The Heritage Foundation

Executive Summary #1604 on Asia

October 17, 2002

October 17, 2002 | Executive Summary on Asia

Executive Summary: Back to Basics: An Economic Agenda for APEC

This year's October 26-27 Asia Pacific Economic Cooperation (APEC) conference in Los Cabos, Mexico, will focus primarily on APEC's core mission of lowering barriers to trade and investment in an effort to spur growth. The conference presents an excellent opportunity for President George W. Bush to help set the global trading system on a firm footing for sustained economic growth, thereby strengthening the international community in its campaign against global terrorism. President Bush must use APEC to promote America's economic and strategic goals.

One way the President can further economic cooperation in the Pacific Rim is to renew America's commitment to free trade and investment. Washington should move toward initiating new free trade agreements with Australia, Taiwan, and New Zealand.

Although economic policy will be the priority in Los Cabos, the war on terrorism cannot be neglected. The President can pursue this critical issue at the APEC forum through bilateral meetings. President Bush should devote most of his limited time at the conference to bilateral meetings with America's allies to demonstrate the United States' appreciation for their efforts and bolster their commitment to the fight against terrorism.

International Trade. The global economy is in a slump largely because of sub-par growth in Europe and the United States over the past year and a decade of ongoing economic malaise in Japan. Low growth and the uncertainty resulting from terrorism have retarded foreign direct investment (FDI) flows to economies in the Asia-Pacific region. Only China experienced an increase in FDI flows in 2001, most of which went to China's export-processing sector.

The economic slowdown and pessimism about near-term recovery have increased pressure on governments to enact counterproductive economic policies to protect influential domestic constituencies. The steel tariffs initiated by President Bush, for example, have hurt America's economy by encouraging inefficiency and increasing costs for consumers and intermediate manufacturers. At the
same time, they have angered America's trading partners, who have threatened retaliatory tariffs on U.S. goods. The 2002 farm bill, which granted subsidies primarily to large, competitive agribusinesses, produced similarly disastrous results.

The APEC conference presents a unique opportunity to promote the revitalization of the global economy through proposals for further liberalization of trade and investment, increasing incentives for economic growth. For the benefit of the American economy as well as the global economy, the Bush Administration should advance free trade and investment policies bilaterally, regionally, and globally.

Terrorism. The APEC summit also presents an opportunity for President Bush to speak directly to many world leaders about terrorism and to gain and maintain their support. Typically, the most important meetings that take place at such international summits are the bilateral meetings between the U.S. President and other world leaders. The Administration should prioritize President Bush's time in Mexico for meetings with countries that support the war on terrorism--notably Australia, the Philippines, Korea, and Japan. Because Bush will already have met with Chinese President Jiang Zemin before the October 25 summit, a U.S.-China bilateral at APEC need not be a priority.

Key Countries. Japan may be considered APEC's principal Asian anchor. Its economic stability and prosperity are therefore essential to the future health of the global economy. One imperative topic for discussion at the APEC summit will be actions that can be taken to restart the engine of growth in Japan. President Bush must focus on giving Prime Minister Koizumi the political support he needs to continue the reform and restructuring of his nation's economy.

South Korea remains one of the United States' most important allies in Asia. The two countries have many more values and goals in common than points of disagreement. President Bush should move the focus away from preoccupation with differences toward the countries' shared commitment to peace, stability, and economic prosperity in the region. Although North Korea remains an ongoing security issue, it will be important to prioritize discussion of economic policies, given that South Korea now faces near-term economic problems.

On the political front, China's representative at APEC will be preoccupied with Taiwan. Economically, China is the rising power in the Asia-Pacific, and China's accession to the World Trade Organization at the beginning of 2002 should set the tone for its contributions in the APEC forum. At the forum, President Bush should discourage China's efforts to form an exclusionary free trade zone with the Association of South East Asian Nations bloc. The Chinese proposal for the "free" trade zone would exclude Japan, Korea, and Taiwan, leading most observers in the region to regard Beijing's motivation as mainly political.

Despite the fact that Taiwan is one of Asia's economic powerhouses, that island nation is regularly treated like a second-class citizen, even by APEC countries with tiny economies. APEC must face up to its commitment to "treat every member equally" and welcome and respect Taiwan's participation.

What the President Should Do. To take advantage of the opportunities presented at this year's APEC conference to promote America's economic and strategic goals, President Bush should (1) encourage economic reform in Japan and in Korea; (2) support democratic Taiwan; (3) demonstrate appreciation for the contribution of America's Allies in APEC; (4) forge free trade agreements; and (5) set the stage for WTO negotiations.

-- Dana R. Dillon is Policy Analyst for Southeast Asia, Balbina Hwang is Policy Analyst for Northeast Asia, and John Tkacik is Research Fellow in China Policy in the Asian Studies Center at The Heritage Foundation. Brett D. Schaefer is Jay Kingham Fellow in International Regulatory Affairs in the Center for International Trade and Economics at The Heritage Foundation.

About the Author

Dana Robert Dillon Senior Policy Analyst
Asian Studies Center

Balbina Y. Hwang, Ph.D. Senior Policy Analyst
Asian Studies Center

John J. Tkacik, Jr. Senior Research Fellow
Asian Studies Center

Brett D. Schaefer Jay Kingham Senior Research Fellow in International Regulatory Affairs
The Margaret Thatcher Center for Freedom