A Sketch of APEC
By 1989, economic interdependence in Asia-Pacific could not continue uncoordinated. Australia’s Prime Minister Bob Hawke hosted leaders of 12 Pacific Rim nations in Canberra to flesh out the idea of regional economic cooperation. The Asia-Pacific Economic Cooperation (APEC) was formally inaugurated in 1993 with the members agreeing to a vision of “stability, security and prosperity for [their] peoples.”
Over the years, APEC kept growing. Since its approval in 1999, APEC Business Travel Cards, one of APEC’s most practical accomplishments, enable its holder to travel across APEC member countries visa-free for three years with access to priority lanes at most international airports. After the deadlock of the WTO Doha Round, APEC members were convinced to pursue integration on their own. Starting with 2007, more concrete action plans began appearing in annual communiques addressing terrorism, climate change, energy, clean development, food security, supply networks, ease of doing business.
Rational Institutionalism 101
APEC has a lower profile than other international organizations, and is best understood in a perspective outlined in Robert Keohane’s After Hegemony. Keohane observed that international institutions were not about to disintegrate following a relative decline of American hegemony in the 1970s. He argued that these institutions are valuable promoters of international cooperation.
Keohane claimed that states are rational egoists that may need coordination in order to reach mutually beneficial agreements. APEC fits Keohane’s rough sketch. Its secretariat provides reports and disseminates information, links the members across a wide variety of economic and trade related issues, provide opportunities for side deals, and reduces the incentive to free-ride on initiatives through shaming and the risk that a revealed free-rider will lose political capital for the next round of negotiations.
(apec cooperation photo)
APEC stands out among international organizations because of its particular “institutional softness”. Even before its inauguration in 1993, APEC was put under strain by the anti-Western rhetoric of Malaysia’s Prime Minister Dr. Mahathir who was pushing for the East Asia Economic Caucus as the sole legitimate regional bloc under Japanese leadership and without Caucasians. The idea was criticized by Australia and the US. Japan did not want to reorient itself away from more important trade partners, and South Korea was not thrilled with letting Japan be in charge.
EAEC was discarded and APEC survived, but not without its potential for long-term institutional growth being affected. Marked by the formative experiences, APEC was constrained into a softer institutional path.
On the surface, the developmental setbacks appear to make APEC weak. Its declarations are so watered down that they end up saying nothing of substance. Progress is so minimal from one year to the next that the organization’s pulse reads flat. Decisions are non-binding which leaves room for states to defect from the consensus. The club has an unorthodox principle of “open regionalism” which extends equal benefits to out-of-region partners of APEC members. Finally, much of the work is done in less transparent subsidiary committees and business focus groups.
These elements are not a sign of impotence but rather the symptom of careful, unanimous, and gradual consensus-building among 21 different members which have to be conscious of not unsettling domestic groups and triggering social mobilization when difficult economic tradeoffs are on the table. This softer institutional design insulates APEC from external shocks and stabilizes its drive for regional cooperation.
Today, with a growing Sino-American rivalry, APEC’s role is central to preventing a great power duel. To counter what it sees as China’s free-riding in the free trade regime, the US is pushing the Trans-Pacific Partnership (TPP), a free trade agreement on steroids that excludes China. China, on the other hand, is pushing regional trade clubs without inviting the US. It is already a dominant player in ASEAN+3, on board with ASEAN+6 and promising tri-partite free-trade negotiations with South Korea and Japan.
However, it would be a mistake to consider this multiplication of trade clubs as APEC’s eulogy. TPP-negotiating countries met just before APEC and ASEAN + 3 had their own caucus, yet they all saw a value in attending a fading international institution. Eagerly waiting to bury APEC, the members confirmed the locations for the next four APEC summits in Indonesia, China, the Philippines and Peru in 2013, 2014, 2015, and 2016 respectively.
Moreover, this year’s summit demonstrated APEC’s potential to address the Yuan-USD exchange rate issue that has been a cooling factor in China-US relations. Although China is not about stop managing its exchange rate and the US is not about to stop protesting China’s “unfair” practices, – even though the latter is reorienting to produce for domestic demand and is appreciating the Yuan gradually to keep off inflationary pressure at home – APEC’s declarations reveal normative agreements.
“We remain committed to reducing imbalances […] in economies with large current account surpluses, by strengthening domestic demand and moving toward greater exchange rate flexibility […] to reflect underlying fundamentals, avoid persistent exchange rate misalignments, and refrain from competitive devaluation of currencies.”
APEC is not about to wither away. The new constellation of overlapping frameworks appearing across the Asia-Pacific will only increase the value of attending APEC, because it is the only regional forum that brings all the economies to one table. More trust-building will be needed in order to prevent the TPP and ASEAN+6 from becoming trade blocs. But, to build that trust, the region needs a forum for information sharing, issue linkages, opportunities for side-deals and iteration. APEC’s two decades of soft institutionalism is Asia-Pacific’s hope for equilibrium.
APEC – A Band-Aid for Asia-Pacific
Taking on more issues, APEC will keep growing as an overarching common denominator to solve the puzzle of ever numerous free trade agreements in the region. Being the only regional organization that regroups all players of the Pacific Rim into a cooperative forum, APEC holds a unique potential to avert Asia-Pacific rivalries from undermining one of the world’s main economic engines. APEC’s cooperation is even visible in alleviating anxiety over territorial disputes.
Yes, it is true that China and Japan just experienced a spasmodic incident over rocks in the middle of the East China Sea after Japan purchased the islands from its private owner last week. But, how many of the doom-saying media channels forgot to mention that Hu Jintao, China’s President, and Yoshihiko Noda, Japan’s Prime Minister, had an informal meeting at the APEC summit in Vladivostok to discuss the purchase only days before?