Talking Shop

You may not be quite sure what it does, but in Sydney right now APEC is impossible to ignore. For its sake guards patrol the Harbour Bridge, dummy motorcades race through the streets, zoo animals are being moved to an island in the harbor so VIP wives can view them in peace, and a 3-m-high wall is going up around the Opera House. Even Sydneysiders who’ve missed the preparations know that the Asia-Pacific Economic Cooperation forum Leaders’ Week, which runs from Sept. 2-9, will be giving them a public holiday. It’s the biggest event the country has held since the 2000 Olympic Games, involving 20 presidents and prime ministers (plus Hong Kong’s Chief Executive), the heads of the World Bank and the World Trade Organization, 4,500 officials, support staff and businessmen, 4,000 police and troops, hundreds of media people, and a throng of protesters.

The Sydney bustle reflects the scale not just of the meeting but of APEC. The visiting leaders represent 2.7 billion people, 60% of the world’s production, half of its trade, and its three biggest economies, the U.S., China and Japan. And while many Australians confuse APEC with ASEAN or even the OECD, no other regional organization matters more to their prosperity. APEC members account for 70% of Australia’s trade and 8 of its 10 biggest export markets. And, says Australian Foreign Minister Alexander Downer, “The center of gravity of global affairs is moving more and more to the Asia-Pacific.”

APEC exists to promote economic growth through freer trade, but for this summit Australia, using its prerogative as host, has put climate change at the top of the agenda. Some may connect this with the fact that there’s a national election coming up, but Downer believes “APEC very much has the potential to launch a new approach on the issue.” Last year Australia helped launch the Asia-Pacific Partnership on Clean Development and Climate, five of whose six members belong to APEC. Rejecting Kyoto Protocol–style restrictions, the AP6 vowed a voluntary, collaborative effort to promote clean-energy technologies and efficient energy use. Australia wants APEC leaders to give the climate-change ball a strong AP6 spin ahead of December’s U.N. Climate Change Conference in Bali, which will kick off the process of drafting a replacement for Kyoto.

APEC is, after all, a big player: its members account for about 60% of global carbon emissions, more than all the countries that have agreed to take action under Kyoto. Many of those members are developing nations, with mushrooming emissions and, under Kyoto, no obligation to limit them. “If we could get all 21 economies to agree to make some kind of a contribution to address the issue,” Downer says, “it would be a very big step forward.” Alan Oxley, chairman of the Australian APEC Study Center at Monash University, agrees. “The Chinese will not accept the sort of regulation Kyoto proposes,” he says. “But they are showing increasing interest in the AP6 model. So there’s a significant opportunity for APEC to influence the global regime.” The outcome, he says, could be a multitrack system: “If the Europeans want to regulate, let them, but there’s got to be recognition that other nations want to reduce emissions by other means.”

Making climate change a priority at the leaders’ summit was “a mistake,” says John Edwards, chief economist in Australia for the HSBC financial group. Since the U.N. already has a framework for addressing the issue, he argues, APEC’s impact will be negligible. Meanwhile, “they have missed the opportunity to do something serious on the issue of trade, by advancing the concept of an overarching free-trade agreement for the region.”

Individual APEC members have been signing free-trade deals with each other like there’s no tomorrow: 18 in the past decade, with a dozen more in the works. Now calls are growing for a regional free-trade deal to tie all the small ones together. That, of course, would require the US, Japan and China to open their markets to one another. “If someone proposed that today,” Oxley says, “people would say, You’re mad.” But that view is changing: last year “the U.S. surprised everyone by announcing they were interested in the idea of an APEC free-trade area.” This year came a free-trade agreement between the U.S. and Korea. “Nobody expected that to happen,” Oxley says. “It’s resulted in a very serious look in Japan at doing an FTA with the Americans. And that has been a paradigm shift.” If the U.S. and Japan sign a deal, an APEC free-trade area will start to enter the realm of the possible.

Increasing the tilt toward a regional FTA is the malaise in the World Trade Organization, where the Doha Round of talks, aimed at getting rich economies to lower barriers to poor nations’ exports, has been in gridlock for years. The APEC leaders are expected to issue a statement urging a breakthrough, but they did that last year and the year before that to no avail. And if the Doha talks fail, says economist Edwards, “it becomes all the more important that this region have the widest free-trade agreement possible.” Downer, however, sees that as a very remote prospect: “It’s an aspiration. There’s not going to be any timeline set” in Sydney.

The summit’s most practical results are likely to come in the area of structural reform, which even Colin Heseltine, director of the APEC Secretariat in Singapore, describes as “rather dry.” So far the organization has focused on reducing red tape, tariffs and other barriers between borders. It now wants to move behind borders, helping members harmonize their approach to business competition and regulation, product standards and corporate governance. A recent study at the Australian National University’s College of Asia and the Pacific estimated that fully implementing such reforms would add over $100 billion a year to APEC’s collective income. Structural reform “won’t get banner headlines,” says Heseltine, “but it is immensely important.”

That pretty much sums up APEC, which, as Australian Prime Minister John Howard likes to say, does its best work “under the radar.” As a club based on informal cooperation, APEC doesn’t set rules or impose targets. Instead, it promotes free-market values and offers practical help in implementing them. “It builds a climate in which trade liberalization is seen as the right direction,” says Heseltine. “To resile from that, to move backward, actually becomes very hard.” For a quick measure of APEC’s effectiveness, says Oxley, contrast Vietnam and Venezuela. Vietnam, embracing APEC’s open-market model, is flourishing; Venezuela, outside APEC and with an anti-free-market government, is an economic mess.

Critics say APEC’s successes are vague and its influence fading. Former Australian P.M. Paul Keating, who helped convene the first leaders’ summit in 1993, has slammed APEC as “a talk shop of debatable output.” The region has other forums, notably the 16-member East Asian Summit. But, says HSBC’s Edwards, only APEC “includes both China and the U.S. and all the economies that have most to lose if their relationship broke down. There are all sorts of points of tension between the two that can be modulated by the diplomacy of the others.” With many members allied with the U.S. but ever more reliant on trade with China, its talk-shop role alone could soon make APEC worth having.