Open Regionalism and APEC: Rhetoric and Reality

Author(s): Saman Kelegama

Source: Economic and Political Weekly, Vol. 35, No. 51 (Dec. 16-22, 2000), pp. 4525-4533
Published by: Economic and Political Weekly
Stable URL: http://www.jstor.org/stable/4410085
Accessed: 08-10-2017 07:47 UTC

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide
range of content in a trusted digital archive. We use information technology and tools to increase productivity and
facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at
http://about.jstor.org/terms

Economic and Political Weekly is collaborating with JSTOR to digitize, preserve and extend
access to Economic and Political Weekly

This content downloaded from 112.196.191.88 on Sun, 08 Oct 2017 07:47:49 UTC
All use subject to http://about.jstor.org/terms
 Open Regionalism and APEC
Rhetoric and Reality
APEC has now functioned for more than one decade but its record is not very impressive. Th
article argues that the operational aspects of APEC have clearly highlighted the
limitations of APEC's governing framework, i e, open regionalism. The paper shows tha
APEC's trade liberalisation strategy is a frail initiative and argues that APEC might be bet
off focusing on deep economic integration issues.
SAMAN KELEGAMA

lems of contemporary trade policy: how not received attention is the operational
Introduction to achieve compatibility between multipli- side of the concept. This is a serious
cation of regional arrangements around omission because the main proponents of
he globalised economy, increasingly the world and the global trading system the concept have argued that in the current
as embodied in the WTO. The concept global context, the "...concept of 'open
characterised by trade liberalisation,
is witnessing an increasing number seeks to ensure that regional arrangements regionalism' can... be turned into an opera-
of regional arrangements.l One explana- will be in practice 'building blocs' rather tional and highly significant policy
than 'stumbling blocs' for further global programme. ...It may turn out to be the
tion for this proliferation is the widely held
view that regional integration is a pre- liberalisation [Bergsten 1997]. most promising international trade strat-
condition for long run growth, because So, what is open regionalism? Although egy for the early 21st century" [Bergsten
national markets are usually too small for the concept could be defined in various 1997:546]. This claim of Bergsten is not
firms to exploit economies of scale and forms and applied to cover a broad range based on comprehensive evidence of open
specialisation. However, another reasonofisissues relevant to trade and investment regionalism. The definitions of open
the 'domino effect' [a la, Baldwin 1995] (Sections II and IV), the simplest defini- regionalism used by the author are APEC
of proliferation of regional arrangements tion would suffice for the moment. Simply specific and the APEC's framework seems
alongside efforts at multilateral trade put, open regionalism is trade liberalisation to have been generalised for emulation by
liberalisation. The protracted nature among of the member countries in the region other regional groupings. It is argued in
negotiations under the Uruguay Round on a most favoured nation (MFN) basis the paper that APEC's attempts to put open
also gave momentum to the formationunilaterally
of without asking for reciprocity regionalism into practice have exposed the
regional arrangements in the 1980s. Most from non-members. weak foundations of the concept and its
of these arrangements were preferentialIt is argued that open regionalism is a limitations.
trading arrangements in the form of a free flexible arrangement that is more member- The paper is organised as follows. Sec-
trade area, customs union, common mar- friendly than neo-liberal regionalist ar- tion II provides a synopsis of the evolution
ket or an economic union. rangements such as preferential trading and practice of open regionalism. Section
After the completion of the Uruguayarrangements, free trade areas, and so on. III discusses implementing open region-
Round, a favoured argument against theseThere are no laws and binding contracts alism in the APEC. Section IV highlights
regional arrangements was that they wouldand decisions are made by consensus.3 the limitations and the problems of open
impede multilateral trade reform efforts ofCompliance to any commitment is volun- regionalism. Section V provides some
the WTO. At the heart of the argument wastary and there is no rigid institutional concluding remarks.
the concern that preferential trade will structure and bureaucratic set-up to specify
cause trade to flow in inefficient ways orobligations. For example, in the modem II
lead to trade diversion, i e, sourcing of aday world where 'slicing of the value added Open Regionalism: Evolution
good switching from an efficient producerchain' [a la Krugman 1995] characterise and Practice
in the rest of the world to an inefficient most production processes, determining a
producer within the trading bloc. Another product's origin has become difficult. For Asia-Pacific economic integration phe-
concern was that the regional bloc might open regionalism this is not a problem as nomenon from 1960s to the 1980s led to
raise barriers to non-members creating a there are no rules of origin governing trade. a vast body of literature and also gave birth
protectionist bloc.2 This will not complicate global rules by to the concept of open regionalism. Open
In a global environment characterised by creating a 'spaghetti bowl' of overlapping regionalism was devised as a WTO con-
these features, a new form of regionalism rules of origins under preferential trade, sistent framework to further strengthen
came into the picture in the late 1980s/ distorting global investment decisions. economic integration in the Asia and Pacific
early 1990s called 'open regionalism'. Although there is a growing body of for mutual gains. It is argued that market
According to the key proponents of the literature on open regionalism [Ariff 1994a; driven integration is a powerful force of
idea of open regionalism it represents an Garnaut 1994; Eleke 1995; Bergsten 1997; economic cohesion and despite the im-
effort to resolve one of the central prob- and others] an important aspect that has mense geographical spread around the

Economic and Political Weekly December 16, 2000 4525

This content downloaded from 112.196.191.88 on Sun, 08 Oct 2017 07:47:49 UTC
All use subject to http://about.jstor.org/terms
Pacific and great diversity among coun- own action they could pressurise WTO to
were of the view that until policy-oriented
tries in terms of size, natural resource en- deep integration issues are incorporated expedite
in the multilateral liberalisation
dowment, and different cultures, it was the WTO, they should be addressed out- process. APEC however, did not consider
instrumental in shaping the growth of side the WTO umbrella. shallow integration in isolation, but com-
economic cooperation in the Asia-Pacific With this thinking, open regionalism bined shallow integration with a strategic
for several decades. It is also argued that objective. The overall strategic objective
was initially devised to focus only on deep
because of inherent economic comple- integration issues. At least this was ofthethe APEC as articulated by the Eminent
mentarity within the group, intra-regional case with APEC - the first forum to put Persons Group was to catalyse and domi-
trade and investment have grown [Garnaut open regionalism into practice. But after
nate future global negotiations, rather than
1994]. 1993, the concept was widened to cover to deny any of the benefits of its actions
The Pacific Economic Cooperation shallow integration as well (Section III).
to non-participants. In other words, the
Council (PECC) - the precursor to APEC And in the APEC, shallow integration most important objective was to create
- functioned for nearly a decade as an seems to have- gradually overtaken deep incentives for a positive response to trade
informal arrangement before APEC was liberalisation from the rest of the world
integration in the current debates on open
formed addressing key impediments to [EPG 1994].
regionalism. So strictly speaking both
trade and investment in the region. It argued shallow and deep integration are coveredIt may be appropriate to examine how
that rapid economic integration depends open regionalism has been put into prac-
under this concept but in general parlance
upon the free functioning of intra-regional the definition of open regionalism tice is in the past. Open regionalism, in
market forces and the ways in which at- associated with shallow integration. practice, as adopted by APEC has four
tempts made to stimulate the process of Renato Ruggerio, Director General components:
of (1) trade liberalisation (non-
integration, are designed and implemented the WTO defined open regionalism discriminatory
as: against non-members),
[Shand and Kalirajan 1997]. "...the gradual elimination of internal (2) trade and investment facilitation,
With a degree of certainty coming into barriers to trade within a regional grouping (3) economic and technical cooperation
the global trading environment after the ... at more or less the same rate and on the (Ecotech), and (4) trade and investment
completion of the Uruguay Round in late same time table as lowering of barriers dialogue. Component (1) addresses shal-
1993, there were attempts to visualise towards non-members. This would mean low integration and the other three address
impediments to trade from a WTO con- the regional liberalisation would in prac-deep integration.
sistent framework. Lawrence (1993), for tice as well as in law be generally consis- Trade liberalisation is the key compo-
instance, visualised impediments to trade tent with the MFN principle" [WTOnent among the four ever since shallow
from the perspective of economic integra- 1996:11; as quoted in Panagariya 1999]. integration dominated the APEC's agenda.
tion. He categorised these impediments Trade liberalisation is undertaken on a
This is the most faithful definition of open
into two types, viz, border impediments to non-discriminatory basis towards non-
regionalism used by its initial proponents
integration or what is called impediments such as Garnaut (1994) and Elke (1995), members. In other words, trade
to 'shallow integration, which consist liberalisation is unilateral. In the APEC,
and compatible with the concept of 'Open
mainly of tariff and non-tariff barriers. The Economic Association' where the associa- trade liberalisation is well defined accord-
other is impediments to "deeper integra- tion continuously relies on unilateral ac-ing to a timetable. The Bogor declaration
tion" or impediments'to integration caused in 1994 set an agenda for APEC in the area
tion rather than negotiations. This strategy
by divergences in domestic policy and relies on economic self-interest of indi- of trade liberalisation where all developed
level of development. Policy induced member countries were to reduce their
vidual countries in liberalising and, to the
divergences by competition policy, indus- extent that it concerns itself at all with the
tariffs to zero by 2010, and developing
trial structure, etc, are hardly amenable to behaviour of trading partners, relies on
countries by the year 2020.
trade negotiations. So are poor infrastruc- peer pressure and demonstration effects to Trade and investment facilitation mea-
ture, low technical skills, etc, which are sures are undertaken to facilitate trade
encourage them to follow suit [Garnaut
results of a low level of development. 1994]. liberalisation. The objectives are to make
There was a clear understanding among Why did APEC decide to embark on the trade and investment regimes more
economists during the early 1990s (before shallow integration? As is well known, the transparent and to harmonise them among
the completion of the Uruguay Round) that primary objective of the WTO is to set non- member countries in the long run. For this
the GATT should handle shallow integra- discriminatory multilateral rules for trade purpose the basic steps are sharing infor-
tion issues. The debate was whether or not
liberalisation in goods and services in a mation on trade finance, investment
to grant the GATT a monopoly in 'shallow dynamic framework of emerging issues regime, intellectual property, procurement
integration'. Barriers caused by divergences affecting international transactions. How- procedures, customs regulations, quaran-
in domestic policy and the level of develop- ever, there were fears among developed tine requirements, etc, and then preparing
ment were not part of the multilateral countries that the multilateral framework compendia for the region before steps are
agenda of the GATT. After the WTO was for liberalisation under WTO will be a long. taken to harmonise standards.
formed in 1995, there were attempts by dragged-out process like the Uruguay Economic and Technical Cooperation
some developed countries to bring in Round. Thus, the APEC group which traded involves identifying specific areas for
policy-oriented deep integration issues such together intensively, felt the need to ad- economic and technical cooperation with
as, competition policy, government pro- dress impediments to trade liberalisation a view to building capacity for trade and
curement procedures, etc, into the WTO by itself due to the fear that the WTO investment cooperation.5 Most projects
agenda.4 But due to opposition and delays process of multilateral liberalisation will undertaken by Working Groups (in APEC)
in the WTO, some developed countries take a long time. They also felt that by their will lead to recommendations on sectoral

4526 Economic and Political Weekly December 16, 2000

This content downloaded from 112.196.191.88 on Sun, 08 Oct 2017 07:47:49 UTC
All use subject to http://about.jstor.org/terms
cooperation and specify economic and an institution and the former Australian proach to voluntary trade liberalisation
technical issues (see Figure). Foreign Ministerjovially referred to APEC because they were of the view that each
Trade and Investment Dialogue: Re- as 'four adjectives in search of a noun'.country should be allowed to move at its
gional arrangements have the tendency It was originally envisaged as a non-ne-preferred pace to reach the final destina-
to oscillate between short-lived euphoria gotiating body with the objective of focus-tion. Developing member countries were
and agonisingly protracted stalemates ing on 'deep integration' issues to of the view that they should not be forced
[Schneider and Cederman 1994]. In order strengthen market integration in the region. to liberalise before they are fully ready to
to avoid this and to keep the enthusiasm "When APEC was first established... do so. The term used to describe the
going in regard to follow-up action, regular Ecotech was identified as the main com-
approach was 'concerted unilateralism'.
meetings of government officials, busi- ponent of the APEC work programme. By the time of the Osaka Summit in
nessmen, and academia are encouraged. Since that time liberalisation and facilita- 1995, APEC's liberalisation strategy be-
This component is a new addition to the tion programmes have emerged as equalcame clearer. APEC chose its modality as
operational side of open regionalism. partners in the overall APEC agenda"non-confrontational and cooperative. Con-
As stated, (1) above is the key compo- [ESCAP 1998:115]. As stated, APEC has sequently, the 'concerted unilateral' ap-
nent of operationalising open regionalism now evolved beyond what was envisioned proach of the Asian members not only
and it could be considered as the contro- in the first summit in Canberra in 1989. gained acceptance but its definition ex-
versial element. Other components basi- APEC's fifth summit at Seattle, the US, tended to include selected sectors for
cally focus on the deep integration side ofwhich president Clinton personally chaired, protection. Japan, Taiwan, South Korea,
and the Eminent Persons Group Report of and China wanted special treatment for
open regionalism. In the next section, after
a brief introduction to APEC, the paper 1994 could be considered as the turning their agriculture sector much to the dis-
will first examine the controversial ele- point of APEC in handling issues beyond pleasure of western countries. Eventually,
ment of open regionalism in some detail, 'deep integration'. the trade liberalisation strategy of APEC
and thereafter highlight some general The EPG Report gave a vision to APEC was named early voluntary sectoral liberal-
observations on the functioning style of in terms of an Asia Pacific Economic isation (EVSL) - a diluted form of trade
open regionalism. Community and an agenda for APEC to
liberalisation compared to CUVTL. Per-
dominate global trade liberalisationhaps andall the member countries.felt that this
Ill achieve free trade in the region by 2020. method would at least accommodate two

APEC: Background and political realities, i e, (a) concurrent

East Asian countries in general and ASEAN
Experience with Open in particular, were wary of the EPG liberalisation
plan by all countries may not be
to transform APEC into Asia Pacific practically possible, and (b) that certain
Regionalism
Economic Community to foster free politically
trade sensitive sectors could be set
Since its birth in 1989 in Canberra, APEC outside
and to forge close trade and investment ties the trade liberalisation agenda.
has gone a fairly long way with annual in the region [Ariff 1994b]. However,However,
the EVSL did not solve the funda-
summits in Singapore (1990), Seoul (1991), US, Australia and some other powerfulmental problem of unilateral liberalisation
Bangkok (1992), Seattle (1993), Bogor nations were able to convince APEC of - that is the 'free rider' problem. More-
(1994), Osaka (1995), Subic Bay (1996), the need for a trade liberalisation agenda
over, obtaining consensus on the sectors
Vancouver (1997), Kuala Lumpur (1998), for EVSL was also difficult.7
and the recommendation of the EPG for
and Auckland (1999). Its membership has trade liberalisation with 2010 as the dead-
On the basis of EVSL decision in Osaka,
grown from the initial 12 (Brunei, Indo- line for developed countries and 2020 forAPEC members were to come up with
nesia, Japan, Korea, Malaysia, The Phil- developing countries was accepted in theIndividual Action Plans (IAPs) for the
ippines, Singapore, Thailand, Australia, 1994 Bogor Summit.6 Ever since the Bogor Subic Bay Summit in 1996 detailing out
Canada, New Zealand, and the US) to 15 declaration 'shallow integration' domi- national programmes of unilateral trade
in 1991 (with China, Hong Kong, and nated the APEC's discussions. liberalisation to achieve the goals of the
Taiwan), to 17 in 1993 (with Mexico and The APEC's attempt to enforce unilat- Bogor declaration. The results were very
Papua New Guinea), to 18 in 1994 (with eral liberalisation after the Bogor Summitmodest. In most cases, commitment did
Chile), and to 21 in 1999 (with Peru, not go beyond standing commitments,
in 1994 shows the practical difficulties of
Vietnam, and the Russian Federation). trade liberalisation associated with 'shal- usually those made in the Uruguay Round
APEC region controlled 37.4 per cent of low integration' in open regionalism. It and most sensitive areas were avoided
world trade and intra-regional trade was first advocated in this summit that [Oxley 1996]. "The failure of many IAPs
amounted to 65 per cent in 1990 [Drysdale member countries should act in a unilateral to be little more than vague declaration of
and Garaut 1993]. APEC has a Secre- and voluntary way to reduce tariff barriers intent led APEC officials to rationalise
tariat in Singapore (established on a concurrently - concurrent unilateral vol- that they are flexible guidelines, or frame-
decision taken in 1992) and functions on untary trade liberalisation (CUVTL). In works, for liberalisation which can be
a tripartite basis (government, academic, fact, Australia and the US wanted to revisited and revised on a continuing basis
and business) and has 10 Working Groups establish comprehensive binding targetsby each member economy" [Gallant and
and two ad hoc groups on regional coop- for the pear and medium term because the Stubbs 1997:211]. This provided ample
eration on various issues (see Figure). developed member countries of the APEC proof of the fact that the EVSL process
APEC, by design, is a loosely structured were particularly worried about the 'free was not very effective.
grouping without a charter whose deci- rider' problem [Gallant and Stubs In the APEC atnnual summit in
sions are non-binding on individual mem- 1997:209]. The Asian members of the Vancouver in 1997, the east Asian finan
bers. It is more of a process and less of APEC argued for flexible unilateral ap- cial crisis dominated the formal discus-

Economic and Political Weekly December 16, 2000 4527

This content downloaded from 112.196.191.88 on Sun, 08 Oct 2017 07:47:49 UTC
All use subject to http://about.jstor.org/terms
 Figure: APEC Structure

Leaders Summit

........................................................................................................................

Meetings of other Ministers f

| Energy
? Finance
APEC Business
* Human Resources DevelopmentBusiness
Ministerial Advisory Council
* Industrial Science and Technology M tinsA
* Information Technology M
* Small and Medium Enterprises . . .*
? Sustainable Development
? Telecommunications
Trade
* Transport Senior
Officials
APEC Secretariat
Meeting

? .'

Working Committee on Trade Economic Budget and

Groups and Investment Committee
!:iiii I^Aii&ife^.^ Administration
C ommiE^at^^^s.^^^^ . teei^ ,

Customs g Standards

III 1;1 1 IR4VI I 191 1 Marine Resource

Energy 1g Fisheries | Human Resources 1 Industrial Science 1 Con
Development and Technology

I 11 1 1 1111^
Trade and Investment

|TTrade Promotion elecommun- Tourism Transportation Data

Trade Promotion ications

Soumrce. Australia APEC Study Centre.

sions of most members. The core chairman

Korea Institute of International Economic In the Kuala Lumpur APEC Summit in
of the APEC Business Advisory Council, Policy as a 'face saving device' designed 1998, the debate over trade liberalisation
Roberto Romula stated: "You can't very to avoid the harder task of crafting APEConly increased dismay about the absence
well talk about trade without the financial into a duty free zone by 2020 [Far Easternof a detailed and proactive strategy to deal
survival of your economy" [Asiaweek, Economic Review, December 4, 1997:17]with the east Asian financial crisis. APEC's
December 5, 1997:20]. The Council noted - could not hold up in the face of regionalambitious agenda was in disarray, so much
that the trade liberalisation agendas in the recession. The Asiaweek correspondentso, that prime minister, Mahathir Mohamed
IAPs were nothing more than what was concluded his survey on the Vancouverof Malaysia referred to APEC as a 'tooth-
already pledged in the Uruguay Round. summit by stating "leaders may well wishless talking shop' [as quoted in Asiaweek,
The Summit showed that EVSL - which to take a moment to consider preciselyJanuary 22, 1999:6]. Mahathir's observa-
was referred to by the president of the what the organisation can do". tions cannot be pushed aside as empty

4528 Economic and Political Weekly December 16, 2000

This content downloaded from 112.196.191.88 on Sun, 08 Oct 2017 07:47:49 UTC
All use subject to http://about.jstor.org/terms
rhetoric. Concrete achievements out of the were influenced by MAPA, remains to principle
be is incompatible with regional-
Kuala Lumpur summit were hard to come studied further. The other achievements ism. As Srinivasan (1997) notes "if
by. There was no agreement to early are mainly in the area of harmonisation ofregional liberalisation is to be extended on
voluntary trade liberalisation as was en- standards and customs procedures and other the same time table 'in practice and in law'
thusiastically expressed in Bogor. Key dec- trade'facilitation measures. Athukorala and to non-member countries on an MFN basis,
larations were very general. Hill (1998) observe that the APEC initia- it would be multilateral and not regional.
In the Auckland Summit in 1999, the tive may have had a marginal effect on F]I If that is the case, why would any group
East Timor issue dominated discussions flows. Whether this is due to the APEC initiate it on a regional basis in the first
Non-Binding Investment Principles (which
and there was a departure from discussing place?"
trade issues - which were sidelined. was endorsed by APEC trade ministers in It also exposes a member country to the
Further, the priorities of the APEC's 1994) also needs to be further investigated.'free rider' problem - non-members can
developed member countries andESCAP
its (1998:63), however, noted: have access to the markets of the members
developing ones were at odds. Action planss success to date have been mainlyof the open regional grouping without
"APEC'
for achieving Bogor objectives continued diplomatic...three most significant develop-reciprocating in terms of trade liberal-
to be more histories of past accomplish- ments that can be specifically attributed toisation. Also, open regionalism of the
ments than blue prints for new activities. APEC to be: the inclusion of China, Honggrouping cannot be reconciled with closed
The chairman of the Pacific Basin Council Kong China and Taiwan Province of Chinaregionalism of other regional blocs based
is reported to have said "let's admit it hasin one international forum, the endorse-on conventional preferential trading agree-
been a failure and consider other options"ment of Non-binding Investment Prin-ments, free trade areas, customs unions,
[Asiaweek, September 24, 1999:22, 33]. ciples, and the Bogor Declaration. None common markets, and economic unions.10
The limitations of open regionalism have of these, however, can claim to have Those whohave faith in the 'unconditional
been exposed by APEC. The global historygenerated substantial progress on economic MFN' definition of open regionalism argue
of trade liberalisation clearly shows thatindicators or in terms of output. In each that non-members will soon realise the
successful international efforts to reduce of these three cases, the 'beauty is in the political impracticability of allowing ex-
trade barriers involve international commit- process', not in the product. Even the APEC cessive 'free riding' and thus follow suit
ments which are legally binding and re-dissenters would like to see the successful by liberalising unilaterally so as to be
quire trading partners to accept similarimplementation of the Bogor Declaration,compatible with APEC [Elek 1995]. This
obligations and establish formal obliga-but given the difficulty of the task, the remains a hypothesis yet to be tested in
tions as part of a broad multilateral deal.general conclusion would be that APECpractice.
It is on this basis that the WTO operates.is a novice at trade liberalisation". From a neo-liberal theoretical perspec-
Moreover, it must also be noted that most Clearly, the APEC process does not seem tive, the 'free rider' problem can be
existing cases of regional or bilateral trade to be paying large dividends in the short ignored. It is argued that the greatest share
liberalisation are undertaken to achieve run and there is considerable question over of benefits of trade liberalisation accrues
more than just economic benefits. There its ability to pay off in the long run by to an economy taking a unilateral initia-
are often strategic and political benefits to implementing the Bogor Declaration. tive, Of and thus all countries - which do not
be won from. economic integration that course, the problems that crop up and reciprocate to such liberalisation - taking
come from reduction of barriers to trade delays in implementation are common to a free ride is considered as beneficial to
the economy undertaking unilateral
and investment. The strategic and political all regional arrangements, but in the case
goals of APEC do not seem to have con-of APEC there are no indications so far liberalisation. This is consistent with the
vinced all member countries to make lessons of international economics text-
that the pitfalls and delays are undercontrol
of the APEC forum. Some argue that APECbooks.
EVSL effective for future perceived bene-
should work on deliverables within their
fits. This has happened despite the heads Welfare gains are expected from trade
of state of APEC member countries comparative advantage and this area is creation when a formation of a Free Trade
deep integration. By working on deep Area (FTA) leads to switching of imports
providing leadership to APEC summits.
APEC's achievements up to date integration
are - as was envisaged before the from high-cost source to a low-cost source.
mainly in the areas not related to EVSL.
EPG report - APEC can complement the However, when imports switch from low-
WTO agenda.
The Osaka Action Agenda of 1995 iden- cost source to a high-cost source, trade
tified 15 areas as a framework for diversion occurs, resulting in welfare loss
liberalisation and facilitation.9 The IAPs IV to the nation in the regional agreement.
together with the collective actionLimitations
plans and Problems of In fact, De Melo, Panagaria, and Rodrik
(agreed upon during the Subic Bay Sum- (1992) have shown that a preferential FTA
Open Regionalism: APEC
mit in 1996) made up the so-called Manila is not necessarily welfare improving be-
Action Plan for APEC (MAPA) to address
Experience
cause of efficiency losses due to large trade
the 15 areas identified in 1995. ESCAP Let us take the most faithful definition diversions. Thus, a preferential FTA can
(1998) notes that the results of the MAPA
of open regionalism into consideration, improve welfare only when the welfare
i e, trade liberalisation should be non-dis- gains from trade creation exceeds the
are noteworthy in reduction of non-tariff
criminatory against non-members. In other welfare losses from trade diversion. But
barriers and in some areas of 'deep inte-
gration'. However, to what extent thesewords, all WTO members will be offered if the FTA is based on open regionalism
reductions are due to Uruguay Round
non-discriminatory treatment under MFN (i e, offers MFN for non-members) a trade
commitments and to what extent the WTO-
principle of Article 1 of the GATT. The ,diversion will not result, and the members
problem here is that adherence to the MFN of the FTA will not suffer welfare losses
plus actions of some APEC member nations

Economic and Political Weekly December 16, 2000 4529

This content downloaded from 112.196.191.88 on Sun, 08 Oct 2017 07:47:49 UTC
All use subject to http://about.jstor.org/terms
from trade diversion. Thus higher welfare
gains will be obtained under open region-
alism than under preferential FTA.
However, in practice this argument hardly
holds. In fact, countries are free to secure
the benefits of unilateral liberalisation in
the present-day world. It would have been
quicker than the inevitably prolonged
process of multilateral liberalisation with
the WTO. This has not occurred in practice
because it is not a political option. The
logic of the case of the economic benefits
to be won by unilateral liberalisation is not
powerful. There is always a reluctance to
reduce trade barriers comprehensively.
Reciprocity has been an in-built instru-
ment in trade barrier reduction in many
countries, including the US.1i
Politically, certain sectors need to be
protected. Usually this is justified to sup-
port development of a strategic industry.
This in fact has been the case among
industrialised economies for several
the club for anyone prepared to accept the the WTO in order to influence WTO to
decades. Therefore, unilateral liberalisation
obligation. It is basically 'going global' follow APEC's agenda so that simulta-
will have practical appeal only for sectors,
and not across-the-board, and thosewith sec-unilateral liberalisation so that APEC' s neously free trade is achieved in the region
expanded membership has a competitive
tors will be: (a) where domestic production
edge
capacity is not significant; or (b) where theover WTO to influence faster global
trade liberalisation.
domestic industry is globally competitive.
Sectors where this is not the case will not Second, is the conditional MFN defini-
be considered for unilateral liberalisation. tion where APEC becomes a preferential
Even Bergsten says that APEC cannot trading arrangement but offers to generalise
count on the clear-cut definition (uncon- its reduction in tariffs to all non-members
ditional MFN) of open regionalism and that agree to take similar steps. It is argued
that APEC will have to work on specifics that outsiders would accept the offer in
and additionals to make it operational. order to avoid being discriminated against
Bergsten comes up with alternative defi- by countries that account for half the world
nitions of opep regionalism from the economy. Bergsten argues that if the bulk
APEC's perspective, viz, (1) open mem-of the non-members accept the offer, the
bership, (2) conditional MFN, (3) globalextension of APEC liberalisation would
liberalisation, and (4) trade facilitation, presumably take place in the WTO and
and then tries to reconcile the alternatives. essentially represent a multilateral liberal-
The first definition is based on 'open isation. "No regional arrangement in
membership' which is based on the 'GATT history has ever made such an offer"
plus' idea of the 1970s and 1980s which [Bergsten 1997:554].
urged the OECD countries to adapt new Third, is the global liberalisation defi-
liberalisation measures far beyond thosenition where APEC continues with unilat-
agreed in the Kennedy Round and the eral liberalisation but at the same time
Tokyo Round and then offer accession to continues multilateral negotiations with

Announcing

THE MALCOLM ADISESHIAH AWARD

The Malcolm and Elizabeth Adiseshiah Trust has instituted the-Malcolm Adiseshiah Award for
contributions to Development Studies. The award, to be given annually, will be made to a
ordinarily not over 50 years of age. The scholar should have made significant contributions
published work to the understanding of India's development problems. Indian and foreign
working in India and Indian scholars at present engaged in development studies outside In
eligible to be considered.

The award will consist of a citation and a cash prize of Rs. I lakh.

A three-member jury of eminent scholars will select the awardee. The name of the
will be announced in April 2001 and the presentation will take place in September 20
awardee will be invited to deliver the Malcolm Adiseshiah Memorial Lecture.

The Madras Institute of Development Studies will administer the award.

Scholars in the field may make nominations with a short resume of the nominee's work incl
a list of important publications. They should be sent before 3 st January 2001 to:

The Director,
Madras Institute of Development Studies,
79, Second Main Road, Gandhinagar
Adyar, Chennai 600020.
Email: natraj@mids.tn.nic.in

4530 Economic and Political Weekly December 1, 2000

4530 Economic and Political Weekly December 16, 2000

This content downloaded from 112.196.191.88 on Sun, 08 Oct 2017 07:47:49 UTC
All use subject to http://about.jstor.org/terms
and the world. In this scenario APEC will bind (that is, never to reverse) their are
re-neither feasible nor desirable". It is a
play a global leadership in influencing the duced rates of protection at the new lower model based on persuasion rather than
WTO trade liberalisation agenda. levels, provided others were also prepared coercion. Declarations are not formally
Fourth, APEC concentrates only on deep to respond with comparable liberalisation binding. They are statements of intent and
integration issues and leaves shallow and to 'find' them at the lower levels in are expected to guide the formulation of
integration under the WTO umbrella. In the WTO." future policies of APEC governments.
other words, APEC will leave the border This strategy is influenced by the view Decisions are made by building consen-
barriers to the WTO and focus on non- held by some observers that APEC was thesus rather than formal negotiations. Time
border barriers. Bergsten argues that many key element in bringing GATT talks toconsuming formal negotiations and rati-
of these non-border barriers do not lend success in the Uruguay Round. Further-fication binding treaties are avoided and
themselves to preferential treatment and more, it is argued that the threat of APECjoint statements of intent are made. The
does not raise the 'free rider' problem at members liberalising on a preferential basisapproach has the advantage of avoiding
least in the traditional manner.12 played a central role in achieving a majorthe complex issue of how compliance to
The first definition has problems in the WTO global agreement on Informationany formal undertaking could be edforced.
operational side. It raises the issue ofTechnology in 1997. The thinking is thatThe problem with this approach however,
broadening vs deepening. Broadening of this strategy of trade liberalisation mayis that there is heavy reliance on voluntary
the membership of any regional group have a comparative advantage over theimplementation. Politically, this is not the
inherently complicates the process of deep- WTO method, which is binding and for-easiest of options when considering effec-
ening its integration. ESCAP (1998:137) mal. In fact, in this case too APEC is tryingtive implementation.
notes: "It was felt that too many new to do something, which no other regional Implementation of the Bogor declara-
members might make the consensus-driven arrangement has tried so far. tion, which is based on voluntary action,
decision-making more time consuming and If the APEC leadership can influencehas led to debate on the style of implemen-
cumbersome". APEC realised this and WTO to achieve global free trade as of thetation. Fane (1995) and Oxley (1996) have
imposed a moratorium in expanding same date as APEC this would avoid APEC argued for legally binding rules for imple-
membership as early as 1998.13 Although discrimination against non-members. If the menting the Bogor declaration. It is argued
the membership criteria is still being stud-APEC is able to advance multilateral that legally binding agreement is the only
ied in the APEC, it cannot afford to sac- liberalisation via the WTO it would be an incentive-compatible mechanism for trade
rifice deepening of the forum to follow idealthis situation. But the international mecha- liberalisation given the problems of vol-
option of open regionalism. The fourth nism of the WTO provides all nations untary action. PECC, on the other hand,
definition is basically the original aimaccessof to a wider range of influences and argues for voluntary unilateral liberal-
APEC before the Eminent Persons Group forces to support the political cases for isation. It is argued that APEC's success
report and it has no controversial elements slow trade liberalisation. That is one rea- has been mainly achieved via a diplomatic
son why the EVSL process has not been
in it. In short, the first definition has proved process, not in the product. The problems
to be impractical and the fourth definition very effective. Thus this option of APEC of the 'spaghetti bowl' phenomenon are
is not currently put into practice in the will remain a challenge as it will be dif- also used as an argument against binding
APEC. ficult to sell to a domestic constituency. legislation. And APEC's agreement on
What about the other two options? i e, Let us take a 'snap shot' view of thenon-binding investment principles is also
first, to liberalise only on a preferentialpractical side of these concepts from thequoted to justify this position by its pro-
basis but offer it to non-members if they APEC's perspective. From APEC's opera- ponents.'4
reciprocate. Here there is no guarantee thattions so far, it is clear that without bor- Bora and Findlay (1996) argue that the
the non-members will reciprocate APEC'srowed ingredients from neo-liberal trading level of integration in the region is a result
offer, in which case APEC becomes a arrangements such as a 'threat' of a pref- of market orientation decisions as opposed
preferential trading arrangement. This erential trading arrangement (specifics) and to deliberate policy and argue against the
would obviously prevent 'free riding' but aiming at a strategic goal of influencing pursuit of forced action since there is a risk
it is a departure from open regionalism and fast global liberalisation (additionals), it of unraveling the current dynamism in the
seems to be a diluted form of neo-liberal is not possible to make open regionalism Asia Pacific. Although the;debate goes on,
trading arrangement. Strictly speaking this operational. Even then, many of the propo- the main point here is that whatever achieve-
definition cannot be associated with open sitions put forward remain hypotheses yetments there are from non-binding volun-
regionalism as it is more akin to a neo- to be seen in practice. tary action since 1994 in the area of trade
liberal trade arrangement that is consistent There are two general shortcomings ofliberalisation, they do not provide evi-
with Article XXIV of the GATT. the overall open regionalism functioningdence to the fact that the 'process' is
The second option is to commence mechanism. First, as stated, the idea of effective. For the voluntary process to be
liberalisation on an MFN basis, but initiateopen regionalism stands heavily oneffective: (a) there has to be high level of
voluntarism, and it does not call for formal
negotiations in the WTO in order to achieve political commitment to' liberalise, and
global liberalisation. As Elek (1995:14) (b) strategic interests in further economic
regional structures that are legally binding.
put it: "As soon as Asia-Pacific govern- The APEC model is based on voluntary integration via trade liberalisation for all
action. ESCAP( 1998:61) argues: "...it goes
ments take the first steps, they can initiate members should be clear. Without these
formal discussions in the WTO makingwithoutit question that any attempt by APEC in place, a case for binding obligations
to enter into negotiated agreements will
clear that they expect others to reciprocate cannot be totally ruled out.
with liberalisation of comparable scope. create more problems than it will resolve... Second is the issue of the institutional
Asian-Pacific governments would offerfull to head-to-head GATT style negotiations framework governing open regionalism.

Economic and Political Weekly December 16, 2000 4531

This content downloaded from 112.196.191.88 on Sun, 08 Oct 2017 07:47:49 UTC
All use subject to http://about.jstor.org/terms
As stated, open regionalism is not based non-discriminatory can be achieved only
Keynesians, there is an emphasis on econo-
mies of scale and bargaining over terms
on institutional structures. Despite the rapid in two ways: (a) liberalising through the
expansion of APEC in terms of member- of trade. Thus for Keynesians the WTO smallor (b) unilateral liberalisation. The
ship and meetings, APEC's institu- country assumption is relaxed and a latter
coun- is emphasised in open regionalism
tionalisation has been gradual and incre- try will obtain long term advantageand (due
is augmented by the term 'concurrent
mental. As stated, a secretariat functions unilateral voluntary trade liberalisation'
to economies of scale) from specialisation
in Singapore but its responsibilities are within the regional market. Regionalism(CUVTL) or 'early voluntary sectoral
limited and it remains small. Figure 1 shows liberalisation' (EVSL). The major prob-
is seen as advantageous in allowing mem-.
that the APEC's secretariat does not seem lem with these ideas is that they do not
ber countries to get established in particu-
to have a link to the working groups or lar products before being exposed to in-
help governments to manage the politics
the technical committees. of trade liberalisation. When domestic
ternational competition in the global
constituents are aware that there is no
When compared to other regional market. If the Keynesian trade dynamism
organisations, APEC remains relatively argument of bargaining over technology
formal obligation to liberalise, they will
unstructured because coordination of transfer and foreign investment is added,
press governments to omit certain sectors.
the is stronger case for regionalismCUVTL
working groups is limited and tied to there than or EVSL methods have no com-
government that is hosting the summit argued by neo-liberals. parative advantage over the WTO methods
meeting. It is argued that many Asian ofthe
From these two theoretical emphases trade liberalisation especially when
members of APEC view the forum more it be-
potential for confusion in the APEC comes to trade liberalisation in poli-
tically-sensitive
as a process than an institution withcomes clear. One group in APEC sees it sectors. Clearly, the
legalised contract-based organisation [Gal- simply as an organisation campaigning CUVTL and EVSL processes are politi-
lant and Stubbs 1997]. However, there arewithin the WTO for trade liberalisation. cally less effective.
limitations of confining APEC into aThe other group sees it more as a counter- With achievements in the area of shal-
process. Even the eminent persons group weight to EU and NAFTA. Given the low integration being very limited, what
(EPG) of APEC has stated that the opera- differences among APEC countries, it willis keep open regional arrangements
tional efficiency of APEC should belikely to achieve the weaker campaign role moving in the future are deep integration
upgraded [EPG 1994]. Australia, Newthan a stronger role of a regional counter-issues. Thus open regionalism will be most
Zealand, South Korea, Canada and the USweight. This is precisely what has hap- effective in complementing the WTO
are in favour of strengthening the institu-pened and why APEC has not been suc- agenda of trade liberalisation. However,
tional structure in APEC. cessful. It is being pulled in two different
the question whether there are more gains
As argued, implementing EVSL encoun- theoretical directions. The concept of openfrom deep integration than from shallow
ters problems, as they do not demand regionalism suffers from this problem and integration needs further study. In deep
commitment and does not accommodate perhaps this may be the reason why it is integration issues, firstly, the comprehen-
called an 'oxymoron' by T N Sirinivasan
political realities. Then the only items that siveness, secondly, timing (developing
keep an open regionalism group moving (as quoted in Panagariya, 1999). countries may take time to respond), and
'are the deep integration issues and items:When there is a clear-cut definition of thirdly, the age old problem of monitoring
(a) trade and investment facilitation, (b)
open regionalism, the attempt by its pro- will have to be addressed. In this regard,
economic and technical cooperation, and the role of the secretariat and its powers
ponents to define it in different ways clearly
indicates that the clear-cut definition is not
(c) trade and investment dialogue. At least becomes an issue. At least for the purpose
for the smooth progress of these items operational
in in practice. In other words, theof checking that the voluntarism is not
the agenda, the powers and functions clear-cut
of and the most faithful definition dragged to its limit by member nations,
the secretariat become an issue. The has been diluted due to practical problems in the absence of binding obligations,
secretariat's powers in terms of supervis-
of implementing it. The main problem of some degree of monitoring by the secre-
ing sectoral projects, monitoring steps open
taken tariat may become essential to see
regionalism in practice is how to treat
towards harmorlisation of standards, non-members.
etc, Since this has not been results inthe area of deep integration. In
sorted out, there are many definitionsthe
need furtherstudy to expedite policy actions of area of shallow integration, there may
in the regional grouping. Supervisionthe
willconcept with various additionals and
be still the option of making a departure
at least check that voluntarism is not
borrowed ideas from neo-liberal trading from the WTO agenda on non-tariff bar-
dragged to the extreme by some memberarrangements. Even with these additions,riers. But this requires a high level of
countries to delay or take no action open
on regionalism has not shown much political commitment to the open regional
agreed policies. results in bperational terms. This is be-
grouping.
cause parts of open regionalism suffer When it comes to applying open region-
V alism to other groupings, especially ones
from practical problems as they are politi-
Concluding Remarks cally not viable. Thus open regionalismwhere
in there are many developing coun-
APEC is fundamentally a 'frailed' trade tries as members, its limitations and short-
Let us briefly revisit the regionalism initiative. comings get even more exposed [see
debate. Neo-liberals focuses on static
The concept of open regionalism wasKelegama 1998 and 2000]. At least in the
welfare issues of trade (diversion developed
and to avoid the possibility ofcase
a of APEC, since it controls nearly one-
creation). In this view regionalism isdiscriminatory
only trading bloc. However, the third of world trade, it could have a vision
concept
useful if it is a step towards free trade. In was not matched by practical and open regional framework can be fine
considerations
other words, it is a (poor) second best to on how to make it work. tuned to match that vision. But for group-
unilateral free trade. By contrast forThethe
idea that trade liberalisation should be ings that are weaker than APEC especially

4532 Economic and Political Weekly December 16, 2000

This content downloaded from 112.196.191.88 on Sun, 08 Oct 2017 07:47:49 UTC
All use subject to http://about.jstor.org/terms
in terms of controlling world trade, one 10 Also, some members of the open regional Integration' in Bergsten, C F and M Noland
finds it difficult to fine tune open region- association may be members of another closed (eds), Pacific Dynamism and the International
alism even with a vision. Thus the claim regional association. Economic System, Institute of International
11 The political economy of trade liberalisation Economics, Washington, DC, pp 183-223.
that it is one of the most desirable strategies
in the US rests heavily on reciprocity conditions Elek, A (1995): 'APEC Beyond Bogor: An Open
for regional groupings in the 21st century, that mobilise exporters to counter resistance Economic Association in the Asia-Pacific
leave alone other groupings, is at least not of import-competing industries [Destler 1995]. Region', Asia-Pacific Economic Literature,
supported by the APEC's experience with
12 A point to note here is that deep integration Vol 9, No 1, pp 1-16.
open regionalism to date. r1 can create as well as divert trade. For example, EPG (1994): Achieving the APEC Vision: Free
in several sectors ranging from medical and and Open Trade in the Asia-Pacific, Second
Notes electrical equipment to pharmaceuticals, the Report of the Eminent Persons Group to
EU and the US have agreed that EU institutions APEC Ministers, August.
[The author is grateful to Dushni Weerakoon and
Chris Edwards for comments on an earlier draft can test goods to the US standards on behalf ESCAP (1998): Implications of the APEC Process
of the US testing institutions, and vice versa. for ntraregional Trade and Investment Flows,
of the paper. The usual disclaimer in regard to
This would boost transatlantic trade in these Studies in Trade and Investment, No 33,
errors and omissions applies.]
goods, but also gives the US and EU products Economic and Social Commission for Asia
1 There are nearly 80 regional arrangements of an edge in each others markets over goods and Pacific, United Nations, New York.
one sort or another, granting preferential access from other countries. Fane, G (1995): 'APEC: Regionalism Globalism
to each other's market at present compared to 13 A ten year moratorium was put in place until or Obfuscation?' Agenda, 2(4), 399-409.
fewer than 25 of them in 1990. 2008. After the decision was taken in the 1997 Gallant, N and R Stubbs (1997): 'APEC's
2 In the wake of the east Asian financial crisis, summit to add three new members in 1999, Dilemmas: Institution-Building Around the
Mercosur, for example, raised its common Bergsten has stated that "it's a big mistake to Pacific Rim', Pacific Affairs, Vol 70, No 2,
external tariffs to avert an expected flood of expand" and "adding members is a diversion" pp 203-89.
imports from^Asia. [Asiaweek, December 5, 1997:21]. Garnaut, R (1994): 'Open Regionalism: Its
3 Even when one member has reservations on 14 Little substance has so far been offered in the Analytical Basis and Relevance to. the
a particular proposal it will not be considered investment area. "There is a fundamental lack International System', Journal of Asian
for implementation. of definition of exactly what constitutes Economics, Vol 5, No 2, pp 273-89.
4 There was also a feeling among policy-makers investment liberalisation and there is little Kelegama, S (2000): 'Open Regionalism in the
that the relative importance ofdomesticpoiicy evidence that anveconomy is attempting to Indian Ocean: How Relevant is the APEC
induced barriers was going to increase as border
tackle difficult issues posed by moving towards Model for IOR-ARC?', Journal of the Asia
protection decreases.. a more liberal regime. Most economies have Pacific Economy, Vol 5, No 3.
5 ESCAP (1998:113) notes that foreign aid on offered to do little more than to review their - (1998): 'Can Open Regionalism Work in the
a government-to-government basis -has been existing regimes" [ESCAP 1998:107]. IOR-ARC?', ASEAN Economic Bulletin, Vol
replaced by Ecotech in APEC, which is based 15, No 2, pp 153-67.
on the principles of mutual respeci and mutual References Krugman, P(1995): 'Growing World Trade: Causes
benefit. and Consequences', Brooking Papers on
6 One factor that may have influenced the Ariff,M(1994a): 'OpenRegionalismalaASEAN', Economic Activity, 25th Anniversary Issue, pp
ASEAN members of the APEC may have been Journal of Asian Economics, 5, 99-117. 327-77.
the view that a 'fortress ASEAN' was not an - (1994b): 'The Role of APEC: An Asian Lawrence, R (1993): 'Regionalism, Multilateralism
option given the key role that foreign trade and Perspective, Journal of Japanese Trade andand Deeper Integration', Brooking Institution
investment played in transforming the region Industry, 1, 46-49. Project: "Integrating the World Economy"
[Athukorala and Menon 1997]. Athukorala, P and H Hill (1998): 'Foreign (mimeo).
7 This was clearly seen in the 1998 APEC Summit Investment and Economic Development in A (1996): 'Achieving Effective Trade
Oxley,
in Kuala Lumpur where Japan refused to Developing East Asian Economics: A Survey', Liberalisation in APEC: The Limitations of
include fisheries and forestry sectors for trade Asia Pacific Economic Literature, November. Open Regionalism', paper presented to the
liberalisation. Athukorala, P and J Menon (1997): 'AFTA andAPEC Study Centres Network Conference,
8 The key declarations were:(a) pursue growth Investment-Trade Nexus in ASEAN', The Manila (mimeo).
World Economy, 2, 159-174.
strategies, (b) strengthen social safety nets and Panagaria, A (1999): 'The Regionalism Debate:
generate employment by expanding inter-Baldwin, R E (1995): 'A Demonio Theory of An Overview', The World Economy, Vol 22,
national aid programmes, (c) revitalise the Regionalism' in Baldwin R, P Haaparanta and No 4, June.
private sector by recapitalising financial J Kiander (eds), Expanding Membership in Schneider, G and L Cederman (1994): 'The Change
institutions, addressing corporate debt and the European Union, Cambridge University in Tide of Political Cooperation: A Limited
improving access to trade and working capital Press, Cambridge. Information Model of European Integration',
financing, (d) help bolster the internationalBergsten, C F (1997): 'Open Regionalism', The International Organisation, Vol 48, No 4.
financial structure, (e) reaffirm the commitment World Economy, Vol 20, No 5, pp 545-65. Shand, R and P Kalirajan (1997): 'Yamazawa's
to liberalisation and open markets, and (f) Bora, B and C Findlay (1996): Regional Integration Open Economic Association: An Indian Ocean
examine tighter regulation of financial and the Asia Pacific, Oxford University Press, Grouping for Economic Cooperation', The
institutions in industrialised economies to Melbourne. Developing Economies, Vol XXXV, No 1, pp
promote safe and sustainable capital flows.De Melo, J, A Panagariya-and D Rodrik (1992): 3-27.
9 These areas were: tariffs, non-tariff measures, 'Regional Integration: An Analytical andSrinivasan, T N (1997): 'Regionalism and the
services, investments, standards and con- Empirical Overview', paper presented to the World Trade Organisation: Is Non-Discrimi-
formance, customs procedures, intellectual World Bank Conference on "New Dimensions nation Passe?' in A O Krueger (ed), The World
property rights, competition policy, in Regional Integration", (mimeo). Trade Organisation as an International
Destler, L M (1995): American Trade Politics,
government procurement, deregulations, rules Institute, The University of Chicago Press.
of origin, dispute mediation, mobility of Institute of International Economics, WTO (1996): 'The Road Ahead: International
business people, implementation of Uruguay Washington, DC. Trade Policy in the Era of the WTO', Fourth
Round outcomes, and information gatheringDrysdale, P R Garnaut (1993): 'The Pacific: An Annual Sylvia Ostry Lecture, Ottawa, May 28,
and analysis. Application of a General Theory of Economic WTO Press, Geneva.

Economic and Political Weekly December 16, 2000 4533

This content downloaded from 112.196.191.88 on Sun, 08 Oct 2017 07:47:49 UTC
All use subject to http://about.jstor.org/terms