APEC and the Environment: A Report to the Rio+5 Conference

Walden Bello and Nicola Bullard, APEC and the Environment: A Report to the Rio+5 Conference (Bangkok: Focus on the Global South, March 1997)

This report assesses the record of the Asia Pacific Economic Cooperation on the environment. After a thorough review of documents coming out of APEC summits, senior officials' meetings, and working group meetings over the last few years, it comes to the conclusion that the body's commitment to preserving the environment in the Asia Pacific is largely rhetorical and has not been backed up by effective programs. It notes that the environment and sustainable development have not been integrated into APEC's largely trade and economic growth-driven program, the most telling evidence being the absence of a committee or working group focused on the environment. Without such an institutional home, it concludes that even those programs, such as "sustainable cities," "Clean Pacific," and "clean technology," that have been endorsed by the APEC leaders, will be very difficult to implement.

The report traces APEC's poor record on the environment to the fact that its premier player, the United States, does not want other considerations to detract from its primary goal in APEC, which is to open up Asian economies by aggressively pushing trade and investment liberalization. An environmental program would be viewed by Washington mainly as another type of aid program, and the US has already made known its displeasure with aid programs within APEC by accusing Japan of trying to turn APEC into an aid agency. For this reason, unlike other analysts, the authors are sceptical that APEC will be able to put together an effective trans-Pacific environmental program.

The report places the environment discussion within the larger context of politics and struggles within APEC. In addition to presenting an unofficial history of APEC and showing how APEC works, the paper elucidates the US agenda in APEC as well as the agendas of other key players, namely Japan and the Association of South East Asian Nations (ASEAN). Both groups oppose the US effort to turn APEC into a free trade area and seek to keep it as a consultative body because they realise that judicious protectionism has been a key ingredient in their economic growth and regard the free trade agenda as benefiting mainly US corporations. Moreover, by quietly opposing free trade, Japan is protecting the de facto trade and investment bloc that it has constructed in East Asia from efforts by the US to dismantle it.

The paper ends with a discussion of emergence of the People's Forum that has paralleled the APEC Summit and the evolving agenda of this formation. It goes on to discuss the different ways that environmental and other NGOs have approached the question of relating to APEC and ends by calling attention to the environmental agenda of the Manila People's Forum on APEC held in November 1996.

 

I

Four Adjectives in Search of a Noun:

The Unauthorised History of APEC

The Asia-Pacific Economic Cooperation (APEC) is an economic forum composed of eighteen countries that border on the Pacific which account for 46 per cent of the world's merchandise trade and over half of the world's gross national product.

"Four Adjectives in Search of a Noun"

Beyond this description, there is no consensus among APEC members on what APEC is or should be. To borrow the classic definition of the forum by former Australian Foreign Minister Gareth Evans, APEC is still "four adjectives in search of a noun."

To the Malaysians, backed covertly by the Japanese, APEC is and should remain a consultative group where technical cooperation on economic matters among governments could be facilitated.

To the US and Australians, in particular, APEC is a formation that is consolidating into a formal free trade area, where tariffs will eventually be brought down to zero or thereabouts and all other barriers to trade eliminated. To Washington and Canberra, the essence of APEC is contained in the Bogor Declaration of November 1994, which in their interpretation committed the member governments to establishing borderless trade by the year 2020. But even as they signed the Bogor Declaration, the Malaysian and Thai governments were quick to append their understanding that the declaration was aspirational in nature and "non-binding." Beijing also issued a formal statement supporting the Malaysian and Thai interpretation.

There is, in fact, an ongoing, though for the most part silent battle to decide whether APEC will remain a consultative forum or solidify into a formal free trade area.

From Canberra to Blake Island

APEC started as a suggestion in the late 1980s from the Japanese, specifically from then Minister of Trade and Industry (MITI) chief Hajime Tamura. MITI's idea was a forum for technical cooperation on economic issues, along the lines of the Organisation for Economic Cooperation and Development (OECD). Japan's objective in making the proposal was to draw the attention of Washington back to Asia, at a time that the US was preoccupied with global developments focused on Europe--mainly the winding down of the Cold War, the renegotiation of the General Agreement on Tariffs and Trade (GATT), and Europe's becoming a single unified market by 1992.

Washington did not evince much interest at first. But Canberra did. Having come to the conclusion that the survival and future of Australia lay in integrating it economically into Asia, the Labor government of Prime Minister Bob Hawke took up the idea of an economic forum enthusiastically. In the process, however, Canberra gave it a new twist: that the grouping would serve as the basis for a future free-trade area.

In the first three years since APEC's founding in Canberra in 1989, Washington's energies were focused on successfully concluding the Uruguay Round of GATT and on creating the North America Free Trade Area (NAFTA) as a response to the European Union. In 1993, however, the Clinton administration replaced Australia as the leader of the free trade lobby in APEC. There was a reason for the Americans' sudden interest: GATT was experiencing rough sailing at that point, and the US wanted a fallback in the form of an Asia-Pacific regional free trade area that would supplement NAFTA in the event GATT fell through.

In the months leading up to the first APEC Summit in November 1993, an "Eminent Persons' Group" (EPG) of free trade enthusiasts from throughout the region was formed, headed by economist C. Fred Bergsten, an influential Washington insider and head of the Institute of International Economics. At the Summit in Blake Island, Seattle, the EPG unveiled a vision of a "community of free-trading nations"--a euphemism for a free trade bloc--to enthusiastic cheers from President Clinton and then Australian Prime Minister Paul Keating. But, drawn together by great uncertainty and urged to caution by Malaysia's Prime Minister Mohamad Mahathir's boycotting of the meeting to protest what he regarded as Canberra and Washington's effort to railroad the event, the Asian governments were able to prevent the formal declaration of a free trade area as APEC's end goal.

 

Bogor: The Triumph of the Free Trade Vision?

Washington, Canberra, and the EPG were, however, unfazed. Intense lobbying on their part to get President Suharto on board the free trade bandwagon resulted in the Indonesian strongman endorsing the EPG's now famous 2020 Plan during the second APEC summit in Bogor, Indonesia, in November 1994--in spite of strong opposition from some sectors of the Indonesian economic bureaucracy.

With APEC moving along a trajectory quite different from their original vision for it, the Japanese quietly lobbied to delete from the official summit statement the clause committing the APEC leaders to the goal of establishing a free-trade area. Japan counted on its pull as Indonesia's biggest foreign investor, trading partner, and donor of aid. But the US-Australian pressure on Suharto proved stronger, and his position as host served to increase the pressure on his guests, including Mahathir, to sign on to the Bogor Declaration.

The scene of the next act in the APEC drama was Osaka in November 1995--enemy territory in the view of Washington. While Mahathir kept up the fire on the free trade area idea in the open, the Japanese tried, in their usual indirect and subtle way, to sabotage the 2020 vision. First, then Foreign Minister Yohei Kono argued that APEC had three equally important "pillars"--trade liberalization, trade facilitation, and economic cooperation. There was too much emphasis on trade liberalization, he said, and it was time to place the stress on trade facilitation measures, like harmonizing customs procedures throughout the region, and on economic cooperation in the form of aid to the less developed APEC member countries. Accelerated aid to the less developed APEC countries was necessary, Kono asserted, because trade liberalization in an uneven playing field would merely accentuate inequalities within the region.

The Americans were not pleased, and they accused the Japanese of trying to convert APEC into an economic aid agency.

Next, the Japanese tried to exempt agriculture from any liberalization plan, and here they were backed openly by South Korea, China, Taiwan, and informally by Malaysia and Indonesia. Washington, which has targeted the Asia-Pacific countries as a dumping ground for its huge grain surpluses, was enraged. Sandra Kristoff, coordinator for APEC affairs at the US State Department warned Tokyo: "The Bogor commitment to free trade was unambiguous and unqualified. It did not speak about 'some trade in some products some of the time,' with some free trade by 2010 and 2020 and other products being delayed until 2050."

But it was not only the Japanese who were subverting the Bogor vision. Washington itself was eroding the spirit of Pacific cooperation by launching punitive unilateral trade actions against some of its key APEC trade partners even as it mouthed noble sentiments about resolving trade disputes via multilateral fora like GATT and APEC. In the months leading up to the Osaka Summit, the US threatened action against China on intellectual piracy grounds and against Korea and Japan on grounds of restrictive practices in autos and auto parts under the 301 provisions of the US Trade Act of 1988, which mandate the US executive to take retaliatory action against those countries deemed as unfair traders or abetters of violations of the intellectual property rights of US corporations.

Free Trade Derailed at Osaka

At the actual summit itself, the Japanese and Asian view prevailed. A close reading of the "Osaka Action Agenda" reveals that while it broadly reaffirmed the Bogor goal of regional trade liberalization and declared that all economic sectors would be included in liberalization plans, it nevertheless:

Not surprisingly, the pro-free trade magazine The Economist ridiculed the Osaka Action Agenda as a "No action, no agenda" document that "committed nobody to anything."

In the view of the US and the free trade lobby, then, Osaka was a retreat from Bogor. But Osaka, they also knew, was not the last word in APEC's evolution. In fact, if one looks closely at the Osaka Action Agenda, one would have to say that it was not a major setback for the free-trade agenda. In return for conceding on the question of the binding character of liberalization, the US-led lobby was able to get the others' assent to an Individual Action Plan (IAP) framework that was fairly comprehensive, including not only proposed actions in the area of tariffs and non-tariff barriers but also in twelve other areas, including liberalization in services, liberalization in investment, implementation of intellectual property rights, competition policy, deregulation, liberalization of government procurement, and implementation of the GATT-WTO Agreement.

What was operating here was the dogged pursuit of a strategic objective that went beyond pushing others to liberalize in the trade area by using the APEC process, specifically the IAPs, as a mechanism to comprehensively transform economies along free-market lines by radically reducing government intervention in favour of domestic enterprises.

However, as 1996 wore on, it became clear that most of the key Asian governments were not going to give Washington the IAPs it wanted. In the IAPs they submitted, most were vague about their plans for liberalization. Thailand, for instance, did not mention any plan to reduce tariffs. Malaysia simply promised to "regularly review the level of import duties" and to "ensure the transparency of the investment regime." China made a broad commitment to "identify and review" non-tariff trade measures, while Japan promised, in classic Orwellian doublespeak, to "not apply non-tariff measures that are not justified under international agreements."

In contrast to most of the Asian governments, Washington, Canberra, Wellington, and Ottawa--a grouping that some Asian officials now call the "Anglo-Saxon bloc"-- presented very detailed liberalization plans. This was not surprising, since they were still marching to the vision of Bogor, which they feel is the overarching one, with Osaka being merely a qualification.

By the time of the Subic Summit on November 25, 1996, Washington had apparently given up on its effort to get detailed IAP's from the Asian governments. It shifted its strategy and now focused on getting all APEC countries to agree to a Washington proposal to reduce to zero all tariffs on one particular industry--information technology--by the year 2000. With a lot of arm-twisting at the summit, President Bill Clinton got the APEC leaders to sign a declaration that called "for the conclusion of an information technology agreement by the WTO [World Trade Organization] Ministerial Conference that would substantially eliminate tariffs by the year 2000, recognizing the need for flexibility as negotiations in Geneva proceed."

Despite this limited victory, it became clear, after the rhetoric and dust of the summit had settled, that turning APEC into a free trade area, as envisioned in Bogor, was not going to be an easy task. Indeed, some assessments coming out of Washington were gloomy about the fate of the US agenda. According to a report by the Japan Economic Institute, one knowledgeable observer,

suggested that--despite assertions to the contrary from American negotiators--China and the ASEAN countries slowly have assumed control of the APEC agenda. These member economies in general are the forum's most heavily protected and, therefore, have the most to give to APEC's liberalization process. In effect, deals can be done or undone by the contributions these members decide to make.

Washington, in contrast, has relatively little to offer to APEC's liberalization process. With one of the region's most open economies, the United States has few carrots to dangle before recalcitrant APEC partners to encourage market opening--a fact that leaves the White House pressing for asymmetrical liberalization.

This situation and other developments, continued the report, gave "ample reason for cynicism about the group's future viability."

Perhaps the failure so far of the forthcoming summit in Vancouver, Canada, to generate enthusiasm on both sides of the Pacific is indicative of the times to come for APEC.

 

II

How does APEC work?

APEC is an artificial construct: it has neither a clear geographical boundary nor a shared social, cultural or historical identity. Its eighteen members span a diversity of small, middle and major powers with conflicting domestic concerns, international alliances and interests. In fact, all that can be said is that the members share an interest to consult on economic matters and, in a minimalist approach to defining membership, has found the lowest common denominator of identity -- the economy.

This bland self-definition as a community of ‘economies’ is also clever semantic solution which enables APEC to navigate some potentially tricky waters. First, it is a way out of the political conundrum of having the three Chinas -- Hong Kong, Taiwan and China -- at the same table. Second, it means that the "economies" can always argue the case of sovereignty to avoid discussion of sensitive issues. Third, such language ensures that cultural, social or political considerations which might "confuse" the trade liberalization agenda can be deemed beyond the scope of APEC discussions.

Within its diverse membership there are diverging tendencies on how APEC should evolve as an institution. The Anglo-American members favour institution building based on legal arrangements and formal structures and decision-making procedures, while the Asian members tend towards a more informal, voluntary, consensus-building approach. (These attitudes are not necessarily culturally predetermined, but more likely based on pragmatic assessments of how interests are best promoted and protected.)

In spite of these different approaches, however, APEC has in the past seven years developed a set of institutional processes and arrangements which are understandable if not transparent and accessible.

APEC works through an annual cycle of working groups and meetings of officials, ministers and leaders, all coordinated by a small secretariat in Singapore. The secretariat, in turn, draws heavily on their next-door neighbour, the Pacific Economic Cooperation Council (PECC) for research and policy analysis. The PECC is a business-funded tripartite body comprising government, academics and the private sector. The PECC is the only non-government body formally accredited by APEC.

The secretariat's work is directed broadly by the leaders' summit, and more closely monitored and evaluated by ministerial meetings and senior officials. Regular inter-governmental meetings take place at four levels: committee and working groups; senior officials; foreign affairs and trade/economic ministers; and ‘economy’ (that is, national) leaders.

There are three standing committees -- the Committee for Trade and Investment, the Economic Committee, and the Budget and Administrative Committee, plus two ad hoc policy groups on small and medium-sized enterprises and agriculture technical cooperation. These committees and policy groups report to the senior officials.

These first two committees are APEC’s most important institutions, broadly reflecting the two ‘tracks’ of APEC: trade and investment liberalization and facilitation and economic and technical cooperation. So far most progress has been made in the area of trade liberalization and facilitation, whilst economic and technical cooperation has made less progress. This is, in part at least, a reflection of the fundamental tensions which exist within APEC between those who promote trade liberalization as the overriding agenda and those who push for greater emphasis on technical and economic cooperation. These tensions and their implications are elaborated throughout this paper.

Ten working groups cover trade and investment data review, trade promotion, industrial science and technology, human resource development, regional energy cooperation, marine resource conservation, telecommunications, transport, tourism, and fisheries.

The hard business of APEC is transacted at the quarterly senior officials' meetings (SOMs). The senior officials are responsible for negotiating the wording of documents, coordinating the preparations for ministerial and leaders' meetings, as well as overseeing the work of the two committees, working groups and experts. In effect, this means they prepare and pre-script the discussions and outcomes of the ministerial and leaders' meetings and directly influence the work of the secretariat. As such, senior officials are powerful figures in the APEC decision-making process.

Foreign affairs and economic/trade ministers meet annually and are responsible for directing and evaluating senior officials’ work.

Since 1993 the leaders' summit has been an annual event, hosted alternately between ASEAN and non-ASEAN members. These meetings are regarded as largely ceremonial, designed to formalise and legitimise decisions already made.

The role of the host country is worth mentioning. The summit not only provides an opportunity for the host "economy" to further its own political programme, but it also gives them some scope to frame the issues and shape the agenda. Thus far host governments have made the most of these possibilities, but the preparations for the summits and the summits themselves also offer a "window of opportunity" for groups excluded from the formal APEC process to exert influence. This is discussed further in part VII of this paper.

Besides the formal meetings, there is a growing pattern of informal meetings of ministers and senior officials from ministries other than trade and foreign affairs. Environment ministers met in 1994 and 1996 and a third meeting is scheduled for 1997 prior to the Vancouver summit.

The business sector has a formal relationship with APEC through the APEC Business Advisory Council (ABAC) and the APEC Business Forum (ABF).

The ABAC is an official organ of APEC, and operates through committees. In 1996, for example, five committees examined the key areas of finance and investment, infrastructure, cross border flows, small and medium enterprises, and "deepening the spirit of community". Each year a different APEC member chairs the ABAC and each member country appoints three business representatives to the Council, who have power to approve decisions of the ABAC committees. These recommendations, in turn, are fed into the leaders’ summit.

The APEC Business Forum was initiated in 1996 by the Philippine’s President Fidel Ramos, with the intention of boosting business interest in APEC. The two-day event aimed to bring business and government closer, furthering US Undersecretary of State Joan Spero’s vision that "APEC is not for governments, it is for business."

No such forum for civil society groups exists.

 

III

APEC's Place in US Trade Policy

The US is the powerhouse of APEC, with a $ 6.7 trillion dollar economy that accounts for close to half of APEC's total GNP.

But perhaps the most telling statistic, the one that is the key to understanding the US's strategy in APEC, is its trade balance with APEC's ten Asian economies. This was a deficit of $120.2 billion in 1995, or over 75 per cent of the total US trade deficit of $159.6 billion. In 1995, the US suffered a trade deficit with all the East Asian economies, with the exception of Korea.

Turning the trade deficit with East Asia into a surplus has been the driving force of US participation in APEC, where it is leading the campaign to turn a loose consultative grouping into a free trade area with fixed rules and schedules for liberalization. While US negotiators in APEC have offered the vision of a free trade area as a "win-win" situation for everyone, in fact, when they speak candidly before US institutions like the US Senate, they strike a different note--a nationalist one. For instance, C. Fred Bergsten, the head of the (now disbanded) Eminent Persons' Group, told the Senate in November 1994 that the reason an APEC free trade area is in the US interest is that: "Given the fact that all of the countries in the region, outside North America in particular, have lots of trade barriers...very little would actually be required from the United States...So trade liberalization, or particularly moving to totally free trade in the region, means enormous competitive gain to the United States."

From Cold War Allies to Economic Antagonists

Washington's drive to institutionalize APEC as a free trade area cannot be understood without placing it in the context of the transformation of US foreign economic policy since the end of the Cold War.

Prior to Ronald Reagan's ascencion to power in 1981, the US' policy toward Asia consisted of subordinating economic relations with the region to the overriding priority assigned to the containment of communism. Thus, Washington, for the most part, tolerated the growing trade surpluses of its Asian allies, as well as significant deviations from free market and free trade in their trade, investment, and domestic economic strategies, which could best be characterized as "state-assisted capitalism." The prosperity of America's allies was regarded as one of the key weapons in dampening the appeal of communist revolution in a key battleground of the Cold War.

With the winding down of the Cold War since the mid-eighties, however, there has occurred a tectonic shift in US foreign economic policy, with the priority being assigned to "opening up" the markets of US allies to US goods and US investment. Pressures for this shift had been building for years, and it was based on the growing perception of both US corporate executives and trade officials that the prosperity of Japan and the so-called NICs ("newly industrializing countries") had been purchased at the expense of US economic interests.

Emblematic of Washington's aggressive new approach were the words of David Mulford, then undersecretary of the Treasury, at the Asia-Pacific Capital Markets Conference in San Francisco in 1987: "Although the NICs may be regarded as tigers because they are strong, ferocious traders, the analogy has a darker side. Tigers live in the jungle, and by the law of the jungle. They are a shrinking population."

Washington has employed several weapons in its drive to open up Asian markets and regain a trade and investment presence in a part of the world that has steadily slipped from the US economic orbit. APEC as well as GATT (General Agreement on Tariffs and Trade) must be seen as part of a menu of options, the most prominent of which over the last decade has been unilateral trade pressure. With the US market continuing to account for 20 to 25 per cent of the exports of many Asian economies, unilateralism, or a strategy based on the threat and use of trade retaliation, has been an attractive option.

The Unilateralist Approach

A wide range of unilateralist weapons has been deployed against Asian economies over the last decade.

Unilateralist trade diplomacy (an oxymoron this!) has been regarded as highly successful by Washington officials. Commerce Secretary Mickey Kantor, who has come to personify the US' aggressive trade strategy, has boasted that "under President Clinton's leadership, the Administration has negotiated nearly 200 agreements to open foreign markets, which has helped fuel record growth and the creation of one million jobs." Other officials promised the continuation of the same policy of "achieving practical, market-based, results-oriented agreements" carried out with the stated or unstated threat of invoking Super 301.

As prima facie evidence of the virtues of unilateralism, US trade officials refer to the case of South Korea. When Korea developed a $9.7 billion surplus with the US in 1987, US trade officials saw the emergence of another Japan, and they moved decisively to head it off at the pass. A whole panoply of weapons--anti-dumping suits, import restrictions, Super 301, Special 301, currency appreciation, etc.--was employed against the most successful Asian tiger in an all-encompassing assault that targeted, among other sectors, agriculture, telecommunications, maritime services, financial services, the foreign investment regime, the fishing industry, cosmetics, and government procurement practices. By 1991, the US deficit with Korea had turned into a surplus, and in 1995, Korea was the only East Asian economy with which the United States enjoyed a surplus in its trade account.

Unilateralism is, however, merely one prong of US policy towards its trading partners. The unilateralist approach is complemented by a "multilateralist" game plan and a "regional" strategy. The multilateralist prong has been an effort to make the General Agreement on Tariffs and Trade (GATT) a medium for the reduction of trade barriers globally as well as an iron framework of global rules governing trade and trade-related activities. The regional thrust has led to the creation of free trade areas like the North American Free Trade Area (NAFTA) and APEC, where greater concessions on trade than were obtainable under GATT can be negotiated with selected trade partners.

GATT, Free Trade, and Monopoly

While in the view of its trading partners, unilateralism contradicts multilateralism as a way of resolving trade disputes, in the US view, these are complementary approaches that are tied together by the goal of achieving freer trade. But Washington's commitment to free trade is hardly doctrinal. It is a pragmatic position based on the assessment that free trade at this point translates into US competitive advantage. Again, this is evident in the case of GATT. If the US was committed to the passage of the Uruguay Round of GATT, this was based not on a benign vision of everyone gaining from free trade in an equitable fashion, but of the US gaining disproportionately from it. As EPG chief Bergsten told the US Congress, under GATT, the US would derive greater benefits from GATT than others because while foreign tariffs on US exports would come down by 40 per cent on the average, US tariff cuts would amount to only 32-33 per cent on average.

More broadly, Washington believes that the so-called "level playing field" introduced by freer trade under GATT will translate into a tremendous advantage for US corporations, whose size, resources, and technological edge, would allow them to beat a competition shorn of the artificial advantage conferred by protectionist laws, subsidies, cheap credit, state-supported research and development, and other mechanisms of the "state assisted capitalism" that is the hallmark of East Asian economies.

But GATT also illustrates that the US commitment to free trade is conditional, not doctrinal. For when the freer flow of resources contradicts powerful US interests, Washington supports a position under GATT that reinforces monopoly or oligopoly instead of promoting free trade. This is the case with the GATT Agricultural Accord, which is basically an entente cordiale between the US and the European Union on the question of dumping their highly subsidized agricultural surpluses on third-country markets. While the Accord commits all signatories, including Third World countries, to reduce export subsidies, it institutionalizes the direct income subsidies provided by the US government and the European Union for their farmers.

As economist Brian Gardner notes, the agreement merely swaps one form of subsidization for another, "taking away direct support of markets and replacing it with direct subsidization of [northern] farmers." It is estimated that in 1995, the first year of the implementation of the GATT Uruguay Round, 20 per cent of the cost of US farm production was financed by state subsidies totalling $25 billion.

This, of course, has massive implications for the Asia-Pacific countries, whose agricultural markets have been targeted by the United States Department of Agriculture to absorb 60 per cent of US agricultural exports by the year 2000, up from the figure of 40 per cent at present.

Another GATT agreement that reinforces monopoly instead of the free flow of resources is the accord on "trade-related intellectual property rights" (TRIPs). This accord was pushed by Bill Gates and the US high tech lobby that wanted to tighten up what it considered a loose framework of global rules that was facilitating too free and too fast a flow of technological innovation from the North to the South. By institutionalizing such draconian measures as a generalized minimum patent protection of 20 years and placing the burden of proof on those accused of patent infringement, the accord represents what UNCTAD describes as a "premature strengthening of the international intellectual property system... that favours monopolistically controlled innovation over broad-based diffusion."

As many observers have noted, the main targets of the TRIPs accord have been Japan, Korea, and the East Asian NICs that have successfully mounted industrialization by imitation, particularly in knowledge-intensive industries.

APEC's Place in Washington's Strategy

Like GATT, APEC is a key element of US trade strategy. However, APEC offers US trade officials advantages that GATT lacks.

First of all, APEC is seen as a "GATT-plus arrangement" where the US can extract more trade and trade-related concessions from its partners than they are willing to grant under the GATT Uruguay Round Agreement. An example of this was the 1995 proposal of Bergsten's Eminent Persons' Group that APEC members should reduce by half the transition period for implementing trade liberalization and full adoption of other trade-related reforms that they had already committed themselves to under GATT. For instance, in this proposal, APEC's developing economies would make their legislation governing intellectual property rights GATT-consistent by 1998 instead of the Uruguay Round deadline of 2000.

Second, APEC is seen as a framework for building institutions that lash the US economy more firmly to East Asia, which is seen as the engine of the world economy far into the first decades of the 21st century. Many Washington economic strategists worry about trade and investment trends that might "marginalize" the US from the Asia-Pacific, such as the fact that intra-Asian trade as a proportion of total Asian trade has risen from an already high 47 per cent in 1990 to 53 per cent in 1995. What worries people such as Clinton adviser Paula Stern is that Asia might be moving toward becoming an integrated market and production base, whose trade dependence on the US will increasingly decrease. An APEC free trade area is, in this sense, a pre-emptive move against proposals such as Malaysian Prime Minister Mohamad Mahathir's "East Asia Economic Caucus," a formation that would include only the Asian economies with the intention of forging even closer trading and investment ties among them. In Washington's view, the institutionalization of APEC would eliminate such efforts to "place an artificial dividing line down the center of the Pacific," as Assistant Secretary of State Winston Lord put it.

Finally, APEC provides a process whereby the US can consistently pressure its Asian trading partners to go beyond limited trade liberalization in "reforming" their economies. Via APEC mechanisms, the US can build pressure for the dismantling of the heavy state presence in the economies of its Asian trading partners--an "interventionist" presence that US officials consider the "mother" of all trade and investment barriers to the US private sector.

In sum, an APEC free trade area must be seen as an integral part of a broader foreign economic policy that employs the rhetoric of free trade but is driven by economic realpolitik, by a determined drive to regain global economic primacy for the US.

Perhaps, the spirit of economic realpolitik that pervades the Clinton administration's foreign economic policy is best captured by Mickey Kantor's celebrated assertion before the US Senate in April 1994: "We will continue to use every tool at our disposal--301 Super 301, Special 301, Title VII, GSP, the Telecommunications Trade Act, or WTO accession--to open markets around the globe."

 

The ITA as an Example of US Trade Diplomacy

The APEC Summit in November 1996 and the World Trade Organization (WTO) Ministerial Meeting in Singapore three weeks later in December provided an arena for the coordinated execution of the multi-pronged strategy articulated by Kantor.

For some years now, the US has been trying to gain an agreement to liberalize trade in information technology and telecommunications. The reason is not hard to find: with superior technology in both product areas, US corporations are confident that with the elimination of trade barriers, they can extend their control of the international market beyond the 50 per cent they now have.

Washington has been candid about its goals. As US Trade Representative Charlene Barshefsky has stated, "Today, the United States accounts for nearly 50 per cent of all telecom revenue worldwide. We cannot , and we will not, settle for a situation where we are unable to operate in the other half of the world's markets."

In Washington's view, the main stumbling block has been the European Union, which has been extremely hesitant to lower its tariffs on US information products for fear this could drive European IT producers out of business. Before Singapore, negotiations with Europe were getting nowhere. This led to tremendous exasperation among Washington's trade diplomats, among them APEC Ambassador John Wolf, who warned in public that "Either the Europeans liberalize or they die."

As part of their strategy of breaking the deadlock with Europe, Wolf and the Washington trade team, around the middle of 1996, placed the achievement of an information technology agreement on the agenda of the forthcoming APEC Summit in Manila, to the surprise and consternation of many of Washington's Asian trading partners. As in the case with Europe, there were a lot of hesitations among the APEC governments and business groups, many of whom feared that Washington's zero tariff proposal would wipe out their plans of building up information technology industries through tariff protection. There was also resentment at being manipulated as bargaining chips in a high-stakes trade duel with Europe.

These feelings ensured that by the conclusion of the APEC Senior Ministers' Meeting on November 23, the most Washington could get was a draft declaration that supported the liberalization of the IT sector but in very general terms.

What happened next is well described by Martin Walker of The Guardian:

At breakfast with President Ramos of the Philippines, [US President] Clinton reviewed the tentative agreement...and said: 'This unacceptable--we have to do better.' Ramos then rewrote the communique, and Clinton and his staff spent the rest of the day lobbying the other Asian leaders to achieve the far more ambitious Information Technology Agreement.

After 16 hours straight engaging in what APEC guru C. Fred Bergsten described as "the most intensive diplomacy I have ever seen," Clinton, with the assistance of Ramos, got what he wanted: an APEC Manila Declaration that called for "the conclusion of an information technology agreement by the WTO Ministerial Conference that would substantially eliminate tariffs by the year 2000..."

Thus, Washington had "momentum" coming into Singapore two weeks later. Charlene Barshefsy declared in her speech at the WTO's opening plenary on 9 December that, as far as Washington was concerned, achieving an ITA was at the top of the ministerial meeting's agenda. Many delegates, especially those from the developing countries, reacted apprehensively since they had expected the meeting to focus on discussing and proposing solutions to problems encountered in implementing the ambitious 27,000-page GATT Uruguay Round Accord ratified two years ago.

Such concerns were brushed aside, as Barshefsky focused the energies of the WTO's biggest powers, the US and the European Union, on the achievement of an IT pact. In the end, Washington got what it wanted: an agreement among 28 countries accounting for over 85 per cent of world trade in IT products to reduce tariffs to zero by the year 2000. In these negotiations, the US employed the "APEC mandate" to good effect. As

Barshefsky noted in her final press conference, "Without the support of APEC for such an agreement, there was no way this agreement would have come out of Singapore."

What the US trade representative failed to mention was that only nine of the 18 APEC countries that signed the Manila Declaration also signed on to the Singapore ITA Accord, the most significant exceptions being the Philippines, Thailand, Malaysia, and Chile. This fact was, however, drowned by the impressive show of trade diplomacy, whereby armed with the APEC Summit declaration on zero tariffs on IT, Washington could bring Europe to the table and focus the first WTO ministerial meeting on achieving something that would push principally US interests.

Many of Washington's APEC partners are still shaking their heads at the display of economic might and consummate trade diplomacy that enabled the Americans, in the space of three weeks, to use the "APEC consensus" to achieve an IT agreement at the WTO that Barshefsky admitted, quite openly, "would bring substantial benefits to the United States." It is not likely to be the last time that Washington will use the APEC-WTO nexus with such devastating effectiveness.

 

IV

Japan's Strategy of Attrition in APEC

APEC was originally Japan's idea. But the Japanese have become, in Washington's eyes, the wild card in APEC. Indeed, Washington's relationship with Japan in APEC is representative of the broader relationship it has with that country--one that the Americans see as tremendously important yet one that they also find quite infuriating.

Washington's Japan Conundrum

Japan is, on the one hand, Washington's closest Asian ally, serving as the host of numerous US bases and installations and some 45,000 US troops. On the other hand, the US sees it as a potential military rival, one with tremendous capability in military technology, which can, among other things, manufacture a nuclear bomb within, at the most, two months after the political decision to build the weapon has been taken.

Washington and Wall Street see Japan, with its $4.3 trillion economy, as a vital market and a valuable source of capital to finance, among other things, the US budget deficit. Yet Japan's massive trade surplus with the US, which stood at $45 billion in 1995, continues to be regarded as one of America's biggest economic headaches, though it has been decreasing in recent months.

In APEC as well, the Japanese have behaved in a manner that alternately disarms and infuriates Washington. On the one hand, the Japanese rhetorically endorse the goal of freer trade in the Asia-Pacific region, and they have continued to refuse to endorse Prime Minister Mohamad Mahathir's alternative economic grouping, East Asia Economic Caucus, which would exclude the United States. But Japan, by working behind the scenes, has, in Washington's view, been more effective than Mahathir in derailing Washington's free trade thrust in APEC. Japan was the main engineer of the 1995 Osaka Declaration, which slowed down the momentum toward converting APEC into a free trade area by diluting its focus on trade liberalization and enshrining the principle that liberalization must be flexible, voluntary, and non-binding. This moved APEC away from the US's preferred strategy of binding, comparable, collective liberalization, with fixed schedules, that appeared to be dominant after the Bogor Summit of 1994.

Why is Japan against the sweeping liberalization that Washington pushes so hard for in APEC?

Protecting Agriculture and Domestic Business

One reason is, of course, Japan's farmers. Tokyo knows that, while Washington this year has avoided pressing the issue of agricultural liberalization, it is no secret that one of the key reasons it values APEC is that it would provide a mechanism of getting Japan and the Asian NICs ("newly industrializing countries") to open up their agricultural markets more widely than they were willing to do so under GATT in order to absorb government-subsidized US agricultural surpluses. But the Japanese government is responding not only to pressure from the Japanese farmers. It is also responding to the Japanese populace, who by and large prefer Japanese to foreign rice, as well as to pressure from a strong environmental and consumer lobby that says that free trade will make agriculture in Japan unprofitable, thus submitting the country's food supply almost entirely to external sources, and subjecting it to the vagaries of world trade.

Another reason Japan is fearful of the emphasis on liberalization in the APEC agenda is because it knows that Washington has an extraordinarily expansive view of liberalization--one that goes beyond the reduction of tariffs or the elimination of quantitative restrictions. Tokyo knows that Washington, in its free trade crusade, would also include so-called "structural factors" as impediments to free trade. As the United States Trade Representative's (USTR) 1996 report on foreign trade barriers puts it, "While Japan has reduced its formal tariff rates on imports to very low levels, invisible, non-tariff barriers--such as non-transparency, discriminatory standards, and exclusionary business practices--maintain a business environment protective of domestic companies and restrictive of the free flow of competitive foreign goods into the Japanese domestic market."

Agreeing to APEC as a medium of liberalization, Tokyo fears, might lead to that body eventually adopting, under US pressure, such an expanded definition of trade barriers to include "structural impediments," and thus provide Washington with a multilateral mechanism to supplement its unilateralist trade offensive on Japan, which has moved away from a preoccupation with bringing down tariffs to bringing down "invisible barriers" to trade. This fear of an expansive definition of trade barriers becoming eventually institutionalized in APEC is shared by many other Asian governments, among them the Korean government, whose campaigns exhorting its citizens to "Buy Korean" have been denounced by the USTR as "creating a trade barrier."

Japan's De Facto Trade and Investment Bloc

But the main reason that Japan does not want an APEC free trade area to form is that it is well on the way to creating a de facto trade and investment bloc--thanks, ironically, to the US.

In 1985, Washington, in a desperate move to erase its trade deficit with Japan, forced the latter to accept the Plaza Accord, which sharply raised the value of the yen relative to the dollar, in the hope that this would dampen American consumers' enthusiasm for Japanese products. The agreement did little to relieve America's trade deficit, but, by making production costly and non-competitive in Japan in a global context, it provoked a massive migration of Japanese capital seeking to lower production costs to cheap labor sites in East and Southeast Asia.

In the period 1985 to 1994, some $51 billion worth of Japanese investment swirled through the Asia-Pacific region in one of the most massive and swiftest movements of capital to the developing world in recent history. By the end of the period, Japanese conglomerates had created an impressive array of complementary manufacturing facilities producing components for one end product in different parts of the region. Toyota, for instance, produces gasoline engines and stamped parts in Indonesia, steering links and electrical equipment in Malaysia, transmissions in the Philippines, and diesel engines, stamped parts, and electrical equipment in Thailand. The cars assembled from these components are then exported to Japan, the United States, or to the Asian market itself.

This "horizontal integration" of the region via component specialization by subsidiaries of the same conglomerate was accompanied by "vertical integration," whereby the big electronic and car assemblers were followed to their new East Asian and Southeast Asian sites by the smaller companies that supplied them with parts and components. A third phase of Japanese-sponsored industrial deepening may be about to begin, consisting of the migration of selected heavy and chemical industries that provide steel and petrochemical inputs to the assemblers and their suppliers, as well as selected knowledge-intensive firms specializing in high tech products and production processes.

Japan's current recession has hardly blunted this process; while investments in Europe and the U.S. have slowed considerably, the movement of capital to the Asia-Pacific continues at a brisk pace: Japan's investment in the region rose from $5.9 billion in FY 1991 to $9.7 billion in FY 1994, while its investment in Europe fell from $9.3 billion to $6.2 billion, and its investment in the U.S. from $18.8 to $17.8 billion. Moreover, in 1993, profits from Japan's operations in Asia exceeded those from the U.S. for the first time, an astonishing development when considered against the fact that as recently as 1980, only two percent of Japan's corporate profits originated in Asia.

Interestingly enough, then, Japan's recession has accelerated the regionalization of the Japanese economy, as pressures have built up on more firms to save on labor costs by moving their operations to China and Southeast Asia. This paradoxical phenomenon was captured by one commentary which asserted that "'the hollowing out' [of Japanese industry] is tantamount to an increased 'interdependence' [with Asia]."

This process of corporate-driven horizontal and vertical integration has resulted, over the last decade, in the creation not of a regional economy with plural centers but in the regionalization of the Japanese economy. In the candid words of Hisahiko Okazaki, Japan's former ambassador to Thailand, "Japan is creating an exclusive Japanese market in which Asia-Pacific nations are incorporated in the so-called keiretsu [financial/industrial] bloc system." The essential relationship between Japan and Southeast Asia, he contends, is one of trading "captive imports, such as products from plants in which the Japanese have invested," in return for "captive exports, such as necessary equipment and materials."

This de facto trading and investment bloc has been created without formal free trade agreements. As a US Congressional Research Service report noted, discussion on whether a Japanese-dominated regional bloc would arise in response to NAFTA and the European Union "is somewhat immaterial because a de facto trading bloc is already emerging. It is arising out of economic necessity, and, barring draconian barriers, will continue to grow regardless of whether or not free trade among the various economies develops." It concluded, with undisguised envy: "Japan's business executives do not need free trade to operate."

Free Trade as Geo-economic Counter-Strategy

For the US, indeed, the figures were a source of alarm. By the end of 1993, total Japanese investment in East and Southeast Asia came to over $67 billion, while US investment totalled $40 billion. In the view of geo-economic strategists in Washington, such as APEC advocate and Clinton adviser Paula Stern, these figures indicate that "US economic power and influence in East Asia are declining in relative terms" at the same time that the region is becoming the engine of the world economy.

Tokyo realizes that, in terms of geo-economics, Washington's agenda in pushing APEC is to create a bloc uniting the Western and Eastern Pacific to prevent the Western side from moving in its "natural direction" of becoming a Japan-centered trade and investment block -- a trend indicated by the fact that intra-Asian trade as a proportion of total Asian trade has risen from an already high 47 per cent in 1990 to 53 per cent in 1995. By dismantling the trade and investment practices by which the Japanese have built a trade and investment area through written rules that facilitate the flow of goods and capital, Washington, Canberra, Wellington, and Ottawa--the "Anglo-Saxon" periphery, as some Asian economists have tagged them collectively--hope to integrate their economies, trade and investment-wise, more solidly to the dynamic Western wing of the Pacific.

In this sense, APEC is, even in Tokyo's eyes, a brilliant strategy in the ongoing geo-economic competition.

Japan and Asia's Economic Elites

The Asian industrial economic elites themselves are ambivalent about the massive Japanese presence, and complaints about Japanese hesitation to transfer technology are rife in the region. Nevertheless, most of them see themselves as having a more strategic relationship with Japan than the United States in economic terms. For one, as Okazaki has noted, "Few domestic entrepreneurs in Asian countries have had to develop in direct competition with Japan. The majority of these companies received capital and technology from Japan." In this regard, unlike western companies that prefer directly owned subsidiaries, Japanese firms have been much more receptive to joint venture arrangements with Asian firms. Thus, Japanese corporate prosperity has translated into benefits for Japan's Asian corporate appendages (or as the Japanese are fond of saying, "co-prosperity").

Related to this is the fact that whereas the United States and US corporations demand that host economies accommodate themselves to foreign investment and foreign trade by rewriting their trade and investment regimes, the Japanese have largely accommodated and adjusted themselves to the rules of the host economy, with little complaint.

Third, Asian elites find that they have more negotiating leverage with the Japanese on a whole host of economic and political issues, compared to superpower Washington, behind whose economic power lies a whole structure of political and military power that dwarfs Japan's.

Finally and perhaps most important for their subtle closing of ranks against the United States is the fact that, in varying degrees, the structures of their economies are similar to Japan. The "Japanese model" has, in the last few decades, been universalized into the "Asian way of capitalism." As in the case of Japan, protectionism, mercantilism, the use of trade policy to pursue high-speed industrialization, and other state interventionist tools have been used by activist Asian governments to create "economic miracles" or near-miracles from Korea to Malaysia. And this is the reason that, with the exception of Singapore and Hong Kong and naive Philippine technocrats, most of the Asian governments have largely united behind the Japanese geo-economic counterstrategy strategy of talking up free trade and free markets but in practice, blunting and eventually killing the move towards an APEC free trade area. This strategy of attrition, with its smokescreen of free trade verbiage and its emphasis on consensus, is presented, so as to disarm the "Anglo-Saxon" competition, as the "Asian way."

 

V

ASEAN and APEC: The Making of a Geo-economic Rivalry

In late February 1996, an economic conclave of major significance took place in Bangkok: the Asia-Europe Leaders' Summit, or ASEM, which brought together ten heads of state of East and Southeast Asia with fifteen of their counterparts from the European Union. This meeting was notable for several things, including the fact that it was one of the very few global economic summits to exclude the chief executive of the United States, the world's largest economy.

To many observers, ASEM would not have come about without APEC. ASEM is, in their view, geo-economic diplomacy par excellence, with the goal of the Asian countries being to use the "European opening" to counter pressure from the United States to create a trans-Pacific free trade area. And the Europeans have been only all too willing to oblige, since ASEM not only promises to become a useful tool against Washington's aggressive anti-EU trade diplomacy but also provides an ongoing framework and process to tie their economies more integrally to the "East Asian Economic Miracle."

The EAEG Challenge to APEC

The ASEM summit was significant in another way: the Asian governments that attended were precisely those that Prime Minister Mohamad Mahathir of Malaysia had targeted for membership in his proposed "East Asia Economic Group" (EAEG), which the US considers the greatest threat to APEC. Indeed, many observers say that because it provides an ongoing forum in which the 10 Asian countries must coordinate their policies vis-a-vis Europe, ASEM brings the formal establishment of the EAEG a step closer.

The EAEG would include only Asian and Western Pacific nations in a loosely structured consultative group. While the other ASEAN countries have not been on the forefront espousing it, they have nevertheless been broadly supportive of the idea. In Mahathir's view, after all, ASEAN would be the nucleus or core of the EAEG. In fact, it has been at the advice of his ASEAN neighbours that Mahatir has downgraded his proposed formation from the status of an independent regional "group" to being a "caucus" (EAEC) within APEC in order to lessen Washington and Canberra's apprehensions.

It has not had this effect, however, and the Clinton administration has brought against the "caucus" proposal the same criticism that the Bush administration launched at the original "group" idea: that it would create an "artificial dividing line down the middle of the Pacific."

Washington knows, however, that the so-called line is far from artificial, and its strident opposition to Mahathir's project stems from the fact that it would reinforce trends that are already at work. Already, intra-Asian trade makes up some 53 per cent of East Asia's trade and it is growing much faster than its trade with other parts of the world. The size of Japan's trade with Asia now outstrips its trade with the US, and Southeast Asia has overtaken the US to become Korea's biggest market. With East Asia becoming both integrated production base and its own biggest market, the formation of EAEC would accelerate the lessening market dependence on the US and promote greater political independence.

So threatened is Washington that in 1995, in a talk in Tokyo, then US Undersecretary of Defense Joseph Nye, according to a report that appeared in Singapore's Business Times, made the strong suggestion that the US would "probably withdraw our security presence" from the Asia-Pacific if the countries in the area were to proceed to form the EAEC on the grounds that the latter would "exclude the US from the region economically." It was another one of those Super 301-like threats that was not likely to raise Washington's stock in Southeast Asia.

Endorsement of the EAEC does not mean, however, that ASEAN as a whole is opposed to the APEC free-trade area concept. It is more accurate to say that ASEAN is not of one mind about APEC liberalization. Postures range from Singapore and the Philippines' support, to Indonesia's formal endorsement amidst strong doubts, Thailand's apprehensiveness, Malaysia's confrontational stance, and Vietnam's still largely spectator role.

It is fair to say, however, that the center of gravity of ASEAN opinion tends toward the cautious, critical, and suspicious. This is not mainly because of Washington and Canberra's opposition to EAEC, which remains, after all, a proposal. The reason is much more concrete and, for ASEAN, more vital: APEC is increasingly perceived as a rival, in geo-economic terms, to ASEAN and its pet project, AFTA, the ASEAN Free Trade Area.

The ASEAN vision: regional industrialisation via AFTA

ASEAN is the grandfather of multilateral regional arrangements in the Asia Pacific, and the ASEAN governments are very jealous of their creation when confronted with newcomers like APEC. Instead, even among some sectors of ASEAN citizenries, with the notable exception of the Philippines, there is a fellow feeling – a sense of ASEAN brotherhood and sisterhood – that is unique in the East Asian region.

In its frst quarter first, ASEAN achieved success mainly as a political alliance against communism. However, the original impulse for its founding in the late sixties was for it to serve as a vehicle for regional economic cooperation. The spirit that animated plans for an economic bloc was not the neoclassical concern for "efficient allocation of productive resources through free market mechanisms" that underlies, in theory at least, the APEC free trade area. Rather, trade integration was seen as a base for integrated regional industrialization. As originally envisioned by the influential Robinson report undertaken for ASEAN by UNESCAP, ASEAN members were to carry out limited trade liberalization to create a wider market that would encourage coordinated industrial import substitution at a regional level.

In the 1970's and 1980's, the ASEAN countries launched several initiatives, including the Preferential Trading Arrangements (PTA), which aimed at a limited liberalization; the ASEAN Industrial Projects (AIP), which sought to assign large-scale capital-intensive projects to different countries to develop; the ASEAN Industrial Complementation Scheme (AIC), which aimed to divide different production phases of the automobile and other industries among member countries; and the ASEAN Industrial Ventures (AJIV), aimed at increasing industrial production through resource pooling and market sharing by ASEAN firms. Running through these schemes was the protectionist perspective of using trade policy--that is, reducing trade barriers among members while keeping them up against non-members--as an instrument to build regional industrial capacity.

Grand in vision, these initiatives were scarcely implemented in the 1970's and 1980's, as ASEAN focused on regional political issues like the continuing instability in Cambodia. But with the end of the Cold War and the return of relative political stability to Cambodia, ASEAN members returned to the common-market agenda that had been ASEAN's original impulse by launching AFTA in 1992. There was another reason as well: the founding of APEC in Canberra in 1989 and Australia's energetic diplomacy to make it the regional economic bloc for the Asia-Pacific.

The core of AFTA is the so-called CEPT or "Common Effective Preferential Tariff Agreement" which applies to all manufactured goods and processed agricultural products. The central provision of CEPT was that all tariffs would be lowered to a substantially free trade level within 15 years, in 2008. In the view of its planners, AFTA was, like the previous ASEAN tariff reduction attempts, no simple free trade scheme. It was to simultaneously use internal trade liberalization and external trade discrimination in an effort to create a wider market that would provide the economies of scale for the profitable operation of capital-intensive and technology-intensive industries, be they ASEAN-based or foreign.

As an Australian government study pointed out, unlike the APEC free trade scheme, AFTA employs trade policy for regional industrialization ends: "By creating an integrated ASEAN market and production base, AFTA seeks to encourage multinationals (and ASEAN-based firms) to develop region-wide production, distribution, and marketing strategies; and in the process boost the overall competitiveness of ASEAN production." The idea is to boost regionally based industries by providing them with a unified market of some 320 million people, while using foreign multinationals to upgrade regional industrial capacity, principally through the transfer of technology.

Whether the foreign transnationals, especially the dominant Japanese conglomerates, would derive more benefits from ASEAN than ASEAN would derive from them is, of course, an interesting question that demands a separate discussion.

The vision was certainly grand, but when it came to implementation, the agreement was initially bogged down in different time frames for tariff reductions and long lists of products that the different countries wanted to exempt from CEPT provisions, casting doubt on countries' commitment to the regional liberalization process. It seemed AFTA would go the way of past ASEAN initiatives, until ASEAN governments "relaunched" the program during the ASEAN Economic Ministers' Meeting in Chiang Mai, Thailand, in 1994 with the ambitious agreement to advance the target date for the elimination of trade barriers from 15 to 10 years, making ASEAN a substantially free trade area by the year 2003. The Chiang Mai meeting also extended the coverage of CEPT to unprocessed agricultural goods, including rice.

AFTA and APEC as Strategic Rivals

This time it was Bill Clinton's big push for the APEC free trade area during the November 1993 Seattle Summit that served as the spur to ASEAN's quickening pace of trade integration, just as it would be APEC's 2020 free trade vision articulated at the Bogor Summit in November 1994 that would spark the Sultan of Brunei's controversial proposal a year later, in 1995, to advance the achievement to the year 2000, three years ahead of the already revised schedule--a recommendation on which there is, however, no consensus as yet.

ASEAN's competitive pace is not surprising, for the grouping would lose its raison d'etre--to become a unified market and production base via internal trade liberalization and external trade discrimination--if the APEC free trade area were to become a reality. ASEAN would be happy with APEC if the latter were to remain a group for consultation and cooperation that would not threaten the ASEAN goal of regional industrial upgrading through regional trade liberalization. At the same time, Canberra and Washington have come to realize that the more AFTA becomes a reality, the more difficult it would be for an APEC free trade area to come into existence.

This race for effective liberalization between AFTA and APEC has been largely carried out without direct references to the essential contradiction between the two enterprises. This may be about to change. One Australian government unit has already warned that AFTA could become a "substitute for more comprehensive liberalization," and urged Canberra to "press for liberalization of a range of ASEAN tariff and non-tariff barriers and remaining impediments to investment, for all of ASEAN's trading partners." But probably more alarming, and more offensive, to ASEAN was a remark by Dr. Fred Bergsten, the former head of the now disbanded Eminent Persons' Group, to the effect that permission must be secured from APEC and the World Trade Organization before any subregional economic grouping in East Asia is allowed to pursue further integration.

The ASEAN reaction to Bergsten's proposal and similar suggestions to "bring AFTA under control" is probably not different from that of a commentator in Singapore's Business Times: "This is extraordinary. APEC is a voluntary and non-binding agreement among Asia-Pacific states and why it should have the right to veto any proposal from formally constituted bodies such as ASEAN is hard to see...APEC needs to more carefully avoid giving the impression of patronizing any of its members, especially as it is viewed as an instrument of US policy in this region. A few lessons in diplomacy would not come amiss among visitors from Washington."

Creating an ASEAN united front vis-a-vis APEC, however, has not been smooth. Some governments have thrown up obstacles, and one of the most threatening to AFTA in the long run is the Philippines' decision, as stated in a recent government document, "to go one step further by making available all tariff changes on an MFN [most favoured nation] basis," that is, to all the country's others trading partners, including the US and other advanced countries. The rationale of this position--which is precisely what the Australians have demanded that ASEAN governments adopt--is supposedly to "minimize the potential trade diverting effects of regional trading agreements." Thus the Philippine position would, objectively, undermine AFTA, since AFTA's strategic goal is precisely to "divert trade" in order to upgrade regional industrial capacity via import substitution.

ASEAN's Guerrilla Tactics

But while most of the other ASEAN governments would see MFN as subversive of AFTA, they have not hesitated to invoke the principle in an APEC context. And they have done so, not out of doctrinal considerations but as a tactic to slow down the US push for trade liberalization.

Washington says that APEC trade concessions should be extended only to non-APEC members that agree to make reciprocal concessions. Applying MFN in an APEC context, say the Americans, would encourage "free riders," like the European Union, which would benefit from a free trade area while keeping up their own barriers. This would eventually dilute the benefits of belonging to an APEC free trade area.

Teaming up with the Japanese, ASEAN has replied that MFN is the only position that is really consistent with the General Agreement on Tariffs and Trade (GATT) global trading framework administered by the WTO. This stand is largely a tactical ploy, in the hope that disagreement on this very basic principle would have the effect of pushing discussion of concrete liberalization plans within APEC further into the future, giving AFTA the space to put its liberalization program securely in place and effectively heading off an APEC free trade area.

What we see here are guerrilla tactics in geo-economic conflict, and in conjunction with the ASEM initiative and Malaysia's continuing push to formalize the EAEG, such Fabian moves may bring about the effective demise of the ersatz vision of a regional free trade area that American and Australian pressure produced at Bogor, and bring APEC back to the role that ASEAN, Japan, and practically all the other Asian countries are comfortable with: serving as a consultative forum for economic cooperation, with no other ambitions.

 

 

VI

APEC and the Environment

The rapid industrialization of the Asia-Pacific region has produced an environmental situation that can only be described as a situation bordering on crisis.

Dimensions of the Problem

Three of the world's top emitters of greenhouses gases are in the region. Carbon dioxide emissions from the region are expected to rise 1.7 to 3.2 times in the next few decades, from the current 25 per cent of the world total today to 36 per cent by 2025. Sulphur dioxide and nitrous oxide emissions are expected to increase two to three times.

China's industrialization, with most of its energy dependent on the burning of high sulfur coal, poses a massive environmental threat. The "Korean Miracle" has made the sulfur dioxide content of Seoul's air one of the highest in the world and caused close to 70 per cent of the rain falling on the city to be so acidic as to pose a threat to human health. Seoul's air pollution is not unique in being a serious health hazard: in Taiwan, cancer rates have doubled since 1960; and "children in Bangkok have among the highest levels of lead in their blood, largely attributable to air pollution.

"Water pollution," says the Australian APEC Study Center, "is the most widespread environmental problem in Asia." Levels of dissolved mercury in Asian rivers far exceed recommended WHO (World Health Organization) standards. A few examples underline the gravity of the situation: a Malaysian government report ranked only 27 per cent of 116 surveyed rivers in Peninsular Malaysia as "pollution free"--the others being ranked as "biologically dead" or "dying." In Taiwan, the lower reaches of virtually all of the island's rivers are biologically dead. In Bangkok, key sections of the Chao Phraya River "are either biologically dead or very close to being so, owing to uncontrolled dumping of both industrial and human waste; and animal species that populated the length of the river declined from 121 in the late sixties to 31 in recent times.

Deforestation is uncontrolled. The highest rate of deforestation in the world in the period 1981-90 was in mainland Southeast Asia, followed by island Southeast Asia. From over 50 per cent in 1950, the portion of the Philippines covered by forests dropped to less than 25 per cent by 1990. Seventy per cent of Thailand was virgin forest in 1932; by 1990, only 17 per cent of the country was forested. In the Malaysian state of Sarawak, loggers eliminated 30 per cent of the forest area in barely 23 years, 1962 to 1985; unless stopped they will eliminate the rest by the year 2000. And in just eight years, 1982 to 1990, a third of the forests of the island of Sumatra, in Indonesia, have disappeared.

Large tracts of agricultural land are being degraded by chemical intensive agro-technology and erosion or being converted indiscriminately into urban real estate. Probably the situation is worst in China, where estimates of loss range from 50 million to 100 million acres since the 1950's, out of a total of 272 million to 346 million acres.

These figures paint a bleak scenario that justifies Andre Dua's comment that "Nowhere else in the world are huge and growing markets juxtaposed with such serious and worsening environmental degradation."

Evolution of APEC's Environmental Agenda

How central has the environment and sustainable development been in the APEC agenda?

While sustainable development found its way into various documents prior to 1993, it was only in March 1994, when the APEC countries' environmental ministers met in Vancouver, that the environment was given serious consideration. The resulting "Environmental Vision Statement" emphasized the following points:

At first, the impetus from the Vancouver meeting seemed to pay off as the August 1994 report of the Eminent Persons' Group, the quasi-official body that served as APEC's intellectual shepherd in the early 1990's, encouraged member economies "to harmonize national product standards, develop and share pro-environmental technologies, jointly fund environmentally sound development projects, and seek international acceptance of the principle of the internalization of the costs of environmental protection."

But, as Dua points out, the environment was given short shrift in the next few years. The Bogor Declaration was almost totally focussed on the goal of creating a free trade area and hardly mentioned sustainable development. Prior to the Osaka Summit in November 1995, in the third and last report of the EPG, environmental concerns "were conspicuous by their absence." The Osaka Summit itself resulted in the creation, at the direction of the leaders, of a "Food, Energy, Economic Growth, Population" or FEEP Task Force that would "consider cross-cutting issues." But more important was the decision not to create new working groups, which, as Dua points out, "effectively rules out an APEC committee or working group on trade and the environment."

APEC appeared to regain its interest in an environmental agenda in mid-1996, during the second meeting of environmental ministers occurred in Manila. President Fidel Ramos of the Philippines seemed to strike the appropriate note when he warned that "We finally stand on the threshold of unprecedented growth and change. That threshold--unless we watch our step and look when we cross--could very well be the brink of environmental disaster." Such an outcome would be a result of mismanaging the "critical and often competing claims of environmental protection and economic growth," thus making it imperative to continue "pushing the limits of what we can do to harmonise these concerns."

The results of the meeting, however, did not match Ramos' (some would say, largely rhetorical) note of urgency At this meeting, three proposals were mooted as areas of joint cooperation in environmental matters: a "Clean Pacific" initiative that was intended as a "regional cooperative effort to improve and improve the health of the Pacific Ocean by the year 2020;" a "Clean Production" initiative that emphasised "non-regulatory, market-based approaches to achieving cleaner production, involving the mobilisation of partnerships among and between government and the private sector;" and a "Sustainable Cities" program to counter the "negative environmental and social impacts such as reduced air and water quality and increased health risks" in the growing urban centers of the Asia Pacific.

The problem with these initiatives was that they were very general and thus relatively non-controversial and not backed by concrete commitments of funds. Moreover, they were skimpy in detail, revealing that they had not really been thought through. The "Sustainable Cities" initiative, for instance, had not gone much beyond Japan's proposal at the Vancouver Conference to build "eco-cities," which would be "self-sustaining by being more efficient" in the consumption of water and energy, protect and promote green areas, and involve individuals and private industry in the solution of local problems." Little advance thought was given to it by its lead promoter at the Manila meeting, the Philippine delegation since they merely took over the leadership of the initiative from the Japanese at the last minute. As one high Philippine environmental official put it, "it would have been embarrassing for us as hosts not to have any proposal."

Rhetoric and Reality in Manila

The Manila Summit four months later, while dominated by trade concerns, nevertheless struck the note of "sustainable development" more frequently than previous summit statements.

But juxtaposing the Manila Declaration and the Collective Action Plan approved at the same time reveals the gap between rhetoric and reality that marks APEC's approach to the environment. Of the three initiatives receiving special mention by the leaders, the only one that was touched on by some concrete proposals in the Collective Action plan was the marine environment. The "Marine Resources Conservation Working Group" focused its efforts on completing by the year 2000 "a program to provide training, infrastructure, and oversight measures necessary to establish harmony in policies, procedures, and capabilities to enable the export/import of fishery products without concern for algal toxins."

The marine environment was also the focus of another working group, the "Fisheries Working Group (FWG)," but from its list of accomplishments in 1996, it was clear that exploitation of the sea was much more on the mind of the committee than the conservation of sea life. The FWG completed six projects: "a publication of Who's Who in Fisheries Inspection in the region; b) feasibility study on improving market information on seafood trade in APEC; c) inventory of fisheries management administrations and organizations in the region; d) several technical workshops on seafood health and quality rules; e) technical workshop on HACCP-based seafood inspection; and f) technical workshop on quality assurance in seafood inspection laboratories."

The Collective Action Plan underlined, among other things, the consequences of the absence of a committee on the environment. Not only did the initiatives mooted by the leaders lack an institutional home which could process and implement them but the environmental problems threatening the region could not be addressed in a comprehensive fashion. This situation was in marked contrast to the World Trade Organisation (WTO) which, for all its shortcomings when it came to the environment, did have a Committee on Trade and the Environment (CTE). This, in turns, reflect the fact that even more than in the case of the WTO, the environment has not been integrated into the trade agenda of APEC, as have other areas such as energy, transportation, agricultural and technical cooperation, and telecommunications and information, on which there are working groups that meet regularly.

The low institutionalisation of the environment in APEC is all the more noteworthy since, unlike the WTO, it has been conceived as being more than a trade grouping but as a body for multi-dimensional trans-Pacific cooperation.

In any event, eight years after APEC's founding, the not very attractive reality of the status of the environment in it is summed up by a report by the Nautilus Institute for Security and Sustainable Development:

...[T]he seeds of environmental cooperation at APEC are still germinating: little has yet blossomed in terms of implementation of initiatives, let alone measurable improvements in environmental performance. Significant areas of sustainable resource management, including agriculture, are not yet on the agenda, there is resistance to discussing policy change, and institutional mechanisms to coordinate environmental work and to interface with environmental NGOs are lacking. Most importantly, the trade "track" remains largely separate from rather than integrated with sustainable development objectives and environmental diplomacy.

Prognosis for the Environment in APEC

Despite this assessment, however, some APEC experts, such as Lyuba Zarsky and Jason Hunter of the Nautilus Institute for Security and Sustainable Development, feel that there is still a chance that APEC might seriously address the trade and environment nexus. Zarsky and Hunter, in a recent report for the Nautilus Institute say, for instance, that "Within the past five years, APEC has made impressive gains on environmental issues. It has accepted the principle that environmental issues are a legitimate part of APEC, an organization which remains pre-eminently focused on economic and trade issues. It has defined a Framework and developed an integrative, development-oriented approach which have spawned a host of initiatives and avoided political stalemate. And it has sparked the interest of a widening sector of 'civil society.'" They interpret the first five years of APEC as "devoted primarily to building norms -- and developing the capacities to build capacities," and recommend that "the next five years will need to focus more squarely on policy initiatives and institutional development."

Such hopes are commendable, but their chances of being frustrated are quite high, for a number of reasons.

First, the US, APEC's prime actor, is not sympathetic to any effort within APEC that might detract from the primacy of free trade. Free trade within APEC and the use of APEC to advance the global free trade agenda remains uppermost in the US agenda for APEC. To Washington, the environmental agenda within APEC is in many ways like the aid agenda, one that threatens to deflect APEC from its main goal of promoting trade liberalization. In 1995, the Japanese effort to upgrade the "economic cooperation" leg of APEC--which would include aid for environmental programs--received a rebuke from Washington that Tokyo was trying to convert APEC into an aid agency.

Second, the US corporations that are backing APEC's free trade agenda in order to reassert a US trade and investment presence in the Western Pacific are not sympathetic to a serious environmental program that would add to their costs of doing business in the region, and this would be the same for other Asia-Pacific corporate elites. Environment implies government regulation, and as Joan Spero, the US Assistant Secretary of State for Economic Affairs has asserted, "Through APEC, we aim to get governments out of the way, opening the way for business to do business."

Fourthly, many developing country elites have pursued the NIC development-model, which places no investment in pollution control and externalises environmental costs. They would be loathe to sacrifice their immediate economic gains to transnational environmental controls. Some leaders, such as Malaysia’s Prime Minister Mahathir, further see environmental measures as a way of hobbling development in the South.

Finally, a serious environmental program means dollars, billions of them, and none of the rich countries in APEC--neither the US, with its concern with the budget deficit nor Japan, with its recession--would be willing to shell out the seed money that would get such a program rolling. The failure of the North to come up with even a fraction of the cash to bankroll Agenda 21, which it agreed to in Rio, should forewarn us about entertaining any illusions about an APEC environmental Marshall Plan for the Asia Pacific. And without cash commitments, APEC's environmental agenda will remain what it has been so far: rhetoric.

 

VII

The People's Forum and the Environment

The Manila People's Forum on APEC, held shortly before the APEC Leaders' Summit in November 1996, was a consultative process aimed at involving non-governmental organizations, people's organizations, and individuals in formulating a people's response to APEC and coming up with a regional strategy of equitable and sustainable development. The meeting involving over 500 participants on Nov. 21-24 in Manila was the culmination of a year-long process that began with local and regional consultations.

The Forum was the continuation of the aborted Jakarta NGO conference that took place at the time of the Bogor APEC Summit in November 1994 and the Kyoto NGO Forum that paralleled the Osaka Summit in November 1995. So infiltrated by Indonesian security agents was the Jakarta Forum that it had to be continued in Bangkok. While the Jakarta NGO meeting drew only a handful of groups that braved intimidation and surveillance by hundreds of Indonesian government agents, the Kyoto forum drew over 120 delegates, with about 60 of them coming from outside Japan.

While the official summit in Osaka came out with an "Action Agenda" for free trade, the NGO Forum on APEC produced the "Kyoto NGO Declaration," an uncompromising indictment of the free trade vision promoted by the Washington-Canberra axis. "This model does not lead to freedom," it noted. Indeed, "it negates the developmental and democratic aspirations of the people." This inspiring document has provided the broad orientation for organizing the Manila People's Forum.

The Kyoto meeting presented the press and the public a cogent critique of APEC's philosophy and organization that rested on four points:

First, the free trade APEC seeks to promote is "neither free nor fair." The ideology of free trade, instead, is mainly used to allow the US to penetrate Asian markets. It was also pointed out that while Washington speaks the language of free trade, it subsidizes many of its producers. Close to forty per cent of the cost of agricultural production in the US, for instance, is subsidized via direct income payments from the government to American farmers. Besides this subsidy, asserted economist Lyuba Zarsky, "there is government subsidy in the form of cheap water, the price of which does not reflect the actual cost government incurs in making it available to farmers."

Second, the free market/free trade paradigm that the US wants to impose on the Asia-Pacific via APEC has already failed elsewhere. Whether in the form of Thatcherism in Britain, Reaganism in the US, and structural adjustment in Africa and Latin America, the free-market model has resulted in weak growth or stagnation accompanied by greater income inequality, a greater percentage of the people living under the poverty line, and serious environmental damage. "The neoliberal model," said Chulalongkorn University Professor Suthy Prasartset, "has been an unmitigated disaster in most areas where it has been applied."

Third, APEC's narrow focus on trade and investment is actually a way of divorcing processes that benefit principally corporate actors from their impact, often largely negative, on communities. APEC, in short, operates under a model in which economy drives community hither and thither and dissolves it; and the crying need, according to one participant, "is to bring economy back into the control of community."

Fourth, APEC operates, according to the Kyoto Declaration, "in a totally anti-democratic, unaccountable, and untransparent way." Jane Kelsey, professor of law at the University of Auckland, noted the contrast between the monopoly of decision-making by business and government elites in APEC and "the way the United Nations and even the World Bank now recognize, at least in rhetoric, NGOs as important actors."

The Kyoto Declaration called on citizens and governments of the APEC countries to take, among other steps, the following:

To many Asian groups, including the NGOs, people's organizations, and many local communities, the choice is not between a NIC-Japan model of state-assisted protectionist capitalism and a US-dominated APEC free trade bloc. In their view, both are dominated by unsustainable techno-economic processes focused on growth at all costs and guided by the pursuit of elite interests that diverge from those of the majority of the peoples of the region.

"To Engage or Not to Engage?"

NGOs, however, have been divided on the question of whether or not "to engage APEC." At the Kyoto meeting, some NGOs felt that the way to relate to APEC was to "engage" it by trying to influence its processes and direction from within, by seeking, among other things, NGO participation in its councils. Others felt, however, that such a stance would be lending legitimacy to what was basically an anti-people, anti-environmental institution was fundamentally unreformable.

The two tendencies, however, managed to stay together at Kyoto and in the first months of the preparation for the Manila Summit. However, a group broke off from the Manila People's Forum to work closely with the government to produce the Philippine Government's Individual Action Plan submitted to APEC. The resulting document was labelled by what came to be called the Asia-Pacific Sustainable Development (APSUD) as a people's IAP. While observers like the Economist and other champions of neoliberalism were calling the Philippine IAP one of the most radical in terms of free-trade commitments, APSUD claimed that:

[D]ue to the strong intervention of civil society, the Philippines, in effect, has abandoned its neoliberal framework for development. It is now more strategic and flexible. And most important, the liberalization process is tamed by the framework of sustainable development. There can be no liberalization process if it spawns negative ecological, social, and economic impacts.

The Manila People's Forum, on the other hand, maintained a more nuanced view towards APEC. As the head of the International Convenors' Committee put it in his speech at the opening session on Nov. 21:

A nuanced position is inevitable given the diversity of groups represented at the MPFA. In the public discussions leading up to this meeting, what I have stated--and this is a personal interpretation--is that the MPFA is not necessarily against APEC. What unites all the diverse forces within the MPFA is opposition to the US-led effort to turn APEC into a free trade area. Were APEC simply to remain a loose consultative body for technical economic cooperation, some members of the MPFA would probably be able to live with it. It is, however, a different question when we talk about turning APEC into a mechanism for true regional cooperation.

Here most MPFA members feel that APEC has several built-in disadvantages:

"For these reasons," he proposed, "to achieve genuine regional cooperation, we must look elsewhere."

The MPFA and APSUD were not, however, the only parallel conferences held during the APEC Summit. Two other gatherings of NGOs and people's organizations were also held. The MPFA, with over 500 participants from all over the APEC region as well as several non-APEC countries, was, however, the largest gathering.

The MPFA and the Environment

In contrast to the virtual absence of the environment as a concern of the official summit, the MPFA had, as one of its major concerns the impact of free trade on the environment. As the MPFA Declaration put it:

Political leaders, following the lead of transnational corporations like mice following a trail of spilled grain, are pursuing an illusion of a border-less world in which riches would flow without impediment into their national coffers or the accounts of their corporate allies. We call on them to abandon that fantasy, and wake up to the reality that our legacy, our dignity, our culture and our natural world are being drained away instead into the offshore accounts of global robber barons.

Focusing on the environmental crisis of the region, the Declaration noted that:

The experience of Chile and Taiwan demonstrates that liberalized trade and investment will further accelerate environmental degradation. Exploitation of natural resources for export, resulting in deforestation, depletion of fish stocks, destruction of coral reefs and mangrove forests, desertification and loss of control by communities and indigenous peoples over their ancestral domain (land, air, water, skills, and knowledge) are what we have already witnessed. Continuing to rely on non-renewable, polluting energy sources to fuel the demands of industrialization causes irreversible damage to ecosystems and human health, and robs future generations of a resource base for their survival. The dumping of toxic waste, export of hazardous materials, and migration of dirty technology to developing countries leads to environmental catastrophe, with terrible consequences for human health.

The MPFA then elaborated an "Action Agenda" guided by the "principles of ecologically and socially sustainable development that is people-oriented and environment-based, protects biodiversity, and places a premium on preserving women's livelihoods, people's participation, and improved quality of life."

The People's Forum is well on its way to becoming institutionalized as an annual event to parallel the APEC Summit. It is likely that the two tendencies--engagement and non-engagement of APEC--will coexist in the People's Forum in the foreseeable future. But with APEC itself becoming less and less viable as a regional trading bloc--as powers like the US lose interest in it--the non-engagement current is likely to gain in strength. Importantly, the Forum is likely to become a major platform for the articulation of a different vision and program of regional integration.

APEC and the MPFA

Although its achievements are largely symbolic than actual, APEC has provided the impetus for mobilising diverse civil society groups from the North and South to address the impact of trade liberalization. This alone is positive.

However, the People’s Forum (and anyone else) would be naïve to expect action from APEC. Its very nature mitigates against that. The danger is that APEC members will hand-ball sustainable development and environmental issues into the APEC court, publicly declaring commitment but safe in the knowledge that nothing will be done, or that anything that is done is sure to be minimal, non-binding and incremental.

The pressure for change must be direct and strategic, and in this sense APEC plays another useful role. The APEC process is like No theatre -- the story reveals itself slowly, but in the course of the drama we learn a great deal about the true nature and motivations of the key actors. Close scrutiny of the manoeuvring in APEC can provide insights into the forces at work, and show the possibilities for advancing concrete action to support sustainable development at the national level, or through other bilateral or multilateral mechanisms.

 

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Publications in 1997