Policy Notes for Development Studies

Philippine Institute Policy Notes for Development Studies

December 2000 No. 2000-18

nization to keep pace with the demands and expectations Strengthening placed on it. APEC's Institutions In this regard, the organization’s institutions and processes should progress further. Indeed, APEC must advance towards a higher stage of institutional development to cope with the demands. At present, its institutional evolution is proceeding slowly. There still exists a considerable distrust of bureaucratic structures and contractual arrangements that prevents it from moving towards more definite rules and procedures. John Lawrence V. Avila* Given this aversion to formalism, how can greater institution-building be encouraged in the region? How should APEC move from this stage to the next level of institutionalization? What particular structures and processes within the association should be reformed or strengthened?

Institution-building in APEC: a historical review fter more than ten years of existence, the Asia- Interestingly, the state of institutional underdevelop- Pacific Economic Cooperation (APEC) is still very ment in APEC is entirely deliberate. In defining the grouping’s much in the formative phase of institution- A vision, the APEC Eminent Persons Group (EPG) cautioned building. The organization has consciously fol- against “over-institutionalization and over- bureaucratiza- lowed a path of an informal and looser form of institutional tion." By design, APEC is a voluntary, non-binding arrange- set-up, purposely avoiding the European model of economic ment with emphasis on informality, consensus-building and integration and rejecting any emphasis on legalism, formal ad hoc problem-solving. agreements and binding contracts.

Meanwhile, APEC’s activities have multiplied and its PIDS Policy Notes are observations/analyses written by PIDS researchers on certain policy issues. The treatise is holistic in approach scope has broadened to include more countries as mem- and aims to provide useful inputs for decisionmaking. bers. Yet, the level of its institutional development has gen- This Notes is an excerpt of the paper entitled "APEC and ASEM: erally lagged behind, thereby making it difficult for its orga- An Institutionalist Perspective" by the same author completed in 1999 under the auspices of the Philippine APEC Study Center Network ______(PASCN). The views expressed are those of the author and do not *The author is a political economist at the Center for Research and necessarily reflect those of PIDS or PASCN or any of the study's spon- Communication Foundation and Lecturer in International Political sors. Economy at the University of Asia and the Pacific. 2 December 2000

In fact, there has been no real consensus among its elements of a regime. After the first three years of meeting, members on exactly what form or structure the organization officials agreed to establish a permanent mechanism to should have. While APEC’s agenda continue to expand, there support, finance and coordinate its various activities (Hirano is no collective view on how it should proceed with the ‘deep- 1996). Consequently, a set of common principles, objec- ening’ of cooperation. Overall, the development of the orga- tives and a supporting organizational structure has gradu- nization has been a slow and deliberate process which placed ally taken shape as seen in Table 1. no formal obligations on the APEC members. The 1991 Seoul Declaration is the closest that APEC At its initial stages, APEC has followed a minimalist has reached in formally defining the structural form and approach to institution-building stressing confidence- build- principles of the organization. The declaration is significant ing and mutual understanding rather than formal organiza- for being the first official document that prescribed the tional structure as its primary objectives. Over the past ten association’s principles, objectives, scope of activity and years, however, the association has begun to have some mode of operation. In said document, the members agreed

Table 1. APEC’s institutional milestones

Meeting Outcome

Canberra 1989 Set out basic principles of Asia-Pacific economic cooperation; Identified specific elements of work program. Singapore 1990 Identified broad areas of cooperation to include economic studies, trade liberalization, investment, technology transfer and human resource development and sectoral cooperation. Seoul 1991 Issued declaration laying down APEC’s principles, objectives, scope of activity, and mode of operation. Bangkok 1992 Established permanent secretariat based in Singapore; Appointed an Eminent Persons Group (EPG) to chart vision for APEC. Seattle-Blake Island 1993 Initiated an annual leaders’ meeting and issued a vision statement; Approved trade and investment framework; Established the Pacific Business Forum; Called for the convening of meeting of APEC finance ministers; Established a Budget and Administrative Committee. Bogor 1994 Declared goal of free and open trade and investment in the Asia Pacific by 2010 for industrialized economies and by 2020 for developing economies; Established three pillars of cooperation, namely: (1) trade and investment liberalization, (2) trade and investment facilitation, and (3) economic and technical cooperation (ECOTECH). Osaka 1995 Defined Action Agenda; Defined fundamental principles of liberalization and facilitation; Identified specific areas of ECOTECH;a Set up APEC Business Advisory Council replacing the EPG; Established voluntary consultative dispute mediation service. Manila-Subic 1996 Laid down individual and collective initiatives under the Manila Action Plan for APEC; Defined framework of principles for economic cooperation and development. Vancouver 1997 Endorsed early voluntary liberalization in 15 sectors; Established an ECOTECH Sub-committee; Defined criteria on membership. Kuala Lumpur 1998 Began review of APEC process. Auckland 1999 Adopted nonbinding APEC Principles to Enhance Competition and Regulatory Reform.

aThese are human resources development, industrial science and technology, small and medium enterprises, economic infrastructure, transportation, energy, telecommunication and information technology, tourism, trade and investment data, trade promotion, marine resource conservation, fisheries, and agricultural technology.

Policy Notes 3 No. 2000-18

to such principles as cooperation based on mutual benefit of fact, none of these declarations and joint statements and respect, commitment to open dialogue and consensus- has binding force in international law (Hirano 1996). building, and consultation and exchange of views. The document also formalized the holding of annual ministerial meet- APEC’s institutional structure revolves around annual ings supported by senior officials' meetings and working ministerial meetings chaired by each member on a rotating groups. basis. Supported by the senior officials’ meetings (SOM), a secretariat and several working groups, these ministers Subsequent meetings saw the further definition of a shape the direction and nature of the organization’s activi- number of norms and principles in APEC. After articulating ties. Over the years, these various meetings broadened the their principal objective of “deepening our spirit of commu- range of participation—from the sole involvement of trade nity” at the Blake Island summit and announcing the “Dec- and foreign ministries to include agencies with responsibili- laration of Common Resolve” at Bogor, APEC ministers laid ties for finance, transportation, the environment, science down more specifically a set of fundamental principles in and technology, small and medium enterprises and, lately, trade and investment liberalization and facilitation.1 This was even one for gender issues. followed by the formulation of similar guiding principles gov- erning economic and technical cooperation under the Dec- However, some have observed that APEC’s special- laration on an APEC Framework for Strengthening Economic ized working groups develop largely their own sets of agenda, Cooperation and Development at the Manila meeting.2 In often operate largely in an uncoordinated manner, and act Auckland, members adopted the APEC Principles to Enhance quite independently of the broader APEC process (Rudner Competition and Regulatory Reform, reinforcing their com- 1995; Aggarwal and Morrison 1998). Much of their work mitment to nondiscrimination, comprehensiveness, trans- had been confined to information exchanges, inventories parency and accountability. and surveys, and seminars for officials. In fact, the appar- ent result of this plethora of meetings is duplication, over- However, the emphasis on voluntary and nonbinding lap and over-bureaucratization. The structural concentration principles has given rise to uncertainties on whether APEC of APEC activities under Foreign and Trade agencies of gov- can actually achieve anything substantial other than diplo- ernment also brings about the narrow focus on trade and matic niceties and nice-sounding grand visions. The Osaka trade-related issues. principles, for example, guarantee its members with enough flexibility to depart from their obligations. Thus, Asian mem- Since 1993, the heads of government have become bers pressed for voluntary targets to allow them to decide the ultimate authority to decide on the direction of APEC. for themselves the pace at which they would implement The initiation of APEC summitry helped develop a regular- market-opening measures. Principles such as these unilat- ______eral and nonbinding commitments, though, may actually 1 engender disagreements (Grieco 1998) and indeed, this is The Osaka principles, for example, include comprehensiveness; WTO- consistency; comparability; nondiscrimination; transparency; standstill; one of the reasons behind the failure of the Early Voluntary simultaneous start, continuous process, and differentiated timetables; flex- Sectoral Liberalization (EVSL) scheme. ibility; and cooperation. 2The Manila Framework also identified priority areas of develop- mental cooperation, namely: (1) development of human capital; (2) de- While APEC has come to define some principles and velopment of stable, safe and efficient capital markets, (3) strengthening norms, its organizational set-up is characterized by institu- of economic infrastructure; (4) harnessing of technologies for the future; tional ambiguity. APEC is not a rule-making institution nor is (5) safeguarding of the quality of life through environmentally sound growth; and (6) development and strengthening of the dynamism of small it empowered to issue or enforce directives over its mem- and medium enterprises. bers (Elek 1995).3 The joint ministerial and leaders' state- 3APEC’s only significant venture so far into rule making is the 1994 ments and declarations mentioned are merely statements agreement on Non-Binding Investment Principles (NBIP) which remains of intent rather than legally binding contracts. As a matter voluntary in its implementation.

Policy Notes 4 December 2000

ized means of high-level consultations that build rapport, by the APEC Business Advisory Council (ABAC). mutual trust and confidence in the region. These meetings also provide a significant boost to the otherwise slow pro- On the whole, APEC’s institutional structure ensures cess of economic cooperation that resulted from the minis- that policy determinations are ultimately made at the na- ters’ meetings. Hadi Soesastro (1997) noted the benefits tional level rather than at the supranational level. The cur- of having a “fast-track” political process as differentiated rent institutional form is state-centered where agenda-set- from the “normal” or bureaucratic track of the APEC pro- ting is largely nationally driven. APEC’s role is limited to cess to hasten cooperative initiatives of the association. coordinating independent national decisionmaking processes While strengthening and accelerating agenda-setting in APEC, towards the direction that will facilitate economic coopera- the involvement of leaders also helps resolve the institution. This structural feature recognizes that the diversity of tional tension within APEC among foreign and economic min- member-economies requires special consideration but in- istries (Aggarwal and Morrison 1998). evitably allows the process to go ahead only as fast as the slowest member will allow it. This reflects a low level of However, the rotating mode of leadership impedes trust among APEC’s members and limits the overall effec- institutional continuity and inevitably generates unrealistic tiveness of the organization. expectations for each meeting to produce ‘action plans’ or political deliverables. In fact, much of the leaders’ time is Implications for policy actually conducted in bilateral 'side meetings’. Generally, The 1997-99 Asian financial crisis demonstrates that these bilateral meetings help complement the APEC pro- APEC’s institutions are still rudimentary and ill-equipped to cess but discussions here are on a variety of political and manage region-wide challenges. APEC was conspicuously security issues that are unconnected with the formal APEC absent from any international response measure to the Asian work program. In this sense, the leaders’ meetings occur crisis. During the Vancouver summit, APEC was not prepared more for their value in international diplomacy and domes- to carry out a financial crisis management function and in- tic political terms rather than for trade, investment or devel- stead, relied on the International Monetary Fund to resolve opment cooperation. the problem. The event also revealed the narrowness of APEC’s agenda and the need to include macroeconomic and The leaders and ministers are supported by a small financial concerns as part of its cooperative efforts. permanent secretariat whose function is to coordinate and assist in APEC’s work projects and facilitate the flow of in- Critics have characterized the Asian financial crisis as formation among its members and between the association a “crisis of institutions.” The incident has led to questions and the larger public. Established in 1992 and housed in about the need to strengthen the institutional framework for Singapore, the APEC Secretariat is meant to be small in regional cooperation. Governments across the region have size and simple in structure, composed mainly of personnel come to recognize the necessity of constructing governance seconded from their member governments. structures at the international level to manage their increas- ing economic interdependence and reduce its negative ef- As many have recognized, however, the APEC Secre- fects (Ravenhill 1998). tariat is too small and under-funded. Its functions are limited to cope with the number of activities of the association. The present state of institutions in APEC remains weak The Secretariat is stretched beyond its capacity and does or underdeveloped. There is skepticism on whether its mem- not have the mandate to initiate activities outside of what bers will ever attain such a high level of mutual trust to the APEC ministers require of them. As a result, the Secre- make rules and injunctions unnecessary. More importantly, tariat has come to depend on parallel institutions and quasi- the scope and agenda of said institutions have expanded in APEC bodies such as the Eminent Persons Group (EPG) and such a way that they have entirely outgrown the lean and the Pacific Business Forum (PBF), which was later replaced simple structure. These activities have increased the ad-

Policy Notes 5 No. 2000-18

ministrative demands pressed on the organization. In short, Already, there are calls to strengthen the Secretariat it is difficult to see how economic cooperation under APEC especially in connection with monitoring the implementa- can proceed without a further development of its institution of the Osaka Action Agenda and the Manila Action Plan. tional structure. APEC will benefit from a better-funded and permanently manned secretariat and will ensure better management of Clearly, there is a need for institutional reform review- the plethora of APEC meetings and projects. More funda- ing the organization’s principles, structures and processes. mentally, the mandate of the APEC Secretariat can be broad- Such a process has begun after the APEC Leaders’ Meeting ened to allow it to independently take more policy initia- in Kuala Lumpur. tives.

How should the development of APEC’s institutions Another area is the revisit of the so-called APEC pro- proceed then? cess. APEC’s modality is rooted in the idea of “concerted unilateralism” wherein each member-economy prepares its Some directions to consider own plan to liberalize trade and investment. Each individual APEC is unlikely to transform itself into a trade negoti- plan is then subjected to peer review to help assure compli- ating body similar to the North American Free Trade Area ance in achieving the ultimate goal. The APEC process re- (NAFTA) or the European Union. For one, Association of South- lies on “peer pressure” to ensure members’ adherence to east Asian Nations (ASEAN) officials have taken the posi- their commitments. For example, the peer review process tion that APEC should essentially be a forum for consulta- was utilized when Australia, Brunei, Japan and the Philip- tions and constructive discussions on economic issues and pines voluntarily submitted their individual action plans for that it “should proceed gradually and pragmatically, espe- review. cially as regards its eventual institutional structure.” In this sense, institution-building in APEC will only go so far as its However, while the peer review manner avoids the te- members will allow. dious process of negotiation and ratification, it finds certain difficulties in guaranteeing compliance. Critics argue More likely, the association may develop into a forum that APEC’s core principles of voluntarism and flexibility in where international economic issues may be identified and fact slow the pace of liberalization. Reliance on peer group discussed. Its style of operations will likely be consultative, pressure may not be sufficient to hold governments to their informal and communicative, with issues being handled by commitments. special task forces initiated through high-level consultative mechanism (Rieger 1989; Ostry 1998). Patterned after the There is a need to make the various commitments of Organization for Economic Cooperation and Development the APEC members more binding and definite to ensure their (OECD) model, APEC can become a center for research and relevance. Thus, it may be appropriate to revisit the Osaka information-sharing, imposing few policy constraints on its principles and amend the provision on flexibility. Binding members. Nevertheless, APEC can proceed to strengthen commitments will also require a system that would help some aspects of its institutional framework to make it more resolve disputes when they arise among members. There effective. are proposals for the establishment of a trade dispute-settle- ment procedure, focusing on mediation rather than on final One obvious starting point is the APEC Secretariat. arbitration. The liberalization process depends heavily on an efficient secretariat and a monitoring and adjudication infrastructure. It is also necessary to streamline the APEC process APEC suffers from the absence of a strong central institu- and promote greater coordination among the different APEC tion and lacks a monitoring and evaluating system to hold fora. While there is great political mileage to be gained from governments accountable to their commitments. the annual summit meeting of government leaders around

Policy Notes 6 December 2000 the Pacific Rim, there is also the tendency to sacrifice sub- References stance for public image. The organization could thus benefit Aggarwal, Vinod and Charles Morrison (eds.). 1998. Asia-Pacific cross- from a pause from the pressure generated by high expecta- roads: regime creation and the future of APEC. Macmillan Press. tions prior to each summit which will allow its members Elek, Andrew. 1995. APEC beyond Bogor: an open economic associa- more time to formulate more realistic and tangible targets. tion in the Asian-Pacific region. Asian-Pacific Economic Litera- ture 9 (1).

It is also crucial for the organization to encourage Grieco, Joseph M. 1998. Political-military dynamics and the nesting of regimes: an analysis of APEC, the WTO, and prospects for coop- greater coordination among the different working groups and eration in the Asia Pacific. In Asia-Pacific crossroads: regime cre- meetings. The APEC agenda had inevitably tried to accom- ation and the future of APEC, edited by Vinod Aggarwal and modate the various interests of its members. The result is Charles Morrison. Macmillan Press. overlap, lack of coordination and unnecessary dispersion Higgott, Richard. 1998. The Pacific and beyond: APEC, ASEM and of time and resources over a wide range of issues (Oxley regional economic management. In Economic dynamism in the 1999). Greater coherence between the organization’s goals Asia Pacific, edited by Grahame Thompson. Routledge. and the realistic deliverables should also be guaranteed. Hirano, Akiko. 1996. Legal aspects of the institutionalization of APEC. Working Paper Series No. 6. IDE-APEC Study Center. Summary and conclusion Kahler, Miles. 1995. International institutions and the political economy From the start, APEC has laid stress on informal con- of integration. The Brookings Institution. sensus-building, ad hoc problem-solving diplomacy, confi- Ostry, Sylvia. 1998. APEC and regime creation in the Asia Pacific: the dence-building, elite-bonding, and peer pressure (Higgott OECD model? In Asia-Pacific crossroads: regime creation and the future of APEC, edited by Vinod Aggarwal and Charles Morrison. 1998 and Kahler 1995). This pattern of cooperation dem- Macmillan Press. onstrates a distrust of bureaucratic structures and empha- Oxley, Alan. 1999. APEC: the next ten years. A paper presented at the sizes informality, noninterference in each other’s internal 1999 APEC Study Center Consortium Conference held on 31 affairs, and tacit postponement of conflict-prone issues. May – 2 June in Auckland, New Zealand. Ravenhill, John. 1998. The growth of intergovernmental collaboration But for APEC to function more effectively, there is a in the Asia-Pacific region. In Asia Pacific in the New World, ed- need to bring its institutions to organizational maturity (Oxley ited by Anthony McGrew and Christopher Brook. Routledge. 1999). This requires a rethinking of the very norms, prin- Rieger, Hans Christoph. 1989. Regional economic cooperation in the ciples and processes on which the association is founded. Asia-Pacific region. Asian-Pacific Economic Literature 3 (2). The future of APEC necessitates a further evolution of its Rudner, Martin. 1995. APEC: the challenges of Asia-Pacific Economic organization, particularly in operational rules making and Cooperation. Modern Asian Studies 29 (2). enforcement, management and coordinating function, and Soesastro, Hadi. 1997. Designing mechanism for trade and investment perhaps adjudication of disputes. The further development liberalization in the Asia Pacific. In The new Asia-Pacific order, of its institutions will help secure its objectives and make edited by Chan Heng Chee. Institute of Southeast Asian Studies. APEC more productive.

For further information, please contact APEC is an important political and economic entity. It remains a principal forum for the promotion of free market The Research Information Staff Philippine Institute for Development Studies principles across the region. However, APEC must make NEDA sa Makati Building, 106 Amorsolo Street progress in the development of its institutions and processes Legaspi Village, Makati City to stay relevant in the global economy of the new millen- Telephone Nos: 8924059 and 8935705; Fax Nos: 8939589 and 8161091 nium. 4 E-mail: [email protected]

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Policy Notes