Subregional Trading Arrangements among APEC Economies: Managing Diversity in the Asia Pacific

Since 1999, there has been a sharp rise of interest in new subregional trading arrangements (SRTAs) involving APEC economies. Many, if not most, of the emerging new economic partnerships are expected to be based on a preferential free trade area (FTA). These arrangements are likely to divert attention from the wider objectives of the APEC process and its commitment to open regionalism, and strain its cohesion. It cannot be taken for granted that the liberalisation agreed within subregional FTAs will be smoothly extended to others. As well as liberalising border barriers to trade and investment, new SRTAs are expected to deal with the many other significant impediments to international commerce. Even with the best of intentions, it will not be easy to address these relatively new issues without creating new discrimination and diversion of economic activity. If these relatively new issues are addressed in association with a preferential FTA, these arrangements could be discriminatory by default. The practical challenge is to avoid preferential treatment from becoming either entrenched or permanent. This paper sets out a range of policy issues that will be created by any proliferation of SRTAs, especially if they are constructed around FTAs. To manage these issues, it is essential that future SRTAs meet standards that are substantially higher, and less ambiguous, than minimum WTO requirements. A set of guiding principles, which build on already-agreed APEC principles, are presented for consideration, with emphasis on transparency, avoiding new obstacles to trade or investment and creating objective, nondiscriminatory opportunities for accession.