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The Asia Pacific Economic Cooperation (APEC) leaders meet in Sydney at a pivotal moment in the evolution of the global trading system. The Doha Round in the World Trade Organization (WTO) is teetering on the brink of being the first global trade initiative to collapse since the 1930s. At best, the round looks likely to produce such a minimal outcome that the multilateral system will still be discredited.
The costs of such a failure would be huge for the trade dependent countries of the Asia-Pacific. A renewed surge of protectionism (including in the United States) would inevitably ensue as the bicycle of liberalization stalls. New preferential deals will proliferate. The WTO itself and the entire multilateral system will erode further. The breakdown would shock financial markets and the entire world economy.
The APEC leaders must do everything they can to get Doha back on track. The obvious steps are to reaffirm their commitment to the success of the round and to do whatever they can to eliminate, or at least narrow, the differences among their own countries that are impeding a meaningful result.
This will not be enough, however, for three reasons. First, Doha is being blocked primarily by countries outside APEC. The European Union, India, Brazil, and some of the Africans are the main culprits. There is nothing that APEC itself can plausibly do to bring them around.
Second, APEC has pledged fealty to Doha throughout its existence but has never mounted a meaningful joint effort on its behalf. Former WTO director general Supachai Panitchpakdi of Thailand comments frequently that there is no "APEC caucus" in Geneva.
There is no reason to anticipate a change in this discouraging inability of APEC to put its actions where its cheerleading words have been.
Third, it is therefore imperative that the APEC economies adopt a fallback strategy at Sydney.
An alternative or supplement to Doha will clearly be essential to enable the group to achieve its own Bogor goals of free and open trade and investment in the region. It is also needed, however, simply to avoid a costly relapse into protectionism and to avoid further disintegration of the Asia-Pacific into competing blocs.
A new strategy is fortunately available that could enable APEC to simultaneously jolt new life into Doha and provide a dynamic alternative to the round if it were still to fail. The leaders could achieve this remarkable feat, which would be the greatest accomplishment by far in the history of APEC, by launching negotiations to create a Free Trade Area of the Asia-Pacific (FTAAP). Such negotiations would build on the recommendations of APEC's own Business Advisory Council and the background preparations developed by its trade ministers and senior officials over the past year.
The leaders agreed at Hanoi a year ago to consider an FTAAP as a long-term prospect and should now begin a process to pursue its realization.
A credible launch of FTAAP negotiations represents the most, and perhaps only, feasible tactic for reviving Doha. It would send a clear message to recalcitrant WTO members that they would face huge new discrimination in the world's largest and most dynamic market if they continue to block substantial multilateral progress.
It is well known that the initial APEC summit in 1993 was decisive in bringing the European Union back to the table and thus in galvanizing success for the Uruguay Round, the last big global trade negotiation, after it had languished for three years.
At the same time, an FTAAP could produce huge gains for the APEC economies and thus constitute an attractive alternative or complement to Doha. It would generate far larger economic benefits than any of the other regional schemes now being considered (or, in fact, than any conceivable payoff from Doha).
It would sharply reduce the incentives for new bilateral and subregional agreements, such as the Japan-United States pact that will almost surely follow congressional ratification of the Korea-United States agreement in the absence of an FTAAP, and could over time bring the present agreements under a single coherent umbrella.
In addition, an FTAAP could become a critical part of the emerging economic architecture of East Asia and the Asia-Pacific. The East Asians are developing their own trade and monetary arrangements, which are clearly desirable for the region and can be positive for the global economy as well.
But linking them from the outset with an FTAAP would avoid the risk of drawing a line down the middle of the Pacific, dividing East Asia and North America.
It would obviate a need for the United States to counter the new Asian bloc by negotiating its own bilateral free trade agreements (FTA) in the region. It would revitalize APEC, the only institution that bridges the Pacific, and thus counter the prospect of security as well as economic estrangement among its membership.
US President George Bush proposed the FTAAP a year ago and it would greatly behoove the rest of APEC to commit the United States to such a liberalizing negotiation before next year's elections and the uncertain trade (and perhaps Asia) policies that will follow.
China desperately needs to engage in a new initiative of this type to restore its image as a fair and safe trading country, and thus to protect access to its main markets, and surely wants to avoid new US discrimination in favor of other countries in the region.
Japan, Korea, and the Association of Southeastern Nations (ASEAN) will benefit enormously from a pact that knits together their East Asian and North American allies.
Prime Minister John Howard said in June that the FTAAP "represents a live option-and one which would take on greater prominence should the round fail," a contingency that is regrettably close to fruition.
The leaders can take an historic step at Sydney through aligning these interests with those of the global trading system and of the architecture of the region itself by launching negotiations for a Free Trade Area of the Asia-Pacific.
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