APEC: The Price of Success

By Bart Mongoven

Leaders of governments representing nearly 60 percent of the world's economy are meeting this week at the annual Asia-Pacific Economic Cooperation (APEC) summit in Sydney, Australia. Despite APEC's growing clout, however, the summit is getting little attention from the world's leading nongovernmental organizations (NGOs) and international institutions -- groups that have major stakes in the event's outcome.

It is becoming a cliche to say that the Atlantic no longer is the center of the world, but few major global policy institutions appear ready to grasp what it means for the Pacific Rim to be the Atlantic's replacement. This is evident in the fact that NGOs and international institutions still pay more attention to meetings of the G-8, World Trade Organization (WTO), World Bank and most other major global institutions than they pay to APEC. What these organizations, and others focused on the development of global public policies, are missing is that many of the most important rules for global commerce are being developed quietly at APEC. The question is whether they will figure this out before they have missed a critical time in the development of global policies.

APEC, founded in 1989 to promote free trade, is an organization of 21 Pacific Rim countries, including the three largest economies in the world: the United States, China and Japan. The organization, however, has faced criticism in recent years from those, especially business leaders, who say it is not fulfilling its mission. The critics say APEC once focused on big issues such as economics and trade but now also discusses a raft of security, political and policy issues.

In fact, this criticism is the price of success. APEC is more important now than ever, and though its role in some realms remains modest -- security is the most glaring example -- in other areas it is emerging as the global decision-making body. To that extent, APEC's growing power is most clearly on display when it tackles issues such as climate change and consumer product safety.

APEC's Growing Importance

At the time of its founding, at Australia's urging, APEC was seen as Australia and New Zealand's answer to the ongoing talks on the North American Free Trade Agreement and the creation of the European Union. Back then, the Pacific Rim was responsible for less than 50 percent of global gross domestic product (GDP), so APEC was widely seen as a small, but possibly important, trade bloc.

As Asia grew, so did APEC's importance. Its 1993 meeting served as a springboard for stalled global free trade talks, bringing together representatives from large industrialized countries such as the United States and Japan, large developing countries such as China and South Korea and a host of smaller developing countries. In 1994, the members pledged to work toward an APEC-wide free trade area. This pledge, the Bogor Goals, remains an ongoing concern, though progress on it has slowed.

Efforts toward an APEC-wide free trade area have stalled for a number of reasons, beginning with the Asian financial crisis of 1997 and the resulting U.S. disinterest in the region. The rise of China in the following years led to a re-engagement by the United States, although many Pacific countries now fear the United States uses APEC as a bulwark against successful regional economic integration.

Even as free trade talks have slowed, however, the region's global economic importance has grown. Thus, decisions made by APEC members have global consequences for commerce. This power has led to an increased focus on developing common languages and rules, which tends to overshadow the slow work toward trade integration.

APEC and Climate Change

APEC's power to set global public policy is most clearly evident in its role in the climate change negotiations. APEC climate talks, which have been going on for more than a year, are designed more to make a statement than to develop a specific policy -- though the statement APEC makes in the coming 12 months will dictate the future of global climate negotiations.

APEC's importance has grown because a new international climate treaty, to replace the Kyoto Protocol, is inevitable. In the United States, the political winds have changed and the next presidential administration will oversee a national climate policy. For the United States to meet whatever climate policy emerges, it will need to take part in an international regime -- one that offers a robust emissions-trading mechanism. For a number of reasons, the United States has not joined the existing Kyoto-based system. Instead, it envisions a Pacific-focused international climate regime, one that uses the APEC countries as its base.

The Sydney APEC summit will offer the first glimpse of U.S. President George W. Bush's proposed climate regime. It will likely include binding emissions-reduction targets for every signatory. The emissions reductions likely will be framed in terms of emissions per unit of GDP, with the objective being to promote economic growth that is less carbon-intensive than it otherwise would be. It also is likely to call for a continuation of the emissions trading system and Clean Development Mechanism developed under Kyoto. By defining the emissions cap in terms of growth and by keeping a clean development mechanism, the agreement would address the complaint by developing countries that climate change policies are a way for industrial giants to force poor countries to pay equally for damage done primarily by industrialized countries.

The APEC agreement on climate change is a severe challenge to the Kyoto Protocol and to the European Union, which favors Kyoto and envisions a new follow-on agreement that serves European needs specifically. However, other than Indonesia and occasionally Japan, APEC countries are not especially fond of the Kyoto Protocol, so the perpetuation of Kyoto is not a particularly popular idea. Furthermore, in the wake of Russian threats to shut off oil and natural gas to EU countries, the union needs to spur development of alternative energy paths far more than it needs the perfect climate pact. In the final analysis, the European Union is being forced by geopolitics to cut emissions, and it does not want to lose its competitiveness to countries whose emissions are not bound by international agreements. Therefore, it can least afford for there not to be a deal -- but the other countries necessary to make the system work do not approve of what the union is selling.

In the eyes of environmentalists, the only reason a Pacific-based climate system can effectively counter Kyoto is that the Pacific Rim is the center of global greenhouse gas emissions, so if avoiding disastrous climate change requires reducing carbon emissions, the APEC nations must be involved. More than two-thirds of the world's greenhouse gas emissions come from APEC nations. The world's leading carbon emitter, China, has an economy that (reportedly) is growing at 10 percent per year. The second leading emitter, the United States, has slower growth, but it has grown far more quickly since Kyoto was signed than has Europe, Japan or most other major greenhouse gas-emitting nations.

Product Safety

Another major APEC issue is product safety. The APEC draft on the issue was released the same day that toymaker Mattel announced a recall of an additional 800,000 toys manufactured in China, citing fears of lead in the paint used. The past two months have seen a number of scares about China's food and consumer products, and even Beijing is beginning to search for ways to solve the quality assurance problems. Other major manufacturers of consumer products in Asia are likely sighing in relief that China is the target because their manufacturers face many of the same problems as their Chinese counterparts -- primarily personal alliances that cement business relationships rather than competition on price and safety. In other words, although the world's attention is on Chinese goods, products from Vietnam, Cambodia and Indonesia likely have similar problems.

So the question for each of the major manufacturing countries is how to dramatically improve quality assurance while maintaining a level playing field in terms of costs. The APEC secretariat, multinational companies and some APEC governments see international standards as the answer to food and product safety, meaning either a regional quality assurance standard or a regional commitment to follow global standards. At APEC, the heads of state will agree on the creation of an APEC-wide "food safety cooperation forum" that will harmonize food safety with global standards, such as those offered by the International Organization for Standardization (ISO)'s ISO-22000 and the Codex Alimentarius Commission. Presumably, this forum will be designed to help both national regulators and corporations in the APEC region apply international standards to their operations. It likely will also help establish best practices for regulators working at points of export and import to help find flaws or safety hazards in goods.

The Power of Size

APEC is responsible for more than half of the world's global exports. China has surpassed Germany as the world's leading exporter, while the United States is the world's third-largest. Food exports from Asia remain slight -- the United States imported only $8 billion in food from China in 2006 -- but the percentage of consumer products made in Asia is tremendous. While Asian governments have largely ignored ISO and Codex until recently, how Asian manufacturers and auditors interpret these standards will determine what these standards really mean.

Similarly, because it is the center of greenhouse gas emissions growth -- and because China has said it will not take part in a Kyoto system that requires emissions reductions but hinted it would join a U.S.-centered system -- opposition to the APEC climate process has been mild.

Still, it is unclear from either rhetoric or behind-the-scenes activity whether the major players in product safety debates or climate change advocacy understand the depth and breadth of the Pacific Rim's power. NGOs of all stripes have tickets and hotel rooms reserved for the November meeting in Bali, Indonesia, where the next treaty within the Kyoto system will be discussed. Few mention APEC or the successor meeting in September in Washington, hosted by Bush.

Similarly, while people are well aware that Chinese products are to blame for various scares in consumer products, few are calling for increased attention to Codex and ISO. Instead, they halfheartedly hope Beijing and Hanoi can develop better regulations to ensure safety.

APEC and the WTO

Finally, a side note in the documents being signed in Sydney is the vow by the various governments to continue to press for both an acceleration of the Doha round of WTO negotiations and for the continued work toward an APEC free trade pact. APEC agreed in 1994 to work toward the development of a free trade zone. While the move toward this has been slowed by the dramatic increase in the seriousness of APEC's role in the world, the mission continues.

Nothing makes this clearer than APEC's standing opposition to India's membership in the organization. The countries active in APEC view India as a major impediment to progress toward free trade, since India's government has long stood for economic nationalism and protection of indigenous industries. As much as APEC would benefit from the economic heft India would add, it is not worth the pain. It is clear, then, that as long as APEC keeps India out, the members still intend to follow through on the plan to create a free trade agreement.

The other issues being discussed in Sydney should highlight the message an APEC free trade zone would send to Europe and India. APEC's share of global output could reach 65 percent within 10 years, and it could create an economy that could easily exist without the rest of the world. As with climate change, the European Union might find that it needs the Pacific far more than the Pacific needs Europe. The region is becoming the most important place for trade and commercial policy development, and APEC is currently acting as the venue where this power is most clearly expressed. Before APEC can reach its full potential, however, its Asian members must begin to trust that the primary reason for U.S. involvement is not to hold back Asian integration. If the trust issue is resolved, Asian nations could see that the power they gain through policy and economic alliances with the United States makes continued pursuit of APEC's long-term goals a worthwhile gamble.