APEC to Consider the Feasibility of a Free Trade Area in the Asia Pacific
The Ministers released a joint statement reiterating a firm commitment to economic integration in the Asia-Pacific region in this period of rapid economic development: "We share the APEC Business Advisory Council's (ABAC) views that...it would...be timely for APEC to seriously consider more effective avenues towards trade and investment liberalization in the Asia-Pacific region. Therefore...we instructed Officials to undertake further studies on ways and means to promote regional economic integration, including a Free Trade Area of the Asia-Pacific as a long-term prospect."
The decision for APEC Leaders to consider a FTAAP is significant, reflecting APEC's willingness to respond to the growing frustration that business leaders have voiced over the multitude of RTAs/FTAs in the region. The decision also indicates growing concern at the potential for success at the next Doha Round.
ABAC has long called for APEC to establish a high level task force to examine the potential of a FTAAP. In 2006, ABAC asked the Pacific Economic Cooperation Council (PECC) to join them in conducting a feasibility study for a proposed FTAAP. This study was discussed at the APEC Ministerial Meeting in Ha Noi.
The benefits of a FTAAP proceed from the problems of RTAs/FTAs. At present, between 35-40 RTAs/FTAs are operating or are under negotiation in the Asia-Pacific region. This unwieldy proliferation of specific agreements, economy by economy, is a key motivation for, as US Secretary of State Condoleeza Rice puts it, the "desire for the network of trade to become better integrated and rationalized." Addressing the APEC CEO Summit meeting in Ha Noi, Ms. Rice spoke in favor of regional economic integration, including the possibility of a Free Trade Area in the Asia-Pacific region.
The plethora of bilateral and regional trade agreements in the APEC region is commonly referred to as the "noodle bowl" of agreements, invoking the image of intersecting, overlapping-and potentially confusing-trade arrangements that economies make with one another. Such arrangements, which allow economies to carefully control each trade relationship, make sense from a political standpoint. But from a business standpoint, they do not. The high degree of heterogeneity among concluded agreements forms the basis for ABAC's support of a FTAAP. In ABAC's annual report of recommendations, they point out that the sheer number of treaties increases the complexity, the cost, and the administrative burdens of doing business in the region.
Yet the very proliferation of RTAs/FTAs underscores the varied nature of economies in the region and reflects the need economies have to exercise some measure of control over their trade negotiations. The ABAC-PECC study emphasizes the varying strategic approaches economies use in negotiating RTAs/FTAs. Chile and Singapore, for example, prefer comprehensive agreements. Peru and Japan, in contrast, do not. North American economies prefer a comprehensive platform, while some Asian economies prefer a "piece meal" approach to their agreements. Because of these differences in approach, there is some concern that an effort to push forward a FTAAP may divide, rather than unify, APEC economies.
However, the study also indicates that sub-regionalism offers potential benefits to a future free trade environment. Economies might use the bilateral process as a "laboratory" by which to experiment with trade liberalization, and to refine the negotiation process itself. Positive experiences in sub-regional agreements may have a positive impact on future negotiations.
ABAC argues that a FTAAP offers the highest potential for regional convergence. Yet it is widely agreed that a lack of political will for a FTAAP is its key obstacle. While the ABAC-PECC study underscores that there are risks in "doing nothing," i.e., continued proliferation of RTAs/FTAs, the study acknowledges there are serious risks in failure: "Given the tremendous time and political commitment that APEC economies would have to make to conclude a successful FTAAP...it could be argued that an effort that is doomed to failure from the start would only add to the woes of the world and regional trade system.... It could also result in 'community destroying' rather than community-building."
Further, the report notes that some ASEAN economies are ill-prepared to enter an undertaking of the magnitude of the FTAAP. The example of the proposed Free Trade Agreement of the Americas (FTAA) is instructive, as the decision to stretch negotiations over a ten-year time frame while capacity was being built jeopardized political commitment to the agreement. Given the comparatively wider range of political and economic interests in the Asia-Pacific region, and the similar needs for capacity building, the challenges of negotiating a FTAAP are numerous.
Finally, the very economic success of the APEC region calls into question the rationale for the proposal. As the ABAC-PECC study points out: "in fact, regional trade and economic growth is continuing without a FTAAP." The Asia-Pacific is, as the Prime Minister of Australia, John Howard, underscored in his address to the APEC CEO Summit, "the most dynamic, fast-growing, and vital economic region in the world, and will remain so."
APEC Leaders are faced with their own "noodle bowl" of objectives: keeping APEC on track to achieve the Bogor Goals; successfully concluding the DDA negotiations; finding new ways to support multilateral trade and mechanisms for regional integration. The question is whether or not a FTAAP is the vehicle for future economic growth for Asia-Pacific.