settlement has been reached.

 

JAPAN'S TRADE SURPLUS HIGHER, BUT DATA HINT AT NEW TREND by Douglas Ostrom

The announcement that Japan's customs-clearance trade surplus rose 2.9 percent in the January-March period from a year earlier does not by itself qualify as startling news (see Table 1). After all, the imbalance had expanded for the previous seven quarters, and the Japanese economy is known to be weak, suggesting that imports would remain depressed. Even the fact that the increase was much more modest than the revised 7.8 percent gain registered in the October-December period was scarcely earth-shattering.

 

JAPANESE BANKS DROP BAD LOANS; FOREIGN INVESTORS PICK THEM UP by Jon Choy

With regulators watching over their shoulders, Japan's top 17 banks continue to attack their nonperforming-loan problems and to rebuild their capital bases. Because profits from core lending activities have yet to rebound and planned reductions in operating costs will take several years to realize, bank executives are focusing on more immediate ways to improve balance sheets, including boosting bank share prices and selling bad loans. In both cases, foreign investors are playing an important role. To keep the pressure on, Japan's financial industry watchdogs are issuing new operating guidelines and giving banks additional options for helping themselves.

 

WASHINGTON, TOKYO ISSUE NEW JAPAN DEREGULATION REPORT by Susan MacKnight

Senior government officials in Japan have publicly embraced deregulation and structural reform as critical to the future growth of the country's stumbling economy. Even Prime Minister Keizo Obuchi has gone on the record. In an opinion piece that ran in The New York Times just four days before he met with President Clinton (see article in this issue), the Japanese leader wrote: "We realize that unless we adopt a more flexible economy driven by the market, Japan is doomed to economic and technological decline."

 

NOTES

The White House harnessed the full message-sending powers of the recently reinstated Super 301 and Title VII trade provisions (see JEI Report No. 14B, April 9, 1999) to warn U.S. trading partners large and small that Washington expects them to follow through on their international trade obligations. In a move tied to the start of a new round of multilateral trade negotiations, U.S. Trade Representative Charlene Barshefsky announced April 30 that the United States would launch an unprecedented seven dispute-settlement cases under World Trade Organization rules. The complaints involve manufactured and agricultural products and span claims related to subsidies, investment measures, inadequate protection of intellectual property rights and government procurement practices. The trading partners cited are Argentina, Canada, the European Union, India and South Korea.

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