By Jean-Marc F. Blanchard, Ph.D.

On October 26 and 27, the 10th Economic Leader’s Meeting of the Asia-Pacific Economic Cooperation (APEC) forum took place in Los Cabos, Mexico. At this meeting, the leaders of APEC’s 21 member states and their ministers discussed measures to liberalize and increase trade and investment in the Asia-Pacific Region (APR). Although APEC is an economic forum, the recent terrorist bombing in Bali, North Korea’s revelation that it illegally continued its nuclear weapons program, and the prospective war against Iraq meant that security issues occupied a place of great prominence at the meeting.

In the view of some, the stress on terrorism and the so-called “Axis of Evil” have caused APEC to lose its focus. Philippine President Gloria Macapagal-Arroyo commented, “my concern is how the terrorists have shifted our attention away from how to work to make the global economy thrive.” This shift, which began at the 2001 APEC meeting in Shanghai, has alarmed businesspeople who worry not only that security concerns will distract APEC leaders from economic issues, but also that they will result in new trade and investment barriers. As well, the emphasis on security issues has emboldened critics to emphasize the continuing gap between the forum’s grandiose pronouncements and its actual economic achievements.

Has APEC really become a meaningless talking shop? Although APEC has not produced dramatic changes à la the European Union (an unfair benchmark), its accomplishments compare favorably against the achievements of similar regional economic arrangements in Africa, East Asia, Latin America, and South Asia. Furthermore, APEC contributes to global liberalization efforts. Moreover, contrary to conventional wisdom, the new focus on security actually may advance the cause of economic integration among APEC’s member states. Indeed, it must be acknowledged that terrorism and security issues have economic ramifications.

In Los Cabos, APEC leaders encouraged a successful conclusion to the World Trade Organization (WTO) Doha negotiating round, supported efforts to ensure that the benefits of liberalization are distributed more widely, stressed the importance of improving the soundness, openness, and efficiency of regional financial systems, and supported additional discussions on structural reforms in the APR. In addition, they “resolved to continue and accelerate progress towards the achievement of the [APEC’s 1994] Bogor goals,” which called for the complete and total elimination of tariffs and trade barriers in all sectors by 2010 for developed countries and by 2020 for developing countries and praised the strengthened peer review process of the member state individual action plans. Finally, APEC leaders recognized a need to improve security and further anti-terrorism cooperation.

On a more specific level, APEC leaders endorsed the “Trade Facilitation Action Plan” which calls for a 5 percent reduction in transaction costs in the region by 2006. Furthermore, they emphasized greater support for micro, small, and medium enterprises. As well, they created a life-sciences innovation forum to facilitate efforts to deal with diseases. Beyond these steps, they agreed to pursue the implementation of APEC Transparency Standards. These standards require the publication of laws and regulations, and administrative rulings, call for more open and impartial administrative procedures, and encourage the increased dissemination of data on monetary, financial, and fiscal affairs and policies. APEC leaders too emphasized the need to remove restrictions relating to the digital economy and to enforce WTO intellectual property right protections, and supported a long-term moratorium on customs duties on electronic transmissions.

As asserted above, APEC advances the cause of global liberalization. This is so because it champions liberal economic norms—this is not an inconsequential fact at a time when many countries are experiencing economic stresses that give them strong incentives to adopt protectionism. APEC’s embrace of liberalization is particularly important for Doha’s support in the developing world. After all, APEC includes many developing states and stresses the elimination of agricultural subsidies, an issue of great import to developing countries. APEC also can facilitate global trade and investment liberalization through its capacity building efforts and the dissemination of capacity building models and aid elsewhere. Moreover, it can help global liberalization by encouraging the consistency of regional and bilateral trade and investment agreements with WTO rules. Finally, APEC can produce agreements that serve as the basis for global liberalization measures.

Advancing further down the path first taken in Shanghai, APEC leaders adopted a statement on Fighting Terrorism and Promoting Growth. This statement commits APEC members to fast-track action designed to enhance the safety of air travel, to increase coordination among immigration officials, to establish computer security standards, and to improve anti-piracy cooperation. More specifically, APEC leaders embraced inter alia a container security regime, the implementation of common standards for electronic customs reporting and air passenger information, steps to improve the integrity of financial systems, and the creation of national financial intelligence and cybercrime units.

The aforementioned statement labels “Terrorism a direct challenge to APEC’s goals.” It is presumptuous, however, to assume that terrorism will provide a unifying threat among APEC’s membership since it need not affect all APEC countries equally. Nevertheless, it still can advance APEC’s goals beyond the obvious fact that it prods states to create a secure operating environment for business. First, the potency of national security rhetoric and the possible involvement of new groups (e.g., militaries and police) in debates about economic policy can empower the forces of liberalization against protectionist groups. Second, improvements in the transparency and standardization of financial systems, customs processes, and transportation—ostensibly designed to fight terrorism—will facilitate cross-border investment and commerce, and the elimination of non-tariff barriers. Third, a focus on terrorism may encourage real efforts to broaden the benefits of globalization as a way to fight the poverty that fuels terrorism. More widely dispersed benefits, in turn, can increase support for further liberalization.

APEC always will be limited in what it can do because of the diversity of its membership, its lack of enforcement mechanisms, and the unwillingness of APEC members to approach liberalization in a legalistic and formal fashion. Furthermore, domestic special interest groups in countries like Japan are a serious obstacle to major progress. President Bush’s reported displeasure with APEC’s tepid support for a war with Iraq and for action against North Korea is a dark cloud on the horizon, particularly if it reduces American interest in and attention given to APEC. Another dark cloud is the increasing attention given to bilateral free trade arrangements (FTAs) by the U.S. and other countries. FTAs can distract from region-wide initiatives and create a patchwork of conditions that hinder regional agreements.

APEC is not perfect, but represents something more than an excuse for policymakers to travel to resort communities, don different outfits, and sing songs. Despite criticisms that Los Cabos hardly advanced APEC’s grandiose Bogor agenda, the fact remains that APEC has taken specific steps that benefit companies ranging from high-tech and pharmaceutical firms to banks and investment banks. Moreover, it has supported the cause of trade and investment liberalization within the region and at the global level. These are not inconsequential results for an organization whose members account for 60 percent of global gross domestic product and 50 percent of global trade. Indeed, APEC’s removal of red tape, and the adoption of standard customs procedures, and other trade facilitation measures, could boost trade among its membership by $280 billion.