SUNS  4325 Tuesday 17 November 1998

Kuala Lumpur 16 November (Martin Khor) -- Economic Ministers of APEC (Asia Pacific Economic Cooperation) concluded their two-day meeting here last night after failing to reach agreement on an accelerated trade liberalisation plan involving nine sectors.

This is widely seen as a setback for APEC's liberalisation momentum which has been stalled by the Asian region's financial crisis and economic recession.

The Ministers however decided to transfer their negotiations on tariff cuts in the nine sectors to the World Trade Organisation. The WTO process would start "immediately," with an endeavour to conclude agreement in the WTO in 1999.
US Trade Representative Charlene Barshefsky said the same approach used with the Information Technology Agreement (which had first been discussed at APEC in November 1996 and then successfully pushed by the US a few weeks later at the Singapore WTO Ministerial Conference) would be applied to the nine sectors.

[However, after the experience at the Singapore WTO ministerial, where the information technology sectoral tariff negotiations was pushed into the agenda by the US and EC, and zero-tariff accords were reached on this (and on white spirits to meet EC's demands) but with no tariff reductions in other sectors of interest to others, developing country WTO members have become more wary.

[The WTO 'agenda' and time-table for further trade liberalisation is to  be set by the preparatory process for the 3rd Ministerial meeting in 1999 (in the USA), and any possible negotiations, thereafter. While the US has been pushing in the WTO, sectoral industrial tariff cuts, and separate further 'reforms' in agriculture, many other trading partners, including the EC and many Third World nations, have not been favourable to sectoral tariff negotiations and cuts.]

The Trade Ministers of the 21 APEC countries were meeting prior to the Summit-level annual meeting of heads of government on 17-18 November.

The leaders will find it difficult to focus on APEC's original liberalisation agenda as the main economic preoccupation of most of its members is the disruption caused by the financial crisis.

Moreover the Summit could be overshadowed by current political events such as the Iraq crisis (which has caused US President Bill Clinton to cancel his participation at the last minute), the riots in Indonesia, and the jailing and trial of former Malaysian deputy premier Anwar Ibrahim.

The Economic Ministers' meeting was supposed to have finalised a plan known as "early voluntary sector liberalisation" (EVSL) involving tariff cuts, market opening, trade facilitation and technical
cooperation in nine sectors (environmental goods and services; fish and fish products; forest products; medical equipment and instruments; telecommunications mutual recognition arrangement; energy sector; toys; gems and jewellery; chemicals).

The EVSL was initiated at the APEC Leaders meeting at Vancouver last year, to accelerate liberalisation before APEC's free-trade goal of 2010 for developed countries and 2020 for developing countries.

In June, the Trade Ministers had worked further on EVSL, with end dates and rates of tariff reduction for the nine sectors. They decided that the final agreements in each sector would be considered at this meeting, with implementation to start in 1999. Work on another six sectors would begin later.

However there was failure to conclude an agreement, firstly at the senior officials' meeting last week and now at the level of Ministers.

US officials had been vocal in blaming Japan for refusing to cut tariffs in forest and fish products. Japan in turn has cited its recession and growing unemployment as the reason for not being able to
liberalise.

Developing countries, led by Malaysia, have stressed that EVSL is a voluntary process for early liberalisation and thus APEC members should not be pressurised to make commitments that could cause them problems.

In a joint Ministerial Statement at the end of the meeting, the Ministers agreed that APEC economies may implement immediately the tariff commitments (on the nine sectors) on a voluntary basis.

They also agreed "to improve and build on this progress in 1999  by broadening the participation in the tariff element beyond APEC."  In this regard, "the WTO process would be initiated immediately on the basis of the framework developed in Kuching" (i.e. the previous Ministerial meeting in June) and having regard to flexibility approaches, and "endeavouring to conclude agreement in the WTO in 1999."

The Ministers also agreed to work constructively "to achieve critical mass in the WTO necessary for concluding agreement in all nine sectors."

US Trade Representative Charlene Barshefsky, in a separate upbeat statement, said the agreement reaffirms APEC's leadership role in shaping the global trade agenda.

"We agreed to strive to conclude an agreement in the WTO by the end of 1999 on this nine sector package," she said. "We have successfully applied the approach we employed with the Information Technology Agreement and expanded it to cover these nine sectors.

"That is, we will use APEC support for this package to foster the conclusion of a binding WTO agreement. To APEC's credit, this sectoral initiative was created within APEC, and we have concluded much more of the specific work on product coverage, and the time frames and other
arrangements for tariff cutting (in most cases eliminating tariffs) in these sectors than in the ITA."

She added that work on six other sectors would also begin, in particular in respect of autos where a forum for addressing regional trade and investment issues would be launched immediately.

At a dinner talk last night, Barshefsky elaborated that the Ministers had agreed to proceed with the EVSL on two tracks. Those countries that can proceed with tariff cuts would start in January 1999, whilst all 16 countries involved with EVSL would continue the process by bringing the package to the WTO so that it can be broadened, in 1999.

(Only 16 of APEC's 21 members are involved in EVSL: Mexico and Chile were given the option not to participate whilst the newly admitted countries, i.e. Russia, Vietnam and Peru are also exempt).

The US tactic is thus quite apparent: to make use of APEC to get member countries to pledge commitments for early liberalisation in several sectors on a voluntary non-binding basis, and then transfer these commitments to the WTO, thus upgrading them to a legally binding basis and at the same time creating a "critical mass" in the WTO to get non-APEC countries to also join in.

This tactic seems to be at sharp variance with the approach of many other APEC members which had entered the EVSL process in the belief that it was flexible and voluntary, where the pace of liberalisation would be chosen by each member according to its conditions and capacity.

At a dinner talk last night, the Japanese Trade Minister Kaoru Yosano, stressed many times the "voluntary" nature of EVSL.

Malaysia's Trade Minister Rafidah Aziz (who chaired the Ministerial meeting) said that by its name the EVSL was voluntary and there should be no force to ask economies to move faster than they can afford.

Malaysian Prime Minister Mahathir Mohamad, who will chair the Summit starting Wednesday, when asked his view of how the EVSL should operate, replied: "The most important thing is that this is voluntary. Early, voluntary. Those two words are very important.

"It means that you must make the decision yourself, if you are ready. If you are not ready, you can wait until the time comes for you to make the decision. But to say that because there is early voluntary liberalisation, therefore you must agree now, that is wrong. You can do it at your own pace depending on your country's situation," Dr. Mahathir added.

In contrast, one US official was quoted in The Star (a Malaysian daily) as saying the advanced economies feared that unless there was a push for everyone to liberalise on time, economies would use the voluntary aspect as an excuse not to open their markets.
That, he said, was abuse. "To prevent abuse, you must have commitments and fulfil your obligations. If everyone can withdraw from cutting tariffs, the entire freer trade plan would collapse."

The opposing views on how the liberalisation process should be carried out in APEC -- on a voluntary basis at a pace chosen by each member, or on a obligatory and binding basis with pressure put on every member to liberalise quickly -- lies at the heart of the continuing debate on
what APEC is all about.