[asia-apec 90] APEC's Place in US Trade Policy

[daga]

APEC's Place in US Trade Policy
by Walden Bello*

The US is the powerhouse of APEC, with a $6.7 trillion dollar economy that
accounts for close to half of APEC's total GNP.

But perhaps the most telling statistic, the one that is the key to
understanding the US's strategy in APEC, is its trade balance with APEC's
ten Asian economies.  This was a deficit of $120.2 billion in 1995, or over
75 per cent of the total US trade deficit of $159.6 billion.  In 1995, the
US suffered a trade deficit with all the East Asian economies, with the
exception of Korea.

Turning the trade deficit with East Asia into a surplus has been the driving
force of US participation in APEC, where it is leading the campaign to turn
a loose consultative grouping into a free trade area with fixed rules and
schedules for liberalization.  While US negotiators in APEC have offered the
vision of a free trade area as a "win-win" situation for everyone, in fact,
when they speak candidly before US institutions like the US Senate, they
strike a different note--one that is distinctly nationalist.  For instance,
C. Fred Bergsten, the head of the (now disbanded) Eminent Persons' Group,
told the Senate in November 1994 that the reason an APEC free trade area is
in the US interest is that: "Given the fact that all of the countries in the
region, outside North America in particular, have lots of trade
barriers...very little would actually be required from the United
States...So trade liberalization, or particularly moving to totally free
trade in the region, means enormous competitive gain to the United States."

>From Cold War Allies to Economic Antagonists
     
Washington's drive to institutionalize APEC as a free trade area cannot be
understood without placing it in the context of the transformation of US
foreign economic policy since the end of the Cold War.

Prior to Ronald Reagan's ascencion to power in 1981, the US's policy toward
Asia consisted of subordinating economic relations with the region to the
overriding priority assigned to the containment of communism.  Thus,
Washington, for the most part, tolerated the growing trade surpluses of its
Asian allies, as well as significant deviations from free market and free
trade in their trade, investment, and domestic economic practices, which
could best be characterized as "state-assisted capitalism."  The prosperity
of America's allies was regarded as one of the key weapons in dampening the
appeal of communist revolution in a key battleground of the Cold War.

With the winding down of the Cold War since the mid-eighties, however, there
has occurred a tectonic shift in US foreign economic policy, with the
priority being assigned to "opening up" the markets of US allies to US goods
and US investment.  Pressures for this shift had been building for years,
and it was based on the growing perception of both US corporate executives
and trade officials that the prosperity of Japan and the so-called NICs
("newly industrializing countries") had been purchased at the expense of US
economic interests.

Emblematic of Washington's aggressive new approach were the words of David
Mulford, then undersecretary of the Treasury, at the Asia-Pacific Capital
Markets Conference in San Francisco in 1987:  "Although the NICs may be
regarded as tigers because they are strong, ferocious traders, the analogy
has a darker side.  Tigers live in the jungle, and by the law of the jungle.
They are a shrinking population."

Washington has employed several weapons in its drive to open up Asian
markets and regain a trade and investment presence in a part of the world
that has steadily slipped from the US economic orbit.  APEC as well as GATT
(General Agreement on Tariffs and Trade) must be seen as part of a menu of
options, the most prominent of which over the last decade has been
unilateral trade pressure.  With the US market continuing to account for 20
to 25 per cent of the exports of many Asian economies, unilateralism, or a
strategy based on the threat and use of trade retaliation, has been an
attractive option.

The Unilateralist Approach

A wide range of unilateralist weapons has been deployed against Asian
economies over the last decade.

o They have been subjected, for example, to anti-dumping suits and import
quotas in such products as textiles, garments, cars, and steel.  Between
1980 and 1991, for instance, nine out of the ten Asian APEC trade partners
of the US were subjected to 55 import restrictions imposed by the US on
various products.

o The more successful among them--Korea, Taiwan, Hong Kong, Singapore, and
Malaysia--have been knocked off the US General System of Preferences (GSP),
which accords Third World countries preferential tariffs to assist their
development.

o Some economies, in particular Japan, Korea, and Taiwan, have been forced
by Washington to drastically revalue their currencies relative to the dollar
in order to make these countries goods more expensive in dollar terms, thus
dampening demand from US consumers.  The Plaza Accord of 1985, which saw a
massive revaluation of the yen was followed by US pressure on Korea and
Taiwan, which were forced to appreciate their currencies, the won and the
New Taiwan dollar, by more than 40 per cent between 1986 and 1989.   

o All have been subjected to the threat of trade retaliation under the
notorious Super 301 and Special 301 clauses of the US Trade Act of 1988,
which authorize the president to take retaliatory measures against those
regarded as "unfair traders" or "abettors" of the intellectual property
rights (IPRs) of US corporations.  This year, for instance, most of the US's
APEC trade partners made what is now known as the US Trade Representative's
Office "hit list" of  IPR violators:  China was on top of the list as a
"priority foreign country;" Japan, Indonesia, and Korea achieved the
distinction of being on the "priority watch list;" and the Philippines and
Thailand were placed on the "watch list."

Unilateralist trade diplomacy (an oxymoron this!) has been regarded as
highly successful by Washington officials.  Commerce Secretary Mickey Kantor
has boasted that "under President Clinton's leadership, the Administration
has negotiated nearly 200 agreements to open foreign markets, which has
helped fuel record growth and the creation of one million jobs." Other
officials promised the continuation of the same policy of "achieving
practical, market-based, results-oriented agreements" carried out with the
stated or unstated threat of invoking Super 301.

As prima facie evidence of the virtues of unilateralism, US trade officials
refer to the case of South Korea.  When Korea developed a $9.7 billion
surplus with the US in 1987, US trade officials saw the emergence of another
Japan, and they moved decisively to head it off at the pass.  A whole
panoply of weapons--anti-dumping suits, import restrictions, Super 301,
Special 301, currency appreciation, etc.--was employed on the most
successful Asian tiger in an all-encompassing assault that targetted, among
other sectors, agriculture, telecommunications, maritime services, financial
services, the foreign investment regime, the fishing industry, cosmetics,
and government procurement practices.  By 1991, the US deficit with Korea
had turned into a surplus, and in 1995, Korea was the only East Asian
economy with which the United States enjoyed a surplus in its trade account.  

Unilateralism is, however, merely one prong of US policy towards its trading
partners.  The unilateralist approach is complemented by a "multilateralist"
game plan and a "regional" strategy.  The multilateralist prong has been an
effort to make the General Agreement on Tariffs and Trade (GATT) a medium
for the reduction of trade barriers globally as well as an iron framework of
global rules governing trade and trade-related acitivties.  The regional
thrust has led to  the creation of free trade areas like the North American
Free Trade Area (NAFTA) and APEC, where greater concessions on trade than
were obtainable under GATT can be negotiated with selected trade partners.

GATT, Free Trade, and Monopoly

While in the view of its trading partners, unilateralism contradicts
multilateralism as a way of resolving trade disputes, in the US view, these
are complementary approaches that are tied together by the goal of achieving
freer trade.  But Washington's commitment to free trade is hardly doctrinal.
It is a pragmatic position based on the assessment that free trade at this
point translates into US competitive advantage.  Again, this is evident in
the case of GATT.  If the US was committed to the passage of the Uruguay
Round of GATT, this was based not on a benign vision of everyone gaining
from free trade in an equitable fashion, but of the US gaining
disproportionately from it.  As EPG chief Bergsten told the US Congress,
under GATT, the US would derive greater benefits from GATT than others
because while foreign tariffs on US exports would come down by 40 per cent
on the average, US tariff cuts would amount to only 32-33 per cent on the
average.

More broadly, Washington believes that the so-called "level playing field"
introduced by freer trade under GATT will translate into a tremendous
advantage for US corporations, whose size, resources, and technological
edge, would allow them to beat a competition shorn of the artificial
advantage conferred by protectionist laws, subsidies, cheap credit,
state-supported research and development, and other mechanisms of  the
"state assisted capitalism" that is the hallmark of East Asian economies.

But GATT also illustrates that the US commitment to free trade is
conditional, not doctrinal.  For when the freer flow of resources
contradicts powerful US interests, Washington supports a position under GATT
that reinforces monopoly or oligopoly instead of promoting free trade.  This
is the case with the GATT Agricultural Accord, which is basically an entente
cordiale between the US and the European Union on the question of dumping
their highly subsidized agricultural surpluses on third-country markets.
While the Accord commits all signatories, including Third World countries,
to reduce export subsidies, it institutionalizes the direct income subsidies
provided by the US government and the European Union for their farmers.  
As economist Brian Gardner notes, the agreement merely swaps one form of
subsidization for another, "taking away direct support of markets and
replacing it with direct subsidization of [northern] farmers."  It is
estimated that in 1995, the first year of the implementation of the GATT
Uruguay Round, 20 per cent of the cost of US farm production was financed by
state subsidies totalling $25 billion.

This, of course, has massive implications for the Asia-Pacific countries,
whose agricultural markets have been targetted by the United States
Department of Agriculture to absorb 60 per cent of US agricultural exports
by the year 2000, up from the figure of 40 per cent at present. 

Another GATT agreement that reinforces monopoly instead of the free flow of
resources is the accord on "trade-related intellectual property rights"
(TRIPs).  This accord was pushed by Washington with the full support of Bill
Gates and the US high tech lobby that wanted to tighten up what it
considered a loose framework of global rules that was facilitating too free
and too fast a flow of technological innovation from the North to the South.
By institutionalizing such draconian measures as a generalized minimum
patent protection of 20 years and placing the burden of proof on those
accused of patent infringement, the accord represents what UNCTAD describes
as a "premature strengthening of the international intellectual proerty
system...that favors monopolistically contolled innnovation over broad-based
diffusion."

As many observers have noted, the main targets of the TRIPs accord have been
Japan, Korea, and the East Asian NICs that have successfully mounted
"industrialization-by- imitation," particularly in knowledge-intensive
industries.

APEC's Place in Washington's Strategy

Like GATT, APEC is a key element of US trade strategy.  However, APEC offers
US trade officials advantages that GATT lacks.

o First of all, APEC is seen as a "GATT-plus arrangement" where the US can
extract more trade and trade-related concessions from its partners than they
were willing to grant under the GATT Uruguay Round Agreement.  An example of
this was the 1995 proposal of Bergsten's Eminent Persons' Group that APEC
members should reduce by half the transition period for implementing trade
liberalization and full adoption of other trade-related reforms that they
had already committed themselves to under GATT.  For instance, in this
proposal, APEC's developing economies would make their legislation governing
intellectual property rights GATT-consistent by 1998 instead of the Uruguay
Round deadline of 2000.

o Second, APEC is seen as a framework for building institutions that lash
the US economy more firmly to East Asia, which is seen as the engine of the
world economy far into the first decades of the 21st century.  Many
Washington economic strategists worry about trade and investment trends that
might "marginalize" the US from the Asia-Pacific, such as the fact that
intra-Asian trade as a proportion of total Asian trade has risen from an
already high 47 per cent in 1990 to 53 per cent in 1995.  What worries
people such as Clinton adviser Paula Stern is that Asia might be moving
toward becoming an integrated market and production base, whose trade
dependence on the US will increasingly decrease.  A trans-Pacific APEC free
trade area is, in this sense, a preemptive move against proposals such as
Malaysian Prime Minister Mohamad Mahathir's "East Asia Economic Caucus," a
formation that would include only the Asian economies with the intention of
forging even closer trading and investment ties among them.  In Washington's
view, the institutionalization of APEC would eliminate such efforts to
"place an artificial dividing line down the center of the Pacific," as
Assistant Secretary of State Winston Lord puts it.

o Finally, APEC provides a process whereby the US can consistently pressure
its Asian trading partners to go beyond limited trade liberalization in
"reforming" their economies.  Via APEC mechanisms, the US can build pressure
for the dismantling of the heavy state presence in the economies of its
Asian trading partners--an "interventionist" presence that US officials
consider the "mother" of all trade and investment barriers to the US private
sector.  As Undersecretary of State Joan Spero put it before a US
congressional committee:  "APEC has a customer.  APEC is not for
governments; it is for business.  Through APEC, we aim to get government out
of the way, opening the way for business to do business."

In sum, an APEC free trade area must be seen as an integral part of a
broader foreign economic policy that employs the rhetoric of free trade but
is driven by economic realpolitik, by a determined drive to regain global
economic primacy for the US.  

Mickey Kantor is the personification of this approach.  Proudly admitting
that he is a non-economist, the US Secretary of Commerce candidly declares
to one and all  that his mission consists of one thing, and one thing only:
to pry markets wide open in order to drive down the US trade deficit.
Kantor is not a doctrinal free trader but one who can just as readily appeal
to nationalist sentiment as to free trade in pursuit of his perception of US
economic interest. Washington insiders contend that Kantor told Clinton in
1993 that he was just as ready to argue against NAFTA as for NAFTA,
depending on Clinton's political needs of the moment.  Perhaps, the spirit
of economic realpolitik that pervades the Clinton administration's foreign
economic policy is best captured by Kantor's celebrated assertion before the
US Senate in April 1994: "We will continue to use every tool at our
disposal--301 Super 301, Special 301, Title VII, GSP, the Telecommunications
Trade Act, or WTO accessi!
onto open markets around the globe."


*Dr. Walden Bello is co-director of Focus on the Global South, a program of
Bangkok's Chulalongkorn University and professor of sociology and public
administration at the University of the Philippines.  He is the author of a
number of books on Asian  politics and economics, including Challenging the
Mainstream: APEC and the Asia-Pacific Development Debate (Hong Kong: 1995).

**This article came out in Focus-on-APEC
APEC's Place in US Trade Policy