APEC Trade/Investment Liberalization Strategy

Trade/Investment Liberalization Strategy

- Special Lectures featuring OECD Secretary-General Donald J. Johnston
& Prof. Robert A. Mundell (1999 Nobel Laureate) -

□ “Special Lectures” planned as part of APEC Investment Opportunities 2005, was held at Busan City Hall on Nov. 16. The lectures drew many attendants of the APEC investment conference as well as 300 students, mostly undergraduates and graduates majoring in economics in the Busan area.

□ The “Special Lectures” was delivered by two prominent experts: OECD Secretary-General Donald J. Johnston and Prof. Robert A. Mundell of Columbia University, the Nobel Prize Winner for Economics (1999). During the hour-long session, the lecturers shared their insights on the vision and challenge of the trade/investment liberalization within APEC and the framework of cooperation.

□ OECD Secretary-General Donald J. Johnston’s lecture was titled “Building Prosperity through Investment: A Common APEC/OECD Agenda.”

ㅇ Johnston underlined the importance of APEC in the global economy as well as the common values and responsibilities that APEC shares with the OECD. He emphasized the need for increased cooperation between the two organizations.

ㅇ Johnston went on to comment that Korea, as an OECD member since 1996 and a prominent APEC member, has played and will continue to play a big role in bringing the two policy communities closer together.

ㅇ Notably, the Secretary-General emphasized that investment is a particularly promising avenue for future OECD/APEC cooperation, not to mention a motor of globalization that brings together economic benefits and challenges.

- Secretary-General Donald J. Johnston stated that raising investment is not an automatic process, but requires "good policies" favorable to business, as indicated in the Monterrey Consensus.

* Consensus reached in the International Conference on Financing for Development held in Monterrey, Mexico in March, 2002.
- The consensus was conceived to address the economic gap being widened by the trend of economic globalization between the northern and the southern hemispheres as well as the concerns of the developing economies about rising debts.
- The Monterrey Consensus set the goal of reducing the poverty-stricken global population of 1.2 billion by half (as declared in the UN Millennium Summit in September 2000), confirmed the commitment of the advanced economies to ODA amounting to 0.7% of their per capita GNP and underlined the shared responsibilities of the debtors and the creditors for troubled debts, calling upon developing economies to drive out corruption, liberalize international trades and open their markets.

ㅇ The Secretary-General presented the Policy Framework for Investment being developed in Paris in cooperation with non-Member economies and international organizations to help governments pool their energies to create a better environment for investment.

ㅇIn the second part of the lecture, Prof. Robert A. Mundell delivered a speech titled, “Investment, Trade and Capital Markets in APEC. And the World Economy.”

< Abstract of Prof. Mundell’s Lecture >
The presentation will trace the developments of the international monetary system from the fixed exchange rate system base don the dollar after World War II to the flexible exchange rate system prevailing today. The issue for APEC is whether these countries are better off with monetary nationalism based on flexible exchange rates for each country of APEC, or whether monetary internationalism based on fixed exchange rates is a preferred position.

The basic argument here is that APEC is better off following the European example with fixed exchange rates. The creation of a large monetary bloc covering nearly 60% of the world economy would be a great force for efficient trade and investment and ultimately growth and prosperity within APEC.

Up until a few months ago, the APEC economies were moving in this direction, with the fixed exchange rate between China and the United States, as well as a few other areas like Malaysia and Hong Kong, China. These two big economies could be the focal points of the Pacific ellipse, promoting together free trade and stable exchange rates. It would be a partnership under which all Asian countries could prosper.

The major problem for this scenario is the attitude of the United States. Contrary to the dictates of economic theory, the United States focuses on bilateral trade balances and pushes China to delock its exchange rate, or appreciate or float. A sharp appreciation would be ruinous for China because it would bring on a depression and the end of Asian prosperity. It would indeed threaten the long growth period that was begun with the supply-side revolution in the 1980, the IT revolution in the 1990s and the Chinese revolution of the 2000s.

Bilateral relations between the U.S. and China are at the cutting edge of global equilibrium today both in the political and the economic sphere. China has an open window in the next decade to lift is population to a more prosperous level before the shoals of unfavorable demographics hamper growth. Growth is therefore a vital interest to China as to the whole world and the U.S. should rethink its misguided fetish with China’s exchange rate. The recent textile agreement presents the right path to solution. If the U.S. feels threatened because China, for example, is selling its toys to the U.S. at too low a price, the U.S. take steps to stop the import of Chinese toys. That would be better for China and all Asia than to force China to undermine its financial system, submit to deflation, stall its economic growth, and undermine WTO compliance, all of which would follow from a sharp appreciation of China’s currency.

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