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Friday, 6 April, 2001, 07:22 GMT 08:22 UK
Apec's free trade struggle
President Clinton said the next century would be the Pacific century
President Clinton said the next century would be the Pacific century
The Asia-Pacific Economic Cooperation forum was set up as an attempt to forge a free trade pact in the Pacific - but so far that goal has proved elusive.

It was to be based on voluntary cooperation, rather than the binding agreements of the World Trade Organisation. The idea was to link the world's biggest exporters in Asia with the world's biggest importer - the United States.

However, the diverse nature of its membership - which includes developed countries like Japan along with developing countries like China, Indonesia and Singapore - meant that progress towards trade liberalisation has been slower than hoped.

And the Asian crisis of 1997-98, when many Asian countries devalued their currencies in the face of a financial crisis, has also increased tensions in the region.

But Apec is still potentially a huge trade bloc, making up half the world's GDP and 43% of its trade.

But the dynamic economic growth in the region has slowed, weakening the impetus to implement a trade agreement.

Voluntary codes

Apec had its origin in the fears of the big exporting nations of Asia that they might be at a disadvantage, as the world formed into trade blocs, such as the European Union and Nafta.

In particular, South Korea and Taiwan, two big trading nations with fast-expanding exports, wanted to ensure that they could participate in regional trade liberalisation.

In 1989, they joined forces with the ASEAN countries of South-east Asia - who were already trying to form a regional free-trade pact - as well as Australia, USA, Canada and Japan.

A key element in the early development of Apec was the fact that the rival regimes of China, Taiwan and Hong Kong (which was still a British colony) all joined in 1991.

As Apec become more successful, a number of other countries, especially in Latin America, sought membership, as did Russia which was admitted in 1998.
Hong Kong skyline
Both Hong Kong and China joined Apec in 1991

A formal secretariat was established in Singapore in 1991, and Apec began organising a series of yearly meetings which culminate in a heads-of-state summit each autumn.

Apec now has 21 members, namely Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, South Korea, Malaysia,Mexico, New Zealand, Papua New Guinea, Peru, Philippines, Russia, Singapore, Taiwan, Thailand, United States, and Vietnam.

Boost by Clinton

Apec was initially seen as just a talking shop for trade ministers.

But it was given a boost by the new US President Bill Clinton in 1993 when he invited Apec heads of state to meet him in Washington state.

He proclaimed that the next century would be the Pacific century, and that US had a vital interest in the development of free trade and democracy in the Apec region.

The next year, Apec agreed a goal of creating an open trading system in the Pacific, with a target of 2010 for full trade liberalisation by the rich countries, and 2020 for its developing countries.

In 1997, Apec agreed a plan to liberalise trade in 15 key sectors, including chemicals, fish, forest products, gems, medical equipment, and toys.

Asian crisis

But already the trade liberalisation agenda was under threat from the Asian crisis, which led to open disagreement between the Apec's two largest economies, the USA and Japan.

As the currencies of most of Apec's members faced dramatic devaluation's, differences emerged over how to deal with the crisis.

Japan wanted to set up a yen-based rescue fund to bail out the South-east Asian economies that it was closely linked to, administered through Apec or on a regional basis.

The United States, however, was strongly opposed to what was seen as early steps towards the creation of a "yen bloc".

Instead, it favoured bilateral, country-by-country negotiations with the IMF for rescue packages, accompanied by further liberalisation of the financial sector in Apec countries.

In the end, the US view prevailed - but the heavy-handed nature of some of the IMF rescue packages, and the continuing economic weaknesses of some Apec members, have slowed progress towards voluntary trade liberalisation.

China's challenge

Now the biggest challenge faced by Apec is the rapid rise in the economic power of China, which is in the process of joining the World Trade Organisation.

Apec is holding its annual summit in Shanghai this year in recognition of China's new place in the world economic order.

But increased tensions between the US and China are making life in Apec more difficult.

As well as the tensions over military matters, the US is growing increasingly sceptical that China will end its subsidies to its state-run industries, as provided for by the WTO agreement.

And China wants an expanded role in the region, challenging Japan as its economic leader and offering trade deals and financial support to other Apec countries.

Meanwhile, sub-regional trade blocs - for example, in the ASEAN countries of South-east Asia - are growing, as countries try to end their dependence on Japan.

The recession in the United States has increased protectionist pressures - and the Bush administration is moving towards a free trade pact in the Americas.

So as the new century begins, the vision of an integrated Pacific trade zone seems to be more of a pipe-dream than a reality.

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