Can APEC Achieve Its Bogor Goals?

Ippei YAMAZAWA (President, International University of Japan)

Regionalism has recently gained momentum in East Asia. A variety of bilateral free trade areas (FTAs) have been proposed, as well as regional integration concepts, such as China-ASEAN, Japan-ASEAN, and ASEAN + 3 (China, Japan and Korea). This reflects Asia's dynamism and should help to avoid a recurrence of financial crises. On the other hand, East Asia, or ASEAN + 3, is a part of a greater concept of regional cooperation, APEC (Asia Pacific Economic Cooperation forum) which used to work as a strong engine before the crisis. What has happened to APEC? Is there a paradigm shift from APEC to ASEAN + 3? APEC has not yet come to an end and should be utilized for steady development of East Asia.

Bangkok APEC in 2003
APEC now formally incorporates 21 economies surrounding the Pacific Ocean, including Australia, New Zealand, Chile, Peru, Mexico, United States, Canada, and Russia, in addition to the East Asian economies. Last year (2003) Thailand hosted Ministerial and Leaders' Meetings in Bangkok on October 18-23. This Ministerial Meeting reviewed a variety of economic cooperation arrangements under the common theme of "A World of Differences: Partnership for the Future" and announced plans to pursue further liberalization of trade and investment border measures, concerted promotion of domestic reforms behind borders, economic and technical cooperation in capacity building and strengthening financial systems. The Leaders' Meeting also focused on counter-terrorism and security issues and delivered the "APEC Leaders' Declaration on Health and Security".¹⁾

Counter-terrorism and security have become more emphasized at APEC under the initiative of the United States. While Asian members also pay much attention to these matters, they seem to be more concerned about economic issues, focusing on steady recovery from the set back caused by the 1997-98 crisis. Their economic growth has become self-sustaining, recently based more on domestic demand than export. The higher priority on economic growth by East Asians needs to be apprehended more by Americans.

Ambitious commitment in Bogor
APEC gained its biggest momentum during the years 1993-1996. APEC made a modest start in 1989 with an annual meeting of foreign and trade ministers of 12 member economies, focusing mainly on economic cooperation. Its momentum increased in 1993 – 1996. The Leaders' Meeting was initiated in Seattle in 1993, the ambitious Bogor Declaration was delivered by President Suharto in 1994, the guide lines embodied in the Osaka Action Agenda, were adopted in 1995, and the Manila Action Plan, designed to implement this agenda, was jointly prepared in 1996. At Bogor, the APEC leaders committed themselves to achieving ‘free and open trade in the region' by 2010/2020, 2010 being the deadline for developed members and 2020 for the rest of the APEC members. This seemed to open up great potential for Asia Pacific cooperation. What has happened to this ambitious declaration?

APEC has a unique modality of implementing liberalization. This is described as the ‘concerted unilateral liberalization' (CUL). That is to say, individual member governments unilaterally announce their own liberalization and facilitation programs and implement them in accordance with their domestic rules. However, individual APEC members closely watch each other's liberalization program and its implementation. They then feel obliged to prepare liberalization programs as large as those of their neighbors. They are subsequently encouraged to implement what they have committed. APEC thus relies upon ‘peer pressure' to urge all members to join the liberalization process. This modality has been criticized as ‘unassertive' in comparison with the Western approach of negotiating (as in GATT and WTO) liberalization agreements which are legally binding, so that the signatories will be punished and suffer sanctions if they fail to implement their commitments. At the initial stage this legalistic approach could not be accepted by Asian members.

However, APEC's momentum turned downward in 1997. The Individual Action Plans (IAPs), individual members' unilateral liberalization programs based on the Manila Action Plan, did not go far beyond the Uruguay Round commitment. Another liberalization program, which was proposed in 1997, to supplement the IAPs, the early Voluntary Sector Liberalization (EVSL), actually failed to be realized because of the conflict between major participants in 1998.²⁾ The East Asian crisis in 1997-1998 hit East Asian economies, a leading APEC group with high growth potential, and APEC finance ministers were not at all prepared to defend member economies against such currency disturbances. Domestic resistance tended to decelerate liberalization efforts in these crisis-hit economies. The WTO Ministerial Meeting in Seattle failed to launch the new millennium round negotiations in December 1999. Although APEC leaders endorsed the importance of the new WTO round, their trade ministers could not agree on a specific agenda for the negotiations due to conflicts of interest between APEC member economies.

A paradigm shift from APEC to ASEAN + 3?
Ten years have passed since the Bogor Declaration and its first deadline of 2010 is approaching. President Suharto and other leaders have already left the scene. What has happened to their ambitious commitment? Quite a few Asian governments seem to have abandoned APEC and look to ASEAN + 3 or other forms of sub-regional groupings.

However, the pessimistic views about APEC which we hear occasionally nowadays are overly affected by poor fluctuations of expectation, ignoring the precise capability of APEC. The recent poor performance of APEC in liberalization has certainly revealed that APEC is not a negotiating body and cannot accomplish much alone in the liberalization area. Hadi Seosastro of CSIS Jakarta proposes a change from ‘V-APEC (voluntary)' to B-APEC (binding)' so that APEC goes beyond unilateral liberalization. In the meantime APEC can still contribute to liberalization under WTO by acting as a catalyst.

Strengthening peer review process of the IAPs
APEC officials, that is, government officials working on APEC in individual member economies, have not yet given up the idea of progressing towards the Bogor Goals. The APEC Senior Officials Meeting (SOM) has been conducting peer reviews of individual members' IAPs on a voluntary basis since 1999 so as to encourage individual members' progress toward the Bogor Goals. At the Shanghai APEC meeting in 2001, Japan subsequently proposed to strengthen this peer review process by covering all member IAPs on schedule so as to urge individual member economies to make further efforts to achieve the Bogor Goals. Under this process, an IAP review team formed by senior officials of other member economies, the APEC secretariat, and a consultant expert on each member's IAP interviews APEC officials of the member economy under review and drafts reports on their assessment of the economy's progress toward the Bogor Goals.

The report is submitted for open discussion at a senior officials meeting. The IAPs of Mexico and Japan were thus ‘peer reviewed' in 2002, those of Australia, Canada, and Thailand were reviewed at the SOM in February 2003, and those of Hong Kong (China), Korea, New Zealand were reviewed in August 2003. It is planed to cover Chile, China, Peru, Singapore, Taipei, and the United States in 2004 and the remaining seven member economies by the first SOM in 2005, completing a mid-term stock-take within 2005 on overall progress towards meeting the Bogor Goals.

Private sector economists in member economies have been invited to participate in this strengthened peer review process as consultant experts. I participated in the peer review team on Australia, drafted its original report, presented it at the SOM, and witnessed the peer review process last year. All completed peer review reports are available on the APEC Secretariat's website. My assessment describes Australia as actively pursuing the Bogor Goal while constrained by its unique domestic circumstances. Australia is cautious in its approach to quarantine and SPS measures in order to maintain the natural plant and animal endowments of an isolated continent. Australia has maintained its traditional federalism, which means legislative and regulatory responsibility for such issues as Government Procurement, Investment and certain services sectors are split between the Commonwealth and State/Territory governments. Foreign companies and investors find this system difficult to negotiate.

Peer review reports are lenient to developing member economies in general, understanding their adjustment difficulties and encouraging them to liberalizing by steps. After all, APEC's IAP Peer Review differs from WTO's Trade Policy Review. TPR indicates departures from an economy's trade and investment policy from WTO rules and urges the economy to remove the gaps.³⁾ On the other hand, APEC's IAPs contains an economy's liberalization and facilitation efforts, reflecting its unique domestic conditions and does not request their quick harmonization. Both the Bogor Goals and the Osaka Action Agenda contain ambiguities and flexibility, some deliberate and some unintentional. APEC's modality is not to re-define them strictly and to decide who will pass and who will fail, but to encourage as many members as possible to continue their efforts to reach the Bogor Goals. This is the fundamental objective of the IAP Peer Review. The Bogor Goals will help APEC members to achieve free and open trade in the region.

Trade Facilitation and Coordinated Capacity Building
As regards facilitation areas such as customs procedures, standards and conformance, and business visas, the prospect of achieving the Bogor Goals is much brighter thanks to the Collective Action Plans (CAPs) implemented jointly by member economies. CAPs set detailed targets for harmonization among member economies: Mutual Recognition Agreements (MRAs) on conformity assessment of food products and electronic equipment in standards and conformance, harmonized system conventions and paper-less customs clearance in customs procedures, and APEC Business Travel Cards in facilitating business trips.

Several member economies are implementing the APEC Trade Facilitation Action Plan (TFAP) in order to quantify the benefits of various trade facilitation measures so as to ensure APEC meets the Leaders' target of reducing business transaction costs by 5 percent by 2006. On the other hand, the United States has been introducing stricter inspection measures for airline passengers and ship cargos to prevent terrorist attacks and insists that other APEC members follow suit. These strengthened counter-terrorism measures will tend to increase transaction costs.

APEC will also benefit developing member economies through a variety of economic and technical cooperation (Ecotech) measures such as human resource development, capacity building for knowledge-based economies, strengthening domestic financial systems, supporting small and medium enterprises, environmental protection, human security, and so on.

APEC helps East Asian regionalism
Facilitation and Ecotech measures cannot be provided properly within regional cooperation groups consisting of only developing economies. This is a clear advantage of APEC embracing both developing and developed economies. ASEAN + 3, with its major members all belonging to APEC, should keep their close contact with APEC and take advantage of these benefits.

It will be difficult to change the voluntarism of APEC and introduce compulsory action by persuading all 21 members. However, APEC ministers have acknowledged the important role of Path-finder Initiatives that allow economies that are ready to initiate and implement the cooperative arrangements to proceed to do so, while those that are not yet ready to participate may join at a later date. These Path-finder Initiatives have already started in areas such as ‘APEC policies on Trade and the Digital Economy', Digital Piracy Initiative', and APEC Sectoral Food Mutual Recognition Arrangement (MRA). They first establish the best practices in selected areas among prepared members and encourage other members to participate. This Path-finder Initiatives will help the V-APEC to transform itself to a more effective B-APEC.

1) Both Leaders' Declaration and Joint Ministerial Statement are available on the website of APEC Secretariat www.apecsec.org.sg

2) Detailed analyses of both the implementation of the IAPs and the failure of EVSL are available in Yamazawa, I. and S.Urata, "APEC's Progress in Trade and Investment Liberalization and Facilitation", Yamazawa, I. ed. Challenges and Tasks for the Twenty-First Century, London Routledge, 2000.

3) Each individual member country's trade policy is reviewed by the WTO Secretariat every four years and available on the website of the WTO Secretariat.

(This paper has been contributed to the Harvard Asia Pacific Review, 2004)