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CHAPTER 5

ENHANCING ACCESS TO THE ASIA PACIFIC MARKET: IS APEC STILL A USEFUL POLICY TOOL?
A. APEC Defined
B. APEC’s History and Achievements
C. What Legacy did the 1997 Vancouver Summit Provide and where does APEC go from here?
1. Trade and Investment Liberalization
2. Business Facilitation
3. New Directions for Economic and Technical Cooperation
4. China’s Accession to the World Trade Organization

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ENHANCING ACCESS TO THE ASIA PACIFIC MARKET: IS APEC STILL A USEFUL POLICY TOOL?

"In many ways, we look upon APEC as a facilitation and technical working kind of organization, rather than one that is purely dedicated to trade liberalization."

(Professor Michael Hart, Centre for Trade Policy and Law, Carleton University.)

The Committee’s June 1997 Interim Report made a number of Asia-Pacific Economic Cooperation (APEC) related recommendations designed to advance the trade and investment liberalization agenda by encouraging APEC members to establish long-term commitments to reduce trade and investment barriers. At the time of the report’s publication, we believed that it was essential that Canada, as Chair of APEC in 1997, ensure that APEC’s core issues of trade and investment liberalization, business facilitation, and economic and technical co-operation would be adequately addressed. Otherwise, the danger existed that APEC would simply devolve into an ineffectual international "talk shop."

Of course, much has changed since the release of the Interim Report. As the November 1998 APEC Leaders meeting in Kuala Lumpur demonstrated, the financial crisis in Asia has shelved the organization’s plans to fast-track trade liberalization in a number of important economic sectors. From all accounts, APEC’s decision to move its short-term trade liberalization agenda over to the WTO was influenced largely by Japan’s refusal to lower tariffs on fish and forestry products.

While the Committee believes that this recent development represents a setback, we are also of the opinion that the organization still merits attention by Canadian policy-makers. Even if one thinks that much of APEC’s trade and investment liberalization work will remain stalled or be assumed by the WTO, APEC continues to be of value in helping to stem protectionist pressures currently emanating from within the Asia region. Moreover, progress can still be made on the other key aspects of the institution’s mandate. As the following sections of the chapter will suggest, achievements in these important, albeit less high-profile areas, are necessary in light of the crisis that has occurred. For example, greater economic and technical cooperation would be of benefit to countries experiencing financial difficulty.

 

A.APEC Defined

The APEC forum has emerged as an intergovernmental vehicle for liberalizing trade and investment, facilitating business, and stimulating economic and technical cooperation. APEC has evolved into an institution through which all members can enhance their economic and human ties within this dynamic region. It also serves useful roles in fostering a trans-Pacific relationship for North America and in providing an important multilateral forum in which the "three Chinas" (China, Hong Kong, and Chinese Taipei) can discuss economic and political matters. In the case of China and Taiwan – the latter referred to in APEC as Chinese Taipei – it has become the only official venue for such consultation.

APEC contains all the region’s principal economies, as well as, until recently, many of the world’s fastest growing ones. Historically, they have represented an increasingly significant factor in Canadian trade relations, taking in one-half of all Canadian exports to non-U.S. countries, and providing 11 of Canada’s top 25 export markets. APEC members had also become leading sources of new technology and foreign direct investment in Canada.

Currently, the APEC membership consists of the three NAFTA partners (Canada, United States, and Mexico), Chile, Japan, the six original members of ASEAN (Brunei, Malaysia, Indonesia, Philippines, Thailand, and Singapore), the "three Chinas" (China, Hong Kong, and Chinese Taipei), South Korea, Australasia (Australia, New Zealand, and Papua New Guinea), and three new additions (Peru, Russia, and Vietnam).

As can be seen from the list, the organization consists of a relatively large number of economies, in many instances displaying few common characteristics. However, two common threads stand out: first, APEC’s commitment to trade and investment liberalization and facilitation; second, the establishment of long-term economic and technical cooperation links designed to achieve sustained economic growth.

APEC should not be confused with free trade areas such as NAFTA, where the resulting agreements are derived from usually intense negotiations. Instead, APEC can be categorized as providing a softer form of trade liberalization, in that decision-making is undertaken on a consensual and voluntary basis. Any trade liberalization undertaken by APEC economies will be done on a most-favoured-nation basis, meaning that any benefits from tariff reductions will be extended to all WTO members. That way no trade walls are erected around the region.

As is the case with any organization, APEC has not been without its critics. Many are sceptical of APEC’s ability to undertake meaningful trade liberalization, arguing that the organization is a relatively slow-paced consultative forum without a formal negotiating agenda. Certainly that was the conclusion of the October 1997 paper prepared by the Centre for Trade Policy and Law (CTPL) for this Committee⁽⁸²⁾. The CTPL study’s key point was that "participation in APEC has not led to liberalization across member economies in the form of substantial tariff reductions, nor in substantive rules leading to the elimination of non-tariff barriers."⁽⁸³⁾ On the other hand, APEC was lauded as a useful forum through which the "plumbing" needed to facilitate international trade could be learned by its less-developed members. Only with this foundation in place, it was argued, could trade liberalization eventually take place.

Others highlight "the social and environmental costs of the free flow of market forces. They (the critics) focus on growing regional inequality, issues of human rights, unfair labour employment practices, and ethnic and native people rights...."⁽⁸⁴⁾

Notwithstanding the economic successes that many APEC countries have achieved up until recently, a number of development challenges will have to be met successfully if the region is to maximize fully its long-term growth potential. These challenges include: lowering existing tariff and non-tariff barriers to trade; clarifying current regulations; harmonizing regulatory standards and government practices in the region; and improving the existing level of market information. The APEC forum has been designed to address these and other topics.

From a Canadian perspective, APEC provides a tool through which this country can develop long-term trade and business opportunities in this offshore market. Apart from potentially benefiting from APEC’s trade and investment liberalization agenda, Canadian business stands to gain from the contacts made with other business and government officials in the region. Over time, it also stands to profit from greater economic and technical cooperation in such diverse areas as telecommunications, tourism, human resources development, energy, and the environment.

Canadian firms are well suited to respond to the region’s long-term infrastructure requirements. The rapid economic growth within Asia Pacific that had occurred prior to 1997 had outdistanced these economies’ capacity to replenish their infrastructure, causing problems such as road congestion, power shortages, and improper water supply and waste treatment. Before this infrastructure gap can be bridged, however, private capital must be mobilized, restraints to direct foreign investment lessened, and a durable economic recovery launched in East Asia.

Apart from the important economic ties which membership in APEC can offer, Canada’s participation in the organization also enhances the linkages between individual Canadians and citizens of other members. Cross-cultural ties are becoming increasingly significant, as the recent growth in immigration into Canada and the greater presence of Asian students in this country shows. A principal benefit of APEC membership is that it provides a useful forum in which Canada can advance these important human linkages.

 

B. APEC’s History and Achievements

APEC’s history can be traced back to 1989, when a small and informal dialogue group was established in response to the desire of Australian Prime Minister Bob Hawke to promote cooperation in an increasingly interdependent region. The group was officially inaugurated at the organization’s first conference of Trade Ministers, held in Canberra in November 1989. In 1991, APEC members formally agreed to work toward regional trade liberalization, greater economic cooperation, an expansion of investment, and the strengthening of the multilateral trading system. Also in evidence was a formal recognition of the critical contribution of the private sector to the dynamic state of member economies, of the need for greater involvement of private sector participants in APEC activities, and of the need for APEC to enhance the role of the private sector and to adopt free market principles.

Leaders’ meetings have been held annually since 1993, all in November. At the inaugural 1993 meeting near Seattle, the assembled heads of government agreed on the need to promote freer trade and investment within APEC. They also recognized the necessity for greater interaction and cooperation.

The following November, in Bogor (Indonesia), APEC Leaders pledged to remove all barriers to unrestricted trade and investment between and among member countries. Two target dates were established, taking into account the differing levels of economic development among member economies: 2010 for developed economies, which combined accounted for 85% of total trade in the region; and 2020 for developing economies. In addition, it was agreed (a) that industrialized members would provide opportunities for the developing economies within APEC to enhance their economic growth and development; and (b) that developing economy members would strive to achieve high economic growth rates.

At the 1995 annual APEC Meeting, held in Osaka, the Leaders agreed to implement a comprehensive, two-part Action Agenda to achieve the targets set out the previous year. Part I establishes a framework for trade and investment liberalization in all economic sectors, designed to meet the agreed timetable. It details APEC objectives and new undertakings in thirteen specific policy areas, including tariffs, non-tariff barriers, trade in services, liberalization of investment regimes, standards and conformance, customs procedures, intellectual property rights, deregulation, rules of origin, dispute mediation, business visas, Uruguay Round implementation, and business facilitation. At the Osaka meeting, APEC members also publicly outlined the initial steps that each was taking to liberalize trade and investment flows. Part II of the Action Agenda deals specifically with economic and technical cooperation among APEC members. Detailed objectives are proposed for cooperation in such areas as energy and transportation, infrastructure, small business, and agricultural technology.

To meet the above-mentioned deadlines for eliminating existing trade and investment barriers, and to increase economic and technical cooperation with other countries, the Leaders agreed at Osaka to develop concrete Action Plans in time for the November 1996 meeting in Manila. At the fourth Leaders’ Meeting, agreement was indeed achieved on the members’ Collective Plans and the 18 Individual Action Plans. Whereas the latter represent voluntary submissions made by member economies, all members, through APEC’s consensus building process, have agreed to the collective plans. All the plans are formally outlined in MAPA, the Manila Action Plan for APEC.⁽⁸⁵⁾

Through this Action Plan, APEC Leaders have undertaken commitments to dismantle structural barriers to trade in goods and services and to liberalize investment. They have also pledged to lower the costs of doing business by striving for greater consistency of standards in the region; by simplifying visa arrangements for business travellers; by identifying best practices in regulatory reform and cooperating on competition policy; by simplifying and harmonizing customs procedures (by 1998); and by striving to achieve a paperless customs system by the year 2000. Ensuring an effective implementation of intellectual property rights was also stressed. These are important initiatives, and eventually each of them will require strengthening. It should be noted that MAPA typically contains commitments to be undertaken primarily in the short-term. As such, the MAPA document should be viewed as part of an evolutionary process of plan review and improvement.

In addition, the Leaders adopted a framework of principles for economic cooperation and development, a framework designed essentially to lessen economic disparities between countries in the region. In so doing, they established six priority areas for strengthening cooperation ¾ investment in human capital, sustainable growth, the greater use of emerging technologies, small and medium-sized enterprise (SME) development, infrastructure development, and the establishment of efficient capital markets ¾ with these to be implemented in partnership with the private sector. The relative lack of infrastructure and the need for work on sustainable growth were two areas given additional attention at the Manila meeting.

Also at Manila, the Leaders had their first meeting with the APEC Business Advisory Council (ABAC). On the basis of ABAC’s first report on expanding trade and investment,⁽⁸⁶⁾ Ministers were instructed to act on five important ABAC challenges:

• easing the movement of business professionals;
• providing investment with greater protection;
• ensuring that infrastructure planning incorporates the views of the corporate sector;
• the development of policies conducive to small and medium-sized business development; and
• the encouragement of greater business involvement in economic and technical cooperation.

 

C.What Legacy did the 1997 Vancouver Summit Provide and where does APEC go from here?

Canada chaired the 1997 APEC forum encompassing the APEC Leaders’ Meeting and the annual foreign affairs/trade Ministerial Meeting. This gathering, hosted by Vancouver in November, attracted many government and business leaders from across the Asia Pacific region.

As the 1997 Chair, Canada enjoyed a reasonable amount of success in its attempts to improve access to the APEC market. It did so primarily in two ways: first, through the organization’s "early voluntary sectoral liberalization" process, and second, through practical initiatives geared to the facilitation of trade and investment throughout the region.

 

1.Trade and Investment Liberalization

"I thought the APEC meeting in Vancouver was very successful. …[T]he 18 economies involved in APEC made a firm commitment to trade liberalization; they did so not only through the individual action plans that were announced but also through the early identification of voluntary sectoral liberalization in 15 different sectors…. We felt that the trade liberalization agenda was marching forward with success."

(The Hon. Alexander Downer, Minister of Foreign Affairs, Australia)

"In fact, we found our Asian partners, some of whom are suffering under financial problems at the moment, to be quite engaged in the area of sectoral liberalization, showing a willingness to continue to explore, to develop the proposals, and to move down that road. I think that is a very positive sign."

(John Klassen, Director General APEC, Department of Foreign Affairs and International Trade)

In its Interim Report, the Committee stressed the need for APEC to turn its focus away from establishing goals and Action Plans and towards the achievement of concrete results. The Committee was of the view that it is of great importance that implementation of the new Action Plans produce early results; otherwise, the business community may lose confidence in the APEC process.

Indeed, APEC Leaders and Ministers moved in the desired direction at the November 1997 meetings in Vancouver. A full two years ahead of the initial APEC plan, the organization made public its undertaking to pursue early voluntary trade liberalization in fifteen vital economic sectors. It was agreed that nine of these sectors – fish and fish products; forest products; energy; chemicals; environmental goods and services; toys; gems and jewellery; medical equipment and instruments; and telecommunications equipment – would be "fast tracked," with trade liberalizing measures to be implemented in 1999. For the other six – oilseeds and oilseed products; food; fertilizers; natural and synthetic rubber; automotive sector; and civil aircraft – it was deemed that more preparatory work would be required throughout 1998 and that this second grouping of sectors would be considered at the 1998 meeting of APEC leaders.

Our Interim Report (June 1997) stressed also the importance, for Canada, of achieving aggressive APEC action to advance its own trade liberalization agenda. Three sectors of key importance to Canada – fish and fish products; wood and articles of wood; and environmental goods and services – made it on the list for 1999 and a total of five sectors (fish and fish products; wood and articles of wood; oilseeds and oilseed products; non-ferrous metals; and electronics products) were identified as areas for which APEC could be used as a forum in which to move forward the tariff-reduction agenda at the WTO. In Vancouver, the APEC Ministers expressed their resolve to broaden participation in this voluntary scheme to additional nations, and perhaps eventually to incorporate this decision into WTO action.

Regrettably, APEC has now decided to refer its early voluntary trade liberalization proposal to the WTO. However at the same time, in Kuala Lumpur in 1998 APEC Leaders meeting also reaffirmed the organization long-term goal of achieving free trade in Asia Pacific by the year 2020.

If the long-term trade and investment liberalization targets are to be met, both the Collective and the Individual Action Plans must be scrutinized and strengthened. Senior officials must work diligently to compare the commitments the various countries have made; thus, any "laggards" can be identified.

The interim Report noted that APEC economies were "all well on track" in terms of achieving the 2010/2020 Bogor objective, and, in fact, had exceeded Uruguay Round commitments. However, it would be helpful if commitments of a longer-term nature than those contained in the Action Plans would eventually be entered into. It strikes the members of this Committee that the establishment of medium-term targets could be useful in attempting to avoid the potential problem of "backloading," where much of the liberalization action is taken in the years just before the announced deadlines.

APEC is making a modest degree of progress in addressing these concerns. For example, members have agreed to continue the strengthening and improvement of the individual Action Plans and to establish an effective means whereby these liberalization commitments will be periodically assessed and reviewed. To ensure that the progress on freer trade and investment is sustainable, and given that the ability to stem protectionist pressures within Asia-Pacific depends, at least partly, on concrete action, the Committee recommends:

Recommendation 8: That the Government of Canada continue to encourage APEC members to strengthen their trade and investment liberalization commitments. Medium-term targets for liberalization initiatives under the Individual Action Plans should be agreed upon and made public at the earliest possible opportunity.

The Interim Report also pointed out that while the tariff reductions to which the APEC members committed themselves generally exceed commitments under the Uruguay Round,⁽⁸⁸⁾ progress with respect to the reduction of non-tariff barriers (NTBs) had been more difficult to assess. Many APEC members have pledged to undertake progressive liberalization in this area, without any details on actual measures to be taken beyond their commitment at Osaka. For their part, Canada and the U.S. stated that they would implement only their Uruguay Round commitments. The report called for a number of actions to be taken, including (a) the reduction and elimination of core NTBs; (b) a diminution of the use of NTBs in certain sectors such as agriculture; and (c) the establishment of a timetable for the removal of non-tariff barriers.⁽⁸⁹⁾

Further action in this area is required. It seems appropriate that Canada continue to take steps to attempt to persuade APEC to define such barriers more clearly, and to achieve concrete targets for their removal.

Another area of weakness regarding the Individual Action Plans made public in Manila involves the dismantling of barriers to investment. A number of member economies continue to impede two-way flows of foreign direct investment, through the use of licensing and screening mechanisms, high levels of taxation, discriminatory subsidies, and local content regulations, to name but a few. Reflecting on these obstacles to investment, the Canadian Chamber of Commerce argued that "liberalizing investment rules must be a top priority. The longer term objective of Canadian companies remains a predictable and agreement-based investment regime with rigorous protection and investment rights built into a fully transparent investment code" (18:9-10). According to the Chamber, APEC’s current non-binding investment code needs considerable tightening. In attempting to justify the need for relaxation of investment restrictions, the valid point was made that with trade now following investment, it is "in the best interests of host countries in the Asia Pacific to provide a receptive environment for foreign direct investment" (18:10).

In particular, there needs to be a greater recognition on the part of Asia Pacific countries of the key national-treatment principle contained in APEC’s own set of investment principles. Simply put, this principle would have host countries treat incoming investment in a manner no different from investment of domestic origin.

If the 2010/2020 deadline in the area of investment is to be met, a commitment to the liberalization effort will be required. Again, targets would be helpful. The Committee recommends:

Recommendation 9: That the Government of Canada encourage APEC members to make long-term commitments to reduce non-tariff barriers as well as tariffs. The federal government should also guide APEC towards the establishment of targets for the elimination of barriers to investment in the Asia Pacific region. To enhance investment and investor confidence in the Asia Pacific region, the Government of Canada should continue its efforts to have APEC tighten its current non-binding investment code.

 

2. Business Facilitation

"It is perhaps in the trade facilitation area that APEC can have its most direct and its most immediate impact on the bottom line of business."

(John Klassen, Director General, APEC, Department of Foreign Affairs and International Trade)

It is important to distinguish between the removal of obstacles to the free movement of goods and services across national boundaries (trade and investment liberalization) and the elimination of factors causing the cost or difficulty in conducting business to rise (business facilitation). With trade liberalization receiving much of the public attention, the DFAIT officials appearing before the Committee have rightly categorized the ongoing work being done to facilitate business in the Asia Pacific region as the "unsung hero" of APEC.

The Canadian Chamber of Commerce presented the most complete inventory of impediments to business made available to the Committee in the form of testimony. Principal barriers of concern to the Chamber, distilled from surveys and direct contact with member firms, include:

• lack of protection for intellectual property, such as brand-name products, manufacturing technologies, and music. Abuses in this area are restricting technological development in host countries;
• unstable regulatory regimes in the Asia Pacific region. There is an urgent need for an easing and streamlining of the regulatory process, as well as more consistent application of health, safety, and environmental regulations. Movement towards greater harmonization of such standards throughout the region would also be beneficial. As NOVA Corporation argued, such standards co-ordination could be undertaken through the International Standards Organization;
• lack of common custom codes. Action is required to harmonize tariff classifications, to simplify electronic tariff databases, and to educate and train customs officials; and
• obstacles to easy travel and movement of business professionals in the region. Such remedies as the use of APEC business immigration lanes in APEC ports of entry, the establishment of an APEC business visa, and greater allowance for temporary work permits were proposed by the Chamber.

To respond to these and other concerns, APEC has been active in advancing the business facilitation agenda, which is designed to attain greater business certainty and reduce costs for both businesses and consumers. Successful achievements were realized in 1997 in the following areas:

• the adoption and publication of a blueprint for customs simplification by the year 2000 (A Blueprint for APEC Customs Modernization: Working with Business for a Faster, Better Border). Movement to harmonized and simplified customs clearance procedures throughout the entire APEC region should result in a substantial savings to business;
• the preparation of a handbook outlining best practices in customs laws, regulations, administrative regulations and rulings, as well as a Compendium of Rules of Origin;
• the diffusion, by means of the Internet, of the Tariff Database;
• the release of a Guide to Arbitration and Dispute Resolution in APEC economies;
• the development of non-binding principles for transparency in government procurement; and
• the production of model Mutual Recognition Arrangements for automotive products, road-vehicle standards, and conformity assessments of food and food products.⁽⁹⁰⁾

 

3. New Directions for Economic and Technical Cooperation

The achievement of common directions for APEC’s economic and technical cooperation work was also a priority. In 1997, Canada had been charged with the responsibility of implementing the APEC decision to focus on six priorities for its economic and technical cooperation activities: human capital development; achievement of efficient capital markets; development of infrastructure; integration of emerging technologies; sustainable development; and enhancing the growth of SMEs. To this end, Canada intended to provide the working groups dealing with economic and technical co-operation with a clear, more structured focus for their work. All areas of activity not included in the six priorities would be either eliminated immediately or phased out. Criteria with which to rank suggested projects would have to be established.

Early on, it was decided that Canada would focus on two of the above six horizontal themes: infrastructure (especially telecommunications, transportation, and energy) and sustainable development. Before the onset of the financial crisis, infrastructure development had emerged as the single most pressing economic need in the region.

Sustainable development is another theme that Canada promoted as APEC Chair. One of the key thrusts adopted was the achievement of sustainable cities to improve the quality of life for the millions of urban residents in the region. Also investigated was the impact of rapid economic and population growth on energy use, food demand, and the environment. With Canada being charged with the task of co-ordinating these efforts in 1997, a symposium of academic, government, and business leaders met in Saskatoon in September 1997 to deal with this mandate. The linkages between the above variables were also touched on at the energy and environment Ministerial Meetings held earlier in that year. A comprehensive report was delivered to the Leaders in Vancouver in November 1997.

In hindsight, given the experience of the Asian financial situation, perhaps it would have been appropriate for Canada to devote some attention to the need to upgrade financial systems and financial regulation in the region. While it is true that APEC has launched several collaborative initiatives aimed at developing regional capital markets, more needs to be done. Certainly, there is now a major role for APEC to play in intensifying its economic and technical cooperation in the financial area, so as to achieve more efficient capital markets in Asia.

Finally, APEC funds useful projects and initiatives designed to help improve indigenous institutions (e.g. to attain good governance) and develop human resources. For example, one of the projects currently underway is focusing on the social and labour market implications of the financial crisis in Asia. The Committee is concerned, however, that only modest resources are being devoted to the above areas. We believe that APEC’s long-term agenda should include the devotion of greater effort towards the resolution of governance and labour-market issues, to complement the traditional focus placed on liberalization and business facilitation. The Committee recommends:

 

Recommendation 10: That the Government of Canada encourage APEC to devote considerably greater financial resources to its efforts to help member economies build institutional capacity and develop their human resources.

 

4. China’s Accession to the World Trade Organization

An important issue which was brought to the Committee’s attention is China’s potential accession to the WTO, and the question of whether or not APEC can be of any assistance in influencing decision-making on this point. Mr. Wenguo Cai (Research Associate, Centre for Trade Policy and Law) pointed out that China’s membership in the WTO would be extremely helpful in the integration of that country into the global trading system. Such an accession, he claimed, "would consolidate China’s economic reform towards a market economy, and substantially decrease the potential for destabilizing the world economy, since China is a big country. China’s membership in the WTO would also increase China’s willingness to work with the international community on other issues, including environment, security and human rights issues" (12:5). Ms. Margaret Huber (Director General, North Asia and Pacific Bureau, Department of Foreign Affairs and International Trade) told the Committee that APEC has been a useful mechanism in encouraging China "to become fully integrated in global and regional political and economic institutions"(14:5). On the other hand, progress to achieve Chinese accession continues to be slow.

The Committee recognizes China’s growing importance within Asia Pacific and the desirability that China accepts multilateral rules and practices. However, it is evident that China will have to conform to certain fundamental requirements in order to become a WTO member. Once China becomes a WTO member, it should be given transition periods to comply fully with certain other requirements where such special transition arrangements for developing countries already exist in the WTO. The Committee advocates that discussions on accession not become part of APEC’s formal agenda, but rather be undertaken informally. The Committee therefore recommends:

Recommendation 11: That whenever appropriate, Canada continue to caucus with APEC members on increasing the probability of a positive decision on China’s accession to the WTO. Any such decision should be conditional on China meeting or exceeding WTO entry requirements.

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