No. 6 — February 16, 1996


Weekly Review

--- by Christopher B. Johnstone

Senior officials from the 18-member Asia Pacific Economic Cooperation forum gathered in Manila for a February 7-9 session at which they kicked off work on the organization's daunting 1996 agenda. The meeting was the first of four to be held this year under the leadership of the Philippines, which as the current APEC chair also will host the forum's annual summit in November at Subic Bay. As expected, procedural issues dominated the gathering. Future meetings promise to be more difficult. APEC members have pledged to submit this year detailed individual action plans for achieving regional free trade and investment by 2010 for the forum's industrialized members and by 2020 for developing participants. As this year's chair nation, the Philippines will be responsible for overseeing that process. Manila also will be charged with ensuring that each government's proposal is consistent with the forum's long-term goals, entails liberalization steps broadly comparable with those made by other APEC economies and — perhaps most important — receives the endorsement of other participants. In a year in which some APEC members appear ill-equipped or reluctant to put forth a detailed timetable for liberalizing their economies, Manila's leadership likely will be tested severely.

APEC's 18 economies are: Australia, Brunei, Canada, Chile, the People's Republic of China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, the Philippines, Singapore, Taiwan, Thailand and the United States. At last year's summit in Osaka forum members agreed on a broad "action agenda," including a list of principles to be followed in implementing liberalization and harmonization measures in 15 specific economic areas. Members also agreed to develop individual action plans, consisting of both "concerted unilateral" and collective measures, in the same 15 spheres for final submission at this year's summit. These action plans, to be developed in informal "consultations" with other members, are expected to include "specific and concrete details, with time frames, for the near to medium term, while outlining the basic direction" of liberalization up to the final dates noted above. Implementation of these plans will begin almost immediately. The Osaka action agenda designates January 1997 as the start date for all individual action plans (see JEI Report No. 39A, October 20, 1995, and No. 44B, December 1, 1995).

Although APEC members tentatively had agreed in Osaka to submit drafts of their individual action plans in time for a meeting of senior officials in May, a number of participating economies have indicated that they will not be able to meet that deadline. In Manila participants reportedly agreed that proposals would be submitted no later than a July gathering of APEC trade ministers in New Zealand. (Hong Kong and Singapore, two of APEC's smallest and most open economies, reportedly submitted action plans at the Manila meeting. Although details have yet to emerge, APEC officials have indicated that delegates to the meeting viewed the proposals positively.) The Wellington meeting will give representatives the opportunity for informal consultations with other APEC members over their proposed plans. Such consultations will continue in the months before the summit. Forum officials hope that this process of review and revision will result in plans that require broadly similar levels of sacrifice and gain, thus earning the support of all member economies.

Participants in the Manila meeting also took up a number of APEC membership issues. Delegates agreed, for example, to allow Peru's participation in the deliberations of APEC's fisheries working group. The decision marked the first time that a nonmember of the forum has been allowed to join in APEC activities. Forum officials also indicated that several other non-APEC countries' applications to participate in working group discussions are pending. The decision on Peru is certain to add to existing international pressure to expand APEC's formal membership. The forum's three-year moratorium on new members expires this year, and a number of countries — among them India, Russia and Vietnam as well as Peru — have expressed interest in joining. While many APEC members are supportive of expanded membership, others are concerned that additional participants would make achieving the forum's goals more difficult.

Delegates to the Manila meeting also discussed such topics as the guidelines for the forum's new private-sector advisory body. The APEC Business Advisory Council replaces the Pacific Business Forum, which filled that role until last year's summit in Osaka. The old group — comprised of two business representatives from each member economy — had been scheduled to disband in 1994, but its mandate was renewed for another year as members discussed the structure of a new, permanent body. Several member economies — including the United States — at the time called for a somewhat larger organization that could represent better the Asian Pacific business community and would include seats for such existing private-sector groups as the Pacific Basin Economic Council and the Pacific Economic Cooperation Council. The APEC Business Advisory Council represents a partial reflection of U.S. demands. Up to three business representatives from each member economy will participate in the new body, although no separate seats were created for the business groups cited above. Nominations to ABAC are to be submitted no later than May.

The summit meeting at Subic Bay will take place at a time when many APEC members are not prepared to take up the forum's ambitious agenda. The United States, for example, will be consumed by the campaign for the November presidential and congressional elections. With domestic issues dominating the agenda in Washington, Mr. Clinton is unlikely to want to pursue major new trade initiatives — particularly since a cross section of the American public views with growing suspicion any arrangements that lower entry barriers to U.S. markets. Further, without the renewal of the president's fast-track authority — which allows the White House to submit trade agreements to Congress for a simple up-or-down vote without amendment — the United States faces severe constraints on its ability to propose and to implement significant market-opening measures. (For a discussion of the ongoing fast-track stalemate between the White House and Congress, see JEI Report No. 2B, January 19, 1996, and No. 6A, February 16, 1996.)

Complicating matters further is the Philippines' questionable ability to provide leadership during this key year in APEC's development. Although some observers suggest that Manila is "more sympathetic" to trade and investment liberalization than was the previous APEC chair, Japan, strong forces for protectionism persist within the Philippines. Many business groups — including exporting industries — rhetorically support APEC's goals but reportedly have expressed caution over the "large adjustments and burdens" that can accompany efforts to open the domestic economy to greater outside competition. Whether Manila will prove capable of overcoming this reluctance at home to move forward remains to be seen.

APEC's agenda in 1995 was the forum's most ambitious to date, and, despite at times shaky leadership, Japan ultimately achieved a measure of success in guiding the forum forward. The challenges of 1996, however, allow the participants little opportunity to rest. Drafting individual action plans is a daunting task, especially for APEC's more protected, developing economies. Ensuring that all members then agree on the liberalization steps that each economy will take becomes a task of enormous complexity — particularly in a forum in which all commitments are to be "voluntary" and formal negotiations are eschewed. APEC members will require a considerable amount of political will over the next year if the forum is to translate rhetoric into action. Whether many its members have that commitment remains an open question.

The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute

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