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APEC's Development Since 1989: Four Adjectives in Search of a Noun?

Like most successful organisations, APEC was formed after a long period of preparatory work and in response to forces that were already well established. In particular, APEC grew out of the ever-increasing levels of economic cooperation in the region, and the need to manage and enhance these maturing linkages.

Ideas for some kind of pan-Pacific organisation surfaced in Japan as early as 1960, along with proposals for an Asian Development Fund. [2] The idea was clearly designed to promote Japan 's emerging role in regional consolidation, and during the 1960s the concept was further developed by Japanese academics and policy makers, largely associated with the Japan Economic Research Center . It was proposed that annual meetings be held to discuss area of common interest in the region, and this was taken a stage further in 1967 when Foreign Minister Miki endorsed an Asia-Pacific policy for Japan. Also in 1967, one of the important building blocks of APEC, the Pacific Basin Economic Council (PBEC) was established, bringing together private sector representatives from Australia , Canada , Japan , New Zealand and the United States . The strong development of Australia-Japan relations during this period encouraged the two countries to work very closely together to promote the general idea of regional cooperation. Interested academics provided much impetus throughout this time, and much of the international dialogue took place in a ‘second-track' format.

During the late 1970s the emergence of the Association of Southeast Asian Nations (ASEAN) also began to be influential in the wider region, and this organisation was enthusiastically embraced by the Japanese government. In 1977 Prime Minister Fukuda made a major tour of the ASEAN countries, and enunciated the Fukuda Doctrine of ‘heart-to-heart diplomacy'. In the late 1970s and early 1980s, strong United States interest in the region began to emerge, including the fostering of regional economic cooperation. The Chairman of the Senate Sub-Committee on East Asian Affairs, Senator John Glenn, requested the Congressional Research Service to examine the feasibility of some kind of regional economic organisation. This initiative from the most powerful nation in the region, plus continued Japanese and Australian involvement, gave rise to a further round of conferences and discussions, culminating in the formation of the Pacific Economic Cooperation Committee (PECC). A series of PECC meetings and initiatives during the 1980s were extremely constructive, and essentially provided the foundations for APEC.

During the 1980s, membership of PECC was expanded to include 20 economies. From its second-track origins, Asia-Pacific cooperation gradually became more official. The creation of the ‘6 plus 5' meeting of the ASEAN Post-Ministerial Conference was an important step in this direction, drawing together the foreign ministers of ASEAN together with those from the five developed Asia-Pacific countries. This gradually quickening pace of cooperation was taken a stage further in 1989 when, in a speech in Seoul , Australian Prime Minister Bob Hawke proposed the establishment of a more formal inter-governmental forum in the region. Later in that year, the first APEC meeting, at the level of foreign ministers, was held in Canberra . Initially, the forum consisted of 12 nations – the ASEAN six plus Australia , Canada , Japan , Korea , New Zealand and the United States .

Developing the APEC Agenda: The Emergence of the Three Pillars

While the general idea of some kind of regional forum received widespread support, there was less agreement on what should be the precise role of the new organisation. The ASEAN members were insistent that APEC should remain a very loose, consensus-based body with a very small secretariat, an issue taken up in detail below, and this inhibited the emergence of a more tightly focussed, rules-based organisation of the type favoured by some developed countries. Thus, from the very beginning, APEC has struggled with its identity. Some cynics have portrayed APEC as a mere talking shop, even suggesting that the acronym stands for ‘a perfect excuse for coffee'! In a similar vein, former Australian Foreign Minister Gareth Evans described APEC as “four adjectives in search of a noun”. Clearly, there were a number of alternative (even contradictory) visions of what APEC should do at this initial stage, and in many respects that debate has continued to the present day.

One crucial set of ideas, particularly relevant in the early 1990s, concerned the continued role of the United States in the region. Some countries feared that the end of the Cold War would diminish the desire of the US to play a central role in Asia affairs. The continued problems of Korea and Taiwan , coupled with predicted rise of China to major power status, they argued, would result in dangerous instability in Asia . The US was essential in this context as guarantor of the regional balance that underpinned continued economic growth. By contrast, others have favoured an ‘Asian only' grouping, also throwing doubt on the appropriateness of the membership Australia and New Zealand . It is interesting to note that when the invitations were sent out for the initial meeting in Canberra , the United States was not on the list. It was only included later at the insistence of US Secretary of State James Baker. This debate intensified after the Asian economic crisis of 1997, when many Asian commentators and leaders were resentful of the role played by the US in the lead up to the crisis and in the rescue packages pushed through by the International Monetary Fund. The current manifestations of this ambivalence about the US in the region will be explored below.

More specifically, many commentators wished to see APEC play a central role in the development of trade and investment in the region. This included several key tasks. The first was to contain the quite severe trading tensions that were inevitable in a region of rapid growth, in which a wide range of aspiring industrial nations were pushing hard to expand their export market shares. Most important here have been the trade disputes between the US and Japan , but there have been many others. Secondly, it was argued that APEC should foster and extend processes of market integration in the region. This would include the creation of a stable regional trading environment that would encourage all nations, but in particular China , to develop more internationally oriented growth strategies. [3] Thirdly, and much less ambitiously, others suggested that APEC could play an essential role in the sharing of information, exchanging ideas on areas of common concern and generally building confidence in the region. Thus, the organisation would act as a sort of regional level OECD. This limited but practical vision has been attractive to a number of countries, and indeed has been one of the contributions that APEC has made over the years.

During the 1990s, these alternative visions were debated, although in some cases not resolved. Gradually there emerged a central APEC focus on three central tasks, what have become known as the three pillars of APEC:

· Strengthening the open multilateral trading system

· Achieving free and open trade and investment in the Asia Pacific by a process of facilitation and liberalisation

· Intensifying development cooperation in the region

These were set out in the 1991 Seoul APEC Declaration, which outlined the specific objectives of the group.

The next important step was the inauguration of the annual Leaders' meeting as part of the APEC process, and the fact that the first such dialogue in Seattle was so strongly supported by President Clinton gave further weight to APEC. The Blake Island Economic Vision agreed at that meeting supported the idea of an Asia-Pacific region that harnessed its diverse economies, strengthened cooperation, and promoted prosperity. Such a community would embrace the spirit of openness and partnership to continue and deepen growth, and would contribute to an expanding world economy and support an open trading system.

This idea of an open regional system was taken a stage further at the 1994 meeting at Bogor in Indonesia . In the Declaration of Common Resolve, leaders agreed that the foundation of economic growth is open trade, and they resolved to remove impediments to economic cooperation and integration. Industrial economies agreed to remove all barriers to trade and investment by 2010, to be followed by the developing economies no later than 2020. It was also pledged that industrialised economies would seek to provide opportunities for developing countries, which in turn would undertake reforms to promote higher growth rates. The aim, then, was to narrow the development gap in ways consistent with sustainable growth, equitable development and stability. The achievements of these specific targets was to be the major subject for discussion at the 1995 meeting in Osaka , Japan . At Bogor , leaders had asked their ministers to prepare detailed proposals for achieving the agreed goals, and these resulting plans were incorporated into the Osaka Action Agenda. During the year in which Japan hosted APEC there was also considerable attention given to the economic and technical cooperation plans and programmes, which until then had been far less prominent than the trade agenda, and this emphasis was continued by the 1996 host, the Philippines. The 1996 meetings also involved the incorporation of individual action plans for the achievement of the Bogor goals into a detailed road map for the entire region, as it sought to implement a common vision. This compilation became known as the Manila Action Plan.

By the end of 1996, the Manila Action Plan had put in place what is still the trade and investment programme of APEC. Later meetings of leaders were dominated by a range of other issues, although there has always been a ritualistic reaffirmation of the Bogor goals in each of the leaders' declarations. Inevitably, the 1997 meeting in Vancouver was dominated by discussion of the unfolding of the Asian economic crisis, and this was still the major subject of discussion in Malaysia in 1998. In 1999, the government of New Zealand tried desperately to push forward the trade and investment liberalisation agenda, but the crisis in East Timor tended to dominate, especially in the media reports. In 2000, with widespread concern about the lack of progress in launching a new round of the World Trade Organisation process, and a general feeling that APEC could take few initiatives at the regional level until there had been more progress globally, the focus returned to economic and technical cooperation, especially in the area of human resource development and capacity building. Human resources were also the focus of a High Level Meeting on Human Capacity Building in Beijing in early 2001, but by the time of the Leaders' meeting in Shanghai in November, responses to the terrorist attacks on the United States had sidelined all other topics.

Evaluating APEC's Contribution

Haven given a broad outline of the development of APEC's programme, I now want to turn to the much more difficult task of evaluating the initiatives that have been undertaken and judging the general contribution that has been made to the progress of the region. This will be done initially by concentrating on the three pillars of APEC; goals, which have been, identified by APEC itself as its core activities. I will then go on to consider some much more general issues, such as the notion of building an Asia-Pacific community.

Strengthening the Open Multilateral Trading System

The initiatives under this heading fall partly into what I have already called the “regional OECD” function of APEC – sharing information and ideas, and building confidence in the international system. This role has generally been interpreted quite broadly to include any encouragement that can be given to the strengthening of market systems in the region. However, I also want to consider here the APEC contribution to more global initiatives on trade, especially in the WTO arena.

A recent review of APEC's activities by a research team of which I was a member concluded that APEC had made two particular contributions at the more general level of ideas. [4] First of all, APEC has established itself as a world-class forum in which a wide range of people – leaders, business executives, government officials, academics and others meet regularly to exchange ideas and debate issues. The annual meeting of leaders is particularly important in this regard. The summit, which now consists of leaders from 21 member economies, is a unique forum, and I will return to its role in the last part of this essay. Secondly, APEC has acted as a driver of ideas in the region. The Bogor targets have served as a beacon for the future, with implications for all sections of the regional community. At a more technical level, the discussions in the numerous working groups within the APEC system have done much to disseminate new ideas and best practice information in a wide range of fields. For example, the Energy Working Group has sponsored a major research programme on energy issues, done significant work on establishing common standards throughout the region, collected and made available detailed information on a range of energy indicators and encouraged work on new and renewable energy technologies. [5] APEC, in various of its working groups and other meetings, has also been heavily involved in the reform process that has been initiated in a number of countries in the wake of the Asian economic crisis. [6] Since 1997 the role of the meetings of APEC finance ministers have become central to the work of the organisation. Reforms of the international financial system and of the major international agencies have been discussed, along with changes within national systems of governance. Indeed, the whole question of governance – at both national and corporate levels – has now become a central concern within APEC. [7]

APEC has also played a role in supporting global efforts for trade and investment reform, particularly in the WTO. Indeed, some commentators have seen this as one of the most important functions that APEC can perform. Since APEC itself contains so many important trading nations – more than half of all world trade now involves members of the organisation – it is an important party to the ongoing negotiations, and the development of common positions within APEC meetings can provide an important force for change. Through its own reform efforts it can also serve as an important model for the rest of the world. This is a key contribution, to which I will return in the context of discussions about a new WTO round.

Trade and Investment Liberalisation and Facilitation

This has been central to APEC's program in its first years, and for many in the wider community it is the real reason for APEC's existence. Yet it is clear that efforts in this area have been flagging in recent years. In part this reflects broader resistance to further trade reform, especially in the light of high-profile demonstrations in cities around the world against the negative impacts of globalisation. The impact of the Asian crisis also created political resistance to further trade liberalisation. However, the recent review of APEC referred to earlier [8] identified a number important obstacles to further progress on trade and investment within APEC itself:

· Slow adaptation of the APEC agenda. The response to new developments has been too slow in some areas, for example competition policy and non-tariff barriers. This suggests that the Osaka Action Agenda needs to be updated.

· Absence of priorities. It may be that the effort in trade reform within APEC has been diffused across too many areas, and there is need for more focus.

· Shortfalls in member commitments. Many APEC members, in their responses to APEC initiatives, have gone no further than their existing pledges under the WTO Uruguay Round.

· Weak evaluation procedures. There is a lack of outside scrutiny of individual members' progress in implementing reform. A strong case can be made for independent evaluation mechanisms linked to peer-group pressure for adequate action.

· Dearth of specific APEC incentives. APEC operates by consensus and has no mechanism for enforcing group decisions.

· Insufficient political support for further liberalisation. As noted earlier, there is strong political opposition in some countries against further reform, at least in the present global economic circumstances, although in some cases the private sector is putting pressure on governments to continue programmes of liberalisation.

These findings have prompted some actions within APEC itself. Peer review of some individual reform programmes has now been initiated, and the Osaka Action Agenda is being updated, but there is clearly a need for further initiatives in this area. Unless APEC is able to deliver some substantial progress in trade and investment reform it runs the risk of being seen as irrelevant by the wider community, and by the private sector in particular. I will return to this issue in the last part of this essay.

Economic and technical cooperation

Given the stalling of reform in the trade and investment area, the development cooperation part of APEC's agenda has received extra attention, and in some ways it is now at the core of the organisation's activities. The Asian crisis also persuaded a number of key decision-makers that economic reform can only be successful if countries are adequately prepared for it. This involves capacity building of various kinds – in the financial services area, in human resources of all kinds, in physical infrastructure, energy, and a variety of other areas. Indeed, some would argue that without this capacity building first, liberalisation can often be quite dangerous for the country concerned. Less developed countries have particular concerns here, and many worry that without successful capacity building continued globalisation will result in a widening of the income gap between rich and poor countries.

The APEC working groups have initiated some 250 projects in a wide rage of areas, but these have had only limited impact for various reasons: [9]

· Excessive diffusion of limited resources. Many projects are very small, they are spread across too many different areas, and there is frequent overlap and lack of co-ordination. APEC has no mechanism for establishing priorities.

· Proliferation of forums. APEC working groups and networks have multiplied over time creating some confusion and inefficiency.

· Lack of co-ordination of defined APEC objectives. The small development projects are not linked effectively with wider APEC priorities.

· The Ecotech Subcommittee lacks adequate authority. The group within APEC charged with the improvement of the whole economic and technical co-operation area is the Ecotech Subcommittee, but this lacks real authority and resources to really succeed in this key area.

· Many initiatives are starved of resources. Links have not been developed with the major funding agencies, notably the Asian Development Bank. As a result, many projects lack adequate financial support.

Once again, some steps are being taken to rectify these weaknesses. One important initiative is the development of plans by individual members indicating their priorities in this area. Steps are also being taken to give greater support to the Ecotech Subcommittee and develop greater co-operation with the Asian Development Bank.

Continued Tensions and Unresolved Issues

In this final section I will put forward some ideas on the ways ahead for APEC. I believe that the organisation can play a key role in the region. Indeed it is the only region-wide forum we have to deal with a bewildering range of problems. But to be more effective, APEC must first deal with a number of key issues and unresolved problems, many of which have been in evidence since the very beginning.

The most basic issue of all is the structure, operation and funding of APEC itself. The organisation was based around the structure and methods of ASEAN, and has inherited its strengths and weaknesses. Decision-making is by consensus, which has been defended by a number of members as being consistent with the “Asian way”, and the only fair way of operating an organisation which has a great diversity of membership. It is the best way of preventing bullying of small nations by the larger ones, and allows progress to be made at a pace which is comfortable for all. However, some members, notably the United States , would be more comfortable with a rules-based organisation, with legally enforceable sanctions available to compel compliance with agreements that have been made. APEC does not have a large secretariat and is therefore unable to undertake many complex analyses that might be helpful to leaders. Again, this mirrors the organisation of ASEAN, whose lack of a strong secretariat has been seen as a way of ensuring that the rights and freedoms of action of the nation state so not become subordinated to an international body. Also, APEC has very few funds to support its programmes or to undertake new initiatives. It depends upon the constituent governments to make the necessary contributions as they see fit. The decision-making system is also very diffuse and cumbersome. It has a wide variety of forums, working groups, networks and committees, many of which are quite unaware of what other groups are doing. A number of analysts have argued that one of the first tasks is for APEC is to have a close look at its own structures and systems. Without coming anywhere near the size and complexity of the European Union, it may well be that APEC needs more resources, a larger and more pro-active secretariat, and more ability to ensure that members live up to their promises and obligations. However, changes along these lines are sure to slow and heavily contested.

A second unresolved issue concerns the relationship between APEC and the WTO. This is particularly relevant as attempts are made to develop a new WTO round, the so-called “millennium round”. As was noted above, APEC's own initiatives in the area of trade and investment have stalled, with many members (and particularly the United States) favouring the resolution of key trade issues in the WTO, which has the essential global reach, legal frameworks and dispute resolution mechanisms. APEC's own attempts to speed up liberalisation in a number of key sectors (the Early Voluntary Sectoral Liberalisation initiative) came to an embarrassing and acrimonious end, with the unresolved matters being referred to the WTO. This has given rise to much soul-searching as to what role APEC can most constructively play. Peter Petri [10] has suggested that APEC has four constructive role that it can play:

· APEC as cheerleader. It can generally support the progress of multilateral trade negotiations, apply pressure to key countries, suggest visionary initiatives and monitor compliance.

· APEC as laboratory. APEC has considerable experience in the reform process and can act as a model or demonstration to the rest of the world. It could demonstrate the effectiveness of its own initiatives in areas such as trade facilitation, and could adapt its work programme to test out promising new ides with possible wider application.

· APEC as coalition. APEC is a large group of countries that could be extremely influential if it adopted a common approach and joint bargaining objectives.

· APEC as competitor. If no global progress was being made, or if APEC members wanted to move more quickly, APEC could undertake its own programme of liberalisation.

These issues were discussed at the November 2001 leaders' meeting in Shanghai , but with little resolution. It was agreed that the progress towards APEC's own Bogor goals would be assessed in 2005. There was also support for the idea of a “pathfinder” approach, which would allow members wishing to move faster with their own liberalisation to do so without waiting for the others. But this did not touch the most important issues on trade, and some commentators on the Shanghai meeting have seen this as further evidence that APEC has reached an impasse on trade. An editorial in The South China Morning Post, for example, argued that it had “become embarrassingly obvious that the summit achieved absolutely nothing in the area it was supposed to focus on: economic cooperation.” This may be harsh, but there are clearly serious trade problems, at the heart of APEC's agenda, that remain unresolved.

The fact that the Shanghai meeting was dominated by discussion of international terrorism has raised questions about the political and security role of APEC. Certainly, the “APEC Leaders' Statement on Counter-Terrorism” attracted a great deal of media attention, and set a precedent for APEC in addressing an explicitly political issue. However, there is still much debate on whether APEC should really expand its agenda to include such political events in future, and in particular whether APEC should become a forum for the discussion of security issues. Several arguments have been put forward against such a proposition. It is suggested that APEC has no history and expertise in such matters, and that it should concentrate on what it knows best: economic co-operation. It has also been pointed out that two of the biggest players in the region – China and the United States – do not generally favour multilateral approaches to security, favouring bilateral approaches. It is also undeniable that China has refused to discuss security questions in any forum in which Taiwan is also a member, arguing that Chinese Taipei was only admitted to APEC as a member economy, in the same way it entered the WTO as a separate customs area. On the other hand, it has been pointed out that APEC has always played an implicit political and security role, especially since the institution of the leaders' meetings. When leaders meet as a group, and particularly when they have bilateral of small-group meetings, they discuss whatever global or regional problems are current. They leave technical trade and investment matters to the officials. Thus, APEC is a de facto security forum, although it may be best not to draw attention to this role. It is probably just as well that APEC seems to be developing this annual world and regional review. It brings together in a unique forum the leaders of four of the major powers – China , Japan , Russia and the United States – and the presence of some important middle powers such as Australia , Korea , Canada and Singapore may encourage the big powers to seek more multilateral solutions to global and regional problems. Given the lack of progress in the ASEAN Regional Forum, the body which is supposed to take the initiative in questions of regional security, APEC's role becomes doubly important.

At a more fundamental level, there is also the question of whether the nature of conflict is changing in the post-Cold War era (which, as some are suggesting, may have already become the post post-Cold War era!). In particular, I think we have to question the old separation between economics and security. The two concepts have always been loosely linked, but in a very benign way. Economic growth was assumed to give rise to more trade and more interaction between nations, and this greater familiarity with others and increased economic interdependence would produce a more stable world. As incomes rose, democracy would become more established and this would also encourage more peaceful international relations. The strong form of this theory, of course, is the so-called democratic peace theory, which postulates that no two democratic nations will go to war. [11] However, others have argued that economic growth may increase the probability of destructive war. As national income rises, it becomes possible to purchase ever more sophisticated and destructive weapons. Also, as globalisation increases, and competition between trading nations intensifies, tensions may in fact grow. Given that the competitive position of nations depends increasingly on access to new technology, scientific and industrial rivalries may be a new cause of conflict. [12] If such a view is correct, and I think there is some evidence for it, then a key role for APEC in enhancing the security environment of the region may be to ameliorate the economic and trade rivalries that are probably inevitable.

As I have argued in this essay, reforms are needed within APEC as an organisation, and particularly in its old core area of trade and investment. If results are not forthcoming soon in the area of trade liberalisation, the private sector in particular will lose faith in the organisation. But its emerging agenda in economic and technical co-operation, and its unique position as an informal forum for the discussion of key regional and global problems, ensure its continued importance to the life of the region. If a viable Asia-Pacific community is to be built, APEC will be central to the project.

NOTES

[1] A very comprehensive bibliography of articles and books on various aspects of the APEC programme and agenda has been compiled by the Australian APEC Study Centre on behalf of the APEC Study Centres Network. The bibliography allows the free downloading of many papers or abstracts as well as lists of publications on various topics. It can be accesses through www.apec.org.au

[2] For a detailed description of the origins of the idea of APEC see Hadi Soesastro, “Pacific economic cooperation: The history of an idea”, in R. Garnaut and P. Drysdale (eds.), Asia Pacific Regionalism , Sydney: Harper, 1994, 77-88.

[3] Garnaut, R., “Introduction – APEC ideas and reality: History and prospects”, in Ippei Yamazawa (ed.), Asia-Pacific Economic Cooperation: Challenges and Tasks for the Twenty-First Century, London : Routledge, 2000, 1 – 18.

[4] Feinberg, R. & Ye Zhao (eds.), Assessing APEC's Progress: Trade, Ecotech and Institutions, Singapore : Institute of Southeast Asian Studies , 2001.

[5] McKay, J., “Energy development in APEC”, in Richard Feinberg and Ye Zhao (eds.), Assessing APEC's Progress: Trade, Ecotech and Institutions, Singapore : Institute of Southeast Asian Studies , 2001, 127 - 144

[6] Petri, P. (ed.), Regional Cooperation and Asian Recovery , Singapore : Institute of Southeast Asian Studies, 2000.

[7] McKay, J., “The reform of corporate governance after the Asian economic crisis”, in Richard Feinberg and Ye Zhao (eds.), Assessing APEC's Progress: Trade, Ecotech and Institutions , Singapore : Institute of Southeast Asian Studies , 2001, 153 – 164.

[8] Feinberg and Ye Zhao, op. cit.

[9] Feinberg and Ye Zhao, op. cit.

[10] Petri, P., “APEC and the millennium round”, in Ippei Yamazawa (ed.), Asia Pacific Economic Cooperation (APEC): Challenges and Tasks for the Twenty-First Century, London : Routledge, 98 – 116.

[11] For a review and evaluation of this set of theories see, for example, Richardson , J.L., “The declining probability of war thesis: How relevant for the Asia-Pacific? In Stuart Harris and Andrew Mack (eds.), Asia-Pacific Security: The Economics-Politics Nexus, Sydney : Allen & Unwin, 1997, 81 – 100.

[12] Zysman, J. & M. Borrus, “Lines of fracture, webs of cohesion: Economic interconnections and security politics in Asia ”, in S.L. Shirk & C. Twomey (eds.), Power and Prosperity: Economics and Security Linkages in Asia-Pacific. New Brunswick : Transaction Pulishers, 1996.