Insights and Analysis

Obama Attends APEC Forum on Inaugural Trip to Asia

November 11, 2009

By John J. Brandon

This week Barack Obama will make his first trip to Asia as President of the United States. In addition to paying state visits to China, Japan, and South Korea, President Obama will meet with 20 national leaders in Singapore to attend the Asia Pacific Economic Cooperation (APEC) forum. Although member countries vary in economic clout individually, APEC economies collectively represent 55 percent of the world’s gross domestic product, 45 percent of global trade, and 40 percent of the world’s population.

When APEC was founded in 1989, the ostensible purpose of the grouping was to liberalize trade and investment and promote commercial links among member countries. APEC, however, poses no binding obligations and has no enforcement mechanism. APEC relies primarily on consultation and persuasion. Trying to make such agreements binding would be a non-starter given the diversity in size of APEC member economies and levels of political and economic development. Nonetheless, despite experiencing two financial crises in the past decade, APEC has been relatively outward-looking in its trade and investment policies. In fact, APEC has experienced a five-fold increase in trade since 1989. This increase has contributed to Asia forging a stronger regional identity than existed two decades ago.

But APEC has its critics. Many argue that since the 1997 Asian financial crisis, APEC has accomplished little in the past decade and is just “a talk shop.” In the past decade, APEC summit agendas seem preoccupied with other non-economic issues – in 1999 it was the crisis in East Timor; then the confusion over who won the 2000 U.S. presidential election; the 9-11 attacks in 2001; and, in ensuing years, security issues have dominated talks, with less discussion on how to liberalize trade, investment, and services. Perhaps this bears the question: Is APEC relevant? Would member countries have experienced strong economic growth through a significant expansion of trade and investment if APEC had not existed?

At the 1994 APEC meeting in Bogor, Indonesia, member countries agreed to an open trade and investment region in the Asia-Pacific by 2010 for industrialized economies and by 2020 for developing economies. However, the Bogor declaration is an aspiration, not a binding agreement. While the goals embodied in the Bogor declaration (trade and investment liberalization, business facilitation, and economic and technical cooperation) may not be fully reached next year, the spirit of this declaration has resonated strongly. Tariffs among APEC member countries have been reduced since 1989 from an average of 17 percent to 5.5 percent. The APEC meeting in Bogor helped spur the successful completion of the Uruguay Round of the General Agreement of Tariffs and Trade (GATT) and the creation of its successor, the World Trade Organization (WTO). All of this helped fast-growing economies like China and Vietnam gain accession to the WTO and promoted cooperation on a range of economic policy issues important to the Asia-Pacific region.

But during tough economic times, countries – be they developed or developing – tend to revert toward protectionism despite the rhetoric of continued commitment to free-market principles. Earlier this year when the U.S. House of Representatives inserted “Buy American” provisions into the $789 billion stimulus package, the Obama administration got the Senate to agree that provisions would not be administered in ways that are “inconsistent with international obligations.” Indonesia, a developing nation that aspires to have a greater voice in global affairs and is a member of the G-20, has imposed import restrictions on over 500 products, demanding special licenses and new fees on imports. As President Obama prepares to journey to Asia, trade friction between the U.S. and China has escalated, with the U.S. imposing high countervailing duties on Chinese-made oil well pipes and automobile tires. China has responded by launching anti-dumping and anti-subsidy investigations on imports of American poultry and auto parts. Trade friction between the U.S. and China will not be resolved at APEC.

APEC is considering the prospects and options to develop a Free Trade Area for the Asia-Pacific (FTAAP), which would include all 21 member economies. The development of such an agreement, especially an agreement that includes such sensitive areas as steel, petrochemicals, textiles, and footwear, will take many years and negotiations will be arduous.

Looking ahead, President Obama will host the 2011 APEC Leaders meeting in the U.S. How much will the American economy have rebounded in two years? Protectionist sentiment appears to be on the rise, but the APEC economies of the Asia-Pacific are of intrinsic importance to the United States. The fact that President Obama is spending more than a week in Asia underscores the administration’s conviction that Asia is crucial to American interests. The biggest contribution the Obama administration can make this week and when it hosts the APEC meeting two years from now is to restore the health of the U.S. economy by increasing our productivity and competiveness while remaining open to trade and investment in the Asia-Pacific region and the rest of the world.

John J. Brandon is The Asia Foundation’s Director of International Relations Programs in Washington, D.C. He can be reached at [email protected].


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