If Smaller Works Better, APEC Could Turn Out Irrelevant at Best
International Herald Tribune
December 14, 1994
Philip Bowring  

Bogor, Miami, Davao. Which, if any, of these cities will go down in the annals of trade history?

Bogor, stage for the set-piece bash of the year where leaders of the 18-strong APEC group - including the United States, Japan and China - committed themselves to free trade among themselves by 2020?

Or Miami, host last week to the Summit of the Americas, a gathering of 34 nations which set a goal of free trade in the Western Hemisphere by 2005?

Or the southern Philippine city of Davao, where, just after the APEC meeting, President Fidel Ramos appealed for free trade within what he called the East ASEAN Growth Area (EAGA) encompassing the southern Philippines, most of eastern Indonesia, eastern Malaysia and Brunei?

The surge of free trade talk is commendable, but is it any more than pious hope? There is more likely to be free trade within humble EAGA by 2020 than in the much ballyhooed APEC zone.

As for the Miami summit, it further exposed the nakedness of APEC, which, despite the publicity surrounding its last two summits, always was a political stunt rather than a group with a realistic trade agenda. The drive to free trade within the Americas is so much stronger than anything in APEC that APEC itself is, despite the Bogor hype, already looking irrelevant.

For the United States, APEC and its opportunity for summiteering are temporarily useful, a cheap way of proving U.S. "commitment" to the region while putting a little pressure for market opening on the Asian members - with almost all of which it runs large trade deficits.

APEC provides China with an opportunity to show a benign face to the world and to smooth relations with the United States and promote its GATT membership bid. For President Suharto it was a useful (if flawed by Timor) way of raising his own and Indonesia's profiles.

Yet for any grouping of states to have meaning there must be either economic logic or political will. In the APEC case, neither exists beyond the most superficial level.

It is theoretically possible to reconcile APEC members' commitments to free trade by 2020 with members' existing commitments in other directions - for example, the North American Free Trade Agreement and the ASEAN Free Trade Area - but in practice this is simply not possible without political commitments that do not exist.

The world should give thanks to Malaysia's Prime Minister Mahathir bin Mohamad for his open skepticism. Mr. Mahathir has his own reasons for being a grandstanding outsider, but he has been saying aloud what the Japanese were saying to themselves.

Japan wants global, not regional, focus. If it is to accept second best, that most likely would be because it faced serious discrimination in North American and European markets. In that case it would seek some sort of Asia- Australasia regional grouping.

At one point, before NAFTA and while Western Europe threatened to be more protectionist than has been the case, APEC might have been a realistic option. But no longer. It may still serve as a warning to the Europeans, but they now seem to recognize it for the hot air that it is.

As host to next year's summit, Japan will be paying further lip service to the APEC idea, while doing as little as possible to develop it. So much for the biggest Asian trader.

How about APEC's newest and smallest American one, Chile? The Chileans have more claims than most to believe in free trade. But whether or not they eventually get into NAFTA, they are also looking toward their immediate neighbors in Mercosur, a grouping of 190 million people (Argentina, Brazil, Paraguay and Uruguay) with a combined GNP twice that of ASEAN and a decade further down the free trade road than ASEAN.

Mercosur countries have the Western Hemisphere's greatest growth potential, and do little of their trade with Asia. Their priority is arrangements with NAFTA and with Andean neighbours. The three NAFTA members are likely to feel the same way.

Meanwhile, the Asia-Pacific talk ignores realities in the other direction - the other half of Asia west of the Andaman Sea. Like South America, its trade is quite small. However, things are changing rapidly there as in Latin America and, more tentatively, in former Soviet bloc countries.

The interests of all parties concerned with freer trade must be to ensure global commitments to more open markets and not ones which, if only by implication, leave out the newcomers.

As for the United States itself, political realities at home and in Asia are gradually impinging on its rosy notions of a trans-Pacific community. For one, the enormity of its trade deficit with China will dawn soon.

The problem is not so much the size of the gap ($30 billion this year) as the ratio of imports to exports - almost four to one. Why the United States should buy so much from a still largely closed economy when it exports so little to China is a source of wonderment to non-Americans - and perhaps also to Messrs. Gingrich, Helms & Co.

Despite all the fuss over China, it is a far less important market for the United States than is Mexico, and no more so than Brazil. Given the sensitivity of employment and migration relations with Mexico, why not buy Latin shirts and toys, not (Communist) Chinese ones?

The Asia-Pacific has been the fastest growing area of trade in the past two decades, but one should not automatically assume that it inevitably will be in the next two. Part of the boom is overstated by double and triple counting as components are made in one or several countries and assembled in yet another before being shipped to America.

Another part is attributable to access to the U.S. market. Although trade barriers in Asia are declining, markets for finished goods are mostly heavily protected in one way or another.

Meanwhile, the United States is no longer as welcome in Asia as it once was. Its military presence is comforting, but reluctance to get too close is growing, as evidenced by Thai unwillingness to act as a storehouse for supplies.

Fierce attacks on American values by countries highly dependent on its markets and manufacturing investment is souring pan- Pacific relations - as is the sometimes knee-jerk U.S. approach to human rights issues.

There is of course a parallel gradual disengagement of the United States from post-Cold War Europe. But America is not seeking to take a leading part in any new trans-Atlantic group.

The logic of the U.S. trade position should be to keep a balance between Asia, Europe and the Americas in the general context of open trade. This is best done at the global level.

If a choice has to be made, the Americas will come first, partly because of domestic political considerations and partly because Asia is a complex set of individual relationships with major countries - China, Japan, South Korea, Indonesia etc. - that cannot be dealt with under an APEC umbrella.

As for the smaller countries of the region, they will naturally prefer smaller groupings with more comparable economies, whether in ASEAN or even in President Ramos's little EAGA.

In the long run, APEC could prove worse than irrelevant. It is already highlighting differences of perception between East Asia and North America. At a time when the U.S. public appears to be turning inward, it is distracting attention from real trade issues toward photo opportunities.

Ironically, if the United States does get its act together, starts saving more, cutting its deficits, taking a big stick to those who pay lip service to open markets but practice mercantilism, the main sufferers will be those who have benefited so much from North American worship of the consumer: the Asian exporters who jeer at American values.

Those who met in Miami - democratic, market-oriented and with the ghost of Yankee imperialism exorcised - found a greater sense of common identity, self- interest and possibly values than the Bogor group will ever muster.

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