INTRODUCTION

The papers in this report are the results of a study undertaken through the PECC with sponsorship from the APEC Business Advisory Committee (ABAC). As the result of agreement between the ABAC and the PECC, it was agreed that the study should look at the political feasibility of a proposal to establish a Free Trade Area of the Asia-Pacific (FTAAP) as well as alternatives that APEC could take to promote greater regional trade and investment. The authors were selected by the two parties, and since proponents and opponents of the FTAAP were included there was no unanimous consensus within the study group regarding the FTAAP issue. This overview reviews the current economic context, reviews the arguments both for and against an FTAAP, makes an evaluation regarding its political feasibility, and sketches out an outline for an APEC 2010 Trade Agenda that the author regards as a more realistic and still ambitious approach to trade liberalization, but not inconsistent with the FTAAP as a possible longer-term objective.

THE ECONOMIC CONTEXT

By standards of any other region of the world, the Asia-Pacific region is doing very well. A number of its economies, especially China and Vietnam, are achieving extraordinary growth. The performance of the U.S. economy has continued to confound pessimists, and Japan, for long the weak performer of the region, is now experiencing solidly based growth. Moreover, inflation remains low, despite commodity and fuel price spikes. Trade and investment continues to boom around the region. Since the 1994 Bogor Goals were set, trade barriers have continued to go down, with average tariffs lower in all of the sub-regions of the Asia-Pacific. Moreover, despite some protectionist sentiments in some parts of the region, the APEC economies adhere to their World Trade Organization (WTO) obligations. The WTO system enjoys high favour and continues to attract additional membership by Asia Pacific Economic Cooperation process (APEC) economies. China became a WTO member in 2001, Vietnam joined in 2006, and Russia is also seeking WTO membership.