EPARTMENT OF THE PARLIAMENTARY LIBRARY ISSN 1321-1560 Copyright Commonwealth of Australia 1995 Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means including information storage and retrieval system, without the prior written consent of the Department of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties. Published by the Department of the Parliamentary Library, 1995 The author wishes to thank Pru Gordon and Stephen Sherlock of the Parliamentary Research Service for their helpful comments on a draft of this paper Further copies of this publication may be purchased from the Publications Distribution Officer Telephone: (06) 277 271 1 A full list of current parliamentary Research Service publications is available on the ISR database A quarterly update of PRS publications may be obtained from the PRS Publications Office Telephone: (06) 277 2760 es 1 own Payment' on Trade Liberalisation 7 The 'Comprehensiveness' Issue 7 Comparability and Consultations 8 eyo 'Open regionalism' or 'preferential trade area'? 9 ~e~bers~ip 10 Dispute Mediation 10 The Role of Development Cooperation 11 eveloped' and 'Developing Economies' 11 er ics, 1 A ix APEC and the Osaka Summit The eighteen members of the Asia Pacific Economic Cooperation (APEC) group meet in Osaka from 16-19 November. APEC was established in 1989, largely at Australia's initiative, as a response to widespread perceptions that the rapidly growing trade and investment in the Asia Pacific region called for greater cooperation among the major regional economies. APEC has been able to identie many areas in which impediments and barriers to trade and investment could be reduced or removed. APEC is seeking to develop a new kind of regional group which builds cooperation while avoiding complex or expensive bureaucratic structures. APEC has brought together annually senior economics ministers and, since 1993, the members' heads of government to establish its goals and guide progress. At the second APEC leaders' meeting in Bogor (November 1994) the members declared their commitment to achieve free trade and investment between members by 2010 (for the developed economies) and 2020 (for the developing economies). The Osaka meetings will focus attention on APEC's capacity to develop concrete proposals and plans for the realisation of this goal. At Osaka APEC faces several immediate challenges. APEC members need to take a credible first step to begin to implement the Bogor commitment: this should involve a series of liberalisation offers by members. Members also need to deal with some contentious issues which have attracted controversy in the lead up to Osaka. These include the question of whether APEC is to pursue trade liberalisation on a comprehensive basis or whether certain sectors (notably agriculture) may be given special consideration or temporary exemption, and the issue of how to establish procedures that will ensure that all members share equally in both the benefits and the costs of the liberalisation process. Beyond Osaka, APEC also faces some important medium term challenges including differences in emphasis among members on whether the benefits of its liberalisation should be extended openly to other economies or on a preferential basis, the need to handle demands for entry by potential new members while keeping the group cohesive, and the long term need to be able to agree on which members will be required as 'developed economies' to complete their liberalisation of trade and investment by 2010 while the remaining 'developing economy' members implement this goal by the later agreed date of 2020. Australia, as a founder member of APEC with a strong orientation towards the Asia Pacific economies, has a major interest in the outcome of the Osaka meetings. The Australian 1 APEC and the Osaka Summit government values APEC not only for the concrete economic benefits its cooperation measures can bring but also because it sees APEC as making a valuable contribution towards major power relationships and regional security in the post Cold War era in the Asia Pacific. The paper concludes by arguing that while APEC has been successful so far in gaining a solid start as a new kind of regional economic association, it needs more time to work on the areas of existing and potential accord among its diverse membership. Securing the members' agreement on an agenda which will give APEC this time is perhaps the most important challenge for the Osaka meetings. 11 APEC and the Osaka Summit I The meeting of the eighteen members of the Asia Pacific Economic Cooperation (APEC) group in Osaka from 16-19 November will be a further important stage in APEC's efforts to consolidate its identity and role. The meetings will include discussions by senior ministers and a third informal 'summit' of the member econonics' heads of government. At the last APEC leaders meeting in Bogor (November 1994), the members declared their commitment to achieve free trade and investment between member economies by 20 10 (for the developed economies) and 2020 (for the developing economies). The Osaka meetings will focus attention on APEC's capacity to develop concrete proposals and plans for the realisation of this goal. APEC has continued to attract support as the premier grouping of Asia Pacific economies and there are strong incentives for members to maintain the group's cohesion. APEC nonetheless faces some substantial challenges at Osaka. There have been some notable recent bilateral tensions in trade relations between prominent APEC members (particularly between the United States and both Japan and China). There has been controversy in the lead up to the Osaka meetings over several aspects of the agenda, particularly the sensitive issue of protection of agriculture and the need for this to be dealt with in APEC's trade liberalisation programs. The Osaka meetings also will focus attention on Japan and its capacity to play a leadership role in Asia Pacific economic dialogue and to help maintain a sense of community and common interest among the major Asia Pacific economies. As a leading proponent and founder member of APEC, Australia has a strong interest in the success of the Osaka meetings. Australia sees APEC as a focus both for achieving concrete progress in removing barriers to trade and for encouraging cooperation between the United States and its major economic partners in the region, especially Japan and China, at a time when the US has experienced bilateral tensions with both. A successfully developing APEC also gives Australia a direct role in regional dialogue with our most important trading partners. This paper reviews APEC's evolution since 1989, discussions in the lead up to the Osaka meetings, the immediate and longer term challenges and problems facing APEC as it seeks to implement its Bogor commitments, and Australia's approach to the Osaka meetings. 1 APEC and the Osaka Summit APEC was initiated in 1989 to help protect and advance the striking pattern of economic growth already underway in the Asia Pacific region. The APEC region has a population of some 2.2 billion people and a total GDP of about $US 14.6 trillion, or almost half of world output. The Economist Intelligence Unit has estimated that of the 16 APEC economies it surveys, half are expected to grow at annual rates exceeding 5 percent up to 1999. APEC's share of world trade has risen from 36.2 percent in 1980 to over 45 percent in 1994, largely as a result of East Asia's strong export performance. In the five years to 1994, APEC exports grew at a trend rate of 9.6 percent annually, compared to total world exports which have increased at an annual rate of 5 percent. Much of this growth in trade has occurred between APEC members themselves, especially among the East Asian economies. This continuing economic growth is expected to lead to the APEC group's inclusion of seven of the world's ten largest economies by the year 2020, compared with only three (the US, Japan and China) today.' This pattern of growth has been driven by the business sector and by unilateral reforms by regional states with relatively little assistance from formal inter-governmental structures in the Asia Pacific region. Indeed some of the most notable economic relationships have developed without any accompanying political framework, as in the case of China and Taiwan. Nonetheless, there are clearly a large number of impediments to the development of trade and investment in the Asia Pacific region which could be reduced by concerted cooperative action. It was this realisation which was the impetus for the development of APEC. After years of debate on the need for cooperation in the Asia Pacific, APEC was inaugurated in January 1989 at the initiative of Prime Minister Hawke and the first meeting of 12 economies was held in. Canberra in November 1989. In 1991 at APEC's third meeting in Seoul, the Republic of Korea was able to negotiate the entry of China, Hong Kong and Taiwan, in 1993 Mexico and Papua New Guinea joined and at the Seattle meetings in 1993 Chile was accepted, joining in November 1994 and bringing the membership to its present level of eighteen (for a list see Appendix A) APEC has been seeking to establish a character and role different from those of other regional and international groupings concerned with economic and trade cooperation. Unlike the European Union it has not been conceived as a preferential free trade area and has no ambitions to establish elaborate supra-national institutions. Unlike ASEAN, APEC is seeking to bring together both developing and industrialised states of widely varying size in both Asia and the Americas.