SEPTEMBER 13, 1999 VOL. 154 NO. 10

Trading Talk
A disoriented Asia-Pacific leaders' club looks for a new direction in New Zealand
By FIONA CARRUTHERS Auckland

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When Maori meet, they hongi. They believe the age-old nose-pressing ritual has more meaning than a handshake or a kiss, bringing two people into close understanding as they share the breath of life. When 21 heads of government from the Asia-Pacific region gather in Auckland this week, they will hongi with six Maori leaders. Later, as they sit down to talk trade diplomacy against the backdrop of the New Zealand city's bustling harbor, the politicians will try to resuscitate the Asia Pacific Economic Cooperation forum.

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That will take some work. A decade after it was founded, the organization seems further than ever from its goal of free trade and investment throughout the region, which accounts for 70% of world trade. "There's a perception APEC ran off the rails at last year's meeting in Kuala Lumpur," says New Zealand International Trade Minister Lockwood Smith. "People are saying New Zealand has to get it back on track."

Since national leaders joined their trade ministers at APEC gatherings in 1993, the forum has become an annual talkfest that offers leaders and bureaucrats--from the mighty U.S., China and Japan, to Mexico and Russia, to the islands of Papua New Guinea--the chance to schmooze in a club-like atmosphere. The APEC invitation might refer to "trade," but behind the scenes the meeting also allows leaders to cut deals, mend fences, build friendships. This year, the focus will be on the meeting of U.S. President Bill Clinton and Chinese President Jiang Zemin, who will meet for the first time since NATO accidentally bombed the Chinese embassy in Belgrade in May. The two will be free to discuss everything from China's possible admission to the World Trade Organization to its claims on Taiwan.

AGENDA

• Political leaders to deliver a strong, comprehensive statement on free trade for the next WTO round, to be kicked off in Seattle in November • Discuss APEC's economic lessons from the Asian financial crisis: exchange views on how markets can be strengthened against future risks • Look at how to move forward the agenda on open and free trade investment • Work to broaden support for APEC in light of recent criticism it's ineffective • Discuss how to better sell the message that trade liberalization increases standard of living

With APEC, the sideshows are usually more interesting than the main event. But many say this is a serious shortcoming in a group whose goal is economic reform. In 10 years, little has been achieved but grand official statements, tiny procedural victories and bold targets with distant and non-binding deadlines. "We are good on ideas and policies," says Bali Moniaga, assistant to the director of APEC affairs in the Indonesian Foreign Affairs department. "But when it comes to implementation, we are so slow."

For many countries, the forum is the Asia-Pacific community's best hope for a rosy economic future. "APEC strengthens our region dramatically, and more quickly than if we'd muddled along separately," says New Zealand Prime Minister Jenny Shipley. But in the wake of Asia's financial crisis, which saw many members backpedal on tariff reduction, can APEC regain its momentum? Shipley is clear on her ambitions for the meeting: she wants fellow leaders to reaffirm their commitment to free and open trade. Says Chau Tak-hay, Hong Kong's secretary for Trade and Industry: "We hope APEC will make an influential declaration to urge the WTO to launch a new round of broad-based multilateral talks." That would be a boost for the WTO talks to be held in Seattle in November, whose agenda includes eliminating as many trade barriers as possible, in areas from agriculture to e-commerce, by 2003.

APEC in New Zealand is, say observers, as much about symbolism and theater as it is about freer trade. Much of APEC's response to the November WTO talks has already been agreed upon, but the powerful U.S. delegation is leading a push to add further items, including a ban on e-commerce taxes. Within APEC, several members also want to open up air travel, end food subsidies, and make all markets more transparent and competitive. "There are no great leaps forward," says American APEC delegation member and Ambassador to New Zealand Josiah Beeman. "But we'll keep pushing for the fastest pace that can be sustained on trade liberalization."

For all the talk, motorcades and photo opportunities, New Zealand Trade Minister Smith says the forum is essentially about helping businesses get their products into more markets. Suppose you've made the world's best-tasting ice-cream and you're also the world's lowest-cost producer. Research shows that your product would sell well in the Asia-Pacific. If you think you're on a winner, Smith says, you're mistaken. First, you face tariffs in just about every market--from 65% in China to 300% in Canada. Next, there are different product standards, requiring you to use different recipes. Suppose you comply. When your shipments reach the target country, they must be accompanied by a detailed customs declaration. Even then, chances are they'll melt as a result of poor refrigeration and transport. You may not even be paid: in some countries, contract law is virtually unenforceable. "APEC," says Smith, "is designed to sort these problems out."

Few APEC leaders have had much luck selling that message to voters, who increasingly question the wisdom of opening their economies to foreign goods at the possible cost of local jobs. Since tariff abolition led to the closure of its inefficient car industry, the New Zealand government--like others in the region--has been under popular pressure to boost protection. Little wonder that countries sometimes take the easy way out. The U.S. decision to impose tariff quotas on Australian and New Zealand lamb sparked furious protest. "World trade is really a never-ending fight just to hold the line," says one Australian government policy officer.

Although big gains are proving elusive, APEC is making it a little easier to do business in the region. An APEC travel card offers business people benefits such as express lanes at airports. APEC leaders have also agreed to begin streamlining customs procedures and cutting the red tape involved in regional trade. A data base has been established for easier access to information on tariffs, and leaders are looking at standardizing labeling and other import regulations, starting with the food industry. For Bruce Young, CEO of New Zealand's largest fresh fish exporter, Moana Pacific, APEC's value is simple: "I'm not pro-APEC for any reason other than that it has worked to help bring down tariffs in fisheries," he says. Others just want to break through faceless bureaucracies. David Shannon, a partner at Australian law firm Baker & McKenzie, says APEC gives "small and medium-sized businesses exposure to influential government officials."

Still, many APEC watchers and business leaders are frustrated by the plodding pace of trade diplomacy. Malaysia (whose President, Mahathir Mohamad, announced last week that he would not be attending the Auckland meeting) has reintroduced controls on foreign exchange. While in Kuala Lumpur at last year's leaders' meeting, Japan derided as too ambitious the number of sectors nominated by other countries for early liberalization. The outcome caused red faces all round. "In Europe there's a lot of smugness that APEC is struggling and floundering," says Belinda Brown, executive director of the Asia 2000 Foundation, a Wellington-based business group. "It's time to regain momentum."

That may be a while in the building. In a report to Shipley last month, the APEC Business Advisory Council said the overall picture was poor: "Individual action plans by member economies are not ambitious enough, in content or timeframe, to meet the goals of free trade and investment." According to Dennis Gastin, the managing director of Australian strategic analyst company Instate, "APEC blows small triumphs into large ones, and the big fish that got away aren't even mentioned." Staggeringly high tariffs remain entrenched throughout the region. Imported wine into Thailand faces a 362% slug in duties, taxes and government charges; the Japanese uphold tariffs of 800% or more on rice imports. On average, tariffs in the Asia-Pacific sit at about 17-18%, compared with 5-6% for countries within the Organization for Economic Cooperation and Development. And as business points out, that means higher consumer prices.

Leading the push for tariff reform are New Zealand, Australia, China, Korea and the Philippines. Yet even the main players are wondering if they can meet the forum's much-trumpeted Bogor targets (set in Indonesia in 1994) of zero tariffs by 2010 for industrialized countries and by 2020 for developing ones. Developing countries say their progress on liberalization is not helped by APEC's tardiness in providing policy advice and support under the umbrella of economic and technical co-operation. "Funds are very limited," says an official in Thailand's department of economic affairs. "If we want to fly in an expert to talk about reforming the banking sector, we have to compete against 20 other countries."

One critical factor in determining Auckland's success--and the perception of APEC's worth--will be the outcome of the U.S.-China encounter. Auckland's hotels and its historic museum will host a flurry of meetings on everything from global security issues--such as Pyongyang's threat to test-launch long-range ballistic missiles--to petty regional gripes. But this year, all eyes will be on Presidents Clinton and Jiang as they attempt to repair relations and reconsider Washington's rejection of Beijing's WTO membership bid in April. The meeting is the "800-pound gorilla event of the APEC summit," says Ambassador Beeman. Its importance is not lost on Shipley: "We're facilitating neutral ground where both parties feel they can approach the issues." As far as business is concerned, the outcome of the Sino-American bilateral will save APEC--or doom it. "If the relationship between the U.S. and China blows up, APEC will disappear," says Andy Xie, executive director of trading house Morgan Stanley Dean Witter in Hong Kong.

Ushering China into the WTO would strengthen APEC by giving one of the forum's most important members a voice in the 135-member global trade body. One of APEC's main aims is to lobby the WTO and push Europe toward adopting trading rules favorable to Asia-Pacific nations. In 1993, APEC leaders achieved something of a coup when they forced Europe to accept the completion of the marathon seven-year Uruguay Round of trade talks, which began the process of dropping tariffs on agriculture and services.

As APEC struggles to get back on course, its leaders, Japan and the U.S., are talking up the process. "The U.S. understands that we have to come to the party," says Beeman. "We've said we're willing to end export agricultural subsidies. We think that's a very important change." Hideshi Ueda, director for APEC promotion in Japan's Ministry of International Trade and Industry, is a little less bold: "New Zealand is looking to broaden the perception of APEC, and that's very important." But even Ueda says he thinks Japan will now take a more active role.

For its part, New Zealand is taking APEC back to the drawing board--and trying to help the region extricate itself from the financial debacle of 1997. As its signature theme, New Zealand has adopted the catch-cry "strengthening financial markets." Also known as going "behind the borders," the principle aims to encourage members to prepare their markets for free trade by reviewing domestic policies from bankruptcy to transport laws. "We need to keep emphasizing that APEC is about working together," says New Zealand's APEC taskforce leader, Maarten Wevers. Australian Trade Minister Mark Vaile shares that view. "We have no choice but to continue to make trade fairer, and APEC is the best forum," he says.

Imperfect as it is, APEC has become a "more important political meeting than the G7," says Wevers. The forum will continue to deal with the complexities of regional trade, says Alan Oxley, head of Australia's APEC Study Centre in Melbourne. Perhaps more important, he believes its role in easing political tensions will grow. "U.S. economic dynamism and growth in China are a heady mix," says Oxley. Auckland could prove APEC's most important meeting yet--giving the ailing forum not just a symbolic hongi but a genuine kiss of life.

With reporting by Hannah Beech and Maria Cheng/Hong Kong