Commentary: How Not To Win Friends And Influence Trade

President Clinton's sudden cancellation didn't crimp the touchy-feely talk about harmonious ties in the world's most dynamic economic region. Leaders from the 18-member Asia Pacific Economic Cooperation forum (APEC), sitting at Japan's Osaka Castle, were able, on Nov. 19, to unveil a far-reaching, if vague, blueprint for achieving a free-trade zone by 2020.

But Clinton's no-show took the steam out of U.S. efforts to show credibility in the region. His decision left Asians with the impression he was dodging Asian commitments to fix budget problems at home. Vice-President Gore's effort to carry the flag wasn't enough to offset the cancellation

Without Clinton, the pressure on Asian leaders to make aggressive market-opening moves was visibly reduced. In fact, some U.S. business leaders fretted that Japan was able to tilt APEC closer to its own preference for glacial openings, while portraying itself as Asia's guardian against coercive U.S. demands. International Trade & Industry Minister Ryutaro Hashimoto told Asian business leaders that Japan was defending "this very Asian approach."

Other U.S. diplomatic forays went by the wayside as well. Sino-U.S. relations have been sorely strained over Taiwan. After Clinton's October meeting with Chinese President Jiang Zemin, a top-level meeting might have helped to defuse tensions. "We needed to keep the momentum going," says a Western diplomat. "This is a setback."

Clinton also bowed out of a minisummit with Japanese Prime Minister Tomiichi Murayama. Both sides had hoped a planned security declaration would defuse calls to send home some of the 47,000 U.S. troops in Japan following the rape of an Okinawa schoolgirl. Instead, America's top commander suggested the three U.S. military suspects should have hired a prostitute, which spurred new outrage. Because Clinton couldn't sign the declaration, a cornerstone of the U.S. commitment to Asia is still in doubt.

Osaka wasn't a complete disaster for Washington. U.S. pressure forced Japan to give up its bid to exclude agriculture from APEC's free-trade agenda. The plan to push deregulatory measures and set up common customs and product standards could help Western companies. Beijing also pledged to cut average tariffs from 36% to 25% to win the U.S.'s help in getting admitted to the World Trade Organization. U.S. Trade Representative Mickey Kantor tried to argue that a U.S. that "has been Eurocentric for decades" is now focused on Asia as never before.

But that's still not enough, when compared with Japan's sophistication. Japanese bureaucrats from MITI and the Finance Ministry chaired the APEC committees that drew up the nitty-gritty on customs and product standards. Not surprisingly, the biggest beneficiaries of speedier customs clearance are Japanese auto companies that rely on just-in-time manufacturing networks in Southeast Asia. Thanks in part to $100 million in Japanese funding, APEC is starting to look like a mini-MITI, with fiefdoms that will resist legally binding trade moves.

CLOSED DOOR. What it means is that the U.S.'s long-range goal of weaning Asia away from export-led growth to open markets may be harder to attain. While Southeast Asia is lowering tariffs on manufactured goods, roughly 78% of the service sector is still closed. That's important because areas like telecommunications, financial services, and transportation are U.S. strengths.

Nor has APEC tackled Asia's tendency to steer government contracts to favored local players or Japanese multinationals. With the region spending an estimated $1.2 trillion on infrastructure by 2000, APEC hasn't adopted rules on disclosure of links between development aid and winning contracts. Here, Japan's $11 billion foreign-aid budget is a big edge.

Much will now turn on how Washington chooses, or doesn't choose, to exert its influence as APEC starts nudging members to turn trade talk into reality. At next year's meeting in the Philippines, Clinton and the U.S. officials would be well-advised to show up, this time in force.

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