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Talk Shop in Action: An Analysis of APEC Member Economies' Participations in

APEC Projects

David W.F. Huang (IEAS, Academia Sinica, Taiwan)

I. Introduction

Lack of concrete achievements with regard to its trade liberalization agenda as

declared solemnly by its leaders, the Asia Pacific Economic Cooperation (APEC) is

often derided as a “talk shop.” Essential to this “talk shop” argument is the weakness

of APEC’s institutional design, which relies on voluntarism, incrementalism,

consensus decision-making, non-binding rules, and concerted unilateral actions

(Ravenhill, 2001). Given that APEC member economies are not subject to any legal

obligation or punishment for failing to deliver their commitments, it is not expected

that APEC will make any difference in its trade liberalization agenda (Feinberg, 2008).

Indeed, experts believe that APEC’s ambitious “Bogor goal” stand little chance to be

realized on time (Ravenhill, 2001: 156-7; Li, 2010: 2), even though APEC’s own

assessments claim the opposite (APEC, 2005; Ho 2009). Its project on “Early

Voluntary Sectoral Liberalization (EVSL)” also failed miserably at its early stage

(Wesley, 2001). APEC’s much promised “Individual Action Program (IAP),” which

uses mechanisms of bench-marking and peer pressure, has only achieved minimal

result (Petri, 1997). Yet, in APEC summit each year, APEC leaders keep on

announcing ambitious visions and goals, which attract media attention and raise

public expectation as if APEC is meant to do the job as promised. After repeated

failures to deliver its promises on trade liberalization and others, there is no wonder

that APEC is regarded as “An Perfect Excuse to Chat.”

However, the above “talk shop” argument may miss the point, given that APEC

is designed to be a process, in which its institutional constraints on member

economies could stem from repeated interactions within the APEC context (Aggarwal

and Lin, 2001; Dupont and Huang, 2008). Whether or not APEC’s institutional

constraints are strong enough to produce substantial results on its goal of trade

liberalization is another issue. In the case of APEC, we simply cannot infer from no

concrete achievement to jump into the conclusion that there is no institutional

constraint. In this paper, using evidence derived from 1,787 cases of APEC projects

from 1993 to 2009, I attempt to show that when “talk shop” in action, APEC member

economies behave as if they are subject to its weak institutional constraints, such as

norms of reciprocity and reputation. In addition, I demonstrate that even though

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APEC is meant to business or economic matters, analyses of members’ participations

in APEC projects show interesting patterns of north-south divide and political regime

alliance. In particular, countries having the same level of economic development or

enjoying the same level of political freedom are more likely to cooperate in APEC

projects than those who are not. While conventional wisdom implies that APEC’s

developed countries favor APEC projects regarding trade and investment

liberalization and facilitation (TILF) and developing countries favor projects on

economic and technological cooperation (ECOTECH) and capacity building (Gallant

and Stubbs, 1997), developed economies are no more and no less likely than

developing economies to cooperate with each other in the TILF projects. Perhaps,

APEC’s institutional design, which allows cross-pillar issue linkages in repeated

interactions, may actually facilitate project cooperation among developed and

developing countries in TILF projects.

What follows first is a literature review on whether APEC can be characterized

as a regime. My discussion will focus on theoretical debates over whether APEC’s

norms and rules constrain its members and whether they do enhance their cooperation.

Secondly, a brief account of my research design and APEC project data set is

provided. Thirdly, descriptive statistics about APEC projects are offered in order to

discover distinguished patterns of APEC members’ cooperation. Fourthly, several

probit models (including random-effect probit models) are constructed to show the

impact of “reciprocity” and “reputation” on the probability of project cooperation (or

precisely, cosponsorship) between a given pair of APEC members. Finally, a

conclusion is followed by highlighting theoretical implications of our major findings.

II. APEC as a Regime: Do APEC Rules and Procedures Matter?

There is no shortage of describing or challenging APEC as a regime. Following

Krasner’s definitions, a regime (or an institution) is an enduring set of rules, norms,

procedures, precedents, agreements, or formal organizations that may shape the

expectations, interests, and behavior of actors, or even impose constraints on actors,

whether they are explicitly specified as binding or non-binding entries (Krasner,

1983).1 Accordingly, proponents of APEC as a regime contend that APEC exhibits

elements of a regime (such as rules, norms, procedures, precedents, or some formal

1 This definition of “regime” or “institution” is typical in the theory of international regime. I borrow this definition for analytical purpose. See S. D. Krasner ed., International Regimes (Ithaca, N.Y.: Cornell University Press, 1983); R. O. Koehane (1988), “International Institutions: Two Approaches.” International Studies Quarterly, pp.379-96.

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organizations), however weakly they operate within the APEC context (Aggarwal,

1993, 1998; Chiang, 2000; Huang, 2002; Dupont and Huang, 2008; Feinberg, 2003).

Opponents to APEC as a regime point out that even though APEC appears to have

some elements of a regime, its rules, procedures, precedents, or common goals are

often inconsistent and subject to various interpretations, rendering them ineffective in

shaping members’ expectations and constraining their behavior (Higgott, 1995;

Ravenhill, 2001). As a result, APEC should not be regarded as a regime. Indeed, most

supporters for APEC as a regime concede that APEC rules and procedures are often

compromised when members’ national interests are at stake, hence making them

ineffective in delivering APEC’s promises. However, it does not follow that APEC

perform no function at all in enhancing regional cooperation. As Feinberg argues,

“While APEC has fallen short of its most ambitious goals, it has achieved some

notable results in the cognitive diffusion of values and information, policy innovation

to promote economic integration, and institutional modification in response to

trial-and-error learning and to global shocks” (Feinberg, 2008: 239). APEC is at its

best in terms of cognitive diffusion, agenda setting and behavior socialization

(Aggarwal and Lin, 2001; Feinberg, 2008). Indeed, there was a plan to build APEC as

an Asia-Pacific version of OECD, where idea diffusion, policy innovation, and peer

pressure were essential mechanisms to foster collective preferences for trade

liberalization (Ostry, 1998). But even this modest plan for APEC institutionalization

did not realize. In a comprehensive review of APEC’s alleged regime mechanisms,

Ravenhill convincingly argues that contradictions within APEC rules, voluntary

nature of APEC commitments, and ambiguities of their interpretations have rendered

most alleged regime mechanisms (such as concern of reputation, respect for norm of

reciprocity, monitor through peer pressure, and issue linkages, etc) ineffective in

constraining or coordinating APEC members’ actions (Ravenhill, 2001: 135-85).

From the perspective of APEC’s “open regionalism,” there is no such thing as

“defection” or “free riding,” since APEC members’ cooperation is based on voluntary

and non-binding principles. If one member has difficulties in fulfilling a specific

APEC target, one could be free to opt out that APEC target. Neither the APEC

Secretariat nor other APEC members would impose a penalty on that opt-out member.

However, over the period of 1993-2009, there have been on average about 150 APEC

events and 120 APEC projects each year, covering an ever-widening range of policies

(APEC data base, 2010). If a member is to opt out most APEC projects and events,

this member’s reputation in APEC could be challenged. In the long run, this opt-out

member may have to defend its worthiness as an APEC member. Conversely, if a lot

of members opt out most of APEC common goals, then some members would

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question the added value of APEC membership, and may decide to withdraw from

APEC subsequently. It is perhaps such “exit” option withheld by each APEC member

that compels other members to behave “as if” they were in the same community.

As a community-building process, APEC tries to enhance mutual trust among

members through various events and projects. High frequencies of interactions among

the same APEC members could reduce the cost of gathering and dispersing

information with regard to each other’s preferences. The easier such information is

dispersed, the more likely APEC members may know what and how to cooperate with

each other. Moreover, since APEC provides a context for repeated interactions, there

is an incentive for members to act beneficially towards the others, not necessary for

fear of being retaliated, but rather for fear of being marginalized (Axelrod, 1984;

Bowles and Gintis, 1998). In addition, in a repeated game, normative expectation

toward reciprocity across time is likely to evolve into a norm. The norm of reciprocity

works not only because that people feel ashamed to defect when others cooperate, but

also because that people often feel uncomfortable to become the target of another

person’s resentment (Sugden, 1998).

Fehr and Gachter (1998), in their psychological experiments, find that even in a

strictly anonymous environment with no enforcement, people tend to act reciprocally

to others who also do the same thing. Moreover, the introduction of pecuniary

incentives or threat of punishment into a reciprocal relationship may weaken total

incentives for cooperation. Instead of improving the enforcement technology, an

increase in the scope for reciprocal interactions is a better way to enhance cooperation

among agents (Fehr and Gachter, 1998: 337-63). If psychological experiment is of

any value in reality, then APEC’s lack of threat of punishment, ever expanding scope

of issue linkages, and context for repeated interactions should encourage its members

to observe the norm of reciprocity.

In addition, studies on compliance of international agreements clearly pointed

out that high level of compliance was achieved with little attention to enforcement.

The incidences of non-compliance are problems to be solved, rather than violations to

be punished (Chayes and Chayes, 1993). According to this “managerial school” of

compliance, mutual consultation and learning are better ways to induce cooperation

and compliance, though some disagree with this thesis (Downs, Rocke, and Barsoom,

1996). In fact, mechanism of mutual learning has been firmly installed in various

APEC projects. Through mutual learning, APEC members may discover their true

interests and redefine their policy preferences; acquire knowledge of best practices

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and improve their own policy performances; feel a sense of community, which may

reinforce cooperation among APEC members.

Although a highly legalized and institutionalized regime like the EU reduces

transaction cost of subsequent interactions, enables credible commitment to

agreements, and enhances the capacity of enforcements, the legalized regime entails

considerable amount of contracting cost, negotiation cost, sovereignty cost, and

uncertainty cost (Abbott, Koehane, Moravcsik, Slaughter, and Snidal, 2001: 17-35).

Because there are 21 member economies, each having different policy preferences,

legal systems, and development stages, APEC members would have to bear high

contracting and negotiation costs should they choose to pursue a legalized regime.

Moreover, short of an adequate multilateral regional security regime like the NATO in

Europe, East Asian members of APEC are more likely to perceive a delegation of

power to APEC as a net loss of sovereignty. Finally, uncertainty about future impact

of trade and investment liberalization may prevent APEC members from pursuing

precise binding agreements. Instead, APEC members opt for a “soft,” flexible,

non-binding, and minimal institutionalized regime to circumvent problems of

incomplete information and sovereignty loss.

However, even a “soft” regime like APEC commits its members to some formats

of interactive procedures. To reap potential benefits of flexible and voluntary

cooperation, for example, the 1995 Osaka Action Agenda (OAA) simply set out ten

operating principles to guide APEC members’ interactions (Drysdale, Elek, Soesastro,

1998: 103-35). Together with the principles of comprehensiveness and flexibility,

APEC members can determine their own sequence of policy adjustments, but

controversial sectors and issues will not be excluded from the agreed dates for

liberalization. The principle of cooperation requires APEC members to pool

information, experience, expertise and technology to facilitate trade and investment.

While the principle of differentiated timetables allows APEC members to delay their

most difficult political decisions, the principle of continuous progress requires

members to show steady progress toward the agreed 2010 and 2020 Bogor targets.

The principle of simultaneous start and standstill ensures that the dismantling of some

trade and investment barriers will not be accompanied by raising any other barriers.

The principles of transparency and comparability are used to ensure that all progress

in APEC members should be subject to others’ scrutiny and monitor, and that any

progress should be comparable among members so that the norm of reciprocity can be

observed. Finally, the principles of WTO consistency and non-discrimination aim at

encouraging APEC economies to take account of the interest of other economies

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(including members and non-members) when they attempt to make cooperative

arrangements among themselves. To sustain open regionalism, it is also essential for

any APEC cooperative arrangements to be compatible with WTO rules.

While, at a given point of time, there are contradictions among OAA principles,

these principles are not necessarily incompatible over time.2 The question is whether,

empirically, these OAA rules and procedures work to constrain or coordinate APEC

members’ actions? Indeed, renowned scholars like Aggrawal, Feinberg, and Ravenhill

on separate occasions admit that much has to be done in terms of systematic data

collection and rigorous empirical testing on how member economies actually interact

with each other within the APEC context. This paper aims exactly at redressing the

deficiency of current APEC studies. The empirical question to be answered here is not

how APEC members subjectively perceive or promise to follow APEC norms and

procedures. Rather, this paper seeks to demonstrate whether and to what extent APEC

members behave as if they follow APEC’s institutional constraints, such as norms of

reciprocity and reputation.

III. Data and Research Design

In order to verify empirically whether APEC member economies behave as if

they were subject to APEC’s weak institutional constraints, I systematically collect

data from APEC Secretariat and APEC Project Database, which yields 1787 cases of

APEC projects ranging from 1993 to 2009.3 The reason why APEC projects are

chosen is because they consist of the major part of APEC’s activities, in addition to

much reported annual APEC leaders’ summit and Senior Official Meetings (SOMs).

Though APEC projects are seldom reported by the media, they constitute a direct

evidence of APEC members in actions, rather than in words. Moreover, studies on

how APEC operates show that APEC projects are an integral part of APEC

decision-making cycle, starting from the annual APEC leaders’ summit which

introduce new ideas and working agenda for next year, followed by SOM’s detail

planning and instruction for APEC committees and working groups to design and

implement various APEC projects. At the same time, SOMs also foster and aggregate

members’ ideas and consensus for APEC leaders to deliberate in the summit (Damond,

2 For example, John Ravenhill points out that the principles of simultaneous start and continuous

process are contradictory to the principle of differentiated timetables. See J. Ravenhill, APEC and the Construction of Pacific Rim Regionalism (Cambridge, Cambridge University Press, 2001), pp.158-9. But over time these principles do not appear to contradict one another. As long as members start liberalization and make continuous progress, over time it does not matter which sector and what time-frame they choose to start liberalization. 3 For APEC Project Database, see http://aimp.apec.org/PDB/default.aspx.

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2003; Ravenhill, 2001). Depending on how one perceives this APEC decision-making

cycle, APEC operation should be regarded as a bottom-up process, rather than what

the media usually portrait as a top-down process driven by APEC leaders. In this

bottom-up consensus-building process, doing APEC project is the only occasion that

outsiders can observe “variations” of APEC members’ intention to cooperate. Other

public-accessible documents such as APEC leaders’ declarations, conclusions of

ministerial meetings, and SOM summary records are reflecting consensus or

compromised position of all members. For the above reasons, APEC projects provide

the best testing ground for researchers to verify whether and why APEC members

cooperate with each other, even though there is no legal obligation (or punishment)

for them to cooperate (or non-cooperate).

Unlike previous researches on APEC which rely on a single case study or

comparative studies with a few cases, my research design employs quantitative

methods to test against a large number of cases. As mentioned above, we have above

1787 APEC projects initiated by all member economies through various APEC

committees, subcommittees, and working groups. The data set covers the period of

1993-2009, a period longer enough to discern cooperation patterns among APEC

member economies. Since our main concerns are whether and why APEC members

choose to cooperate in certain APEC projects, we transform our data points into dyads

format. Each dyad consists of a pair of APEC member economies, in which the first

one (called country A) is project proposer, and the second one (called country B) in a

pair is cosponsor. Since each APEC member can either be a proposer or a cosponsor

in a dyad and there are 21 APEC members, so the combination of 21x21 minus cases

of cooperation with oneself (i.e. 20 cases) which yields a total of 420 cases. Since we

cannot obtain official data of trade dependence and per capita income (key

independent variables) beyond year of 2008, our data points extend only from 1993 to

2008. With 16 years covered in our analyses, we create 6,720 cases of dyads.

In each dyad of a given year, our main concern (Y) is whether country B decides

to cosponsor APEC project proposed by country A. If country B cosponsors A’s

project, then we code it 1; otherwise code it 0. Since our dependent variable Y is

binary in nature, we choose probit models to estimate Xi effects on the probability of

Y. We also use random-effect probit model to control for time-related impact of panel

data.

IV. Discovering cooperation patterns among member economies’ participations

in APEC projects: A report of descriptive statistics of APEC projects

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Having justified the use of APEC projects to verify theoretical contentions

outlined in the second section, I now turn to descriptive statistics of APEC projects.

As figure 1 shown, from 1993 to 1998 there were less than one hundred APEC

projects implemented each year. Since 1999, on average more than 120 APEC

projects have been carried out. Perhaps, because of the 1997-8 Asian financial crisis,

APEC members implemented 210 projects in 1999. In recent years (since 2006), we

observed a resurging popularity of APEC projects, with the number of projects

reached 166 in 2009.

(Figure 1 here)

While APEC projects are increasingly popular among its member economies, not

every project is implemented with mutual cooperation between members. As figure 2

demonstrates, before 2001 more than 90 percent of APEC projects were implemented

by a single member economy. However, since 2002, the majority of APEC projects

were executed by at least two member economies. Figure 3 shows that since 2005

there were on average more than four members who participated in each APEC

project. In 2009, the average number of member economies who participated in each

APEC project has reached 5.86. The trend is very clear: APEC members appear to be

more willingly to cooperate with each other in implementing APEC projects since

2002. Why?

(Figures 2 & 3 here)

The major explanation is that APEC requests each of its projects to be executed

by several members jointly. For example, in the fifth edition of Guidebook on APEC

Projects published in 2002, APEC hopes that several of its members can cooperate in

each APEC project. In the sixth edition of Guidebook published in 2005, APEC

makes it clear that each APEC project should be facilitated by at least three member

economies. However, like other APEC rules and statements, the above APEC’s

request appeared in its seventh edition (2010) of APEC Project Application Form is

still non-binding, as a senior official of APEC from Chinese Taipei declares.4 Even

though APEC’s request for project cooperation is non-binding, it may serve as a focal

point, such that member economies convergent their expectation toward each other

when doing APEC projects. That is, APEC member may “normatively” expect and be

expected to cooperate with each other in each APEC project. Such normative

4 Interview with Mr. Liu, Jing-yen, an APEC senior official from Chinese Taipei posted to APEC

Secretariat, Singapore from 2007 to 2010.

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expectation is exactly a sort of institutional constraint that APEC’s context of repeated

interactions may impose on its member economies. Moreover, as APEC process

operates year after year, member economies obtain various experiences for mutual

cooperation, which, in turns, may facilitate further cooperation in APEC projects.

Another way that APEC may encourage or re-direct its members’ cooperation in

implementing APEC projects is through funding. There are three ways that APEC

projects can be funded. The first type of funding comes from APEC’s operational

account (OA) and APEC support fund (ASF), both of which are managed by APEC’s

Budget Management Committee (BMC). The OA is comprised of members’ annual

contributions, which sponsor projects affiliated with APEC’s Economic and Technical

Cooperation (ECOTECH). The ASF was established in 2005 to sponsor projects

relating to human security, avian influenza, pandemics, technology, and energy

efficiency, etc. APEC projects sponsored by OA and ASF are classified as supporting

APEC’s ECOTECH & capacity building agenda.5

The second type of funding is called Trade and Investment Liberalization and

Facilitation (TILF) Special Account, which was established during the 1995 APEC

leaders’ meeting when Japan announced its intention to contribute up to 10 billion yen

to fund TILF projects. However, not until 1997 did the APEC project database record

projects derived from TILF fund. The third type of APEC projects are self-funded by

member economies. The only requirement for self-funded projects is for members to

register in the APEC Secretariat, so that they can be regarded as APEC affiliated

projects. Figure 4 describes members’ implementation of APEC projects by different

funding sources. For example, about 42 percent of Australia’s projects are funded by

TILF fund; 35 percent of projects are funded by OA, 15 percent by ASF, and 6

percent of Australia’s projects are self-funded. The above distribution of funding

sources seems to suggest that Australia prefers APEC’s TILF to ECOTECH agenda, a

suggestion appears in line with the media’s report of Australia’s preference in the

APEC. However, if one takes into account that 15 percent of Australia’s projects

(funded by ASF) are related to APEC agenda of capacity building, one would

probably conclude that Australia is indifferent between TILF and ECOTECH &

capacity building (CB) agenda.

(Figure 4 here)

5 For how APEC projects are funded, please refer to

http://www.apec.org/en/projects/projects-overview.aspx.

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As figure 4 shows, Malaysia and South Korea implement more ECOTECH

projects than TILF projects. This result is consistent with reported positions of two

countries in APEC. However, the facts that the USA implements more ECOTECH

than TILF projects and Vietnam more TILF than ECOTECH projects seem to

contradict our understanding on both countries’ official positions in the APEC. In

short, figure 4 does not yield a clear pattern to support for conventional wisdom that

APEC developed economies favor TILF agenda and developing economies favor

ECOTECH agenda (Gallant and Stubbs, 1997; Ravenhill, 2000; Dent, 2008; Hwang,

2006).

Perhaps, of all three types of funded APEC projects, self-funded projects are

more likely to reveal member economies’ true preferences for a particular APEC

agenda. Unfortunately, we cannot attribute with certainty for these self-funded

projects to either TILF or ECOTECH & capacity building (CB) agenda. The only

information we have with regard to self-funded projects is their affiliations with

APEC committees, sub-committees, or working groups. Notice that all APEC projects

have to be initiated through APEC’s committees, sub-committees, or working groups.

So we can roughly classify these committees and working groups either belonging to

APEC’s TILF or ECOTECH & CB pillars. For example, projects initiated by

Committee of Trade and Investment (CTI) are generally related to TILF agenda,

because most of them are funded by TILF fund. Another example is that projects

initiated by Human Resources Development (HRD) are generally sponsored by OA or

ASF, hence being classified as belonging to ECOTECH & CB pillar. Though such

classification scheme seems arbitrary, and may misclassify cases (such as CTI

projects that design to build up capacity for trade liberalization), the result yielded by

such classification scheme is over 80 percent similar to that of APEC official

classification by funding sources.6 With this potential misclassification in mind, I

report, for each APEC member, the most likely APEC committee or working group

through which its self-funded projects are initiated.

(Table 1 here)

As table 1 shown, across the board with only a few exceptions (such as Hong

6 The current classification scheme simply identifies names of APEC committees, sub-committees, and

working groups, and then attribute them into either belonging to TILF or ECOTECH &capacity building pillars. In general, all CTI and its sub-committees are assigned to TILF pillars, while other committees and working groups are attributed to ECOTECH & capacity building pillars. The result of classification is similar to that derived from official classification by funding sources. The reliability test of two schemes yields .843 Cronbach’s Alpha value for TILF projects and .806 for ECOTECH projects.

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Kong, Russia, and Papua New Guinea), all APEC member economies favor HRD

or/and IST (Industrial, Science and Technology working group) when initiating their

self-funded projects. That is, most of their self-funded projects are initiated through

HRD or/and IST. Since both HRD and IST are classified into APEC’s ECOTECH &

CB pillar, it seems that almost all members prefer APEC’s ECOTECH & CB agenda.

While it is consistent with our understanding that Southeast Asian countries favor

ECOTECH & CB agenda, it is against conventional wisdom when table 1 reveals that

developed countries like Australia, New Zealand, Canada, Japan, and the United

States also favor HRD and IST, hence in favor of APEC’s ECOTECH & CB agenda.

Perhaps, when the above developed countries initiate their self-funded projects, they

cater especially for developing countries’ need and preference for economic

development, which may lay down some foundation for developing countries to

support TILF agenda in the future. Indeed, table 1 shows that most self-funded

projects from less developed countries like Papua New Guinea, Peru, Mexico, Russia,

Thailand, Vietnam, and Indonesia are initiated through Investment Experts’ Group

(IEG), a group classified under APEC’s TILF pillar. In other words, when initiating

self-funded projects, APEC’s developed economies will cater for its developing

economies’ preferences for ECOTECH & CB agenda. In return, APEC’s developing

economies, even though stick to their favorite HRD projects, are partly reciprocal to

support its developed economies’ agenda for trade and investment liberalization.

(Table 2 here)

In order to understand whether and to what extent the most important APEC

economies cooperate with the rest of APEC members in implementing APEC projects,

we first examine a small sample of cases from projects initiated through CTI, HRD,

IST, and EWG (energy working group), and see how APEC members interact with

each other. Table 2 shows that CTI, HRD, IST, and EWG projects (N=990) account

for more than half of total APEC projects from 1993 to 2009. Moreover, even though

TILF agenda was vigorously pushed by APEC’s developed economies in the early

1990s, the number of CTI projects implemented was smaller than that of HRD

projects. It was not until 1999 did CTI projects outnumber HRD projects. In addition,

since 1998 EWG has been very active in initiating projects, while most IST projects

were executed in a single year, namely, 1999.

(Table 3 here)

It should be noted that for each project there is one original proposer who is

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listed at the first position of any project face-sheet. When there is more than one

proposer of a project, the rest proposers other than the first one are regarded as

co-proposers, whose roles are more or less similar to that of cosponsors in the project

face-sheet.7 In this paper, I distinguish the original proposer from co-proposers and

co-sponsor in each project. As shown in Table 3, the first column denotes the original

proposer (e.g. USA, Australia, Japan, and China), and the first rows denote country

names of co-proposers and co-sponsors. For example, table 3 shows that of all CTI

projects proposed by the USA (N=42), 6 (14.29%) are cosponsored by Canada, 12

(28.57%) by Australia and Japan respectively, and 2 (4.76%) by Vietnam. Given that

Japan and Australia are closest allies to the USA in the Asia Pacific, and they all favor

TILF agenda, it is not surprised to find that they cosponsor more projects initiated by

the USA than any other APEC economy. When Japan propose CTI projects, table 3

reveals that Australia (29.85%), New Zealand (19.4%), Korea (17.91%), Thailand

(20.9%), and Vietnam (17.91%) are more likely to cosponsor them. While Australia

and New Zealand are renowned for their preference to TILF agenda, Korea, Thailand,

and Vietnam are major trade partners and investment destinations of Japan.

(Table 4 here)

Comparing HRD projects proposed by the USA with those by Australia,

cosponorship rates by other APEC economies are higher in projects initiated by the

USA than those initiated by Australia (see table 4). This may indicate that the USA

provides a lot more varieties or expertise in implementing HRD projects, so they

attract a lot more cosponsors from the rest of APEC economies. The result may also

imply that the USA as a global superpower commands more attentions from the rest

of APEC economies. In contrast, Australia as a regional power may elicit

cosponsorship from its neighbor like New Zealand (17.24%) or English-speaking

countries like Canada (13.79%) and Philippines (17.24%). Interesting enough is that

when China proposes HRD projects, at least 20 percent of them are cosponsored by

APEC advanced economies such as the USA, Canada, Australia, New Zealand, Japan,

Korea, and Taiwan, as well as by major ASEAN members. This finding may imply

that APEC advanced economies and ASEAN members are more than willing to assist

China’s HRD projects and facilitate China’s economic development, given that China

is a rising power in East Asia.

(Table 5 & 6 here)

7 Interview with the information officer of APEC Secretariat, October 2010.

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Table 5 shows that the USA proposes most of EWG projects (N=78), given that

energy security is of great concerned by the USA. Japan also emphasizes energy

security, because its fossil fuel is entirely relied on imports. When the USA propose

EWG projects, it is its neighbors and close allies that are more likely to cosponsor

them (Canada, 17.95%; Mexico, 23%; Australia, 41%; New Zealand, 23%; Japan,

26.92%; Korea, 28.21%; Taiwan, 32.05%). China, being the second largest consumer

of fossil fuel in the world, also cosponsors 29.49% of EWG projects initiated by the

USA. Likewise, Japan’s EWG projects also attract higher rates of cosponsorship from

its close allies, but China and ASEAN members also cosponsor a lot of EWG projects

initiated by Japan. It seems that China and Japan rivalry does not prevent both

countries to cooperate in APEC’s EWG projects. Of IST projects proposed by Japan

(N=22), however, China cosponsors 2 of them (see table 6). Of 12 IST projects

proposed by China, Japan does not cosponsor any of them at all. Thus, the decision to

cosponsor APEC projects initiated by other economies may vary, depending very

much on the nature of APEC projects themselves, as well as on various utility

concerns of potential cosponsoring countries.

V. Why do member economies cooperate in APEC projects? Findings derived

from probit models

In the second section, theoretical debates over whether APEC rules and

procedures constrain its members provide us with some insights about why APEC

members may cooperate in the absence of legal obligation and punishment.

Essentially, lack of any legal obligation and credible punishment, APEC relies on

norms of reciprocity and reputation generated through its repeated interactions to

encourage members’ cooperation. In our dyads format of data set, we can

operationalize the concept of reciprocity in two ways. One way is to ask, in any given

dyad, how many times in the past until the given year in question that country A

(proposer) assisted country B (cosponsor) in doing APEC projects. The more projects

country A assisted B in the past, the more likely country B will cosponsor A’s project

in that given year. We use “acAP_RCP” to denote this key independent variable.

Alternatively, we ask whether country A assisted country B’s project last year. If yes,

then we expect country B will cosponsor A’s project this year. We use a dummy

“lagAP_RCP_Du” to denote this concept of reciprocity. Of course, whether country B

decides to cosponsor country A’s project in any given year will depend on its past

cooperation experience with country A. We use “lagAP_Exp” to denote the concept of

reputation stem from past experiences of project cooperation within the pair member

economies. The larger the accumulated number of projects cooperated between two

14

members within the pair until last year, the more likely country B will cosponsor

country A’s project this year.

Apart from the above two independent variables, we can speculate other

variables that may affect the decision of country B to cosponsor country A’s projects.

Notably, our discussion in the previous section suggests that geographic proximity,

political alliance, relative power of project proposer, trade dependence, and level of

economic development, as well as members’ preference of APEC’s TILF and

ECOTECH & CB agenda may affect decisions as to whether to cooperate in APEC

projects. It is impossible for us to operationalize and include all the above suggested

variables into our probit models, because we cannot obtain reliable time-series

information for each variable. Nevertheless, we manage to accommodate some of

them through alternative specifications of variables. For example, we adopt a dummy

variable called “EcoDep_D_UN” to denote the similarity of economic development.

According to the UN’s classification, if two member economies within a pair in any

given year are classified as the same developed or developing countries, then we code

it 1; otherwise 0. In the same vein, if the pair of member economies come from the

same geographic region, then we code it 1; otherwise 0 (denoted by GEO5_S). We

expect that countries coming from the same geographic region are more likely to

cooperate with each other than those who are not. Especially for trade and economic

matters, geographic proximity is considered as an advantage for countries to

cooperate. Whether countries having a similar level of economic development are

more likely to cooperate is much contested. In fact, our crosstablulation analysis in

the previous section does not yield a clear pattern to support for the above argument.

In CTI projects (see table 3), APEC developing economies are less likely than its

developed economies to cosponsor projects initiated by the USA, Australia, and Japan.

However, in HRD projects (see table 4), APEC developing economies are equal likely,

if not more likely to cosponsor projects initiated by the USA, Australia, and Japan.

Therefore, we are left uncertain whether countries having a similar level of economic

development are more or less likely to cooperate in APEC projects.

Moreover, we include variables measuring trade dependency between a given

pair of APEC member economies. “InterDep_1” is a variable that denotes the degree

of country A’s (proposer) trade dependency on country B. “InterDep_2” denotes the

degree of country B’s (cosponsor) trade dependency on country A. We expect that

countries with large trade dependency are more likely to cooperate with each other in

implementing APEC projects. In addition, my previous study shows that the more the

number of free trade agreements (FTAs) signed by each member added together in a

given pair, the more the number of APEC projects done by that pair of member

15

economies. However, in any given year, if the pair of APEC economies sign FTA with

each other, then they are less likely to execute APEC projects (Huang, 2011,

forthcoming). To see whether this result is robust, I also include two variables

“accuFTA_S” and “unFTA” in our probit model. Finally, the thesis of democratic

peace often suggests that political regime type affect the likelihood of trade and war.

For that matter, I include a dummy to denote whether two member economies in a

given pair enjoy the same degree of political freedom (according to Freedom House’s

classification). We expect that countries enjoying the same degree of political freedom

are more likely to cooperate in doing APEC projects. While we cannot obtain

time-series information of political friendliness or hostility, we use a dummy

“embassy” to denote whether two member economies in a given pair establish

embassy in each other’s capital. If yes, then we expect that they are likely to cooperate

in APEC projects. What follows is an equation of a probit model that includes both

dependent and independent variables.

(AP_Du) = a+ b1(acAP_RCP or lagAP_RCP_Du)+ b2 (lagAP_Exp)+ b3

(EcoDep_D_UN)+ b4 (InterDep_1)+ b5 (InterDep_2)+ b6 (PoliticalFree_S)+ b7

(accuFTA_S)+ b8 (Embassy)+ b9 (unFTA)+ b10 (GEO5_S)+ e, where a is constant,

bi is coefficient, and e is error term. For definition and coding of variables, please

refer to Appendix A. I present results of six probit models in table 7, two models with

all APEC projects as dependent variables, two with TILF projects and two with

ECOTECH & CB projects as dependent variables. To control for time-related impact

of panel data, I present results of random effect probit models in table 8. Comparing

results of table 7 and table 8, we find that they are virtually identical. Therefore, I

only report results appeared in table 7.

(Table 7 & Table 8 here)

As table 7 shown, the norm of reciprocity matters. No matter which specification

we adopt to measure the concept of reciprocity, we find if country A assisted country

B’s project in the previous year, then country B is more likely to cosponsor country

A’s project this year. Moreover, the more projects initiated by country B are assisted

by country A in the past, the more likely country B will cosponsor country A’s project

this year. This result holds even if we only examined either TILF projects or

ECOTECH & CB projects. In other words, APEC member economies observe the

norm of reciprocity when considering whether to cosponsor projects initiated by other

members. In addition, we find that previous cooperation experiences have positive

impact on whether country B is to cosponsor projects initiated by country A. Again

this result holds even if we only analyzed either TILF projects or ECOTECH & CB

16

projects. Perhaps, past cooperation experiences serve as a surrogate of “reputation” of

country A with which country B is considering whether to cosponsor A’s projects.

Table 7 shows that if a pair of member economies has a similar level of

economic development, they are more likely to cooperate with each other in doing

APEC projects. However, this result does not stand when only TIFL projects are

included in the analysis. In fact, the variable “EcoDep_D_UN” is not significant in

predicting whether country B is going to cosponsor country A’s TILF projects [table 7

(3) &.(4)]. Only in ECOTECH & CB projects do we observe the significant pattern,

namely, countries having a similar degree of economic development are more likely

to cooperate with each other. Perhaps, ECOTECH & CB projects are more sensitive

to variable measuring levels of economic development.

A more interesting result in table 7 is that trade dependency of country A on

country B does not affect whether country B is to cosponsor A’s projects (i.e.

“InterDep_1” is not significant). However, trade dependency of country B on country

A has positive impact on whether country B is to cosponsor A’s projects. That is, if

country B depends more on country A in terms of trade shares, then country B is more

likely to cosponsor country A’s projects. After all, trade dependency implies country

B’s weakness in rejecting country A’s invitation to do APEC project jointly. This

result holds even if we only examine either TILF projects or ECOTECH & CB

projects. In fact, in model including only TILF projects, the coefficient value of

“InterDep_2” is larger and its significance level is higher than those of ECOTECH &

CB projects. Perhaps, TILF projects are more sensitive to variables measuring trade

dependency.

In addition, the more number of FTAs signed by each member in a pair, the more

likely the pair of member economies are to cooperate in APEC projects. Moreover,

countries enjoying the same level of political freedom are more likely to cooperate in

APEC projects. The above results hold if we only analyzed cases for either TILF

projects or ECOTECH & CB projects. When a pair of member economies has more

FTAs in place, each of them is considered to be more open-minded to APEC

initiatives and projects, hence is more likely to cosponsor the other’s projects. As the

thesis of democratic peace predicts, if country B enjoy the same level of political

freedom as country A, then country B is more likely to cosponsor country A’s projects.

However, whether country A and B establish embassies in each other’s capital has no

effect at all on country B’s decision to cosponsor A’s projects. Neither does countries

coming from the same geographic region have anything to do with country B’s

17

decision to cosponsor A’s projects. In other words, geographic proximity is not of B’s

concern when deciding whether to cosponsor A’s projects.

Overall, the direction of each coefficient and its significance level presented in

table 7 are in line with our theoretical expectations. Moreover, in table 7, each model

as a whole also reaches statistical significance. Therefore, I am confident that the

results shown in table 7 are quite robust, though I must concede to the possibility that

some important and unknown variables are left out of my probit models.

VI. Conclusion

Theoretical debates on whether APEC can be characterized as a regime tend to

overlook empirical verifications against their relevant hypotheses. In particular,

scholars and pundits often infer from APEC’s lack of concrete achievement as

promised by its leaders to conclude that APEC imposes no institutional constraint on

its member economies. However, such inference seems to put the cart before horses.

APEC’s institutional weakness may cause its ineffectiveness to deliver its policy

promises. But APEC’s lack of achievement may be attributed to various factors in

addition to its institutional weakness. Moreover, even conceding to APEC’s

institutional weakness, it does not follow that APEC impose no institutional constraint

on its members. This paper attempts to show, despite many well-known institutional

weaknesses such as voluntary and non-binding rules, consensus decision-making

process, lack of legal obligation and credible punishment, and a non-bureaucratic

secretariat, APEC members behave as if they are subject to its norms of reciprocity

and reputation. This is because APEC as a process provides member economies with

an institutional context of repeated interactions, in which the norm of reciprocity and

the concern of reputation are likely to be observed even in the absence of credible

punishment against defectors. In fact, according to the “management school of

compliance,” cooperation among members is likely to occur when threat of

punishment is absent. Rather, to enhance cooperation one should extend issue

linkages for cooperation and provide abundant opportunities for mutual learning.

When the above contextual facilitators of cooperation exist in a repeated game, then

cooperation is likely to occur. It seems APEC as a process provides exactly the

contextual facilitators for cooperation as outlined by the “management school of

compliance.” The question is whether empirically APEC members behave as if they

comply with APEC’s norm of reciprocity and reputation. Whether, empirically,

ambiguity of APEC’s rules and procedures allows its members to neglect its norm of

reciprocity and reputation.

18

In order to verify whether APEC members behave as if they are subject to its

norm of reciprocity and reputation, I analyze 1787 cases of APEC projects ranging

from 1993 to 2009. I also transform these APEC projects into a dyads format, so that

we can examine why a given pair of member economies cooperate in doing APEC

projects. The results of our probit models clearly demonstrate that the norm of

reciprocity and the concern with reputation have significant impact on APEC

members’ decision as to whether to cosponsor the other members’ projects. In

particular, in any given year within a pair, if one member assisted the other in the

previous year, then the other member is likely to reciprocally cosponsor one’s projects

this year. Moreover, the more the past cooperation experiences within a pair, the more

likely the pair of members to cooperate in the future. In addition, members having the

same level of economic development are more likely to cooperate in doing APEC

projects. To the extent that developed countries are more likely to cooperate with

developed countries in doing APEC projects, there appears to have a sort of

north-south divide. While country B’s trade dependency on country A may prompt B

to cosponsor A’s projects, it is not true vice versa. This result implies that power

relation in terms of trade dependency may compel weak members to cooperate with

the stronger in doing APEC projects. Furthermore, regime types also matter when

APEC members decide whether to cooperate. Essentially, APEC members enjoying

the same level of political freedom are more likely to cooperate in doing APEC

projects. But the importance of geographic proximity to enhance cooperation appears

to be exaggerated. At least, APEC members do not consider it as important in

deciding whether to cosponsor the others’ projects. Taking together the above

evidence, it is possible to argue that APEC member economies behave as if they are

subject to its institutional constraints, especially its norms of reciprocity and

reputation.

19

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22

Figure 1 APEC projects by year

1835

65 60 57

92

210

103

124 125 118106

95

116

137

160 166

0

50

100

150

200

250

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Figure 2 Trend of APEC members' participation in projects

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

unilateral propose &work

2 members participate

at least three membersparticipate

23

Figure 3 Average numbers of members' participation in APEC Projects

1 1.03 1.05 1.1 1.02 1.13 1.061.26 1.1

2.35

3.14

2.48

3.99

4.5 4.44.79

5.86

0

1

2

3

4

5

6

7

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Figure 4 Members' participation in APEC projects by funding status

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

AUS BD CAN CHI CHA HK IND JPN ROK MAL MEX NZ PNG PER PHI RUS SGP TW THA USA VIE

TILF

OA

ASF

SELF

24

Table 1 APEC members’ self-funded projects initiated through committees and working groups

Region member Self Fund Australia HRD, IST

New Zealand HRD

Oceania

Papua New Guinea IEG, HTF

Canada HRD, IST, CTTF North America

United States IST, HRD

Mexico IEG, HRD

Chile HRD

Central & South

America Peru IEG, HRD, SME

Japan HRD, IST

South Korea TEL, HRD, IST

Taiwan IST

China HRD, IST

Hong Kong CTI, MRC

Northeast Asia

(Russia included)

Russia IEG

Singapore HRD

Malaysia HRD, IST

Thailand HRD, IST, IEG

Vietnam HRD, IEG

Indonesia HRD, IEG

Brunei HRD

Southeast Asia

(ASEAN)

Philippines HRD

25

Table 2 APEC project charts All Projects CTI HRD EWG IST 1993 18 0 18 0 0 1994 35 0 15 0 1 1995 65 8 28 0 2 1996 60 9 21 0 4 1997 57 9 19 4 1 1998 92 25 14 12 5 1999 210 43 12 14 59 2000 103 29 9 14 7 2001 124 30 10 15 13 2002 125 39 23 9 7 2003 118 41 10 13 8 2004 106 31 8 8 5 2005 95 30 5 7 5 2006 116 34 9 11 5 2007 137 40 9 13 6 2008 160 42 16 17 7 2009 166 43 12 21 6 Total 1787 453 238 158 141

26

27

28

Table 7– probit model

All Projects TILF Projects ECOTECH & CAPACITY BUILDING Projects

β Std. Error β Std. Error β Std. Error β Std. Error β Std. Error β Std. Error Constant -1.571*** .059 -1.601*** .060 -2.143*** .079 -2.170*** .079 -1.648*** .061 -1.666*** .061

acXXX_RCP .079*** .009 - .133*** .013 - .085*** .012 -

lagXXX_RCP_Du - .465*** .059 - .552*** .072 - .525*** .067

lagXXX_Exp .286*** .015 .306*** .014 .223*** .023 .272*** .022 .320*** .016 .331*** .015

EcoDep_D_UN .102** .043 .101** .043 .003 .055 -0.007 .055 .081* .044 .075* .044

InterDep_1 .021 .016 .024 .015 .014 .017 .021 .017 .025 .015 .026* .015

InterDep_2 .028* .016 .030* .016 .050*** .015 .047*** .016 .034** .016 .034** .016

PoliticalFree_S .163*** .043 .165*** .043 .018 .055 .039 .055 .225*** .044 .219*** .044

accuFTA_S .028*** .005 .031*** .005 .043*** .006 .048*** .006 .027*** .005 .029*** .005

Embassy .074 .052 .086 .052 .196*** .070 .207*** .070 .077 .053 .085 .054

unFTA -0.071 .074 -0.058 .074 .078 .083 .083 .082 -0.069 .075 -0.070 .075

GEO5_S .077 .070 .070 .070 .100 .082 .102 .082 .061 .071 .058 .071

LR chi2(n) 1802.18*** 1783.50*** 689.36*** 643.72*** 1520.54*** 1533.76***

observations 5696 5696 5690 5697 5697 5696

Pseudo R2 .2918 .2887 .2106 .1966 .2667 .2691

29

Table 8 - Random effects probit model

All Projects TILF Projects ECOTECH & CAPACITY BUILDING Projects

β Std. Error β Std. Error β Std. Error β Std. Error β Std. Error β Std. Error Constant -1.571*** .059 -1.601*** .060 -2.351*** .118 -2.330*** .116 -1.648*** .061 -1.666*** .061

acXXX_RCP .079*** .015 - .153*** .016 - .085*** .012 -

lagXXX_RCP_Du - .465*** .059 - .553*** .076 - .525*** .067

lagXXX_Exp .286*** .015 .307*** .014 .133*** .036 .214*** .034 .320*** .016 .331*** .015

EcoDep_D_UN .102** .043 .101** .043 -.013 .068 -.022 .064 .081* .044 .075* .044

InterDep_1 .021 .016 .024 .015 .018 .022 .025 .020 .025 .015 .026* .015

InterDep_2 .028* .016 .030* .016 .060*** .021 .055*** .020 .034** .016 .034** .016

PoliticalFree_S .163*** .044 .165*** .043 .030 .066 .047 .063 .225*** .044 .219*** .044

accuFTA_S .028*** .005 .013*** .005 .058*** .008 .062*** .009 .027*** .005 .029*** .005

Embassy .074 0.52 .086* .052 .217** .089 .226*** .084 .077 .053 .085 .054

unFTA -.071 .074 -.058 .074 .077 .099 .085 .094 -.069 .075 -.070 .075

GEO5_S .077 .070 .070 .070 .133 .105 .127 .098 .061 .071 .058 .071

wald chi2(n) 1077.64 *** 1090.32*** 512.42*** 508.48*** 975.19*** 982.65***

observations 5696 5696 5690 5697 5697 5696

groups 420 420 420 420 420 420

30

Variable Define coding Dependent Variable

AP_Du Dummy – for all projects, whether country B cooperate with country A? 0：otherwise；1：country B cooperate with Country A TILF_Du Dummy – for TILF projects, whether country B cooperate with country A? 0：otherwise；1：country B cooperate with Country A EC_Du Dummy – for EC projects, whether country B cooperate with country A?？ 0：otherwise；1：country B cooperate with Country A

Independent Variable acXXX_RCP Reciprocity – In the past, how many times did country A assist (cooperated

with) country B to do APEC projects? Quantitative variable - The number of projects

lagXXX_RCP_Du Dummy – In last year, whether country A assist (cooperated) with country B to do projects?

0：otherwise；1：country A assisted (cooperated with) country B

lagXXX_Exp Until last year, accumulated number of the APEC projects that country A and country B cooperated (A：propose；B：cosponsor)

Quantitative variable

EcoDep_D_UN Dummy – Whether country A and country B come from the same degree of economic development

0：otherwise；1：country A and country B have the same degree of economic development

InterDep_1 Trade dependency of country A on country B Quantitative variable InterDep_2 Country B’s trade dependency on country A Quantitative variable PoliticalFree_S Dummy – Whether country A and country B have the same degree of political

freedom? (House of Freedom) 0：otherwise；1：country A and country B have the same degree of political freedom

accuFTA_S Sum of the number of country A’s FTAs and country B’s FTAs Quantitative variable - The number of FTAs Embassy Dummy – whether country A and country B established embassy in each

other’s country? 0：otherwise；1：country A and country B established embassy in each other’s country

unFTA Dummy – whether country A and country B signed FTA with each other 0：otherwise；1： country A and country B has signed FTA with each other

GEO5_S Dummy – whether country A and country B come from the same geographical region?

0：otherwise；1：A and country B come from the same geographical region?

Appendix A

XXX: refers to All projects, TILF projects or E&C projects.

31