February 2003

In This Issue

Environment – the trade issue for 2003?

Analysis by Alan Oxley
Trade is not shaping up as a high priority issue for 2003 in the APEC region. But trade nevertheless will be on the agenda - WTO Ministers will meet in Cancun, Mexico in September and environment is set to loom as the major issue. If APEC economies do not pay attention to this, they could be big losers.

More...

North Korean Nuclear Crisis Threatens Regional Harmony

Analysis By John Mckay
The renewed nuclear crisis on the Korean Peninsula presents an enormous and potentially very serious challenge to all of the powers in the region, and indeed for the whole global community, with serious consequences for Australia’s economic and political interests. But it also threatens to disrupt a whole series of relationships in the Asia Pacific that have been carefully nurtured over the years through such mechanisms as APEC.

More...

Thailand is APEC's Host in 2003

The Theme for the 2003 APEC year is "A World of Differences : Partnership for the Future". More...

ASC Meeting in Thailand in May

This year the annual APEC Study Center Consortium Confernce will be held on the tropical island of Phuket in Southern Thailand from 25-28 of May. The central theme of the conference is “Extending and Reaching out the Benefits of APEC”.
More...

Publications

• White Paper on Australia's Foreign and Trade policy
• UNEP's Reference Manual for the Integrated Assessment of Trade-Related Policies
• Innovation is Key to Asia's Growth, report by World Bank

  More...

Calendar of APEC Events

More...

Analysis I

Environment – the trade issue for 2003?

By Alan Oxley

Trade is not shaping up as a high priority issue for 2003 in the APEC region. The looming invasion of Iraq, North Korea’s high risk nuclear politics and the struggle to regain economic growth in East Asia are bigger issues.

But trade nevertheless will be on the agenda - WTO Ministers will meet in Cancun, Mexico in September for a critical mid-term review of the Doha Round – and environment is set to loom as the major issue, thanks to the EU. If APEC economies do not pay attention to this, they could be big losers.

While the world’s trade ministers took the opportunity at Doha in November 2001 to launch the WTO Doha Round of world trade negotiations to show that peaceful international collaboration was the still the norm notwithstanding the terrorist attack on the World Trade Centres two months before, the EU extracted a price.

Its condition for supporting the Doha Round was that environment had to be on the agenda. This was a first. The overwhelming majority of members of the WTO did not want this. At the Singapore WTO Ministerial Conference in 1996, ASEAN stated firmly that environment and labor issues did not belong on the WTO agenda. It echoed the long-standing attitude of most developing countries.

The mandate to discuss environment in the Doha Round is unclear. The WTO environment committee has accordingly been going around in circles. But observers expect the EU to turn up the heat on environment at Cancun for two reasons.

The first is diversion. The key issue which sets the momentum for the WTO negotiations is agriculture, and the EU is stuck. As part of the deal last year to expand the EU, France and Germany agreed that EU expenditure on agriculture would be frozen until 2006 and that no substantial revision of agriculture policy could occur until after 2013. The Doha Round is scheduled to finish in 2005. In other words, the EU cannot commit to substantial reform of farm trade within the timeframe of the Doha Round.

Focussing on the environment is a neat diversion. It also supports the EU’s defensive strategy on agriculture. In January, the Commission announced the EU would redirect domestic agricultural subsidies to support environmental issues – animal welfare, consumer apprehension toward biotechnology and higher environmental standards. The EU wants the WTO to continue to permit high subsidies to farmers, justifying them as environmental policy.

The EU has already said WTO rules should be altered to enable countries to restrict imports unless domestic environmental standards in the exporting country match their own. Analysts now expect the EU to widen debate on trade and environment by pushing at Cancun to get more issues on the table.

So far the Doha mandate just raises the issue of conflicts between the WTO rules and rules mandating trade restrictions in a handful of environmental agreements. International NGOs such as Greenpeace and Worldwide Fund for Nature (WWF) want that expanded to include general rights to restrict trade and, most recently, have started to tout “protection of bioresources” as a new trade and environment issue. They have the general support of the EU.

The second reason it suits the EU to push environment issues at Cancun, is that it makes itself look good to NGO and environmental parties in Europe. Most EU Governments are under pressure to adopt greener policies, and waving the green flag against the WTO, against which most European NGOs have now taken a set, is an easy position to take.

Many APEC economies have already experienced environmentally based trade restrictions in Europe – unreasonably high levels of tolerance for chemicals, GMO free products and requirements to comply with EU environmental standards.

When such policies respect the principle of non-discrimination in trade and are based on sound science, no one can complain. This results in good policy. However the clear direction of domestic environmental regulation in Europe is towards command and control regulation, “precautionary” (no-risk) rather than “managed” (science-based) risk assessment, and use of trade measures to enforce environmental standards.

The Doha Round is called the Development Round. However EU environment policy indicates that the form of development which the EU wants to encourage through trade is one based on how it believes the environment should be regulated. In other words, development only on the EU’s environmental terms.

Apart from forcing exporters to adopt EU environmental standards, this erodes the capacity of countries to develop their economies and trade according to their comparative advantage. It would fundamentally undermine their capacity to compete in global markets and to develop national environment policies which reflect national priorities and national environmental needs.

Most Trade Ministers went to Doha prepared to launch the Round but unprepared to address the EU demand on environment. They were caught unawares when at the last minute they were asked to accept an approach on the environment to satisfy the EU. There can be no such excuse for Cancun.

Trade may not be a leading issue in 2003, but if APEC Trade Ministers do not focus on environment issues, trade could turn out to be a major loser in 2003.

Alan Oxley is Chairman of the Australian APEC Study Centre

Analysis II

North Korean Nuclear Crisis Threatens Regional Harmony

By John McKay

The renewed nuclear crisis on the Korean Peninsula presents an enormous and potentially very serious challenge to all of the powers in the region, and indeed for the whole global community, with serious consequences for Australia’s economic and political interests. But it also threatens to disrupt a whole series of relationships in the Asia Pacific that have been carefully nurtured over the years through such mechanisms as APEC.

Technically, no peace treaty was ever signed at the end of the Korean War in 1953. Rather, an armistice was agreed pending a more formal and long-term settlement, but this has never been successfully negotiated. Thus, it could be argued that a state of war still exists on the Peninsula. Certainly, over the years there have been periodic crises that have threatened to re-ignite military conflict, and this has become even more serious as both sides have progressively acquired more sophisticated weaponry. In 1994 a very serious stand-off occurred over suspicions by the United States that North Korea was developing nuclear weapons. Eventually the crisis was averted through the negotiation in Geneva of what has become known as the Agreed Framework. North Korea undertook to freeze its nuclear programme and close its old reactor at Yongbyon. In return the United States agreed to lead a consortium that would construct two new light water reactors to supply electricity for a desperately energy-deficient North Korea, and while these new facilities were being built some 500,000 tons of heavy fuel oil would be supplied annually.

The origins of the latest crisis can be found in the perception of both sides that the other has not lived up to the terms of the 1994 agreement. The United States administration has never been able to persuade Congress to allocate the funds needed to fund the new reactors. Critics of the Clinton administration’s deal reached in Geneva argue that North Korea had got away with blackmail and was being rewarded for its outrageous behaviour. While the US has provided some of the fuel oil it had promised, it was left to the other members of the Korean Peninsula Energy Development Organisation (especially South Korea, Japan and the European Union, with a small contribution from Australia) to finance a project which is now way behind schedule. For its part, North Korea has expressed outrage at what it sees as the US unwillingness to live up to its word, and has stressed that it will feel free to take whatever steps are necessary to secure its own energy security. Finally, in early October 2002, North Korea admitted to visiting Assistant Secretary of State James Kelly that its nuclear program was still active, precipitating this new crisis.

North Korea watchers are very much divided on the causes of this admission, but many believe that Kim Jong Il is using the old tactic of brinkmanship in an attempt to secure a comprehensive peace treaty with the US as well as a generous package of aid and technical assistance. In the last few weeks, Pyongyang has made a succession of dramatic announcements that have significantly increased the stakes. It has again given notice that it will be withdrawing from the Nuclear Non-Proliferation Treaty, and more recently it has declared that it no longer feels bound by the 1953 armistice, given that in its view the United States has consistently violated the agreed terms. The 1994 Agreed Framework is of course dead, even though some construction of the reactors has been undertaken by South Korea. North Korea has declared that it will regard any attempt by the US to impose sanctions on the country as tantamount to a declaration of war, and it has boasted of its capacity to strike at targets not only in Japan and South Korea but in the US itself (a claim which has been admitted by US intelligence sources).

US policy on how to deal with this crisis appears rather confused, partly as a result of its preoccupation with Iraq. In truth, the capacity of the US to deal with North Korea is heavily constrained. Many military facilities in North Korea are buried deep underground and hence are difficult to bomb. More importantly, Seoul lies within shelling range of North Korean artillery, and would be an immediate victim if hostilities broke out. Japan also fears that its cities would also be targeted. In the apparent absence of a military option, the US has announced that it will be proposing that economic sanctions be imposed, in spite of the warnings from Pyongyang, and has declared that it is not willing to undertake negotiations with North Korea under such duress.

Reaction in North Asia has also been somewhat confused, with Japan declaring that if it feels that it is in immediate danger of missile attack it will not hesitate to strike first. Many commentators have also predicted that both Japan and South Korea will now feel it imperative to acquire their own nuclear weapons. Both countries certainly have the capacity – one South Korean official assured me recently that nuclear weapons could be made ready in as little as two months.

But it is the growing rift between the United States and its allies in North Asia that is causing the most immediate concern. US-South Korea relations are now at their lowest ebb for many years. Seoul was outraged by the inclusion of North Korea in President Bush’s “axis of evil speech”, which many see as one of the origins of the current crisis. The incoming President of South Korea, Roh Moo Hyun, promised during his election campaign that if the US attacked North Korea, South Korea would remain neutral. He received widespread support for this stand, along with a plan for the staged withdrawal of US troops from the country. Japan has also urged the US to seek a diplomatic solution to the crisis. However, the US appears unmoved by these calls for negotiation with the North, and many critics have argued that the US is not really focussed at the moment on the issue. One commentator has gone so far as to suggest that US policy on North Korea is drifting and “the captain is asleep at the wheel”.

Thus US-Asia relations are in serious trouble, and this is bound to cause enormous problems across a wide range of fields, including those of primary interest to APEC. The North Koreans know that this is the right moment to press their claims ever more strongly, and it is imperative that a more concerted and considered policy response be developed very quickly before it is to late to avoid a real tragedy.

Professor John McKay is Director of the Australian APEC Study Centre, and has published widely on Korean issues. He has recently completed a report for the South Korean Ministry of Unification on the food situation in North Korea.

News I

Thailand is APEC Host in 2003

The Theme for the 2003 APEC year is: "A World of Differences : Partnership for the Future"

This central theme is supported by a series of five sub - themes that are designed to guide APEC 's Working Groups and Forums in achieving their goals for the year:

• Knowledge-Based Economy (KBE) for All
  KBE is the foundation of economic growth in the APEC region. Thailand is calling for APEC to redouble implementation of its KBE Strategy in support of the knowledge-based economy, maximizing the combined potential of information and communications technology, human resource development and a conducive legal and regulatory framework.
• Promoting Human Security
  The process of economic change must be properly coordinated and social safety nets strengthened to ensure that economic and social opportunities are accessible to all stakeholders.
• Financial Architecture for a World of Differences
  Reducing vulnerabilities while enhancing investment and trade between the differing social systems and economies requires sound international financial infrastructure. APEC is in a position to play a substantial role in reforming the global financial system.
• New Growth Enterprises: SMES and Micro -Businesses
  Extending resources for the creation of micro-businesses in both developed and developing economies strengthens the foundations for a broader distribution of income, enhanced economic stability and greater community development
• Development pledges
  The future prosperity of the APEC region depends of the dedications of APEC economies to implement development pledges through partnership in trade, investment and economic and technical cooperation (ECOTECH), and APEC making meaningful contributions to the WTO Doha Development Agenda.

Details about APEC Activities in 2003 can be found on the Official Thai Government site for APEC 2003 at http://www.apec2003.org

News II

APEC Study Centres Consortium Meeting in Phuket in May

This year the annual ASCC will be held on the tropical island of Phuket in Southern Thailand at the Sheraton Grande Laguna from 25-28 of May. The central theme of the conference is “Extending and Reaching out the Benefits of APEC”.

Seven subthemes are

1. APEC and the changing world trade situation
2. Trade and investment in APEC
3. Small and medium enterprises (SMEs) development in APEC
4. Knowledge-based economy (KBE)
5. Financial architecture for a world of differences
6. Human security issues
7. Contribution of ASC to other APEC processes

The Thai APEC Study Center is hosting the Conference. Papers can be accepted until 30 April 2003. For the latest details including a tentative program and a the registration form see the Thai APEC Study Centre website

Publications

Advancing the National Interest: Australia's Foreign and Trade Policy White Paper
Launched jointly by Australia's Foreign Affairs Minster an Trade Minister on February 12, the White Paper provides an overview of the Australian Government's policies. The paper surveys the political, defence and trade ties in the context of renewed attention given to security. Included is analysis of Australia's interests in trade liberalisation and iits bilateral and multilateral relationships. The White Paper is available at http://www.dfat.gov.au/ani/index.html

Reference Manual for the Integrated Assessment of Trade-Related Policies
This manual by the United Nations Environment Program is designed to help policy makers and practitioners—in the developed world and in developing countries—to conduct integrated assessments of the economic, environmental and social impacts of trade policy and trade liberalisation. The full text of the manual can be found at http://www.unep.ch/etu/etp/acts/manpols/refmania_final.pdf

Innovation is Key to Asia's Growth
East Asia's future as one of the world's most dynamic, resilient and interdependent economic regions could be realized if it follows through on an institutional reform agenda and embraces technology and innovation and with it, investments in education and knowledge. This could breathe new life into the region's development prospects and speed the transition of a number of countries into the ranks of developed nations, according to a new study titled Innovative East Asia: The Future of Growth, produced by the Bank and the Japanese government. Further details, an extract and ordering details are available from the World Bank

Calendar

Calendar: APEC Meetings for 2003

Notes

Telecommunications Workshop
The 27th Meeting of the APEC Telecommunications and Information Working Group (27th APECTEL) will be held in Kuala Lumpur, Malaysia from 24-28 March 2003. Information about the meeting and associated events are to be found at http://www.apectel27.org.my/