The Asia-Pacific Economic Cooperation (APEC) was established in 1989 to enhance economic growth and prosperity in the Asia-Pacific region. Its future, however, is in doubt.

The Asia-Pacific Economic Cooperation (APEC) Forum held its first meeting in 1989, with the finance ministers of twelve nations attending an informal meeting in Canberra, Australia. As of 2008 APEC had twenty-one members and represented 41 percent of the population of the world, 56 percent of global gross domestic product, and 49 percent of world trade. It is headquartered in Singapore. The purpose of APEC is to facilitate free trade and investment among member nations, especially the economies of the United States, China, Japan, and South Korea, and to recognize the substantial and growing economic power of Asia-Pacific region.

Economic Regionalization

APEC is an example of a regional trading agreement (RTA). Other well-known multilateral economic agreements are the North American Free Trade Agreement (NAFTA), the Central American Free Trade Agreement (CAFTA), the Organization of Petroleum Exporting Countries (OPEC), and the European Union (EU). RTAs in Asia include the Association of Southeast Asian Nations’ (ASEAN) Free Trade Area (AFTA). Summits continue regarding an ASEAN +3 (APT) agreement (with China, Japan, and South Korea) that currently involves a ten-year APT Work Plan (2007–2017); as well as a China + ASEAN grouping (CAFTA [not to be confused with the Central American organization], or the China ASEAN Free Trade Area). Across the world countries are grouping together for mutual economic benefit.

APEC grew out of the same philosophy as that of the World Trade Organization (WTO): to promote the dismantling of trade barriers and to enhance the overall level of global trade. The underpinning economic philosophy is that of comparative advantage: each nation produces the goods it is most capable of and proficient at, and inefficient producers are not protected by tariffs. Hence waste is eliminated from production systems.

APEC also reflects the interests of its dominant members. The largest market for China and Japan is the United States, so a close association with America is important. China and Japan, in particular, also greatly depend on international trade for their wealth. China also needs Japanese investment and technological expertise, and Japan needs China’s low-cost labor to maintain the competitiveness of its manufacturing industries.

APEC is a result of the failure of the WTO to achieve global free trade. The WTO attempts to support and regulate trade among more than 150 countries, each with its own interest groups, nationalist pressures, and economic and political agendas. It is, therefore, difficult to achieve a consensus among them. The General Agreement on Tariffs and Trade (GATT)—formed in 1947 and dissolved in 1994, the forerunner of the WTO—struggled during its last nine years without gaining agreement (though of course it did make progress on a number of issues). The result of not securing agreement among so many disparate members led a number of countries to turn to regional economic groupings instead.

Open Regionalism

APEC differs from other RTAs in that it pursues open regionalism, whereas most others are “closed shops.” This means that in most RTAs, members trade freely among each other but not with countries outside of the grouping. In APEC any member country can trade with a nonmember country but on the same principles that the members use with each other. In this case APEC is a core organization that can theoretically spread free trade to other countries.

Challenges for APEC

Unfortunately APEC has run into the same problems as did the WTO. Some industries in member countries are highly protected (e.g., agriculture in Japan), and it is difficult in political terms to make changes to this protection. In addition, APEC, like the WTO, contains both developing and developed economies, and it has been difficult to negotiate the relative speed of tariff reduction between the two groupings. Developing countries want more time to bring their tariff barriers down so that their economies are not overly damaged in the shift to free trade. Their concern is that if they move too quickly, developed countries will gain too much advantage in their markets. Conversely, developed countries continue to worry about trade imbalances, where low cost imports from developing countries may damage their industries, creating substantial trade deficits and boosting unemployment. The dramatic rise in Chinese exports to the United States is a case in point.

The result of such problems has led to APEC’s decline in importance over the years. Some experts say its only real purpose today is to provide a forum for heads of state to hold personal discussions and build working relationships. At these forums member countries also discuss matters not directly related to economics, such as how to deal with nonmember countries in the region, global warming, and terrorism.

In part the problem APEC faces is the sheer diversity found in the region. Unlike in the EU, in Asia there are very rich and very poor countries; Islamic and non-Islamic governments; countries dominated by rural populations and those that are primarily urban; countries with huge populations, such as China; and smaller city-states, such as Singapore. It is difficult for any economic agreement to take into account the interests of such a diverse group of nations.

The growth in free trade agreements (FTAs) around the world is an indicator of the failure of such organizations as APEC. Bilateral FTAs may often be difficult to negotiate, but it is far easier to integrate two economies than it is to integrate twenty-one economies, as in APEC, or more than a hundred, as the WTO has discovered. As of July 2007, 380 bilateral FTAs were in force around the world, with more in the planning stages.

The 2008 APEC conference in Lima, Peru, focused reducing the gap between trade in developed and developing countries, while leaders also addressed the current global financial crises.

Looking ahead

While the concept of APEC is a worthy one in terms of breaking down barriers to trade and investment (though not everyone supports free trade), attempting to negotiate multilateral agreements is a daunting task. In this sense APEC suffers from the same weaknesses as does the WTO, and both are in trouble today. In the long term, however, if the global economy is to grow fully, this difficult task is one that must be undertaken. China, like many countries in the region, has moved away from a focus on APEC and concentrated on engineering a range of bilateral and multilateral FTAs.

Further Reading

Asia Pacific Economic Cooperation (2008). Retrieved December 2, 2008, from

Bishop, B. (2001). Liberalising foreign direct investment policies in the APEC region. Aldershot, U.K.: Ashgate.

Dent, C. (2003). Asia-Pacific economic and security cooperation: New regional agendas. New York: Palgrave Macmillan.

Drysdale, P. (2005). Regional cooperation in East Asia and FTA strategies. Canberra: Australia-Japan Research Centre.

Elek, A. L. (2005). APEC after Busan: New direction. Seoul: Korea Institute for International Economic Policy.

Feinberg, R. E. (Ed). (2003). APEC as an institution: Multilateral governance in the Asia-Pacific. Singapore: Institute of Southeast Asian Studies.

Kuroda, H. (2002). Strengthening regional financial cooperation in East Asia. Canberra: Australia-Japan Research Centre.

McKay, J. (2005). A renewed vision for APEC: Meeting new challenges and grasping new opportunities. Seoul: Korea Institute for International Economic Policy.

Moon, H–C. (2006). Cooperation among APEC member economies: An interdisciplinary approach of economic and cultural perspectives. Seoul: Korea Institute for International Economic Policy.

Okamoto, J. (2004). Trade liberalization and APEC. New York: Routledge.

Park, S–H. (2002). APEC and the new economy. Canberra: Australia-Japan Research Centre.

Ruland, J, Manske, E. & Draguhn, W. (2002). Asia-Pacific Economic Cooperation (APEC): The first decade. London: RoutledgeCurzon.

Yamazawa, I. (2000). Asia Pacific Economic Cooperation (APEC): Challenges and tasks for the twenty-first century. London: Routledge.

Source: Andressen, Curtis. (2009). Asia-Pacific Economic Cooperation. In Linsun Cheng, et al. (Eds.), Berkshire Encyclopedia of China, pp. 112–114. Great Barrington, MA: Berkshire Publishing.

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