President George W. Bush will join other
world leaders at the 11th Asia Pacific Economic Cooperation (APEC)
Leaders' Summit in Bangkok, Thailand, on October 20-21. The meeting
of the heads of 21 economies bordering both sides of the Pacific
Ocean provides a
unique opportunity for President Bush to advance American economic
and security interests in Asia.
Major items on the President's agenda
- Encouraging faster trade liberalization
among APEC economies,
- Promoting economic reform in Japan and
- Preventing a nuclear North Korea,
- Strengthening regional law
- Blocking terrorist financing,
- Persuading China to meet its World Trade
Organization (WTO) obligations and loosen capital controls,
- Encouraging APEC members to participate
in the counterterrorism initiatives, and
support for American sanctions on Burma.
Free Trade Initiatives
APEC member states constitute a significant economic force,
accounting for 47 percent of global trade and a combined gross
domestic product (GDP) of $19 trillion (60 percent of global
GDP). President Bush
should travel to APEC with two free trade goals in mind: promoting
his Enterprise for ASEAN Initiative (EAI) and announcing
negotiations toward a free trade agreement (FTA) with Thailand.
President should also encourage other countries to advance
liberalization by negotiating more bilateral FTAs. FTAs can
accelerate growth and thereby reduce poverty throughout the
EAI is intended to create a network of bilateral FTAs. The EAI will advance
pledges made at previous APEC meetings "to continue to reduce
barriers to trade and investment to enable goods, services and
capital to flow freely among our economies."
prerequisites for negotiating an FTA with the United States are
membership in the World Trade Organization (WTO) and a Trade and
Investment Framework Agreement (TIFA) with the United States. TIFAs
establish a foundation for future FTA negotiations.
United States has just concluded an FTA with Singapore, its first
FTA with an Asian country. This is a constructive development, but
it should also be the first of many U.S.-Asia trade deals.
President Bush should capitalize on the opportunity presented by
the APEC meeting to advance trade both by negotiating an FTA with
Thailand and by promoting the EAI. Both of these measures will not
only advance trade liberalization, but also encourage other APEC
members to do the same.
Given that the United States and Thailand
have signed a TIFA and Thailand is a member of the WTO, this is the
perfect time for the Bush Administration to promote further trade
liberalization by negotiating an FTA with Thailand.
Thailand's numerous trade barriers present
an urgent justification for an FTA. Thailand's tariff structure is
high and complicated with 46 different tariff rates. Thailand also had a
software piracy rate of 77 percent in 2002. While legislation has been passed to
deal with this problem, there are many obstacles to effective
American exporters, ranging from the auto
industry to local farmers, would benefit from greater access to the
Thai market. An FTA with Thailand would also advance the goals of
the EAI and APEC.
Japan and South Korea
the world's second largest economy and Asia's anchor economy,
Japan's return to strong economic growth is critical for the region
and the world. Because of Japan's lackluster economic performance
in the past decade, one of the most imperative topics at the APEC
summit must be restarting that country's growth engine.
Although the Japanese economy grew at an
annual rate of 3.9 percent in the second quarter of 2003, it still
faces fundamental problems, such as bloated bureaucracy, runaway
debt, and an unstable financial system. The most recent positive
surge in the economy may have boosted Prime Minister Junichiro
Koizumi's political support and contributed to his victory in the
governing Liberal Democratic Party's leadership elections. But
bending to demands from the public and those in his own party will
undermine Koizumi's reformist policies. Thus, President Bush should
urge Prime Minister Koizumi to continue to focus on ending
deflation, resolving non-performing loans in the nation's banking
system, and implementing structural reforms.
South Korea, with the world's 12th largest
economy, is also critical to the vitality of Asia. South Korea
should be encouraged to continue deregulation, economic and labor
reforms, and addressing weak credit markets. In the past year,
Washington's ties with Seoul have focused less on sustaining
healthy economic relations than on policy disagreements over North
Korea. Attention to such divisive areas has only exacerbated
misguided perceptions in South Korea regarding U.S. intentions on
the Korean peninsula, fueling a rise in anti-American sentiment in
South Korea and frustration in the United States.
fact, South Korea remains one of the United States' most important
allies, and the values and goals shared by the two countries far
outweigh their points of disagreement. President Bush, therefore,
should emphasize their shared commitment to peace, stability, and
economic prosperity in the region.
People's Republic of China
Although China has been a member of the World Trade
Organization for over 18 months, it still retains significant trade
barriers in violation of its WTO accession commitments. U.S. manufacturers
complain of substantial trade barriers to U.S. agricultural
exports, rampant piracy of intellectual property, forced transfer
of technology from firms launching joint ventures in China, and
capital markets that are largely insulated from free-market
Although the Administration is aware of
these issues and promises to address them, these problems have
persisted since China entered the WTO. Unless Washington is
prepared to hold China accountable for its violations, there is
little prospect that APEC members would risk confronting China
themselves. Washington's stance on China's protectionism must
include developing an APEC consensus that obliges China to meet its
WTO obligations and open its markets.
Another key WTO commitment was to allow foreign banks to
conduct foreign currency business with Chinese firms and private
individuals immediately upon China's accession to the WTO. Within
two years of accession, foreign banks were supposed to be able to
conduct domestic currency (yuan) transactions with Chinese firms.
Within five years, foreign banks were to be able to conduct full
domestic currency business in China with both firms and private
nearly two years elapsed, China has yet to permit any foreign bank
to compete in China's financial services market. The only two
foreign banks licensed in China are doing local currency business
consistent with China's geographic phase-ins (i.e., still in select
cities) and remain restricted in the types of products that they
are allowed to offer.
Chinese have managed to keep out all other firms with working
capital requirements and other prudential rules that are so far in
excess of international standards that few foreign banks--and no
Chinese banks--can meet them. Moreover, the banks that have applied
to broaden their market presence have had to wait while their
applications languish in China's central bank. Foreign insurance service providers are
similarly hamstrung by China's impossible regulatory
structure--again, in violation of China's WTO commitments.
obvious reason that China has dug in its heels against opening its
financial markets is that China's banking system is so overloaded
with bad debt that state banks cannot compete with privately run
foreign banks. China's four largest banks are technically
insolvent, with around half of their loan portfolios categorized as
nonperforming. The only thing keeping China's banks afloat is their
monopoly with China's individual savers, who are among the world's
most conservative (40 percent saving rate). Nonetheless, China must
not be permitted to persist in flouting its WTO obligations.
APEC's smaller, less developed members are
worried because over the past five years, vast amounts of inbound
foreign direct investment (FDI) have gone to China. China is
sucking up virtually all the investment from other APEC partners,
including Mexico, and has become the globe's manufacturing
powerhouse, leaving the rest of APEC in a manufacturing
response, even manufacturers and organized labor in developed APEC
partners like the United States, Japan, and Taiwan are clamoring
for ways to reduce China's global trade competitiveness; but they
have focused obsessively on China's currency, which has been pegged
to the U.S. dollar for nearly a decade at a fairly stable rate of
8.28 yuan to the dollar. In fact, this apparent problem is one more
outgrowth of China's insistence on restricting the outflow of
An "undervalued" yuan, however, is a misguided concern.
Destabilizing China's currency would not reduce APEC's problems. China's overall trade
surplus is less than 6 percent of its total trade ($30 billion out
of $600 billion). FDI inflows total $40 billion-$50 billion a year,
while outflows are restricted.
China's ballooning foreign exchange
reserves (nearly $350 billion) clearly have little to do with the
trade value of the currency. Encouraging China to revalue its
currency upward would not solve that problem, and one estimate
indicates that it would, at most, result in less than $10 billion
in additional U.S. exports to China--and then only after a "period
of time"--while a free-floating Chinese currency could very easily
result in a depreciating yuan.
theory, China's restraints on outward capital movements will be
relieved as China opens up its financial services markets under the
terms of its WTO accession. APEC partners must insist that China
abide by its WTO obligations and ease these capital controls.
North Korea's pursuit of nuclear weapons
programs is destabilizing to the Asia-Pacific region. Five of the
six parties involved in resolving the North Korean nuclear issue
will be present in Bangkok. President Bush should use this
opportunity to coordinate the unequivocal position that a nuclear
North Korea will not be tolerated and advance his agenda to
persuade North Korea to abandon its nuclear programs.
President Bush should also ask all 20 APEC
economies to participate in halting North Korea's illegal
activities, which include drug trafficking, arms smuggling, and
currency counterfeiting. This can be achieved through active
cooperation and sharing of information on North Korea.
Fighting the War on Terrorism
has become a major battleground in the war on terrorism. The Bali
bombing in October 2002 killed 202 people, the worst terrorist
attack since September 11, 2001. Jemaah Islamiyah (JI) is an
al-Qaeda-linked group believed to be responsible for the Bali
bombing, the Marriott hotel bombing in Jakarta, and a number of
attacks across Asia. Despite some prominent captures, such as
terrorist mastermind Hambali, JI is still active. Because of its
size (an estimated 1,000 members) and success, JI is considered the
most dangerous terrorist group in the world after al-Qaeda.
the October 2002 Leaders' Summit in Los Cabos, Mexico, leaders
agreed to form the APEC Counter-Terrorism Task Force to implement
the Counter-Terrorism Action Plan (CTAP). The CTAP template
includes a number of specific objectives, such as implementing
common standards for electronic customs reporting and blocking
terrorist financing. However, law enforcement development is
conspicuously absent from CTAP.
Regional police apprehended most of the
more than 140 JI terrorists captured in Southeast Asia. Only in the
Philippines, where the terrorists have insurgent armies, has the
military played the major role in combating terrorism.
Nevertheless, one Philippine official said that the police still
capture 80 percent of the terrorists in the Philippines.
Development and Cooperation
Despite these promising successes, weak law enforcement
has been the source of some of Southeast Asia's most spectacular
embarrassments. In July 14, 2003, while Prime Minister John Howard
of Australia was visiting Manila to discuss counter-terrorism with
President Gloria Arroyo, Farthur Rahman al-Ghozi, a prominent JI
member linked to a series of bombings since December 2000, walked
away from his high-security Philippine prison cell along with two
cellmates. Despite an intense manhunt, al-Ghozi is still at
in July, Australian and Indonesian police raided JI safe houses in
the Indonesian cities of Jakarta and Semarang, arresting nine JI
members and recovering a considerable amount of explosives. Unknown
to their Australian counterparts, the Indonesian police also
recovered documents outlining future plots, including assassinating
politicians and bombing the Marriott Hotel area. A month later, the
Marriott Hotel in Jakarta was bombed, killing 11 people, but
neither the Australian government nor the American government knew
of the captured documents until the Indonesian police revealed
their existence in press interviews following the bombing.
another incident in August 2003, JI leader Abu Bakar Bashir was
convicted for his role in the Bali bombing. Despite the barbarity
of his crimes, Bashir received a lenient four-year sentence.
Although Indonesia's judiciary is frequently criticized for
corruption, in this case the light sentence is attributable to an
ineffective prosecution, not judicial malfeasance.
correct these problems and fight terrorism more efficiently, APEC
members should add law enforcement development to APEC's CTAP. Law
enforcement development should cover more than equipping and
training police. It should include creating indigenous police
intelligence units, sharing intelligence across national
boundaries, reforming and training the judiciary, and establishing
At the Los Cabos summit, APEC leaders agreed to halt
terrorist access to the world's financial system and use the money
trails to locate and apprehend terrorists. They also agreed to
support the Eight Special Recommendations on terrorist financing
formulated by the Financial Action Task Force (FATF). The Philippines and
Indonesia have implemented only half-hearted measures to block
terrorist financing, and the FATF lists Indonesia and the
Philippines as non-cooperative countries.
Indonesia and the Philippines passed anti-money-laundering
legislation in 2003. The FATF will review implementation of their
laws in a process that may take a year or more. Smothering
terrorist financing in Indonesia and the Philippines will be good
for the war on terrorism, and President Bush should emphasize its
To diminish the threat of transnational terrorism, the
President should encourage APEC members to join U.S. efforts to
limit terrorist access to global transportation and travel
networks. In October 2002, APEC members agreed to the Secure Trade
in the APEC Region (STAR) initiative to combat terrorism. Many of the goals of
their program can be achieved by participation in two U.S. programs
that include efforts to improve the security of shipping containers
and proposals for additional visa controls.
The President must impress upon APEC leaders the
importance of establishing a common security framework for
protecting maritime commerce--the cornerstone of global trade.
Shipping containers move about 90 percent of the world's freight
traffic. This trade is particularly crucial to the United States
and Asia. In 2002, U.S. import-export trade exceeded $1.83
trillion, with approximately $728.4 billion traveling by sea,
principally in seaborne containers.
Seven of the top 10 nations shipping
containers to and from the United States are APEC members. In fact, APEC nations
have 21 of the world's top 30 container seaports. While seaborne
containers are the lifeblood of East-West trade, their vast numbers
and abundant cargo space also make them ideal instruments for
mounting terrorist attacks and transporting illicit monetary
instruments (e.g., money, gold, and diamonds), weapons, and even
Inspecting the millions of containers that
transit the Pacific Ocean every day would be a virtually impossible
task. The United States has developed a strategy that focuses
inspections on "high-risk" cargo from less reputable shippers or
persons with suspected terrorist links. The objective of the U.S.
approach is to investigate containers at the port of origin,
interdicting threats long before they reach their intended
destination and removing dangers not only to the intended target,
but also to intervening ports of call.
There are four key components to the U.S.
approach, and the President should try to persuade APEC's other
member countries to become full partners in each of these
initiatives. The U.S. Department of Homeland Security's Bureau of
Customs and Border Protection directs the Container Security
Initiative (CSI). Under CSI, the Bureau sends officials to seaports
outside the United States where they work with host nation
counterparts to target and inspect high-risk containerized shipping
at the port of origin. CSI initially focused on developing
partnerships with the 20 major ports that ship goods to the United
States, but plans include expanding operations to other ports.
second component of the security program is the Customs-Trade
Partnership Against Terrorism (C-TPAT). C-TPAT requires businesses
to conduct self-assessments and certify the security of their
supply chain. In turn, if they meet appropriate security standards,
they can be designated "low-risk" shippers and, as a result, expect
fewer cargo inspections and reduced border-wait times. C-TPAT is an
important counterpart to CSI, allowing inspectors to focus more
effort on high-risk cargo and spend less time on routine commercial
traffic. So far, over 1,700 companies--including importers,
carriers, customs brokers, and forwarders--have enrolled in
in 2003, the Customs and Border Protection Bureau plans to begin
expanding C-TPAT to include foreign manufacturers and shippers.
other two key components of the container security program include
developing and fielding appropriate technologies that quickly and
unobtrusively inspect cargo and advanced information systems as
part of the Automated Commercial Environment. Better technologies will speed cargo
through the inspection process while searching more efficiently for
illicit materials and dangerous substances. At the same time,
better information management will enhance the effectiveness of the
automated targeting systems that are used to identify suspect cargo
The President must also impress upon APEC leaders the
importance both of securing programs that issue visas and of
monitoring visa use. In the hands of terrorists, passports and
visas can be deadly weapons. The prevalent use of identity theft
and false travel documents makes the U.S. non immigration system
(e.g., students, green card holders) particularly prone to abuse.
In 2001, officials at border crossing points seized over 100,000
falsified documents. Over 50 percent of these documents include
border crossing cards, alien registration cards, and fraudulent
visas and passports.
Terrorists have used such materials. For
example, one of the perpetrators of the 1993 World Trade Center
bombing entered the country with a doctored passport. Terrorists have also
entered the United States with legal visas because U.S. authorities
were unaware of their terrorist connections. One study of 28 known
militant Islamic terrorists found that 17 of them were legally in
the country as permanent residents or naturalized citizens.
2002, the U.S. Congress passed the Enhanced Border Security and
Visa Entry Reform Act to address this problem. Among its
provisions, the legislation requires that each country
participating in the Visa Waiver Program issue to its nationals
machine-readable passports that are tamper-resistant and
incorporate biometric identifiers. This must be accomplished by October
24, 2004. Countries also must notify the United States of the theft
of blank passports in a timely manner. Among APEC nations,
Australia, Singapore, and Japan currently participate in the Visa
President Bush should also address the
imprisonment of Burmese opposition leader and Nobel laureate Aung
San Suu Kyi. On May 30, 2003, the State Peace and Development
Council (SPDC), the military junta that rules Burma, forcibly
detained Suu Kyi. She remains incarcerated.
junta has persecuted Suu Kyi and her party, the National League for
Democracy (NLD), ever since they won a landslide victory against
the military government in the 1990 national elections. The
military quickly disavowed the results of the 1990 elections and
retaliated by arresting many NLD leaders and placing Suu Kyi under
Burmese military released Suu Kyi from house arrest on May 6, 2002,
in an apparent effort to convince the world that the country would
make the transition to democracy. Her rearrest is a clear
demonstration that the junta will not reform voluntarily.
response to the unjust detention of Suu Kyi, the United States is
applying a range of stiff, but appropriate, sanctions that include
banning the import of all products manufactured in Burma.
Unilateral American sanctions, however, are not enough. Burma is
already seeking ways to get around America's tough sanctions.
Burma's merchants are using euros instead of U.S. dollars for
foreign transactions, and the SPDC is encouraging trade with Asian
countries to replace lost trade with the U.S. President Bush should gain support
from the other APEC economies that currently trade or provide
economic and military aid to the regime.
Until Suu Kyi was rearrested, many
countries in Asia disregarded American concerns about Burma.
Therefore, multilateral pressure must be applied on the SPDC, or
they will continue their wrongful suppression of freedom and
Making a Difference at the APEC Forum
APEC summit in Bangkok offers President Bush the opportunity to
advance America's economic and security interests in Asia. In his
meetings with APEC leaders, the President should:
- Encourage faster
trade liberalization among the APEC economies. One
critical way to increase economic growth and improve living
standards is to encourage trade liberalization and greater
cooperation between the United States and its trading partners in
- President Bush should take the opportunity
to promote his Enterprise for ASEAN Initiative (EAI).
- President Bush should agree to negotiate a
bilateral free trade agreement with Thailand and should make the
announcement at the APEC meeting.
- Promote economic
reform in Japan and South Korea. Japan's return to strong
economic growth is critical for the region and the world. Japan
should be urged to end deflation, resolve non-performing loans in
the nation's banking system, and continue to implement structural
reforms. South Korea should be encouraged to continue deregulation,
economic reforms, and to address its weak credit markets.
- Develop support
for North Korea policy. President Bush should use this
opportunity to coordinate among the Six Party powers the
unequivocal position that a nuclear North Korea will not be
tolerated and work toward a specific plan to persuade North Korea
to abandon its nuclear programs. President Bush should also ask all
APEC members to participate in halting North Korea's illegal
activities, which include drug trafficking, arms smuggling, and
- Seek to
strengthen regional law enforcement agencies and international
police cooperation. Law enforcement is key to countering
terrorism operations and putting terrorists out of business.
- Reinforce member
country commitments to block terrorist financing. Some
countries, such as the Philippines and Indonesia, have made only
half-hearted efforts to block terrorist financing. They should
implement all of the recommendations of the Financial Action Task
- Gain China's
commitment to abide by WTO obligations and loosen capital
controls. Chinese citizens cannot invest abroad. In
theory, these restraints on outward capital movement will be
relieved as China opens up its financial services markets as
required by the terms of its accession to the WTO. APEC partners
must insist that China abide by its WTO obligations and ease these
capital controls soon.
- Encourage APEC
members to participate in counterterrorism programs.
Security Initiative. While the U.S. teams will identify
some cargo for inspection, host nations are responsible for
conducting inspections and identifying containers they believe may
represent security risks. The program cannot succeed without the
full cooperation of member ports. In addition, APEC should
encourage members to enter the CSI program as a means to rapidly
standardize a key element of port and transportation security
across the region.
Partnership Against Terrorism (C-TPAT). The long-term
advantages to joining in this program could be significant. In
addition to helping fight global terrorism, industries will find a
number of spin-off benefits including better inventory control and
asset visibility, reduced theft and pilfering, shorter transit
times, fewer inspection delays, and potentially reduced insurance
Non-invasive Inspection Technologies and Information
Management. The United States has already deployed
sophisticated inspection technology at its major ports and requires
importers to pay the costs associated with moving, screening,
unloading, and inspecting containers. Other countries will have to
determine their own ways to pay direct costs. Again, however, APEC
states should consider the long-term benefits of outfitting ports
and providing shippers with incentives to implement inspection and
information technologies. These innovations will make countries
more competitive in global trade, particularly trade with the
United States, and could be important incentives for economic
- Visa Waiver
Program. APEC nations participating in the Visa Waiver
Program should work to meet the requirements for visa issuance and
reporting as established in the Enhanced Border Security and Visa
Entry Reform Act.
Passports. All APEC countries should issue
machine-readable passports that are tamper-resistant and
incorporate biometric identifiers, as well as developing procedures
to notify other nations expeditiously when passports are lost or
- Commit APEC
members to multilateral sanctions on Burma. In light of
the brazen acts of Burma's generals, Washington and the
international community must act. American efforts should focus on
persuading APEC member countries to join the U.S. in imposing
strong sanctions on the junta. Without the support of Asia's
frontline states, political and economic sanctions will fail to
influence the generals in Rangoon.
President's trip to Bangkok provides a unique opportunity to
advance American interests. At the APEC Leaders' Summit, he can
gain commitments to lower the trade barriers of many of the world's
largest and most dynamic economies and address a host of security
issues during bilateral and mini-multilateral meetings.
Dana R. Dillon
is Senior Policy Analyst for Southeast Asia, Balbina Y. Hwang
is Policy Analyst for Northeast Asia, and John J. Tkacik, Jr.,
is Research Fellow in China Policy in the Asian Studies Center; James Jay Carafano,
Ph.D., is Senior Research Fellow for National Security and
Homeland Security in the Kathryn and Shelby Cullom Davis Institute
for International Studies; and Sara J. Fitzgerald is a
Trade Policy Analyst in the Center for International Trade and
Economics at The Heritage Foundation.
members are referred to as "economies" rather than countries
because APEC includes Taiwan and Hong Kong. The remaining 19
economies are the United States, Canada, Mexico, Chile, Peru,
Japan, South Korea, China, Indonesia, Brunei, Malaysia, Singapore,
Thailand, the Philippines, Vietnam, Australia, New Zealand, Papua
New Guinea, and Russia.