The Future of APEC

Jagdish Bhagwati in the FT on APEC:

As the 21-member Asia-Pacific Economic Co-operation organisation (Apec) meets later this month (November 16) in Hanoi, the central question its leaders must confront is their response to the stalemate in the multilateral negotiations launched at Doha. Two options are competing for attention.

First, that Apec should continue to embrace “open regionalism”, acting as a forum where members undertake trade liberalisation in concert and extend it worldwide on a “most favoured nation” basis. Many in the region, led by Ross Garnaut and Peter Drysdale, the Australian economists, argue Apec should maintain this tradition and work actively for the cause of multilateralism by pushing for the conclusion of the Doha round.

Second, that Apec should instead launch a Free Trade Agreement of Asia and the Pacific (FTAAP), converting Apec into a “regional” free trade area…

The proposal to turn Apec into a free trade area runs into insuperable political and technical difficulties… Can anyone seriously believe that an FTAAP – requiring free trade among countries as diverse as China, Japan and the US – can be agreed more easily than Doha can be concluded?

Bhagwati never passes on the opportunity to deploy a metaphor:

These create what I have called the “spaghetti bowl” problem of criss-crossing bilateral agreements that create a chaotic system of discriminatory tariffs depending on source. Optimists such as Koichi Hamada, professor of economics at Yale University, believe merging them would turn the bilateral spaghetti into a (regional) lasagna. But lasagna cannot be made from spaghetti: it needs flat pasta! We would face the impossible technical problem of folding several FTAs together that have different tariff rates and innumerable rules of origin (often defined differently by product) for preferences to kick in.

Impossible technical problem or a tangle that may be tamed?

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