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ACADEMIC YEAR 2012 - 2013






I, MR. PANCHAL HIREN SURESH student of MITHIBAI COLLEGE, studying in M.COM (PART I) Roll No. 47, hereby declare that i have completed my project, titled APEC - TRADE AND INVESTMENT LIBERALIZATION for the subject - ECONOMIES OF GLOBAL TRADE AND FINANCE in the academic year 2012 - 2013. The information submitted here is true and original as per my research and observation.








At this juncture, I would extend my gratitude to a number of people without whom this informative project would have been impossible. Every work that is appreciated is supported by various hands. This project would just not be complete without the valuable contribution from various people whom i have interacted with in the course of its completion. I would like to sincerely acknowledge my guide PROF. SUMATI CHANDOK for providing me with an excellent and splendid opportunity to present this project on APEC - Trade & Investment Liberalization which definitely has given a further professional approach. I am extremely grateful to the University of Mumbai for having prescribed this project work to me as a part of the academic requirement in the MCOM -1course lastly, I would like to appreciate the management and staff of MITHIBAI College, MCOM-1 for providing the entire state of the art infrastructure and resources to enable the completion and enrichment of my project.


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Asia-Pacific Economic Cooperation, or APEC, is the premier forum for facilitating economic growth, cooperation, trade and investment in the Asia-Pacific region. APEC's 21 Member Economies are the United States; Australia; Brunei Darussalam; Canada; Chile; China; Hong Kong; Indonesia; Japan; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; The Philippines; Russia; Singapore; South Korea; Taiwan; Thailand; and Viet Nam. Established in 1989 in response to the growing interdependence of Asia-Pacific economies and the advent of regional economic blocs, APEC works towards a higher standard of living and higher education levels through sustainable economic growth. Number of Member Countries : 21 Headquarters : Singapore Region(s) : Asia, Central America, North America, Oceania, South America Member Countries Australia; Brunei Darussalam; Canada; Chile; People's Republic of China; Hong Kong, China; Indonesia; Japan; Republic of Korea; Mexico; Malaysia; New Zealand; Papua New Guinea; Peru; Philippines; Russia; Singapore; Chinese Taipei; Thailand; United States; Vietnam.

APEC operates as a cooperative, multilateral economic and trade forum. Member economies take individual and collective actions to open their markets and promote economic growth. These actions are discussed annually at a series of meetings of senior officials, ministers and finally, by APEC Economic Leaders. The following working level activities and projects are then undertaken by four core committees. The process is supported by a permanent Secretariat based in Singapore. For years, APEC has been making efforts to achieve the "Bogor Goals" of free and open trade and investment by further reducing barriers among member economies, and by promoting the free flow of goods. According to APECs 2010 assessment, average tariffs in the region have been reduced by almost two thirds since its establishment. Non-tariff barriers have also been substantially reduced across the board. APEC has become increasingly important to legal services because, as the WTO's Doha

negotiations faltered some countries turned to APEC as a forum for continuing discussions of legal services trade issues. This new forum is a significant one because the twenty-one APEC countries represent approximately 40 percent of the world's population, 54 percent of world GDP and 43 percent of world trade. Moreover, because the United States will be the APEC "Host Economy" in 2011, with meetings throughout the country that the United States will have to organize, APEC is likely to be increasingly important to the U.S. government in the near future. APEC's work under its three main pillars of activity, Trade and Investment Liberalisation, Business Facilitation and Economic and Technical Cooperation, has helped drive this economic growth and improve employment opportunities and standards of living for the citizens of the region.


In January 1989, Australian Prime Minister Hawk raised the initiative of convening a ministerial meeting on the economic cooperation in the Asia-Pacific region during his visit to Seoul, Republic of Korea. After consultations with relevant countries, the first ministerial meeting was held in Canberra, Australia from 6 to 7 November 1989. Foreign Ministers and Economic Ministers from Australia, the United States of America, Canada, Japan, Republic of Korea, New Zealand, Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand attended the meeting. Thus Asia-Pacific Economic Cooperation (APEC) was set up. On 20 and 21 November 1993, the first APEC Economic Leaders' Meeting was held in Seattle, the United States of America in response to the growing interdependence among Asia-Pacic economies. APEC promotes open trade and practical economic cooperation amongst its members. In APEC terminology, members are referred to as economies and not as countries. APEC as an organization is a relatively loose grouping, based on consensus and voluntary commitments of members. It encourages cooperative activities amongst members as it is concerned with making development sustainable both economically and environmentally. APEC has many working groups and task forces which oversee these projects and ultimately report to annual meetings of nance ministers and APEC Leaders. Meetings of other high-level politicians such as Science Ministers also take place from time to time. Within APEC is the Industrial Science and Technology Working Group (ISTWG). ISTWGs objective is to improve quality of life while

safeguarding the natural environment that is built on the development and application of industrial science and technology within a dynamic Asia-Pacic region. (Osaka, Action Agenda) Established as a project of the ISTWG in 1998, hosted by the National Science and Technology Development Agency of Thailand (NSTDA), the APEC Center for Technology Foresight aims to develop and diffuse foresight capability and leading edge planning tools to prepare APEC Economies for rapid change and major societal challenges through: APEC-wide foresight projects Regional, sectoral, and organizational foresight State-of-the-art foresight training National and regional strategy planning From 2009 onwards, the National Science Technology and Innovation Policy Ofce (STI), also located in Bangkok, becomes the new host of the Center. Though started simple, the Center has gradually adapted its approach over the past decade as it has tackled a variety of topics seen to be of importance to the APEC region (water, energy, emerging diseases, among others). The projects have become more complex and have increasingly involved a wide range of experts from different backgrounds as the need for convergence of technologies and knowledge systems in pursuit of a common goal has emerged.

The origins of APEC can be traced to the 1960s and early 1970s against the wider backdrop of the reorientation of US hegemony. During the decades preceding the 1970s the Japanese government and Japan-based corporations, with US sponsorship, had gradually re-built their linkages with Northeast and Southeast Asia. By the 1970s, the US had been eclipsed by Japan as East Asias most significant source of foreign aid and investment.26 The growing regional economic significance of Japan, against the backdrop of the countrys post-1945 economic boom, was complemented by renewed efforts on the part of Japanese officials and economists to encourage some form of regional economic integration and a Pacific community. In Japan, visions of a Pacific community can be traced to the end of the nineteenth century when Japanese intellectuals began to anticipate a Pacific Age in global history.27 This was also connected to celebratory accounts of Japans industrial rise and its emergence as a major colonial power by the early twentieth century.28 In 1966 the Asian Development Bank was set up, primarily under the auspices of the Japanese government (but with strong support from the US).29 However, it was the promulgation of an Asia-Pacific policy by the Japanese Foreign Ministry in late 1966 that is seen by some observers to have signaled the start of Japans effort to build a regional trade organization. This led to persistent, but unsuccessful, efforts by the Japanese economist Kiyoshi Kojima and the Japanese Ministry of Foreign Affairs to promote a Pacific Free Trade Area (PAFTA--it was envisioned as encompassing the US, Japan, New Zealand, Canada and Australia) as a counter-weight to the European Economic Community). While PAFTA received limited support it did ease the way for the Pacific Basin Economic Council (PBEC) in April 1967, which is comprised of nationally based business organizations and the first Pacific Trade and Development conference (PAFTAD) in 1968. The latter was primarily a forum for economists. The lack of interest in PAFTA led Kojima to introduce a less ambitious proposal centered on the idea of an Organization for Pacific Trade and Development (OPTAD) modeled on the Organization for Economic Cooperation and Development (OECD). This proposal also languished until the late 1970s when it was revived in a report for the US Senate Committee on Foreign Relations written by prominent US economist, Hugh Patrick and Peter Drysdale (an influential Australian economist). It was proposed that this version of OPTAD would encompass all the non-communist nation-states in the region including some Latin American countries. As with previous initiatives very few governments in the region were interested in making a commitment to the proposal; however, it did stimulate the establishment of the Pacific Economic Cooperation Conference (PECC) that sought to provide a forum for academics, business

representatives and government officials.31 The Pacific Economic Cooperation Conference (PECC), later Council, had its first meeting in Canberra in late 1980, and included representatives from the US, Japan, Canada, Australia, New Zealand, Korea, Malaysia, Thailand, Indonesia, Singapore and the Philippines. During the 1980s the governments of China, Taiwan, Brunei and the South Pacific Forum also began sending delegates to the PECC. While the PECC, brought together academics, business and government officials, a key characteristic of its operation was the unofficial role played by governments. Although the PECC has produced a host of reports and recommendations over the years they are not binding. The establishment of APEC in 1989 underscored the important relationship between economic cooperation and geo-political and security considerations. The Cold War had inhibited a more expansive regionalism in at least two ways. First, nation-states in Southeast Asia were wary of an organization that might have security overtones and thus limit its membership to capitalist economies, while the US was opposed to an organization in which the USSR might have a forum for the discussion of security questions.33 Against the backdrop of the end of the Cold War and the dramatic economic transformation of Asia over the preceding decades, APEC emerged as the major institutional expression of the idea of a Pacific Century. It represented a forum for the articulation and accommodation of revised and reconfigured version of various long-standing geo-political and geo-economic visions for the region. The rising non-liberal narratives on economic development and international relations increasingly represented the Asia-Pacific as destined to become an ever more integrated region of prosperous free-trading nation-states.34 At the same time, elites in Northeast and Southeast Asia became increasingly concerned that the post-Cold War international political economy was shifting towards economic blocs centered on Western Europe (EU) and North America (North American Free Trade Agreement--NAFTA). APEC was challenged from the outset by Prime Minister Mahathir Mohamed of Malaysia: as an alternative to APEC, Mahathir proposed the establishment of a trading bloc, initially called the East Asian Economic Group (EAEG), which would exclude the United States, Australia and New Zealand and all other nonAsian nation-states. To underline his opposition to APEC, Mahathir refused to attend the organizations first heads of government meeting in Seattle in 1993. However, by the time of the annual summit in November 1998, which was held in Kuala Lumpur (KL), he was the presiding host, and his East Asian Economic Group, under the guise of the East Asian Economic Caucus, had been folded into APEC.35 Apart from concerns about the possible formation of economic blocs in the post-Cold War era and the need to respond in kind, elites in Asia were also uncertain about the

US approach to security issues after the Cold War. At the outset Washington was preoccupied with the situation in Europe, but in a 1991 visit to East Asia, George Bushs Secretary of State, James Baker reaffirmed a US commitment to the region emphasizing the continued importance of Washingtons bilateral security arrangements.36 These arrangements maintained, in a somewhat revised fashion, the basic bilateral politico-military architecture of the Cold War. This did not necessarily mean that the US actively opposed regional and multilateral initiatives; however, it was the Australian government that had taken the lead, with Japanese encouragement, in the establishment of APEC less than two years before. Although the Japanese government was as interested in trade cooperation as it was in trade liberalization, APEC quickly emerged as a forum for the latter. From the outset APEC was portrayed by many of its supporters as being committed to open regionalism in contrast to the preferential trading practices that characterize the EU and NAFTA. The Eminent Persons Group (EPG), which laid down much of the early organizational framework for APEC, made it clear that APEC would not be a community like the European Union, which is characterized by acceptance of the transfer of sovereignty, deep integration and extensive institutionalization. By contrast it emphasized that APEC would be a community in the popular sense of a big family of like minded economies that are committed to friendship, cooperation and the removal of barriers to economic exchange among members in the interest of all.At the same time, C. Fred Bergsten (former chair of the EPG and Director of the Washingtonbased Institute for International Economics) emphasized that the organization should not only play a central role in regional trade liberalization, but it should also act as a force for world-wide liberalisation.40 This perspective reflected a wider view that APEC could play a key role in the international diffusion of economic liberalism.41 This vision was readily apparent at the first major meeting in Seattle in late 1993, and the second major meeting in Bogor, Indonesia in November 1994. On the final day of the Bogor meeting the leaders from the eighteen member countries agreed in principle to the virtual elimination of tariff barriers and obstacles to capital flows within the APEC region by the year 2020.



1989 - APEC begins as an informal Ministerial-level dialogue group with 12 members. 1991 - Chinese Taipei (Taiwan), Hong Kong, and the Peoples Republic of China join APEC. 1993 - APEC Economic Leaders meet for the first time and outline APECs vision, stability, security, and prosperity for our peoples. Mexico and Papua New Guinea join APEC. 1994 - APEC sets the Bogor Goals of free and open trade and investment in the Asia-Pacific by 2010 for developed countries and 2020 for developing countries. Chile joins APEC. 1995 - APEC adopts the Osaka Action Agenda (OAA) which provides a framework for meeting the Bogor Goals through trade and investment liberalization, business facilitation and sectoral activities. 1996 - The Manila Action Plan for APEC (MAPA) is adopted, outlining the trade and investment liberalization and facilitation measures to reach the Bogor Goals. 1998 - Peru, Russia, and Vietnam join APEC. 1999 - APEC commits to paperless trading by 2005 in developed countries and 2010 in developing countries. 2000 - APEC establishes an electronic Action Plan and aims to triple Internet access throughout APEC region by 2005. 2003 - APEC agrees to re-energize the WTO Doha Development Agenda negotiations and stresses the complementary aims of bilateral and regional trade agreements, the Bogor Goals and the multilateral trading system under the WTO. 2007 - For the first time, APEC Member Economies issue a Declaration on Climate Change, Energy Security, and Clean Development outlining future action in support of new international climate change arrangement and announcing a forward program of practical, cooperative actions and initiatives. 2008 - APEC leaders addressed the global financial crisis, committing to take all necessary economic and financial measures to restore stability.

2009 - The first-ever joint meetings of APEC senior trade and finance officials are held to address the economic crisis. APEC launches the Supply-Chain Connectivity Framework and the Ease of Doing Business Action Plan to make doing business in the region 25 percent cheaper, faster and easier by 2015



The objectives of APEC are to enhance the positive gains, both for the region and the world economy as a whole, resulting from increasing economic interdependence; to develop and strengthen the open multilateral trading system; and to reduce barriers to trade in goods and services and investment. According to the declaration, cooperation among APEC members will be governed by "the principle of mutual benefit and a commitment to open dialogue and consensus-building, with equal respect for the views of all participants." The activities include the exchange of information and consultation on policies and developments relevant to the common efforts of APEC economies and development of strategies to reduce impediments to the flow of goods and services and investment world- wide and within the region. They also cover the promotion of regional trade, investment, flows of financial resources, human resources development, technology transfer, and cooperation in specific sectors such as energy, environment, fisheries and tourism. The current member economies represent the rich diversity of the region as well as differing levels of economic growth. Despite such differences there is a growing sense of common purpose and cooperation aimed at sustained regional and world growth. In the 1991 Seoul APEC Declaration, APEC members agreed on specific objectives: to sustain the growth and development of the region for the common good of its peoples and, in this way, to contribute to the growth and development of the world economy; to enhance the positive gains, both for the region and the world economy, resulting from increasing economic interdependence, to include encouraging the flow of goods, services, capital, and technology; to develop and strengthen the open multilateral trading system in the interest of Asia-Pacific and all other economies; and to reduce barriers to trade in goods and services among participants in a manner consistent with GATT principles, where applicable, and without detriment to other economies.

The Declaration also recognized "the important contribution of the private sector to the dynamism of APEC economies". The ministers committed APEC "to enhance and promote the role of the private sector and the application of free market principles in maximizing the benefits of regional cooperation." The Seoul Declaration set forth a commitment among APEC ministers to meet annually and hold informal discussions to strengthen and reaffirm the agreed objectives, and to realize the goals of free and open trade and investment in the region. The series of annual economic leaders' informal meetings began in 1993. On 20 November 1993, APEC economic leaders, hosted by U.S. President Clinton, met for the first time at Blake Island, Seattle, Washington to hold informal discussions. Their vision was for an Asia-Pacific that harnesses the energy of its diverse economies, strengthens cooperation, and promotes prosperity, in which the spirit of openness and partnership deepens and dynamic growth continues, contributing to an expanding world economy and supporting an open international trading system. They envisioned continued reduction of trade and investment barriers so that trade expands within the region and with the world, and goods, services, capital, and investment flow freely among APEC economies. People in APEC economies would share the benefits of economic growth through higher incomes, high skilled and high paying jobs and increased mobility. Improved education and training would produce rising literacy rates, provide the skills for maintaining economic growth and encourage the sharing of ideas that contribute to the arts and sciences. Advances in telecommunications would shrink time and distance barriers in the region and link APEC economies so that goods and people move quickly and efficiently. Finally, they envisioned an Asia-Pacific in which the environment is improved as APEC economies protect the quality of air, water, and green spaces and manage energy sources and renewable resources to ensure sustainable growth and provide a more secure future On 15 November 1994, Indonesian President Soeharto hosted the second meeting of APEC economic leaders who discussed where the economies of the region need to go in the next 25 years. In their Declaration of Common Resolve, the economic leaders agreed to achieve the goal of free and open trade and investment in the region no later than 2010 for the industrialized economies and 2020 for developing economies. The economic leaders further agreed to narrow the gap in the stages of development among Asia-Pacific economies. To this end, APEC will provide opportunities


for developing economies to increase further their economic growth and level of development consistent with sustainable growth, equitable development, and member economy stability. In Osaka on 19 November 1995, APEC economic leaders initiated the work of translating the Blake Island vision and the Bogor goals into reality. They adopted the Osaka Action Agenda, a blueprint for implementing their commitment to free and open trade and investment, business facilitation, and economic and technical cooperation. Part I of the Action Agenda deals with trade and investment liberalization and facilitation. Part II deals with economic and technical cooperation in areas such as energy and transportation, infrastructure, small and medium enterprises, and agricultural technology. A Trade and Investment Liberalization & Facilitation (TILF) Special Account was established under the APEC Central Fund for APEC projects that support implementation of the Osaka Action Agenda. The Manila Action Plan for APEC (MAPA), adopted by economic leaders on 25 November 1996, includes the individual and collective action plans and progress reports on joint activities of all APEC economies to achieve the Bogor objectives of free and open trade and investment in the APEC region by 2010 and 2020, and joint activities among members under Part II of the Osaka Action Agenda. MAPA revolves around six themes: greater market access in goods; enhanced market access in services; an open investment regime; reduced business costs; an open and efficient infrastructure sector, and strengthened economic and technical cooperation. Current joint activities include the APEC Educational Network (EduNet), the Asia-Pacific Energy Research Center (APERC), the APEC Labor Market Information Network (LMI), and the Trade and Investment Data Database. Economic leaders further instructed that high priority be given to the following themes in economic and technical cooperation in six areas: developing human capital; fostering safe and efficient capital markets; strengthening economic infrastructure; harnessing technologies of the future; promoting environmentally sustainable growth; and encouraging the growth of small and medium enterprises.



APEC operates by consensus. In 1991, members committed themselves to conducting their activities and work programs on the basis of open dialogue with equal respect for the views of all participants. The APEC Chair, which rotates annually among all members, is responsible for hosting the annual ministerial meeting of foreign and economic ministers. At the 1989 Canberra Ministerial Meeting, it was agreed that it would be appropriate that every alternate ministerial meeting be held in an ASEAN economy. Senior Officials Meetings (SOM) are held regularly prior to every ministerial meeting. APEC senior officials make recommendations to the Ministers and carry out their decisions. They oversee and coordinate, with approval from ministers, the budgets and work programs of the committees and working groups. At the 1992 Bangkok Ministerial Meeting, APEC ministers agreed to establish a permanent APEC secretariat in Singapore. They approved a budget to support the Secretariat and the work programs of APEC's committees and working groups. At the 1993 APEC Ministerial Meeting in Seattle, ministers agreed to establish a permanent Committee on Trade and Investment (CTI). A Budget and Administrative Committee (BAC) was also established to handle APEC's increasingly complex budget and administrative issues. Ministers in Jakarta in 1994 established an Economic Committee and a Policy Level Group on Small and Medium Enterprises (SMEs). In Osaka in November 1995, ministers agreed to establish the APEC Business Advisory Council. In Manila in 1996, ministers adopted the MAPA and the Declaration on an APEC Framework for Strengthening Economic Cooperation and Development. The latter identifies the themes, specific goals and guiding principles that will govern the nature and character of a strengthened economic and technical cooperation towards an Asia-Pacific community. APEC member economies have hosted a number of other ministerial meetings for ministers of education, energy, environment and sustainable development, finance, human resources development, regional science and technology cooperation, small and medium enterprises, telecommunications and information industry, trade, and transportation. In November 1995 in Osaka, APEC economic leaders established a permanent senior business advisory council, composed of up to three business people from each of APEC's eighteen member economies, to provide advice on implementation of the Osaka Action Agenda and on other specific business sector priorities. In its first report in November 1996, APEC means business: Building

prosperity for our community, ABAC recommended the removal of certain impediments to crossborder flows of goods, capital and business people, enhanced protection for foreign investors, expanded private investment in infrastructure projects, an improved environment for small and medium-sized enterprises, and private sector participation in economic and technical cooperation. In November 1996, ABAC members met with APEC economic leaders in Manila to discuss these recommendations. In 1997, ABAC will work on ways to implement the 1996 recommendations and will continue to assess APEC's commitments in the MAPA to liberalize trade and investment. ABAC's committees cover cross-border flows; finance/investment/infrastructure issues; economic and technical cooperation; and small and medium-sized enterprises. APEC will respond to the 1996 recommendations of ABAC at the Vancouver meetings, with a focus on the flagship recommendations identified for action in the 1996 ABAC report. ABAC members will meet again with APEC ministers and economic leaders in November 1997 in Vancouver. ABAC was preceded by the Pacific Business Forum (PBF), which economic leaders set up in 1993 "to identify issues APEC should address to facilitate regional trade and investment and encourage the further development of business networks throughout the region." The PBF prepared two reports for economic leaders: A Business Blueprint for APEC: Strategies for Growth and Common Prosperity (1994) and The Osaka Action Plan: Roadmap to Realizing the APEC Vision (1995). Likewise, in 1992, APEC ministers set up an independent, non-governmental Eminent Persons Group (EPG, 1993-1995) to develop a vision for the region as well as to recommend how to achieve and implement the vision. The EPG published three reports: A Vision for APEC: Towards an Asia-Pacific Economic Community (1993), Achieving the APEC Vision: Free and Open Trade in the Asia Pacific Region (1994), and Implementing the APEC Vision (1995). At each year's Ministerial Meeting, members define and fund work programs for APEC's three committees, ad hoc policy level group, ten working groups, and other APEC fora. Committees are working on issues such as trade and investment facilitation and liberalization, providing information and analysis on economic trends, and APEC administration and budget issues. Working groups promote practical economic and technical cooperation in areas such as infrastructure rationalization, technology flow, education and training, environmentally sound development and protection of scarce resources. Much of their work in 1997 will be to implement individual and collective action plans and joint activities in response to the 1995 Osaka Action Agenda and the 1996 MAPA. APEC members have used APEC fora to build practical links between their official representatives, business sectors, academic communities and, lately, NGOs/civil society.

APEC's organization is at 5 levels:

(1) Economic Leaders' Meeting (ELM): the meeting is held at the latter part of every year since 1993. Up to now, the meeting has been held for 7 times respectively in Seattle, United States; Bogor, Indonesia; Osaka, Japan; Subic, Philippines; Vancouver, Canada; Kuala Lumpur, Malaysia; Auckland, New Zealand. (2) Ministerial Meeting: the meeting is usually held before the Economic Leaders' Meeting. Foreign Ministers from members except Hong Kong, China and Chinese Taipei, and their Economic Ministers will participate in the meeting. There have been 11 Ministerial Meetings since the founding of APEC, among which those between 1989 and 1992 were held respectively in Canberra, Australia; Singapore; Seoul, Republic of Korea; Bangkok, Thailand. Ever since 1993, the Ministerial Meeting has been held at the same venue as the Economic Leaders' Meeting. In addition, some sectoral ministerial meetings are held every year.

(3) Senior Officials' Meeting (SOM): The meeting is made up of senior officials or ambassadors and usually has 4 or 5 meetings each year. At present, the APEC Senior Official of the People's Republic of China is Ambassador Zhang Yan. SOM's main tasks are carrying out the decisions of the Ministerial Meeting and the Economic Leaders' Meeting and making necessary preparations for next Ministerial Meeting and the Economic Leaders' Meeting.

(4) Committees and Working Groups (WG): There're 4 committees under SOM, namely Committee on Trade and Investment (CTI), Economic Committee (EC), SOM Sub-Committee on Economic and Technical Cooperation (ESC), Budget and Management Committee (BMC). In addition, there're 9 Working Groups and 3 policy level and expert groups to carry out specific activities and cooperation.

(5) The Secretariat: The Secretariat was set up in Singapore in January 1993 to provide support and services for APEC activities at all levels. The highest officer of the Secretariat is the Executive Director, who is appointed by the host member of the year.



APEC offers a way forward for Asia Pacific economies out of the impasse in the WTO. There is immediate interest in pressing ahead with APECs multilateral liberalisation agenda, providing the direction and leadership on trade policy that is desperately required. There is potential for

mobilizing a powerful coalition in APEC to define the way forward in multilateral negotiations through a new round. This will need to involve sorting out important differences among key

players in APEC itself. The Trade Ministers Meetings in Darwin later this year provide an important opportunity to make progress on all these fronts.

The circumstances in which APEC finds itself today, after the aborted launch of the new round in Seattle last November, has some parallels with that in the early 1990s. Then, APEC developed its unique approach to trade and investment liberalisation, based on the idea of open regionalism in response to the twin dangers of a collapse of the Uruguay Round and a resurgence of regionalism which threatened to divide the world into a small number of warring trade blocs. After these dangers were averted and the Uruguay Round was successfully concluded, APEC was able to turn its attention to adding value to what had been achieved in the WTO. The world trade system again looks vulnerable and regionalism is resurgent. Once more APEC needs to calculate what it can contribute to restoring a sense of purpose to the multilateral negotiations and ensuring that the pressure for regional arrangements is channelled in constructive directions. Much has changed since 1994. APECs targets for trade and investment liberalisation are in place. The Osaka Action

Agenda and APECs Individual Action Plans provide a vehicle for carrying reform ahead independently of formal negotiations in the WTO or under other arrangements. This is a useful, if not entirely certain, platform from which to keep the momentum of trade and investment liberalisation moving forward. Without APEC, for example, there would have been no ready

international platform for delivering substantial trade reform and liberalisation and establishing Chinas credentials on the way towards accession to the WTO. There is scope for making this process more certain for streamlining and strengthening the process of unilateral liberalisation within APEC under the Individual Actions Plans and scrutiny of APEC members programs of reform on the way towards achieving the Bogor goals. Now is surely the time to raise the profile of APECs independent trade liberalisation agenda both as a way forward while the new round is on hold and as a beacon in encouraging commitment to multilateral negotiations. APECs concerted unilateral approach to trade liberalisation can, in this way, be both an effective complement to, and

useful lever for, progress in the WTO. But it would be unrealistic to claim that APECs goals will be delivered independently of negotiations in the WTO. Neither the United States nor, unfortunately, Japan will deliver their part of the APEC bargain unless the hard issues, such as agriculture and anti-dumping, are negotiated within the WTO. In its own interest, therefore, APEC needs to

consider how it can contribute to re-starting the negotiations towards a new WTO round. There is no pretending that this will be an easy task. Two of the issues that derailed the launch of the new round agriculture and an inability to bridge the gap between developed and developing countries in setting the agenda also have the potential to divide APEC. Despite the endorsement of the new round in Auckland, APEC had little impact on the outcome at Seattle. Some APEC governments took positions in Seattle contradictory of the position reached by APEC leaders in Auckland. So APEC has a lot of ground to recover if it is to become a credible coalition for getting the WTO process under way again. Yet, more than any other group of economies, APEC embodies a structure of interests and a tradition of consensus-building and cooperation that give promise that it could find a way forward on these issues in the WTO.

Most APEC members sympathize with developing country resistance to American and European demands that labour, environmental and other so called new issues be included in the agenda of the new round. They support developing country demands to curb the abuse of anti-dumping action and to tighten implementation of the outcomes of the Uruguay Round. There is also growing

support in APEC for an integrated approach to the food trade problem, in the proposal for an APEC food system, linking trade liberalisation to rural development, the transfer of agricultural technology and food security. This provides a framework within which agricultural trade issues might be addressed more constructively. To weld an effective coalition in the WTO, APEC members will have to confront these issues carefully but purposefully. This is not without risk, particularly because of the divisiveness they bring to relations between the United States and other APEC members. But the stakes are high and the risk worth taking if APEC can help break the Seattle impasse, since APEC needs an effective WTO if its own ambitions for trade and investment liberalisation are to be realized successfully. The United States would want to think hard before it shunned such an endeavor, because to do so would corrode the strategic framework of links with East Asia through APEC, encouraging East Asian economies to find their own and different solutions to the trade policy choices they now face.



From the start, the Asia-Pacific economies have stood for a free and open approach to trade and investment. Our governments and businesses know from first hand experience that this approach produces economic growth and development. APECs creation and evolution over the years is a natural outcome of our economies interaction and shared interests. APECs role in trade and investment is the manifestation of its members joint promotion of their shared interests. APEC has always been positive and forward-looking. This is true whether we speak of the Bogor goals, the successful completion of a WTO Round or setting benchmark standards for regional trade agreements. A particular quality to the organization is its flexibility and the fact that the members shared interests are not artificially bounded by a particular setting. As we head into 2007, APEC will be more than ever relevant in the WTO, in bilateral and regional agreements and through specific APEC-centered initiatives that advance member economies interests in trade and investment liberalisation. Trade and investment liberalisation is one of the core elements of the Asia Pacific Economic Cooperation (APEC) forums overall economic program. at their second meeting in November 1994 at Bogor, APEC leaders agreed on a timetable for implementing APECs liberalisation program; developed members economies would move to free trade and investment by 2010 and developing economies by 2020. In articulating this agenda, APEC leaders were building on a extended history of liberalisation throughout the region - trade liberalisation in particular has been an important feature of the economic environment in many APEC economies for a long period. APEC has become 18 years old this year and experienced both ebb and flow of its momentum. But I feel its experiences are not shared widely. I have been affiliated with APEC in a variety of capacities, PECC member, APEC/EPG member, APEC Study Center representative, and APEC consultant for these years. Since APEC is an official inter-governmental body, sufficient information has not been accessible to non-official observers. But because of these capacity and because I was not in the government, I could participate in APEC and discuss APEC throughout these years. I would like to have my experiences in APEC shared with young researchers and wish them to promote APEC further. This symposium provides me the best opportunity. Nowadays we hear often that there has been a paradigm shift from APEC to East Asia and APEC has finished its


role. It is a pity that this argument is often made by those who are not aware of APECs experiences for the past years.


Trade and investment liberalisation and facilitation are the cornerstones of APEC's mission and activities, and the Committee on Trade and Investment (CTI) is the coordinating body for all of APEC's work in these areas.

The CTI provides a forum for APEC's 21 member economies to deliberate trade and policy issues. It works to reduce impediments to business activity in the areas outlined by the Osaka Action Agenda, with the objective of helping APEC economies achieve the Bogor Goals of free and open trade and investment.

The CTI oversees: Eight sub-groups: Business Mobility Group (BMG), Electronic Commerce Steering Group (ECSG), Group on Services (GOS), Intellectual Property Experts' Group (IPEG), Investment Experts' Group (IEG), Market Access Group (MAG), Sub-Committee on Customs Procedures (SCCP), Sub-Committee on Standards Conformance (SCSC); and

Three industry dialogues: Automotive Dialogue (AD), Chemical Dialogue (CD) and Life Sciences Innovation Forum (LSIF).

The CTI was established in November 1993 by the Declaration of an APEC Trade and Investment Framework. APEC Leaders and Ministers direct its work and APEC Senior Officials provide guidance. The scope of the CTI's work was expanded and further clarified by the Osaka Action Agenda in 1995.



Liberalization was a late-comer on the APECs agenda. It was stated explicitly in Leaders declaration for the first time at the Seattle APEC in 1993. Apparently it was affected by the Eminent Persons Group Report I submitted to APEC in August 1993 which elaborated the liberalization agenda in its vision of APECs tasks in future. Then in 1994 the ambitious Bogor Declaration committed to achieving free and open trade in the region by 2010/20207. The Osaka Action Agenda (1995) provided the guideline for implementing the liberalization programs and all member economies submitted their individual action plans (IAPs) for liberalization by November 1996 (Manila Action Plans for APEC, MAPA), which were implemented actually on January 1, 1997. When the EPGs second report was presented to President Seohart in August 1994 with its explicit recommendation for implementing APECs program of liberalization by 2000, some of its members wondered whether it would be too hasty to start it before the liberalization under the Uruguay agreement is not completed (APEC/EPG II 1994). Contrary to our anticipation, Pacific Business Forum (EPGs counterpart of business people) recommended that APEC should start its liberalization program immediately and a few members of the Leaders meeting endorsed the PBFs recommendation. President Seohart accepted the latter recommendation and announced the ambitious Bogor Declaration. This story tells us how big the expectation was for APEC then. However, IAPs have not gone far beyond the Uruguay Round commitment and another liberalization program to supplement IAPs, Early Voluntary Sector Liberalization (EVSL), actually failed to be realized because of the conflict between major participants in 1998. Together with East Asian crisis which hit Southeast Asian economies, a leading group of high growth potential of APEC, the liberalization momentum has decreased, so has gone downward the expectation for APEC recently.

However, pessimistic views about APEC which we hear occasionally today is overly affected by the fluctuation of expectation, ignoring the precise capability of APEC. The recent experience of APEC in liberalization has certainly revealed that APEC is not a negotiating body and cannot do much alone in liberalization area. However, APEC can still contribute to liberalization under WTO by acting as a catalyst.



APEC is the premier forum for trade and investment liberalisation in the Asia-Pacific and has set targets dates for "free and open trade": no later than the year 2010 for industrialized economies, and 2020 for developing economies (the Bogor Goals).

When APEC was established in 1989 average trade barriers in the region stood at 16.9%; by 2004 barriers had been reduced by approximately 70% to 5.5%.

As a consequence, intra-APEC merchandise trade (exports and imports) has grown from US $1.7 trillion in 1989 to US$8.44 trillion in 2007 - an average increase of 8.5% per year; and merchandise trade within the region accounted for 67% of APEC's total merchandise trade in 2007.

Similarly, trade with the rest of the world has increased from US$3 trillion in 1989 to US$15 trillion in 2007, an average increase of 8.3% per year. Trade in the rest of the world has increased at 7.6% over the same period.

Over 30 bilateral free trade agreements (FTAs) have been concluded between APEC Member Economies.

APEC is also pursuing trade and investment liberalisation through its Regional Economic Integration agenda.

Progress to date includes: Investigating the prospects of and options for a Free Trade Area of the Asia-Pacific.

The development of 15 model measures for RTAs/FTAs that serve as a reference for APEC members to achieve comprehensive and high-quality agreements.

APEC has also acted as a catalyst in the advancement of World Trade Organization multilateral trade negotiations over the past 20 years.



Trade by APEC member economies has increased rapidly since the 1980s and has been a key determinant of economic growth. exports grew at more than twice the rate of GDP over the period and almost twice as as rapidly as exports from non-APEC economies. while APEC;s strong export performance is at least partly related to trade liberalisation by members economies, impediments to undistorted trade in the region remain. The growing role of trade in the APEC region has been encouraged, at least in part, by the reduction in the government imposed measures that distort the free flow of trade, including tariffs and nontariffs barriers. Trade liberalisation initiatives were implemented in APEC prior to the commitments made in the manila Action Plan for APEC in 1996 and have been pursued unilaterally and in the regional and multilateral forums. unilateral efforts to liberalize trade reduced the unweighted average tariff level in the APEC region from 15.4 percent in 1988 to 9.1 percent in 1996. Unweighted tariffs rates are calculated as the average ad valorem duty across all tariffs lines regardless of the value of imports under each tariff line. they do not include specific duties. the incidence of non-tariff measures also declined over the same period, from 9 percent to 5 percent. Multilateral liberalisation under the Uruguay Round has complemented unilateral tariff reductions by binding tariffs at the new lower levels. in addition, commitments under the Uruguay Round have played a important part in the reduction of non-tariff barriers in APEC economies. Commitments have include the reduction of domestic production subsidies, exports subsidies and voluntary export restraints in agriculture and reductions of bilateral quotas on textile and garments. Subregional trading arrangements within APEC have also played a role in trade liberalisation among APEC economies, with fourteen member economies participating in at least one such arrangement. the most significant of these are the North American Free Trade (NAFTA), the ASEAN free trade area and the Australia - new zealand closer economic relations trade agreement. Some APEC member economies are also involved in trading agreements with non-APEC economies. Since 1996, APEC trade liberalisation has occurred within the framework of members economies individual actions plans. These identify, on an annual basis, tariff and non tariff measures that will

be reduced or eliminated in the short, medium and long term , in accordance with the guiding principles of APEC liberalisation, the 1999 individual action plans indicate that considerable progress has been made in liberalizing APEC trade regimes in the period since 1996. this is

confirmed by data that show that unweighted average tariff levels have fallen in at least thirteen APEC economies over the period 1996-98. Thailand has implemented the largest reduction in average tariff levels, with other significant reductions occurring in the philippines and china.

MEASURES THAT DISTORT TRADE tariffs : tariffs are a tax on imports. The most common form of tariff is an ad valorem duty, calculated as a percentage of the value of the imported good. Tariffs may also be levied on a specific, or per unit basis. Tariffs or taxes on exports are also applied by some economies. Non-tariff barriers : non tariffs barriers refer to measure other than tariffs that distort trade. The most common non-tariff barrier is an import quota which limits the quantity or value of a good allowed into an economy. import quota can be combined with tariffs to form tariff quota where a tariff is applied to imports above the quota level. Other non tariff barriers include licensing schemes; the imposition of standards and technical requirements; prohibitions; and voluntary export restraint arrangements. Export and production subsidies : export subsidies are government payments to local producers for the export of certain products while production subsidies are paid on actual output levels. while not applied to trade directly, production subsidies distort international trade by giving local producers an advantage over producers of imported products.



The strong APEC commitment to trade liberalisation is based on the expectation that open an outward looking trade regimes will lead to higher national incomes, principally through the impacts of specialization on economic activity. there is a strong historical relationship between the

expansion in global trade and worlds economic growth. the volume of world merchandise and service trade increased almost ninefold between 1960 and 1990, while world economic growth output expanded. As traditional trade barriers such as tariffs come down, trade facilitation reforms that address other impediments to trade in goods and services become even more important. Economies around the world are recognizing that international trade can be made more efficient (less costly and less time consuming) if countries remove complex and redundant administrative processes that affect, for example, customs, the mobility of business people, payments and insurance, and standards and conformance. The benefits of trade facilitation reforms accrue not only to traders, but to other businesses and consumers as well. As a consequence, trade facilitation is now part of the work programs of a number of international forums, including the World Trade Organization (WTO), the United Nations Conference on Trade and Development (UNCTAD), the World Customs Organization (WCO) as well as APEC. APEC member economies are pursuing trade facilitation and related administrative and regulatory reforms with the ultimate objective of increasing standards of living. They aim to ensure that their economic systems deliver the goods and services people need at the lowest possible cost. For business and the wider community the reform initiatives increase efficiency through the use of computerized systems and smarter management techniques, assist in cutting costs, increase trade volumes, and contribute to improving transparency, certainty and fairness. As the recent report APEC Economies: Breaking Down the Barriers (APEC 2001) has shown, reforms in diverse areas have brought many common benefits by, for example: reducing prices and increasing quality and choices for consumers improving productive efciency by reducing input and transaction costs for business promoting innovation and the adoption of new products, technologies and management methods

increasing the adaptability of the domestic economy, in part to take best advantage of the gains from globalization and economic integration establishing institutions and methods to enable economies to more cost- effectively achieve regulatory objectives, and safeguarding budgetary revenues and making more efcient and effective use of public resources. The reforms are not just facilitating international trade and investment they are also improving the overall domestic market environment and increasing the efciency with which public resources are used.

Quantifying the benefits Because the reforms are diverse and generate benefits through a variety of mechanisms, it is not always easy to quantify the gains that have been achieved by implementing them. Nevertheless, these gains are significant. A recent study, Measuring the Impact of APEC Trade Facilitation on APEC Economies: A CGE Analysis (APEC Economic Committee 2002), estimated that reducing the costs of international trade transactions by just 5 per cent by 2006 could add US$154 billion (in 1997 prices) or 0.9 per cent to APECs GDP each year. This annual increment is close to the size of Indonesia's economy in 2000. The reforms that have been quantified are of two broad types: at-the-border reforms that involve information technology to improve customs procedures: 1. Singapore's TradeNet 2. Thailand's electronic data interchange (EDI) system 3. the Philippines Super Green Lane (SGL) behind-the-border reforms that focus on improving physical and market infrastructure: 1. road transport in Mexico 2. the insurance sector in China 3. port services in Australia.


Both types of reform reduce transaction costs for traders and produce savings for government agencies the direct benefits of such reform. In doing so, they generate significant further flow-on benefits the indirect benefits. Because of the interdependencies between economies and sectors, measuring the benefits of these reforms requires a global economy wide framework that incorporates both the links between sectors of production in each economy and the links between economies. In this study a leading global economic model that is widely used to examine the implications of trade reform the Global Trade Analysis Project (GTAP) framework has been used. For each reform, the sectors affected have been identified and the reform simulated in GTAP. The results from these simulations indicate the magnitude of the benefits from the trade facilitation reforms.

GTAP, like all models, simplifies the real world to make its analysis manageable. It simplifies the behavior of industries and consumers, as well as the markets in which they operate. Despite their limitations the results provide valuable information on the likely size of the economy wide benefits from the reforms, and point to the rewards to be obtained from pursuing further trade facilitation.



APECs GDP (in PPP terms) 1992 to 20111 As a group, APECs GDP in Purchasing Power Parity (PPP) terms2 has increased almost three-fold from $14.8 trillion in 1992 to $43.9 trillion in 2011. In 2011, APEC accounted for 55.7 per cent of the worlds GDP in PPP terms compared with 53.0 per cent in 1992. APECs GDP has grown at an average 6.1 per cent per annum since 1992 in PPP terms faster than both non-APEC countries average growth (5.5 per cent) and the worlds average growth (5.8 per cent) over the same period. APECs population grew by an average 0.8 per cent per annum from 1992 (2.3 billion) to 2011 (2.8 billion) compared with the world population which grew by an average 1.3 per cent per annum for the same period. APEC accounted for 39.8 per cent of world population in 2011. APECs per capita GDP has risen from $6,719 in 1992 to $15,889 in 2011 in PPP terms higher than both non-APEC countries average GDP per capita of $8,376 (up from $4,209 in 1992) and the worlds average GDP per capita of $11,367 in 2011 (up from $5,109 in 1992).

APECs trade (in US dollars) Goods and services exported by APEC members to the world have increased from US$2.0 trillion in 1992 to US$10.1trillion in 2011. Similarly, goods and services imported by APEC members have risen from US$2.0 trillion to US$10.3 trillion. Intra-regional merchandise exports and imports amongst APEC economies have been robust, both growing at an average of 8.1 per cent per annum since 1992. In 2011, intra-regional merchandise exports accounted for 67.2 per cent of APECs total merchandise exports while intra-regional merchandise imports accounted for 65.1 per cent.



Average applied tariffs in APEC economies have been reduced from 16.9 percent in 1989, when APEC was established, to around 5.8 percent in 2010. APEC's total trade (goods and services) has increased from US$3.1 trillion in 1989 to US$16.8 trillion in 2010. Intra-APEC merchandise trade (exports and imports) has grown from US$1.7 trillion in 1989 to US$9.9 trillion in 2010, accounting for 67 percent of APEC's total merchandise trade. In 2011, the CTI focused its work around the APEC 2011 priorities of (i) strengthening regional economic integration (REI) and expanding trade; (ii) promoting green growth; and (iii) advancing regulatory convergence and cooperation. The 2011 CTI Annual Report to Ministers contains an overview of CTIs work in 2011 and outlines advances made by the Committee to take forward its work program. Those advances and achievements include:

A set of guidelines for implementing recommendations and measures to track progress of APEC economies towards achieving Bogor Goals in 2010;

The final assessment of the implementation of APECs Second Trade Facilitation Action Plan (TFAPII) with the assistance of the Policy Support Unit, which shows that trade costs within APEC were reduced by 5% in real terms during the 2007-2010 period. The reduction represents total savings for business of US$58.7 billion;

An agreement on a methodology to use internal and external indicators for measuring progress towards the 10% improvement of supply-chain performance (i.e. improving the flow of goods and services within the APEC region in terms of reduced time, cost and uncertainty) by 2015;

The identification of three next generation trade and investment issues: (i) facilitating global supply chains; (ii) enhancing small and medium-sized enterprises (SMEs) participation in global production chains; and (iii) promoting effective, non-discriminatory, and marketdriven innovation policy and the specific work to address these issues;

A proposed set of actions to address the next generation trade and investment issues of Enhancing SMEs participation in Global Production Chains;

The development of a list of nine barriers that SMEs face in trading in the region, in collaboration with the APEC SME Working Group. The CTI worked with APEC economies


to identify concrete actions to address those barriers related to trade and investment liberalization; The identification of interoperability standards for smart grid as the first emerging regulatory issue to be worked on in 2011 under the APEC Regulatory Cooperation Advancement Mechanism on Trade Related Standards and Technical Regulations (ARCAM) and agreed on a set of recommendations to promote interoperable standards for smart grid. The development of two new pathfinders: Pathfinder to enhance Supply Chain Connectivity by Establishing a Baseline De Minimis Value that seeks to exempt express and postal shipments from customs duties or taxes and from certain entry documentation requirements for shipments and Pathfinder on Facilitating Trade in Remanufactured Goods that ensures participating economies do not apply measures specifically concerning used goods to remanufactured goods. The substantive progress made in the implementation of the action plans endorsed in 2010 to address the eight checkpoints under the Supply-Chain Connectivity (SCI) Framework as they relate to regulatory impediments, customs inefficiencies and inadequate transport networks and infrastructure. The contribution to the development of a set of policies economies would adopt to promote innovation without distorting global markets. The set of policies was adopted by APEC

Leaders and attached as Annex A to their statement in 2011. The advancement of work on liberalizing the trade and investment in environmental goods and services (EGS). The CTI discussed a proposal for an APEC EGS Technology

Dissemination Action Plan. The Committee also contributed to the development of Annex C of the 2011 Leaders Statement on Trade and Investment in Environmental Goods and Services.



It has been stressed on a number of occasions and in various articles that higher economic growth in the APEC region has largely been led by expansion in FDI inflows as well as exports. Moreover, the experience of the Asian crisis in 1997 taught us that what is required for sustainable growth is longterm physical capital such as FDI rather than speculative financial investment that can be withdrawn in a short time period. However, investment liberalization continues to face persistent resistance, especially among advocates of protection of domestic industries. In addition, solid growth in FDI requires, along with broader measures, transparency and stability in relevant legal schemes, predictability in FDI, assurance of business latitude for activities of foreign corporations, and other measures to reduce investment barriers and develop relevant laws. In this regard, reduction of investment barriers and enhancement of the environment for further investment have become key elements to achieve the Bogor Goals, in addition to traditional liberalization of trade in goods and services. The study on The Impact of APEC Investment Liberalization and Facilitation was carried out under the APEC Economic Committee (EC) in 2002, in order to analyze quantitatively the economic effects of investment liberalization and facilitation. Since the Committee was established in November 1994 at the 6th APEC Ministerial Meeting in Jakarta, it has been involved in a broad range of research and analysis in support of APECs work on trade and investment liberalization and facilitation, which is the principal goal of APECs activities. There were two main objectives in the 2002 study. One was to quantify the investment barriers in the APEC member economies. This was the first attempt to quantify investment barriers based on the descriptions of investment-area activities in the Individual Action Plans (IAP) of the APEC member economies, which is vital in showing the state of progress made in APEC toward the goals announced at Bogor. The other objective was to estimate the economy-wide impact of investment liberalization and facilitation, when investment barriers are eliminated. Key messages from the outcomes of quantitative model simulations include: first, all APEC member economies will benefit from investment liberalization and facilitation, in terms of real GDP; and second, FDI and trade may have a complementary relationship, that is, increases in FDI will create trade. Quantitative analysis of investment rather than trade liberalization and facilitation is still a difficult task. Although there have been several signs of progress, much remains to be done. The 2002 study has achieved an important point but, more importantly, it has clarified the issues for future studies. For example, it must be noted that IAPs are developed voluntarily by each APEC member economy

and so they lack both comprehensiveness and standardization with other economies. The presented quantification may not exactly reflect reality in some areas. Development of IAPs with greater comprehensiveness and in adjustment with the various economies will clarify where we stand vis-vis the Bogor Goals. Such IAP data will be extremely useful in economic analysis, as well as for investors in making investment decisions. IAPs are updated and improved continually. Therefore, it is important to undertake periodic follow-up assessments of the anticipated impact of APEC actions in terms of evaluating the current state of investment liberalization and facilitation in the region. The Benefits Of Investment There is strong international consensus on the benefits of investment, across the spectrum of its activities: from tangible assets to intellectual property. Such investment drives economic

productivity, builds jobs, raises incomes, strengthens trade flows and spreads international best technologies and practices. Investment bolsters economic growth for developed and developing economies alike. APECs member economies recognise the significant economic benefits of investment and are active in promoting investment and facilitating cross-border investment flows. Facilitating investment requires work: a concerted national and international effort to create and sustain the most conducive climate for investment APEC has been instrumental in this effort in the Asia-Pacific region beginning with its adoption in 1994 of the non-binding investment principles. These are designed to improve and further liberalise investment regimes and they include measures on facilitation. To reinforce APECs work in this area, in 2007 in Sydney APEC Leaders agreed to the development of an Investment Facilitation Action Plan (IFAP) aimed at further promotion of investment in APEC member economies. Effective investment facilitation can make a significant contribution to the sort of broader investment climate reform efforts widely practiced by APEC member economies.

What is Investment Facilitation? To harness the advantages of foreign investment, it is critical that governments have investment procedures in place that do not unnecessarily increase the costs or risk of doing business, or constrain business competition (which individually or collectively lower productivity and growth). Investment facilitation refers to actions taken by governments designed to attract foreign investment and maximise the effectiveness and efficiency of its administration through all stages of the investment cycle.

Investment facilitation covers a wide range of areas, all with the ultimate focus on allowing investment to flow efficiently and for the greatest benefit. Transparency, simplicity and

predictability are among its most important principles. The costs of opacity far outweigh the costs of enhancing transparency. Investors look for an investment environment that is stable, and that offers international best practice standards of protection, including the swift and equitable resolution of investment disputes.

A sound investment facilitation strategy ensures that all investment applications are dealt with expeditiously, fairly and equitably. Investment facilitation also requires creating and maintaining transparent and sound administrative procedures that apply for the lifetime of the investment, including effective deterrents to corrupt practices. Finally, investment facilitation is enhanced by the availability of quality physical infrastructure, high-standard business services, talented and flexible labour forces, and the sound protection of property rights. Multilateral Investment Facilitation

Several multilateral organisations have active programs in support of strengthening facilitation practices as part of broader investment promotion policies. The World Bank is at the forefront of these efforts, providing information services and diversified technical assistance to help governments and relevant intermediaries involved in promoting investment enhance their ability to respond effectively to investor needs.

UNCTAD analyses trends in FDI and their impact on development, compiles data on FDI, provides advisory services and training on international investment issues, helps developing countries improve policies and institutions that deal with FDI, and assists these countries to participate in international negotiations on investment. The OECD has developed investment policy instruments, such as the Framework for Investment Policy Transparency and the Policy Framework for Investment, to assist governments in developing frameworks for investment facilitation.

APECs IFAP is designed constructively to complement these existing international efforts. It is a consensus plan on investment facilitation that reflects the specificities and priorities of APEC members. While it is non-binding, the IFAP reinforces APECs commitment to significantly

enhanced regional economic integration.



Since its inception in 1989, APEC has emphasised the importance of investment facilitation through practical activities in its work program. In 1995, APEC Leaders adopted the Bogor Goals of free and open trade and investment in the Asia-Pacific region by 2020. At the same time they committed to accelerate APECs trade and investment facilitation programs. Investment facilitation accordingly is one of the aims of the 1995 Osaka Action Agenda (OAA).

APEC member economies are continuing efforts to enhance transparency of investment regimes, improve investment climates and encourage and facilitate free and open investment in the region. The 2007 report on Strengthening Regional Economic Integration emphasises the need to improve further the investment climate in APEC member economies and refocuses APECs investment liberalisation and facilitation agenda on concrete initiatives that accelerate regional economic integration and reduce behind-the-border barriers.

Among APECs achievements that have included investment facilitation so far are:

APEC Non-Binding Investment Principles (1994); Options for Investment Liberalisation and Business Facilitation to Strengthen APEC Economies (1997);

Guide to the Investment Regimes of APEC Member Economies (6th edition, 2007); and Study on Enhancing Investment Liberalisation and Facilitation in Economic Development in the Asia-Pacific Region, which examined ways to reduce behind-the-border barriers to domestic investment.

These initiatives were undertaken in recognition of the diversity that exists among APEC member economies, and they provide members with a broad range of policy choices suitable for different economic circumstances.



Expansion of foreign direct investment has also been very dramatic. Specifically, between 2001 and 2007, the values of inward holdings of foreign direct investment (FDI) stocks in the APEC region increased by 14.9 percent (simple average) or 12.8 percent (weighted average) per annum. The fast expansion of foreign direct investment is also evident globally. Conventional theoretical models have predicted that international capital movement helps the economic growth of the destination and source economies alike, as it finances domestic investment in the destination economies while it helps maximize the efficient use of capital in the source economies. In particular, FDI can be a vehicle for technological progress in the destination economies through the use and dissemination of advanced production techniques. Since its inception in 1989, APEC has striven to achieve the goals of free and open trade and investment in the APEC region. In particular, APECs investment liberalization and facilitation efforts have contributed to cross-border investment between APEC economies. However, there has been little effort to examine the underlying nature, structure, and determinants of such financial linkages between member economies.2 Gaining a better understanding of these features of the linkages of financial markets in the APEC region will assist in identifying priorities for the postAPEC Investment Facilitation Action Plan (IFAP), and more broadly for future APEC agendas for regional economic integration (REI) and the goals of free and open trade and investment (FOTI). Despite the importance of FDI in APEC, there has been no major empirical research which attempts to assess the bilateral flows of FDI between APEC member economies. Against this background, this paper aims to establish a firm understanding of the structure and determinants of bilateral FDI investment linkages among APEC economies. Specifically, this paper aims to analyze determinants of intra-APEC FDI flows so as to ascertain if and whether APEC members tend to invest more intensively intra-regionally than extra-regionally and, conversely, whether APEC economies receive more investments from other APEC members compared to extra-regional investments. We are also interested in assessing the importance of institutional variables in determining FDI flows. The link between institutional quality and cross- border capital movement deserves special attention, as such a link may be seen as one particular channel through which institutions are able to promote productivity growth. Indeed, good governance infrastructure exerts a positive influence on economic growth through the promotion of investment (domestic and foreign alike), while

institutional underdevelopment is a key explanatory factor for the lack of foreign financing in developing economies. It seems intuitively plausible to believe that a sound institutional environment, i.e. efficient bureaucracy, low corruption, and secure property rights should attract more FDI. Likewise, it is expected that high country risks, such as political risks, discourage FDI inflows. Nonetheless, according to a recent survey of the literature , evidence remains mixed. For in- stance, Asiedu (2002) concludes that neither political risk nor expropriation risk have any significant impact on FDI. Noorbaksh et al. (2001) also report that democracy and political risk are not significantly related to FDI. Recently, however, Ali et al. (2010) find that institutions are a robust predictor of FDI and that the most significant institutional aspects are linked to property rights. They also find that institutions have a significant impact on FDI in manufacturing and in services, but that institutional quality does not matter for FDI in the primary sector.



There are three important elements in the methodology of quantifying investment barriers in the 2002 study. First, the information on existing FDI restrictions was primarily collected from Individual Action Plans (IAPs) 2001 of APEC Member Economies. However, this was complemented with further information from other sources. Investment barriers were updated from earlier studies, and quantified in detail by both sector and economy. Second, investment barriers were defined and classified according to the aspect of investment that they most affect, such as a) market entry, b) ownership and control, and c) operations. Third, such qualitative information was transferred to certain numerical indicators by frequency and coverage measures, which is one wellestablished methodology of quantifying qualitative information such as investment barriers. Among others, one significant shortcoming in the 2002 study must be noted. Investment barriers were first quantified based on Individual Action Plans (IAPs) 2001 of APEC Member Economies, APEC IAPs database. However, it was found that IAPs are not necessarily required to be comprehensive or standardized with other economies. Although the data were complemented with substantial information from other sources, for example, that issued by the OECD, the European Commission, the US Department of State, and the Asia-Europe Meeting (ASEM) Database,4 the quantification presented in the study might not exactly reflect reality in some areas. It should be noted that investment barriers are measured as relatively higher in those economies where descriptions of investment-area activities in the IAPs are more detailed and accurate. In fact, the share of APEC information, such as IAPs and the APEC Guide to Investments, was around 10 percent of the total source information on FDI barriers on average. However, there are certain differences in this share among the member economies. There is a good reason why APEC information does not have a higher ratio. IAPs are developed voluntarily by member economies, and they are not necessarily required to be comprehensive. On the other hand, information from the other sources should also be qualified. Several investment barriers may remain listed even after they have already been removed in member economies. In addition to the quantitative aspect, the qualitative aspect should also be noted. FDI barriers or impediments in this study are defined as any government policy measures that may distort decisions about where to invest, or in what form. According to the UNCTAD, those FDI barriers are classified


by what aspect of the investment they most affectestablishment, ownership and control, or operationsas follows.

Classification of FDI Barriers Restrictions on market entry : Bans on foreign investment in certain sectors Quantitative restrictions (e.g. limit of 25 percent foreign ownership in a sector) Screening and approval (sometimes involving national interest or net economic benets tests) Restrictions on the legal form of the foreign entity Minimum capital requirements Conditions on subsequent investment Conditions on location Admission taxes Ownership and control restrictions Compulsory joint ventures with domestic investors Limits on the number of foreign board members Government-appointed board members Government approval required for certain decisions Restrictions on foreign shareholders rights Mandatory transfer of some ownership to locals within a specied time (e.g. 15 years) Operational restrictions Performance requirements (e.g. export requirements) Local content restrictions Restrictions on imports of labor, capital and new materials Operational permits or licenses Ceilings on royalties Restrictions on repatriation of capital and prots


The name, Asia-Pacific Economic Cooperation, does not have a noun such as a community, agreement nor summit to go after it. Skeptical viewers convey that this represents an institutional underdevelopment because the member nations cannot even reach and agreement on the basic character of the organization.1 The fact that APEC covers a large part of the region and includes nations with diversity in culture, political interests economic development, and absence of strong leadership are seen as a cause of difficulty to formalize the institution. Due to the existence of INGOs, such as PECC, for trade facilitation and development cooperation since the late 1960s, and acts of regional economic cooperation, this sort of just became the name for the organization. Miyaichi states that this reflects pragmatism and the Asian nature (since more than half the members are Asian nations) in its ambiguity. Not specifying the shape of its organization, whether it is an agreement or conference, is not the matter of most importance, or better yet, its better not to formalize the formation.2 Other mega-regionalisms do have a binding nature represented in their name, such as Free Trade Agreement in the case of NAFTA and Customs Union for EU. However, APEC has recently been trying to make itself matter more, and this flexible feature of APEC is adjusting towards the original intention of the organization, to concentrate on the economic cooperation aspect to obtain more equitable development in the region towards economic globalization. After the difficulties experienced during the negotiations of the Uruguay Round of GATT in the late 1980s with the change in course of the development of the political economy of international relations with regionalization in the 1990s, political powers such as non-governmental organizations (NGOs) have developed and now became an important factor in the movement towards economic globalization. Unlike the East vs. West world division, created principally by differences in ideology, the new division of nations is created by the international political economy after the Cold War. This new division is based on differences in economic development and is represented by a developed North and an underdeveloped South. When the world free trade process was undertaken after WWII, uneven distribution of wealth in the North and the South already existed, along with similar unbalances of development within the region or individual nations. With increased technology and expanded knowledge of the world through rapid communication, political powers such as NGOs have made unfair distribution of world wealth more visible, and have started to address the problems of economic globalization. At the same time, developing or underdeveloped

members of WTO became more unwilling to let the developed western power ride over their economy without leaving visible improvements, and increased their coalition and voice at every international stage, at WTO and within APEC. With these movements, the public image of WTO changed to reflect an imposition of western ideology that creates uneven distribution of wealth, as seen at the failed WTO meeting in Seattle in 1999. With the rapid formation of regionalisms, the world started to be clearly divided into three major trading blocs, each formed by different economic and political regimes, which brought out a sort of organizational rivalry between these mega-regionalisms. To address these issues, the concept of free trade and its raison d' tre were recalled back to the principal ideology of peace maintenance through equitable economic growth and sustainable development of the nations of the world. The 2001 APEC summit in Shanghai was held only a month after the September 11th terrorist attacks on the United States, and leaders have announced APECs first political statement in the Leaders Statement on Counter-terrorism. The meeting held in China all year round emphasized the equitable development of developing members in APEC. To address the future role of APEC of confining the development of separate trading blocs, members across the Pacific were included in the principle of open-regionalism. The success of mega-regionalisms lies in their ability to solve the North and South problems in their region. The focus of WTO is leaning towards the development process of trade liberalization, as represented in the last WTO ministerial meeting with the Doha Development Agenda. APEC's 13year experience through TILF and ECOTECH with principles set at the Seoul APEC Declaration to sustain the growth and development of the region to contribute to that of world economy can be most useful in setting an example as a mega-regionalism with its success today. The voices of developed countries like the United States and Japan are heard in APEC, along with the concerns of underdeveloped nations represented by ASEAN towards equitable development in the region. APECs pillars of trade facilitation and ECOTECH are to be refocused and strengthened as the basic function of regionalism to achieve trade liberalization. Methods like CUA or IAPs used for trade liberalization, which address the sociopolitical and socioeconomic impacts of it are also important for the purpose of equitable development. The Shanghai Accord has reaffirmed APECs function to set principles for the regional and bilateral trade arrangements to serve as building blocks for the multilateral liberalization in the

WTO, and to be consistent with WTO rules and disciplines. This years leaders meeting in Mexico will pursue its previous years declaration, and to serve to stress the importance of trade facilitation and ECOTECH. Mexico can play an important role, as a developing nation in the Western Hemisphere, to address the strengthening of economies of both sides of the Pacific in APEC by connecting the mega-regionalisms of Asia and the West. After WWII, Japan always looked to the United States in making any political move, though more recently it has shifted its vision towards its culturally and geographically closer neighbors of Asia. Although Asianized Japan and APECs sub-regionalism ASEAN, started to consolidate their influences to express their viewpoints more in the international arena. With the purpose of lockingin the domestic structural reform, Japan now has its first bilateral FTA with Singapore, and will soon have one with Mexico also. The United States trade diplomacys emphasis on liberalization had been criticized and the loss of its commitment to multilateral negotiations disappointed many nations. The recent passing of the domestic trade promotion authority bill puts the Bush administration back on track, taking the leadership and will facilitate the pursuit of bilateral trade agreements with Chile and Singapore. After the Asian financial crisis, ASEAN nations had lost confidence in its demand as the developing countries voice in APEC, but regional institutional cooperation has been strengthened and they are moving forward to complete the AFTA. The feeling of threat that the ASEAN nations felt toward China for taking FDI otherwise directed to them, is being eased through a process of investment promotion and with their own FTA between China and them. After overcoming the competitiveness between them, China is very likely to join with ASEAN to strengthen the voice of developing nations at the international stages. The surge in bilateral FTAs in the APEC region is not only because of the facility of smaller scale negotiations between friends for trade liberalization, but also, because it is an easier way for the members to negotiate trade facilitation and ECOTECH aspects between them. Japans first bilateral FTA with Singapore stressed the mutual partnership aspect of it, and the lack of effectiveness on ECOTECH within APEC is better addressed between smaller parties. Mexicos interest in the search for more FDI and ECOTECH is more easily satisfied by its intention to make many bilateral FTAs with Asian partners. APECs future role is to strengthen and re-address the already existing principles, so that SRTAs and bilateral FTAs within the region will not serve as a stumbling block, but as a building block with special concerns for the economic growth of developing members

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