DECEMBER 2004
In This Issue
Analysis
Free Trade Asian Style
At their recent Summit in Vientiane, ASEAN Leaders made big commitments to trade liberalization. That is good news. Asia’s high growth has carried some serious free trade black spots. Is ASEAN getting serious at last? More...News
New Research Report: The APEC Economies and the Kyoto Protocol
The Centre has just completed a research report which looks at the impact of the Kyoto Protocol on developing APEC economies. The report is available as a PDF download.APEC Leaders meeting in Santiago
The leaders of APEC's twenty-one economies met in Santiago, Chile. The meeting was the culmination of APEC's work program for 2004. Highlights of the meeting were continued emphasis on trade liberalisation, human security, anti-corruption and structural reform. More...Structural Adjustment Training Course
The Australian APEC Study Centre has recently completed a training course on managing structural adjustment in the wake of trade liberalisation. Seventeen officials from six APEC developing economies attended. More...Lunchtime Seminar on the Future of EU Trade Policy
The Australian APEC study centre organised a lunchtime seminar to discuss EU trade policy under a new Trade Commissioner. More...Forthcoming Conference FTA with Malaysia
The Australian APEC Study Centre is planning hold a conference looking at issues relating to a possible FTA between Australia and Malaysia. The conference will be held in Melbourne in late February 2005. Details will be published on the APEC Centre Website in Early January 2005.APEC Publications
A summary of recent publication from the APEC Secretariat including the Annual APEC Economic Outlook. More...
Korea to Host APEC in 2005
Analysis
Free Trade Asian Style
Comment by Alan Oxley
Vientiane is a charming, dusty town on the Mekong River, midway between Yunan and the South China Sea. Monks in saffron robes still roam the streets. This week, Asia’s leaders crowded into town for the annual Summit of the Association of South East Asian Nations (ASEAN)*. They made big commitments to trade liberalization. That is good news. Asia’s high growth has carried some serious free trade black spots. Is ASEAN getting serious at last?
East Asia is the success zone of the developing world. It has been for forty years. Following Japan’s example, Taiwan, Korea, Singapore and Hong Kong, the Asian “tiger economies” used export strategies and open economies to lift growth in the sixties to acquire developed country living standards by the eighties. Japanese analysts were fond of calling this the “flying geese” growth pattern, with Japan leading the formation.
Other nations in Southeast Asia – Thailand, Malaysia, Indonesia and the Philippines – set out to mimic the “tiger” strategy. Thailand and Malaysia did best. The whole region grew on low cost manufacturing. Today it is the global manufacturer of the computer age.
The World Bank described East Asia as the “miracle” model for growth. The pattern is large private sectors, modest public sector expenditure, export-based growth and lower trade barriers: unlike Latin America where generally the reverse held and growth stumbles.
But the miracle model had its weaknesses. Financial governance was neglected. In the Asian currency crisis in 1997 it cracked under the strain of runaway growth. Excessive intervention by government and financial mismanagement showed Japan’s slumping growth was not cyclical, but structural. No longer the leader of the geese, it became an economic turkey.
Trade liberalization dominated international economic policy in the late eighties. The General Agreement on Tariffs and Trade was reshaped into the World Trade Organization, strengthening the multilateral trading system and equipping it to deal with a changing world economy. The European Community created the “Single Market” and the North American Free Trade Agreement was completed.
The East Asian economies were active participants in this global action to open world markets. None however embraced free trade as a primary economic tool for managing the economy as New Zealand and Chile did. There was a distinct mercantilist flavor in East Asian policy – tariffs were reduced on inputs for export industries rather than on all imports. In most cases, farm industries were protected, services sectors remained cosseted, and in many cases, national champions were subsidized. In Korea these subsidies nearly bankrupted the economy in 1997.
ASEAN created a Free Trade Area in 1992. Initially, trade in agriculture was not fully covered, services were not included and members nominated what products would be liberalized. The system did not have a binding system of enforcement, like NAFTA and the WTO. The cultural preference in Asia is to base business on trusted relationships rather than legal contracts. The Chinese call them “Guanxi”: the Western approximation is “connections”. `
The free trade rhetoric in East Asia has been good. President Soeharto brokered the Bogor Declaration at the Summit of APEC economies in Indonesia in 1994. All major East Asian economies are members of APEC and pledged to remove all barriers to trade and investment by 2010 for industrialized economies and 2020 for developing economies.
At the ASEAN Summit last year, ASEAN leaders set out a long term goal of an East Asian Economic Community, the rhetoric going as far to suggest East Asia might replicate the European Community. The leaders of China, Japan and Korea are now regular visitors to the ASEAN Summits and the idea of an economic grouping of “ASEAN plus the 3” is now also on the agenda.
At the Summit in Vientiane this week, further commitments were made. China and ASEAN announced they would cut trade barriers in a Free Trade Agreement. The ASEAN Leaders announced they would speed up removal of barriers to trade among ASEAN members and that they would negotiate a Free Trade Agreement with Australia and New Zealand.
Indonesia’s new trade Minister, Mari Pangestu, a renowned free trader, was more sanguine after the Summit. She reminded colleagues that ASEAN was reluctant to open services sectors and was still shying away from backing up commitments with robust legal obligation.
She might have also noted that China’s approach to liberalization also features elements of mercantilism like ASEAN’s, although no one can question the commitment of China’s leadership to lock economic activity into an open market model.
There is change. China joined the WTO and Singapore and Thailand have negotiated FTAs with the US, Australia and New Zealand which include legally binding commitments to protect foreign investors and foreign businesses. In its agreement with the US, Singapore has committed to bind its government-owned businesses which dominate Singapore’s economy to new domestic rules guaranteeing competition.
The strategic gap is services and investment. East Asia at large cannot continue to depend principally on low cost manufacturing. As economies prosper, labor costs rise. In China, low cost manufacturing is migrating inland to regions were labor costs are lower. The higher income ASEAN economies, like Thailand and Malaysia, are running out of low cost labor.
The Secretary General of ASEAN reminded Governments in
Vientiane that the services sector now generates most activity in most
economies. Economies in East Asia cannot remain competitive unless services
sectors are liberalized. The same holds for investment. Restrictions on
foreign investors are still common in East Asia.
The talk is right in East Asia. It is time to walk the talk.
* Members of ASEAN are Brunei, Cambodia, Indonesia, Laos Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.
News
APEC leaders meeting in Santiago
The twenty-one Economic
Leaders of Asia Pacific Economic Cooperation member economies gathered
under the theme "One Community, Our Future".
World Trade Organization
Leaders underlined that the advancement of the Doha Development Agenda
as the first priority to achieve trade liberalization. APEC's goals are
substantially greater market access in agriculture, goods and services,
along with the elimination of distortions, notably the end of agricultural
export subsidies. We committed all our political will to making substantial
progress in 2005. We support accession of Russia and Viet Nam to the WTO,
as soon as
possible.
RTAs/FTAs
Leaders believe that Regional and
Free Trade Agreements can make a positive contribution to the process
of trade liberalization. They endorsed a set
of Best Practices for convergence of these preferential arrangements.
ABAC
Leaders welcomed welcomed the proposals from ABAC whose report is avialable
online
Human Security
The Leaders encouraged relevant economies to take measurable steps towards
the ratification of all basic universal antiterrorist conventions.
Corruption
Leaders endorsed the Santiago Commitment
to Fight Corruption and Ensure Transparency. This Commitment ncludes an
APEC Course of Action to fight corruption.
Structural Reform
Leaders reaffirmed their political commitment to promote structural reform
in the region, including improvements in the functioning of markets. They
annonced the Agenda to Implement Structural Reform, known as LAISR.
Economic and Technical Cooperation
APEC Leaders agreed on the need to deepen capacity building initiatives
through public/private partnership. They welcomed special efforts in education,
including in the use of information technology and in the promotion of
English as business tool of special interest to micro, small and medium
enterprises, youth and women.
Sustainable Development
To ensure sustainable development is enjoyed by our future generations,
they instructed APEC Officials to advance an APEC Sustainable Development
Strategy.
The Complete Text of the Leaders Declaration can be found at www.apecsec.org.sg/apec/leaders__declarations/2004.html
Structural Adjustment Training Course
During November 2004 the APEC Study Centre conducted a training course to assist developing APEC economies to manage the process of structural adjustment resulting from trade liberalisastion.
Seventeen officials from trade industry and other ministries took part.
The purpose of this project is to: (1) research the processes for managing policy induced industry adjustment in Australia and other APEC economies; (2) implement a training program for officials of selected developing APEC economies; (3) the production of a Course Reference Manual on the management of industry adjustment; and (4) establish online follow up to foster a network of officials dealing with industry adjustment issues that flow from policy reforms and a report to APEC.
The course was structured to provide a practical, structured approach to policy development based on economic principles and the political dimensions of adjustment issues. It included presentations by Australian officials, academics and experts
Presentations were also given by Yvonne Lucas, Director, Regulatory and Competition Policy Branch, NZ Ministry of Economic Development, and by Mr Iwao Toriumi, Deputy Director for Macroeconomic Analysis, Cabinet Office, Japan.
The program was funded the Australian Government through the AUSAID APEC Support fund.
Professor Jim Rollo, University of Sussex and Visiting
Fellow, National Europe Centre, Australian National University was guest
speaker at a lunchtime seminar held at the Centre. The seminar addressed
the issue of "The Consequences of Mr Mandelson: EU Trade Policy and
the New Commission". In particular the discussion concentrated on
the future of the Common Agriculture Policy.
APEC Publications
Each year APEC fora produce a number of reports and publications to coincide with the LEaders Summit. these are available for Download fron the APEC Website at www.apecsec.org.sg/apec/publications.html
This year's Publications include:
- APEC Economic Outlook 2004 APEC Economic Outlook, 2004
- Committee on Trade and Investment - Annual Report to Ministers 2004
- APEC's Trade Facilitation Action Plan: A Mid-term Assessment
- Realising Innovation and Human Capital Potential in APEC
- Trade Facilitation and Trade Liberalisation: From Shanghai to Bogor
- Senior Officials Report on Economic and Technical
Cooperation 2004
APEC 2005
 |
The arrangements for APEC 2005 are outlined on the Official Korean Government Website at http://www.apec2005.org |