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APEC Investment Deregulation: Fast Track to the Financial Crisis?

The Asia Pacific Economic Cooperation (APEC) forum was promoted by the U.S. to be a NAFTA for the Pacific Rim. Established in 1989, APEC has been viewed with suspicion by many Asian countries who have seen it used as a tool to force trade and investment liberalization on Pacific Rim economies.

APEC is comprised of 21 countries ­ developed and developing ­ spread across North and South America, Australia and Asia, including China, Vietnam, Indonesia, Korea, Chile, Malaysia, Taiwan, Japan, Philippines, Thailand, Singapore, Hong Kong, Russia, Mexico, Peru, Canada, New Zealand, Australia, U.S. , Papua New Guinea, and Brunei. To its developed country members like the U.S., Canada and Australia, APEC has provided a mechanism with which to force Asian countries to allow multinational corporations to buy up mining and timber concessions and seek control of lucrative service sector assets such as national telephone and airline companies. To date, sector-by-sector liberalization programs adopted at APEC's annual Summit meetings have been "voluntary," although the U.S. has used other trade mechanisms and IMF-related threats to force a significant level of implementation. APEC plans to eventually negotiate binding rules on investment deregulation.

The pressure applied to developing members of APEC to liberalize their banking and finance sectors and force an environment advantageous to foreign speculators in Asian countries has been intense. In 1994, APEC broadened its mandate to pursue the creation of a free trade and investment area in the Asia-Pacific by 2010 for developed member countries and 2020 for developing ones. By 1995, the U.S. succeeded in getting an action agenda for the liberalization of trade and investment adopted. By 1996, a collective action plan for "liberalization of services, an open investment regime, reduced business costs, an open and efficient infrastructure sector and strengthened economic and technical cooperation" was drawn up. Individualized country action plans and progress reports were designed to hold APEC countries to their goals. APEC's investment liberalization agenda ­ which it continues to press notwithstanding the financial crisis afflicting its Asian members ­ has striking similarities to that of the Multilateral Agreement on Investment (MAI). As outlined in APEC's Investment Principles (APIN), APEC's liberalization measures includes:


  • "National Treatment" for multinational corporation and foreign speculators with regard to establishing, expanding and protecting investments;
  • Minimizing "performance requirements," (conditions on investment) which would implicate some environmental and local development standards;
  • Establishing a new corporate protection against "regulatory takings" meaning requiring compensation for public interest safeguards that affect corporate profits;
  • Removing barriers to foreign corporations' abilities to export capital and goods, including unprocessed logs, one of the driving forces behind deforestation in the Pacific Rim.

APEC's Compulsive Deregulation: Dousing the Wildfire with Gasoline?

By 1997 Asia was in the throes of a full-fledged financial crisis from which it still has not begun to recover. The new "openness" of the Asian financial markets ­ many countries that fell victim to the crisis had been forced by the IMF to lift controls on incoming and outgoing capital flows ­ had made them vulnerable to currency speculation and rapid divestment.

In 1997, APEC ministers met in Vancouver, Canada. Rather than putting the breaks on the rapid investment deregulation that had left many APEC member economies vulnerable to currency speculators and instantaneous capital flight, APEC members agreed to forge ahead with Early Voluntary Sectoral Liberalization (EVSL) in 15 sectors. (EVSL is APEC's high-gear method of making policy without involving the public, legislatures or conducting environmental impact assessments.) The 1998 Malaysia APEC Summit did not reverse these decisions, although few new dramatic decisions for more deregulation were taken.

As we approach 1999, the fall-out from the Asian financial crisis continues to wreak havoc. The APEC Business Advisory Group (ABAC), made up of CEOs from the Pacific Rim's most powerful corporations, recommends that APEC use further investment liberalization as a way out of the region's economic turmoil. Led by U.S.-based multinationals such as General Motors, Fidelity, and Systems Integrated, the ABAC is advocating that Financial Services be chosen as the next sector for an APEC Early Voluntary Sectoral Liberalization.

It is not surprising that the business advisory group to APEC would urge further liberalization ­ particularly in the financial services sector ­ at a time when Asian currencies like the Thai baht, the Korean won and the Malaysian ringatt have lost much of their value. Such policies would enable opportunistic foreign speculators to continue to snatch up ailing Asian financial institutions at fire sale prices ­ without contributing to actual economic recovery in the region.


APEC's Environmental Disasters

APEC faces unique problems as it moves toward liberalizing investment in the region. APEC countries are renown for having rapidly expanded their export markets while, at the same time, attracting significant amounts of Foreign Direct Investment (FDI). But because many APEC countries are rapidly industrializing, they are facing a multitude of environmental challenges all at once, ranging from deforestation to water pollution due to paper bleaching to hazardous waste as a result of paper and rayon production. It will be very difficult for APEC countries to develop environmental responses at the rate needed to respond to the environmental threats caused by increased FDI.

Home to some of the world's most important and vulnerable forest ecosystems, APEC's move to liberalize investment in natural resource sectors will have serious environmental impacts in its 21 member countries. Sixty-four percent of the planet's last Frontier Forests ­ large relatively intact forest ecosystems ­ are located in APEC countries, namely Canada, Indonesia, Papua New Guinea, the United States, Chile and Russia. These forests are home to globally significant amounts of biodiversity. Of the ten countries that host the world's highest plant diversity in their forests, five are APEC countries. Pacific Rim forests are essential for the role they play in mitigating climate change.

Despite the ecological significance of the region's forests, APEC is liberalizing investment and trade in the forest sector without environmental safeguards or participation by ecologists and environmental NGOs. In response to the Asian financial crisis, it may fast track its investment liberalization agenda, which has previously been considered second in priority to its trade liberalization plans.

There are already many examples from APEC countries of how easily nations bend to accommodate foreign investors and how common it is for these investors to cut corners and put forests at risk. What will happen when the few safeguards that exist are removed through liberalization?


APEC's Threat to Forests

In the early 1990s, when U.S. environmental regulations became more stringent, a consortium of medium-sized logging companies from the Pacific Northwest formed Global Forest Management Group (GFMG) and began logging in the Russian Far East. Backed in part by U.S. tax dollars through the Overseas Private Investment Corporation (OPIC), GFMG logged primary forests solely for export of unprocessed logs to Japan. It deprived impoverished Russian communities of the economic benefit of local processing. A monitoring group of international experts and Russian students found that GFMG's operations had reduced biodiversity in the area, caused soil erosion and degraded stream beds.

Mexico passed legislation in April 1997 which ensured that upcoming land reforms and privatization would provide foreign corporations more opportunities to access primary forests and expand plantations. By providing subsidies and waiving environmental protection measures, the government has attracted 15 U.S. timber companies including International Paper and Boise Cascade since 1994.

The U.S. -based International Paper owns 50.1% of New Zealand's largest forest owner, Carter Holt Harvey, while Rayonier and Weyerhauser are New Zealand's third and fourth largest forest producers. In addition to practicing unsustainable plantation forestry in New Zealand, these corporations are exporting raw logs back to the U.S. and to Japan and Korea. The logs are inadequately treated for pests and pathogens which, upon entering the importing country, invade and destroy native forests.


APEC Fosters Financial Russian Roulette

By looking at the sheer volume of FDI in the region, one can surmise how any move to relax controls on foreign operations and capital transfers could increase instability in the region. Of the world's total FDI, APEC member-economies Japan and the United States are two of the largest sources and China is one the largest recipients. In 1995, FDI in the APEC region accounted for 50% of the world's total, $159 billion of outflows and $171 billion of inflows. Much of this FDI is in such natural resource industries as oil, coal and gas, forestry, and mining, all of which can fuel various forms of deforestation and degradation.

Indeed, by increasing the ease with which this tremendous amount of FDI can be shifted in and out of the Pacific region, APEC is playing a dangerous game of financial Russian Roulette with Asian economies already devastated by the whirlwind of speculative investment. While citizens of nations like Indonesia and Korea must pay the price of economically devastating currency speculation -- enduring resulting joblessness and food crises ­ the U.S. government presses on to formalize such speculator rights in an eventual APEC investment pact. In fact, an important reason that the Administration is so desperate to renew its Fast Track authority is to push through any resulting APEC agreement with minimal public scrutiny. If not for Japan's resistance to additional liberalization during November 1998's Malaysia APEC Ministerial, the risky investment deregulation agenda would have been that much closer to realization.


What you can do

  1. Demand that your Member of the House and both Senators make the Administration STOP the unauthorized APEC negotiations. Make sure you Members of Congress know you oppose APEC or any other NAFTA-MAI expansion. Ask them to write you with their position on APEC and an explanation of why Congress has allowed the Administration to begin the negotiations even though Congress resoundingly denied negotiating authority with the defeat of Fast Track.
  2. Call US negotiators and let them know you oppose the current APEC agenda. The coordinators of APEC negotiations for the U.S. are Joe Damond at the U.S. Trade Representative's office (202)395-6813 and John Wall at the State Department (202)647-4835.
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