US Dept of State - IIP: The United States and APEC

TRANSCRIPT: USTR BARSHEFSKY BRIEFS ON APEC MINISTERIAL OUTCOMES
(APEC not going to become victim of financial crisis)
Kuala Lumpur -- APEC, including its members who have been hardest hit by the financial crisis, basically decided that market opening was not the cause of the financial crisis, that it was not going to become the victim of the financial crisis, and that market opening was a concrete way in which to assist in emerging from the current financial crisis, according to U.S. Trade Representative Charlene Barshefsky.
"This meeting was remarkable for that realization," she added. "It was a realization Thailand pointed out a year ago in Canada, but the global financial crisis a year ago was nothing compared to the way it is now, and the fact that the same resolve was apparent I thought was remarkable."
In a press briefing following the conclusion of the Asia-pacific Economic Cooperation (APEC) Ministers Meeting in Kuala Lumpur November 15, Barshefsky said: "This meeting occurred at a very critical moment and the question presented in the ministerial was whether APEC would move forward on market opening or whether it would retreat. These countries could have used Japan's intransigence on forestry and fish to retreat; that is to say removing those sectors would have destroyed the balance of the overall package and would have provided a ready excuse for countries, particularly the ASEAN countries, to move back on market opening. Instead, exactly the reverse happened."
"In the course of this meeting," Barshefsky continued, "three of the ASEAN countries who had been visited by Japan and urged to withdraw not only did not withdraw, they improved their tariff cut offers across the board in all nine sectors."
Then, in addition, she said, all of the economies agreed that the nine-sector Early Voluntary Sectoral Liberalization (EVSL) initiative had substantial promise and that it could be moved as a package to the World Trade Organization (WTO) and that it should become a binding WTO-related agreement, not conditioned on a new round and not conditioned on the end of some putative new round, but attempt to conclude this package in 1999.
"There was such unanimity of view on that point," she said, "Japan had no choice but to go to that consensus and to retain the nine-sector package and all of the tariff cutting and elimination elements in that package."
"Should Japan be doing more?" Barshefsky asked. "You're damn right they should be. It's the world's largest second-largest economy and they have a special responsibility in Asia, and these product areas are of such importance to ASEAN, they should do everything they can to liberalize and to liberalize quickly. And that is our strong view and we have communicated that in much stronger language than that to the Japanese. Having said that, they've also agreed to work with the other 15 economies in the WTO to try and build the critical mass. The WTO element may shift the complexion of this enough, particularly as other countries come on board, for Japan to move. Am I a guarantor of that? No, Japan has a responsibility here!"
Japan should have done more at the meeting on fish and forestry, Barshefsky said. "Every member economy pressed that point," she said. "So, there's no question that Japan has to move forward further, but moving to the WTO and now the commitments include Japan's to work toward a critical mass of countries. That provides, I think, a constructive opportunity for Japan to do in the WTO in 1999 what it was incapable of doing in the APEC context alone."
Following is a transcript of the briefing:
(begin transcript)

Press Briefing by
U.S. Trade Representative Charlene Barshefsky
Palace of the Golden Horses
Kuala Lumpur, Malaysia
November 15, 1998

AMB. BARSHEFSKY: This meeting occurred at a very critical moment and the question presented in the ministerial was whether APEC would move forward on market opening or whether it would retreat. These countries could have used Japan's intransigence on forestry and fish to retreat; that is to say removing those sectors would have destroyed the balance of the overall package and would have provided a ready excuse for countries, particularly the ASEAN countries, to move back on market opening. Instead, exactly the reverse happened.
In the course of this meeting, three of the ASEAN countries who had been visited by Japan and urged to withdraw not only did not withdraw, they improved their tariff cut offers across the board in all nine sectors.
Then, in addition, all of the economies agreed that this initiative had substantial promise and that it could be moved as a nine-sector package to the WTO and that it should become a binding WTO-related agreement, but not conditioned on a new round and not conditioned on the end of some putative new round, but attempt to conclude this package in 1999. There was such unanimity of view on that point, Japan had no choice but to go to that consensus and to retain the nine-sector package and all of the tariff cutting and elimination elements in that package.
So, having said that, APEC I think as an organization and, in particular, the ASEAN countries and Korea, the hardest hit by the financial crisis, basically decided that market opening was not the cause of the financial crisis, that it was not going to become the victim of the financial crisis, and that market opening was a concrete way in which to assist in emerging from the current financial crisis. And this meeting was remarkable for that realization. It was a realization Thailand pointed out a year ago in Canada, but the global financial crisis a year ago was nothing compared to the way it is now, and the fact that the same resolve was apparent I thought was remarkable.
Should Japan have done more at this meeting on fish and forestry -- and they did make some movement on paper, for example -- but should they have done more on fish and forest products? Absolutely. Did every member economy in the room feel that and press that? Yes. Every member economy pressed that point. So, there's no question that Japan has to move forward further, but moving to the WTO, and now the commitments include Japan's to work toward a critical mass of countries. That provides, I think, a constructive opportunity for Japan to do in the WTO in 1999 what it was incapable of doing in the APEC context alone. So, I'll just stop there and take your questions.
Q: You said Japan should do more. They didn't do anything, did they?
AMB. BARSHEFSKY: They did a little bit on paper products. Tariff cuts. I can't quantify, but they moved a little bit on paper, but not enough on paper; nothing on wood, nothing on the tariff side on fish.
Q: Doesn't this effectively buy a bit more time for Japan through 1999 in the hope that maybe the global economic situation is going to get better, the Japanese economy is going to --
AMB. BARSHEFSKY: Well look, first of all, as I said in the press conference, a year ago we had nothing -- zero -- and two days ago we thought there was a very high degree of probability the whole initiative would collapse because fish and forestry would be pulled out. The ASEAN countries had to have fish and forestry and without it that would be the end of initiative. So point one is that, particularly given the financial situation of these countries, it's remarkable that this initiative has held together with the unanimity with which it is held together. So that I would say is point one.
Point two: What are our options on any of these initiatives? You move forward or you move backward. Here at least we're continuing to move forward on and absolutely market-opening course. You must appreciate in these nine sectors, as with ITA, the vast scope of products. We're talking about tariff elimination, not just reduction -- elimination. That's a very big step for most economies and a step that in the Uruguay Round we were largely unsuccessful in achieving, except for the most developed economies.
Third, if we look at ITA, when we left Manila there were eight countries who said they would sign on. We had 18 members then: ten who would not participate and, among the ten, four who said there is no circumstance in which they would join in -- including at the time Malaysia, which was a critical mass country. We had to have Malaysia. We moved into the WTO and eight months later Malaysia was in, and not just in marginally in whole hog. Now, would we have said we shouldn't move the initiative to the WTO because it might have given Malaysian more time? What a foolish outcome that would have been. So from our point of view, moving forward is the key moving forward toward market opening, retaining the balance among the nine sectors, ensuring tariff elimination or, in some cases, sharp reduction at the end of the day, there can't be anything wrong with that as a formula, even if it takes some extra time.
Q: Can explain to us why those two sectors are so important to the United States? Our tariffs are relatively low on those products already --
AMB. BARSHEFSKY: Put aside fish. The forestry sector for the U.S. is very, very important. This is particularly in the case of paper and wood products where, because these are commodity products, even a small tariff acts as something of a competitive disadvantage relative to goods that may be produced locally. There is a view in these sectors as commodity products, a zero-tariff base is much more advantageous. But there's a further story here. These products were very critical for the ASEAN countries. It's the ASEAN countries - Indonesia and Thailand -- wood products are among their major export items and the tariffs for them are an impediment competitively given that they are also are higher-cost producers. So this was critical for the ASEAN countries; also, New Zealand. For New Zealand fish and forestry were among the two primary goals that they had . Well, if you strip fish and forestry out, and the ASEAN countries feel that they have no balance, all they're doing is giving tariff cuts and getting nothing in return. New Zealand, which is hosting next year, loses the two principal products it wanted. You would have no initiative left. You have nothing left. And that's where we were two days ago because Japan's position was, number one, forestry and fish must come out , whole stock, must come out; number two, any WTO initiative could not include forestry and fish; number three, any WTO initiative could only be done at the end of the next comprehensive round of trade negotiations and not before.
Q: By packaging all of the sectors?
AMB. BARSHEFSKY: Yes, fish and forestry, but you see the trap is once you take them out you have nothing left because the balance is destroyed for ASEAN countries. These became the critical sectors for holding together the balance for all the economies of the nine, to put it differently. The U.S. can live without fish. Fish wasn't our sector. For ASEAN -- ASEAN can't. This is a major, major export item for ASEAN.
Q: So what happens in a year if you get ready and Japan is still not ready to go any further? Wait for another year or what?
AMB. BARSHEFSKY: I don't want to pre-judge because I saw what happened on ITA including in the case of Malaysia .
Q: But you had Japan going in ITA. Japan was on board ITA and you got more. Japan's not on board with this.
AMB. BARSHEFSKY: All I can say is our primary focus here has been -- and this has always been our primary focus as I've said to many of you a month ago -- to move this as a package to WTO with the sectors intact and to build a critical mass there . Right now -- and I think that the ministerial statement here is very good and strong statement -- even Japan is committed to working to achieve a critical mass in 1999 on all nine sectors, and in the WTO this is the tariff-cutting element. The rest is not WTO-related, Eco-Tech and all that stuff.
So, obviously we will keep the pressure on Japan. Every economy sitting in that room, including China, will keep the pressure on Japan. There is no question about it but, from our point of view, we have now placed the initiative where our chance of success with respect to Japan is greatest -- as opposed to retaining in APEC which had run its course on that particular issue. That's point one.
Point two: the U.S. cannot legally unilaterally cut our tariffs. We have to have a critical mass agreement and the way you build that critical mass is through the WTO. It's very hard to build it otherwise unless its through the WTO and, in that connection, the WTO becomes important because those are binding agreements, just as ITA or the global telecom deal or financial services is. These are binding agreements and we need that legally to be able to cut our tariffs.
Q: Just to clarify something for those of us who are based in Asia. People in Asia are under the impression that if Japan had agreed, the U.S. would have gone ahead. Are you saying that there was never any chance that this would be implemented by the U.S.? It was always going to WTO? That's not what I remember from Vancouver.
AMB. BARSHEFSKY: Oh no, the U.S. made clear -- you could look at my press conference a year ago. We said a year ago, very clearly, we wanted the ITA model which means: round out the initiative in APEC as much as possible; take it as a package to the WTO; get the rest of the critical mass, because there's more than Asia that we need here; and then implement. We've been saying for one year, ITA is the model, ITA is the model, and that is exactly what we've done here because legally we can't proceed on a different basis than the critical mass in a binding agreement through the WTO on tariff cuts. So you can look back. I'm confident a year ago I talked about to all of you, the ITA is the model. Coming into this, we saw the real possibility we would not have that model.
Q: APEC is not a critical mass?
AMB. BARSHEFSKY: APEC wasn't in ITA either. Good grief, we had to have Europe. But here's what APEC is: APEC in ITA was the catalyst. APEC again would be the catalyst to a broader global agreement. Just think about this for a second.
Q: Then the 2010 APEC goal is completely pointless because APEC is not a critical mass for the major economy?
AMB. BARSHEFSKY: No. I think about it a little bit differently. First of all, for many of the APEC countries, they can unilaterally implement things like these tariff cuts and other measures. They don't have our legal constraints and what you see in APEC, with the extent of unilateral tariff reduction already among the Asian countries, is unbelievable. We don't have the authority legally in the U.S. to do that. We never have -- not since the 1930s. So let me just say: Number one, in APEC you have that ability. Number two, in any event, if APEC can act as a catalyst to global agreement in eliminating tariffs, well that's a hell of a contribution. That's a lot more of a contribution than any one of the APEC countries could make individually. We couldn't do that individually and we have a fair amount of market power just given the size of our market.
So from my point of view, if APEC can add the catalyst toward a broader agreement that eliminates tariffs, then our participation and all the effort we put into APEC will be well worth it quite apart from the strategic value of having an Asian architecture on trade and economic issues for the first time.
Q: What was announced today at the Japanese briefing this evening is that they are still opting out of cutting tariffs on fishery and forestry.
AMB. BARSHEFSKY: They have to say that right now. I'm not suggesting their position has changed with respect to whether at this time they will cut tariffs on fish and forestry. I'm not suggesting that, that is why I said: should Japan be doing more? You're damn right they should be. It's the world's largest second-largest economy and they have a special responsibility in Asia, and these product areas are of such importance to ASEAN, they should do everything they can to liberalize and to liberalize quickly. And that is our strong view and we have communicated that in much stronger language than that to the Japanese. Having said that, they've also agreed to work with the other 15 economies in the WTO to try and build the critical mass. The WTO element may shift the complexion of this enough, particularly as other countries come on board, for Japan to move. Am I a guarantor of that? No, Japan has a responsibility here!
Q: So technically speaking on paper what the Japanese are saying at this briefing is correct?
AMB. BARSHEFSKY: They are whatever the Japanese briefer says. You may quote as you quoted. I am not at all suggesting that today Japan has agreed they will cut tariffs in these two sectors. But at the same time, they have also agreed it's a package, it's a nine-sector package, tariff cutting is the key and, in the WTO, they'll work to get a critical mass of countries in 1999 to have an agreement. That's not a bad outcome for two days of work.
Q: Previously, what the Japanese were saying, was as far as they were concerned it was a seven sector package. Now they're saying we're not guaranteeing we're going to do anything, but we'll at least think about it on these last two?
AMB. BARSHEFSKY: No, I think what you have is Japan agreeing to go the WTO on basis of the Kuching parameters, which is tariff elimination in nine sectors. That's the basis on which they're going to the WTO. The document's real clear on this point. That's a real important point. The Kuching parameters and the work in 1999 to get a critical mass of countries, that is to say to strive for an agreement in 1999 on the basis of the Kuching parameters, which mean nine sectors-tariff elimination. That's what they've agreed to at this juncture.
Q: I understand APEC as a critical mass generator and the ITA analysis and that makes a lot of sense. If in cozy APEC (cozy as in the good sense of the word) if you can't get a deal done within APEC on nine sectors that doesn't bode well for the overarching goal of APEC of free trade in 2010, 2020.
AMB. BARSHEFSKY: Look, I think you have a reasonably well established trend among most of the APEC economies to trade liberalization. You see it individually with respect unilateral tariff cuts in many areas. You see it now with the acceleration of the AFTA, the ASEAN Free Trade Agreement, and the fact that they wish to reduce tariffs faster now, which is also remarkable when you consider how hard hit these countries have been, particularly this year. All I can say is that you see this trend. This meeting was a little bit of a watershed because we had some considerable concern these countries would hid behind Japan's intransigence to pull back -- and they did the opposite. They did the opposite. So I think actually that bodes quite well for APEC 2010, 2020 or in general moving forward with market opening.
Look, there is nothing linear about the process we're engaged in. There are fits and starts and two steps forward and a step back, and that's basically how life is, but I think as you look overall that what's happened in this region particularly in the ASEAN countries. As you look at what has happened in the last ten years. Ten years ago, what they have done on trade liberalization would have been unthinkable. And you see a similar trend in the Western Hemisphere. Whoever would have thought you would have 34 democracies and market economics as the mantra ten years ago. You never would have thought you would have. There is I think globally a movement in this direction but its never going to be linear.
Q: What's the target when you came here and how much has it gone away from it?
AMB. BARSHEFSKY: Our target when we came here was a nine-sector package which retained the tariff-cutting and elimination elements, taken to the WTO as a package, and an attempt to reach agreement in the WTO through critical mass in 1999. It's exactly how we wanted to come out. I would've liked Japan to own up to it's responsibility here in APEC on fish and forestry, but the framework that I wanted is the framework is exactly that we have now for 1999 and that's what we're going to focus on.
Q: What is the timetable for the voluntary cuts? Does it start January 1, 1999?
AMB. BARSHEFSKY: For the voluntary cuts, yes. I think Malaysia and some others would voluntarily begin cutting 1/1/99, but we're looking at the year 1999 in terms of the WTO. Look, ITA took months just to move the eight countries to 23 and here we have 16 countries. It took us about eight or nine months. You know, this is complicated exercise. It took us eight or nine months on that.
Q: When President Clinton pulled out of Osaka in 1995 there were some grumbling around the region about that. He's doing it again for the Iraq situation. Do they understand -- have you heard? Are they bothered by this again?
AMB. BARSHEFSKY: No, they do. I really have not heard any grumbling. I think there are a couple reasons for that.
One: There's a lot of focus on the Iraq situation. The gravity of the situation is immediately apparent and felt and I think these past three days since I've been here the feeling has been that he can't possibly leave Washington. That has been sort in the day air affirmatively, that the President of the United States can't possibly leave Washington at this critical juncture. There's no question that there's a since of urgency about it.
I think second: These folks had the ability to see Vice President Gore when the President didn't come to APEC because at that time the federal government shutdown and the budget debate. There's incredibly high regard for the Vice President out here. He did a spectacular job when he was here. So there is pretty high degree of comfort. He's viewed as exceptionally smart and very well versed in their issues and this was really the almost the unanimous view when he came in 1995, so they know who they're getting and they fully expected that the President would not be able to leave Washington right now.
Q: Is he going to be giving a speech tomorrow night that the President was going to give? Is that clear?
AMB. BARSHEFSKY: I don't know.
Q: What is critical mass? Is it a number? Are there certain countries that critical mass? Secondly, I want to know who is unilaterally going to implement it? We know that you can't legally, fine. And thirdly, I want to know, if Japan doesn't want to sign on to all nine, why are they agreeing to take this to WTO? It doesn't make any sense.
AMB. BARSHEFSKY: Who is going to voluntarily implement? I honestly can't tell you. I know Malaysia is. Some of the other ASEANs have talked about it. You have to ask around. As I said, the U.S. welcomes unilateral tariff cuts and we would encourage everyone -- you all -- and everyone to unilaterally cut tariffs.
Q: Do you think Australia would ?
AMB. BARSHEFSKY: The only two economies not participating is Chile and Mexico. The Chileans have already said it's a constitutional issue. They have an across-the-board tariff, but they're going to move across the board from an 11 percent tariff to a 6 percent tariff over, I believe Insulza said, over the next three years. So that is unilateral. That's quite a contribution because you're looking across everything in there. All sectors of their economy.
From our point of view, Mexico, we'll all going to go zero anyway under NAFTA. So, we have no problem. It doesn't matter to us if Mexico participates in this or not. You'd have to ask around ASEAN, but Chile has said what they will do. Australia is going to do something, New Zealand is going to do something I believe. Malaysia. In the back of my mind I would say it was either Indonesia or Thailand, but you should check and there may be others.
Critical mass. We've defined a little bit differently in different agreements because we use the critical mass concept in telecom, financial services and ITA.
In ITA we judge critical mass by how much of global trade would be represented by the deal given whatever countries were in the deal. In ITA we actually began to implement our cuts when the global production represented in the deal was 85 percent That way we avoided any significant free riders.
In telecom, we did it a little bit differently. We waited for a combination of countries that were large and also a combination of countries that were going to privatize their basic telecom service providers. So, I can't quantify it, but we knew who the target range was and we agreed on the implementation when we had that target range.
Financial services was similarly constructed. It wasn't as high as 85 on ITA. It was something less than that. So, we have to look sector by sector - I couldn't give you a number now. But we try and kind of use a kind of rational process to determine that. And then (tape interrupted)...
Q: It wasn't 48 countries like it was with ITA?
AMB. BARSHEFSKY: No, we were already able to implement ITA on the basis of 23 countries. It's just that - you know what happens in these things, you start implementing or you've got countries in a bit of a club and other countries want to join in. This is just what happens. There's an element of peer pressure, but there's also an element of attracting investment. Countries that look as though they are opening tend to attract investment flows more than countries that look as though they're turning inward and not following the general trend. We saw this acutely in the case of telecom - where it's kind of self-evident. We saw it in ITA. Countries felt they wouldn't be viewed as leading edge if they weren't in ITA. That would have repercussions on other investment flows, so they joined. So it kind of mushroomed. And here you have medical equipment and scientific instruments, you have energy goods and services, environmental products and services. You have a lot of cutting-edge areas. And there will be something of a similar psychology that begins to take hold.
Q: (Crosstalk.) Do you need to have Europe on board?
AMB. BARSHEFSKY: We'll have to look sector by sector. It would depend. I can't tell you now off the top of my head because it will differ sector by sector.
Q: Is Europe on board on this?
AMB. BARSHEFSKY: It's not clear we need Europe on board in every area, and that's something that we have to look at. There are two or three areas where the concentration of inter-Asian trade, including us, is actually very, very high already. And we just have to go back through and do an analysis of that, and then we've got to figure out where we need Europe or where we might need some Latin American countries. There's a very hefty trade flow within APEC in most of these areas -- not at the 85 percent level, but in some areas it's very hefty. And the only thing is -- I think Japan at least moved in terms of this declaration because, as with Kuching, it was acutely aware that it was isolated. I thought a very decisive moment in the meeting was when three of the ASEAN countries and Korea announced that they would improve their tariff-cutting offers in all nine sectors.
Q: Which three?
AMB. BARSHEFSKY: Indonesia, Thailand, Malaysia and Korea.
Q: In all nine?
AMB. BARSHEFSKY: In all nine. And it was - hang on - Indonesia, Thailand, the Philippines - I'm sorry - and then Korea which really put in an unbelievable offer - I mean it including every sensitive sector that they have. I thought that was very decisive because . . .
Q: This was in tariffs?
AMB. BARSHEFSKY: Tariffs. Tariffs. Yes.
Q: Reductions - not cuts - not elimination?
AMB. BARSHEFSKY: Oh, in most of this it's elimination. They just needed more years. The Kuching parameters, which is the basis of going into the WTO, are actually very tough parameters to meet. So we devised some flexibility formulas, as we did with ITA, because for developing countries it is hard to go to zero by 2002. It's hard for us, so we devised flexibility formulas, which meant you wouldn't exclude a sector, but you'd just have more time to do what you needed to do which, in ITA, is how we brought on board countries like India which would have been countries you wouldn't think would have been willing to come on board. And here, I think when those countries came forward and said: "Well, of course, the APEC proceeds by consensus, but we do want you to know that across the board we have agreed we will reduce our tariffs further per Kuching, we may need a few more years in all nine sectors. " This was startling and I think changed the dynamic of the meeting.
Q: Was it voluntary or did you ask them to do that?
AMB. BARSHEFSKY: No, it was voluntary. We really in terms of the ASEAN countries we've been very, very sensitive.
Q: Were these the three countries that Japan tried to induce to drop out?
AMB. BARSHEFSKY: Yes.
Q: (Crosstalk.) Is the United States making any unilateral cuts before WTO meeting?
AMB. BARSHEFSKY: We cannot legally do cuts unilaterally or voluntarily. We can't do that.
(end transcript)

Return to The United States and APEC.
Return to IIP Home Page.