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APEC’s Trade and Investment Liberalization and Facilitation (TILF):

Its Achievements and Tasks Ahead

By Ippei Yamazawa1

1. Initiative for Liberalization in APEC

APEC has become 18 years old this year and experienced both ebb and flow of

its momentum. But I feel its experiences are not shared widely. I have been affiliated

with APEC in a variety of capacities, PECC member, APEC/EPG member, APEC Study

Center representative, and APEC consultant for these years. Since APEC is an official

inter-governmental body, sufficient information has not been accessible to non-official

observers. But because of these capacity and because I was not in the government, I

could participate in APEC and discuss APEC throughout these years. I would like to

have my experiences in APEC shared with young researchers and wish them to promote

APEC further. This symposium provides me the best opportunity. Nowadays we hear

often that there has been a paradigm shift from APEC to East Asia and APEC has

finished its role. It is a pity that this argument is often made by those who are not aware

of APEC’s experiences for the past years.

APEC has started with economic cooperation for the first few years. The

APEC’s First Ministerial Statement (1989) identified broad areas of cooperation and

designated seven work projects. The Seoul Declaration (1991) set principles and

objectives of its cooperation activities and added three cooperation projects (APEC

Secretariat 1995, p.1, and pp.61-64). On the other hand, liberalization was a late-comer

on the APEC’s agenda.

Liberalization was a late-comer on the APEC’s agenda. It was stated explicitly

in Leader’s declaration for the first time at the Seattle APEC in 1993. Apparently it was

affected by the Eminent Persons Group Report I submitted to APEC in August 1993

which elaborated the liberalization agenda in its vision of APEC’s tasks in future. Then

in 1994 the ambitious Bogor Declaration committed to ‘achieving free and open trade in

the region by 2010/20207. The Osaka Action Agenda (1995) provided the guideline for

implementing the liberalization programs and all member economies submitted their

individual action plans (IAPs) for liberalization by November 1996 (Manila Action

Plans for APEC, MAPA), which were implemented actually on January 1, 1997.

Expectation for APEC heightened for 1993 – 1996 because of this prompt

1 President, International University of Japan

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implementation of liberalization program. When the EPG’s second report was presented

to President Seohart in August 1994 with its explicit recommendation for implementing

APEC’s program of liberalization by 2000, some of its members wondered whether it

would be too hasty to start it before the liberalization under the Uruguay agreement is

not completed (APEC/EPG II 1994). Contrary to our anticipation, Pacific Business

Forum (EPG’s counterpart of business people) recommended that APEC should start its

liberalization program immediately and a few members of the Leaders meeting

endorsed the PBF’s recommendation. President Seoharto accepted the latter

recommendation and announced the ambitious Bogor Declaration. This story tells us

how big the expectation was for APEC then.

However, IAPs have not gone far beyond the Uruguay Round commitment and

another liberalization program to supplement IAPs, Early Voluntary Sector

Liberalization (EVSL), actually failed to be realized because of the conflict between

major participants in 1998. Together with East Asian crisis which hit Southeast Asian

economies, a leading group of high growth potential of APEC, the liberalization

momentum has decreased, so has gone downward the expectation for APEC recently.

However, pessimistic views about APEC which we hear occasionally today is

overly affected by the fluctuation of expectation, ignoring the precise capability of

APEC. The recent experience of APEC in liberalization has certainly revealed that

APEC is not a negotiating body and cannot do much alone in liberalization area.

However, APEC can still contribute to liberalization under WTO by acting as a catalyst.

This paper aims at a brif overview of APEC’s experiences in its main activity,

TILF; first its unique IAP approach and its modest achievement (Section 2), and the

EVSL’s failure in a break through (Section 3). And then we will seek a way to link the

APEC’s liberalization programs under open regionalism with WTO (Section 4 and 5).

Then we extend our overview to now mushrooming free trade agreements and other

forms of sub-regional trading arrangements within APEC and our suggestion regarding

how to reconcile them with APEC’s open regionalism (Section 6). Last we examine the

APEC’s current efforts of Midterm Stocktake to meet the APEC’s first deadline for the

Bogor Goal.

2. TIL: Its Unique Modality and Achievement

The Osaka Action Agenda for liberalization and facilitation started with eight

general principles; comprehensiveness, WTO-consistency, comparability,

non-discrimination, transparency, standstill, simultaneous start/ continuous process/

differentiated timetables, flexibility, and cooperation.

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It had an extensive coverage of 15 areas; tariffs, non-tariff measures, services,

investment, standard and conformance, customs procedures, intellectual property rights,

competition policy, government procurement, deregulation, rules of origin, dispute

mediation, mobility of business people, implementation of the Uruguay Round

outcomes, information gathering and analysis. The Action Agenda suggested a menu of

actions by individual member governments and concerted actions by all members in

individual areas.

Its new modality, the way to implement liberalization and facilitation programs,

was the ‘concerted unilateral liberalization’ (CUL). That is, individual member

governments announced unilaterally their own liberalization and facilitation programs

and implemented them in accordance with their domestic rules. However, individual

APEC members watched closely each other's liberalization program and its

implementation. They felt obliged to submit a liberalization programs as big as their

neighbors. They got encouraged to implement as they have committed. We relied upon a

‘peer pressure’ among APEC members to urge all members to join the liberalization.

This was the essence of CUL.

The Osaka ACTION Agenda was a guideline for individual members to draft

individual action plans (IAPs) . All member governments submitted their IAPs by

September 1996 and the Philippine, the host of APEC of the year, packaged them

together to adopt as Manila Action Plans for APEC (MAPA) in November. All members

started to implement their IAPs on January 1st, 1997.

This modality was criticized as unasserted in comparison with the western

approach of negotiating as in GATT and WTO a liberalization agreement which was

legally binding so that the signatories would be punished and sanctioned if they failed to

implement their commitments. At the initial stage this legalistic approach could not be

accepted by Asian members. However, this should not be understood as Asian members’

hesitance to commit liberalization. Asian members have so far implemented trade and

investment liberalization unilaterally and realize that their recent high growth has been

based on their open economic policy and continued efforts for liberalizing their trade

and investment was indispensable for further growth, which was reflected in their

leaders’ commitment to the Bogor Declaration. This modality was based on the past

experience and called upon the unilateral liberalization in a concerted manner within the

Osaka Action Agenda. This was a practical way of promoting liberalization without

losing the momentum for liberalization enhanced by the Bogor Declaration.

The CUL modality has both merit and demerit. On the one hand it had provided

a flexible framework for liberalizing within a short time. On the other, results were

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difficult to measure; the plans differ considerably and they were structured so as to list

accomplishments while omitting significant obstacles which remained.2 The author

organized a study team in PECC Japan Committee and made quantitative assessments

of individual members’ action plans of 1996-1998 as a way of objectively measuring

progress toward APEC’s free trade targets (2010 for developed members and 2020 for

the rest of members). Although being handicapped by gaps in the available information,

we tried to provide a fair and objective assessment of the IAPs. We examined carefully

the Osaka Action Agenda and Chair’s Common Format and selected check-points, with

which their progress is assessed objectively and consistently. Although still handicapped

by the lack of available information and a big room still remains to be improved, we

have tried to provide a fair and objective assessment of the IAPs. 3

Our assessment conveyed a mixed result of small and big progress. Generally

speaking, many economies committed to liberalization in concrete figures only for the

short period and their commitment were characterized ‘UR agreement plus small α’,

namely liberalization they had committed under UR agreement plus an additional

unilateral liberalization meseaures. However, prospects in the area of facilitation were

brighter, especially in respect of the collective action plans (CAPs), which details joint

actions. These collective plans have been strengthened, thereby supporting the

concerted implementation of members’ IAPs. The precise degree of progress in

advancing collective action depended to a large extent on the degree of initiative

exercised by convenors in charge of various APEC subcommittees and expert groups.

How were the collective plans related to IAPs? APEC members participate in

the CAP voluntarily and report on their involvement via their individual plans.

Participation in collective plans is a very important means by which members can move

towards APEC’s goals, especially in the areas of trade and investment facilitation, and

2 Incidentally, PECC was commissioned by APEC to produce an independent review

of the IAPs on condition that no reference should be made to individual economies

(PECC/ Trade Policy Forum, 1995 and PECC et al 1996) The PECC team examined the

IAPs and supplementary data of individual economies in order to give a meaningful

review. Otherwise it would provide only a conventional report highlighting the

liberalization commitments, not mentioning to remaining impediments. Yet it had to

produce a concise review without mentioning specific names of economies but to

impress readers with the objectiveness and consistency of their analysis.

3 Please refer for its methodology and detailed results to IAP Study Group (1997, and

1998) which was reproduced in Yamazawa and Urata (2000)

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economic and technical cooperation. The encouragement offered by collective action

plans is likely to mean that APEC’s objectives will be achieved earlier than the

2010/2020 deadlines by both industrialized and developing economies.

While APEC’s trade and investment liberalization agenda has achieved some of

its goals in some areas, it has proved unable to tackle certain difficult sectors. These

were left to negotiation by the WTO.

3. Failure in Early Voluntary Sector Liberalization

Early Voluntary Sector Liberalization (EVSL) was introduced as a break

through the slow liberalization along the IAPs. EVSL is also a part of CAPs and jointly

implemented by individual governments. The Osaka Action Agenda had already

mentioned, in the CAPs for Tariffs (and NTMs), as

“APEC members will identify industries in which the progressive reduction of tariffs

( and non-tariff measures) may have positive impacts on trade and on economic growth

in the Asia Pacific region or for which there is regional industry support for early

liberalization” (The Osaka Action Agenda, 1995, Section C, page 6-7)

At the Subic meeting in 1996, President Clinton proposed the Information

Technology Agreement (ITA) in which all tariffs and NTMs on semi-conductors and

other parts and materials input to information technology equipment are reduced or

eliminated by the year 2000. The ITA was adopted at the APEC Leaders’ Meeting and

then forwarded to the WTO Ministerial Meeting in Singapore just two weeks later and

was adopted as a WTO agreement. Fifteen APEC economies signed the agreement and

implemented since April 1997. The ITA is not a voluntary liberalization but has become

a legally binding treaty.

Encouraged by the success of the ITA, the Canadian chair proposed to accelerate

the implementation of EVSL by two years from 2000. 61 sectors were suggested as

candidates for EVSL in 1997 and the Vancouver APEC finally designated 15 sectors (9

sectors as higher priority, Table 1) and agreed to work out their implementation within

1998. Each had nominating economies and supporting economies but was not

necessarily supported by all economies.

Objectives of EVSL differed between sectors. 13 sectors aimed to eliminate

tariffs and non-tariff measures but it was yet to be elaborated how they are implemented.

In Environmental Goods and Services and Chemicals proposals stated explicitly that the

liberalization would be brought to the WTO negotiation after a critical majority support

is secured. In Medical Equipment, Civil Aircrafts and Oilseeds it also intended to bind

with the WTO the liberalization achieved through EVSL. But no direct link with the

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WTO was not mentioned for other sectors. The Food proposal stated that they would

start with a study of impacts of liberalization.4

Facilitation measures such as Standard and Conformance and Customs

Procedures were also mentioned in the EVSL proposal of several sectors and they were

the main objectives in Telecommunications and Automotive Products. Ecotech was

mentioned in eight sectors, in which EVSL aimed to promote development and training

of human resources necessary to implement facilitation measures as well as

liberalization. What characterized the EVSL approach was that by incorporating both

facilitation and Ecotech measures it could mitigate the adjustment cost of

liberalization and even enhance the impacts of liberalization. This was a clear advantage

of APEC over GATT/ WTO in promoting liberalization and would make a major

value-added of APEC to the WTO.

At the Vancouver APEC, leaders endorsed their ministers' agreement on EVSL

and urged its early implementation as follows;

" ... action should be taken with respect to early voluntary liberalization in 15 sectors,

with nine to be advanced throughout 1998 with a view to implementation beginning in

1999. We find this package to be mutually beneficial and to represent a balance of

interests."5

It was scheduled that the concrete plan for implementing EVSL would be

agreed upon by trade ministers' meeting in June 1998. However, trade ministers failed to

agree on the chair's proposal. The implementation plan stated as follows;

"Participation in the 9 sectors and all three measures (trade liberalization, facilitation,

and ecotech) in each sector will be essential to maintain the mutual benefits and balance

of interests, which Leaders had established when selecting the sectors in Vancouver"

"In order to enable finalization of the sector arrangements that would maximize

participation, Ministers agreed that flexibility would be required to deal with

product-specific concerns raised by individual economies in each sector. Such flexibility

would generally be in the form of longer implementation periods. In principle

developing economies should be allowed greater flexibility."6

4 Based on APEC Sector Liberalization Nomination Forms on the 15 sectors compiled

at the SOM in September to November 1997. 5 "APEC Economic Leaders' Declaration: Connecting the APEC Community",

Vancouver, Canada, November 25, 1997, paragraph 6. 6 "APEC Meeting of Ministers Responsible for Trade: Statement of the Chair",

Kuching, Malaysia, 22-23 June 1998. paragraphs 5 and 6.

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The modality of liberalization changed to a package deal with less flexibility.

The EVSL idea could supplement the IAP but this proposal of 'all 9 times 3 in a

package' seemed to be too ambitious at the current stage of APEC process?

EVSL was originally conceived to identify a few sectors to be agreed upon

easier and implemented earlier in addition to the IAP, thereby maintaining momentum

of liberalization within APEC. ITA was a good example and was regarded as a

successful precedent.

Some economists warned against the EVSL approach on the ground that it

tended to lead to piecemeal liberalization of easier sectors leaving difficult sectors

untouched. However, this criticism was not relevant to EVSL. EVSL neither aims at a

full-scale package of sectoral negotiations vis a vis an across-the-board negotiation as in

the Uruguay Round. Nor would it replace the IAPs as the principal mechanism of

APEC’s liberalization. It was only additional to the major tracks of IAPs and whatever

liberalization achieved through EVSL will enhance the IAPs of individual economies

and should be welcome.

The modality of EVSL, as appeared in the Chair’s Statement of the Trade

Ministers’ meeting in June 1998, changed from the voluntary IAP to the ITA-type

negotiation, although under the same title of ‘early voluntary sectoral liberalization’.

The Joint Statement of Ministers at the Vancouver APEC clearly stated as;

“Recognizing the need for a balanced and mutually beneficial package, and recalling

that the process of early liberalization is conducted on the basis of the APEC principle

of voluntarism, whereby each economy remains free to determine the sectoral initiatives

in which it will participate, …..”

“We recommend that Leaders endorse members beginning immediately to complete the

work on these proposals through finalizing the scope of coverage, flexible phasing,

measures covered and implementation schedule, including choice of measures and

instruments for implementation based on existing proposals in the following sector.”7

However, it became the package proposal of 9 sectors times 3 measures in the

Chair’s statement. The element of voluntarism weakened so that each economy must

either say yes or no to this package proposal. The flexibility was yet to be elaborated but

it would generally be in the form of longer implementation period as in the same chair’s

statement. A package deal of ‘mutually beneficial’ and ‘balance of interest’ was a

typical formula of the GATT negotiation and departed far from the IAPs on voluntary

7 APEC/MM, Joint Statement by Ministers, Vancouver, Canada, November 22-23,

1997

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basis. Although only Japan objected to it explicitly, was this departure accepted by all

other members? If so, they should have at least changed the title ‘early voluntary

liberalization’. Did APEC quit its unique modality of voluntarism and become a stage

for negotiation?

Did the nine sector really reflect a balanced interest? It was explained that the

nine sectors were adopted mainly on the basis of exporters’ interest and they were

balanced in the sense that they included exporter’s interest of all APEC economies. If

you count economies nominating the nine sectors in Table 1, you will find that the

United States nominated 7, Canada, Singapore, and Thailand nominated 3, while five

economies nominated none.

Alternatively we could select the initial package based on importers’ interest,

which is consistent with the teaching of ‘gains from trade’. In reality of negotiation for

liberalization, however, there always emerges resistance by domestic producers

competing with imports and we always face political economy problems of how to

persuade vested interest groups at home. We could select sectors of least resistance at

home, which better fit the original idea of EVSL.

Unfortunately we did not see an analysis of the EVSL sectors which told us

how much export and import trade of individual economies were covered and how

much impediments still remained in each sector.8 Table 2 compares import tariff

revenues from eight EVSL sectors for nine economies. Import and tariff figures were

available for only the nine economies listed in the table from WTO/IDB and the tariff

revenue were calculated by multiplying import values by trade weighted average tariffs.

If multiplied further by price elasticity, it would give an estimate of possible increase of

imports by eliminating tariffs, which was the first estimate of the impact of

liberalization on a static assumption.

Although with an incomplete coverage, Table 2 gives us an insight to a

cross-economy comparison. Figures differ greatly between sectors and economies. The

total figure of Japan (in the right end column) was never the largest, but its figures in

fisheries and forest products were larger than those of other economies mainly because

of its big current imports. And It was in these two sectors that Japan faced difficult

political economy problems at home. They would inevitably be associated with the

WTO negotiation over agricultural products which was scheduled to start in 2000 and it

8 Australia published a CGE study on the EVSL issue but on the point of view of

Australian interests. Philippa Dee, Alexis Hardin, and Michael Schuele, APEC Early

Voluntary Sectoral Liberalization, Productivity Commission, Australia, July 1998.

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was difficult to negotiate them within APEC separately from the forthcoming WTO

negotiation. The gradual liberalization of the Japanese agriculture was necessary but the

year 1998 was not a good timing for it. Was it not possible to downsize the package by

excluding a few sectors which met strong resistance by members? The passage of a

single ITA was highlighted in Manila. Why not four to five EVSL in Kuala Lumpur?

At the APEC ministerial meeting in Kuala Lumpur in 1998, Asian ministers

supported the Japan's contention and decided to forward the tariff element of the nine

sector EVSL to the WTO. Japan could avoid being isolated in APEC but some members

may have got disappointed with the slow process of liberalization under the APEC

modality. The hasty promotion of EVSL was partly responsible for their

disappointment.

While the tariff element of the nine sectors of EVSL was forwarded to the WTO,

the implementation of their NTMs, facilitation, and Ecotech elements will proceed

under the New Zealand’s initiative (Summary Conclusion of the First SOM 1999).

Facilitation and Ecotech form a WTO plus element in APEC. EVSL aimed to push them

together with liberalization, that is, first achieve a critical mass agreement on a suitable

package of liberalization, facilitation, and Ecotech within APEC and then forward the

liberalization element to the WTO in order to bind with the WTO the liberalization

commitments. With the tariff element separated from other two, the implementation of

the latter may be more or less discouraged. The remaining six sectors include such a

broadly defined one as Food, for which pragmatic approach is recommended for this

year.

The EVSL initiative continued in the form of surveys and sector seminars/

workshops to progress the work on NTMs, facilitation and Ecotech9,but it has failed to

break through the slow process of APEC’s liberalization.

4. Catalyst Role in the WTO Liberalization

The third disappointment about APEC was its failure in successfully preparing

for launching the New Millenium Round negotiation of the WTO liberalization at the

third WTO ministerial meeting in Seattle in November 1999. Indeed APEC leaders

declared their support to the launching of the WTO negotiation at Auckland meeting in

two months earlier and quite a few other reasons were cited as responsible for the

failure in Seattle. However, APEC trade ministers could not reach an agreement on the

agenda of the coming round in their June meeting. The same structure of conflict as one

9 Twelfth APEC Ministerial Meeting: Joint Statement, ditto.

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over the EVSL initiative was observed on the agenda for agricultural liberalization

among major APEC members. The United States did not concede to including the

possible restriction of unilateral resort to anti-dumping measures on the WTO agenda.

The conflict over the agenda was not resolved even at the official meeting immediately

before and forwarded to the ministerial meeting for political settlement.

Peter Petri pointed out four types of contribution APEC can make to the New

Millenium round; 10

- Cheerleader for the round, by building consensus on round objectives and by

offering compromise proposals on difficult issues,

- Laboratory for testing new ideas, for example, by conducting discussions on

standards for competition policy

- Coalition for giving a more prominent ‘voice’ to member economies and promoting

positions on issues of common interest to all members,

- Competitor to the round, offering an alternative venue for liberalization if the

round’s progress proves disappointing.

In the preparatory stage its cheerleader role was effective.

Unique fora of APEC could be utilized more to help WTO promote the New

Millenium round. It is often told that informal chats in the ‘green room’ have helped

forming consensus at the WTO ministerial meeting. But with 150 participating

members now, far more preparation will be needed to successfully form consensus on

changing the status quo, which include exchanging information and views, identifying

possible conflicts of interests, and seeking pragmatic solutions for these conflicts. With

China’s entry to WTO in 2001, APEC fora would provide superb opportunities for such

preparatory discussions. Developing economy members of WTO were not very

enthusiastic about launching the New Millenium round, but developing economy

members of APEC were generally positive about meeting the globalization challenge

and considered liberalization as an indispensable part of it.

In November 2000 in Brunei, APEC leaders declared their wish to launch the

New Millenium round within 2001. The Doha Development Agenda negotiation has

started since January 2002 on a wide range of issues as well as the UR Built-in Agenda

of agriculture and services. DDA could not be concluded in three years as originally

scheduled and is now in the middle of its extended two years. However, we were not

10 Petri, Peter. “APEC and the Millenium Round”, in APEC: The Challenge and Tasks

for the Twenty First Century, Summary and Recommendations of the 25th PAFTAD

Conference, July 1999.

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informed of much significant efforts for resolving these conflicts. As regards

agricultural negotiation Japan talked only to EU against the United States and Cairns

Group members including many APEC members11. On the anti-dumping rule Japan,

Korea, and developing economy members looked to the new Bush administration

expecting that the new administration would persuade the protectionist groups at home.

APEC has started a new initiative for facilitating liberalization of its

developing economy members, with a program that implements technical cooperation to

trade-related capacity building. Developing economy members are often handicapped

by their limited capacity to implement liberalization, which is often a major reason why

they cannot actively join the multilateral trade negotiations. Japan proposed this

program at the Trade Ministers’ Meeting in June 2000 and undertook a field survey of

nine developing economy members about individual economies’ needs for such

assistance. The APEC Ministerial Meeting in November 2000 accepted its report and

adopted it as an APEC program of supporting developing members’ efforts for

liberalization.

A similar program was implemented by WTO as well. The WTO provides

technical assistance in three modes: training in trade policy, technical missions and

seminars, and provision of computer-based resource centers. The APEC’s survey of nine

economies showed us that economies at different stage s of development need different

types of capacity building. The least developed economies, inexperienced in multilateral

trade negotiation, needed to improve their knowledge about overall WTO affairs and

preferred seminars and training courses of general education for their officials. The

more experienced developing members of APEC requested expanding their knowledge

about specific areas of the WTO agreements such as TRIPs, customs valuation and

dispute settlement procedures. APEC’s technical assistance program for trade-related

capacity building met these specific needs of its members. This is indeed an advantage

of regional cooperation to provide tailor-made assistance that meets local needs. The

cost of all trade-related capacity building projects amounted to US$40-50 million. This

is a clear example of catalyst roles APEC can play in promoting WTO liberalization.

(Yamazawa, 2004)

11 Assigned by PECC Trade Forum, I organized a PECC Agriculture Study Team of

six countries, China, Japan, Korea, New Zealand, Thailand, and the United States and

produced jointly a ‘PECC position paper on agriculture’ in search for a consensus

package which could be accepted by all PECC members. (PECC/Trade Forum 2003)

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5. Open regionalism as a good asset of APEC

The catalyst role for the WTO liberalization is well consistent with open

regionalism of APEC. Since its start in 1989, APEC has been associated with the term

‘open regionalism’ in order to convey the APEC’s philosophy of not becoming

inward-looking. Indeed the philosophy has been widely accepted by almost all APEC

members because most of the APEC members rely highly on trade and investment with

outside of APEC. It has been a good asset of APEC, in comparison with European

Community criticized as ‘fortress Europe’. However, it has not been clarified what the

open regionalism means. The term itself is self-contradictory since ‘regionalism’

conveys a closed grouping. It needs to be clarified in the context of the APEC

liberalization.

Firstly open regionalism does not mean ‘free admission’. Economists of

non-member economies often object to the term because APEC does not admit

countries applying for the APEC membership. The author does not deny the desirability

of admitting any applicant who fulfills all the requirements for membership. However,

any group needs to constrain its membership so that it maintains integrity and effective

working of the group. Broadening and deepening need to be balanced as we witness in

the history of European Union.

More important than membership is the applicability of benefits which accrue

from APEC. A good example is the application of the APEC liberalization to both

members and non-members on the MFN basis, thereby resulting in non-discrimination

at all. This was recommended for all APEC members since the APEC liberalization was

delivered unilaterally. This perception was widely shared in the western Pacific. As a

matter of fact the author once characterized its new modality as follows under the name

of ‘Open Economic Association’(OEA);(Yamazawa 1992)

-open in that its structure and policies do not lead to discrimination against trade and

investment with the rest of the world

-economic in its primary policy focus

-a voluntary association in that its members do not cede sovereignty to any

supranational regional institution.

This provides a new type of regional integration different from free trade area

which does not discriminate against non-members and is strengthened by facilitation

and Ecotech. However, this perception of open regionalism was not shared by

American economists who claimed that effective liberalization was not usually

delivered unilaterally and on the MFN basis. As a matter of fact the United States has

committed no liberalization beyond the Uruguay Round agreement in its IAP. They also

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pointed out that such modality will encourage free-riding (that is, suspending own

liberalization but benefiting from other’s liberalization) and that it is constrained by the

parlamentary procedure in the United States.

This perceptional gap regarding the APEC liberalization has not been resolved

between the two sides of the Pacific. But the revisions of the IAPs for the past years

by all APEC members tell us that only a little liberalization has been delivered under the

APEC modality of unilateral liberalization. Indeed we have witnessed that the

liberalization in difficult sectors would never be delivered unilaterally and applied on

the MFN basis. This is certainly a limit to the current modality of APEC liberalization.

However, this APEC modality will be effective in implementing facilitation measures

where are free from discriminatory impact on non-members (Yamazawa, 1996).

Thus it would be too strict if we define the open regionalism as the MFN

application of the liberalization. More practical definition of open regionalism will be

delivered by rephrasing it as ‘open regional cooperation’, that is ‘promoting regional

cooperation consistently with the multilateral rules such as WTO, World Bank, and IMF.

The catalyst role of APEC suggested in the previous section well fit this concept of open

regionalism. It also fit the current state of Asia pacific economies. Because of their

long-term interdependence on trade and investment links with outside the region, Asia

Pacific economies have shown great interest in global trade liberalization and have

participated actively in the Uruguay Round negotiations. The Osaka Action Agenda

confirmed ‘consistency with multilateral liberalization’ as one of its general principles.

The open regional cooperation is the most workable concept of APEC’s open

regionalism.

6. How to incorporate sub-regional trading arrangements with APEC

During the last decade we witnessed the prevalence of sub-regional grouping

proposals within APEC region. The prevalence of FTAs has been a global tendency

since the last decade. One hundred and twenty FTAs were reported to GATT/WTO by

May 2000, more than a half of which were formed in the latter half of the 1990s. Two

APEC members, Singapore and Mexico have been most active in proposing to form

FTAs either with other APEC members (Singapore-New Zealand, Singapore-Japan,

Singapore-the United States, and Mexico-Japan) or with non-APEC members

(Mexico-EU). Japan and Korea have started to seek FTA relationship with other APEC

members such as Japan with Singapore, Mexico, Malaysia, Philippines, Thailand, and

Korea, and Korea with Chile and Thailand. The two countries were late comers in the

FTA initiatives. As a matter of fact it was only five East Asian economies, China, Hong

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Kong, and Taiwan as well as Japan and Korea, which have not formed FTAs either

bilaterally or multilaterally until 2000. In addition, there have recently emerged regional

grouping proposal of a broader coverage in East Asia such as China-ASEAN,

Japan-ASEAN, Korea-ASEAN, Japan-Korea-China, ASEAN plus Three s well as East

Asian Free Trade Area (covering the whole East Asia).

Some outside observers warn against its possible erosion of the APEC’s fragile

efforts for liberalization. They contend that new bilateral FTAs are inconsistent with the

Bogor goal and will impede their liberalization efforts under WTO. East Asian Free

Trade Bloc will become inward looking so that it will discriminate against non-East

Asian members of APEC and thus stimulate similar regional grouping in the other

region, especially in North and South America, and APEC will fall apart into Free Trade

Area of America and East Asian FTA.

The FTA initiatives are criticized against its inconsistency with the multilateral

liberalization because it incurs trade diverting effects mainly to non-member countries.

This is based on the negative static effects of the elimination of tariffs and non-tariff

measures between members resulting from the formation of FTA but many economists

admit it is likely to be more than offset by positive dynamic effects of intensified

competition, economies of greater scale, promotion of investment and technology flow.

Furthermore, the criticism is addressed to the conventional FTA defined by Article 24 of

GATT. Nowadays many of the current FTA initiatives aim to include a greater coverage

such as investment and services, rules of origin, harmonization of rules and standards,

intellectual property rights, and dispute settlement mechanism as well as tariffs and

NTM as has been given a new name of Comprehensive Economic Partnership (CEP)

agreement aiming at pursuing the dynamic effects.

The dynamic effects of a FTA is realized only through structural changes of

status quo and inevitably meets strong resistance by vested interest groups at home. It

succeeds only through breaking their resistance, which is common to the WTO

liberalization. In this respect forming a FTA serves as a laboratory of breaking through

domestic resistance and thus contribute to the preparation for liberalization under a

greater coverage such as APEC and WTO.

An FTA incurs a negative trade diversion effect to non-members and thus

introduces discrimination within APEC. Critics of the new FTAs insist that, under the

name of open regionalism, liberalization and other measures of the FTA should be

applied to non-members on Most Favored Nations (MFN) basis so that there will

result in no discrimination. Indeed, it is ideal for a sub-regional FTA to be applied to

non-member APEC economies on MFN basis, which, however, does not take into

１５

consideration the difficulty of breaking through the vested interest groups at home.

Furthermore no existing FTAs, NAFTA, ANZCER, and AFTA, are applied on MFN

basis. It is unfair if the stricter rule is applied only to late comers.

Having recognized this difficulty in practicing the liberalization on MFN basis,

the EPG Report III proposed ‘Open Sub-Regionalism’ to be applied to SRTAs within

APEC admitting both MFN treatment and reciprocal FTA treatment in applying the

liberalization. The Bogor Declaration called on the EPG “to review the

interrelationships between APEC and the existing sub-regional arrangements (NAFTA,

ANZCERTA, and AFTA) and to examine possible options to prevent obstacles to each

other and to promote consistency in their relations”. (APEC Leaders’ Declaration 1994)

The Third EPG Report emphasizes that any SRTA acceleration or linkage must be fully

consistent with the WTO (APEC/EPG 1995). It recommends that any new SRTA

initiatives within APEC be promptly submitted to the WTO for confirmation that they

meet this test and for surveillance of their performance in practice.

It also recommends that any SRTA acceleration or linkage be extended to other

APEC economies under the non-mutually exclusive four-part formula already proposed

by the EPG for the extension of APEC liberalization itself to nonmembers of the

broader grouping:

---SRTA members should implement their acceleration or linkage via unilateral (and

hence MFN) liberalization to the maximum possible extent;

---each SRTA acceleration or linkage should be accompanied by a clear policy statement

by the member economies that they intend to continue reducing their trade barriers to

other APEC members as well as to other members of their SRTA;

---each SRTA acceleration or linkage should be accompanied by the respective group’s

indication of a willingness to extend its new liberalization to other APEC members on a

reciprocal basis;

---any individual SRTA member can unilaterally extend its SRTA acceleration or linkage

to other APEC economies n a conditional or unconditional basis. It would have to do so

to all non-APEC members as well if it were to proceed on an unconditional basis,

however, because the WTO does not permit selective extension of preferences to

nonmembers of an SRTA.

The proposal for a FTA for APEC (FTAAP) made recently by some economists

and businessmen seems to be along this line. In order to strengthen the weakened

momentum in APEC for achieving the Bogor goal and to prevent the bi- and

sub-regional FTAs prevalent among APEC members from distorting trade and

investment and dividing the Asia-Pacific, they argue APEC should tackle a new attempt,

１６

negotiation for FTAAP, departing from traditional non-binding and open regionalism

approach. They detail the design of FTAAP.

It seems to me that FTAAP is beyond the current capacity of APEC. I share with

them the need for strengthening momentum for achieving the Bogor Goal and the

concern about possible trade and investment distortion by the FTA moves among APEC

members. But we witness severe conflicts of interest between APEC members. APEC

trade ministers support the Doha Development Agenda (DDA) in general but have not

been able to resolve the conflicts in difficult areas. I cannot see why APEC ministers

can agree on major DDA issues within the FTAAP framework before they do in Geneva.

I would like to see more catalyst efforts to resolve these conflicts within APEC in order

to support the feasibility of FTAAP.

After all, the FTAAP proposal seems to be a hasty approach and it may endanger

the APEC framework itself. Rather I would like to take advantage of current momentum

for bi- and sub-regional FTA moves among APEC members and cleverly guide them in

the direction consistent with multilateral rules and serving as a laboratory for breaking

through domestic resistance. That is along the line of Trade Forum Proposal for an

APEC Common Understanding on FTAs (PECC Trade Forum 2003). APEC should

remain a catalyst rather than playing a negotiator role itself.

The momentum for East Asian regionalism has increased recently to the extent that

a roadmap towards East Asia FTA or Economic Community is often mentioned. This

reflects economic reality in the region. First it has resulted from increased economic

interdependence in the region, which was strengthened through East Asian Miracle and

continued over the Asian crisis in 1997-98. China’s entry to WTO in 2001 has

accelerated the integration of the Chinese economy to the region’s business network.

These will lead to the evolution of East Asian economic sphere, apart from a FTA.

During the crisis East Asian economies realized the need for effective cooperation with

neighbors so that the momentum for regional cooperation has emerged in the recovery

process from the crisis. That is the reason why ASEAN plus Three initiated with

currency swap agreement at the Chiang Mai Initiative May 2000. The cooperation will

be extended to technical assistance to strengthening financial systems of individual

economies, facilitation of trade and investment and capacity building. The elimination

of tariffs and NTMs will come at a later stage to complete the East Asian FTA.

The benefit of regional cooperation accrues from scale economy and its dynamic

impacts and a better economic rationale exists for greater regional cooperation,

Japan-ASEAN FTA than bilateral FTAs with Japan and individual ASEAN members.

Since major Japanese firms have already established their production units in individual

１７

ASEAN economies, bilateral FTAs are unlikely to stimulate additional investment by

them. Once ASEAN member economies are integrated into a single ASEAN market

under a Japan-ASEAN FTA, It will produce a variety of new business opportunity for

those Japanese firms to invest in a more efficient network of division of labor across

borders (JETRO/IDE 2003). Similarly, ASEAN plus Three will produce a greater

economic effect than individual pairs of ASEAN plus one.

However, East Asia FTA is still a remote goal. Neither ASEAN nor China are

ready for going into a deeper integration of CEP type due to economic differences

within themselves. In order to proceed to a deeper integration of CEP type, they have to

implement facilitation measures and capacity building as well as liberalization, which

they cannot provide sufficiently by themselves. ASEAN plus Three has so far

implemented only currency swap agreement. Instead of developing their own

framework for providing facilitation and capacity building, they can look to APEC and

its ongoing task force activities for these measures. It will benefit non-East Asian APEC

members from bringing APEC’s open regionalism to East Asian sphere by responding

those requests from ASEAN plus Three, rather than rejecting momentum of regionalism

and killingdynamism in East Asia,.

7. Mid-term Stock-taking

The IAP practice has continued with its CUL modality. APEC member

governments have continued to submit revised versions of their IAPs annually, whose

content has improved steadily. The CTI’s (Commttee for Trade and Investment) project

team prepared a Style Guide for Presentation of IAP Templates which encouraged all

IAPs to follow the same broad tabular format;12

- A brief overview statement of the economy’s vision/policy approach to the area

- A table which outlines improvements implemented over the preceding year, the

current situation and planned further improvements against specified reporting

criteria

- A table providing base-year information for that area of the economy and

cumulative improvements made towards Bogor goals against specified reporting

criteria

There still remains room for some member governments to follow this format

thoroughly. As the IAPs are improved along this line, they will provide both

12 Prototype IAP Project: Development of Formats, CTI, 14 March 2000.

１８

policymakers and business people with useful information about the trade and

investment environment of individual APEC economies and give a clear indication of

the progress being made toward the Bogor goals.

The joint ministerial statement of 2000 commended the e-IAP initiative ( IAPs

in the prototype format on the APEC website) as an effective mean to make IAPs more

transparent, specific and comprehensive.13 Ministers agreed for all members to use the

new e-IAP system for their future IAP submission.

A peer review process within SOM had started since 1999 in which individual

member governments submit their IAPs for peer reviews at CTI meetings. In Shanghai

APEC in 2001, the Midterm Stocktake started to prepare to meet the first deadline of the

Bogor Goal in ten years. A small team was formed to review individual member’s IAP,

consisting of one senior official of different member, one consultant expert, and one

from APEC Secretariat. The author participated in a team on Australia’s IAP and

experienced this practice. The review was mainly based on the detailed check of the

most recent IAP report and hearing from the government offices, taking into account

comments and questions on the IAP by other members. The report was submitted to a

SOM and exposed to further comments and discussion. The drafting of the report differ

between teams, some following the WTO’s Trade Policy Review practice. While WTO’s

TPR indicates departures from WTO rules and urge the removal of the gaps, APEC’s

Peer Review identifies individual economy’s domestic conditions impeding

liberalization and facilitation to be understood by other members but does not request

quick harmonization. Bogor Goal and OAA contain ambiguity and flexibility and not

decide winners but encourage all economies continue achieving the goal.

The SOM report on the Midterm Stocktake summarized, in less critical tone as;

“APEC economies have achieved significant liberalization and facilitation of trade and

investment since 1994. Multilateral, regional, bilateral and unilateral initiatives all have

contributed to a more open regional environment. Tariff and NTM have been removed

in many cases and lowered in many others, though liberalization has clearly been more

successful in some sectors than others. Foreign investment has been liberalized.

Outcomes in a range of other areas designated by the OAA, such as services,

competition policy, intellectual property rights and customs procedures have improved.

Economic and technical cooperation activities have developed in parallel to the progress

made on the liberalization and facilitation fronts. The rewards from these policy choices

13 Twelfth APEC Ministerial Meeting: Joint Statement, Bandar Seri Begawan, Brunei

Darussalam 12-13 November 2000.

１９

have been substantial and have contributed to sustained economic growth and

significant welfare improvements in the region.” (APEC/SOM, 2005).

It also made it clear that this achievement has resulted not only from APEC’s efforts

but also from evolving international trade environment.

8. Conclusions

(1) APEC’s liberalization initiative has met across impediment and failure while

affected by too much expectation or hasty attempt to follow the WTO practice.

We need to guide APEC in accordance to capacity and readiness of its

members.

(2) Constrained by its original modality of voluntarism, APEC cannot be a

negotiating body but leave liberalization to WTO or FTA negotiations for

binding liberalization. However, APEC can play a catalyst role to supplement

WTO in promoting liberalization.

(3) APEC has developed facilitation and assistance to capacity building as

supplementary to liberalization in parallel with WTO, taking advantage of

regional cooperation . APEC is expected to continue its contribution in these

areas to the WTO regime.

(4) Most members of East Asia participate in APEC and East Asia has served as an

engine of dynamic development of the Asia Pacific region. The increased

momentum for East Asian regionalism reflects the dynamism emerging in the

region, but East Asian members still need technical assistance in implementing

facilitation and capacity building measures. We wish non-East Asian members

of APEC understand this reality correctly and participate in the East Asian

development.

(5) East Asian FTA is still a remote goal, constrained by economic differences

within members and immatured market economies. APEC with its existing

taskforces can help East Asian development by providing assistance to

facilitation and capacity building, thereby guiding East Asian regionalism

consistently with APEC’s open regionalism.

References

APEC/CTI, 1996: APEC Committee on Trade and Investment, APEC Individual Action

Plans: Format Guidelines

APEC/CTI, 1997: APEC Committee on Trade and Investment, 1997 Annual Report to

Ministers, Vancouver Canada, November 1997. Appendix Two: Convenor Summary

２０

Reports and Collective Action Plans

APEC/EPG, 1993: APEC/Eminent Persons Group, A Vision for APEC: Towards an Asia

Pacific Economic Community, Singapore, October.

APEC/EPG, 1994: APEC/Eminent Persons Group, Achieving the APEC Vision: Free

and Open Trade in the Asia Pacific, Singapore, August.

APEC/EPG, 1995: APEC/Eminent Persons Group, Implementing the APEC Vision,

Singapore, August.

APEC/LM, 1994: APEC Economic Leaders’ Declaration of Common Resolve, Bogor,

Indonesia

APEC/LM, 1995: APEC Economic Leaders’ Declaration for Action, Osaka, November.

APEC/LM, 1997: APEC Economic Leaders Declaration, Connecting the APEC

Community, Vancouver, Canada. November.

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Declaration, Part I, Liberalization and Facilitation/ Part II, Economic and

Technical Cooperation, November .

APEC/MM, 1996: APEC, MAPA 1996, Manila Action Plan for APEC/ Vol.II Individual

Action Plans/ Vol.III Collective Action Plans, /Vol. IV, Progress Report on APEC

Ecotech Joint Activities and Framework Declaration on Ecotech.

APEC/MM, 1997: Joint Statement by Ministers, Vancouver, November

APEC/MM, 2000: Joint Statement by Ministers, Bandar Seri Begawan, Brunei

Darussalam, November

APEC/TM, 1998: APEC Meeting of Ministers Responsible for Trade: Statement of the

Chair, Kuching, Malaysia, June

APEC/SEC, 1995. APEC Secretariat, Selected APEC Documents: 1989-1994,

Singapore.

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APEC/SOM, 2005. A Midterm Stocktake of Progress towards the Bogor Goal: Busan

Roadmap to the Bogor Goal, Nov.

Bergsten, Fred 1997. Whither APEC?: The Progress to Date and Agenda for the Future,

Institute for International Economics

____________,2000. “East Asian Regionalism: Toward a Tripartite World”, The

Economist, July 15

Dee, Philippa, Alexis Hardin and Michael Schuele, 1998. APEC Early Sectoral

Liberalization, Productivity Commission, Australia, July

IAP Study Group, 1997: APEC's Progress toward the Bogor Target: A Quantitative

Assessment of Individual Action Plans, PECC Japan Committee, Tokyo.

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IAP Study Group, 1998: APEC's Progress toward the Bogor Target: A Quantitative

Assessment of 1997 IAP/CAP. PECC Japan Committee, Tokyo.

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Comprehensive Economic Partnership, Joint Report by Japanese and ASEAN

Research Institutes, JETRO.

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Action Plan for APEC, Manila, November 1996(山澤逸平・渥美利弘訳『ＡＰＥＣ

マニラ行動計画の概観』ＰＥＣＣ日本委員会事務局刊、１９９６年３月）

PECC/Trade Policy Forum, 1995. Survey of Impediments to Trade and Investment in

the APEC Region, A Report prepared for APEC, November.

PECC/Trade Policy Forum, 2003. Proposal for an APEC Common Understanding on

FTAs, submitted to APEC.

PECC/Trade Forum/ Agriculture Trade Study Group, 2003 WTO Agriculture

Negotiations: A Proposal for Progress, PECC Issues.

Petri, Peter. 1999.”APEC and the Millenium Round”, in Yamazawa(2000)

Yamazawa, Ippei. 1992. "On Pacific Economic Integration", The Economic Journal

102(415) 1519-1529.

_____________,1996. “APEC’s New Development and Its Implications for

Nonmember Developing Countries”, The Developing Economies, Vol. XXXIV, No. 2,

June, Institute of Developing Economies, Tokyo.

_____________, "APEC's Liberalization and WTO", Australian Economic

Review, March 1997

_____________& S. Urata, 1999. “APEC’s Progress in Trade and Investment

Liberalization and Facilitation”, presented at the 25th Pacific Trade and

Development Conference in Osaka、included in Yamazawa (2000)

_____________,. 2000. Asia pacific Economic Cooperation (APEC): Challenges and

Tasks for the Twenty-first Century, Proceedings of, Routledge London.

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Asian Cooperation: Progress and Future, pp. 1-22, World Affairs Press, Beijing.

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Riyana Miranti and Denis Hew eds. APEC in the 21st Century, Institute for Southeast

Asian Studies, Singapore

２２

Table 1 List of Designated Sectors for Early Voluntary Liberalization

Notes: S&C = Standard and Conformance, Customs = Customs Procedures Ecotech = Economic and techinical cooperation,

NTM = Non-Tariff Measures HKC = Hong Kong China, C Taipei = Chinese Taipei, NZ = New Zealand * = nine priority

Sectors Objectives Nominating economies

Environmental goods and services* Tariffs, NTMs, Service, Ecotech Canada, Japan, C Taipei, USA

Chemicals* Tariffs, NTMs, S&C, Customs,

Investment

Australia, HKC, Singapore, USA

Medical equipment* Tariffs, NTMs, Ecotech Singapore, USA

Energy equipment and services* Tariffs, NTMs, Services Australia, Thailand, USA

Telecommunications* S&C USA

Toys* Tariffs, NTMs, China, HKC, Singapore, USA

Automotive products S&C, Customs, Ecotech USA

Food Tariffs, NTMs, S&C, Ecotech Australia, Canada, NZ, Thailand

Fisheries* Tariffs, NTMs, Subsidy, S&C, Ecotech Brunei, Canada, Indonesia, NZ,

Thailand

Oilseeds and oilseed products Tariffs, NTMs, Ecotech Canada, Malaysia, USA

Fertilizer Tariffs, S&C, Ecotech Canada, Japan

Gems and jewelry* Tariffs, NTMs, Thailand, C Taipei

Civil craft Tariffs, Canada

Forest products* Tariffs, S&C Canada, Indonesia, NZ, USA

Natural and synthetic rubber Tariffs, NTMs, Ecotech Japan, Thailand

２３

Table 2 Estimated Tariff Revenues of the Eight EVSL Sectors in Selected Economies

(unit: 1000 US dollars)

Economies years Environmental Fisherie

s

Forest Medical Energy Toys Gems and Chemicals Total

Goods&services products equipment equip.&serv Jewelry

Australia 1995 197,636 0 190,082 23,375 347,977 9,667 14,725 227,973 1,011,435

Canada 1996 679,773 2,025 393,938 165,887 1,214,624 5,505 20,673 1,017,095 3,499,520

HKC 1995 0 0 0 0 0 0 0 0 0

Indonesia 1994 443,043 3,501 97,589 187,286 909,276 9,137 3,426 446,592 2,099,592

Japan 1995 75,038 743,298 484,628 5,588 50,017 42,527 84,898 745,591 2,240,585

New Zealand 1996 93,533 9 63,261 24,927 140,353 12,304 2,825 91,717 428,929

Philippines 1991 256,960 10,858 107,640 20,241 376,031 7,951 9,112 296,590 1,085,383

Singapore 1995 0 0 0 0 0 0 0 0 0

Thailand 1995 796,735 411,188 226,592 234,740 1,350,468 12,015 41,392 1.316,571 4,389,701

Total 2,542,718 1170879 1,563,730 662,044 4,388,746 99,106 177,051 2,825,558 14,755,145

Sources: Nine economies are selected because of their data availability in WTO/IDB.

Tariff revenues are calculated by multiplying the amounts of dutiable imports by trade-weighted average tariffs.

Imports and tariffs are calculated so as to cover precisely items included in the EVSL sectors

The ninth sector, telecommunications, is excluded because nontariff reduction is proposed.