[VIEWPOINT]New chance to open markets

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[VIEWPOINT]New chance to open markets

As is well known, Korea will be host to the 2005 meeting of the heads of state of the APEC countries. This will give Korea an opportunity to take a major historic initiative. It should bring to fruition the main goal of the APEC Bogor Declaration of 1994, free trade in the Asia-Pacific region by 2020 for developing nations and by 2010 for developed nations.
The Bogor Declaration, alas, proved to be ahead of its time. Although calling for free trade, this declaration contained no effective mechanism by which to achieve this lofty and worthwhile goal. Rather, countries were expected to adopt unilateral free trade policies, not a realistic expectation even if economists argue that free trade is in a country’s unilateral best interest. In the absence of unilateral move to free trade, the Bogor goal would have required difficult negotiations among the APEC nations. In 1994 there was no appetite for these, perhaps because of “negotiating fatigue” brought on by the final stages of the Uruguay Round, which was successfully concluded and led to the formation of the WTO. Thus, in fact, in the years following the Bogor APEC Summit, the APEC became somewhat moribund, and especially so after the Financial Crisis of 1997. No follow-up to the Bogor Declaration was achieved.
But 2005 could easily prove to be a propitious time to revive APEC. A main reason is that negotiation on trade issues has come back into vogue. In particular, throughout the Asia-Pacific region, there have been negotiations in recent years, or negotiations are in process or anticipated, as well as a series of bilateral free trade talks involving APEC member nations. Thus, for example, such agreements have been concluded between Japan and Singapore, between Singapore and the United States, between Australia and the United States, and Chile and a number of countries, including Korea. Korea itself is negotiating further agreements with Japan, the ASEAN countries as a group, and Singapore separately. Korea also contemplates future negotiations with Canada, China, Mexico, and the United States. All of these nations are members of APEC, and more such agreements are envisaged throughout the APEC region.
Bilateral and “small” regional agreements can be problematic from both legal and economic points of view. The legal problem is that different agreements establish somewhat different rules, such that inconsistencies in rules, even minor ones, can lead to legalistic problems that have the potential to reduce trade flows and enrich trade lawyers, neither a desirable outcome. The economic problem is one of benefit-reducing “trade diversion,” a problem well-discussed in international economic textbooks.
Given this, to implement the Bogor Declaration by creating an APEC-wide free trade area would be preferable to a multitude of bilateral and small regional agreements, even if these agreements were eventually to extend to all APEC nations. An APEC free trade agreement would ultimately be far easier to implement and monitor than a series of bilateral agreements and would produce a superior economic result, given that an APEC-wide agreement would minimize the distorting effects of trade diversion (and, if as would be desirable the APEC agreement covered direct investment, even more damaging investment diversion).
Moreover, an APEC agreement would almost surely be better for Korea than a series of bilateral agreements. This is because, in most of its bilateral negotiations (China, Japan, the United States), Korea is the smaller partner and hence in the weaker bargaining position. In a larger, multilateral context, Korea’s position is strengthened because Korea can play the larger nations off one another.
Korea has already shown leadership in the APEC, especially at the 1989 Ministerial Meeting that Korea hosted where it proposed, and saw implemented, what is known as the “three China” representation at APEC meetings. Korea could, at the 2005 APEC Summit, play an even bigger leadership role by taking the initiative needed to make free trade in the APEC an ultimate reality. A concrete first step in this direction would be to appoint a group of international experts to study this issue and to make recommendations to the Summit meeting as to how to proceed with such a monumental task as doing the negotiations necessary to make the Bogor Declaration a reality. In this matter, the Bogor Declaration itself was essentially the product of such a group of experts, the APEC “Eminent Persons Group,” chaired by the dynamic Fred Bergsten and who gave the national leaders the vision needed to produce their far-sighted recommendations.
Such a group could again play a vital catalyzing role, this time to produce a practical plan for achieving the goal set out at Bogor. Just by establishing the vision to move ahead in this way could prove to be a great contribution of Korea to the world order. But, of course, an even bigger contribution would be to follow through and see the APEC evolve into a true free trade area.

* The writer is a senior fellow at the Institute for International Economics in Washington, D.C.

by Edward M. Graham
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