More than a Talk Shop APEC and the FTAAP: The Role of APEC in the Governance of Regional Economic Integration in the Pacific Rim

Transcription

1 More than a Talk Shop APEC and the FTAAP: The Role of APEC in the Governance of Regional Economic Integration in the Pacific Rim Paul J. Davidson Professor, Department of Law Chair of the Committee on Asian Studies Carleton University, Ottawa, Canada Associate of the APEC Study Centre in Canada 2011 APEC Study Centers Consortium (ASCC) Conference September 22-23, 2011 San Francisco, California (Draft - not for citation) (August 26, 2011)

2 More than a Talk Shop APEC and the FTAAP: The Role of APEC in the Governance of Regional Economic Integration within the Asia Pacific region 1 Paul J. Davidson 2 Introduction APEC has been criticized as being little more than a >talk shop= - an opportunity for government leaders and ministers to get together and discuss matters and exchange views. 3 Commitments within APEC are not binding and have tended to be imprecise in form. It has been suggested that APEC should move from its voluntary, non-binding approach to encouraging economic cooperation, and adopt binding rules. However, APEC was never designed to be an organisation to create binding rules for its members. It was designed to be a process, in which cooperation is to be encouraged through voluntary means. Nevertheless, APEC is more than a 1 This is a revised and expanded version of a paper, AInternational Law and the Role of APEC in The Governance of Economic Cooperation Within the Asia Pacific Region@, presented at the APEC Study Centres Consortium Conference , which was held in Piura and Tumbes, Peru from the 19 th - 21 st of June Published in (2008) Vol.13, No.24 Cuadernos de Difusion, pp (the publishing arm of the Peruvian network of ASCs). 2 Professor, Department of Law, Carleton University, Ottawa, Canada, paul_davidson@carleton.ca. 3 ALack of concrete achievements with regard to its trade liberalization agenda as declared solemnly by its leaders, the Asia Pacific Economic Cooperation (APEC) is often derided as a >talk shop.=... After repeated failures to deliver its promises on trade liberalization and others, there is no wonder that APEC is regarded as >An (sic) Perfect Excuse to Chat.=@ - David W.F. Huang, ATalk Shop in Action: An Analysis of APEC Member Economies' Participations in APEC Projects@, at 1. Paper presented at PSA-ECPR Joint Conference, AWhatever Happened to North-South?@, University of Sao Paulo, February 16-19, 2011, Published on the conference website, AWhatever Happened to North-South?@ ( accessed July 21, 2011.

3 >talk shop=. The voluntary guidelines established by APEC=s many groups and meetings, do have an effect on the conduct of APEC member economies. In this way, APEC is part of the architecture for governing international economic relations among its members. At the APEC Economic Leaders' Meeting on November 18-19, , APEC Ministers and Leaders agreed to discuss the feasibility of a Free Trade Area of the Asia-Pacific (FTAAP). The creation of an FTAAP is proposed in part to counter the problem of the proliferation of RTAs/FTAs in the area. 5 Lack of uniformity among agreements can severely hamper trade flows by the sheer fact of the costs involved for traders in meeting multiple sets of trade rules, and dealing with the many bureaucracies that are created. The >noodle bowl= of agreements, which currently exists, increases the complexity, the cost, and the administrative burdens of doing business in the region th APEC Economic Leaders' Meeting, Ha Noi Declaration, Ha Noi, Viet Nam, Novemeber 2006, reproduced in Paul J. Davidson, ed., Trading Arrangements in the Pacific Rim, looseleaf (New York: Oxford University Press, ) [TAPR] at Document II.B.2.s. 5 Ibid. 6 See, Patrizia Tumbarello, A>Noodle Bowl= Risk of Trade Pact Overlap@, June 25, 2007: AThe continued proliferation of regional trade agreements (RTAs) risks turning the world trade system into a "noodle bowl" of overlapping and potentially inconsistent and unmanageable RTAs.@ IMFSurvey Magazine, on-line at (accessed, July 2, 2011); and, Masahiro Kawai and Ganeshan Wignaraja, AThe Asian >Noodle Bowl=: Is It Serious for Business?@, ADBI Working Paper Series, No. 136, April 2009 (available at - accessed, July 2, 2011).

4 Establishing an FTAAP would involve the negotiation of binding agreements among those economic entities involved in the arrangement. APEC should not be involved directly in such negotiations - the FTAAP should not be an >APEC-branded= exercise. Firstly, different APEC economies are at different stages of development, and not all APEC members are prepared to be involved in negotiations for an FTAAP at this time. APEC members range from tiny Papua New Guinea to China and the United States. A preferential trade agreement among all APEC economies would be an unrealistic objective given the complexity and huge variation among the 21 member economies. Secondly, APEC was not established to negotiate binding commitments among its members, but rather to encourage voluntary commitments to promote economic cooperation in the region. Rather than a direct role in negotiating and governing an FTAAP, APEC should play a governance role similar to that of the WTO in the governance of regional trading arrangements. This paper thus considers two related issues. The paper commences, in Part I, with a discussion of the role to be played by APEC in the negotiation of an FTAAP. It is argued that APEC should not play a direct role in negotiating an FTAAP. Rather, APEC should play a governance role similar to that of the WTO, i.e., of providing part of the agreed international framework within which an FTAAP is negotiated. Part II of this paper then considers the role that APEC should play in the overall legal framework for the governance of regional economic cooperation in the Pacific Rim, and how it can contribute to the formation of an FTAAP. APEC=s role in the process of international economic integration in the Asia-Pacific is more than just a >talk shop=. APEC can perform an

5 important role in providing a >soft= law component to the governance structure for economic integration in the region. Governance structures at the international level are necessary to manage the increasing economic interdependence of economies,. There has been a movement internationally to rules-based governance to regulate international economic relations. An important component of rules-based governance is the legal framework. FTAs and other arrangements for economic cooperation are negotiated within the constraints set by the international legal framework governing economic relations among participants in the global economy. The WTO and APEC are two important components of this framework, and present two approaches to legalization - binding rules (>hard law=) and, voluntary guidelines (>soft law=). Although rules-based governance and international law are often thought of in terms of binding rules (>hard= law), non-binding rules (>soft= law) are playing an increasingly important role in rules-based governance and international law. This >softer= approach to legalization offers a number of advantages in achieving economic cooperation where a >harder=, binding approach may not be satisfactory for a number of reasons. PART I: THE ROLE OF APEC IN THE NEGOTIATION OF AN FTAAP This paper is not concerned with whether or not a Free Trade Area of the Asia Pacific is desirable. This question has been dealt with elsewhere. 7 Whether an FTAAP is a good idea or not is a separate question from the role that APEC should play in the negotiation of an FTAAP. 7 See,e.g., AA Free Trade Area of the Asia Pacific (FTAAP): Is It Desirable?@ Park, Innwon; Park, Soonchan and Kim, Sangkyom (2010): A Free Trade Area of the Asia

6 A free trade area is established by agreement among the parties that wish to establish preferential trading arrangements among themselves. Negotiations leading to the FTA will take place within the international legal framework which governs the relationships among the parties, and that framework will impose a certain structure and constraints on the parties. Where the parties are members of the WTO, the WTO legal framework will establish the parameters within which such unions may be negotiated 8. However, the WTO, does not negotiate such agreements - the WTO provides the framework within which the negotiation of individual unions takes place. An FTAAP would have to be negotiated within the constraints imposed by the WTO rules. In the case of a Free Trade Area of the Asia Pacific, a question which arises is, Awhat role should APEC play in this process?@ There are a number of possible responses to this question. One response is to argue that an FTAAP should be negotiated within APEC. 9 However, APEC was not designed to be a forum for negotiations, let alone a forum for negotiating a free trade agreement. Pacific (FTAAP): Is It Desirable? Unpublished. Available at accessed, June 25, See, infra, at b.1) >Hard@ law - The Role of the WTO. 9 AMembers of the Asia-Pacific Economic Cooperation forum... are using their annual gathering this week to discuss changing the toothless organization into one with enough authority to negotiate a binding Pacific-wide free trade agreement...@, Mari Yamaguchi, AAPEC debates having the power to negotiate trade deals@, Associated Press, November 8th, 2010, available, inter alia, at accessed July 20, 2011.

7 The basic principles of APEC were set out in the Summary Statement of the Chairman of the Inaugural Meeting of APEC in Canberra in November These include: cooperation should be based on non-formal consultative exchanges of views among Asia Pacific economies;... consistent with the interests of Asia Pacific economies, cooperation should be directed at strengthening the open multilateral trading system; it should not involve the formation of a trading bloc 10 (emphasis added) In 1994, APEC Leaders agreed in the Bogor Declaration to a common goal of free and open trade and investment in the Asia-Pacific region. In their Declaration the Leaders emphasized their Astrong opposition to the creation of an inward-looking trading bloc.@ 11 The Mid-term Stocktake of Progress Towards the Bogor Goals submitted to the APEC Leaders at Busan in 2005 stated, AAPEC must not be an inward-looking trading bloc that diverts from the pursuit of global free trade@, 12 and AAPEC is not a negotiating forum but rather a voluntary process of cooperation in support of open and efficient markets.@ 13 The APEC process would have to be restructured in order for APEC to become a vehicle for negotiation of an FTAAP. APEC has developed since its origins, but it has always maintained its 10 First APEC Ministerial Meeting, Canberra, Australia, 6-7 November 1989, Chairman's Summary Statement, para APEC Economic Leaders' Declaration of Common Resolve, Bogor, Indonesia 15 November, 1994,TAPR Document II.B.2.a. 12 A Mid-term Stocktake of Progress Towards the Bogor Goals - Busan Roadmap to Bogor Goal, A Report by APEC Senior Officials, submitted to 17 th APEC Ministerial Meeting, Busan, Korea, November 2005, APEC Document 2005/AMM/002anx1rev1. 13 Id.

8 voluntary, non-binding process of cooperation, rather than taking the approach of becoming a forum for the negotiation of binding rules. "APEC is more about the opportunity for leaders to meet and it is actually a better forum than many of the ones that we have because we are not negotiating," Mari Pangetsu, Indonesia's trade minister, said in a recent interview. 14 APEC=s role in the FTAAP process should be at the level of establishing guidelines for economic cooperation among its members, rather than the negotiation of an FTA. APEC should be part of the international governance structure for economic cooperation in the Asia Pacific region, not a negotiating forum for free trade agreements. Rather than constituting itself as an FTAAP, APEC should remain focussed on what it can do, rather than what it has not been designed to do. This role is the subject of the following Part. 14 AAPEC debates...@, supra, note 9.

9 PART II: APEC=S ROLE IN THE GOVERNANCE OF REGIONAL ECONOMIC COOPERATION IN THE PACIFIC RIM 15 a) Governance and the Role of International Law 16 Good economic governance is essential to facilitate international economic activity. Members of the international community need a structure to give certainty and predictability to their relations with each other. There has been a movement internationally to rules-based governance to regulate international economic relations. >Rules-based= governance relies on structures and their functions, and involves the negotiation of rules to govern the cooperation among the actors, and the establishment of mechanisms to achieve compliance with the rules. The trend to rules-based governance of international trade can be seen in the development of the World Trade Organisation (WTO) framework, from its diplomatic origins in the GATT to a rules-based institution, with the negotiation of increasingly detailed trade rules, and a dispute settlement mechanism to resolve disputes over the interpretation/application of the rules. An important component of a rules-based governance structure is the legal framework. A legal system provides 1) rules for the orderly interchange among members of the society, and 2) 15 On regionalism and governance in Asia, see, Nicholas Thomas, ed., Governance and Regionalism in Asia, (London and New York: Routledge, 2009). 16 For a fuller discussion of this, see, Paul J. Davidson, AThe role of law in governing regionalism in Asia@, in id, pp

10 provides mechanisms for the settlement of disputes that arise among members of the society, concerning the rules established by that society, and for ensuring compliance with those rules. Although this move to rules-based governance is often thought of in terms of binding rules, with a dispute settlement mechanism which interprets/applies those rules backed up by an enforcement mechanism, rules-based governance comprises a much broader spectrum. The two elements of a legal framework - rules and dispute settlement/compliance mechanism - may be considered as occupying a spectrum representing various degrees of legalization ranging from >hard= legalization, through multiple forms of >softer= legalization. Rules may vary from binding obligations to non-binding commitments; they may consist of precise, highly elaborated rules, or may set out vague principles. The dispute settlement system may be formalised (e.g., a court system), or less formal (e.g., diplomacy). Compliance may be obtained through formal (e.g., state enforced), or informal (e.g., managerial) methods. The degree of >legalization= of a rule or a system will depend on where the rule or system falls on the spectrum. The possibilities of combinations across these extremes are multiple. There is no clear distinction between >hard= and >soft= law, but rather, the continuum indicates the various degrees of >legalization=, from >softer= to >harder=, depending on where on the continuum the dimensions of the rule or system fall. The line between Alaw@ and Anot-law@ is often blurred. AHard law@ often contains Asoft@ obligations - e.g., Asignatories will endeavour to...@ This characterization of legalization may be compared to that of Abbott, Keohane, et al who consider legalization as being characterized by three components: obligation, precision, and delegation. >These characteristics are defined along three dimensions: obligation, precision, and delegation. Obligation means that states or other actors are bound by a rule or commitment or by a set of rules or commitments. Specifically, it means that they are legally bound by a rule or commitment in the sense that their behavior thereunder is subject to scrutiny under the general

11 Thus, as well as considering >binding= rules, it is also important to consider the role of >softer= legalization, through >non-binding= commitments. 18 A[H]ard law and soft law are not alternatives. Rather, they serve different purposes and complement one 19 They can act together to provide more effective governance of relations among states. The international legal framework for regulating international economic relations is most often thought of in terms of the GATT/WTO framework which has developed into more of a >hard law= system, with the negotiation of increasingly detailed trade rules, and a dispute settlement mechanism to resolve disputes over the interpretation/application of the rules. However, soft law rules, procedures, and discourse of international law, and often of domestic law as well. Precision means that rules unambiguously define the conduct they require, authorize, or proscribe. Delegation means that third parties have been granted authority to implement, interpret, and apply the rules; to resolve disputes; and (possibly) to make further rules... Each of these dimensions is a matter of degree and gradation, not a rigid dichotomy, and each can vary independently. Consequently, the concept of legalization encompasses a multidimensional continuum, ranging from the Aideal type@ of legalization, where all three properties are maximized; to Ahard@ legalization, where all three (or at least obligation and delegation) are high; through multiple forms of partial or Asoft@ legalization involving different combinations of attributes; and finally to the complete absence of legalization, another ideal type.= See: Abbott, Kenneth, Robert O. Keohane, Andrew Moravcsik, Anne-Marie Slaughter and Duncan Snidal. >The Concept of Legalization=, International Organization, (Vol. 54, No. 3, Summer, 2000), pp (Italics in original). 18 ANon-binding norms have a complex and potentially large impact in the development of international law.@ - Shelton, Dinah, ALaw, Non-Law and the Problem of >Soft Law=@, Introduction in Shelton, Dinah, ed., Commitment and Compliance: The Role of Non-Binding Norms in the International Legal System, (Oxford and New York: Oxford University Press, 2000). 19 Sir Nicholas Bayne, AHard and Soft Law in International Institutions: Complements, Not Alternatives@, in Kirton, John J., and Michael J. Trebilcock, eds., Hard Choices, Soft Law Voluntary Standards in Global Trade, Environment and Social Governance (Aldershot, England and Burlington, USA: ASH GATE, 2004), at 347.

12 also plays a role in regulating economic relations. 20 The following discussion considers the international legal framework regulating economic relations among economies, and examines the >hard= law role of the WTO and the >soft= law role of APEC. b) The International Legal Framework for Economic Governance i) >Hard= law - The Role of the WTO There has been a >juridicization= of the rules-based framework for regulating international trade. 21 The best known component of the legal framework for regulating international economic relations is, of course, the WTO, of which most APEC economies are members. The WTO administers a number of agreements amongst its members, which set out certain >rules= for the conduct of international trade. The WTO framework is more in the nature of >hard= law. The members of the WTO have agreed to be bound by these rules, and a dispute settlement mechanism has been developed to interpret and apply these rules. The principal obligation is set out in Article I of the GATT which requires that there be no discrimination among trading partners, i.e., MFN treatment. However, despite the fact that the aim of the GATT was to do away with discrimination in international trade through the imposition of a general MFN obligation, the GATT still allows preferential trade to take place in 20 Paul J. Davidson, >The Role of Soft Law in The Governance of International Economic Relations in Asia=, Volume 24 (2006) Chinese (Taiwan) Yearbook of International Law and Affairs, pp Reich, Arie, AFrom Diplomacy to Law: The Juridicization of International Trade Relations@, (1996/97) 17 Northwestern Journal of International Law & Business, pp

13 certain circumstances. GATT Article XXIV provides an exception for customs unions, free trade areas, and interim agreements leading to them. One justification which is given for this exception to the rule of non-preferential trade is the argument that totally eliminating restrictions on trade among several countries creates a wider trading area and removes obstacles to competition, and thus makes possible a more economic allocation of resources which operates to increase production and raise standards of living within the trading area. Provided that the creation of such trading areas is not to the detriment of other countries= trade, this in turn enhances total world welfare which is the objective of the GATT system. In order to ensure that customs unions and free trade areas meet these desired objectives, Article XXIV imposes several conditions on the creation of such trading areas. These provisions form the >legal framework=, with which such preferential trading areas must comply. In particular, the arrangements should help trade flow more freely among the territories in the group without barriers being raised on trade with those outside the group. The GATT rules provide criteria for the formation of customs unions and free trade areas to achieve these ends. The criteria are fundamentally three: (a) commitment to deep intra-region trade liberalization, (b) neutrality vis-à-vis non-parties' trade, and (c) transparency. A full discussion of the GATT rules to implement these criteria is beyond the scope of this paper, and has been dealt with elsewhere See, inter alia, Michael J. Trebilcock and Robert Howse, The Regulation of International Trade, 3 rd ed., (London and New York: Routledge, 2005); Peter Van den Bossche, The Law and Policy of the World Trade Organization, 2nd ed., (Cambridge: Cambridge University Press, 2008).

14 As with other areas within the GATT, these rules have evolved with use and interpretation. Article XXIV was discussed at the Uruguay Round, which established the WTO, and the parties signed an Understanding on the Interpretation of Article XXIV. 23 The text of this Understanding attempts to clarify and reinforce the criteria and procedures for the review of new or enlarged customs unions or free-trade areas and for the evaluation of their effects on third parties. The GATT is now one of the agreements administered by the WTO and, on the 6 th of February 1996, the WTO General Council created the Committee on Regional Trade Agreements whose purpose it is to examine regional groups and to assess whether they are consistent with the GATT rules. Although there is controversy as to the effectiveness of the GATT rules, The GATT rules, however imperfectly observed, served as a model... while they permitted the development of regional arrangements... they have served to provide some measure of international supervision and control over the process.... the existence of the GATT rules may be judged to have a restraining influence on members of regional trade groups. 24 The above provisions only apply to preferential trade in goods, as the GATT only regulates trade in goods. Similar rules to allow integration with regard to services are included in the General Agreement on Trade in Services (GATS) which was concluded at the Uruguay Round, and is part of the WTO framework. Prior to the GATS, services were not regulated by the international legal framework. Article V of the GATS provides an exception to the MFN obligation of GATS 23 Understanding on the Interpretation of Article XXIV of the General Agreement on Tariffs and Trade 1994 (available at 24 Frank Stone, Canada, the GATT and the International Trade System, (Montreal: The Institute for Research on Public Policy,1984), p.79.

15 for bilateral or plurilateral agreements to liberalise services trade - >economic integration agreements=. This Article is similar in structure and intent to Article XXIV of the GATT. i.1) Beyond the WTO Framework The current WTO framework is limited in its scope of regulation of international economic activity. As noted, until the Uruguay Round, the GATT framework was confined to regulating trade in goods. The framework was expanded at the Uruguay Round to the regulation of trade in services (GATS), and to trade related aspects of intellectual property (TRIPS) and trade related investment measures (TRIMS). However, modern economic relations have become increasing complex. A... [T]rade policy is no longer [just] about trade measures at the border.@ 25 Most modern regional trade agreements, therefore, go beyond issues related to trade in goods or trade in services. 26 A distinction is commonly made between shallow and deep integration: >shallow= integration referring to the elimination of the traditional border measures, tariffs and non-tariff measures; >deep= integration referring to policies that are beyond the border. A[A]lmost all of the deep integration features of recent RTAs are outside the WTO rules.@ M. R. Mendoza, P. Low, B. Kotschwar, eds, Trade rules in the making : challenges in regional and multilateral negotiations (Washington, D.C. : Organization of American States : Brookings Institution Press, 1999), at 1 (in >An Overview= by editors). 26 The term >Regional Trade Area (RTA)= has been used to describe the areas created by these agreements. However, this term emphasizes the >trade= element of the agreement; a more accurate term for more modern agreements might be Economic Cooperation Agreement (ECA). The proposed Free Trade Area of the Asia Pacific (FTAAP) is much more than an FTA, as that term is used in the GATT. Rather than talk of an FTAAP (Free Trade Area of the Asia Pacific), it would be better to talk of an APECA (Asia Pacific Economic Cooperation Area), which would encompass other areas of economic cooperation, such as investment and movement of labour. However, as >RTA= is the term commonly used for such arrangements, this term will be used in the following. 27 P. J. Lloyd, AImplications for the Multilateral Trading System of the New Preferential Trading Arrangements in the Asia-Pacific Region@, PECC Seminar on Developing Patterns of Regional

16 To the extent that an RTA deals with activities that are not regulated by an agreement under the WTO or by some other international obligation, parties to an RTA are free to set their own terms for regulating these aspects of their relations. For example, most economic cooperation agreements also contain provisions regarding foreign direct investment. The WTO rules have very few provisions regulating investment, and, as noted, these are limited to the Atrade aspects of investment measures (TRIMs). Although an international legal framework for investment regulation is developing, there is currently very little in the way of an international framework that regulates investment, and parties negotiating an RTA thus have very few constraints imposed by the international framework in negotiating this aspect of their agreement. A number of the areas of economic activity of concern in an RTA, which are not regulated by the WTO or other international agreements, deal with contentious issues. It may be difficult to establish a framework agreement providing for international regulation in these areas by conventional legal agreements, but a softer approach may provide an alternative. These areas are of particular concern in negotiating modern economic arrangements. APEC can play a role in establishing a framework providing for harmonization in these areas. Trading Arrangements in the Asia-Pacific Region: Issues and Implications, Vancouver, BC, Canada, November Available at

17 ii) >Soft= Law - The Role of APEC The APEC framework differs from the WTO framework in that, while the WTO framework is comprised of binding rules, from the beginning, APEC has advanced cooperation through voluntary, non-binding commitments - a >soft= legal framework - rather than binding rules. While these commitments are >non-binding=, they are nevertheless intended to be statements of serious intent, and do have some effect on the conduct of APEC members. 28. As we saw above, a system of rules-based governance does not require that the rules be binding. Although not binding, the principles developed within APEC also form part of the rules-based framework for governing economic cooperation among the members of APEC, and, APEC is therefore part of the rules-based framework for the regulation of economic cooperation in the Asia Pacific region. 29 This >soft= framework also plays a role in the negotiation of an FTAAP. While not binding on negotiating parties as are the rules of the WTO, APEC commitments do have a constraining 28 A... even conceding to APEC=s institutional weakness, it does not follow that APEC impose no institutional constraint on its members. This paper attempts to show, despite many wellknown institutional weaknesses such as voluntary and non-binding rules, consensus decisionmaking process, lack of legal obligation and credible punishment, and a non-bureaucratic secretariat, APEC members behave as if they are subject to its norms of reciprocity and reputation.@ - Huang, supra, note 3, at 17. Further research on this effect in APEC is required. 29 Davidson, Paul J. ARules-Based? - APEC=s Role in the Evolving International Legal Framework for Regulating International Economic Relations@, paper presented at the APEC Study Centre 2002 Conference, Merida, Mexico, May, 2002.

18 effect on APEC members in their relations with other APEC members. APEC discussions have addressed a number of concerns regarding economic cooperation and, resulted in a nunber of achievements and benefits. 30 Much of APEC=s evolving framework which may affect negotiations for an FTAAP is set out in APEC=s Non-Binding Investment Principles 31 and the agreement on a set of best practice principles for regional trade agreements and free trade agreements (APEC Model Measures for RTAs/FTAs 32 ). The following is a brief look at these elements of APEC=s >soft= legal framework. The Non-Binding Investment Principles As noted above, while the WTO sets the legal framework for trade relations, it does not generally govern international investment (aside from the TRIMs Agreement and some provisions in the GATS). Very little exists in the form of an international legal framework to regulate this activity. The general rules of international law afford at present little protection to the private investor and although various attempts have been made to create an international investments code in the form of a multilateral convention, the signatories of which would undertake definite obligations protecting foreign private investment in their countries, these plans have not yet materialized in the form of an international convention See APEC website, AAchievements and Benefits@, accessed August 6, TAPR, Document II.B.3.a. 32 TAPR, Document III.AA See, inter alia, discussion in Michael J. Trebilcock and Robert Howse, The Regulation of International Trade, 3 nd ed., (London and New York: Routledge, 2005), pp

19

20 The Non-binding Investment Principles (NBIP) of 1994 are principles for strengthening the efficiency of investment administration, eliminating investment obstacles, and establishing a free and open investment environment in the region. The Principles are to be used as a guideline by members to achieve the APEC goal of free and open investment. Although these Non-Binding Investment Principles are non-binding in nature, they are evidence of >soft law= policy and may be a useful >tool= in the role of creating uniform investment provisions to be included in individual RTAs in the Asia Pacific region. 34 These principles are an important guide in governing the Ainvestment@ aspects of an FTAAP. APEC Model Measures for RTAs/FTAs APEC Economic Leaders adopted a set of best-practice principles for free-trade and regional trade agreements at their meeting in Santiago on 20 and 21 November The APEC Best Practices for RTAs/FTAs 35 are intended to achieve high standard agreements in the APEC region and to ensure that RTAs/FTAs are consistent with the WTO. However, the ABest Practices= also go beyond matters dealt with by the WTO. In areas that are covered by the WTO, they build upon existing WTO obligations. They also explore commitments related to trade and investment in areas not covered, or only partly covered, by the WTO. By so doing, APEC economies are in a better position to provide leadership in any future WTO negotiations on these issues For example, the NBIP have influenced negotiation of Singapore=s RTAs. Correspondence with Ministry of Trade & Industry, Singapore 35 Although the title only refers to RTAs/FTAs, this is expanded in the footnote to the title to >Regional Trade Arrangements (RTAs), Free Trade Agreements (FTAs), and other Preferential Arrangements=. (Emphasis added) 36 From preamble to Best Practices.

21 Although not >binding= on the APEC members, these guidelines are influential, and serve as a guide to some of the issues that need to be addressed by >new= economic cooperation agreements, which are much broader in scope than provided for by the rules of the WTO. At their meeting in Jeju on 2 and 3 June 2005, APEC Ministers Responsible for Trade instructed Senior Officials to develop possible model measures on trade facilitation for RTAs/FTAs. The Model Measures build on the Best Practices for RTAs/FTAs adopted by APEC members in They are not exhaustive, but they are designed to help members give effect to the Best Practices by identifying RTA/FTA provisions that can facilitate trade and reduce transaction costs for business, bearing in mind the general APEC principle of voluntarism. While not binding, these model measures are part of the >soft law= legal framework of APEC and must be given consideration by APEC Members entering into negotiations for an FTAAP In 2008 the Committee on Trade and Investment (CTI) completed its work on model measures by concluding five chapters, including a chapter on Customs Administration and Trade Facilitation that was developed by the APEC Business Advisory Council (ABAC). This brings the total number of chapters to 15 plus a chapeau. See, Committee on Trade and Investment, 2008 Annual Report to Ministers, November 2008, Lima, Peru, for the full text of the Model Measures, available at (accessed June 30, 2011). 38 These have had some effect on negotiation of RTAs in the Pacific Rim. For example, they have been included in Walter Goode, Negotiating free-trade agreements: a guide, (Canberra: Commonwealth of Australia, 2005) which has been prepared as a practical introduction to the negotiation of free-trade agreements, available on the website of the Australian Department of Foreign Affairs and Trade, accessed July 5, 2011.

22 There are a number of other ways in which APEC member economies can support an FTAAP through their cooperation in APEC. For example, other model measures, competition principles, trade facilitation initiatives, enhanced transparency, are all examples of APEC initiatives which could be included in any FTAAP exercise. ii.1) Advantages of a >soft= approach A >soft law= approach to governance may provide a number of advantages to a >hard law= approach. The following are some advantages which such an approach may have for the members of APEC in establishing >soft= rules for economic cooperation in the Pacific Rim, which may serve as a guide for individual APEC members in their negotiations of RTAs in the region. >Soft law= allows for the participation of non-state actors in the governance process, a role that is possible only rarely in traditional law-making processes where states are concerned with creating binding obligations. The increased participation by non-government actors is a feature of >modern= international law, and APEC emphasizes the role of non-state participants in the governance process. 39 The APEC Business Advisory Committee (ABAC) has been the primary advocate for promoting the FTAAP. 39 AAPEC can... tak[e] advantage of its uniqueness, including its ability to obtain timely input from business on trade and investment issues and to tap into well-developed experts= networks...@, Hidehiko Nishiyama co-chair of the Senior Officials= Meeting for APEC Japan 2010, AQ&A with Japan: Reflecting on APEC 2010", APEC Bulletin, 28 Jan. 2011, accessed July 7, 2011.

23 >Soft law= does not have the same sovereignty issues which may arise when negotiating >binding= obligations between states. Parties may be unwilling to negotiate >binding= obligations with other parties they are not willing to formally recognise, but may be more willing to consider >non-binding= arrangements which are for their mutual benefit. This may allow for >informal= cooperation to take place. APEC=s >soft law= approach has been able to accommodate the >three Chinas= - the PRC, Hong Kong, and Taiwan.

24 A >soft law= framework may result in the adoption of more progressive norms than would be drafted if a >hard law= format had been chosen. States are less reluctant to agree to certain principles if they are not framed as >binding= obligations. For example, the APEC members were able to agree on a set of Non-Binding Investment Principles, whereas the members of the OECD were unable to agree on a Multilateral Agreement on Investment. These Principles may be just as effective a part of the governance framework as a >hard= MAI would be. 40 APEC=s consensus-based and non-binding approach has allowed APEC to be forward-thinking and encouraged member economies to strive for the best possible outcomes, rather than binding members to the lowest acceptable levels. >Soft law= >commitments= may be easier to negotiate than >hard law= >obligations=. Parties may be less concerned with >dotting every Ai@= and >crossing every At@= if they know there is some flexibility in the commitment. They may enable federal states to agree on general principles with international partners without the concern of implementation which may accompany treaty obligations. 40 As Hillgenberg has noted, AThe fact that, when assessed realistically, the difference between a treaty and the binding Apolitical@ effect of a non-treaty agreement is not as great to a politician as is often thought may also play a role in the decision to opt for a non-treaty form of agreement.@ - Harmut Hillgenberg, AA Fresh Look at Soft Law@, 10 Economic Journal of International Law (1999), 502.

25 >Soft law= allows for the possibility of differentiation in implementation of the guidelines. Since >soft law= does not create binding obligations, there is no obligation for all participants to implement the agreed course of action in order to move forward in respect of a certain matter. Some may proceed with the agreed course of action with others joining as they are able. It allows stakeholders to implement the rules >when and as= they are able, rather than requiring implementation according to a fixed timetable. 41 An FTAAP could provide for different stages of implementation for different participants in the FTAAP. This is important within APEC, where the members are at different levels of development. ii.2) Compliance 42 Because APEC does not have binding rules, it is not feasible to establish a formal, binding dispute settlement mechanism. The question, therefore, arises of how to obtain compliance with nonbinding commitments? Despite the lack of binding rules and enforcement mechanisms present in hard law agreements, soft law is treated by signatories with an equal amount of respect. The 41 >APEC leaders should no longer expect, let alone insist, that large groups of very diverse economies, with diverse domestic priorities, should reach the same goals in any particular year.= Elek, Andrew, AThe Asia Pacific Region: economic integration in the 21st century@, paper Prepared for APEC 2007 SOM 2 Policy dialogue on regional economic integration, April 2007, p The issue of compliance has been an issue with recognizing international law as >law=. However, I think most would agree that international law is >law=. This issue has been dealt with extensively elsewhere, and I do not propose to deal with it in detail here. See, e.g., Lloyd, The Idea of Law, (Harmondsworth: Penguin, 1964); D'Amato, Anthony, AIs International Law Really 'Law=?@ chapter 1 in, D'Amato, International Law: Process and Prospect, (Dobbs Ferry: National Publishers Inc., 1987), pp.1-26; Koh, H. H., Review Essay, AWhy Do Nations Obey International Law?@, 106 The Yale Law Journal (1997), 2599.

26 evidence shows comparable compliance rates for both hard and soft law. 43 To encourage or monitor compliance with non-binding commitments, mechanisms such as managerial approaches may be effective. AManagerial approaches suppose that states comply with rules in regulatory regimes out of enlightened self-interest and respond to non-coercive tools such as reporting and 44 Monitoring and publicly revealing non-compliance may be the most effective, if not the only, method of inducing compliance in the face of strong disincentives. It may even be possible that some stronger monitoring mechanisms exist in soft law precisely because it is non-binding and states are therefore willing to accept the scrutiny they would reject in a binding text. 45 One way that APEC encourages compliance with APEC commitments is through peer review. [The APEC peer review] process lies at the heart of APEC's voluntary and consensus-based process. While commitments are non-binding in a court of law, the peer review process ensures that if one economy does not appear to be honoring commitments there will be pressure for compliance." 46 CONCLUSION This paper has considered the role that APEC should play in the negotiation and governance of an FTAAP. It has been argued that APEC should not become directly involved in negotiating an 43 Douglas M. Johnston, ACommitment and Compliance: The Role of Non-Binding Norms in the International Legal System,@ 95 The American Journal of International Law (2001), Craik, A. Neil, ARecalcitrant Reality And Chosen Ideals: The Public Function Of Dispute Settlement In International Environmental Law@, (1998) 10 Geo. Int'l Envtl. L. Rev. 551, 572, as cited in Shin-yi Peng, AThe WTO Legalistic Approach and East Asia: From the Legal Culture Perspective@, 1 Asian-Pacific L. & Pol'y J. (2000), 13, at n Ibid. 46 AIAP Peer Reviews: APEC Member Economies Make Progress@, APEC E-Newsletter, Vol.12, March 2007, quoting Mr. Geoffrey Woodhead, The APEC Secretariat's Finance Director.

27 FTAAP; negotiation for an FTAAP should take place outside APEC. Rather than a direct role in negotiating an FTAAP, APEC should play a governance role similar to that of the WTO in the governance of regional trading arrangements, i.e., of providing part of the agreed international framework within which an economic cooperation agreement (ECA) may be negotiated. Just as the WTO provides part of the framework for the governance of economic cooperation, rather than a forum for negotiating individual trade agreements, APEC also provides part of the framework. Regional Trading Arrangements are negotiated by parties within the constraints imposed by the international framework which governs their relations. There has been a movement internationally to rules-based governance to regulate international economic relations. In some cases these rules may take the form of >binding= obligations negotiated by the parties. However, in some cases it may be more appropriate, or even necessary, to take a >softer= approach to developing guiding principles. Although regionalism requires a strong international legal framework, this framework should not be restricted to >hard= law, but should utilize >soft= law where appropriate or necessary. The WTO forms the >hard= law of the framework for the governance of economic cooperation in the Asia Pacific; it is suggested that APEC can perform an important role in providing a >soft= law component to the framework. If an FTAAP is to be an effective pathway to regional integration in the Pacific Rim, it is essential that the agreement should be designed with a view to the eventual inclusion of all APEC economies, even though not all are ready to make the adjustments needed to join now.

28 APEC can contribute to this goal by contributing to establishing a flexible framework, which provides guidelines to assist governments to identify good policies, rather than a rigid system that aims at harmonization enforced by binding rules and dispute settlement - that allows parties to implement the rules >when and as= they are able, rather than requiring implementation according to a fixed timetable. This approach is in keeping with the statement made by the APEC Leaders at their meeting in Yokohama, Japan, on the 13th - 14th of November, 2010: To this end [taking concrete steps toward realization of an FTAAP], APEC will make an important and meaningful contribution as an incubator of an FTAAP by providing leadership and intellectual input into the process of its development, and by playing a critical role in defining, shaping, and addressing the "next generation" trade and investment issues that FTAAP should contain. APEC should contribute to the pursuit of an FTAAP by continuing and further developing its work on sectoral initiatives in such areas as investment, services, e-commerce, rules of origin, trade facilitation..., and environmental goods and services. 47 However, in pursuing Aconcrete steps toward realization of an FTAAP@ 48, APEC should bear in mind that its role is that of an Aincubator@ Aproviding leadership and intellectual input A, not a negotiator. APEC should concentrate on the role it could play in contributing to the framework for a broader APECA (Asia Pacific Economic Cooperation Area). Although APEC and the WTO share a common purpose - maximising the gains from freeing up international trade - each grouping has 47 Leaders= Declaration - Pathways to FTAAP - The 18th APEC Economic Leaders' Meeting, Yokohama, Japan, 13th - 14th November, 2010, TAPR Document II.B.2.w(3). 48 Ibid.

29 its own unique mode of operation designed to attain that goal, and its own comparative advantage. The comparative advantage of APEC is its voluntary process of international economic cooperation, and APEC should focus its efforts where its comparative advantage lies and should not forgo the practical opportunities for mutually beneficial cooperation which can be achieved through voluntary cooperation. APEC does provide >A Perfect Excuse to Chat=, but this >chatting= has results. APEC is much more than a >talk shop=. APEC has developed consensus on a number of issues concerning economic cooperation within the Asia Pacific region. 49 Although these developments have been framed as >non binding= recommendations, they serve as a >soft= framework to guide the international activities of members, and form part of the governance structure in the region. [APEC=s] success lies in the fact that it has developed a methodology that works in this complex world. APEC works through a consensus and member-driven platform, and despite the absence of a negotiating platform or agreements and treaties, it has still managed to remain effective, relevant, and move forward in innovative ways.... Since there is no formalized attempt to reach a legally binding agreement, there is far more sincerity in the dialogue. 50 (Emphasis in original) 49 For example, in the area of trade facilitation, APreliminary estimates suggest that APEC=s work on trade facilitation reduced business transaction costs within APEC by 5.2 percent in real terms during the period B representing a net savings of around US$60 billion.@ - AAPEC weighs in on WTO=s Third Global Review of Aid for Trade@, News Release, issued by the APEC Secretariat, Geneva, Switzerland, 20 th of July, (Available at accessed July 21, 2011) 50 Notes on Public Seminar, AAPEC: Relevant or Passé?@, by Ambassador Michael Tay, Executive Director, APEC Secretariat, 16 March 2009 (available at, accessed, June 30,

30 2011).