APEC Summit: Avoiding Trade Wars in the Pacific
Leaders of Pacific countries dread trade conflicts. Singapore's Lee Kuan Yew is worried that noisy US-Japan trade disputes will lead to further conflicts about other issues as well. Lee believes that ill will about autos, film, and airline treaties will begin to affect the support for regional security pacts. For now, America's military leader in the region, Admiral Richard C. Macke, notes in Time magazine that "the security miracle, which is the foundation of the economic miracle" must be nurtured and sustained.
American scholars in particular worry that economic instability may erode security. With mainland China emerging in regional affairs with new frequency, observers see ominous signs that trade wars might escalate into actual armed conflicts. Many further ask whether the US-Japan Security Treaty can long endure without Japan reducing its trade surpluses. In the wake of the US-Japan auto dispute, Michael Borrus of the Berkeley Roundtable on the International Economy (BRIE) further observes that the "real problem is U.S. participation in Asian economic development," rather than any single dispute with Japan. Thus the looming troubles among Pacific region economies threatens ominous affects of linkage across areas of foreign relations.
To prevent disputes that might link trade and economic issues with security, the process of Asia Pacific Economic Cooperation (APEC) began six years ago. Officially, APEC started as a government-to-government process, but it has had meetings, conferences, summits, and even a secretariat since 1992. APEC started with efforts to integrate ASEAN and outliers such as Australia into a region dominated by American Cold War goals and challenged by Japan's economic growth. Among the parts of APEC that have composed its start, the upcoming November APEC Summit in Osaka provides an opportunity to cement the new building blocks of regional stability.
The key question is whether APEC can have timely impacts, particularly in time to reduce moves towards American isolationism. Even now, the meaning of APEC is less clear than that of the early European Economic Community which began with its iron and steel agreements. One view of the significance of APEC is to see it as a way to avoid conflict between the United States and Asia Pacific countries including China and Japan. Yet for each of the member countries, specific problems slow the process of cooperation which seems so vital for peaceful trade and economic activity.
MEMBERS
The size of APEC's 18 members differs dramatically. The giant economies of the United States, China and Japan looms over those of the others, while the smaller economies, particularly those of Southeast Asia, voice frequent objections to possible domination. Several members have pressing concerns for the agenda in Osaka. China: In 1991, diplomats forged a compromise to bring the People's Republic of China (PRC) to meetings which also include Taiwan and Hong Kong. Officials from the mainland do not recognize the sovereignty of governments in the two adjoining lands, but Beijing does allow for separate treatment of the two as "economies." If Taiwan and Hong Kong sent only their economic ministers, the APEC meetings could proceed with mainland Chinese representatives.
This year, Sino-American relations cast a shadow on the plans for the Osaka Summit. Human rights, intellectual property, prison labor, and arms sales are among the unresolved problems, but tensions flared when Taiwan's President Lee Teng-hui was at long last allowed a non-diplomatic, personal visa to address the graduates at Lee's alma mater Cornell University. To calm loud protests from the mainland, President Bill Clinton met the PRC Ambassador in Washington to state categorically that America had not changed from its "one China" policy that focused on Beijing.
On June 10, the People's Liberation Daily wrote that "the U.S. decision to allow Lee Teng-hui to visit the country had set back the current Sino-U.S. relationship." Stories appeared elsewhere, perhaps as misinformation, saying that Taiwan's President Lee might even be invited to Osaka. Beijing used the chilled atmosphere to threaten American economic initiatives including its agendas for APEC. American diplomats now tread carefully in order to bring the mainland Chinese back to the negotiating table, and onward to the Osaka Summit.
Japan: As the 1995 APEC hosts, Japanese officials must set the agenda. The Ministry of International Trade and Industry (MITI) is the lead agency, and in its early proposals, MITI thought to make the theme of "partnership" a central part of its Osaka plans. But the partnership approach met American objections that recall the disastrous Bush-Miyazawa meetings when the former President became ill at a state dinner in January 1992. "Partnership" also failed to win a favorable reactions from Southeast Asians who feared appearing as junior partners.
MITI focused instead on ten working groups that would cover a set of problems and industries. The early drafts proposed that countries divide by groups to cover reviews of data, trade promotion, technology, human resources, energy, ocean resources, fishing, telecommunications, transportation, and tourism. Each area would involves a specific lead country or countries, which meant, for example, the United States leading on telecommunications and Canada, New Zealand and Indonesia leading on ocean resources.
In preparatory meetings, such specifics won positive responses from many participants with concerns about Japan's leadership. Such positive response is crucial to Japan as it seeks a foreign policy that is not caricatured as reactive. Two years ago, I looked for possibilities of Japan becoming an "activist state" and turned toward the Pacific Basin for evidence. My article in The Journal of East Asian Affairs concluded that "Japan's emerging priorities on Asia, by government and economic actors and on distinct national interests apart from bilateral relations, have found a center in regional organizations such as APEC." Starting in July, the Japanese side again advanced its specific, activist proposals at a preliminary round in Sapporo which sought active steps towards cooperation.
United States: Going to Sapporo, the United States Trade Representative (USTR) took initiatives as well and proposed an "Action Program" in 18 specific areas. These 18 areas would set "indicative milestones" as well as propose cooperation on lowering specific barriers. Despite the bold initiatives that built on Japanese plans, there were several objections.
In fact, all APEC members raised some objections to the early proposals. In part, the most difficult principle was one of comprehensiveness, or specifying that no exceptions would be allowed for any sector in liberalization. And as another set of problems, objections arose within sectors as negotiators focused on what might be voluntary, and what might be obligatory steps toward liberalization.
Assistant USTR Nancy Adams still left the Sapporo meetings in a positive mood stating, "We are quite happy with the outcome." Adams, among a group of other diplomats, has made APEC into a significant part of American foreign policy in the Pacific. President Clinton gave notice, and granted U.S. support to help build such a regional group. Clinton especially took steps to build upon the lower level ministerial meetings and upgrade APEC gatherings since 1993 into full-fledged summits among the regional leaders.
Southeast Asia: In response to the bigger powers of China, Japan, and America, developing countries act within the Association of Southeast Asian Nations. ASEAN is an enigma in terms of its longevity and apparent success. Started against a background of American strategy during the Cold War, many observers thought the group could not last. Yet ASEAN has flourished, and in 1994 gave rise to the Asian Free Trade Agreement (AFTA) which seeks intra-ASEAN tariff reductions by the year 2000.
ASEAN was also able to dodge the protests of members, led by Malaysia, that groups such as APEC represented the North or developed countries far more that the developing South. Malaysian Prime Minister Mahathir Mohammed called for an Asian group for Asians, but his efforts were directed by ASEAN members into an East Asian Economic Caucus (EAEC) within APEC, but not identical to it. Such a caucus proposal was more acceptable to both the US and Japan whose diplomats place a priority on APEC, which in turn seeks to harmonize its measures with the World Trade Organization (WTO).
ASEAN does not speak with one voice on all matters of regional community. The counter to Malaysia's Mahathir is often Singapore's Lee. From the same Malay peninsula, these two tend to favor Japan as well as the United States, yet their new concern does focus upon American roles in the region. While Matahir "looks east" towards Japan, Lee in particular expresses a desire to avoid American withdrawal. While Matahir protests American diplomacy towards the Muslim world and Asian differences on human rights, Lee fears that moves toward American isolationism will hurt trade, investment, and ultimately security commitments.
ASEAN unity is likely to allow a degree of independence for these developing countries within a world that is increasingly interdependent. Southeast Asia may protest against possible dominance in seeking greater autonomy, yet the region also largely praises the results of economic order and cooperation. ASEAN can become every bit as prosperous and integrated as the European Union at the other end of the Eurasian land mass, but only with the security umbrella provided by the United States, and global markets supported by agreements such as APEC.
Other Members: Back in 1989, then Australian Prime Minister Bob Hawke launched a call for regional cooperation. At the same time, the maneuvers of Japanese bureaucrats gave rise to a memo inside MITI claiming that the organization arose from the economic bureaucrats' backstage manipulations of Australians. The truth hardly matters now. Australia, along with Canada and New Zealand as well as Korea, rounded out an original effort to gather Pacific Rim countries. The early maneuvers faced many obstacles, some of which remain as a setting for the APEC Summit.
The original grouping required China as a member, yet also needed limits. The 1991 solution of "three China economies" solved this omission, but did not set adequate bounds. For the United States, its relations with Latin America as well as the Pacific Islands posed some difficulty, particularly as NAFTA neared completion and Australia sought to expand the grouping. Mexico and Papua-New Guinea entered in 1993, and other trading nations nearby filed applications. Chile did achieve its goal of joining as the 18th APEC member country, but it was the last before a moratorium was imposed.
Last year APEC began its three-year moratorium on the number of full members. This issue of membership is not easily resolved along any single dimension or economic measuring rod. Possible members active in Pacific region organizations include Russia as well as various Latin American countries. These countries regularly attend the Pacific Economic Cooperation Conference (PECC) that predates APEC and invites a wider range of participants from academic and business leaders as well as government officials. PECC proved valuable to set early sectoral agendas for the governments, and to negotiate about possible APEC membership. Among countries active as PECC participants and APEC observers, Colombia, Ecuador, Argentina, and Peru have all applied for APEC membership.
PENDING ISSUES
Earlier meetings and new applications are signs of APEC's success that keep world leaders engaged. In 1993, President Bill Clinton first proved his active interest in APEC at the Seattle Summit. With the recent June settlement of the US-Japan auto parts dispute, Clinton provides a further opening for US cooperation in the Pacific region. Thus the context of US-Japan relations will give solid ground for the Osaka Summit to advance on specific steps for trade liberalization.
Japanese officials still have the task of reconciling a detail action plan that implements the goals proposed in 1994 at the Bogor Summit in Indonesia. This most recent APEC Summit did produce specific target dates and reasserted that APEC wants to reduce barriers in line with global trade commitments. A proposal was made to start reductions of tariffs, as well as to lower farm subsidies and create dispute mechanisms, beginning from January of 1997. The long-term goal was to produce free and open trade and investment in two stages: first, for all developed countries by 2010, and second, for all developing countries as well by 2020.
Japan crafted a draft agenda calling for a "concerted unilateral approach" to cut tariffs and other import barriers. What such an approach means, and how it is implemented, will require much more negotiation, monitoring, and revision. As the ministers left Sapporo from the preparatory talks, the Japanese side had moved to divide steps specifically into obligatory and voluntary steps to be taken towards the goals for liberalization. Katsuhisa Uchida, Japan's ambassador for international economic affairs and trade, was cautious noting that "There is no consensus." The table is set for the Osaka Summit.
APEC'S FUTURE:
APEC is many steps beyond the point when Australia and Japan alone backed the initiatives, but it is still in its infancy. If APEC remains modest and cautious in its designs, it has a future. Namely, APEC can be a regional organization that seeks to bring the economies together with liberalized trade and increasingly harmonized regulations on investment, production, and even distribution.
This is not likely to be easy. The region is diverse, and the situation remains volatile. Exogenous factors besides economics--disaster, war, international migration, demographics, disease--all could undermine our notions of the economic dynamism that we now expect of the Pacific. Much of this also hinges on American involvement in the region.
Ritual meetings of the world leaders themselves are, in the end, largely photo opportunities as we will see in Osaka. Beyond the pledges for cooperation in these photos, the leaders deal with a full policy agenda that demands commitments and decisions (see box). Most of the pledges these leaders will make are still without specifics about implementation, but the Osaka Summit seeks several obligatory steps as well.
The dates and goals, beginning in 1997 with lower tariffs and stronger mechanisms, are more specific than previously mentioned at APEC Summits. Farm subsidies in America or tariffs in other countries could be reduced. Regulations for telecommunications and standards for innovation may be harmonized. The potential for assisting commerce and for new trade and investment are immense. The cost of failure is measurable in economic loss, and is in essence still closely tied to the overall security and stability of Asia.
APEC may not lead immediately to regional consensus, but it starts the process of dialogue. In particular, the willingness of America to be part of the process, with engagement of key negotiators from mainland China, makes the table relatively complete. Keeping these largest negotiators engaged is enough to make the Osaka Summit important. But the Summit also pursues cooperation as even more vital to develop and expand the mutual interests of all countries in economic growth. And in the end, this is the best means to stop wars of trade, as well as of arms, from ever starting.
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