SUNS  4324 Monday 16 November 1998

Tokyo, Nov 12 (IPS/Suvendrini Kakuchi) -- Japan, Asia's largest benefactor, will walk the tight rope between protectionism and faster trade liberalization during the Asia-Pacific Economic Cooperation
(APEC) forum in Malaysia next week.

Japan is resisting pressure from the United States, Australia and other agricultural exporters within APEC to lower its tariffs on forestry and fisheries products as part of an APEC proposal towards faster deregulation.

As a result, it is being accused by Washington of derailing APEC's trade liberalisation plan.

But Japanese officials argue that Japan's seven-year recession has hurt domestic producers in the forestry and fisheries sectors, making it difficult for the government to concede to the US proposal. They point out that bankruptcies in the forestry sector has doubled in the last two decades.

Tokyo says that 40% of its fisheries consumption and 80% of its forestry consumption are dependent on imports. Japan is the U.S.'s largest market for agricultural products.

U.S. economic commentators say they foresee increased protectionism among APEC countries as a result of the economic crisis, thus slowing down the process of turning the Asia-Pacific into a dynamic market economy.

"We consider it inexcusable that Japan, as the second largest economy in the world and the largest economy in Asia, will not participate in this exercise," Deputy U.S. Trade Representative Richard Fisher said last week.

Without Japan's explicit support, it would be difficult to persuade other Asian nations to work towards accelerating trade liberalisation.

Set up in 1989, APEC has set a target of free trade in the region by 2010 for developed economies and 2020 for the rest. APEC members generate about 60 percent of the world's gross domestic product and nearly 50 percent of world trade.

At last year's summit in Vancouver, Canada, APEC leaders agreed to scrap tariffs on lumber by January 2002 and on fishery products by end-2005, and called for faster trade liberalization in industries such as toys, medical equipment and chemicals.

But the recession has forced many APEC countries to change their stance on trade liberalization, which must now be carried out less rapidly because of domestic concerns such as rising unemployment and falling domestic production.

China, Indonesia and Japan want APEC to move away from contentious trade liberalization and focus instead on economic recovery in the region.

ASEAN economic ministers, meeting in Manila in October, called for new incentives to resolve the crisis. Malaysian Trade Minister Rafidah Aziz said after that some of the measures would involve tariffs, duties and taxes which have to be achieved in consultation with one another.

Japanese economist Keiji Omura says APEC's Asian members are committed towards working for free trade but believe that the goal must be achieved according to each country's situation. "The danger is in trying to impose a single standard in APEC which is an organization of different economies. Liberalization standards must be developed on a international basis and not be only American standards," he says.

In September, Malaysian prime minister Mahathir Mohamad brushed aside western concerns, and adopted a fixed exchange rate mechanism to prevent "speculation" against the local currency, the ringgit.

He explained that speculation on the free-trading currency market has destroyed Southeast Asia's economy, rendered many unemployed and caused political turmoil.

Japan insists that because the APEC agreement on tariffs is a nonbinding and voluntary one, it has no power to force implementation. APEC, says Minister for Agriculture, Forestry and Fisheries, Shoichi Nakagawa, follows the fundamental policy of respecting volunteerism (in market liberalization of member economies).

Japan's basic stance is that the World Trade Organisation - not APEC - is the proper venue for tariff and other trade negotiations. Japan has proposed a $30 billion rescue fund for the ailing economies
and has backed efforts to use the APEC summit as a venue to discuss how recovery can be hastened.

Analysts say Asian leaders are no longer as keen as before to adhere to International Monetary Fund (IMF) prescriptions like tight monetary policy to stabilize exchange rates, since they see these measures are impeding rather than helping in recovery efforts.

Unpopular policies offered by the IMF have contributed to growing public unrest in Indonesia further damaging prospects for recovery.

The priority in Asia is to help domestic companies and reduce unemployment, says Omura.

Towards this end, there are policies that call for using Asia's huge savings to lower interest rates and help boost the production capacity of local companies and invigorate growth.

Omura calls for higher Japanese investment into ASEAN countries, which he says will help boost production.

Tran Van Tho, a Vietnamese economics professor at Obirin University in Tokyo notes that Asian countries followed a "Look East" policy in the 1980s that helped them to achieve a certain degree of economic progress.

"Despite the economic downturn in Japan, there is still a looking East because many Asian countries believe that only an economic recovery in Japan will bring in a new wave of dynamism into the region and help them out," he says.