TCS Daily

APEC's Threat -- Growth

By Alan Oxley - November 22, 2004 12:00 AM

Anti-growth protestors have hit the streets of Santiago, Chile. Their target is the Summit meeting of leaders from the 21 members of APEC, including President Bush. APEC is the grouping of economies on the Pacific Rim. Just the group's meeting in South America is unwelcome to the protest movement. It draws contrast between South America's economic failures and East Asia's success. No wonder other South American countries on the Pacific Coast want to join APEC.

APEC is a peculiar organization. It formed in the late eighties to give a global presence to Asia's economic takeoff. It was East Asia's reaction to Europe's effort to forge a Single Market and negotiation of NAFTA in North America. It consciously did not propose a trade bloc since it made no sense for the region. East Asia traded with the rest of the world, not itself. So APEC promoted open economic borders.

With the leaders of the US, Japan, China, Korea, ASEAN, Australia and New Zealand, Canada, Mexico and Chile (then later, Russia, Vietnam and Peru) it constitutes an imposing annual summit. As the share of the world economy in East Asia grows, it will ultimately rival the G8 for global economic importance.

The group flirted with a regional system for trade liberalization several years ago, but its aversion to institutions prevailed. It has a very small Secretariat. "APEC" is the acronym for Asian Pacific Economic Cooperation. Gareth Evans, a former Australian Foreign Minister and now head of the International Crisis Group in Brussels, quipped it "was an organization with four descriptors and no noun".

The annual summit is criticized as a talk shop, but like the G8, it is now an indispensable diary entry for the heads of government of the world's dynamic and high growth economies. The common interest and related activity in economic growth is what brings them together.

The US is the world's most productive economy, its average growth over the decade nearly doubling Europe's. China's growth is keeping the global economy buoyant, making up for flagging contributions from Europe and Japan. The rest of East Asia is averaging annual economic growth at six percent, well above average growth in South America, and trading vigorously. The WTO has just reported that East Asia will push growth in world trade in 2004 up to 8 percent in real terms (with rising oil prices the nominal rate will be higher).

The APEC region is also home of the dramatic impact on global growth of information technology. The US is showing how to use IT to boost national productivity. With Japan and Korea, it is leading the world in IT innovation. Taiwan, China and the ASEAN economies are the leading manufacturers of IT, making trade in these products the leading sector of international trade. The future directions of the world economy can be seen in the APEC region.

The picture in South America is dismal. Growth fell in Brazil in 2003 and is languishing in Argentina, the two biggest economies. Brazil's new president, "Lulu", is a socialist who wrapped himself up in the call by the NGO movement for "another world" to give priority to social reform. Brazil is the home of the "World Social Forum", the self proclaimed alternative to the "World Economic Forum", the leading global business conference. The recent re-election of Chavez in Venezuela to some suggests a swing in South America away from policies focused on growth.

The "another worlders" point to the languishing WTO as evidence global interest in economic reform is flagging. Certainly the African bloc in the WTO, which is largely responsible for the lethargy there, would agree. Growth in Africa and commitment to achieving it is even weaker than in South America.

While the WTO languishes, APEC economies have been busily negotiating bilateral and regional agreements to liberalize trade. the US has negotiated FTAs with Chile, Singapore, and Australia and is negotiating with Thailand. China is negotiating with ASEAN, Thailand, Australia, New Zealand and Chile. Japan has negotiated one with Mexico and is negotiating with Korea.

Meantime in South America, the idea of a "Free Trade Area in the Americas" is stalled, as have negotiations between the Mercorsur common market (Brazil, Argentina, Uruguay and Paraguay) and the EU. Others, however, are interested in continuing reform. The Central American economies have negotiated an FTA with the US and Ecuador, Peru and Colombia want one with the US.

The presence of the leader of China and the other East Asian economies in Santiago will have a bigger impact on the thinking of Chileans on what improves welfare than the "another world" protestors on the streets. It is easy to see why Columbia and Ecuador also want to join APEC.

Alan Oxley is host of the Asia Pacific page of TCS and Chairman of the national APEC Centre in Australia.


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