The Development of Asia Pacific Economic Cooperation from 1989 to 2000s - Term Paper Example

The Development of Asia Pacific Economic Cooperation from 1989 to 2000s using Dependency and Liberalism theories Introduction Asia Pacific Economic Co-operation (APEC) is an organization that was established in 1989 with the main objective being the eradication of the barriers to investment and trade within the Asia-Pacific region. With a current membership status standing at 21, with representation from across all divides of the region, such as Australia, USA, Chile, China, Singapore and Vietnam, this organization is the first of its kind. However, it maintains a secretariat based in Singapore, funded by member economies through annual contributions. It is for these reasons that APEC is considered as the premier forum through which activities such as investment, trade, economic growth, and cooperation are facilitated. APEC does not operate on binding treaties like other regional economic bodies; rather it operates on open dialogue and equality for all member states hence, factoring in its main goal of enhancing free trade among the member states (Shawkat 209). The major intention behind the formation of APEC was to enhance the living standards of citizens in their member states through trade. It bases its development plans and growth strategies along three main principles. These principles are promoting sustainable economic growth; strengthening and developing multilateral trade systems; and increasing the economic prosperity and interdependence among its members. These are the principles that have guided this organization over the years and even enabled it to achieve most of its mandate by increasing employment opportunities, reducing poverty and enhancing living standards among member states citizens. Member states join the economic cooperation at free will and can exit at free will, i.e. there are no barriers to entry or exit (Pamefias, Julius, Sinsiri and Waller 5). The international political environment in the 1980s that fostered the formation of APEC The Prime Minister of Australia at this point in time, Mr. Bob Hawke, always had a common goal with the Japanese of establishing an intergovernmental institution that would cater for the region’s economic demands. He made a public announcement of his idea in January 1989 in Seoul. However, a push from Japan founded this initiative. The Australian Department of Foreign Affairs and Trade (DFAT) and the Japanese Ministry of International Trade Industry (MITI) pushed for a strong economic coordination between the two countries. The continued cooperation between these two nations’ facilitated approaches made towards establishment of Asian Pacific Economic Cooperation (APEC) during a meeting held in 1989 November at Canberra. Therefore, APEC resulted from a joint effort of the Australian and the Japanese governments. The other members joined the cooperation after this move made by the two countries. The international political environments that facilitated the establishment of APEC were the economic and trade barriers that hampered international trade. This period was just after the Cold War and most countries did not permit free entry of foreign traders into their local markets for fear of espionage. The intention of APEC was to eradicate these barriers and promote international trade (Shawkat 209). Rules, norms, and procedures that qualify APEC as an international regime Every international regime has analytical components that consist of its rules, norms, principles and procedures. APEC has rules, procedures and norms that define its relations, activities and progression towards its set goals or objectives. This aspect of having the same qualifies it to be a regime. Members set up their own sets of tariffs laws and taxation rules in order to govern their imports and exports. However, the mandate and objectives of the organization harmonize these rules so that it can enable each member to gain access to international markets. In addition to members’ tariffs and taxation laws, the organization has several groups and committees that facilitate trade among the members. These committees include the budget and management committee, the economic committee, the committee on investment and trade, which has several groups beneath it such as automotive dialogue and e-commerce steering group, and SOM steering committee. This last committee deals with technical and economic cooperation among members (Pamefias, Julius, Sinsiri and Waller 5). However, in all these, the most saddening thing with international regimes such as APEC is that, as it is true of any social institution, they limit the discretion of the constituent units to only decide and act on those issues that fall within the domain of the regime. Conversely, as is with every institution, an ultimate expression in the convergence of the expressions and the delimitation of the regimes’ discretion, gives it an inter-subjective quality. Basing on all these rules, norms and principles that rate the regimes as social institutions, it might be imperative therefore, for an individual to argue and consider these regimes from a different perspective. One might argue that their formation and transformation may represent a solid demonstration of the internationalization of political power. Dependency and Liberalism Dependency theory gives a good explanation concerning the formation of an international regime like APEC. The dependency theory explains the flow of resources from the underdeveloped and poor states to wealthy states in order to enrich the wealthier states. However, economic dependence implies that the success of one item or aspect equally depends on the success of another item. In such international regimes, one country may not succeed unless another country succeeds. Therefore, in order to ensure the joint success of all nations, such countries form international economic integrations, i.e. economic regimes such as APEC. Liberalism theory on the other hand explains that the government or any other governing authority should not interfere with the operations of business activities of such an organization. This should entirely remain the task of market forces such as demand and supply. As such, international regimes such as APEC conform to such demands and supply forces by allowing importation and exportation of goods and services across member states (Shawkat 209). Introduction to Dependency and Liberalism: Explanation of the two concepts Economic dependence refers to a situation whereby the success of one aspect depends entirely on the success of another related aspect. This means that if one economic aspect fails, then the dependable aspect will fail as well. The best way to avoid this scenario is by diversifying resources. However, the theory of dependency outlines that the flow of resources is from a periphery, which consists of underdeveloped and poor states, to the core, which consists of wealthy developed states. This economic flow of resources enriches the wealthier states while depleting resources from poor states. The integration into world systems, such as economic regimes like APEC, enriches rich states while impoverishes poor states (Farmer 30). The concept of liberalism outlines that no government should try to control wages, rents, and prices; rather it should let open and free competition as well as forces from demand and supply to create equilibrium between all the stakeholders. This benefits a high majority of citizens economically. Generally, it favors redistribution of resources and incomes through measures such as welfare payments and taxation. Politically, this concept outlines that the primary requirement of a democratic government is to preserve the liberty of individuals and maximize their freedom of choice. All individuals are equal before the law and share a strictly voluntary contractual relationship with their government (Darden 161). Brief history of the two concepts of dependency and liberalism Dependency theory originated from a reaction made towards modernization theory. This early theory of development maintained that the progress of all societies follows common stages of development. The underdeveloped areas of today are at a similar stage of developed areas of today at some past period. Therefore, the right ways of assisting underdeveloped areas out of poverty is by accelerating them along the supposed path of development. This could be through use of various means such as technology transfers, investments, and close integration into world markets. However, dependency theory rejects this view maintaining that underdeveloped countries have personal unique structures and features and not developed nations’ primitive versions. They are simply in a situation of being weaker players in the global economy, and the stronger economies have an obligation to assist them out of their poor economic conditions for them to be developed states as well (Farmer 30). Economic liberalism on the other hand originated from the response to feudalism and mercantilism. It opposes non-capitalist economic orders like planned economies, market socialism, and socialism. It supports free markets and owning capital goods privately. This is in contrast to similar ideologies like social democracy and social liberalism. These ideologies favor other alternative forms of capitalism like protectionism, mixed economies, state capitalism, and welfare capitalism (Darden 161). How these theories differ in explaining the need for the formation of international regimes Dependency theory differs from liberalism in explaining the need to form an international regime in the sense that dependency focuses on the wealth and development of nations while liberalism focuses on the freedom of economic markets. However, both concepts facilitate the need to establish international regimes. Dependency theory, for example, creates the need to form an international regime to cater for the flow of resources from poor states to richer states in an effort to make the poor states grow and develop into wealthier states, i.e. the rich and developed states assist the poor underdeveloped states to develop. Liberalism on the other hand requires freedom of trade and zero interference of the economic regime by state actors. Normally, international trade faces several barriers such as tariffs, taxation, language, and infrastructure, which reduce the import and export trade. Liberalism advocates for the elimination of these barriers to international trade (Farmer 30). Interdependence between Dependency and the Marxist theory Dependency theory relies on three main premises. The first one outlines how poor countries provide cheap labor, natural resources, market for products from developed countries, and a dumping site for obsolete technology. Developed nations would not have the capacity to enjoy high standards of living they have right now were it not for the poor nations. The second premise outlines how wealthy nations perpetuate a dependency state using several means. The influence that comes from these developed nations comes multifaceted. This involves sports, culture, education, banking and finance, politics, media control, and economics. Furthermore, it involves all developments made in human resource aspects i.e. inclusive of recruiting and training workers. The third premise outlines how wealthy nations put in great efforts to counter any attempts made by poor dependant nations in resisting their influences using means such as military force and economic sanctions (Farmer 30). Dependency theory outlines that the reason for poverty in countries found in the periphery is because of the way they integrate into the system; and not due to their lack of inclusion into the world systems or lack of full integration as how most free market economists argue. This situation introduces a paradoxical effect whereby in spite of all the benefits that both the third world and first world countries enjoy, the poorer side finds itself locked in economic positions that are detrimental. They end up relying on the richer countries for the dismal work available to them. This is turn causes an economic barrier for these nations for them to grow independently. Analysis made from observations through future perspectives show that poor nations rarely will get an opportunity in which they to improve their quality of life (Farmer 30). APEC was formed to represent the international capitalist class. Emergence of such transitional capitalist class (TCC) from a section of bourgeoisie in the world represented transitional capital. This was due to owners of leading global production means embodying in private financial institutions and transnational corporations. Some empirical indicators of the capitalists’ transactional integration include the sharp increase in FDI (foreign direct investment), spreading of TNCs, proliferation of M & A (mergers and acquisitions) across national borders, and the rise of financial systems that operate globally. Furthermore, it also includes the enhanced positions’ interlocking within a global corporate structure. APEC formed to become one of these TCCs whereby it manages global circuits of wealth accumulation through integrating member states. This gave APEC an objective identity and class existence politically and spatially within global systems above all member polities and territories (Pamefias, Julius, Sinsiri and Waller 5). How APEC is different from similar regimes such as ASEAN and G20 APEC is different from similar regimes, the likes of G20 and Association of Southeast Asian Nations (ASEAN), because it does not have any laws and policies that govern and control their membership. All members are equal before each other, and there are no sanctions or any other special requirements for member countries to access foreign markets of other member states unlike in G20 and ASEAN. G20 stands for Group of Twenty Central Bank Governors and Finance Ministers from the 20 major economies in the world. This includes nineteen countries in addition to EU (European Union). This is very different from APEC because the membership of APEC includes countries with different economic status, i.e. both the mighty like USA, Russia and China, and the poorest like Chile and Vietnam (Cooper and Thakur 91). APEC bases its secretariat at Singapore unlike G20 which lacks a permanent secretariat. G20 usually sets up a temporary secretariat in the country that holds presidency of the group for the full length of their term in chair. Furthermore, the objectives of APEC are very different from those of G20, which include modernization of international financial architecture and promotion of financial rules and regulations in an effort to decrease risks as well as preventing future financial crises. The G20 group also coordinates policies between their members so that they can achieve sustainable growth and economic stability on a global perspective. On the contrary, the main objective of APEC is to promote international trade through elimination of trade barriers (Cooper and Thakur 91) Establishment of the ASEAN (Association of Southeast Asian Nations) was through signing of the Cooperation and Amity Treaty in Southeast Asia. This treaty adopted a list if fundamental principles, which were very different from the three main principles adopted by APEC. These principles include effective regional cooperation, failure to interfere with internal affairs of members, renouncing application of force and use of threats, and peaceful settlement of disputes and differences. Other principles adopted by the ASEAN organization include mutual respect for national identity, territorial integrity, equality, sovereignty, and independence of all countries who are members; and the right that every nation enjoys in leading its national existence without external coercion, subversion and interference. APEC has three main pillars that guide its operations and objectives in order to achieve its mandate of improving living standards of citizens in member states (Das 296). Unlike APEC whose main objective is trade, the ‘ASEAN way’ contributes to longevity and durability within the confines of the organization through promotion of regional identities as well as enhancement of the spirit of cooperation and mutual confidence. The negotiations of ASEAN agreements take shape of a close interpersonal process. The design of consensus and consultations processes engenders an approach that is democratic in decision-making. These leaders keep in mind any attempts to legalize efforts to contain regional cooperation or undermine their nation. This is different from APEC because it has no binding treaties and agreements to facilitate trade and business activities. Members rely on confidence and trust cultivated through the organization in undertaking their trade jurisdictions instead of sophisticated trade treaties and economic pacts (Das, 296). Dependency and exploitation in China as explained by APEC China participated actively in the APEC process since its inception in 1989 by accepting the important role of the organization in its economic relations with the world. This judgment includes empirical basis whereby APEC regions account for over 60% of trade in China as well as high levels of its inflows from foreign capitals. China’s merchandise trade has a high profile within the APEC process. This is due to the comparative advantage that the country has over the rest of APEC member state and especially Southeast Asian states. China is an economic giant, the second best after United States. In fact, financial analysts predict that it is likely take over as the superpower nation in the world after USA. This is due to its economic muscle, vast capital and natural resources, which generate high volumes of income for the Asian giant. Furthermore, China has a large population that provides cheap and adequate labor required by its industries and other companies. As such, it can afford to slash its trading tariffs from 36% to 23% (Cooper and Thakur 91). China uses APEC to expand its trade potential with international markets. APEC provides an international platform for China to display its willingness in integrating into the world economy because China is not a member of WTO or OECD (organization for economic cooperation and development). China’s participation in APEC gives it a foundation pedestal to deal with major economies of the world because it has backing from other smaller nations from East Asia. This move enables China to take advantage of APEC while trading with other nations. China provides a vast market for members of APEC, most of which are poor states, and their wealth flow to this economic giant. Such comparative advantages are what enable China to take advantages of poor East Asian nations (Farmer 30). Background of Liberalism, free trade and their impacts on firms and international cooperation Liberalism advocates for free trade which has significant effects in trade and business activities in the international front such as market entry strategies and lessening of tariffs and taxation laws. APEC applies liberalism to eliminate trade barriers to market entry for the countries who agree to be members of the regional trading block. The organization eradicates trade barriers such as technology, language, infrastructure, and bureaucracies, which impede import and export trade. Smaller countries are now getting more opportunities to penetrate markets of larger and established economies such as USA, Russia, and China. Under normal trade circumstances, these small countries would not have any access to such markets. Free trade allows for smooth flow of goods and services across international borders, as well as free flow of human capital, which is necessary for proper exploitation of economic resources. Therefore, liberalism promotes international cooperation in economic groups and regional organizations such as APEC, ASEAN and G20 (Darden 161). APEC creates an open forum for countries to express their trade and business expectations and shortfalls, as well as acting as a mediator for members countries for market permission to enter other markets. Furthermore, it enforces procedures and policies set up by the nations in order to facilitate trade activities. APEC is a powerful economic grouping that consists of 21 members. The membership consists of diverse economies and geographical settings from both extremes in terms of population, country size, GDP, per capita income, culture, history and language. Several reason s led to the formation of this economic regime such as containing increased economic tensions between western rim (Japan) and eastern rim (USA), and filling the vacuum for a regional trade block. Another reason was the fear of failure of ongoing multilateral trade negotiations of the GATT Uruguay. This way, APEC provides an open forum for countries to express their economic requirements, as well as mediation and enforcement (Feinberg 153). Institutional nesting APEC is significant to WTO (World Trade Organization) because it groups three of the most dynamic economies in the world (Japan, USA, and Canada) as well as Asian tiger economies. Institutional nesting enables APEC to hide under the umbrella of WTO to enhance the growth and development of members’ economies. Collectively, members of APEC constitute the growth engine of the entire economy of the world. The member economies represent roughly 42% of the total population of the world and occupy 43% of the land area in the world. In fact, the total member-economies GDP of APEC states were US $ 23,680 billion in 1997. In the same year, it accounted for half of the total merchandise exports of the world. Furthermore, cultural diversity and varied technological and scientific development levels. Therefore, institutional nesting enables APEC to develop and grow WTO. However, ASEAN is not an economic body (Aggarwal and Koo 31). APEC promotes cooperation of all member states by enabling weaker economies to penetrate major established economies. Weaker economies have an opportunity to participate on equal footing for market share and rights with other major countries. APEC promotes free trade and collaboration within the members through its three main pillars. These pillars are business facilitation, technical and economic cooperation (Ecotech), investment, and trade liberalization. These three pillars enable the economic body to take control of member economies and help them establish strong economic ties and sustainable business relationships (Chia 106). Conclusion Dependency theory advocates for free flow of wealth and resources from poorer state to wealthier and established states at the expense of the underdeveloped economies. Liberalism on the other hand advocates for elimination of all trade barriers and non-interferences of the economy and market players by the government or any other state factors. Market forces of demand and supply should be the determinants of market dynamics and power plays. The best choice for APEC is liberalism, which advocates for eradication of all barriers to trade within the member states. This enables all members to trade freely with each other by allowing free flow of goods and services across international borders. Liberalism promotes the ideals of APEC since its main mandate is to promote trade across member state by eliminating trade barriers that would otherwise hamper or slow down international business activities. Eventually, the organization manages to achieve its mandate of improving living standards of citizens in their member countries as well as developing economies of members. This is totally unlike dependency, which promotes depletion of wealth in poor states and accumulation of wealth in richer states (Yamazawa 19). The two theories equally explain the expansion of APEC. Dependency theory explains the expansion of APEC based on the need for established economies to find new markets for their goods and services, and places where they can source cheap labor for their industries and firms. Wealthier economies advocate for creation of economic regimes so that they can get market for their finished products, raw materials for their industries, and dumping sites for their obsolete technologies. Economic regimes such as APEC provide assured markets for develop nations. This in turn leads to the expansion of the regional economic body. On the other hand, liberalism advocates for the eradication of trade and economic barriers, which hamper international trade. Elimination of these barriers enables international trade. Economic regimes such as APEC offer the best platform for reduction or elimination of such trade barriers in order to promote international trade through imports and exports across member countries. Therefore, more countries will sign into membership of such regional economic organizations in order to increase their market share by trading with countries without trade barriers. In turn, this expands the economic organization, i.e. the expansion of APEC (Shawkat 209). Dependency and liberalism take about APEC’s possible future The two theories paint a different possible future for APEC. Dependency theory paints a picture of the demise of the economic body, especially after poor countries realize how wealthier nations exploit their resources. Poor nations would opt to pull out of such economic regimes in order to avoid exploitation and consolidate their wealth. Liberalism on the other hand paints a picture of growth and expansion of the economic body. The need for new markets and elimination of trade barriers would necessitate new entrants into the economic regime, especially those in pursuit of free trade and zero economic barriers. Benefits accruing from elimination of trade barriers would be the attracting feature for these countries to join economic regimes, hence the expansion and growth of APEC in the future (Pamefias, Julius, Sinsiri and Waller 5). Work cited Aggarwal, Vinod and Koo Min Gyo. Asia’s New Institutional Architecture: Evolving Structures for Managing Trade, Financial Trade, and Security. New York: Springer Publishers, 2012. Print. Chia, Slow Yue. APEC: Challenges and Opportunities. Singapore: Institute Of SEA Studies, 1999. Print. Cooper, Andrew and Thakur Ramesh. The Group of Twenty (G20). London: Routledge Publishers, 2012. Print. Darden, Keith. Economic Liberalism and its Rivals: The Formation of International Institutions among the Post-Soviets States. Cambridge: Cambridge University Press, 2009. Print. Das, Sanchita Basu. Achieving the ASEAN Economic Community 2015: Challenges for Member Countries and Business. Singapore: Institute Of Southeast Asian Studies, 2012. Print. Farmer, Brian. The Question of Dependency and Economic Development: A Quantitative Analysis. Lanham, Maryland: Lexington Books, 1999. Print. Feinberg, Richard Edward. APEC as an Institution: Multilateral Governance in the Asia-Pacific. Singapore: Institute Of SEA Studies, 2003. Print. Pamefias, Julius Caeser, Sinsiri Newin and Waller Kenneth. Developing Bond Markets in APEC: Towards Greater Public-Private Sector Regional Partnership. Singapore: Institute of South East Asian Studies, 2005. Print. Shawkat, Alam. Sustainable Development and Free Trade: Institutional Approaches. London: Routledge Publishers, 2008. Print. Yamazawa, Ippei. APEC: New Agenda in its Third Decade. Singapore: Institute Of SEA Studies, 2012, Print. Read More