ACHIEVING THE APEC VISION: FREE AND OPEN TRADE IN THE ASIA PACIFIC
August 1994

EXECUTIVE SUMMARY

In our first Report a year ago, the Eminent Persons Group (EPG) recommended a bold, forward-looking and realistic vision for APEC: the progressive development of a community of Asia Pacific economies with free and open trade and investment. The APEC Leaders and Ministers, in their meetings in Seattle last November, launched initiatives to implement a number of our proposals. The Leaders in their Economic Vision Statement "welcome the challenge presented to us in the report of the APEC Eminent Persons Group (EPG) to achieve free trade in the Asia Pacific, advance global trade liberalization and launch concrete programs to move us toward these long-term goals".

In this second Report, we respond to the mandate given to us at Seattle: "to present further more specific proposals on how the recommended long-term vision might be realized". In carrying out this mandate, we have been guided by the following principles:

-- the principle of free trade and investment - this has been critical to the past and present economic miracles of the Asia Pacific; free trade and investment are critical to the future of the Asia Pacific; history makes clear that to stand still is to risk backsliding into protectionism; the Asia Pacific has no choice but to move forward.

-- the principle of international cooperation - APEC member economies have cooperated extensively and intensively through a variety of channels: bilateral, regional and global; the strengthening of this process of bilateral, regional and global cooperation, including through APEC, will provide a bulwark against conflict in the years and decades ahead;

-- the principle of regional solidarity as stressed in our first Report, the maintenance of close and growing relationships among the economies that rim the Pacific is crucial to all; friendship and solidarity must link and bind us together;

-- the principle of mutual benefit APEC must have a balanced programme that is responsive to the interests and needs of its varied membership; all must benefit to a similar and substantial degree;

-- the principle of mutual respect and egalitarianism we believe that the entire APEC enterprise should be conducted in the spirit of mutual respect and equality, informed by the understanding that different societies are at different stages, have different perspectives, different capabilities and different priorities;

-- the principle of pragmatism, whose primary focus is result rather than form, achievement rather than doctrine; we believe that we should avoid over-institutionalization and over-bureaucratization; the approach followed by the European Community (EC) is one that is neither possible nor productive for the Asia Pacific; nothing in this Report should be read to imply any interest in emulating the European model;

-- the principle of decisionmaking on the basis of consensus, implementation on the basis on flexibility because decisionmaking based on consensus and implementation based on flexibility are realistic and productive; and last but by no means least,

-- the principle of "open regionalism", by which we mean a process of regional cooperation whose outcome is not only the actual reduction of internal (intra-regional) barriers to economic interaction but also the actual reduction of external barriers to economies not part of the regional enterprise; our commitment, above all, to the process of global liberalization, is thus in no way compromised; indeed it is emphasized and strengthened, because any regional enterprise governed by the principle of open regionalism will, by definition, be a building block for and contribute to a freer global economy. Without any reservation whatsoever, we strongly oppose the creation of a trading bloc that would be inward-looking and that would divert from the pursuit of global free trade.

We believe that the concept of "open regionalism" can be fully achieved if the APEC members continue to work for global liberalization in the General Agreement on Tariffs and Trade (GATT) and the new World Trade Organization (WTO), as they did so effectively in helping bring the Uruguay Round (UR) to a successful conclusion, and if they include four nonmutually exclusive elements in their regional liberalization program:

-- the maximum possible extent of unilateral liberalization;

-- a commitment to further reduce their trade and investment barriers toward non-APEC countries;

-- an offer to extend the benefits of APEC liberalization to nonmembers on a mutually reciprocal basis; and

-- recognition that any individual APEC member can extend its APEC liberalization toward free trade to nonmembers on a conditional basis (via free trade arrangements) or on an unconditional basis (to all nonmembers, or to all developing countries, in conformity with GATT rules), since there is absolutely no contemplation of creating a customs union that would require members to maintain common trade policies toward nonmembers.

Based on these principles, we recommend that APEC now adopt a comprehensive program to realize the vision of free and open trade in the region. At this year's meetings in Indonesia, Leaders and Ministers should:

-- adopt the long-term goal of "free and open trade and investment in the region";

-- aim to begin implementing APEC's program of trade liberalization to achieve that goal by the year 2000; and

-- aim to complete the liberalization process by 2020, taking full account of the economic diversity of the region by having the more economically advanced members eliminate their barriers more quickly than the newly industrialized and developing members.

It is imperative to stress that APEC should achieve "free trade and investment in the region" in a manner that promotes trade and investment liberalization in the world as a whole. One of the most important functions of APEC, clearly, is to stimulate the world toward multilateral liberalization of trade and investment. APEC has been, and must remain, strongly opposed to the creation of an inward-looking trade bloc in the Asia Pacific even as it must similarly be opposed to such trade blocs elsewhere.

We also recommend that, while this program of future trade and investment liberalization is being worked out, APEC should vigorously pursue a program of trade facilitation and technical cooperation. We emphasize in particular the importance of the following initiatives:

-- early adoption of an APEC Concord on Investment Principles, a voluntary code to further improve the environment for international direct investment and thus economic growth throughout the region;

-- harmonization of national product standards and testing procedures or, in areas where this is not feasible, mutual recognition of each others' standards, to reduce international transactions costs and business uncertainties;

-- cooperation on financial and macroeconomic issues, as begun by the APEC Ministers of Finance at their meeting in Honolulu in March 1994;

-- cooperation on environmental issues, as begun by the APEC Environmental Ministers at their meeting in Vancouver in March 1994;

-- creation of a task force to address the urgent problem of the proliferation of abusive antidumping practices. This group could also address the impact of domestic antitrust laws on international trade and eventually expand its focus into the area of competition policy; and

-- creation of an APEC Dispute Mediation Service (DMS), as a complement to the dispute settlement mechanism in the new WTO, to provide a voluntary mechanism to help channel bilateral disagreements among members in constructive multilateral directions in cases which clearly fall outside the competence of the WTO; and

-- technical cooperation with regard to public infrastructure, competent small and medium scale enterprises, education and other human resource development, all of which complement the market-driven integration of the region and enhance the effects of trade and investment facilitation and liberalization.

We believe that the program we put forward can, over time, develop into full fruition the community of Asia Pacific economies that was endorsed at Seattle. It will not be a community in the sense of the EC characterized by acceptance of the transfer of sovereignty, deep integration and extensive institutionalization. It will rather be a community in the popular sense of a "big family" of like-minded economies committed to friendship, cooperation and the removal of barriers to economic exchange among its members in the interest of all.

The program we propose will enable APEC to realize its potentially enormous contribution to the peoples of our region. It will enhance the prosperity and stability of the world as a whole. It will help lead the way into a harmonious and successful twenty-first century.