apec the challenges of asia pacific economic cooperation

8/12/2019 APEC the Challenges of Asia Pacific Economic Cooperation

1/36

APEC: The Challenges of Asia Pacific Economic CooperationAuthor(s): Martin RudnerSource: Modern Asian Studies, Vol. 29, No. 2 (May, 1995), pp. 403-437Published by: Cambridge University PressStable URL: http://www.jstor.org/stable/312820.

Accessed: 14/11/2013 10:19

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at.http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of

content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms

of scholarship. For more information about JSTOR, please contact [email protected].

.

Cambridge University Pressis collaborating with JSTOR to digitize, preserve and extend access toModern

Asian Studies.

http://www.jstor.org

This content downloaded from 175.144.128.157 on Thu, 14 Nov 2013 10:19:13 AMAll use subject to JSTOR Terms and Conditions
http://www.jstor.org/action/showPublisher?publisherCode=cuphttp://www.jstor.org/stable/312820?origin=JSTOR-pdfhttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/stable/312820?origin=JSTOR-pdfhttp://www.jstor.org/action/showPublisher?publisherCode=cup


2/36

ModernAsianStudies29, 2 (1995), pp. 403-437. Printed in Great BritainodernAsianStudies29, 2 (1995), pp. 403-437. Printed in Great BritainodernAsianStudies29, 2 (1995), pp. 403-437. Printed in Great Britain

APEC:TheChallengesf Asia PacificEconomicCooperationMARTIN RUDNER

NormanPaterson choolof InternationalffairsCarletonUniversity,Ottawa

International trade figuresprominently in the economic growth strat-egies of East and Southeast Asian countries. Despite the economicrecession experienced across much of the world since the early I99oS,the pace of economic growth was sustained virtually unabated in thecountries of East and Southeast Asia.' During the entire decade ofthe g98os he East and Southeast Asian economies grew more thantwice as rapidly as the rest of the world economy. Along with thisgrowth performance, international trade in the East and SoutheastAsian region increased at about twice the rate of Europe and NorthAmerica. Merchandise exports in East and Southeast Asia increasedat an annual average rate of Io% per annum between 1965 and I989.In 1990 and 1991 aggregate merchandise exports from Asia's NewlyIndustrializing Economies (South Korea, Singapore, Taiwan andHong Kong) grew by 9.o% and 1.4%, while the four ASEAN(Association of Southeast Asian Nations) developing countries(Indonesia, Malaysia, the Philippines, Singapore and Thailand)recorded average increases of 12.9% and I4.3%, respectively.2Expanding merchandiseexports were accompanied by surging capitalinflows and rising investment rates, culminating in accelerated

The countries of the East and Southeast Asia, for purposes of this paper, includeJapan, the Republic of (South) Korea, China, Taiwan (Republic of China), HongKong and the six members of the Association of Southeast Asian Nations (ASEAN):Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand.2 World Bank, TheChallenge fDevelopment,WorldDevelopmenteportgg9,publishedfor the World Bank by Oxford University Press, I99 , Table 14; AsianDevelopmentOutlookggi, Table AI3. ASEAN consists of the four developing countries, Indonesia,Malaysia, the Philippines and Thailand, togetherwith oil-rich Brunei and Singapore,classed among the Asian NIEs. The grouping of data is this study sometimesaddresses ASEAN as a whole, or it may differentiate between ASEAN countries atvarious levels of development, as is relevant and appropriate.oo26-749X/95/$5.oo +.oo ? I995 Cambridge University Press

403





403





403

http://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsp


3/36

growth of Gross Domestic Product (GDP) along with a significantreduction in the incidence of poverty.3A striking feature of East and Southeast Asia's dynamic growtheconomy is the synergy that has been achieved between countries atvarious levels of economic development. The region includes oneadvanced industrial country, Japan; a low-income, large populationcountry, China; four Newly Industrializing Economies, Hong Kong,South Korea, Singapore and Taiwan; an oil-rich micro-state, Brunei;and four developing countries of differing economic capabilities andgrowth records.4 Of these, Malaysia and Thailand rank among therapidly industrializing, high-growth, middle-income developing eco-nomies. Indonesia, a large and populous low-income country, hasachieved accelerated economic development over the past quarter cen-tury. By way of contrast, the Philippines has experienced laggardgrowth and deepening impoverishment. In China, the Communist gov-ernment has implemented economic reforms that engendered adynamic expansion of agriculture, industry and exports in this low-income country, most notably in its so-called Special Economic Zones.

Economic Relations in the Asia Pacific RegionBeginning in 1986 a profound and far-reaching shift occurred in thegeographic pattern of trade in Asia. From that point on, intra-Asian

3 Cf. GeoffreyLamb and Rachel Weaving (eds) ManagingPolicyReformn theRealWorld:AsianExperiences, DI Seminar Series, Washington: World Bank, i992; andRachain Chintayarangsan, Nattapong Thongpakdee and Pruttipohn Nakornchai,'ASEAN Economies. Macro-Economic Perspective,' ASEAN Economic ulletin,vol. 8,no. 3 (I992). For case studies of Southeast Asian development performance,see, eg.,George Abonyi and Bunyaraks Ninsananda, Thailand:Developmentlanning n Turbu-lentTimes,Asia Paper no. 3, University of Toronto-York University Joint Centre forAsia Pacific Studies, 1989;Mohamed Ariff, TheMalaysianEconomy: acificConnections,Singapore: Oxford University Press, I99I; Daniel Lacson, ThePhilippinesYesterday,Todayand Tomorrow:olitical andSocio-Economicevelopments,ingapore: Times Aca-demic Press for the Institute of Policy Studies, 1991;K.H. Lee and Shyamala Nagaraj(eds), TheMalaysianEconomy eyondggo: InternationalndDomesticPerspectives, ualaLumpur: Persatuan Ekonomi Malaysia, I991; Martin Rudner, 'Repelita-V and theIndonesian Economy,' Reviewof IndonesianndMalaysianAffairsvol. 25, no. 2 (1991);R. Thillainathan, 'Malaysian Economy in the i990s: The Issues, Lessons, Challengesand Outlook,' Malaysian Journal of EconomicStudies, vol. 27 (1990).4 Though they are part of this same geographic region, the Indochina states ofVietnam, Cambodia and Laos pursued ideologically and politically-determined pol-icies that effectively isolated themselves from the emergent Asian trading system, sothat they remainedamong the poorest, most deprived countries in all Asia. Followingthe Vietnamese withdrawal from Cambodia and the collapse of the Soviet Commun-ism, consideration is currently being given to ways and means of re-integrating the







4040404 MARTIN RUDNERARTIN RUDNERARTIN RUDNER



4/36

ASIA PACIFIC ECONOMIC COOPERATIONSIA PACIFIC ECONOMIC COOPERATIONSIA PACIFIC ECONOMIC COOPERATIONTABLE IMatrixof Intra-AsianTrade, g99

Exports to: ASEANa Asian NIEsb Japan China$b. % changec $b. % change' $b. % change' $b. % changec

Exports from:ASEANb 4.5 11.7 22.6 22.4 22.8 9.6 2.3 30.3Asian NIEs' 24.8 I7.7 41.7 25.8 6.4 32.0 20.o 9.8China 2.1 15.9 36.3 22.6 10.2 11.5 - -Japan 25.6 13.9 66.9 17.8 - - 8.6 40.0a Excludes Singaporeb Includes Hong Kong, Republic of Korea, Taiwan and SingaporecPercent change over previous yearSource: Asian Development Bank, AsianDevelopmentutlook993, (Oxford UniversityPress, 1993).trade and investment emerged as the most important and mostrapidly expanding dimension of Asia's international economic rela-tions.5 These trade-based developments also generated more intensiveeconomic linkages across the Pacific, with East and Southeast Asiabecoming the most important regional trading partner for the US.Two-way trade flows between the East and Southeast Asia and theUnited States accounted for 32.5% of total US trade in 1990, surpass-ing US trade with Canada/Mexico (25.9%) and the European Com-munity (21.3%). Of the total flow of trade between Asia and the US,Japan accounted for 15.6%, while the NIEs and ASEAN countriesaccounted for 16.9%.

Patternsof Trade and Investment n East and SoutheastAsiaThe regional trading system that emerged in East and SoutheastAsia was predicated on a continuous restructuring and relocation ofindustrial production across the region, as it responded to ongoing,dynamic shifts in comparative international advantage.6 A cascadingflow of industrial investment, from Japan to the NIEs, and thenonwards to China and the ASEAN developing countries, providedmuch of the stimulus for intra-Asian trade development (Table i).Indochina countries into the regional economic frameworkfor East and SoutheastAsia. VideMya Than, 'ASEAN, Indo-China and Myanmar: Towards EconomicCo-operation?'ASEAN Economic ulletin(Nov 199 ).5 Asia Development utlook99i, Manila: Asian Development Bank, 1991, p. 43.6 F. A. Alburo, C. C. Bautista and M. S. H. Gochoco, 'Pacific Direct InvestmentFlows into ASEAN,' ASEAN Economic ulletin,vol. 8, no. 3 (1992).

TABLE IMatrixof Intra-AsianTrade, g99Exports to: ASEANa Asian NIEsb Japan China

$b. % changec $b. % change' $b. % change' $b. % changecExports from:ASEANb 4.5 11.7 22.6 22.4 22.8 9.6 2.3 30.3Asian NIEs' 24.8 I7.7 41.7 25.8 6.4 32.0 20.o 9.8China 2.1 15.9 36.3 22.6 10.2 11.5 - -Japan 25.6 13.9 66.9 17.8 - - 8.6 40.0a Excludes Singaporeb Includes Hong Kong, Republic of Korea, Taiwan and SingaporecPercent change over previous yearSource: Asian Development Bank, AsianDevelopmentutlook993, (Oxford UniversityPress, 1993).trade and investment emerged as the most important and mostrapidly expanding dimension of Asia's international economic rela-tions.5 These trade-based developments also generated more intensiveeconomic linkages across the Pacific, with East and Southeast Asiabecoming the most important regional trading partner for the US.Two-way trade flows between the East and Southeast Asia and theUnited States accounted for 32.5% of total US trade in 1990, surpass-ing US trade with Canada/Mexico (25.9%) and the European Com-munity (21.3%). Of the total flow of trade between Asia and the US,Japan accounted for 15.6%, while the NIEs and ASEAN countriesaccounted for 16.9%.


TABLE IMatrixof Intra-AsianTrade, g99Exports to: ASEANa Asian NIEsb Japan China

$b. % changec $b. % change' $b. % change' $b. % changecExports from:ASEANb 4.5 11.7 22.6 22.4 22.8 9.6 2.3 30.3Asian NIEs' 24.8 I7.7 41.7 25.8 6.4 32.0 20.o 9.8China 2.1 15.9 36.3 22.6 10.2 11.5 - -Japan 25.6 13.9 66.9 17.8 - - 8.6 40.0a Excludes Singaporeb Includes Hong Kong, Republic of Korea, Taiwan and SingaporecPercent change over previous yearSource: Asian Development Bank, AsianDevelopmentutlook993, (Oxford UniversityPress, 1993).trade and investment emerged as the most important and mostrapidly expanding dimension of Asia's international economic rela-tions.5 These trade-based developments also generated more intensiveeconomic linkages across the Pacific, with East and Southeast Asiabecoming the most important regional trading partner for the US.Two-way trade flows between the East and Southeast Asia and theUnited States accounted for 32.5% of total US trade in 1990, surpass-ing US trade with Canada/Mexico (25.9%) and the European Com-munity (21.3%). Of the total flow of trade between Asia and the US,Japan accounted for 15.6%, while the NIEs and ASEAN countriesaccounted for 16.9%.


4050505



5/36


6/36

ASIA PACIFIC ECONOMIC COOPERATIONSIA PACIFIC ECONOMIC COOPERATIONSIA PACIFIC ECONOMIC COOPERATIONTABLE 2Asia PacificTrade:Sharesof TotalExportandImportsPercentages, ggI)

EXPORTS IMPORTSJapan USA Japan USAASIAN NIEsHong Kong 5.4 22.7 i6.i 8.iSouth Korea 20.9 31.7 29.1 24.0Taiwan 12.8 36.0 27.9 20.9ASEANIndonesia 42.5 13.1 24.9 11.5Malaysia 15.3 17.0 24. 16.9Singapore 8.8 31.2 20.1 16.1Thailand 17.4 22.7 30.6 10.7Philippines 19.9 38.0 18.4 19.5CHINA 14.1 o.6 13.4 10.7Source: IMF, Direction f TradeStatisticsYearbook,991

Trans-PacificEconomicLinkagesThe dynamic changes in trade relations among East and SoutheastAsian countries also fostered a shift in the pattern of trade and invest-ment flows between Asia and the North American economies (Table2). During the late I98os, a so-called 'triangular pattern of trade'emerged between Japan, the United States and the NIEs and ASEANdeveloping countries.'? The large-scale relocation of Japaneselabour-intensive, export-oriented manufacturing to NIEs andASEAN countries represented, in effect, a 'diversion' of Japan's con-siderable bilateral trade surpluses with the US through these Asiandeveloping economies. Most of the output of these relocated industrieswas exported, with the US being the major destination. These indus-tries typically rely on imported technologies, equipment componentsfrom Japan, which are then assembled or otherwise processed forre-export to the US. The triangular trading pattern that ensued wascharacterized by Japanese trade surpluses with the US and withAsian NIEs and ASEAN countries, and by concomitant Asian NIEand ASEAN trade surpluses with the US.10Cf. Linda Y. C. Lim, 'The US, Japan and Other East Asian Economies: TheEmergence of a Pacific Economic Triangle', Journalof SoutheastAsianBusiness(Fall1991), pp. 27 et passim.

TABLE 2Asia PacificTrade:Sharesof TotalExportandImportsPercentages, ggI)EXPORTS IMPORTSJapan USA Japan USA

ASIAN NIEsHong Kong 5.4 22.7 i6.i 8.iSouth Korea 20.9 31.7 29.1 24.0Taiwan 12.8 36.0 27.9 20.9ASEANIndonesia 42.5 13.1 24.9 11.5Malaysia 15.3 17.0 24. 16.9Singapore 8.8 31.2 20.1 16.1Thailand 17.4 22.7 30.6 10.7Philippines 19.9 38.0 18.4 19.5CHINA 14.1 o.6 13.4 10.7Source: IMF, Direction f TradeStatisticsYearbook,991


TABLE 2Asia PacificTrade:Sharesof TotalExportandImportsPercentages, ggI)EXPORTS IMPORTSJapan USA Japan USA

ASIAN NIEsHong Kong 5.4 22.7 i6.i 8.iSouth Korea 20.9 31.7 29.1 24.0Taiwan 12.8 36.0 27.9 20.9ASEANIndonesia 42.5 13.1 24.9 11.5Malaysia 15.3 17.0 24. 16.9Singapore 8.8 31.2 20.1 16.1Thailand 17.4 22.7 30.6 10.7Philippines 19.9 38.0 18.4 19.5CHINA 14.1 o.6 13.4 10.7Source: IMF, Direction f TradeStatisticsYearbook,991


4070707



7/36

MARTIN RUDNERARTIN RUDNERARTIN RUDNERTo be sure, the Asian NIEs generated significant surpluses ontheir own in their trade with the US. Most exports from HongKong, South Korea and Taiwan originate with local firms ratherthan subsidiaries of Japanese multinationals.1' It is noteworthy aswell that much of the export trade from Southeast Asia to the USactually emanated from local subsidiaries of US - not Japanese -multinationals. ASEAN's leading exports to North America consistof electronics products and telecommunications equipment pro-duced by offshore manufacturing facilities of US and Canadiancompanies. The second largest category of exports includes gar-ments, textiles and footwear, mostly produced by Asian NIE-owned

subsidiaries seeking to by-pass their domestic quotas under theMulti-Fibre Arrangement, and by local subcontractors to USimporters. The third largest export category destined to the UScovers various processed resource-based products, mainly frozenseafood and other agricultural items, which are characteristicallyproduced by local Southeast Asian producers.

Prescriptionsor a RegionalFrameworkor EconomicIntegrationIn contrast with the trade pactomania engulfing Europe and theAmericas, the countries of East and Southeast Asia have beengenerally more outward-oriented and multilateral in theirapproaches to regional economic activity.'2 Yet this predilection for'open regionalism'3 has come under pressure from an increasinglythreatening international economic environment. There weremounting concerns that the stalemated Uruguay Round of Multilat-

Ibid., p. 28.12 VideS. Fujisaki, et al., 'Three Decades of Development in the Pacific Basin: AnOverview,' and Heinz Arndt, 'The Gatt System, Free Trade Areas and RegionalCooperation,' both in Takao Fukuchi and Mitsuhiro Kagami (eds), Perspectivesn thePacificBasinEconomy: Comparisonf Asia andLatinAmerica,Tokyo: Institute of Devel-oping Economies, 1990; H. E. English and Murray Smith, 'The Role of Multilat-eralism and Regionalism: A Pacific Perspective' in Mohamed Ariff (ed), ThePacificEconomy:Growth ndExternalStability,Sydney: Allen and Unwin, I99I.13Peter Drysdale, 'Japan in the Asia-Pacific and the World Economy,' in Japanand the World, ol. i, Canberra:Japanese Studies Association of Australia, i99i. Seealso Peter Drysdale and Ross Garnaut, 'The Pacific: An Application of a GeneralTheory of Economic Integration,' in C. Fred Bergsten and Marcus Noland (eds),PacificDynamism nd theInternationalconomic ystem,Washington, DC: Institute forInternational Economics, in association with the Pacific Trade and DevelopmentConference Secretariat, The Australian National University, I993.

To be sure, the Asian NIEs generated significant surpluses ontheir own in their trade with the US. Most exports from HongKong, South Korea and Taiwan originate with local firms ratherthan subsidiaries of Japanese multinationals.1' It is noteworthy aswell that much of the export trade from Southeast Asia to the USactually emanated from local subsidiaries of US - not Japanese -multinationals. ASEAN's leading exports to North America consistof electronics products and telecommunications equipment pro-duced by offshore manufacturing facilities of US and Canadiancompanies. The second largest category of exports includes gar-ments, textiles and footwear, mostly produced by Asian NIE-ownedsubsidiaries seeking to by-pass their domestic quotas under theMulti-Fibre Arrangement, and by local subcontractors to USimporters. The third largest export category destined to the UScovers various processed resource-based products, mainly frozenseafood and other agricultural items, which are characteristicallyproduced by local Southeast Asian producers.



To be sure, the Asian NIEs generated significant surpluses ontheir own in their trade with the US. Most exports from HongKong, South Korea and Taiwan originate with local firms ratherthan subsidiaries of Japanese multinationals.1' It is noteworthy aswell that much of the export trade from Southeast Asia to the USactually emanated from local subsidiaries of US - not Japanese -multinationals. ASEAN's leading exports to North America consistof electronics products and telecommunications equipment pro-duced by offshore manufacturing facilities of US and Canadiancompanies. The second largest category of exports includes gar-ments, textiles and footwear, mostly produced by Asian NIE-ownedsubsidiaries seeking to by-pass their domestic quotas under theMulti-Fibre Arrangement, and by local subcontractors to USimporters. The third largest export category destined to the UScovers various processed resource-based products, mainly frozenseafood and other agricultural items, which are characteristicallyproduced by local Southeast Asian producers.



4080808



8/36

ASIA PACIFIC ECONOMIC COOPERATIONSIA PACIFIC ECONOMIC COOPERATIONSIA PACIFIC ECONOMIC COOPERATIONeral Trade Negotiations might precipitate the formation of protec-tionist regional trade blocs in Europe and the Americas. Alongwith the growth of exports from East and Southeast Asia to theUS and European Community have come heightened tensions overtrade issues. The NIEs and ASEAN developing countries feelparticularly vulnerable to protectionist threats to their trade-focussed development strategies.So far, the governments of East and Southeast Asia remain favour-ably predisposed towards the open and outward-oriented regionalismthat has served their economies well, at least until now. The delibera-tions and consultations that take place within the newly establishedframework of Asia Pacific Economic Cooperation (APEC), involvingEast and Southeast Asian countries along with Canada and theUnited States, reflect this predilection.l4 By the early I99os the APECeconomies accounted for some 40% of world trade, and 50% ofaggregate global GDP. Nevertheless, Asia's sense of its own vulnerab-ility is prompting some governments at least to contemplate defensivestrategic alternatives for regional trade. Thus Malaysia proposed theformation of an East Asian Economic Group (EAEG),'5 afterwardsamended to an East Asian Economic Caucus (EAEC), as a sort ofcountervailing mechanism against regional protectionism elsewhere.As another expression of strategic trade policy, though focussed inparticular on developing country requirements, ASEAN has agreedto create a free trade area among its members at the Southeast Asiansub-regional level. Also at a sub-regional level, some neighbouringcountries have established so-called 'trade triangles,' initially invol-ving Malaysia (Johor), Singapore and Indonesia (Riau), as repres-enting subsidized investment-area counterparts to domestic duty-freeenclaves.'6 As for Japan, China and the NIEs, they seem to exhibitsomewhat more caution and deliberation, and indeed more introspec-tion in considering their strategic options for the future of economiccooperation in Asia.

14 Martin Rudner, 'ASEAN, Asia Pacific Economic Cooperation, and Hemi-spheric Free Trade for the Americas,' WorldCompetitionDecember i992); HelenHughes, 'Does APEC Make Sense?' ASEAN Economic ulletin(November I991).'1 On the East Asian Economic Group (EAEG) and East Asian Economic Caucus(EAEC) proposals, see Tan Kong Yam, Toh Mun Heng and Linda Low, 'ASEANand Pacific Economic Co-operation,' ASEAN Economic ulletin,vol. 8, no. 3 (1992),pp. 325-8.16 Chia Siow Yue and Lee Tsao Yuan, 'Subregional Economic Zones: A NewMotive Force in Asia-Pacific Development,' in Bergsten and Noland (eds), PacificDynamism nd theInternationalconomicystem,pp. 225-69.

eral Trade Negotiations might precipitate the formation of protec-tionist regional trade blocs in Europe and the Americas. Alongwith the growth of exports from East and Southeast Asia to theUS and European Community have come heightened tensions overtrade issues. The NIEs and ASEAN developing countries feelparticularly vulnerable to protectionist threats to their trade-focussed development strategies.So far, the governments of East and Southeast Asia remain favour-ably predisposed towards the open and outward-oriented regionalismthat has served their economies well, at least until now. The delibera-tions and consultations that take place within the newly establishedframework of Asia Pacific Economic Cooperation (APEC), involvingEast and Southeast Asian countries along with Canada and theUnited States, reflect this predilection.l4 By the early I99os the APECeconomies accounted for some 40% of world trade, and 50% ofaggregate global GDP. Nevertheless, Asia's sense of its own vulnerab-ility is prompting some governments at least to contemplate defensivestrategic alternatives for regional trade. Thus Malaysia proposed theformation of an East Asian Economic Group (EAEG),'5 afterwardsamended to an East Asian Economic Caucus (EAEC), as a sort ofcountervailing mechanism against regional protectionism elsewhere.As another expression of strategic trade policy, though focussed inparticular on developing country requirements, ASEAN has agreedto create a free trade area among its members at the Southeast Asiansub-regional level. Also at a sub-regional level, some neighbouringcountries have established so-called 'trade triangles,' initially invol-ving Malaysia (Johor), Singapore and Indonesia (Riau), as repres-enting subsidized investment-area counterparts to domestic duty-freeenclaves.'6 As for Japan, China and the NIEs, they seem to exhibitsomewhat more caution and deliberation, and indeed more introspec-tion in considering their strategic options for the future of economiccooperation in Asia.


eral Trade Negotiations might precipitate the formation of protec-tionist regional trade blocs in Europe and the Americas. Alongwith the growth of exports from East and Southeast Asia to theUS and European Community have come heightened tensions overtrade issues. The NIEs and ASEAN developing countries feelparticularly vulnerable to protectionist threats to their trade-focussed development strategies.So far, the governments of East and Southeast Asia remain favour-ably predisposed towards the open and outward-oriented regionalismthat has served their economies well, at least until now. The delibera-tions and consultations that take place within the newly establishedframework of Asia Pacific Economic Cooperation (APEC), involvingEast and Southeast Asian countries along with Canada and theUnited States, reflect this predilection.l4 By the early I99os the APECeconomies accounted for some 40% of world trade, and 50% ofaggregate global GDP. Nevertheless, Asia's sense of its own vulnerab-ility is prompting some governments at least to contemplate defensivestrategic alternatives for regional trade. Thus Malaysia proposed theformation of an East Asian Economic Group (EAEG),'5 afterwardsamended to an East Asian Economic Caucus (EAEC), as a sort ofcountervailing mechanism against regional protectionism elsewhere.As another expression of strategic trade policy, though focussed inparticular on developing country requirements, ASEAN has agreedto create a free trade area among its members at the Southeast Asiansub-regional level. Also at a sub-regional level, some neighbouringcountries have established so-called 'trade triangles,' initially invol-ving Malaysia (Johor), Singapore and Indonesia (Riau), as repres-enting subsidized investment-area counterparts to domestic duty-freeenclaves.'6 As for Japan, China and the NIEs, they seem to exhibitsomewhat more caution and deliberation, and indeed more introspec-tion in considering their strategic options for the future of economiccooperation in Asia.


4090909



9/36

MARTIN RUDNERARTIN RUDNERARTIN RUDNER

Asia Pacific Economic Cooperation: The Path to OpenRegionalismThe inter-governmental forum known as 'Asia Pacific EconomicCooperation' (APEC) had its origins in a 1989 proposal by Aus-tralian Prime Minister RJ. Hawke. Although considerable thoughthad previously been directed at refining a concept of Pacific Com-munity, primarily by Australian and Japanese scholars and offi-cials,17 the proposal that was put forward entailed a studiouslyvague statement of intent coupled with an invitation for ministerial-level discussions in Canberra. Vagueness at this point was probablyconsidered to be strategically constructive, since it allowed sufficientflexibility of purpose to overcome suspicion, reluctance, or scepti-cism. There was little inclination merely to recreate a regional'talk-shop' akin to the Organization for Economic Cooperation andDevelopment (OECD), a notion that was dismissed early on,18 butno other role model suggested itself a priori for emulation. As aconsensus built up around the core idea of an Asia Pacific economiccooperation effort, APEC began to take shape without any perman-ent institutional structure, unfettered by any specific policy agendaor operational role. Even its geographic scope and membershipcriteria remained indeterminate. In the event, the APEC conceptunfolded incrementally, manifesting deliberate prudence in its form-ative phase of identifying needs and opportunities. It was only atthe fourth APEC ministerial meeting in Bangkok in 1992 that thedecision was taken to establish a modest secretariat based inSingapore.

The indeterminacy which affected APEC from its birth spilled overeven onto its nomenclature, which lacks a descriptive noun. 'AsiaPacific Economic Cooperation . . .' relates to what type of forum, ororganization? It is characteristic of the ambiguity surrounding APECthat its definitive term is still undecided.

17 Vide'Japan, Australia Pioneer Regional Forum,' NorthSouthInstituteBriefing(B35, I993); see also Peter Drysdale, 'The Pacific Trade and Development Confer-ence: A Brief History,' PacificEconomicPapers(1984), and H. Edward English &Yoshitaka Okada, 'Japan - Rising Sun or Western Star,' in Fen Osler Hampsonand Christopher J. Maule (eds), CanadaAmongNationsiggo-9g. Afterthe Cold War,Ottawa: Carleton University Press, I991.18 Hughes, 'Does APEC Make Sense?', p. 126.







4IOIOIO



10/36

ASIA PACIFIC ECONOMIC COOPERATIONSIA PACIFIC ECONOMIC COOPERATIONSIA PACIFIC ECONOMIC COOPERATION

The Quest or a RegionalFrameworkor International Trade and InvestmentFrom the outset, APEC has concentrated on facilitating inter-governmental consultations on ways and means of enhancing eco-nomic cooperation, as defined, among countries of the Asia Pacificregion. However, it became clear from the deliberations that havesince taken place that the initial ambiguities associated with theAPEC concept and role reflected a deeper divergence of standpointsamong the countries concerned. The formative phase of APEC -which has lasted until today - denotes in essence a search for thebasic elements of community among the grouping, which consists ofcountries with different size economies and varying levels of develop-ment, and subscribing to dissimilar perspectives on economicmanagement.Initially, at least, Japan and the United States, the countries withthe largest economies in the Asia Pacific region, held quite disparateviews of the prospective role of APEC. Japan sought the creation ofa regional architecture for international economic cooperation acrossthe Pacific basin, whereas the US wanted a more loosely-structuredconsultative forumon trade-related issues.Japan and the Asian NIEs,for their part, were more inclined to emphasize the implementationof projects designed to promote regional economic inter-dependence.They were sceptical that mere exchanges of views on policy coordina-tion could genuinely foster policy harmonization and institutionalbenefits for the region as a whole.The election of President Clinton heralded a momentous shift in theAmerican approach to APEC. The Clinton administrationdesignatedAPEC as the cornerstoneof its regional trade strategy towards Asia.19Upon taking on the annual chairmanship of APEC in SeptemberI992, the US undertook to promote 'a practical, results-oriented'

19For a broad overview of the Clinton administration's approach to APEC andregional institution-building in the Asia Pacific area, see the statement of AssistantSecretaryof State for East Asian and PacificAffairs Winston Lord to his confirmationhearings before the United States Senate Foreign Affairs Committee, as reported in'Group Therapy', Far Eastern EconomicReview (15 April I993), pp. io-Ii. As well,the Clinton administrationfurthermoreindicated its intention to pursue the creationof an Asia Pacific regional security architecture. During hisJuly, 1993visit to Korea,President Clinton enunciated four priorities for an Asia Pacific security framework,including a continued American military commitment to the region, stronger effortsaimed at curbing the proliferation of weapons of mass destruction, new regionaldialogues on 'common security challenges,' and support for democracy and 'moreopen societies' throughout the region (vide New YorkTimes, I I July 1993).





4IIIIII



11/36

MARTIN RUDNERARTIN RUDNERARTIN RUDNERwork program and bolster up the budding organization's institutionalcapacity to deal with regional economic issues. A proposed 'trade andinvestment framework' represented the centrepiece of this regionalcapacity building effort for regional economic cooperation. Byautumn of I993, the Americans were warning that if European coun-tries failed to achieve progress on the GATT, then the US might evenseek an alternative regional trading arrangement with its Asia Pacificpartners. APEC had become, for the US, a shield and a foil in thestalled Multilateral Trade Negotiations.Other APEC countries responded cautiously to this American lead.Some were suspicious that the US was pushing its own trade agenda,using APEC as a lever for American ambitions. Moreover, amongASEAN countries there was a definite unwillingness to see APECtransformed into a supranational regime governing trade and invest-ment policy, or even into an arena for formal trade negotiations. Aswe shall see, the ASEAN countries, led in this respect by Malaysia,were acutely sensitive to any proposals regarding APEC that mighthave the consequence of compromising their sovereign equality ordistinctive group status within the larger regional forum, or otherwiseoverriding their interests as developing economies. The 1993 ASEANministers meeting insisted that an APEC framework agreement ontrade and investment must be consistent with the GATT, to counterUS managed trade objectives, and that APEC itself should remain aloose consultative body.

Early on, some of the more industrialized Asian participants wereprepared to countenance an aid role for APEC, as a multilateralchannel for development assistance. Japan, South Korea and Taiwanwere predisposed to channel aid resources to APEC-sponsored pro-jects in order to support Southeast Asian involvement in activitiesthat accentuate regional integration (and to project their influencetherein). Other aid donors, and especially the US and Canada, wereopposed to APEC acquiring an aid role which they might not beable to afford. ASEAN participants would have perhaps welcomedan APEC aid channel if it implied additional resource transfers, butwere against any diversion of bilateral assistance to regionalprograms.The ASEAN countries, as a group, greeted the original APEC initi-ative with grave reservations.20 On the one hand, Malaysia and

20 Tan, Toh and Low, 'ASEAN and Pacific Economic Co-operation,' p. 324 etpassim.

work program and bolster up the budding organization's institutionalcapacity to deal with regional economic issues. A proposed 'trade andinvestment framework' represented the centrepiece of this regionalcapacity building effort for regional economic cooperation. Byautumn of I993, the Americans were warning that if European coun-tries failed to achieve progress on the GATT, then the US might evenseek an alternative regional trading arrangement with its Asia Pacificpartners. APEC had become, for the US, a shield and a foil in thestalled Multilateral Trade Negotiations.Other APEC countries responded cautiously to this American lead.Some were suspicious that the US was pushing its own trade agenda,using APEC as a lever for American ambitions. Moreover, amongASEAN countries there was a definite unwillingness to see APECtransformed into a supranational regime governing trade and invest-ment policy, or even into an arena for formal trade negotiations. Aswe shall see, the ASEAN countries, led in this respect by Malaysia,were acutely sensitive to any proposals regarding APEC that mighthave the consequence of compromising their sovereign equality ordistinctive group status within the larger regional forum, or otherwiseoverriding their interests as developing economies. The 1993 ASEANministers meeting insisted that an APEC framework agreement ontrade and investment must be consistent with the GATT, to counterUS managed trade objectives, and that APEC itself should remain aloose consultative body.



work program and bolster up the budding organization's institutionalcapacity to deal with regional economic issues. A proposed 'trade andinvestment framework' represented the centrepiece of this regionalcapacity building effort for regional economic cooperation. Byautumn of I993, the Americans were warning that if European coun-tries failed to achieve progress on the GATT, then the US might evenseek an alternative regional trading arrangement with its Asia Pacificpartners. APEC had become, for the US, a shield and a foil in thestalled Multilateral Trade Negotiations.Other APEC countries responded cautiously to this American lead.Some were suspicious that the US was pushing its own trade agenda,using APEC as a lever for American ambitions. Moreover, amongASEAN countries there was a definite unwillingness to see APECtransformed into a supranational regime governing trade and invest-ment policy, or even into an arena for formal trade negotiations. Aswe shall see, the ASEAN countries, led in this respect by Malaysia,were acutely sensitive to any proposals regarding APEC that mighthave the consequence of compromising their sovereign equality ordistinctive group status within the larger regional forum, or otherwiseoverriding their interests as developing economies. The 1993 ASEANministers meeting insisted that an APEC framework agreement ontrade and investment must be consistent with the GATT, to counterUS managed trade objectives, and that APEC itself should remain aloose consultative body.



4I 24I 24I 2



12/36

ASIA PACIFIC ECONOMIC COOPERATIONSIA PACIFIC ECONOMIC COOPERATIONSIA PACIFIC ECONOMIC COOPERATIONIndonesia were suspicious of a wider regional organization that mightdilute ASEAN's role within Southeast Asia and subordinate ASEANinternationally. On the other, Singapore and the Philippines, in par-ticular, were eager to envisage a more extensive regional tradingarrangement taking shape through APEC. In the event, the ASEANcountries agreed to participate in APEC subject to their so-called'three noes': that APEC have no legally binding authority, that ithave no negotiating right, and that it pursue no regional agreementsbeyond those reached in the GATT.

Having concurred in a loosely-structured APEC, the ASEAN gov-ernments are generally uneasy about efforts to strengthen its institu-tional format and enhance its policy functions. As the most vulnerableeconomies in the region, the ASEAN countries are wary of APECassuming a strong leadership role in policy coordination, lest this leadto domination by their more powerful trading partners. Malaysia, inparticular, has been aggrieved at what it perceives to be the failingsand flaws of APEC in not upholding the international economic inter-ests of developing countries in face of heightened protectionism inNorth America and Europe. Indeed, Malaysia warned it would quitAPEC if it threatens to become a neo-hegemonic institution dominat-ing Asia. So far as the ASEAN governments are concerned, APECwould best confine itself to consultative and information-sharingactivities, possibly complemented by aid support aimed atstrengthening the developing country participants' capacity for eco-nomic analysis and policy formulation.It remains to be seen whether APEC will manage to sustain theconfidence of the ASEAN countries, or whether they will be con-strained to turn in frustration to alternative managed trade mechan-isms to promote and defend their economic development intereststhrough sub-regional preferential trading arrangements.In the event, the role of APEC has evolved over the course ofsuccessive annual ministerial meetings, interspersed with meetingsof senior officials. The inaugural ministerial meeting in Canberra,APEC-I, adopted a 'functional co-operation' work program to bemanaged by 'shepherds,' senior officials from designated membercountries (see below). APEC-II, which met in Singapore in i990,endorsed the initial work program, and called for an evaluation ofcertain additional project proposals. There was agreement that nonew organizational structure would be established for the time being.It was only in I991, in Seoul, after three years of consensus-building,that the APEC-III ministerial meeting was able to issue the Seoul

Indonesia were suspicious of a wider regional organization that mightdilute ASEAN's role within Southeast Asia and subordinate ASEANinternationally. On the other, Singapore and the Philippines, in par-ticular, were eager to envisage a more extensive regional tradingarrangement taking shape through APEC. In the event, the ASEANcountries agreed to participate in APEC subject to their so-called'three noes': that APEC have no legally binding authority, that ithave no negotiating right, and that it pursue no regional agreementsbeyond those reached in the GATT.


Indonesia were suspicious of a wider regional organization that mightdilute ASEAN's role within Southeast Asia and subordinate ASEANinternationally. On the other, Singapore and the Philippines, in par-ticular, were eager to envisage a more extensive regional tradingarrangement taking shape through APEC. In the event, the ASEANcountries agreed to participate in APEC subject to their so-called'three noes': that APEC have no legally binding authority, that ithave no negotiating right, and that it pursue no regional agreementsbeyond those reached in the GATT.


4131313



13/36

MARTIN RUDNERARTIN RUDNERARTIN RUDNERDeclarationon Asia Pacific EconomicCooperation, etting out the formallyagreed objectives of APEC:

* To sustain the growth and development of the Asia Pacific region* To enhance the positive gains accruing fromincreasing economicinter-dependence* To develop and strengthen the open multilateral trading system* To reduce barriers to trade in goods and services and investmentamong participants, in a manner consistent with the principlesof the General Agreement on Tariffs and Trade (GATT)APEC finally received institutional form in I992, when the APEC-IV ministerial meeting in Bangkok approved the establishment of asmall permanent Secretariat seated in Singapore, along with anAPEC Fund to regularize the funding for programs and activities.The APEC Secretariat was assigned responsibility for the provisionof logistical and technical services, and financial management forAPEC sponsored activities. Staffing is to include professional as wellas support personnel, under an Executive Director. The APEC Fundis fairly modest in financial magnitude, with an initial appropriation

of just US$i million from contributions by member governments. Afunding formulabased on proportionalburden sharing based on relat-ive Gross National Product was accepted, with a ceiling of i8%(Japan, USA) and a floor of 2.5% (Brunei, Indonesia, Malaysia,Philippines, Thailand).21In response to an Australian proposal, APEC-IV also decided toappoint a so-called Eminent Persons Group (EPG) charged with for-mulating a vision for economic interaction across the Asia Pacificregion to the year 2000. The mandate of the EPG, discussed below,is indicative of the issues arising as part of the search for communityof consensus on enhanced regional collaboration on economic andtrade issues. Participating governments nominated twelve distingu-ished individuals from government, business and academia, for thisexercise.22 The EPG reported in October I993, on the eve of the21 The APEC Formula for Assessed Contributions is provided as Attachment ito the 'Future Steps of APEC, Consolidated Report of the APEC Senior Officials in

the 4th APEC Ministerial Meeting,' in Record f theFourthMinisterialMeetingof Asia-PacificEconomicCooperationAPEC), p. i6o.22 The originalJapanese appointee to the EPG, Dr Saburo Okita, one of the earlyarchitects of Asia Pacific economic cooperation, passed away in February I993, andso did not participate in work leading up to the landmark report.

Declarationon Asia Pacific EconomicCooperation, etting out the formallyagreed objectives of APEC:* To sustain the growth and development of the Asia Pacific region* To enhance the positive gains accruing fromincreasing economicinter-dependence* To develop and strengthen the open multilateral trading system* To reduce barriers to trade in goods and services and investmentamong participants, in a manner consistent with the principlesof the General Agreement on Tariffs and Trade (GATT)APEC finally received institutional form in I992, when the APEC-IV ministerial meeting in Bangkok approved the establishment of asmall permanent Secretariat seated in Singapore, along with anAPEC Fund to regularize the funding for programs and activities.The APEC Secretariat was assigned responsibility for the provisionof logistical and technical services, and financial management forAPEC sponsored activities. Staffing is to include professional as wellas support personnel, under an Executive Director. The APEC Fundis fairly modest in financial magnitude, with an initial appropriation



Declarationon Asia Pacific EconomicCooperation, etting out the formallyagreed objectives of APEC:* To sustain the growth and development of the Asia Pacific region* To enhance the positive gains accruing fromincreasing economicinter-dependence* To develop and strengthen the open multilateral trading system* To reduce barriers to trade in goods and services and investmentamong participants, in a manner consistent with the principlesof the General Agreement on Tariffs and Trade (GATT)APEC finally received institutional form in I992, when the APEC-IV ministerial meeting in Bangkok approved the establishment of asmall permanent Secretariat seated in Singapore, along with anAPEC Fund to regularize the funding for programs and activities.The APEC Secretariat was assigned responsibility for the provisionof logistical and technical services, and financial management forAPEC sponsored activities. Staffing is to include professional as wellas support personnel, under an Executive Director. The APEC Fundis fairly modest in financial magnitude, with an initial appropriation



4I4I4I4



14/36

ASIA PACIFIC ECONOMIC COOPERATIONSIA PACIFIC ECONOMIC COOPERATIONSIA PACIFIC ECONOMIC COOPERATIONAPEC-V ministerial and Summit, with A Visionor APEC. TowardsAnAsiaPacificEconomic ommunity,ith far-reachingrecommendationsaimed at creating a free trade in the Asia Pacific region, with a targetdate. The goal was the creation of 'a true Asia Pacific EconomicCommunity.'23The I993 APEC-V ministerial meeting was hosted by the UnitedStates in Seattle, in Novembert 1993. Following an American initiat-ive, APEC ministers approved a Trade and Investment Frameworkexpressing their intention to reduce barriers to trade and investmentin a manner consistent with GATT principles. An APEC Trade andInvestment Committee was established, in place of the earlier ad hocInformal Group on Regional Trade Liberalization, and was given abroad mandate to explore avenues for improving the flow of goods,services, investment and technology across the region. For the firsttime, a Business Forum was organizedwit

apec the challenges of asia pacific economic cooperation

Documents