A revised version appears as: “APEC and Trade Liberalization after Seattle: Transregionalism without a Cause? In Maria Weber, ed., Reforming Economic Systems in Asia: A Comparative Analysis of China, Japan, South Korea, Malaysia and Thailand (Cheltenham: Elgar), 2001. APEC AND TRADE LIBERALIZATION AFTER SEATTLE: TRANSREGIONALISM WITHOUT A CAUSE? Vinod K. Aggarwal Director and Professor Berkeley APEC Study Center 802 Barrows Hall #1970 University of California Berkeley, CA 94720-1970 Email: [email protected] January 2001 This chapter was prepared for an ISPI, Milan, Italy, project on “L'Asia dopo la Crisi,” led by Maria Weber. I would particularly like to thank Justin Kolbeck for his extensive research assistance. Lily Bradley, Min Gyo Koo, and Seungjoo Lee also provided research assistance and comments on this chapter.1APEC AND TRADE LIBERALIZATION AFTER SEATTLE: TRANSREGIONALISM WITHOUT A CAUSE? The eruption of protests in the streets of Seattle in November 1999 against the Millenium Round of the World Trade Organization (WTO) marked the peak of anti-globalization fervor. Protesters claimed the WTO is insensitive to the negative externalities produced by free trade on the environment and U.S. labor, and criticized its lack of transparency. While there is considerable debate about the root of the WTO’s problems in Seattle,1 there is no doubt that the multilateral trading system faces severe challenges. Meanwhile, across the globe in Asia, the Asia Pacific Economic Cooperation forum (APEC) was still picking up the pieces left from the Asian crisis of 1997-8. Because APEC and the WTO both pursue free trade, among other goals, and are seen by their members to be inextricably and purposefully linked, we might have expected to see APEC respond to some of the criticisms leveled at the WTO. Indeed, in 1993, APEC proved to be the beneficiary of the impasse in the GATT Uruguay Round, and was invigorated with the creation of annual leaders’ meeting. How has APEC responded to the pressures felt in Seattle? What progress, if any, has it made toward its trade goals in the wake of the Asian crisis, the Seattle debacle, and antiglobalization sentiments? Has APEC benefited from the WTO’s problems or has it been unable to step into the vacuum of trade liberalization at the multilateral level? Finally, has APEC continued to prove its usefulness as a transregional trade organization, or is it being institutionally squeezed, both from above and below? It is worth noting that although APEC has purported to be a forum for discussion on a host of issues, including 1 See Aggarwal and Ravenhill (2001).2finance, investment, the environment, women’s rights, security, and the like, its original impetus has come from a desire to move forward with trade liberalization. APEC’s role in these other areas is an important topic,2 but my focus in this chapter is on an examination of APEC in the trading system. Hence, I consider APEC’s work in other areas only insofar as it bears directly on trade issues. This chapter is organized as follows. Section I provides a conceptual analytical framework on modes of trade liberalization, focusing on alternative paths that might be pursued in the Asia Pacific, including unilateral liberalization, bilateral accords, minilateralism, and multilateralism, and also considering the dimensions of geographical propinquity and sectoralism vs. multiproduct coverage. Next, Section II briefly examines APEC’s role in trade liberalization and then considers how APEC has fared over the past year. Section III then turns to consideration of APEC’s role in other areas that might affect its role as a trade forum, focusing on finance, technology, and the environment. Section IV then considers how APEC has addressed the issue of nesting, both with respect to APEC within the WTO and for arrangements within APEC such as the North American Free Trade Agreement (NAFTA), ASEAN Free Trade Agreement (AFTA), and Closer Economic Relations (CER) between Australia and New Zealand. In this context, a key question concerns the evolution of other approaches to trade liberalization in the Asia Pacific as possible complements or alternatives to APEC. In concluding, the chapter assesses APEC’s current status, evaluates some scenarios, and then proposes some ideas to strengthen its role and contribution to the international trading system. 2See Aggarwal (2000a) and Aggarwal and Lin (in press) for a discussion of APEC’s efforts in other issue areas.3 I. MODES OF TRADE MANAGEMENT: AN ANALYTICAL CONSTRUCT Over the last fifty years, states have utilized a host of measures to regulate trade flows. In terms of bargaining approaches, these include unilateral, bilateral, minilateral, and multilateral strategies; in terms of product coverage, the range has been narrow in scope (a few products), or quite broad (multiproduct). In addition, some arrangements tend to be focused geographically, while others bind states across long distance. It is worth noting that this category is quite subjective, since simple distance is hardly the only relevant factor in defining a “geographic region.” But despite conceptual difficulties, this would appear to be a useful category. Finally, these measures have been either market closing or market opening. One can array the resulting options in the following table, focusing only on the first three dimensions of bargaining approaches, products, and geography to simplify our presentation.3 The cells include generic types or specific examples of modes of governance. TABLE 1 HERE In brief, the top row (cells 1-6) refer to different forms of sectoralism. Cell 1 includes such important measures as U.S. use of Super 301 against various countries, as well as specific market opening or restrictions in particular products. In cell 2, we have agreements in specific products such as the U.S.-Canada auto agreement. Cell 3 refers to bilateral agreements that are geographically dispersed, which could include Voluntary Export Restraints or bilateral market opening agreements such as the U.S.-Japan semiconductor agreement. In cells 4 and 5, we have product specific sectoral agreements, with the first of these being geographically concentrated that focus on only a few products. There are few examples of arrangements such as the European Coal and Steel4Community as in cell 4 because such agreements are inconsistent with Article