FTAs: Working Towards Bogor Goals

The growth of Free Trade Agreements and Regional Trade Agreements (FTAs/RTAs) in the Asia-Pacific is spurring APEC's efforts to liberalise trade and investment throughout the region. APEC economies have been demonstrably benefiting from the positive trade creation and economic impact of bilateral and regional agreements in which they participate. In response to the rapid increase in numbers of such agreements APEC is taking steps to ensure the trading environment is adjusting in parallel with these new developments.

The expansion of FTAs/RTAs was never an issue when the Bogor Goals of "free and open trade and investment in the Asia-Pacific by 2010 for industrialized economies and 2020 for developing economies" were agreed in Indonesia in 1994. However, with the substantial number of FTAs/RTAs now concluded or being negotiated among APEC Member Economies, these agreements have become a force that needs to be addressed in assessing progress towards the Bogor Goals.

There is consensus among APEC Member Economies that while FTAs/RTAs are undoubtedly contributing to the momentum of APEC's efforts to liberalize trade and investment, they should also advance overall goals set as part of the multilateral trading system through the WTO and APEC fora.

Other contributors to the APEC process such as the APEC Business Advisory Council (ABAC) have also noted the need to ensure that FTAs/RTAs do not complicate the regional trading environment for businesses and government.

The number of FTAs/RTAs has risen dramatically in recent years with around 184 agreements either completed or in the process of negotiation worldwide, of which 79 inIssue ve APEC Member Economies.

"The genie is out of the jar," says Mike Ducker, Executive Vice President International for FedEx Express and a co-chair on the APEC Business Advisory Council's Trade and Investment Liberalization and Facilitation Working Group.

"There is a sense of urgency about the benefits free trade brings to economies which is why you see a proliferation of bilateral agreements."

Mr Ducker is also quick to point out that along with the success of FTAs/RTAs comes the responsibility of maintaining the goals established as part of the multilateral trading system and the current Doha Development Agenda (DDA).

"We need to stay the course on Doha. It would be sub-optimal to do anything else."

Concerns over delays in multilateral trade fora appear to have given additional momentum to support for FTAs and RTAs. The collapse of the WTO Seattle Ministerial Meeting in 1999 and the deadlock of DDA negotiations in Mexico last year led to concerns with progress of current multilateral negotiations.

The Chair of APEC's Business Advisory Council, Hernan Somerville, has summed up a common view in the regional trading community. "As a business group we are frustrated and we are very, very concerned about delays in the WTO process," Mr. Somerville, who is also the President of the Chilean Association of Banks and Financial Institutions Trade Association, said in reference to DDA negotiations.

The proliferation of FTAs/RTAs in recent years has posed questions about the precise way in which these trade pacts relate to APEC's free trade and investment goals.

APEC Ministers and Leaders have responded by making the consideration of RTAs/FTAs a priority for 2004. In June, APEC's Ministers Responsible for Trade also addressed the issue and agreed that the contribution of FTAs/RTAs to regional and multilateral trade liberalisation is enhanced if regional trade agreements are open, comprehensive and consistent with WTO rules and disciplines and APEC goals and principles.

At the recent APEC Policy Dialogue on FTAs/RTAs in May this year, APEC officials agreed to a comprehensive proposal that includes a policy response, transparency and capacity building.

Specific elements of this proposal include the development of Best Practices for RTAs/FTAs in the APEC region; a database on RTAs/FTAs in the APEC region, including RTAs/FTAs in the Individual Action Plans submitted each year by APEC member economies and supporting training programs for FTA negotiators. These measures are designed to enhance the contribution of FTAs/RTAs to APEC's goals and principles.
This August APEC is also funding a two-day international symposium in Santiago, Chile, where participants will discuss ways to strengthen the positive impact and reduce the transaction costs and trade diversion that FTAs/RTAs impose on the WTO system. The symposium will also discuss elements and characteristics of FTAs/RTAs that could enhance free trade in a coordinated manner in regional and bilateral frameworks.

The APEC Economic Committee is working on analyzing a range of important elements and issues related to enhancing the contribution of FTAs/RTAs to achieving the Bogor Goals. The committee's work is also aimed at providing a better understanding of how FTAs/RTAs can act as a catalyst for regionalism and multilateralism.

FTAs and RTAs inIssue ving APEC members mostly go beyond traditional trade barriers and contain innovative provisions that are usually not explicitly contained in the WTO Agreements. Recent FTAs and RTAs negotiated between APEC Member Economies have tended to include trade in services, investment and trade facilitation issues such as customs, standards and Temporary Entry for Business People Some also include provisions related to non-tariff barriers as well as intellectual property rights, competition policy and government procurement.

As can be expected, the business community in the region is watching the growth in FTAs/RTAs closely for benefits that will lead to increased investment opportunities. However, some concerns have arisen over wide ranging variables emerging among agreements.

"Obviously the firms located in countries which are party to an FTA should gain some advantages from the agreement but the more trade agreements you have causes barriers for firms located in countries not party to the agreement," explains Pierre Lortie, a Montreal-based member of APEC's Business Advisory Council and a special investor in private equity fund CAI & Partners.

In May, APEC's Business Advisory Council raised concerns that the proliferation of overlapping FTAs and RTAs could impose costs on business. The Council noted that inconsistencies between various elements of the agreements, such as different schedules for phasing out tariffs, varying conformance standards or different rules of origin could lead to confusion.

To address these concerns APEC members are adopting new measures. These include 'single window systems' for processing import and export documentation to reduce the cross-border transaction costs faced by business. These systems reduce the cost and time taken to clear goods through customs by simplifying the documentation processes.

APEC is also working to increase the understanding of FTA/RTA issues among both officials and the business community. With assistance from the Pacific Economic Cooperation Committee or PECC, APEC is undertaking research into the agreements to better understand the implications of RTA development in the region.

New initiatives and the development of existing initiatives will be analyzed as they arise, adding to the store of accumulated knowledge and expertise, and increasing the level of understanding of the implications of RTA development in the region. The role of RTAs in relation to the trans-Pacific partnership will be a central focus in this work. Researchers from Latin American networks were invited to the PECC Trade Forum/APEC Study Center Meeting in Chile in May which offered a further opportunity for cross-fertilization between networks in the two regions.

The PECC Task Force on Regional Trading Arrangements will also consider the implications of inconsistent provisions in multiple FTAs/RTAs for business transaction costs and the possibility of universal convergence of these agreements. The role of rules of origin is also a subject that needs much more investigation, and the task force will work on this. The possibility of establishing "best practice" guidelines for at least some provisions typically included in RTAs is also seen as a worthwhile line of investigation.

For APEC, the first priority is to achieve progress in the WTO. At the same time FTAs/RTAs can provide useful building blocks towards regional trade liberalisation.

Economic partnership or trade agreements in the APEC Region have been signed between Singapore and New Zealand; Singapore and Japan; Singapore and the United States; Singapore and Australia; Chile and five other APEC Member Economies; and the European Free Trade Association and China and Hong Kong. Thailand has signed FTAs with Laos and Australia, while ASEAN signed a framework agreement late last year for an FTA with India.