AUSTRALIA: APEC cautiously endorses Free Trade Area
Updated
The Asia Pacific summit at the weekend gave a cautious endorsement to the United States call to create a Free Trade Area of the Asia Pacific. The long term aim to create an Asia Pacific trade bloc would change the nature of the 18-year-old APEC, which was formed as a voluntary, consensus organisation promoting open regionalism.
OXLEY: It is in substantive terms, it's very significant, but in a way it also reflects the changes that have occurred in regional trade relationships in the last ten years, marked in particular by the rise of China.
Now in part the Americans have decided to support this idea in principle in response to evident efforts by China in the last three, four, five years to play a role as economic leader in the region, China fostered the idea of the ASEAN + 3 grouping. China fostered the idea of the East Asian Summit process. And so I think to a degree there's an element of rivalry here. But sitting in behind it I think what is different is that the countries in the region have obviously decided that there are gains for them in doing trade agreements among themselves and in fact with countries outside.
DOBELL: What's your view then of the arguments that some in Washington make that the politics of this are too hard for the United States? The United States can never give an Asia-Pacific free trade deal to China.
OXLEY: Part of the answer in this lies in the fact that China is changing. If we go back to '89, when APEC was first set up, you might recall the idea of having a free trade agreement among the countries was mooted and there was expert groups set up with Fred Bergson of Washington who argued for it then and is fact arguing for it still now.
Now '89, China wasn't in World Trade Organisation. It would have been impossible to conceive of negotiating an agreement with China on all the principles and structures which all in fact route from the way in which WTO works back then. Well now, China joined in 2001. It's actually significantly reduces tariffs. It is in many of its laws applying the WTO principles. China now is in fact starting to negotiate its own FTA's which you couldn't have done back in '89. Things are shifting and changing. And I think then also we're seeing a political shift. The idea of an FTA with Japan, China and the US was considered completely impractical and if you couldn't do that, then you couldn't do an APEC FTA. But, the United States has now done (one) with Korea. Japan got a shock and it's now seriously looking at proposing one with the US and I think they will, again because I think Japan wants to consolidate its relationships with the US, part of a response to the rise of China, so that will be partly poltical. Also it would suit the fact (of) Japan's timing, because they've still got to then continue to modernise their economy and some external pressure would help. And they couldn't do an agreement with the US without accepting some internal pressure.
If that happens, and I think we will see that in five years, you've got a different picture.
DOBELL: Is a free trade area of the Asia-Pacific though killing off APEC as it has been created? A free trade area is an exclusion retrade bloc, the conventional trade bloc, granted it's a huge one, whereas the APEC argument has always been open regionalism, that we won't do binding, we won't exclude anyone. Is this going to change the nature of APEC?
OXLEY: If the pattern of trade we had was high trade barriers in all areas, the answer would be yes. But the reality we've got a world now which is very largely open in trade. The areas in which you have got high trade barriers is quite small and is one of the reasons why you can have all these bilateral agreements without actually fundamentally damaging the WTO. The preferences they are negotiating are actually quite small in comparison to their general commitments to open up under WTO at large.
DOBELL: Who then is pushing it? If the United States president is pushing an idea that he could not get through the US Congress at the moment, who is going to push this idea?
OXLEY: The world is such that if the world's biggest economy says they are interested in something, most other people will pay attention as well, whether they may not think it's 100 per cent a good idea or not. There has always though as well inside APEC been a group of countries like Chile, Canada, Singapore, New Zealand who have also generally championed the idea. So I think you will find now that on balance, there's probably more in favour inside APEC than not. But I mean the trick here is how long it takes? If someone I think tries to propose that something substantial be done on this inside 10 years, that would be a mistake. I think the time should be spent working up to the point where in 10 years time, I think it's probably going to be feasible.
DOBELL: If APEC were though to try to negotiate a free trade area of the Asia-Pacific, does it not have to take some of the manners and the colour of the European Union? It has to create a formal trade bloc structure?
OXLEY: Yes, but the European Union is much more than a trade agreement. It's a full blown economic integration agreement and in fact it serves a political purpose as well. There's a political decision in Europe to foster integration for political reasons. In the APEC region, the logic has always been to foster integration through trade for economic reasons and that's where I think the parallel with Europe stops and there's no move in Asia for political integration.
DOBELL: So the idea of an Asia-Pacific community, where does that fit in the creation of this new bloc that the United States is talking about?
OXLEY: Well, we're better off going back to that original concept that you talked about, about Asian-Pacific open regionalism, where you had systems open to trade and investment, rather than systems closed to only promote trade and investment inside that area.
DOBELL: Does this prove then that APEC hasn't really worked out what sort of beast it wants to be?
OXLEY: Maybe APEC needs to rethink about what sort of beast it wants to be. I don't think there's any inclination in APEC to turn it into a political organisation. In fact I think that would definitely kill it. APEC's strength relies on the fact that the member countries still have heavy dependence on each other's economic growth and in fact if you consider how important the economic relationship between Japan and China and China and the US is becoming, then I think you need an APEC which is even more focused on encouraging economic exchanges and not talking about political integration.
Presenter: Graeme Dobell
Speakers: Chair of the Australian APEC Study Centre at Monash University in Melbourne, Alan Oxley
