Pacific trade zone has big possibilities

HANOI, Vietnam — With global trade talks suspended, the APEC club of 21 Pacific Rim economies is exploring the possibility of creating a massive free-trade zone stretching across the Pacific Ocean, but analysts warn it is a monumental task fraught with political and technical difficulties.

The Asia-Pacific Economic Cooperation forum’s business advisory council has urged APEC leaders to seriously consider the idea at their annual summit this weekend as a way to consolidate a plethora of free-trade deals in the region, particularly after the collapse of World Trade Organization talks in July.

A sprawling APEC-wide free-trade area, stretching from the U.S. to China and from Australia to Chile, would envelope nearly half of global trade, 40 percent of the world’s population and 56 percent of its gross domestic product.

The APEC Business Advisory Council in a report last month to APEC leaders said the “spaghetti bowl” of bilateral and regional free-trade agreements made doing business more complex and costly and added layers of paperwork for trade transactions.

Instead of having standardized rules, bilateral agreements produce different sets of requirements for trade to different countries, it said. At least 40 free-trade pacts have been signed or are being negotiated among APEC members, the council said.

It said it was time for APEC to consider harmonizing all the existing trade arrangements under a region-wide pact, dubbed the Free-Trade Area of the Asia-Pacific, but acknowledged there were “practical difficulties” in negotiating such an agreement.

“ABAC believes that an FTAAP offers the highest degree of achieving such convergence and consolidation,” the report said.

According to a draft of a final communique obtained by The Associated Press, APEC leaders do plan to “actively consider” such a free-trade zone as a future goal, although they said it may not be a viable near-term objective.

But restarting the WTO talks is first priority, business executives say, and APEC leaders plan to issue an urgent call for their resumption, the draft said. Time to reach an agreement is running out, as President Bush’s authority to negotiate a global trade deal that requires simple yea-or-nay Congressional approval expires in mid-2007.

“The best position is to have a successful outcome in WTO negotiations, but if the WTO fails totally, then the free-trade area in Asia-Pacific is a possibility in the years to come as a fallback position. It is a secondary choice,” said Peter Charlton, a council member from Australia.

The idea, first introduced by ABAC two years ago, faces opposition from some members and a series of major hurdles, including a change in the nonbinding nature of APEC, which was formed in 1989 as a loose consultative forum.

“APEC is not a negotiating forum. It is designed for cooperation that is nonbinding,” said Thai senior official Virachai Plasai.

With prospects for a WTO agreement fading, private economists said Pacific Rim nations might consider a super-regional free-trade agreement as an alternative.

“An FTA this large is good backup plan or alternative to the WTO. It will be a great achievement but it is an uphill struggle,” said Chua Hak Bin, regional economist for Citigroup based in Singapore.

Another challenge is that any agreement would be complicated because of APEC’s diverse membership, which ranges from rich economies such as the U.S., Japan and Canada to developing nations such as Indonesia, Peru and Papua New Guinea.

“It is very difficult to achieve. From the economic point of view, APEC has been more talk than substance,” said Robert Broadfoot at the Hong Kong-based Political and Economic Risk Consultancy.

But the Democrats’ victory in recent U.S. elections, giving them control of Congress, has some experts speculating that any major trade deal — global or regional — could face stiffer opposition among American politicians.

APEC consists of the U.S., Russia, China, Canada, Japan, Malaysia, Thailand, Singapore, Vietnam, Indonesia, Brunei, Hong Kong, Mexico, the Philippines, Chile, Papua New Guinea, Australia, New Zealand, Peru, South Korea and Taiwan.