The 2003 APEC Bangkok meetings and President Bush's East Asia visit

Introduction

The Asia Pacific Economic Cooperation (APEC) grouping will hold meetings in Bangkok from 17 October, including the eleventh annual Economic Leaders Meeting on 20-21 October. President George W. Bush will attend the Leaders Meeting and is also visiting Indonesia, Japan, the Philippines, Singapore and Australia. This brief introduces the APEC meetings and major issues likely to arise during President Bush’s East Asia visit.

APEC since 1989

The Asia Pacific Economic Cooperation group was inaugurated at a meeting of representatives of twelve economies in Canberra in November 1989. The group has since expanded to its current level of 21 members: Australia; Brunei Darussalam; Canada; Chile; People’s Republic of China; Hong Kong, China; Indonesia; Japan; Republic of Korea; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; the Republic of the Philippines; the Russian Federation; Singapore; Chinese Taipei (Taiwan); Thailand; the United States of America; Vietnam. APEC agreed in 1997 to maintain a moratorium on new members for ten years. APEC has placed a premium on voluntary participation, operates by consensus and does not seek to enforce decisions taken by members. It maintains a small Secretariat in Singapore.

APEC’s members account for nearly half the world’s trade. Eight of Australia’s top ten trading partners are APEC members. APEC includes the world’s three largest economies (the United States, Japan and China) and seven of the 21 members have had growth rates of more than five percent over the past decade. In 2002, 62 percent of Australia’s investment overseas and 68 percent of its trade was directed towards APEC members.

Economic leaders from the 21 APEC economies meet annually to review and develop strategies to advance growth and economic development in the Asia-Pacific region. Ministers, government officials and all major sectors of business and industry also cooperate to address barriers to trade and investment. The APEC Business Advisory Council (ABAC), a high level permanent forum of regional business leaders, advises APEC on private sector interests and goals.

APEC’s work is based on ‘three pillars’ – trade and investment liberalisation, business facilitation, and economic and technical cooperation. APEC’s most prominent commitment was made at the meetings in Bogor, Indonesia in 1994, when members adopted the goal of achieving free and open trade and investment among members by 2010 (for industrialised economies) and 2020 (for developing member economies).

APEC has sought to achieve progress through a series of annual dialogues (Dick K. Nanto, Asia Pacific Economic Cooperation (APEC), Free Trade, and the 2003 Summit in Bangkok, Thailand, CRS Report for Congress, 1 August 2003) and many supplementary meetings. The group’s profile was raised in 1993 when President Clinton convened the first of what has become an annual series of informal leaders meetings. While APEC was originally intended to focus on economic issues, the leaders meetings have also come to provide valuable avenues for multilateral and bilateral dialogue on regional and international security matters. The APEC meetings in Auckland in 1999 provided the opportunity for Australia to mobilise support for assistance to East Timor’s transition to independence. Since the terrorist attacks in the United States on September 11, 2001 APEC has also developed cooperation programs to counter terrorism.

APEC: progress and challenges

Up to the mid 1990s APEC achieved a high profile and through the Bogor declaration was seen to be at the centre of moves towards trade and investment liberalisation in the Asia-Pacific. APEC was established at a time when there was a major process of unilateral trade liberalisation underway in many countries in the Asia-Pacific (including Australia) and was thus in a favourable position to support widely prevailing trends. APEC pursued trade and investment liberalisation on the basis of ‘open regionalism’ , (Ross Garnaut, ‘Trading blows’, Australian Financial Review, 26 September 2003) so that liberalisation measures were offered by APEC members to all other trading countries on a non-discriminatory basis. However the impact of the Asian financial crisis from mid 1997 contributed to a slowing of progress towards APEC’s goals and some key members continued to be unwilling to liberalise sensitive sectors (such as agriculture).

Since the late 1990s attention in the Asia-Pacific has focussed on the prospects for the WTO’s negotiations (currently being pursued through the ‘Doha Round’) and on opportunities for speeding liberalisation through bilateral or multilateral ‘Free Trade Agreements’ (FTAs). A number of APEC members are currently engaged in efforts to secure free trade agreements including Singapore, Thailand, the United States and Australia. China and ASEAN have announced a program to secure a free trade agreement over the next decade.

The bilateral and regional FTAs are seen as beneficial by proponents dissatisfied with the slow pace of multilateral trade negotiations, but are not in line with APEC’s original principles of non-discriminatory liberalisation. FTAs confer benefits not to all other parties (as envisaged by APEC’s concept of ‘open regionalism’) but to chosen partners only. A recent report by Oxford Analytica commented that:

‘A web of complex bilateral pacts across the region was not part of the Bogor formula and APEC has yet to come to grips with the implications for its role and approach’. (Oxford Analytica, APEC squeezed between WTO and new bilateralism, 18 June 2003)

APEC nonetheless remains of major importance to economic and security dialogue in the Asia-Pacific. Richard Woolcott (a former Secretary of the Department of Foreign Affairs and Trade closely involved in APEC’s establishment) has argued that:

Woolcott stresses the importance of APEC in advancing trade facilitation measures, in supporting improvements in corporate governance and economic reforms, and in cooperation to prevent terrorism from disrupting regional trade.

APEC’s 2003 Bangkok meetings

The eleventh APEC Economic Leaders Meeting (informal summit) will be held in Bangkok on 20-21 October 2003. It is to be preceded by meetings of ministers, of senior officials from member economies, a CEO summit of business leaders, and the APEC Business Advisory Council meeting. The theme for APEC 2003 is ‘A World of Difference: Partnership for the Future’. This central theme is amplified by a series of sub-themes that are designed to assist APEC Working Groups and Forums to achieve their goals.

APEC’s leaders meet in 2003 against the background of the recent failure of the Cancun WTO ministerial meeting (‘The WTO under fire’, The Economist, 20 September 2003) and of continuing concern about the threats posed to security and commerce by international terrorism. In the lead-up to the meetings, APEC officials and observers have highlighted a number of issues that may be expected to be important in the meetings.

The Executive Director of the APEC Secretariat, Piamsak Milintachinda, in a briefing on 8 October 2003 emphasised the wide range of areas of cooperation that should be reaffirmed and advanced in the Bangkok meetings. He noted that APEC’s current focuses include: improving the functioning and stability of financial markets, cooperating on counter-terrorism and security, improving cooperation on epidemiology and health issues (such as Severe Acute Respiratory Syndrome – SARS), and a range of programs to reduce business transaction costs including the Secure Trade in the APEC Region (STAR) program and an Advance Passenger Information system that should enhance and speed up immigration processing for travellers in the APEC region.

The APEC Business Advisory Council (ABAC) has provided an additional input into APEC’s discussion in Bangkok. In its latest annual report (which has been submitted to APEC leaders but not yet released publicly), it is understood that ABAC has set out an ambitious set of issues it is requesting APEC leaders to pursue. The New Zealand Herald reported on 3 October (Chris Daniels, ‘Time for APEC to take lead’, The New Zealand Herald, 8 October 2003) that ABAC’s report suggests that APEC should:

President Bush’s East Asia visit: major issues

President George W. Bush is making a ten day visit to East Asia from 17 October. The centrepiece will be his participation in the APEC Economic Leaders Meeting but he is also making bilateral visits to Japan (17-18 October), the Philippines (18 October), Thailand (18-19 October where he will also attend the APEC meetings on 20-21 October), Singapore (21-22 October), Indonesia (22 October) and Australia (22-23 October). The APEC meeting also provides opportunities for discussions with other major regional leaders, particularly President Hu Jintao of China, President Vladimir Putin of Russia and President Roh Moo-hyun of South Korea. President Bush will thus be able to review and pursue a wide range of both bilateral and multilateral issues.

In his bilateral visits (Murray Hiebert and Shawn Crispin, ‘Bush Catches up with Asia’, Far Eastern Economic Review, 16 October 2003), President Bush will be able to explore specific bilateral issues such as progress in domestic economic reforms, measures to protect intellectual property rights, and moves to increase transparency in government procurement programs. Other issues for discussion are likely to include Japan’s provision of financial aid and possibly of non-combat defence force assistance to Iraq, plans to initiate negotiations with Thailand on a free trade agreement in 2004 and US support for military reform in the Philippines. In addition to and alongside the formal APEC cooperation agenda, President Bush’s discussions in East Asia are also likely to involve several issues of major concern to the region overall.

Terrorism

Terrorism is certain to be a central theme of President Bush’s talks both bilaterally and at APEC. While there have been some successes in counter-terror activities in the region, particularly the arrest of the Jemaah Islamiah leader Hambali in Thailand in August, there have also been setbacks, such as the escape from custody of the convicted terrorist Fathur Rohman al-Ghozi in the Philippines in July (al-Ghozi was reported on 13 October to have been killed in an armed clash). The bombing of the Marriott Hotel in Jakarta in August has highlighted the continuing potential of Jemaah Islamiah, as a recent report on JI by the International Crisis Group has emphasised. As a result, terrorism is likely to be a major focus of discussion for President Bush in his visits especially in the Philippines (where the US has been assisting the government in the south), Thailand and Indonesia (where the US has a program to extend the capacities of the police).

The US is also keenly interested in the contribution which APEC can make to counter-terror programs, as a briefing paper by the Heritage Foundation, released on 10 October notes. The October 2002 APEC leaders meeting at Los Cabos, Mexico agreed to adopt the Counter-Terrorism Action Plan whose objectives include implementing common standards for electronic customs reporting and blocking terrorists' access to financing. It is considered that there is considerable room for improvement in restricting terrorist financing in a number of regional states, including the Philippines and Indonesia. The US is also interested in improving container security measures (Nigel Brew, Ripples from 9/11: the

Container Security Initiative and its Implications for Australia, Parliamentary Library, Information & Research Services Current Issues Brief No. 28, 2002–03), given that containers now move about 90 percent of the world’s freight traffic and that seven out of the top ten nations shipping containers to the US are APEC members. Improved management of passports and visas is another essential task in counter-terrorism policies for the APEC region.

North Korea

The crisis over North Korea continues as the East Asia region’s most serious source of instability. The isolated and secretive North Korean regime has continued to pursue a nuclear program against the wishes of all of its neighbours and of the United States. The six party talks (Oxford Analytica, North Korea: Brinkmanship increases North’s isolation, 1 September 2003) held on 27-29 August in Beijing (involving China, Japan, Russia, the US and North and South Korea) represented a success for US efforts to pursue the potential for negotiations on a multilateral basis although they produced no clear result. The US is still attempting to resolve the dilemma of how to try to develop meaningful negotiations with North Korea without ‘rewarding blackmail’. With expectations of a further round of six party talks later this year (despite North Korea’s attempts to oppose Japan’s participation), close communication and coordination of approaches between the US and the other parties is essential and President Bush’s participation in the APEC meetings are a valuable way of extending this.

The US is also likely to seek ongoing support for the Proliferation Security Initiative (Oxford Analytica, International:

China

Russia

crucial to PSI success, 7 October 2003.) (PSI - designed to prevent the proliferation of weapons of mass destruction by ‘rogue states’). The United States’s regional allies including Australia and Japan have supported the PSI. Russia and China have not participated so far but the policy will depend on at least passive support from them and President Bush may seek to advance the basis for such an approach.

US-China relations

Relations with China continue to be one of the most complex and challenging areas of US foreign policy. Relations have improved since the September 11 terrorist attacks after some tensions early in the Bush administration over China’s detention of a US electronic surveillance aircraft on Hainan island in March 2001. China has provided useful support to the US in the ‘war on terror’ and cooperation has increased over the North Korea issue. Nonetheless a significant basis for tensions continues (Adam Ward, ‘China and America: Trouble Ahead?’, Survival, v 45, n 3, Autumn 2003, pp. 35-56) , particularly over Taiwan.

An issue of significant current concern to the East Asia region overall is the potential for tension in US-China economic relations. China’s rapid economic growth and growing competitiveness in many areas of manufacturing has helped increase its penetration of the US market. The US has a large trade deficit with China (Oxford Analytica,

United States

: Trade Deficit with

China

Record High, 12 September 2003) and it has been growing further in 2003 (the deficit for this year exceeds $US 100 billion). The US trade deficit with China is occurring at a time when the US also has both a large overall current account deficit and a growing budget deficit (the budget position under the Bush administration has changed from a surplus of 1.4 percent of GDP to a deficit of 4.8 percent). China’s competitiveness in the US market has been assisted by the Chinese policy of fixing the value of the Yuan against the US dollar. This has been criticised heavily by US manufacturers, who argue that the Chinese currency is artificially undervalued. There has also been criticism over the slow pace of Chinese trade liberalisation since it joined the WTO in 2001.

The US has argued that China’s currency is undervalued and Treasury Secretary John Snow advanced this issue (Corinne Lim, ‘Asia blocks US drive to free currencies’, Australian Financial Review, 11 September 2003, p 23) in September 2003 at a meeting of APEC finance ministers. Other countries in the region however are concerned that any rapid move by China to revalue its currency could produce instability in China and damage its economy overall. It is also pointed out (Catherine Armitage, ‘Trade partners get little value out of China’, The Australian, 13 October 2003, p 13) that China invests much of its foreign exchange surpluses in the US official money market and thus effectively helps finance the US budget and fiscal position and helps contain upward pressures on US interest rates.

Given the importance of China’s economic growth to the whole East Asia region there is concern in the region (Michael Richardson, ‘Uncle Sam’s Eastern Plans’, OUTLOOKindia.com, 8 October 2003) that disputes should not disrupt US-China trade and that protectionist sentiment should not advance in the US. A significant disruption in US-China trade would have an adverse impact in many other East Asian economies, given their increasing reliance on exports to China. The issues of the US-China trade deficit and of China’s currency policies are thus likely be important and sensitive areas of discussion during President Bush’s regional visit.

Australia’s interests

As a founding member of APEC Australia has a vital interest in the continuing progress of the group and its agenda at the Bangkok 2003 meetings (the Government’s commitment to APEC was reaffirmed in a recent speech by the Minister for Trade the Hon Mark Vaile). Australian Prime Ministers have been participants in the APEC Economic Leaders Meetings since their inception in 1993. Australia’s role in APEC is advanced both by governmental involvement and by non-government bodies including the Australian division of the APEC Business Advisory Council and the Australian APEC Study Centre at Monash University.

Australia’s involvement in APEC’s cooperation and its leadership dialogues is especially important given that Australia has so far not been able to participate in the heads of government meetings pursued by the Association of Southeast Asian Nations (Mark Baker, ‘Australia drops bid to join summit’, The Age, 7 October 2003, p 2) (ASEAN – whose annual leaders dialogue also involves China, Japan, South Korea and India) or its trade liberalisation program (the ASEAN Free Trade Agreement) – although a Closer Economic Partnership cooperation program is underway between Australia, New Zealand and ASEAN.

After the 2003 APEC meetings, President Bush’s bilateral visit will provide Australia’s political leaders with further opportunities to pursue dialogue across the range of issues discussed above and to review the bilateral relationship overall. The Prime Minister the Hon John Howard and the Leader of the Opposition the Hon Simon Crean have reaffirmed in recent speeches the value the Government and the Opposition place on the relationship with the US.

The prospect of a free trade agreement between the US and Australia is likely to be a major focus for discussions during President Bush’s Australian visit– the proposal has received both strong support from the Australian government and criticism from some analysts including Professor Ross Garnaut, (Ross Garnaut, ‘An Australia-United States free trade agreement’, Australian Journal of International Affairs, v 56, n 1, 2002, pp. 123–141) Australian National University). If an agreement is to be pursued it has been suggested that there may be a relatively limited ‘window of opportunity (’Roy Eccleston, ‘Bush in push to seal deal on trade’, The Australian, 13 October 2003, p 13) for negotiations to be concluded before the US Congress and the Bush administration are dominated by the lead up to the elections in November 2004.

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