SUNS  4325 Tuesday 17 November 1998

Washington, Nov 15 (IPS/Jim Lobe) -- U.S. President Bill Clinton's sudden decision to stay away from the Asia-Pacific Economic Cooperation (APEC) summit in Kuala Lumpur in order to deal with the Iraq crisis will weaken Washington's hand in advancing its trade agenda.

Clinton, who has sent Vice-President Al Gore to the two-day summit which begins on Tuesday, would have made a strong pitch for faster trade liberalisation despite opposition from his closest regional ally, Japan.

The two economic superpowers had been feuding over Tokyo's refusal to reduce tariffs and on forest products and fish, causing concern that Washington's hopes of using the financial crisis in Asia to accelerate trans-Pacific integration could begin to unravel at the APEC conference.

In Kuala Lumpur, trade ministers of Pacific Rim nations failed to reach a deal to accelerate trade liberalisation after they failed to overcome Japan's refusal to cut tariffs in the fishing and forestry sectors.

Canadian trade minister Sergio Marchi said the APEC forum failed to reach agreement slashing tariffs in nine key industries, including fishing and forestry, worth 1.5 trillion dollars in global trade.

Instead of having the 21 leaders approve the pact during the summit, the trade proposal will be submitted to the World Trade Organisation (WTO). "There's not enough of a critical mass here. So the package essentially goes to the WTO," he said.

Asian countries, still smarting from the economic crisis that struck last year, want moves toward faster trade liberalisation deferred in order to focus instead on recovery efforts.

Clinton was supposed to be in Malaysia Monday at the start of a nine-day schedule of bilateral meetings with regional leaders and the summit proceedings, as well as follow-up trips to Japan, South Korea, and Guam.

It was not certain if he would proceed with his other trips.

Although APEC has mainly served as an economic forum, the US is expected to also deal with key diplomatic and defence issues especially with Tokyo and Seoul.

New questions about North Korea's compliance with a 1994 de-nuclearisation agreement and its recent missile tests have bolstered hawks in both capitals, as well as in Washington, where Clinton is expected to ask former Defence Secretary William Perry to take control of U.S. policy toward Pyongyang.

"Although the focus of attention in East Asia has been the economic crisis, the most important aspect of the president's visit to East Asia really is to shore up our alliance relationships with Japan and South Korea, and to focus on the strategic dimension of our relationship with the various countries in East Asia," says regional specialist Mike Mochizuki of the influential Brooking Institution here.

The APEC summit, an annual event since Clinton hosted the first one in Seattle five years ago, will bring together the leaders of nearly all of the countries bordering the Pacific including, for the first time, Russia, Vietnam and Peru.

The choice four years ago of Kuala Lumpur as this year's venue has proved to be controversial due to Malaysian Prime Minister Mahathir Mohamad sacking and subsequently arresting former Finance Minister Anwar Ibrahim - who is highly regarded in Washington.

As a result, the U.S. delegation will be engaged in a delicate dance to participate fully in the talks while pointedly avoiding Mahathir to show disapproval. "Our rubbing shoulders with Malaysian officials will be totally in the context of the APEC meeting itself," Ken Lieberthal, Clinton's top Asia expert on the National Security Council, told reporters here.

Secretary of State Madeleine Albright was reported to have met with Anwar's wife during which she demonstrated her support for him and "his own dedication to democracy and a market economy." She will travel to Indonesia and Thailand after the summit.

Washington appears to be going to the summit in a state of indignation over Japan's refusal to go along with tariff cuts for wood products and fish.

Japan is seen as playing a potentially decisive role in whether or not the East Asian region as a whole embraces a vision of open markets and free trade or, as Albright put it Friday, "the closed world of zero-sum, no-growth protectionism."

The U.S. vision already has been challenged by Mahathir who reversed Anwar's policies by introducing strict controls on short- term capital.
Washington also has been rattled by China's recent introduction of new subsidies for state companies and controls on capital, as well as what Washington sees as its declining interest in joining the World Trade Organisation (WTO).
"The question is whether Japan's position (on trade liberalisation) will have a demonstration effect on the other Asian countries," one senior official told IPS. "Japan has a pivotal role to play for the
whole region on this."

The administration hopes that Tokyo will relent and go even further by using a hefty part of the 30 billion-dollar package of loan guarantees, trade credits and debt purchases for Asian economies to help finance U.S. proposals to restructure the region's banking and corporate debt and build stronger social safety nets for vulnerable groups hit hardest by the crisis.

"The highest priority (now) is dealing with the debt overhang of private companies in (South) Korea, Thailand, Indonesia, Malaysia, the Philippines and some of the other countries," says Daniel Tarullo, a former top Clinton international economic adviser. "Debt restructuring and the Japanese money may well conflate into a single programme, either in Kuala Lumpur or elsewhere."

The World Bank, the Asian Development Bank, China and Taiwan may also contribute to such a package, he says. "Getting money to these countries is vital," says Tarullo, who is now with the Council on Foreign Relations in New York. "If you want to do it under the social safety net, that's great; if you want to do it with infrastructure rebuilding, that's also great, so that private capital will start coming as well."