The objective of the Asia Pacific Economic Cooperation (APEC) forum, formed in 1989, has been to achieve comprehensive trade and investment liberalization in the region. APEC covers 18 countries throughout most of the Asia-Pacific region. Over the last six years, APEC has grown from an informal discussion group to a formalized organization, providing a framework for discussion of a broad range of economic issues. The leaders declaration from the 1994 APEC meetings (Bogor, Indonesia) sets forth the goal of free trade and investment in the Asia-Pacific region by 2010 for industrialized economies, and by 2020 for developing economies. Even though the accord is not a legal commitment, it is an important milestone.

We perform simulations with computational general equilibrium (CGE) models, described in detail in chapter III. CGE models have been used extensively to address the issues of trade liberalization and economic integration. Even though many authors suggest that trade liberalization in the Asia-Pacific area would accelerate development, there has been little research into the effects of such liberalization. This paper will be focused on the economic effects of post-WTO tariff cuts under five types of regionalism (discussed below) in the Pacific Rim.

In chapter I, the role of APEC in the world wide economy will be reviewed and APECs regionalism will be discussed. Next, the relationship between regional integration and the MFN principle under the WTO will be discussed and related to APECs non-discrimination principle. Chapter II covers the experimental design for the analysis of APEC trade liberalization. This chapter includes the URs trade liberalization. A verbal description of a CGE model will be provided in the chapter III, followed by the description of major parameters used for this study.

This paper also contains the interpretation of the simulation results in chapter IV. The first experiment is to study the effects of APECs own preferential trade liberalization (a closed FTA). APECs reduced tariffs can be offered to non-member nations free of any conditions (unconditional open regionalism), or APEC may require non-member nations to reciprocate with tariffs (conditional open regionalism). The second part covers APECs unconditional open regionalism. The next two experiments will be to examine what happens to the APEC nations and non-member nations when APEC adopts conditional open regionalism. APEC will adopt open regionalism, under which non-APEC nations are not discriminated against with respect to tariffs, as long as non-member nations reciprocate with tariffs of their own. In this paper, the world economy is disaggregated into 17 regions (countries). Of the 17 regions, 15 regions are APEC nations, and the remaining two regions are non-member nations of the European Union (EU) and the rest of the world (ROW), excluding EU and APEC nations. The third experiment is to assume that only EU will reciprocate when APEC reduces tariffs. In the fourth experiment, only the ROW will be assumed to reciprocate. This aspect distinguishes APEC from other regional agreements, and can be important in strengthening the multilateral trading system in that APECs open regionalism may contribute towards global trade liberalization.

The last simulation will be to study the economic effects of global trade liberalization, where APEC reduces tariffs and both the EU and ROW reciprocate. This should be interpreted as the results arising when both the third and fourth experiments are simultaneously performed; however, the effects of the last experiment may not represent the sum of the results of the third and fourth experiments because of the interactions among nations.

Abstract

Ⅰ. Introduction

Ⅱ. APEC and Regionalism

Ⅲ. The Experiment Design for the Analysis of APEC's Trade Liberalization

Ⅳ. The CGE Model and Parameters
1. Consumer
2. Production Sector
3. Relationships between Price and Policy Variables
4. Market Clearing Conditions

Ⅴ. The Interpretation of the Simulation Results

Ⅵ. Conclusion

References

Appendix: Pre-and Post-UR Traiffs