Order Code RL31038
CRS Report for Congress
Received through the CRS Web
Asia Pacific Economic Cooperation (APEC), Free
Trade, and the 2003 Summit in Bangkok, Thailand
Updated August 1, 2003
Dick K. Nanto
Specialist in Industry and Trade
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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Asia Pacific Economic Cooperation (APEC), Free
Trade, and the 2003 Summit in Bangkok, Thailand
Summary
On October 20-21, 2003, the Eleventh APEC Leader’s Meeting (informal
summit) is to be held in Bangkok, Thailand. It is to be preceded by meetings of
senior officials from member countries, a CEO summit of business leaders, and the
APEC Business Advisory Council meeting. The APEC summit is usually attended
by the President, Secretary of State, U.S. Trade Representative, and sometimes the
Secretary of Commerce. The theme for APEC 2003 is “A World of Differences:
Partnership for the Future” which is intended to bring together the best potential of
all APEC economies to confront the challenges of the future, particularly in
achieving the APEC goal of free and open trade and investment for developed APEC
economies. This central theme is amplified by a series of five sub-themes that are
designed to guide APEC’s Working Groups and Forums in achieving their goals.
On October 26-27, 2002, at the Tenth APEC Leaders’ Meeting in Mexico,
despite the theme of expanding the benefits of cooperation for economic growth and
development and enabling the APEC vision to be implemented, the meetings focused
on terrorism following attacks in Indonesia, Russia, and the Philippines. President
Bush pursued two policy themes: the pending U.N. vote on Iraqi disarmament and
the North Korean nuclear program. The leaders agreed to toughen security for air
and water transport, halt terrorist financing, and increase vigilance in customs,
telecommunications, and energy. They also pledged to reduce transaction costs for
trade by 5% by 2006.
APEC is an association of 21 economies bordering the Pacific Ocean who are
working cooperatively to reduce barriers to trade and investment; ease the exchange
of goods, services, resources, and technical know-how; and strengthen economic and
technical cooperation. The members include the United States, Canada, Mexico,
Chile, Peru, Japan, South Korea, China, Taiwan, Hong Kong, Indonesia, Brunei,
Malaysia, Singapore, Thailand, the Philippines, Vietnam, Australia, New Zealand,
Papua New Guinea, and Russia. In the 1994 Bogor Declaration, the leaders of APEC
declared their intention to establish free trade and investment in the region by the
year 2010 for industrialized members and 2020 for the others. This goal has been
reaffirmed at the Leader’s Meeting each subsequent year.
For the United States, APEC raises fundamental questions that are of special
interest to Congress. One is whether consensus can be achieved on the APEC vision
of free trade and investment in the Asia Pacific or whether future trade liberalization
will be confined primarily to bilateral free-trade agreements or multilateral trade
negotiations under the World Trade Organization. In the 108th Congress, APEC-
related legislation included bills to establish free trade agreements with Singapore
and Chile. U.S. financial support for APEC in the State Department’s budget has
been $601,000 per year. This report will be updated as circumstances warrant.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
APEC Institutional Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The APEC Structure and Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The 1994 Bogor Declaration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The 1995 Osaka Action Agenda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The 1996 Manila Action Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The 1997 Vancouver Meetings — the Manila Framework . . . . . . . . . . . . . . . . . . 9
The 1998 Malaysia Meetings — Sectoral Liberalization . . . . . . . . . . . . . . . . . . . 11
The 1999 New Zealand Summit — End of Financial Crisis . . . . . . . . . . . . . . . . 12
The 2000 Brunei Summit — Toward Bilateral FTAs . . . . . . . . . . . . . . . . . . . . . 13
The 2001 Shanghai Summit — Post 9/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Policy Assessment and Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
List of Figures
Figure 1. U.S. Merchandise Trade Balances with APEC
Countries/Economies, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

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Asia Pacific Economic Cooperation (APEC),
Free Trade, and the 2003 Summit in
Bangkok, Thailand
Introduction
The Asia Pacific Economic Cooperation (APEC) forum is an association of 21
economies bordering the Pacific Ocean who are working cooperatively to reduce
barriers to trade and investment, facilitate the exchange of goods, services, resources,
and technical know-how, and strengthen economic and technical cooperation. In
2000, APEC’s 21 member economies had a combined Gross Domestic Product of
over $19 trillion totaling about 47% of world trade. The members of APEC have
declared their intention to establish free trade and investment in the region by the
year 2010 for industrialized members and 2020 for the others. For the United States,
APEC has become a key institution for pursuing trade and investment liberalization
and facilitation in the Asia-Pacific region.
On October 20-21, 2003, the Eleventh
APEC Leader’s Meeting (informal summit) is
to be held in Bangkok, Thailand. It is to be
preceded by meetings of ministers, of senior
officials from member countries, a CEO
summit of business leaders, and the APEC
Business Advisory Council meeting. The
APEC summit is usually attended by the
President, Secretary of State, U.S. Trade
Representative, and sometimes the Secretary of Commerce. The theme for APEC
2003 is “A World of Differences: Partnership for the Future” which is intended to
bring together the best potential of all APEC economies to confront the challenges
of the future, particularly in achieving the APEC goal of free and open trade and
investment for developed APEC economies. This central theme is amplified by a
series of five sub-themes that are designed to guide APEC’s Working Groups and
Forums in achieving their goals.
On October 26-27, 2002, the Tenth APEC Leaders’ Meeting in Las Cabos,
Mexico and other APEC meetings were hosted by Mexico. The theme for APEC
2002 was to expand the benefits of cooperation for economic growth and
development and enable the APEC vision to be implemented. The meetings,
however, tended to focus on terrorism following attacks in Indonesia, Russia, and the
Philippines. President Bush pursued two policy themes: the pending U.N. vote on
Iraqi disarmament and the North Korean nuclear program. The leaders declared
support for the multilateral trade negotiations under the World Trade Organization
(to include the abolition of agricultural export subsidies) and their conclusion by

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January 1, 2005, agreed to reduce transaction costs in international trade by 5% by
2006, adopted a set of transparency standards, condemned recent terrorist attacks,
adopted the Los Cabos Statement on Fighting Terrorism and Promoting Growth, and
agreed to toughen security for air and water transport, halt terrorist financing, and
increase vigilance in customs, telecommunications, and energy. They also pledged
to implement policies on trade and the digital economy.
Prior to the 2002 APEC summit, President Bush met bilaterally with Chinese
President Jiang Zemin and Mexican President Vicente Fox and trilaterally with
Japanese Prime Minister Junichiro Koizumi and Korean President Kim Dae-Jung.
Russian President Vladimir Putin was unable to attend because of the Moscow
theater hostage standoff. The meeting with Jiang underscored the importance of
China in reining in North Korea’s nuclear program. Despite pressure from the
United States, Mexican President Fox would not commit to siding with Bush for the
United Nations vote on an invasion of Iraq. In a trilateral meeting, the United States,
Japan, and South Korea agreed that APEC would declare that North Korea should
honor its commitment to give up its nuclear weapons program. Japan stressed that
Japan-North Korean normalization talks would not be concluded without full
compliance with regard to security issues, including the nuclear issue, and abduction
issues.1
In conjunction with the Mexico APEC summit, the United States announced the
Enterprise for ASEAN Initiative, a new trade initiative with the Association of
Southeast Asian Nations. This offers the prospect of bilateral free trade agreements
between the United States and ASEAN countries that are committed to economic
reforms and openness.2
In September 2002, APEC Finance ministers agreed to adopt an action plan
aimed at boosting efforts to block terrorist financing. The plan would increase the
effectiveness of a freeze on terrorist-related assets by fully implementing current laws
and working together in the arenas of law enforcement and information sharing.3
As in past Leader’s meetings, Taiwan’s President was not allowed to attend
because of objections by China. Taiwan was represented by Nobel prize laureate Lee
Yuan-tseh.

APEC has become the primary regional institution in the Asia-Pacific for
promoting open trade and practical economic cooperation. It is of interest to
Congress because:
! it is becoming a vehicle for pursuing free trade and other initiatives;
1 Embassy of Japan. APEC Leaders Called Upon North Korea to Renounce Nuclear
Weapons Program. EOJ Newsletter, October 28, 2002.
2 White House. Fact Sheet: Enterprise for ASEAN Initiative. October 26, 2002.
3 Kosukegawa, Yoichi. APEC Agrees to Adopt Action Plan on Terrorist Financing. Japan
Economic Newswire. September 5, 2002.

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! the APEC Leaders’ Meeting provides an opportunity for the U.S.
President to raise and discuss issues with the heads of other APEC
countries;
! concrete trade or investment measures developed under APEC may
require a change in existing U.S. laws and legislative approval under
the trade promotion authority expedited procedures;
! the U.S. economy is linked to the economies of the Pacific rim
through trade, financial investment, and direct investment in
subsidiaries in the region; and
! in view of the debate over the effects of NAFTA, the proposed
creation of an APEC free-trade arrangement that includes the United
States, China, Japan, South Korea, Taiwan, Indonesia, Peru, Russia,
Vietnam, Canada, Mexico, and other Asian-Pacific nations could be
quite controversial.
The goal of establishing free trade and investment among APEC nations is being
pursued along three tracks. The first is through liberalizing trade in certain sectors
such as information technology. These have been referred to the World Trade
Organization in order to bring European and other nations into the agreements and
are categorized at the World Trade Organization (WTO) as early voluntary sectoral
liberalization (EVSL). The second is through bilateral and regional free trade
agreements or by encouraging multilateral trade negotiations under the WTO. The
third is through incremental liberalization measures (individual action plans and
other programs) undertaken by APEC members.
In the 108th Congress, APEC-related legislation includes the implementation
legislation for the U.S.-Singapore (H.R. 2739/S. 1417) and U.S.-Chile (H.R. 2738/S.
1416) free trade agreements (FTAs), which, if passed, will bring to four (including
Canada and Mexico) the number of FTAs the United States has concluded with
APEC nations. H.Con.Res. 98 would express the sense of the Congress relating to
a FTA with Taiwan. U.S. financial support for APEC falls under the State
Department’s budget under Contributions to International Organizations and has been
running at $601,000 per fiscal year.
Debate over trade liberalization under APEC also is likely to address whether
provisions dealing with labor and the environment should be included and whether
the United States would be able to respond to foreign country violations of labor or
environmental standards with economic sanctions or monetary fines (as stipulated in
the U.S.-Singapore/Chile FTAs). U.S. participation in APEC also touches on the
broader U.S. debate over whether the United States should continue to pursue the
expansion of international trade and investment with other nations — particularly
through free trade agreements, the effect of trade and globalization on import-
sensitive industries, and whether increased trade threatens or enhances U.S.
prosperity, employment opportunities, and economic security.
The Administration has been approached by leaders from many other nations
who desire to pursue free trade agreements with the United States. In addition to the

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FTAs with Singapore and Chile, negotiations are underway for FTAs with Morocco,
Australia, five Central American nations, the five member nations of the Southern
Africa Customs Union, as well as the long-running negotiations to establish a Free
Trade Area of the Americas.
The proliferation of regional and bilateral free-trade arrangements in various
parts of the world also has generated proposals for other bilateral arrangements
among APEC countries.4 Free trade or preferential trade agreements have been
announced or are under discussion among APEC members such as between
Singapore and New Zealand, Australia, Japan, Mexico, Canada, and Chile and
between Japan and South Korea. The ten countries of the Association of Southeast
Asian Nations (ASEAN), Japan, China, and South Korea are considering an Asian
free trade bloc (ASEAN + 3). Since 1992, the Association of Southeast Asian
Nations (ASEAN) has been phasing in a Free Trade Area (AFTA) for its members,
although AFTA’s goal is currently to lower tariffs overall and eliminate them only
on certain items imported from other member countries.
APEC Institutional Development
APEC began in 1989 as an Australian initiative in recognition of the growing
interdependence among Asia-Pacific economies and in response to the free-trade
areas which had developed in Europe and North America. Originally intended to
exclude the United States and Canada, APEC was to provide an institution and forum
for consultation and coordination on economic issues of importance to East Asia and
Australia/New Zealand. Ultimately, membership was opened to countries in the
Americas.
Membership in APEC initially included twelve economies (Hong Kong and
Taiwan are not considered to be countries) but grew to twenty-one. The founding
members were the United States, Canada, Japan, South Korea, ASEAN (Brunei,
Indonesia, Malaysia, Philippines, Singapore, and Thailand, but not Vietnam),
Australia, and New Zealand. In 1991, the People’s Republic of China, Taiwan, and
Hong Kong joined. In 1993, Mexico and Papua New Guinea were admitted, as was
Chile in 1994. In 1997, APEC extended membership to Peru, Russia, and Vietnam
(who became members in 1998) and declared a ten-year period of consolidation
before additional membership applications would be considered.
The objectives of APEC are:
! to sustain growth and development of the region;
! to encourage the flow of goods, services, capital, and technology;
! to develop and strengthen the multilateral trading system; and
! to reduce barriers to trade in goods and services and investment.
4 Currently, over 130 regional trade agreements are in force. Most provide for reduced trade
barriers rather than free trade. Since 1995, the WTO received notifications of 90
agreements.

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APEC’s principles of operation are:
! that APEC is a voluntary association in which participants do not
cede powers of regulation or enforcement to a supra-national
institution;
! that decisions are based on consensus; and
! that decisions are implemented by individual members on a
voluntary basis and by collective actions (the voluntary actions are
coordinated and aimed at accomplishing a common goal).
At the 1994 summit in Bogor, Indonesia, APEC leaders signed a declaration
setting the goal of free and open trade and investment in APEC. The industrialized
economies (United States, Japan, Canada, Australia, New Zealand, Singapore, and
possibly others) are to achieve the goal by the year 2010 and the remaining
economies to do so by 2020. The United States argued against allowing the
additional 10 years for developing economies, but this provision was retained
primarily at the insistence of China, South Korea, and Malaysia. The Bogor
Declaration is a consensus, not a legal, document.
The APEC Structure and Activities
The APEC chair rotates annually and since 1989 has been held by Australia,
Singapore, South Korea, Thailand, United States, Indonesia, Japan, the Philippines,
Canada, Malaysia, New Zealand, Brunei, China, Mexico, Thailand (in 2003), and
Chile (in 2004).
The focal point of APEC activities is the annual Leaders Meeting in which the
APEC leaders set goals, publicize them, and provide momentum for the process.5
This is usually held in October or November of each year, and is attended by heads
of state except for those from Taiwan (Chinese Taipei) and Hong Kong who, because
of China’s objections, send other representatives. The major APEC decisions are
affirmed and announced at this meeting. This summit meeting also provides a
platform for and gives momentum to major APEC initiatives. The Leaders’ meeting
was begun in 1993 by former President Clinton who invited the leaders to Blake
Island near Seattle. Although APEC confines its agenda primarily to economic
issues, the heads of state at bilateral meetings conducted before and after the Leader’s
Meetings have discussed concerns over international security, human rights, and
other issues.
Most of the decisions of APEC are first considered in ministerial meetings.
These include the respective ministers dealing with trade, finance, transportation,
telecommunications, human resources development (education), energy,
environment, science and technology, and small and medium-sized enterprises. The
largest ministerial is the annual Joint Ministerial Meeting which precedes the
5 Bergsten, C. Fred, ed. Whither APEC? Washington, Institute for International Economics,
1997. pp. 3-4. Note: The Leaders Meetings are technically not summits because of Hong
Kong and Taiwan whose leaders are not officially heads of state.

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Leaders Meeting. It usually is attended by foreign and trade or commerce ministers
from member states. Management of substance is handled under ministerial direction
through Senior Officials Meetings (held four times per year). In 1993, APEC
created a Secretariat in Singapore with an Executive Director, 23 officials seconded
by member economies for fixed terms and a similar number of locally recruited
support staff.
Most of the specific tasks before APEC are being addressed in committees or
working groups or expert groups that deal with economic issues of importance to
the region. For implementing the Bogor declaration, the Committee on Trade and
Investment plays the key role. Other committees are the Economic Committee and
the Budget and Administrative Committee. APEC also has ten working groups
which work on specific areas of cooperation and facilitation: (1) Trade and
Investment Data, (2) Trade Promotion, (3) Industrial Science and Technology, (4)
Human Resources Development, (5) Energy Cooperation, (6) Marine Resource
Conservation, (7) Telecommunications, (8) Transportation, (9) Tourism, and (10)
Fisheries. Each working group has one or more shepherds (members) who take
responsibility for coordinating the work of the group.
In 1992, APEC formed the Eminent Persons Group (EPG) and charged it with
developing a “vision” for APEC’s future. In 1994, the EPG recommended that
APEC establish the goal of free trade, and, in 1995, as it completed its work, it
recommended ways to achieve that vision.
In 1995, APEC established the APEC Business Advisory Council (ABAC)
which consists of up to three members appointed by each APEC member. It provides
advice on implementing the APEC agenda and other specific business-related issues.6
In 1995, the issue was raised of whether APEC should be expanded to include
consideration of regional security issues. Until then, consideration of non-economic
issues was confined to bilateral summit meetings surrounding the Leaders Meetings.
APEC had carefully kept its distance from security matters for fear that such issues
would cause divisions within the group — particularly among China, Taiwan, the
United States, Japan, and Russia. Such divisions could thwart cooperation in
achieving economic goals. The consensus in 1995 among APEC members seemed
to be that regional security issues should be discussed in the ASEAN Regional Forum
and other fora rather than in APEC.7 The ASEAN Regional Forum usually meets
after the ASEAN Ministerial Conference and, in addition to the seven members of
ASEAN, includes the United States, China, Russia, Japan, South Korea, Australia,
New Zealand, Canada, and the European Union. It provides the largest pan-Pacific
forum for discussing security issues. In 2001 and 2002, however, terrorism was
added to the official agenda of the Leader’s Meeting.
6 U.S. representatives to ABAC are: Gary Benanav, Chairman and CEO of New York Life
International; Michael Ducker, Executive Vice President, International, of FedEx, and
Robert Prieto, Chairman of Parsons Brinckerhoff.
7 Moosa, Eugene. Regional Security Remains a Taboo at APEC. Reuters Newswire
Service. November 19, 1995.

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CRS-7
The 1994 Bogor Declaration
In 1994, APEC Leaders announced their commitment to the “Bogor vision” to
establish free and open trade and investment in the region by 2010 for industrialized
economies and 2020 for developing economies.
The 1995 Osaka Action Agenda
Before 1995, APEC declarations and other documents were general statements
without specifics on measures to be taken. In 1995 at the meetings in Osaka, Japan,
APEC members agreed to an Action Agenda that was intended to translate into
reality the aims of APEC ) particularly the 1994 Bogor Declaration of achieving free
trade and investment among its member economies by the year 2010 or 2020.8
The Osaka Action Agenda is the template adopted for APEC work to
accomplish its three goals of: (1) trade and investment liberalization, (2) trade and
investment facilitation, and (3) economic and technical cooperation. The Agenda
laid out nine general principles for members to follow in devising a road map to
reach APEC’s free-trade goal. These general principles have been used to guide
individual APEC members in devising national Action Plans for submission at
subsequent meetings.
The general principles in the Action Plan included (1) comprehensiveness [all
impediments are to be included], (2) WTO-consistency [consistent with World Trade
Organization rules], (3) comparability [comparable actions with consideration for
different starting points], (4) non-discrimination [benefits to be accorded to all APEC
members and also to non-APEC countries], (5) transparency [in domestic trade laws
and regulations], (6) standstill [no increased protection], (7) simultaneous start-
continuous process-differentiated time tables [all start together in a continuous
process to achieve long-term goal], (8) flexibility [in dealing with issues arising from
liberalization ) a controversial principle that some argue allows for import-sensitive
sectors to be liberalized more slowly], and (9) cooperation [to pursue economic and
technical cooperation].
The Agenda also outlined actions that APEC economies were to take in fifteen
specific areas. These included both actions by individual members and collectively
by APEC in tariffs, non-tariff measures, services, investment, standards, customs
procedures, intellectual property rights, competition policy, and dispute mediation.
At the 1995 APEC meetings in Osaka, however, Japan led a group (including
South Korea, China, and Taiwan) of members who argued for a weak definition of
comprehensiveness9 and insisted on including a general principle of flexibility that
8 Asia Pacific Economic Cooperation. The Osaka Action Agenda. November 19, 1995.
9 October 25, 1995, Representatives Doug Bereuter and Howard L. Berman along with 27
other Members of the U.S. House of Representatives sent a letter to Secretary of State
(continued...)

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CRS-8
might allow the country to placate certain import-sensitive sectors (particularly
agriculture) by putting them on a slower timetable or possibly even excluding them
from complete liberalization. The United States and twelve APEC members viewed
the principle of comprehensiveness (coverage of all sectors) as vital to achieving the
Bogor vision of free trade in APEC. In Osaka, APEC members reached a
compromise that allowed the comprehensiveness principle to remain unchanged but
added the principle of flexibility.10
At Osaka, Malaysia also argued for making all APEC commitments “voluntary”
(meaning that the free-trade target dates would not be binding). For the Bogor
Declaration in 1994, Malaysia had attached its objections to establishing the goal of
free trade and investment by the year 2010 or 2020. As a compromise, the word
“voluntary” was added. The Osaka Leaders’ Declaration stated APEC’s resolve to
“encourage...the evolving efforts of voluntary liberalization in the region,” but the
Osaka Action Agenda clearly declared under the comprehensiveness principle that
“the APEC liberalization and facilitation process will be comprehensive, addressing
all impediments to achieving the long-term goal of free and open trade and
investment.”11
APEC members also disagreed over the non-discrimination principle or what
has been termed “open regionalism.” Japan has pressed for the benefits of APEC
trade liberalization to be accorded even non-APEC trading partners on a most-
favored-nation basis. Japan’s government had stated that it thought APEC should not
be a trading bloc that discriminates against outsiders. The problem with such
unilateral trade liberalization, however, is that it invites free riders and makes
generating public support difficult. The United States favored benefits to be
accorded non-APEC countries on a reciprocal basis which has been the basis for
other negotiations.12
The 1996 Manila Action Plan
For the APEC Leaders’ Meeting in the Philippines in November 1996, the
theme was “from vision to action” meaning that APEC members were taking
measures to realize the goal of free and open trade and investment in the region. The
APEC economies submitted their first “Individual Action Plans” indicating how they
9 (...continued)
Warren Christopher and USTR Mickey Kantor urging the Clinton Administration not to
weaken its resolve to press for “the promised comprehensive and detailed agenda for
implementing the Bogor Declaration.”
10 The flexibility principle reads: Considering the different levels of economic development
among the APEC economies and the diverse circumstances in each economy, flexibility will
be available in dealing with issues arising from such circumstances in the liberalization and
facilitation process.
11 APEC. Osaka Action Agenda, p. 1.
12 Johnstone, Christopher B. An Awkward Dance: The Osaka Summit, Japanese Leadership
and the Future of APEC. JEI Report, October 20, 1995. p. 12.

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intended to move toward fulfillment of the Bogor goals. Moreover, APEC Leaders
called for conclusion of the Information Technology Agreement in the WTO, which
acted as a decisive catalyst toward successful completion of this agreement in 1997.
The APEC leaders launched the implementation phase of the free and open trade
and investment agenda, delivered business facilitation measures, agreed to advance
common goals in the World Trade Organization, developed ways to strengthen
economic and technical cooperation, and engaged the business sector as a full partner
in the APEC process.13
APEC took each of the Individual Action Plans (IAP) by member economies
and categorized them according to the fifteen issue areas set forth in the Osaka
Action Plan. Although the APEC process relies on concerted unilateral liberalization
and does not formally evaluate each IAP, there was considerable pressure placed on
countries whose plans fell short. One of the principles of the process is comparability
— which means no free riding.
The 1997 Vancouver Meetings — the Manila
Framework
At the time of 1997 Ministerial and Leaders Meetings in Vancouver, British
Columbia, several of the Asian APEC members were coping with severe financial
crises in which the value of their currencies had plummeted, the value of stocks on
their equity markets had dropped, and many of their financial institutions had become
insolvent.14 The International Monetary Fund had already arranged support packages
for Thailand and Indonesia and was in the process of doing the same for South
Korea.
While the APEC professionals considered the Asian financial crisis a diversion
from the APEC agenda for trade and investment liberalization, it added a dimension
to a Leaders Meeting that would otherwise have been a rather humdrum event. Prior
to the summit, the APEC finance ministers had met in Manila and developed a
framework to deal with currency and other financial crises. The ministers rejected
a Japanese-backed proposal to establish a separate Asian fund to provide financial
support for countries coping with financial difficulties. The Manila Framework was
endorsed by the APEC leaders.
The Manila framework included three elements. The first was a strong domestic
response by each country involved to create an economic environment that can attract
capital and maintain confidence ) including to strengthen its banking system. The
second was a stronger response by the IMF that included adequate financial support
up front to ease any liquidity crisis and to provide the confidence necessary to avoid
13 APEC. APEC Economic Leaders’ Declaration: From Vision to Action. November 25,
1996.
14 See CRS Report RL30272, Global Financial Turmoil, the IMF, and the New Financial
Architecture, by Dick K. Nanto.

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CRS-10
instability. The third was a cooperative financing mechanism through which the
countries of the region would, on a case-by-case basis, backstop IMF financial
measures to ensure that adequate resources were available.15
At the APEC summit, the leaders also designated fifteen major sectors where
the principal goal would be to achieve free trade (tariff elimination) within a short
span of years but not later than the year 2005. This represented a restricted, but
nevertheless significant, advance on the Bogor Declaration. Detailed market-opening
plans were to be concluded by the first half of 1998 with the aim of beginning
implementation in 1999. These Early Voluntary Sectoral Liberalization (EVSL)
agreements would be patterned after the Information Technology Agreement
endorsed in 1996 at the Manila summit and later adopted by the WTO. Of the fifteen
sectors, nine were chosen for action. Of these nine, six had been nominated by the
United States. The nine sectors were: environmental goods and services, energy
sector, fish and fish products, toys, forest products, gems and jewelry, medical
equipment and instruments, chemicals, and a telecommunications mutual recognition
arrangement.16
Although these EVSL initiatives were begun by APEC, APEC members agreed
to send them to the WTO in order to seek participation by the EU and other nations
and to make the commitments binding. At the WTO, except for the
telecommunications mutual recognition arrangement, the liberalization of these
sectors has became entangled in the proposal for a new round of trade negotiations,
and progress has stalled.
Another area of focus for the 1997 APEC meetings was trade facilitation and
other measures to lower the costs of doing business in the region. The ministers
welcomed the achievements under what are called Collective Action Plans that
lower costs and reduce barriers to the movement of goods and services, capital, and
business people. They endorsed work in these areas, which included: development
of the Blueprint for Customs Modernization; establishment of APEC Internet sites;
progress on alignment with international standards; increased transparency for
acquiring and using intellectual property rights; development of options to enhance
the environment for investment; development of model mutual recognition
agreements; principles to guide work on dispute mediation; improved mobility for
business people (including the APEC Business Travel Card); providing Internet
access to member country tariff rates; and development of guidelines for improving
the tendering, approval, and regulatory processes for independent power producers.17
15 Summers, Larry. Press Briefing, Vancouver, BC. November 24, 1997.
16 APEC. APEC Ministers on Early Sectoral Liberalization (Annex to APEC Ministers
Joint Statement).
17 APEC. Asia-Pacific Economic Cooperation (APEC) Ninth Ministerial Meeting Joint
Statement. Available on the World Wide Web at [http://www.apecsec.org.sg].

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The 1998 Malaysia Meetings — Sectoral
Liberalization
At the 1998 APEC Joint Ministerial and Leader’s Meetings held in Kuala
Lumpur, Malaysia, President Clinton did not attend because of the imminent
bombing of Iraq. The economic turmoil that began in Asia in 1997 was still raging,
and APEC Leaders declared that they needed to deal urgently with the financial crisis
and committed themselves to pursuing a cooperative growth strategy.
Prior to the APEC meetings, Japan had been urged by the United States and
other industrialized nations to stimulate its economy in order to restore domestic
demand-led growth, clean up its banking system, further open its markets, deregulate
its economy, and do more to help its neighboring countries in crisis. In the weeks
leading up to the APEC Leaders’ Meeting, Japan did take three measures aimed at
restoring its moribund economy and promoting growth in east Asian countries. It
announced a stimulus package (its eighth in the 1990s) of public spending and tax
cuts worth about $196 billion,18 unveiled what it called the Miyazawa Initiative —
a package of support measures by the Japanese government totaling $30 billion to
assist economic recovery in Asian countries,19 and, jointly with the United States,
announced a new $10 billion multilateral initiative aimed at revitalizing private
sector growth in Asia.20
Another issue had high visibility at the meetings in Malaysia. Malaysian Prime
Minister Mahathir Mohamad, who hosted the APEC meetings, had been a severe
critic of the APEC trade liberalization process. As the Asian financial crisis battered
the Malaysian economy, Mahathir imposed currency controls and restrictions on
capital flows to and from Malaysia and stifled dissent within the country.21 The
capital restrictions were in conflict with the goal of free trade and investment in
APEC but had attracted sympathy from other nations that had suffered the flight of
short-term capital. Mahathir also had his former Deputy Prime Minister Anwar
Ibrahim (who had opposed Mahathir and certain of his policies) arrested on a “morals
charge.” At the APEC summit, no bilateral meetings had been scheduled between
President Clinton and Prime Minister Mahathir, and Clinton’s non-attendance
because of Iraq had an additional muting effect. While in Malaysia for the Joint
Ministerial Meeting, Secretary of State Albright met with the wife of the jailed
former Deputy Prime Minister, and in a speech at a banquet hosted by Prime Minister
18 Sugawara, Sandra. “Japanese Set Plan for Economy.” Washington Post, November 16,
1998. P. A21. Japan. Economic Planning Agency. Outline of Emergency Economic
Package. On Internet at [http://www5.cao.go.jp/98/b/19981116b-taisaku-e.html].
19 Japan. Ministry of Finance. New Initiative to Overcome the Asian Currency Crisis.
October 3, 1998. On Internet at [http://www.mof.go.jp/english/if/e1e042.htm].
20 The White House. Joint Statement by President Clinton and Prime Minister Obuchi.
November 16, 1998. On Internet at [http://www.mof.go.jp/english/if/e1e054.htm].
21 For a summary of the controls, see Aziz, Zeti Akhtar. Preparing for the New
International Financial Architecture: Malaysia’s Programme. Speech at the International
Conference on “Managing the Asian Financial Crisis: Lessons & Challenges” on November
2-3, 1998. On Internet at [http://www.bnm.gov.my/spch/1998/1102.htm].

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Mahathir, Vice President Gore voiced sympathy for Malaysia’s pro-democracy
forces. Both of these actions brought strong negative reactions from Malaysian
officials.22
The 1999 New Zealand Summit — End of Financial
Crisis
On September 12-13, 1999, the Seventh APEC Leaders Meeting was held in
Auckland, New Zealand. The 1999 APEC meetings occurred earlier than their usual
time because the World Trade Organization’s Ministerial Conference was to be held
in Seattle on November 30-December 3, 1999. APEC wanted to complete its
recommendations for the WTO with enough time for them to be considered for the
WTO Conference. The APEC leaders endorsed the launching of a new WTO round
of multilateral trade negotiations and agreed that the new round of trade negotiations
should: (1) include industrial tariffs as well as mandated negotiations on services and
agriculture, (2) lead to timely and effective improvements in market access to the
benefit of all participants, particularly developing countries, (3) have a balanced and
sufficiently broad-based agenda, and (4) be concluded within three years as a single
package but which would not preclude the possibility of early results on a provisional
basis. For the new WTO round, the APEC leaders also: (5) supported the abolition
of agricultural export subsidies and unjustifiable export restrictions, (6) agreed that
the current moratorium on duties on electronic commerce should be extended, and
(7) endorsed efforts to achieve an agreement on transparency in government
procurement.23
The APEC summit occurred at a time of increasing violence in East Timor
following its vote for independence from Indonesia. APEC leaders took advantage
of bilateral meetings with each other to put pressure on Indonesia to allow
international peacekeepers into the country. While APEC was in session, Indonesian
President Habibie bowed to international concerns and agreed to allow a United
Nations peacekeeping force into East Timor.24
The APEC summit also occurred when the Asian economies appeared to be
recovering from the economic crisis that had beset the region and certain other
nations of the world since July 1997. As Thailand, Indonesia, the Philippines, South
Korea, Japan, Hong Kong, and other Asian countries dropped into recession, their
enthusiasm for further opening of their markets had waned. However, with the
exception of Indonesia, the APEC economies seemed to have turned the corner, and
22 Blustein, Paul. “Gore Remarks Anger Malaysian Leaders.” Washington Post. November
17, 1998. P. A29.
23 APEC Secretariat. Leaders’ Declaration - New Zealand. Press Release 47/99, September
13, 1999. On Internet at [http://www.apecsec.org.sg]. U.S. Trade Representative.
Statement of United States Trade Representative Charlene Barshefsky at the Conclusion of
the APEC Ministerial Sessions in Auckland, New Zealand. Press Release 99-73, September
10, 1999.
24 Richburg, Keith B. “Jakarta Asks U.N. Force to End E. Timor Turmoil.” Washington
Post, September 13, 1999. p. 1A.

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CRS-13
there was heightened recognition that open, transparent, and well-governed markets
were key to a return to sustained economic growth and prosperity. The general
assessment of APEC’s ability to cope with the Asian financial crisis, however,
seemed to be that APEC really did little substantive work and that the International
Monetary Fund, World Bank, the U.S. Treasury, and other players in international
financial markets carried the burden of coping with the crisis.25 In order to bring
APEC finance ministers more into the mainstream of APEC activities, the finance
ministerial meeting was moved to the period immediately preceding the Leaders
meeting.
The 2000 Brunei Summit — Toward Bilateral FTAs
On November 15-16, 2000, the Eighth APEC Leaders’ Meeting was held in
Bandar Seri Begawan, Brunei. During the bilateral meeting with Singapore, the
United States and Singapore announced that they would begin negotiations on a
bilateral free trade agreement.26 Given the stalled start of the WTO multilateral
negotiations, more and more countries were opting to proceed with bilateral free
trade agreements. During other bilateral meetings, the United States, New Zealand,
Singapore, Brunei, and Chile agreed in principle to an “open skies” pact (eliminating
restrictions on airline flights, prices, and routes among themselves),27 and the U.S.
and China announced that China would ban certain missile-related exports in
exchange for a lifting of U.S. sanctions prohibiting Chinese launches of American
satellites.28
In the Brunei summit, the APEC leaders reaffirmed their determination to
realize the goal of free and open trade and investment among member economies and
agreed on the need to expeditiously launch a new round of trade negotiations under
the World Trade Organization in 2001. In a concession to developing country
members (particularly Malaysia), the leaders called for a balanced and sufficiently
broad-based agenda that would respond to the interests and concerns of all WTO
members to be finalized as soon as possible in 2001. The APEC communique also
stated that China should be accepted into the WTO soon, followed by Taiwan and
sometime later by Russia and Vietnam; that the people in every economy should have
access to information and services offered via the Internet by 2010; and that countries
recovering from the 1997-98 Asian financial crisis should keep up with painful
economic reforms even though their economies were then recovering.29
25 See, for example, Sanger, David E. “Some Birthday Cake for a Toothless Wonder.” New
York Times, September 12, 1999.
26 See CRS Report RS20755, Singapore-U.S. Free Trade Agreement, by Dick K. Nanto.
27 U.S. Department of Transportation. United States, Asia-Pacific Aviation Partners Enter
Multilateral Open Skies Agreement. DOT Press Release 222-00, November 15, 2000.
28 Perlez, Jane. China to Stop Selling A-Arms Delivery Systems. New York Times,
November 21, 2000. P. A12.
29 APEC Secretariat. Delivering to the Community, APEC Economic Leaders’ Declaration,
Bandar Seri Begawan, Brueni Darussalam. November 16, 2000. On Internet at
[http://www.apecsec.org.sg].

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CRS-14
The 2001 Shanghai Summit — Post 9/11
On October 20-21, 2001, the Ninth APEC Leaders’ Meeting (summit) was held
in Shanghai, China. For 2001, China hosted the Leaders’ Meeting and, in
consultation with other APEC members, set the major agenda items. The official
theme for 2001 was “Meeting New Challenges in the New Century: Achieving
Common Prosperity through Participation and Cooperation” with sub-themes of: (1)
sharing the benefits of globalization and the new economy, (2) advancing trade and
investment, and (3) promoting sustained economic growth. The war on terrorism and
slowing world economic growth, however, dominated discussions. The leaders’
statement on counter-terrorism was the first time APEC dealt explicitly with a non-
economic issue. In the statement, the leaders condemned the attacks on the United
States, committed themselves to preventing and suppressing all forms of terrorists
acts in the future, to enhance counter-terrorism cooperation, and take appropriate
financial measures to prevent the flow of funds to terrorists.30 APEC leaders also
reaffirmed the goal of achieving free trade and investment among APEC members
and strongly supported the launch of the new round of multilateral trade negotiations
under the World Trade Organization.
At the Shanghai meeting, the leaders also issued the Shanghai Accord in which
they committed themselves to broaden APEC’s vision for the future by identifying
a conceptual and policy framework to guide APEC in the new century. The Accord
included clarifying APEC’s roadmap for achieving the free trade and investment
goals on schedule with an assessment of overall progress in 2005, promoting the
adoption of appropriate trade policies for the New Economy, following up on the
APEC Trade Facilitation Principles, pursuing greater transparency in economic
governance, and strengthening APEC’s implementation mechanism.31
Policy Assessment and Implications
Trade liberalization under APEC is nowhere near as far along as that under
either the European Union or the North America Free Trade Agreement. APEC’s
goal of free trade is to be phased in over the next two decades. Only the framework
now exists to lead APEC members toward that goal. APEC is not a negotiating body
nor are its decisions legally binding on its members. The APEC process has been
called “concerted unilateral action” in which a set of principles and guidelines are
agreed to by APEC members and used to steer individual member actions. Rather
than a trade bloc, APEC can be characterized as a building block toward greater trade
liberalization and cooperation not only within the organization, itself, but in broader
contexts, such as in the World Trade Organization. The APEC work programs are
conducted on the basis of open dialogue with equal respect for the views of all
participants — both the member countries and, to a certain extent, private business
interests. This consensus-based decision making, however, tends to be slow and
cumbersome.
30 Asia Pacific Economic Cooperation. APEC Leaders Statement on Counter-terrorism.
Shanghai, China, October 21, 2001.
31 APEC. APEC Economic Leaders’ Declaration, Shanghai, China. October 21, 2001.

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CRS-15
When APEC began, many thought it would be just another “talk shop.” The
movement in APEC toward voluntary free trade and investment liberalization,
however, has gone beyond initial expectations and seems to reflect a change in world
economic circumstances and attitudes. The nations belonging to the WTO already
have agreed to reduce tariffs and eliminate most non-tariff barriers. For the
industrialized nations, in particular, tariffs already are so low in many sectors that
some argue that dropping them entirely would make little difference. Until the onset
of the Asian financial crisis in 1997, many nations were discovering the advantages
of free trade and unfettered foreign investment in today’s fast moving, consumer-
oriented markets. A perception was developing that closed markets and unfriendly
investment climates can cause economies to lose rather than create employment
opportunities. Since the 1997-99 Asian financial crisis and ensuing slow-down in
economic growth, however, some nations are taking a second look at the costs as
well as advantages of free trade and capital flows — particularly short-term capital
flows between wealthy and developing economies.
In terms of U.S. interests, APEC promotes trade and cooperation among
economies that have been the most dynamic in the world, encourages open trading
systems rather than trading blocs, helps U.S. businesses remain engaged in the
region, and provides the Asia-Pacific region with a counterweight to the European
Union. In response to APEC, the European Union in 1996 initiated ASEM, the Asia-
Europe Meeting, which excludes the Americas.32 At the same time, countries in the
Americas are pursuing the Free Trade Area of the Americas (FTAA) a free-trade
arrangement that would stretch from Canada to Chile.33
Critics of APEC include those who (1) assert that liberalized trade and
investment has been primarily a one-way street that benefits trading partners more
than the United States; (2) are concerned that the U.S. President should not be
meeting annually with the heads of state of countries with alleged human rights
problems (for example, China, Indonesia, and Vietnam), and (3) place higher priority
on environmental considerations than trade.
Some import sensitive sectors also have opposed further opening of U.S.
markets and more free trade agreements. They fear that APEC free trade could
become a two-edged sword. U.S. firms could gain greater access to Asian and South
American markets, but exporters from those regions also would gain more access to
U.S. markets. There are concerns that this could hurt previously protected American
industries, such as apparel, agriculture, steel, and motor vehicles (notably, pickup
trucks). Some in these import-sensitive industries have opposed liberalized imports
from Asia and Latin America. Also, in light of the intense opposition from some in
32 ASEM met for the first time, on March 1-2, 1996, in Bangkok, Thailand. It included
Heads of State and Government of ten Asian Nations (ASEAN plus China, Japan, and
Korea) and fourteen members of the European Union plus the European Commission. The
initial purpose has been to allow the leaders to become better acquainted with each other in
order to build a foundation for further and continued cooperation among the participating
countries. For information on U.S.-EU trade, see CRS Report 97-734, The Transatlantic
Business Dialogue, by Glennon Harrison.
33 See CRS Report RS20864, A Free Trade Area of the Americas: Status of Negotiations and
Major Policy Issues, by J. F. Hornbeck.

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CRS-16
the United States concerning granting China the trade privileges of normal-trade-
relations (most-favored-nation) status and allowing it to join the World Trade
Organization, the question remains of how Americans would respond to establishing
free trade with that nation. Furthermore, given the hidden barriers to trade and
investment in countries like Japan (close business relationships, interlocking
corporate organizations, etc.), some have questioned whether free trade with Japan
might be a one-way street. Would Japanese exporters gain unlimited access to the
U.S. market, while American exporters still would face a web of private trade
barriers in Japan?
APEC is maturing as an organization and has now drawn most major players in
the Asia-Pacific region into its membership. Its long-range goals are lofty, but it
seems to be moving steadily toward achieving them. It is becoming a credible
vehicle to discuss and coordinate issues in the region as well as to achieve trade and
investment liberalization. The Asian financial crisis dampened enthusiasm for further
opening of markets, but the crisis also underlined the need for market discipline in
allocating financial resources. Market discipline occurs partly through liberalized
trade and capital flows.
The Individual Action Plans that are to bring the member economies closer to
the APEC goal of free trade and investment in the region contain many significant
actions. Most tariff reductions, however, reflect what member governments already
are committed to do in the World Trade Organization. Some regulations have been
changed in response to APEC efforts, but for most countries, only a few actions to
reduce tariffs or ease foreign investment requirements have been taken specifically
to achieve the APEC goals. The time has arrived, however, when APEC members
will have to consider concrete measures that go beyond those already scheduled in
order to achieve the goals of the Bogor Declaration.
A strategy that countries are pursuing to go beyond their WTO obligations is to
negotiate free-trade agreements with other APEC members. In view of the difficulty
in reaching a consensus in the multilateral trade negotiations under the WTO and the
slow progress under APEC, many individual members are electing to go down the
route of bilateral or regional free trade agreements.
On the other hand, within the United States, those who question the expansion
of international trade and investment often argue that the U.S. should not pursue
more free-trade arrangements because of human rights, economic, and other
concerns. Import-sensitive industries are among those who often oppose granting
other nations greater access to U.S. markets. They also are less interested in access
to foreign markets that might be accorded through trade and investment
liberalization. Controversy also continues over the extent to which environmental
and labor issues are handled in such agreements. Anti-globalization protesters who
have directed their efforts mainly to oppose WTO, International Monetary Fund, and
World Bank activities also could oppose further trade liberalization under APEC.
APEC is also facing the growing pains of any new organization. Some of its
committees and working groups have overlapping interests. The number of meetings
is increasing, and travel requirements are rising for participants. Still, it has, so far,
avoided forming a large bureaucracy such as those in the Organization for Economic

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CRS-17
Cooperation and Development or the European Union. Also, it has expanded its
scope to address financial problems as well as trade and investment.
In August 2002, the APEC International Assessment Network released a report
that examined APEC’s effectiveness and made recommendations on how it might be
improved.34 The report concluded that: (1) APEC’s management structures have
grown both too complex and too weak to meet the needs of a growing organization
and need a thorough overhaul; (2) APEC’s decision making rules, where the
requirements of 100% agreement too often produce paralysis, should be made more
flexible; (3) APEC’s outreach, which in earlier years was a source of strength, has
languished, precisely when the private sector, academic experts, and other civil
society actors are gaining weight in global diplomacy; (4) APEC’s product has
become scattered, and APEC needs to clarify its roles in market liberalization, in
economic cooperation, and in policy development; and (5) APEC’s financial
structure is woefully inadequate in comparison to APEC’s goals and objectives. The
report also recommended several reforms including having the Executive Director
serve a multi-year term with new middle managers, hiring more experts, a flexible
consensus for decision making, recognizing policy development as one of its core
missions, and rationalizing its financial structure.
For the United States, a problem related to APEC is that the U.S. merchandise
trade balance with the APEC member economies has been deteriorating. This can
be attributed mostly to U.S. macroeconomic conditions, but the political
repercussions in the United States from this rising trade deficit could combine with
specific trade disputes to have a negative impact on overall trade relations with some
of the APEC countries such as China and Japan.
Figure 1 shows U.S. bilateral merchandise trade balances with the members of
APEC. As can be seen, the largest deficits are with China, Japan, Canada, and
Mexico, all important APEC members. Out of a total U.S. merchandise trade deficit
of $468.3 billion in 2002, $299.9 billion, or roughly two-thirds of the total deficit,
was attributed to just seven APEC partner nations — five in Asia (China, Japan,
Taiwan, Malaysia, and South Korea) plus two in North America (Canada and
Mexico). To the extent that the bilateral trade deficits with APEC countries are being
exacerbated by trade barriers that are hindering access to their markets, trade
liberalization under APEC may work to increase U.S. exports to those economies and
reduce certain bilateral trade deficits. A lessening of a bilateral trade deficit through
greater access to foreign markets, however, would tend to change the composition
and distribution of the deficit and not necessarily reduce the overall U.S. trade deficit
by a corresponding amount.
APEC also raises some fundamental questions for U.S. policy. One is whether
a U.S. consensus can be achieved on the APEC vision of free trade and investment
in the Asia Pacific region or whether future trade liberalization will be confined
primarily to bilateral free-trade arrangements and multilateral trade negotiations
under the WTO. Another question is whether the U.S. business community will
continue to back the APEC process or whether they view the APEC goals of free
34 APEC International Assessment Network. Remaking APEC as an Institution, The Third
APIAN Policy Report, August 2002.

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CRS-18
trade and investment in the region as too long-term and too lofty to be actually
achieved. A final question is whether APEC is worth the effort and resources
(although small) being devoted to it and whether the United States should continue
to participate in it. These questions await a comprehensive domestic policy debate
over APEC that is yet to occur.
Figure 1. U.S. Merchandise Trade Balances with APEC
Countries/Economies, 2002
Country
China
-103
Japan
-70
Canada
-48.2
Mexico
-37.1
Taiwan
-13.8
Malaysia
-13.7
South Korea
-13
Thailand
-9.9
Indonesia
Deficit
-7.1
Russia
-4.5
Philippines
-3.7
Vietnam
-1.8
Chile
-1.2
New Zealand
-0.5
Peru
-0.4
Brunei
-0.2
Australia
6.6
Hong Kon
Surplus
3.3
Singapore
1.4
-120
-100
-80
-60
-40
-20
0
20
$ Billions
Source: U.S. Department of Commerce (Census Bureau)

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