Free Trade With an Asian Flair: The Key Word Is `Nonbinding'

LEADERS of 18 countries in the Asia Pacific region agreed on Nov. 15 to achieve ``free and open trade and investment'' by 2020.

But none of the people in those countries - which generate more than half of the world's economic output - need to worry about finding themselves in a Pacific trade bloc in a quarter century.

Instead, their leaders have signed on to a flexible program intended to encourage the world at large to ease the flow of goods and money across borders.

Meeting at the Indonesian resort town of Bogor, in a grandiose white palace built by Dutch colonizers, President Clinton and 17 counterparts spent 5-1/2 hours in talks. Even though Mr. Clinton arrived 10 minutes late, the leaders managed to conclude their discussions a half-hour ahead of schedule and emerged smiling.

The declaration they issued suggests why. The leaders established broad goals - to liberalize trade and investment, strengthen the world's multilateral trading system, and work toward rapid but balanced growth in developing countries - but they included an opt-out clause for countries that want to go along at their own pace, deadline or no deadline.

The language of the declaration is consonant with the tone of the organization they lead, the Asia Pacific Economic Cooperation forum. APEC groups 18 nations, large and small, rich and poor, that do not have much more in common than free-market economics and proximity to the Pacific Ocean. APEC has adopted an Asian operating style: officials decide by consensus, refrain from publicly criticizing other countries, and eschew rigid guidelines.

The leaders said industrialized economies in the region would have to meet targets by 2010, and developing countries by 2020. In characteristic APEC style, they did not specify which countries belonged in which category, although at least Australia, Canada, Japan, New Zealand and the US will have to meet the earlier deadline. An APEC advisory group had recommended an interim date of 2015 for the so-called Newly Industrialized Economies of Hong Kong, Singapore, South Korea, and Taiwan, but the status of the ``NIEs'' remains unclear.

``We agree that APEC economies that are ready to initiate and implement a cooperative arrangement may proceed to do so while those that are not yet ready to participate may join at a later date,'' the leaders said. ``Perhaps that's a clause for China,'' says an Asian diplomat who took part in the APEC conference.

Before the leaders' meeting, officials discussed a standstill provision in which countries would agree not to initiate or increase any tariffs or trade barriers. The final declaration softens the edges a bit: ``We further agree,'' it reads, ``to a standstill under which we will endeavour to refrain form using measures which would have the effect of increasing levels of protection.''

Ministers from the 18 countries earlier agreed to a set of investment principles to smooth the flow of capital in APEC economies; the document had the word ``nonbinding'' in its title.

For the US, there are obvious advantages in encouraging other countries to lower duties they impose on imports, simplify rules governing the activities of foreign investors, and make local business practices more transparent - it has more to gain than to lose. The US, as Trade Representative Mickey Kantor frequently observes, ``enjoys the largest open market in the world.''

Some of APEC's developing countries maintain relatively high tariffs to protect certain sectors of their economies. Malaysia's leaders, for instance, opposed hard-and-fast timetables that they believe would force them to liberalize too quickly and harm their economy. Some developed countries in APEC - Japan is the best example - are notoriously difficult for outsiders to penetrate, even though they have low tarrifs.

These differences, along with cultural and historical complexities, make it hard for APEC's leaders to pursue economic unity. As the declaration pointedly observes, APEC's leaders oppose ``the creation of an inward-looking trading bloc that would divert from the pursuit of global free trade.''

The Bogor declaration symbolizes ``the region deciding to lead the world into freer trade,'' says Prof. Ross Garnaut of the Australian National University in Canberra. The declaration, he says, ``helps to make it less likely that this agreement would form the basis for discriminatory trade.''

Some economists urged APEC leaders to liberalize their trading practices and then offer freer trading privileges to non-APEC countries on a reciprocal basis. This idea did not carry the day.

``You can use pretty words like `open regionalism,''' says the diplomat, ``but we have memories of the 1930s - when it was bloc vs. bloc - that's one of the things that led to World War II.''