Toward free trade and investment in the Asia-Pacific.

The Asia-Pacific region stands at the beginning of what promises to be a long and rewarding march toward free trade and investment. The successful November 1994 meeting of the Asia-Pacific Economic Cooperation (APEC) forum at Bogor, Indonesia, launched the process of regional integration. Eventually this process should yield a rich harvest of liberalization.

We first summarize the Bogor vision. We then assess Asian partiality toward "do-it-yourself" liberalization, and evaluate the "toe-in-the-water" negotiations initiated by the APEC member countries. Next we speculate on the durability of the APEC process. We conclude with a discussion of the implications of APEC developments for the new World Trade Organization (WTO).

The Bogor Vision

At Bogor the grand vision of free trade was proclaimed and endorsed by 18 APEC presidents and prime ministers. The APEC leaders committed their countries to achieving "the long-term goal of free trade and investment" in the Asia-Pacific region by the year 2010 for industrialized economies and by 2020 for developing economies. The Bogor Declaration does not spell out detailed steps by which to achieve that goal; instead, much of the ongoing work of the various APEC meetings in 1995 will be devoted to formulating a plan of action. In this sense, the APEC approach is very Asian with its broad consensus style, and very unlike North American and European regional pacts with their detailed liberalization schedules.(1)

The Bogor Declaration is silent as to which countries are committed to the earlier target date, but that group obviously encompasses the United States, Japan, Australia, New Zealand, and Canada. Singapore and Taiwan also have volunteered to meet the 2010 target. Within the next decade, two other "tigers," Korea and Hong Kong, are likely to be counted among the industrialized economies. Together, these countries produce more than 80 percent of the current aggregate gross domestic product of the APEC region.

The big question is the status of China in the year 2010. Some parts of China, notably Hong Kong, Guangzhou, and Shanghai, will clearly be industrial areas in 2010. Other parts of China will not; nevertheless, most APEC members will be reluctant to give the industrial parts of China an extra 10 years to liberalize. Conceivably, by the year 2010, China will see its own interests as best served by embracing free trade and investment.

In terms of historical comparisons, the Asia-Pacific countries in 1995 are approximately where the European states were in 1950 when their leaders laid out a vision of economic unification. Similar landmark moments of visionary anticipation can be found in the history of other regional pacts - the Association of Southeast Asian Nations (ASEAN), the Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA), the U.S.-Canada Free Trade Agreement, the North American Free Trade Agreement (NAFTA), and the Mercado Comun del Sur (Mercosur).

Typically, once the founding fathers had announced a vision, many missteps interrupted the march toward free trade and investment. After the Treaty of Rome was signed in 1957, Europe alternated between phases of Europessimism, when nothing seemed possible, and Europtimism, when all barriers could be swept away. Similar mood swings have already gripped NAFTA, from the halcyon days of 1994, when everything went well in the Mexican economy, to the peso crisis of December 1994, when everything went sour.

Roller-coaster moods are almost inevitable in the Asia-Pacific context. Political turmoil in China, speculative booms and busts in stock exchanges, violent exchange rate swings, trade imbalances, and commercial frictions will all put strains on the APEC group.

Proponents of APEC free trade and investment would do well to ponder the ill-fated Latin American Free Trade Area (LAFTA). As with APEC, the LAFTA rhetoric was grand, the geographic and cultural distances were vast, and it was hard to agree on concrete steps. There is, however, a big difference between LAFTA and APEC: APEC is constructed on a solid foundation of market economics, whereas LAFTA was erected on the shaky stilts of statism. Moreover, LAFTA members generally pursued import-substitution strategies that led them to compete rather than cooperate with their integration partners. By contrast, Asian countries pioneered the strategy of …