> The Newsletter of The Australian APEC Study Centre

Trade liberalization in APEC – alive and well?

While the Doha Round of trade negotiations founders in Geneva, Free Trade Agreements are proliferating in Asia. Will the Asian region take up the slack and liberalize while the global trade community marks time?

South Korea and the US have just initialed a Free Trade Agreement. Japan and Australia have begun negotiating. China has proposed an Agreement among ASEAN, China, South Korea and Japan. Japan has proposed an agreement among the sixteen participants in the East Summit process. 

Fred Bergsten, Head and Found of the Petersen Centre for International Economics in Washington, DC thinks an FTA among APEC countries is the answer. Professor Ross Garnaut, the renowned Australian economist, argues APEC economies need to liberalize, but not through FTAs. New Zealand’s leading trade economist, Robert Scollay, and Ippae Yamazawa, one of Japan’s leading free traders, sit in between. 

All will present at the Melbourne conference.  Learn of the prospects of trade liberalization in APEC firsthand from the region’s experts.

Is China the region’s driver of growth?

Is China’s currency rigged? Will its manufacturers flatten manufacturing in the rest of the world? Do the imbalances in trade and financial flows created by China’s stupendous growth matter?

Hear Deepak Lal, one of the world’s leading economists, based at Oxford and UCLA, on global imbalances, Dr John Edwards from HSBC on the future of China’s manufacturing, Hugh McKay from Westpac on China’s currency and Andy Stoler from the Adelaide Institute of International Trade and former Deputy Director General of the WTO on China’s trade future

Can APEC tackle global warming?

India, China and the US are the leading producers of emissions of carbon dioxide, but all refuse to commit to fixed targets to reduce emissions. Can a global approach to emissions trading be developed? Hear one of China’s climate change experts, Dr Kiang Kejun from the Energy Research Institute at the prestigious National Reform and Development Commission on China’s approach, Dr Margo Thorning from the International Center for Capital formation in Brussels on global prospects for reducing emissions and Dr Brian Fischer from CRA International, Australia on the impact on Australia of strategies to reduce emissions.

What will the Sydney APEC Summit deliver?

What are the outlooks for growth in APEC? What will be the impact on growth in Asia of the aging population crisis? How big are threats of pandemics? Will terrorism disrupt trade in the APEC region?

What can be expected from the APEC Summit in September in Sydney? Hear Australia’s Ambassador to APEC, David Spencer, forecast the result.

Regional and Australian experts will be present in Melbourne to present on all these issues.

The APEC Centre’s international conference will be held at the Arts Centre in Melbourne between 18 and 20 April. A special program for business has been developed.

Go to www.apec-centresconference2007.org for details of the full conference program and how to register.

The Australian APEC Study Centre recently trained 19 policy officials from six APEC member economies (China, Indonesia, Philippines, Thailand, PNG and Vietnam) plus three representatives from Fiji. The aim of the course, sponsored by AusAID, was to enhance the capacity of negotiators and officials in financial agencies in targeted APEC economies. 

The program was designed to identify the negotiator’s knowledge and understanding of financial services and the supervisory environment required to support liberalisation of financial services in the WTO Doha Round.

Even though the Doha Round may have stalled, the process of financial services liberalisation continues to be a prominent aspect of APEC’s agenda. This was therefore an opportune time to train these negotiators in matters of financial services.

Academic Coordinators for the program were Kenneth Waller and Jules Gribble, who said that the ‘focus on the supervisory environment for financial services gives key insights into the financial services sectors’ needs and issues. An effective supervisory system generates confidence and thereby enables and encourages the liberalisation of financial services in the WTO Doha Round, contributing to growth and development.’

The program also presented a number of other perspectives on capacity building, including the significance and application of international supervisory standards and practices in a globalised environment; the importance of a risk management based approach to supervision; the need for the application of good governance principles in financial institutions including both commercial financial institutions, government institutions and supervisory agencies, and the need to develop supervisory capacity commensurate with the expertise and evolution of the commercial financial services sector. 

This course, part of the Managing Regulatory Change (MRC) program, also focused on prudential issues in the supervision of banking, investment, insurance and pension products.

Participants came away with a greater understanding of the industry based on what they heard from leaders in the field in Australia. They also were privileged to hear from two American experts who enlightened them with a broader perspective.

Democrats now control the key committees which handle trade in the US House of Representatives and Senate. The Democrats are committed to changing the trade agenda, particularly to give greater prominence to labour and environmental questions.  A common sentiment among the 30-odd new Democrat members of the House is that "trade" and Trade Agreements have not raised basic salaries of US workers; jobs are threatened by Latin American migrants; and Chinese competitiveness is hollowing out US manufacturing.  The Democrat leadership also made a big deal of the trade deficit when new numbers were released last month.

The economic reality seems different. Growth in the US economy is strong; unemployment is under 5 per cent; output from manufacturing is growing; and jobs are expanding, particularly in services. The American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) exerts strong influence over Democrat policies. Its picture of the "failing" America seems shaped by the rapidly declining share of its members among the US workforce and their concentration in industries where wages are stagnant. 

But the Democrats have the numbers, and Trade Promotion Authority (TPA) expires in July. Without it, the smooth passage of free trade agreements through the Congress (including with countries important to the US - South Korea, Malaysia, Colombia) is threatened, and the authority to negotiate a conclusion to the Doha Round lapses. 

Some Democrats are also threatening to unpick the terms of some of finished FTAs (such as that with Peru) which address labour, environment and intellectual property rights.  One long-term observer considered that 90 per cent of this interest was on labour issues. The AFL-CIO seems to have adopted the current campaign against intellectual property rights being waged by NGOs such as Consumer International and Oxfam. Historically, though, Green groups have demonstrated a canny capacity to tack environmental issues onto trade bills.

In case TPA is not extended, negotiators are rushing to complete the Korea-US FTA so that it can be notified to the US Congress by the end of March.  Seasoned trade insiders consider that this is possible, even on the difficult question of agriculture. Negotiations on the Malaysia FTA are stalled over the US's insistence that it covers government procurement. Kuala Lumpur will not budge because it gives preference in procurement to Malaysian business.

The debate on the need for TPA to complete the WTO Doha Round negotiations is circular. It is reckoned that Congress would provide authority to complete the Doha Round (though maybe not for bilateral FTAs) provided a reasonable deal seems achievable. The consensus among trade experts in Washington on all sides is that no Administration will get Congressional support for a Doha Round deal that does not include significant concessions by the EU to open agricultural markets, and that is not in prospect.

There is some irony here. US Trade and Agricultural officials indicate that the Administration would be genuinely minded to adjust the US Farm Bill to secure changes if the EU were willing to liberalize.

So the logjam in the Doha Round is not renewal of TPA, it is what it has always been: the unwillingness by the EU to liberalize its farm sector.

Political analysts do not regard an effective conclusion of the Doha Round is achievable until the political climate in Brussels changes. That may not occur inside five years. Some fret that continued stalling in Geneva may damage the standing of the WTO (never strong anyway) inside the US. There is increasing recognition that the WTO is a critical tool for ensuring that China stays the course in its transition to the open global economy.

Will the Congress grant the trade authority? The Democrat Leadership responsible for trade (Baucus in the Senate and Rangel in the House of Representatives) are considered practical moderates in Washington.  Levin, the Head of the House Trade Sub-Committee, is considered more hard-line.

The prevailing view is that politics will determine the matter. Some recall that the Republican Congressional Leadership bloody-mindedly refused to grant the Clinton Administration trade negotiating authority during its entire term.

If the Democrat Congress likes the President, he will get authority to negotiate. That does not seem likely given differences over Iraq, but it will depend on the political temperature in DC during the week in which TPA is considered. 

Only one thing is certain. If some form of negotiating authority is granted, it will definitely require the US Administration to secure positions on labour and the environment in trade agreements which trading partners of the US (the EU excepted) will not welcome.

Source: APEC Secretariat