APEC AND THE MILLENNIUM ROUND
Peter A. Petri
Brandeis University
Paper Prepared for PAFTAD 25
and delivered to the
Towards APEC's Second Decade: Challenges, Opportunities, Priorities
APEC Study Center Consortium Conference
Auckland, New Zealand
May 3 1 June 2, 1999
APEC AND THE MILLENNIUM ROUND
Peter A. Petri 1
Brandeis University
On the eve of APEC's tenth anniversary, global trade liberalization is at a standstill. The financial
crisis of 1998 has sapped the energies of developing countries and diverted the attention of global policy
makers to financial issues. International institutions, including APEC, are under attack for their lackluster
response to the crisis. Meanwhile, the United States is experiencing huge trade deficits, has failed to
pass fast-track trade-negotiating authority, and is beginning to yield to political pressures for protection.
And the EU has confirmed WTO rulings over issues of considerable symbolic, if not economic,
importance.
Yet recent economic trends and the global financial crisis have, if anything, increased the payoff
to integration into the world economy (at least on the current account). While reluctant to enter new
global negotiations, developing countries are continuing to liberalize, of course partly under EMT
pressure. They are also increasingly concerned about access to developed-country markets, which they
would like to see insured through global negotiations. And the extraordinary boom of the "new"
economy in the United States is persuading many developed countries, including Japan, that economic
integration is the key to competitiveness. Globalization is intensifying and attracting public attention,
leading to demands for international disciplines in new areas. For all these reasons, there is now cautious
but widespread interest in launching a Millennium Round of trade negotiations in November 1999, at the
WTO's ministerial meetings in Seattle.
It is likely that the negotiations will not move forward rapidly. The trade environment is not
auspicious, and some initial confusion and jockeying is inevitable. But this is not unexpected given two
years of severe financial crises in Asia, Japan and Latin America, and deep political turmoil in the United
States. As the crises are resolved and the U.S. presidential election is completed, a new window of
opportunity could open for global initiatives.
It is also possible that regional bodies like APEC, the FTAA or new smaller regional
agreements will lend energy to the process. In the past, APEC has played an indirect but (according to
many observers) catalytic role in the Uruguay Round and subsequent policy developments. Will APEC,
perhaps in China's year as host (2001), become a collateral forum for advancing the new round? Or will
it atrophy (at least in its negotiating role) as attention shifts to the "center ring" of the
1
Dean and Carl J. Shapiro Professor of International Finance ' Graduate School of International Finance, Brandeis
University, Waltham MA 02254, The author thanks Gary Hufbauer and Ambassador Ira Shapiro for helpful
conversations.
1
WTO? This paper examines the relationship between regional and global negotiations in the past and the
future, and identifies options that APEC might pursue in the new round,
1. Regionalism and Global Liberalization
The Millennium Round will develop in a much more complicated regional context than the
Uruguay Round. Since the early 1990s, several important regional FTAs have emerged or have been
strengthened-in South America (Mercosur), Southeast Asia (AFTA), North America (NAFTA) and
Europe. In addition, large "super-regional" economic cooperation initiatives have emerged in the form of
APEC and the Free Trade Agreements of the Americas (FTAA), which in turn spurred Europe to
"close the triangles" through initiatives with North America (now the Transatlantic Economic Partnership
- TEP), Asia (the Asia-Europe Meeting - ASEM), and Mercosur. Interestingly, a whole new set of
bilateral and plurilateral arrangements could now emerge from discussions between Japan and Korea,
Canada and various Latin American partners, from proposals to expand NAFTA, and from Europe's
Eastern European and Mediterranean Initiative (Bergsten, 1999b).
These regional initiatives could play a helpful role in the upcoming global negotiations. This is not
the message of trade theory and historical experience-regional arrangements have been typically viewed
as diverting rather than liberalizing trade. But recent regional initiatives have had more benign objectives,
have mostly avoided preferential arrangements, and generally espouse multilateralism. The new initiatives
typically work comfortably alongside global liberalization efforts and have, in some cases, helped to
accelerate global progress. This section reviews the linkages between the regional and global tracks,
with special attention to how APEC might contribute to global progress.
Regionalism and Global Negotiations
Research on how regional initiatives affect the global trading System 2 is inconclusive: regional
blocs could be stepping stones or stumbling blocks in global liberalization. Theoretical studies have
identified several types of interactions between regions and the global system-some with negative
feedbacks and others with positive ones. The likely effects of four types of interactions on the
Millennium Round are briefly assessed below.
Bargaining Power. Regional trade arrangements (RTAs) affect global outcomes by giving
regional blocs increased bargaining power in international negotiations. In the extreme, each bloc could
exploit its market power by setting a higher "optimum tariffs," leading to greater equilibrium protection
(Krugman). In practice, among existing RTAs, only the EU has appreciably greater bargaining power
due to its size. NAFTA!s bargaining power is not much greater than that of the United States, and
APEC and other super-regional initiatives have not developed to the point where they can act as a bloc.
AFTA and Mercosur are large compared to some of their members, but are still small in a global
context. Thus, inter-bloc conflicts are not likely to affect WTO bargaining unless existing RTAs move
rapidly to achieve much greater levels of integration.
2
See for example de Melo and Panagariya (1993), Krugman (1993), (Winters (1998).
2
Structural change . Regional blocs affect global negotiations also by shifting the industrial
composition of their members toward internationally competitive industries. This is a favorable effect; it
facilitates the reduction of protection. The European single market is beginning to have such effects, and
NAFTA and AFTA have had transforming effects on their least competitive members. But on the
whole, regional arrangements are not likely to develop rapidly and widely enough to influence the
Millennium Round through structural effects.
Competitive liberalization. Regional blocs build larger, more competitive markets to spur
productivity and attract investment. Some of these goals can be achieved through unilateral liberalization
as well, but regional approaches create better opportunities for investments in "production systems" that
span several economies. The close timing of EU, NAFTA, APEC, AFTA and FTAA liberalization
initiatives, and their effects on ASEM and TEP, suggests that competitive liberalization is a powerful
engine of trade policy.
Negotiating advantage . Regional negotiations involve fewer participants and could, in principle,
tackle tougher issues. For example, regional initiatives can address "new" areas by producing model
agreements for global consideration. As noted below, APEC has made innovative contributions on
negotiating modalities, EU on issues such as standards and mutual recognition, and NAFTA on
investment and labor. RTAs could likewise play a constructive role in the Millennium Round in this area.
In sum, the dimensions of regionalism that produce adverse feedbacks are limited in the current
regional context. Only the EU is integrated enough to take advantage of the joint market power of its
members. At the same time, other dimensions of RTAs-competitive effects, negotiating flexibility - will
support multilateral efforts.
APEC as New Regional Prototype
APEC is an example of a new type of RTA that comprises diverse economic partners (in
specialization patterns and levels of income) and aims for comprehensive economic cooperation. In
addition of trade liberalization, such initiatives typically include provisions for trade and investment
facilitation, social and technical cooperation, and the harmonization of certain policies. They also differ
from traditional approaches in modality-APEC and the FTAA, for example, both began by setting
long-term targets and are only gradually turning their attention to implementation. APEC, in addition,
also espouses voluntary cooperation in place of formal agreements.
APEC's strategy relies on the novel concept of " open regionalism. " This idea emerged in the
foundation of PECC in the early 1980s, designed to distinguish PECC from earlier proposals for a
regional free trade area. In describing PECC, Masayoshi Ohira, the late Prime Minister of Japan spoke
of creating "an open regional cooperation befitting the age of the global community" (Cheit 1992).
APEC's first ministerial meeting in Canberra in 1989 also affirmed that, "consistent with the interests of
Asia Pacific economies, cooperation should be directed at strengthening the open multilateral trading
system; it should not involve the formation of a trading bloc" (APEC 1989). And the 1991 Seoul
Declaration proposed that "Asia-Pacific Economic Cooperation should serve as an exemplary model of
3
open regional cooperation" and should "develop and strengthen an open multilateral trading system in
the interest of Asia Pacific and other economies" (APEC 1991).
But what does open regionalism really mean? Drysdale and Gamaut (1989) argued that it does
not mean a preferential Pacific Free Trade Area. They did support a "free trade area" that is "not
intended to involve discrimination within the Pacific" because that may "provide an impetus for the
accelerating movement towards liberalization on an NIFN basis, and reinforcement of the 'prisoner's
delight' process" of spreading reductions in trade barriers worldwide. In a recent restatement, the
concept of "open clubs" is defined as an arrangement that is (i) consistent with existing obligations of
members, (ii) transparent, (iii) non-discriminatory with respect to all new measures, (iv) accessible to
other interested parties and (v) subject to outside review (Elek 1999). Like Drysdale and Garnaut,
Elek's point iii appears to categorically exclude preferential arrangements.
In the APEC debate, several alternative definitions have been also proposed. Bergsten (1998)
champions trade concessions that incorporate regional preferences, but are extended conditionally to all
partners willing to reciprocate. Alternatively, membership in the preferential arrangement is automatically
offered to all countries willing to subscribe to it. These interpretations He half-way between Australian
models of unconditional open regionalism and the closed preferential agreements that typically
characterized prior free trade agreements.
Alternative definitions of open regionalism were vigorously debated in the Eminent Persons
Group formed to advise APEC in 1993-1995, and lead to the uneasy compromise of the 1995 EPG
report, which called for:
• Maximum possible unilateral liberalization
• Continued reductions in barriers facing non-member countries on an NIFN basis
• Willingness to extend regional liberalization to non-members on a reciprocal basis
• Recognition that members can unilaterally extend liberalization to non-members
In the event, APEC has not yet adopted any preferential measures. The somewhat ambiguous language
of the Bogor Declaration ("free and open trade and investment in the region") also leaves open whether
preferential regional liberalization might be consistent with APEC's goal.
APEC and other new regional institutions have made important, if limited, contributions to global
liberalization. While the theoretical literature is inconclusive on the interaction between the regional and
global tracks in the general case, the feedback effects associated with present regional initiatives tend to
be positive. As the next section demonstrates, interactions between APEC and the global system have
so far been consistent with the positive intent of open regionalism. The challenge now is to develop
strategies that make APEC's contributions even more constructive in the Millennium Round.
4
H. APEC and the Global Trading System
A few years after its launch, APEC became an important element of the global trade strategies
of both Asian and American policy makers. To Asians, APEC offered a way to keep America involved,
without sacrificing relationships with other markets. To Americans, APEC represented stronger ties to a
dynamic region, with which American trade relations were often strained. Eventually, APEC also
became an important tool for influencing the Uruguay Round 3.
Preventing an Asian Bloc
The 1989 Canberra Conference that established APEC was the product of many years of Asian
and Australian efforts to create a regional institution in the Pacific Rim. Academic proposals for a Pacific
Free Trade Area were floated at the 1968 PAFTAD conference, and culminated in Japanese Prime
Minister Ohira's call for a "Pacific Basin Community" in his inaugural speech in 1978. Although that
initiative ended in a compromise, the establishment of PECC as a tri-partite forum in 1980, regional
interest in an inter-governmental initiative continued, albeit with little U.S. support.
In 19 8 9 the United States was focusing primarily on the U. S - Canada Free Trade Agreement
and on global initiatives, and APEC seems to have caught it by surprise. In fact, the United States
apparently agreed to join APEC not for its promise of regional economic dialogue, but because it did
not want to be left out of an Asian grouping which might coalesce around Japan. When Prime Minister
Hawke of Australia first proposed APEC in 1989, it excluded the United States. The intense diplomatic
initiatives that followed ended in a proposal that included the United States in APEC, and Secretary of
State James Baker's commitment of U.S. support.
Still, the concept of an Asian regional bloc continued to resurface for several years after APEC
was established. Advocated by Malaysian Prime Minister Mahathir, it was first proposed as an East
Asian Economic Group (EAEG) and later as an East Asian Economic Caucus (EAEC). Japan and
other East Asian countries briefly flirted with these ideas, but others - notably Indonesia - were firmly
opposed. The United States also made it clear that participants in EAEC would have to choose
between an Asian grouping and a trans-Pacific partnership. In the end, the latter was too important for
most Asian economies to risk and EAEC faded away.
Critical contributions for maintaining APEC as a Pacific-wide institution came from ASEAN.
Although ASEAN leaders were concerned about APEC's institutionalization as a possible challenge to
ASEAN, they soon came to see it as an excellent forum for projecting regional views. They were
offered an important role in APEC-ministerials were initially set to alternate between ASEAN and
3
Since this paper focuses on the implications of APEC for the global trading system, it does not examine the
"internal" effects of APEC on the policies of member economies. The consensus of recent evaluations (PECC 1997,
Yamazawa 1998) is that members' policies are on the path required to reach the Bogor targets. A few expections (such
as China and the Philippines) aside, however, the policy changes reported in country Individual Action Plans
represent the implementation of Uruguay Round concessions and hence cannot be regarded as "WTO plus.
5
Non-ASEAN countries and the secretariat was located in Singapore (Morrison 1997). In turn,
ASEAN provided excellent leadership in APEC's Indonesian and Philippine years. ASEANs support
for APEC has waned in the current difficult environment, contributing to APEC's general malaise.
Overall, APEC thus helped to build the present regional framework in the Pacific: it maintained
U.S. involvement 'in the region, created a loose, outward-oriented coalition of Pacific economies,
supported the development of ASEAN, and prevented an inward-oriented Asian bloc-a distinct
possibility in the 1990s. In light of subsequent changes in the performance of the U.S. and Asian
economics, the current regional architecture appears fortuitous. Yet it's true that APEC did not deliver
the productive partnerships that might have been expected from a stronger regional institution, either in
terms of regional liberalization or a forceful response to the financial crisis.
Competitive Effects
In the early 1990s, as the Uruguay Round ran into increasing difficulty, the United States
accelerated its APEC and NAFTA initiatives. On the eve of the Uruguay Round deadline in 1993,
President Clinton decided to upgrade the APEC ministerial to a meeting of leaders, dramatically
boosting APEC's profile. In combination with the signing of NAFTA, these initiatives signaled that the
United States was willing to create its own trading framework if Europe failed to make concessions. The
threat worked and the Uruguay Round was concluded shortly afterwards.
After the Uruguay Round was concluded, APEC became an impetus for additional agreements.
As Table 1, indicates, APEC's launch was followed by a flurry of regional trade initiatives. The
Enterprise of the Americas Initiative (EAI), which laid the foundations for the FTAA, was announced by
President Bush in 1990, shortly after the creation of APEC and the decision to pursue the U.S.-Mexico
trade agreement that eventually evolved into NAFTA. The effort to scale up the FTAA to a full-fledged
free trade area in December 1994 in turn followed the Bogor Declaration by about one year. More
generally, the FTANs history parallels that of APEC, with each major step taking place approximately
one year later. This timing sequence provides intriguing evidence of competitive pressures-either
between different regional bureaus of the American bureaucracy, or across different trade partners.
Europe's reaction to America's regional strategies in Asia and Latin America is reflected in the
ASEM and TEP initiatives. Although ASEM began with the objective of a broad political dialogue, it
has taken on more economic content and now includes trade and investment initiatives. Indeed, ASEM
had more to offer than APEC during the Asian crisis, as Europe volunteered a fund for Asian financial
stability. Similarly, TEP is a European-American initiative designed to counterbalance APEC and
FTAA. Europe's efforts to develop relations with Latin America (e.g. Mercosur) represent still another
initiative designed to parallel American initiatives.
6
7
Modalities of Trade Policy
APEC's unusual policy framework has generated significant innovations for the global trading
environment. Although these innovations have not produced uniformly reliable results, they have proved
valuable in certain settings.
Leaders' meetings, Involving heads of state in the APEC process "upped the ante" on regional
economic negotiations. On issue after issue, leaders could break logjams and solve problems that
ministers could not. Moreover, leaders were under public pressure to produce meaningful outcomes,
and hosts were further motivated to achieving something results during their terms. This arrangement lent
momentum to the negotiations and produced visionary outcomes. However, as vision has to give way to
implementation, leaders' meetings are coming under increasing scrutiny.
Vision. The Bogor Declaration-a broad vision for eliminating "all barriers" by a date certainremains APEC's most important contribution to the global trade policy landscape. By setting an
important and yet achievable target, APEC raised the sights of the global policy community. This result
happened in part because President Suharto, the host of meeting, made a historic outcome a high
priority. APEC's fluid operational style, the involvement of heads of state, and the rotating chairmanship
all contributed to the result. Similar targets have been since been set by FTAA, by the Euro-Med
Agreements, were proposed by TEP, and are now under discussion for adoption in the Millennium
Round. As the commitments to this vision spread, it becomes increasingly realistic to adopt the goal of
complete liberalization worldwide. Similar considerations also triggered more modest results-the Osaka
Action Plan (OAA - 1995) and Manila Action Plan for APEC (MAPA - 1996).
Breadth of Coverage . APEC has pioneered by addressing an unusually wide range of
economic cooperation issues. While the European Community, NAFTA and other highly structured
economic agreements have also covered wide ground, APEC's work is significant because the wide
range of partners involved. Some areas not previously addressed in larger international fora include
competition policy, investment and various facilitation issues. APEC's agenda was later reflected in a
similarly broad coverage in the FTAA,
The cost of breadth, however, sometimes appears to be depth. APEC's Non-Binding
Investment Principles are recognized to be weak, and even so have not been uniformly adopted.
APEC's telecommunication discussions had little impact on the WTO negotiations (APEC members
remained the most recalcitrant in the negotiations). And while considerable discussion on competition
policy has taken place, guidelines stiff have not been offered.
Negotiation Structure. APEC has experimented with several mechanisms for collecting
proposals and implementing concessions in a "voluntary" framework. The first major approach focused
on individual action plans (IAPs). The plans required members to provide details on how they plan to
meet APEC goals in each of the 15 OAA action areas. Ideally, these schedules would reflect the special
circumstances of members, while targeting "comparable" liberalization results. The LAPs were to be
8
accompanied by collective action plans (CAPs) on common projects. In the event, the LAPs led to
frustration because the commitments fisted were too distant and too general.
As an alternative, the United States proposed a sectoral negotiations structure. The approach
triumphed with the successful Information Technology Agreement in 1996. In this model, APEC
reached voluntary agreement on a set of liberalization measures, and then passed the result on to the
WTO to be converted into a binding agreement. This required bringing on board a sufficient number of
non-APEC countries to reach a "critical mass" of importing countries,
Unfortunately, the ITA appears to have been an exception-a sector where interests were
fortuitously balanced and the sector's contribution to economic development was widely recognized.
Thus, APEC shifted to a multisectoral negotiations approach. In this mode several sectors were
chosen to provide balanced benefits, for a so-called "Early Voluntary Sectoral Liberalization"
negotiation. As noted below, this attempt failed.
Running out of Steam
To capitalize on the ITA agreement, the Leaders Meeting of 1996 called for a "Early Voluntary
Sectoral Liberalization" (EVSL) initiative that would combine several sectors to be liberalized jointly.
This initiative became a centerpiece of APEC's 1998 work program. The 1997 Vancouver summit
established 15 sectors as priorities for the EVSL initiative, and 9 of these were to be adopted as a single
package at the 1998 Kuala Lumpur summit. (Multiple sectors were needed to recreate the lucky
balance of benefits under the ITA.) The parameters of liberalization in these sectors were worked out
earlier in 1998, and it was assumed that the package would pass APEC and then move to the WTO for
binding global commitments.
The EVSL sectors were proposed, for the most part, by APEC members with export interests.
For example, the controversial fish and forest product sectors that eventually doomed the agreement
were proposed by Brunei, Canada, Indonesia, New Zealand, Thailand and the Urnited States - except
for Brunei, all major agricultural exporters. The overall package was balanced - for example, toys and
plastics were included for countries with an advantage in labor-intensive products, while environmental
equipment was included for advanced manufacturing economies. But it did not offer enough
compensation to Japan for its politically sensitive forest products and fisheries sectors. The negotiations
went down to the wire - until only hours before the Leaders' meeting was to start-and ended in
embarrassing failure. APEC tried to put the best face on it by "passing" the EVSL package on to the
IA70 anyway, where it has evolved into an "Accelerated Tariff Liberalization" initiative. The debacle
dealt a blow to the APEC's sectoral strategy and left no new alternatives left to try,
APEC's doldrums are due to several factors. The Asian crisis has diverted attention from core
issues, and APEC was poorly prepared to deal with macroeconomic and financial issues. The failure of
the EVSL demonstrates that APEC, still does not have the right formula for extracting concessions from
members. And APEC liberalization needs leadership. The United States was not in a position to lead: its
presidency was under siege, its administration turned increasingly toward global priorities (with emphasis
9
on the IMF and the WTO), and its legislative branch became isolationist. Neither was ASEAN, a
strong supporter of APEC in recent years; it too was preoccupied by vast political and economic
challenges.
Reinventing APEC
The chairman of the Pacific Basin Economic Council recently proposed that APEC be
abandoned because it was ineffective and politicized. He argued that East Asian businesses were
pursuing liberalization independently, and collective effort through APEC was slowing the process by
inducing countries to wait for reciprocity instead of moving forward unilaterally.
This year's APEC agenda seems to be thin, with neither major trade nor financial measures in
planning stages. Much of the earlier work program was based on expanding the EVSL effort, which
now needs to be replaced by other initiatives. An absence of ambitious proposals is perhaps for the
better-expectations have consistently outpaced results at recent summits.
But the obvious point is that APEC needs to redefine itself. The most promising short term
strategy is to focus on generating model solutions (rather than multilateral agreements) on trade issues
that will be critical in the new round, if necessary on an APEC-x basis. For example, the Food Program
represents an opportunity to craft a new approach to agricultural issues by addressing the needs of both
producers and consumers through a combination of liberalization and food security provisions. A plan to
rationalize the region’s automobile sector, developed by a new "APEC Automotive Dialogue," could
similarly target over-capacity and irrational protection. APEC's expertise in competition policy could
lead to a new blueprint for competition principles. Finally, the Internet" economy requires significant
policy commitments for keeping these markets open, and extensive cooperation in building an
appropriate infrastructure and knowledge base in the region.
In these areas and others, APEC could play a central role in shaping the Millennium Round.
Specific options for APEC's role will be examined below; in general, APEC's work will have to be
coordinated with the agenda of the new round, highlighting where collaboration pays and where parallel
efforts will be the most effective.
III Prospects for the Millennium Round
The new round was announced at the Quadrilateral Group's (Canada, EU, Japan and the U.S.)
meeting in December 1998, and its structure has begun to take shape in the Group's meetings in May
1999. The Quad called for broad-based participation in the new round, engaging the developing
countries and important new applicants such as China; comprehensive coverage of issues, including
areas that were not addressed in the Uruguay Round; and rapid, manageable negotiations that can be
concluded in three years.
10
Content of the Round
The communiqu6 also identified a range of issues to be taken up in the round (Table 2). The
agenda is very broad; it includes virtually all of the topics that appear on lists anticipated by experts,
Analyses of a proposed new round by Anderson (1999) and Schott (1998) list similar issues. (Those
studies also provide a detailed discussion of the central issues in each area, a subject outside the
purview of this paper.)
11
The length of the list raises questions about whether the goals of comprehensiveness,
inclusiveness and speed can be simultaneously satisfied. For example, some priorities may have to be
developed within the first few months of discussions, presumably leading to earlier results in a subset of
fields. Agricultural and service negotiations will most likely begin early, since they were committed some
time ago. Non-agricultural liberalization, the customary territory of negotiators, may also move rapidly
compared to other areas, Nevertheless, it's difficult to see meaningful progress in the agriculture sector
without major compensations to Europe and Japan in other areas of negotiation.
Two broad tensions are likely to affect the round and the choice of topics. The first is among
major developed players: the U.S., Japan and Europe, and is likely to focus on agriculture and services.
The second is between developed and developing countries, and is likely to focus on the implementation
of critical provisions of the Uruguay Round (e.& textiles), and on new issues (investment, labor,
environment, competition). Bergsten has suggested that a "grand bargain" might involve trading assured
market access to the markets of developed countries for the gradual liberalization of the markets of
developing countries. Interestingly, the membership of APEC spans both divides, enabling APEC to
address critical WTO issues in a representative, but perhaps more collegial context.
Beyond general issues, each player has its priorities. Japan is interested in investment because of
its large Asian production system (MITI 1999). Japan would also like to see work on competition
policy in order to check U.S. claims that its markets are not competitive, and perhaps also to undermine
the anti-dumping provisions applied by the United States. Japan does not want, however, the forced
harmonization of competition policies, and wants to make sure that developing countries play an
important role in the negotiations in order to slow down the rulemaking process.
The European Union has a comprehensive work program on service liberalization and wants to
move forward rapidly on product standards and mutual recognition (EU 1999), areas in which large
European markets offer an important advantage. The United States also puts a high priority on services,
including especially energy, environmental and express delivery services (USTR 1999). The U.S. is
especially interested in electronic commerce, on which a WTO working program is now underway.
Finally, official U.S. and European documents also place emphasize the "green" priorities, including
labor, environment and governance.
The positions of developing countries are more diverse. Many, especially in Latin America,
would have an interest in initiatives on investment given the current, investment-hungry environment. At
the other extreme, developing countries will be opposed to addressing labor, environment and
governance. Unless this controversy is properly managed, it could cast a shadow over the launch of the
Millennium. Round.
Modality of the Round
The first contentious issue to surface about the new round involves the modality of negotiations.
Japan and the European Union want the round to be a "single undertaking." This is an interesting and
puzzling conflict that indirectly provides insight into the objectives of the major players.
12
Joining issues into a single undertaking has the advantage of highlighting tradeoffs across the
priorities of different players. One criticism of the Uruguay Round took was that critical tradeoffs could
not be easily made until the end because the negotiation had been compartmentalized. This is how
Europe and Japan argue their position, but other motives lie beneath. It is possible that Europe and
Japan believe that some of their most urgent objectives (e.g. mutual acceptance of pharmaceutical test
results in the case of Europe and stricter disciplines on anti-dumping measures in the case of Japan) will
not be served by a compartmentalized, sectoral negotiation. They may also fear that the U.S. can drive
its sectoral agreements through (e.g. in technological products or electronic commerce) without making
broader concessions.
The United States, on the other hand, argues that a single undertaking would be unwieldy given
the breadth of the agenda and would not bring quick significant results. The U. S. also would like to see
early "harvests" of results without waiting for a general agreement. It also justifies a sectoral. approach
by noting that today's complex issues-unlike the early GATT rounds, which were more or less
susceptible to numerical formulas-cannot be digested and resolved except in specialized fora. Finally,
since the pro-market interests of exporting countries are likely to be more prominent in a sectoral forum,
it may believe that the chances for achieving liberal results are better in a sectoral context. U.S.
negotiators may also believe that it will be easier to keep social lobbies at bay in limited, sectoral
negotiations as opposed to a comprehensive undertaking.
Schott (1998) has suggested the intermediate solution that the round be broken down into
"roundups," or smaller groups of results harvested at regular intervals. A broad schedule of negotiations
could be prepared for several years in advance, with subsets of issues concluded for each ministerial.
(This schedule is complicated by the fact that the United States is not likely to receive negotiating
authority until the beginning of its next presidential term in 200 1.) What issues will be taken up early or
late, however, is open to debate. For example, Anderson (1999) argues that the foreign investment and
competition policy are too complicated to come up early, and should be left out of the round in order to
improve the possibilities for agreement. On the other, Schott (1998) sees labor and environmental issues
as the most difficult, and suggests that the WTO to deal with them by exporting them to external fora,
such as joint ventures with the ILO.
7he Role of Regional Fora
The major players of the Millennium Round will undoubtedly use regional institutions to advance
their WTO priorities. They can do so 'in two ways: first, by using a regional forum to generate ideas and
support for an initiative, and second, by using the forum to create a credible alternative (say, a potential
preferential trading bloc) to the multilateral process.
The history of the Uruguay Round is instructive. The round began in 1986 in the context of two
important regional initiatives, the 1985 Delors, plan for a European Single Market which eventually led
to the "Europe 1992" project, and the U.S.-Canada Free Trade Agreement. These initiatives helped to
strengthen the negotiating positions of Europe and the U.S. in the round, with each signaling that it's
13
willing to "go it alone" if necessary. No major new regional initiatives were proposed until the
negotiations ran into trouble in the early 1990s and the United States took steps to complete NAFTA
and reinvigorate APEC. (APEC's launch in 1989, as already noted, was not yet motivated by global
objectives.)
A similar scenario would suggest stepped-up regional negotiating activity during the next year or
two as countries attempt to stake out their bargaining positions in the Millennium Round, The bilateral
discussions of Japan and Korea and others already noted could represent an example.
But there is little reason to expect ambitious, early progress in the major super-regional fora.
APEC has not yet found a modality that allows it to make rapid progress. Europe, in turn, offered an
ambitious program for the TEP last year that would have called for date-certain tariff elimination in
industrial products and a preferential free trade area in services. In the event, however, the E.U.-U.S.
summit adopted an ambiguous formula calling simply for collaboration in the WTO (Elek 1999). Finally,
the FTAA initiative also appears to be stalled, in part because the U.S. has not been able to sell the
concept domestically (Schott and Hufbauer 1999). Indeed, more liberalization activity has take place in
the WTO in recent months than in the regional institutions outside it.
The longer-term outlook is more interesting. If the new round gets underway quickly and
produces good intermediate results-say through a sectoral negotiating approach-then regional
approaches to achieving general liberalization objectives may be invigorated through collaborations and
spillovers from the WTO process. And if the round gets into trouble, regional initiatives will offer an
alternative strategy. Not all regional groupings will represent viable venues for solving problems
encountered in the WTO (which ones do will. depend on the issues that cause the bottleneck), but they
could well become good candidates for shaking up the global negotiating process. In either case, the
outlook for contributions from regional fora is reasonably positive.
IV. APEC's Options in the Millennium Round
Among the super-regional institutions, APEC is the most substantial and experienced, and is
best placed to affect the Millennium Round. To be sure, the ultimate role of APEC will depend on the
priorities member governments attach to the round and to regional relationships, as well as the special
characteristics and capabilities of APEC as an institution. After reviewing some of these factors, we will
consider four models for an APEC role in the Millennium Round.
APEC's Advantages
APEC's role in the Millennium Round will be shaped by central structural features of the
institution and its members. Some assets that help to make APEC a good venue for certain negotiation
areas are:
• Commitment to global trade. APEC economies typically depend intensively on trade with distant
partners and therefore don't want to limit trade to preferential partners. This is also why APEC is
14
interested in the infrastructure of trade and in facilitation issues such as customs valuation, standards,
mutual recognition, and fairness in trade remedies.
• Diverse trade interests. APEC is as diverse as the WTO, with members' interests ranging from
agriculture to electronic commerce, from labor-intensive manufactures to sophisticated services.
This means that when APEC reaches agreement on an issue, its policy framework has a good
chance of attracting international support.
• Good communications among key players. Three of the four key players of the Millennium
Round-China (once admitted to the WTO), Japan and the United States-are APEC members. The
routine communications that APEC facilitates among these members, including at the highest level,
should aid WTO progress.
• Informal decision-making structure. The characteristics that make APEC a frustrating venue for
negotiation-voluntarism, aversion to commitments-may be an advantage when run in
parallel with legalistic approaches. APEC could make more progress *in areas such as investments,
where more formal efforts have failed. APEC could then "serve up" blueprints that provide a
starting point for negotiation.
We next examine how these characteristics would operate under different models of the APECMillennium. Round relationship. The discussion is speculative, since round's agenda will not take shape
for some months, but provides a framework for envisioning new directions for APEC's future. Four
scenarios are envisioned, representing different levels of involvement in the global process: APEC could
act as a cheerleader, laboratory, coalition or competitor in the global negotiations.
APEC as Cheerleader
APEC could become a vocal supporter of the multilateral process without necessarily taking a
significant material role. APEC will almost certainly play the cheerleader role publicly; no leaders'
statement will be written from now on without urging movement on the Millennium Round. APEC could
play an effective cheerleader role through both public actions and informal measures. Specific
negotiating areas in which APEC could play this role especially well will be examined detail below,
under the "Laboratory" option. Some of the approaches APEC might use include:
• Applying public and private pressure to members
• Adapting the IAPs and CAPs process to generate Millennium Round offers
• Organizing seminars to facilitate the resolution of contentious or technical issues
• Establishing working relationships with the WTO
• Monitoring compliance with past agreements
These and other contributions to the new round could be explicitly identified by APEC as a new
"Common Action Plan" items.
15
APEC's role as cheerleader would not diminish the possibilities for progress in areas that the
new round is not likely to cover. Thus, initiatives in facilitation and economic and technical cooperation
would continue and perhaps intensify. Even in the liberalization area there are significant opportunities
for lowering barriers below bound levels, and for developing guidelines in areas that are not likely to
come under international disciplines in the near future.
Nor would it diminish APEC's ability to move toward on its regional liberalization agenda. The
Millennium Round could become an engine for driving progress toward the goals of the Bogor
Declaration. APEC's quantitative progress toward the Bogor targets has, in large part, reflected
liberalization measures that members undertook under the Uruguay Round, and a new round would
offer a new range of liberalization measures to absorb.
APEC as Laboratory
A more ambitious involvement in the work of the Millennium Round would involve APEC as a
negotiating and testing ground in the "new" areas of global negotiations. The areas selected are likely to
be either those where APEC economies have a significant common interests, or those in which APEC's
diversity provides a good, but manageable model of global diversity. In these areas APEC could
examine, debate and propose recommendations for WTO action. This is the model of the ITA which
many APEC. policy makers wanted to repeat with the EVSL.
As a laboratory for the Millennium Round, APEC would:
• Adapt its work program to the priorities of the round in areas of comparative advantage
• Tailor deliverables to the round's decision making timeline
• Create model solutions on issues of significant APEC-x interest
• Establish closer liaisons with other players, including Europe
Through these activities, APEC would carve out a leadership role on issues on which it has special
expertise. This is, however, an admittedly sensitive role. For example, if APEC acted as a bloc, its
ability to influence non-members would rapidly diminish. To be an effective laboratory, APEC would
have to open its research and deliberative processes to non-members, and perhaps combine them with
those of the WTO.
APEC's role as a laboratory would involve two types of cases. First, APEC will be the right
institution in areas such as trade facilitation, including especially customs valuation, standards, mutual
recognition and competition policy. Second, APEC's diversity creates an opportunity to test model
agreements on controversial issues. Investment represents one such area-APEC's Non-binding
Investment Principles need to be strengthened before they can be considered a good model for the
WTO. Japan is especially eager to search for solutions to this issue in APEC because some of the
recalcitrant participants in a potential global debate are East Asian countries (NUT1 1999). As already
noted, food policy, combining elements of agricultural liberalization and food security, could also help
bridge the divides across food exporting and importing countries.
16
APEC as Coalition
Coalitions can play effective roles in global negotiations as the Cairns Group did in the Uruguay
Round. However, a high commonality of interests is essential for this role. Because of its diversity,
APEC does not meet that criterion for most of the issues that are likely to be debated in the Millennium
Round. Nevertheless, the APEC-x principle, which allows a significant group of to work out common
positions, could help to create new coalitions for the global dialogue.
Acting as a coalition, APEC members would:
• Develop joint bargaining objectives
• Jointly publicize positions and persuade others with special ties
• Reach out to non-members with shared interests
While APEC's full membership may not form a coalition on any particular issue, subsets of APEC
members might find the APEC process conducive to common positions on global policy. Thus, APEC
might give rise to several caucuses, which in turn would reach out beyond APEC to implement their
goals.
APEC as Competitor
A final alternative is for APEC to emerge as a competitor to liberalization through the
Millennium Round. This could happen, for example, if APEC decided to aggressively pursue the Bogor
goals by adopting preferential free trade initiatives. Such a strategy is not likely to surface until more
cooperative relationships fail, or the round runs into serious trouble. In that case, APEC may threaten to
become an alternative venue for liberalization, hopefully persuading other global players to return to
serious bargaining. Because of the diversity of APEC economies and their heavy reliance on extraAPEC trade partners, it is unlikely that this scenario will materialize, except perhaps in the event of the
collapse of the global round.
V. Conclusions
APEC's tenth anniversary coincides with the launch of a Millennium Round of trade
negotiations. This paper has examined APEC's impact on global negotiations in the past and its potential
role in the new round. It found that APEC's contributions have been constructive: APEC helped to
accelerate the conclusion of the Uruguay Round and spurred the development of new, liberalizing
initiatives in Latin America, Europe, Asia, North America and Latin America. Consistent with its charter
principle of open regionalism, APEC could also make significant contributions to the work of a new
round.
17
The Millennium Round is likely to cover a comprehensive agenda, but this could mean that it will
be difficult to start the process rolling and to collect harvests in a reasonable period of time. The goal of
achieving results in a reasonable time appears to be foremost on the minds of American negotiators who
are looking for a sectoral structure to break up the negotiations into manageable parts. European and
Japanese negotiators, however, appear to be more concerned with getting comprehensive results and
favor a single undertaking approach.
The role of APEC in the round will depend on the cohesion and leadership that APEC member
economies can bring to the APEC forum, as compared to the productivity of the WTO forum itself. This
paper considered four alternative (although not mutually exclusive) ways that APEC could interact with
the round:
• APEC could act as "cheerleader," encouraging progress both publicly and privately through its
consultative process. This is APEC's most likely role in the initial stages of the round.
• APEC could become a laboratory for exploring solutions and building consensus in its areas of
expertise, say, trade facilitation. In areas like food policy, APEC spans the global range of interests
could offer a more convenient venue for reaching a compromise.
• APEC could form international coalitions in its primary areas of common interest. Given APEC's
diversity, such coalitions are not likely to involve all members but rather significant APEC-x
groupings. Smaller developing countries might find an APEC umbrella helpful for promoting their
objectives.
• APEC could become an alternative (competitive) venue for liberalization if the new round fails to
make progress. For example, APEC could begin developing conditionally preferential liberalization
schemes. This is unlikely, but may represent leverage if the round falters.
Whichever approach APEC adopts, trade initiatives are likely to evolve slowly in the months
ahead as the new round absorbs the energies of negotiators in key countries. And the early stages of the
round will involve considerable testing of positions. Thus, the birth of the new round will not end the
current stalemate quickly. But it will engage important issues, and over time is likely to collect the
support necessary to address the inevitable globalization of the world economy. A leadership role in this
effort would provide an exciting new mission for APEC, and represent perhaps to surest path for
meeting APEC's commitment to the Bogor targets.
18
REFERENCES
Anderson, Kym, 1999. "The WTO Agenda for the New Millennium," Seminar Paper No. 99-01,
Adelaide: Centre for International Economic Studies, University of Adelaide.
APEC, 1989. "Canberra Chairman's Statement." On the APEC website: www.Vecsec.org.sg.
APEC, 1991. "Seoul Declaration." On the APEC website: www.apecsec.org.sg.
APEC Eminent Persons Group, 1994. Achieving the APEC Vision: Free and Open Trade in the
Asia Pacific. Singapore: APEC Secretariat. August.
Baker, James A. 1991. "America in Asia: Emerging Architecture for a Pacific Century," in Foreign
Affairs Quarterly, Winter.
Bergsten, C. Fred, ed. 1997a. Whiter APEC? Progress to Date and Agenda for the Future.
Washington: Institute for International Economics.
------ 1997b. "Open Regionalism," in C. Fred Bergsten, ed. 91hither APEC?, pp. 83-105.
------ 1998. "Fifty Years of the GATT/WTO: Lessons from the Past for Strategies for the Future,"
Working Paper No. 98-3, Washington: Institute for International Economics.
__________, 1999a. "The Global Trading System and the Developing Countries in 2000," Working
Paper No. 99-6, Washington: Institute for International Economics.
__________, 1999b. "A New Trade Liberalization Strategy for APEC. " Washington: Institute for
International Economics. Reproduced.
Cheit, Edward F., 1992 "A Declaration on Open Regionalism in the Pacific," California Management
Review, Vol. 3 5, No. 1, Fall, pp. 1-13.
Drabek, Zdenek, 1998. "A Multilateral Agreement on Investment: Convincing the Skeptics," Working
Paper ERAD-98-05, Geneva: World Trade Organization,
Drysdale, Peter, 1989. International Economic Pluralism: Economic Policy in East Asia and the
Pacific. Sydney: Allen & Unwin.
Drysdale, Peter and Ross Garnaut, 1989. "Principles of Pacific Economic Integration," in Jeffrey J.
Schott, ed. Free Trade Areas and U.S. Trade Policy, Washington: Institute for International
Economics, pp. 217-54.
19
Elek, Andrew, 1998. "Open Regionalism Going Global: APEC and the New Transatlantic Economic
Partnership," Pacific Economic Paper No. 286, Canberra: Australia-Japan Research Centre,
Australian National University.
Kojima, Kiyoshi, 1968. Pacific Trade and Development. Tokyo: Japan Economic Research Center.
MITI, International Economic Affairs Department, International Trade Policy Bureau, 1999. "The WTO
and the Millennium Round of Global Free Trade Negotiations" in Journal of Japanese Trade and
Industry, May/June, pp. 7-17.
Quadrilateral Trade Ministers Meeting, 1999. "Chair's Statement." Tokyo, May 11-12. Reproduced.
PECC, PIDS and Asia Foundation, 1996. Perspectives on the Manila Action Plan for APEC.
Manila: PECC.
Ruggiero, Renato, 1998. "Building the Framework for a Global Electronic Marketplace," Address to
the 9t" International Information Industry Congress, Berlin, September 17.
Schott, Jeffrey J., 1998. Launching New Global Trade Talks: An Action Agenda. Special Report No.
12. Washington: Institute for International Economics.
Schott, Jeffrey J. and Gary C. Hufbauer, 1999. "Whither FTAA?" Washington: Institute for
International Economics. Duplicated.
United States Trade Representative, 1999. Trade Policy Agenda and 1998 Annual Report of the
President of the United States on the Trade Agreements Program. Washington: USTR.
Wong, Joon San, 1999. "Shipping Body Boss Criticizes Forum," in South China Morning Post,
March 19.
Yamazawa, Ippei, 1998. APECs Progress Toward the Bogor Target: A Quantitative Assessment
of 1997 IAP/CAP. Tokyo: PECC Japan Committee.
________, 1998b. "On the Asia-Pacific Economic Integration: A Japanese Perspective," in Dilip K.
Das, ed. Emerging Growth Pole: 777e Asia-Pacific Economy. New York: Prentice Hall.
20