APEC countries agree to launch massive new free-trade zone

Asia-Pacific leaders today agreed to press ahead with plans to create an expansive regional free-trade zone in coming years.

After two days of talks in the Japanese port city of Yokohama, the 21 members of the Asia-Pacific Economic Cooperation (APEC) agreed to "take concrete steps toward realizing a Free Trade Area of the Asia-Pacific [FTAAP]," which will link fast-growing economies in the region with the world’s three biggest in the United States, China, and Japan.

The free-trade zone, which Japanese Prime Minister Naoto Kan said may start by 2020, would slash tariffs on imports of everything from automobile parts to food in an area encompassing more than half the world’s economic production and two-fifths of its trade.

The agreement on trade contrasted with a failure to agree on how to resolve longstanding territorial disputes that have recently soured relations between Japan and its neighbors. But those disputes were not enough to overpower common economic interests.

“Although they are different subjects, it is still possible to see progress on the territorial issue as our economic relations deepen,” said Mr. Kan, despite growing domestic pressure to take a tougher line on territorial claims.

'Yokohama Vision'

In their “Yokohama Vision,” APEC leaders said, “[T]rade and investment liberalization and facilitation will continue to be APEC’s core objective. We have agreed that now is the time for APEC to translate FTAAP from an aspirational to a more concrete vision.” But that consensus – in fact a reaffirmation of an agreement reached by the body’s finance and foreign ministers last week – could not hide serious differences over economic policy and territorial claims.

President Obama returned to Washington Sunday after a 10-day, Asia-wide trip that culminated in a failure to close the gap with China over exchange rates.

Beijing has resisted pressure to allow its currency, the yuan, to rise and to make other adjustments that would help US exporters gain a foothold in the world’s second-biggest economy.

China has responded in kind, accusing the US of turning to quantitative easing to keep the dollar artificially low in an attempt to make its exports more competitive.

Chinese President Hu Jintao offered little comfort to Obama, whose standing at home after a disastrous showing in the midterm elections will not have been helped by the currency fudge in Yokohama.

“Advanced economies have to cope with serious unemployment problems, while emerging-market economies are confronted with asset price bubbles and inflationary pressure,” Mr. Hu said.

The APEC leaders did, however, pledge not to resort to “competitive devaluation” of their currencies. “Advanced economies, including those with reserve currencies, will be vigilant against excess volatility and disorderly movements in exchange rates,” they said. “These actions will help mitigate the risk of excessive volatility in capital flows facing some emerging markets.”

Territorial disputes

Much of the bilateral chatter that characterizes APEC summits focused on the territorial disputes.

Kan said growing economic ties should remain unaffected by a recent row over a group of islands in the East China Sea claimed by both Japan and China.

Ties between the East Asian powers sank to their lowest level in years in September, after a Chinese fishing boat collided with Japanese Coast Guard vessels in waters near the Senkaku islands, known as the Diaoyu in China.

The unauthorized release of video footage, which appears to back claims that the fishing boat was to blame, is fomenting a nationalist backlash in Japan.

Kan risked further angering his Chinese counterpart, Hu, by reaffirming Japanese claims to the islands.

“Japan’s position is that no territorial issue exists,” he told reporters. “If you look at other countries with territorial issues, it doesn’t mean that the two countries cannot engage in economic, cultural, and people-to-people contacts.”

But as long as tension over the Senkakus persists, it appears unlikely that negotiations will resume over a disputed gas field in the East China Sea. Restarting talks on joint development of the fields would require a certain “atmosphere,” said the Chinese foreign minister, Yang Jiechi.

Kan also protested a recent visit by Russia’s president, Dmitry Medvedev, to one of four islands seized from Japan by the Soviet Union in the waning days of World War II.

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