Flexible Apec can complement the hard-nosed WTO

By Nikki Mandow

After the 1998 Apec meeting in Kuala Lumpur, questions were raised about whether Apec was still relevant or whether responsibility for liberalisation would be better left to the WTO.

But as the meetings that make up New Zealand's year as Apec host continue in earnest, more people are coming round to the opinion that Apec's voluntary, non-binding, principles-based way of working is a key part of the push towards global liberalisation. Some would go further and argue that the "principles" approach might well be influential in the more structured, rules-based negotiating environment of the WTO.

"Perhaps Apec's primary comparative advantage is its ability in a non-threatening way to share information and policy-thinking and build understanding and consensus in a range of areas, many of which are difficult and contentious," says Kerrin Vautier, chairwoman of the New Zealand committee of the Pacific Economic Cooperation Council (NZPECC), an independent think-tank, whose work has considerable input into Apec.

If people's expectations weren't met by Apec in 1998, perhaps they were too high, Kerrin Vautier says. "In this complex world of business, markets and political economy where sovereignty is not dead and leaders are basically risk-averse, getting one surgical strike, let alone several in a short time frame is not realistic. The 'EC' in PECC and Apec recognises that economic cooperation is needed. And this will take time."

The Apec model is fundamentally different from the tit-for-tat negotiating and rules-based WTO. But the two are complementary, she says. Apec does not make regional rules, but encourages its members to take unilateral liberalisation measures in the context of agreed goals and broad strategies. Responsibility for policy remains with the individual member economies.

Both rules-based and principles-based systems have their uses and their place. The US and Europe tend to feel more comfortable with a rules-based system, reflecting as it does the "law-is-paramount" approach. But as the ridiculous "six-year-and-it's-not-over-yet" banana spat between the US and the European Union shows, the WTO's rules and disputes panels cannot necessarily persuade countries to drop their protectionist measures.

It is a generalisation, but not too far from the mark to say that the Asian economies are happier with the principles-based, non-binding Apec system. It is more compatible with their relationship-based way of doing business. Ask them to move towards reforms based on principles and guidelines that are non-binding and that embody flexibility, and the liberalisation could well go further and be faster.

And yet even in Asia some are questioning Apec's reliance on peer pressure - particularly as, post-crisis, there is some appetite for new rules, notably in the financial sector.

Apec critics say the Apec system is too slow, too unilateral, and not binding, concrete or focused enough. These so-called "weaknesses" are seen to result from Asean (Association of South-east Asian Nations) members imposing their "way" on Apec, says Jesus Estanislao, professor at the University of Asia-Pacific in Manila, Philippines, and chairman of the PECC Financial Markets Development Group.

Speaking during a recent visit to New Zealand, Professor Estanislao said many people, including some in New Zealand, have become impatient with the Apec process. "The critics say it's too voluntary and that not enough has been achieved in 10 years. People are beginning to ask if we shouldn't start looking at other modalities that would convince people something is being accomplished."

Professor Estanislao doesn't believe this is true, however. The US-promoted Early Voluntary Sector Liberalisation (EVSL) programme, where several sectors were chosen for special fast-track and mandatory liberalisation treatment, failed because it did not fit in with Apec's comprehensive and more flexible way of doing things, he says.

Concentrating on early liberalisation wasted a lot of time but it wasn't a failure of Apec itself. Instead liberalisation was pushed into the WTO - where it belonged - and Apec was brought "back to basics", that is the comprehensive pursuit of liberalisation, facilitation and ecotech initiatives to enable growth in economic opportunities.

Many now see the key to Apec being a re-focusing on individual action plans. These are the documents drawn up by each economy giving their individual positions and intentions in 15 policy areas. "Apec has done a very bad public relations job packaging the individual action plans," says Hadi Soesastro, executive director of the Centre for Strategic and International Studies in Jakarta and another of the PECC experts on Apec visiting New Zealand last month. "In each Action Plan there are 'gold nuggets' that need to be highlighted. If it can be shown, for example, that Indonesia is opening up in response to the crisis, not closing down, this should be highlighted as part of the Apec liberalisation process."

Kerrin Vautier argues that Apec has the comparative advantage of being able to build consensus around overall principles and policy frameworks to guide economies when they come to put their own liberalisation processes (rules-based or not) into place.

Her own organisation, PECC, has been playing a key role in developing these frameworks and she has herself been convenor of PECC's Competition Principles Project. PECC has recently endorsed a recommended set of Competition Principles for guiding policy development in Apec economies.

"PECC recognises that negotiating trade concessions at the multilateral level has enabled tremendous progress in facilitating market access but that this is only one avenue open to governments in this region to take a broader approach to effecting economic and social development.

"This thinking about a competition framework for guiding policy development accommodates the diversity of the region. It is not intrusive but instructive for decentralised decision-making. This is the essence of concerted unilateralism as economies learn that the business protection arguments - we shouldn't move until everyone else has removed their barriers - is not serving well either their producer or consumer constituents."

A key to the success of the IAPs is monitoring. Apec hasn't done enough in this area, Hadi Soesastro says. "New Zealand [as host of Apec in 1999] should be establishing a strong review and monitoring process to help promote and further strengthen the individual action plans of member economies. This could be done by outside institutions like PECC."

PECC is also concerned to see stronger and more carefully-defined linkages between Apec and the WTO. The final steps of liberalisation would involve the documentation of commitments in the WTO process, PECC chairman Roberto Romulo said at the close of a meeting in Canberra in April.

"New Zealand can give a lot of push to the WTO process by having an arrangement within Apec for the Apec economies to work closer to each other and live up to what Apec should be - the cutting edge of what the WTO is doing. Apec should be a process to push the WTO further and faster," Professor Estanislao says. "The test is whether we can do this by November."

* Nikki Mandow is manager, external relations at the University of Auckland's New Zealand Asia Institute. This is the eighth in an occasional series by the NZ Committee of the Pacific Economic Cooperation Council (NZPECC) dealing with policy issues ahead of this year's Apec summit in Auckland. Other articles ran on August 19, September 22, October 13, November 2, November 25 1998, February 12 and April 13 1999.