By Howard Schneider
Washington Post Foreign Service
Sunday, November 23, 1997; Page A24

PRINCE RUPERT, British Columbia – The Asian financial markets usually are a long way from the hearts and minds of Canadians who make their home in this northern coastal town, but the recent meltdown across the Pacific landed with a thud here that nobody could ignore.

In early October, much to the relief of the city's 18,000 residents, the struggling Skeena Cellulose plant was being resuscitated with a $150 million package of new investment, loans and wage cuts assembled by the provincial government, two Canadian banks and the local union.

By the time the deal was announced, however, the depth of Asia's economic crisis had become clear, and it rebounded to the shores of Prince Rupert and nearby Skeena, whose business is heavily dependent on exports throughout the Pacific Rim. Between currency devaluations, tumbling demand and falling pulp prices, the company's bailout plan was suddenly $30 million short. Now the plant is again facing closure.

It is a hard lesson in globalization for people whose families assumed through the generations that they could always turn to the forest for a living. "I'm not sure how many understand it," said Mayor Jack Mussallem. In the past "you could live here and try things, pursue different opportunities, and if they didn't work out you could get a job in the mill. . . . Those days are over."

When the leaders of 18 economies sit down for talks this week at the Asia-Pacific Economic Cooperation forum in Vancouver, they will do so under the most taxing circumstances faced by the group since its formation eight years ago.

Founded to enhance trade among countries as populous as China, as rich as the United States and Japan, and as small as Papua New Guinea, the group represents half of the world's economic activity. Its meetings, an increasing focus of international business leaders, human rights groups, labor officials and others, have grown steadily more substantive, as have the ties between East and West: Canada now trades more with Asia than with Europe.

The sessions also have taken place largely in an environment of healthy economic news, and near runaway growth for some of the Asian countries involved.

As in Prince Rupert, those times of certainty are over. Such Asian "tigers" as South Korea are seeking a financial lifeline – $20 billion in the case of that country, with talk as well of a larger international rescue fund for the entire region.

Bank failures have swept through countries such as Indonesia, prompting the type of local pressures that led Malaysian Prime Minister Mahathir Mohamad to blame "immoral" Western investors for the region's financial woes – hardly words of cooperation on the eve of the APEC gathering.

Canada in particular had hoped this APEC meeting would produce agreements to begin dropping tariffs and other trade barriers on a list of products, tangible acts that have eluded the group.

That appears on track, but concern has shifted toward ensuring none of the member countries moves in the other direction, resorting to protectionism or stifling financial market reform.

"Under the circumstances, a response may be to shield our countries," said Lee Yock Suan, Singapore's finance minister. "The key lesson of economic development history is that trade is essential to the wealth of nations."

"This will be a test to whether APEC can be effective or not," said Earl Drake, former Canadian ambassador to China. The crisis "has to be faced up to. It is affecting trade. It is affecting investments. . . . One hopes that in this sort of atmosphere, where peers are meeting, that there can be some calmer discussion.

"It is not just a technical fix that is needed," added Drake, but rather a commitment by governments in the region to "be a bit more responsible" in regulating banks – ensuring that bad loans get written off, and that new ones are evaluated more on economic merit and less on who is friendly with, or related to, whom.

In the careful diplomatic parlance of APEC, that falls under the topic "transparency," a euphemism for avoiding corruption, cronyism and nepotism, practices that exist in all the APEC countries but are rampant in some, including Indonesia.

Such issues are a topic of official concern for such countries as Canada and the United States, which want to ensure their companies are fairly treated, but they are never discussed too aggressively in public. Yet, according to Drake and others, the issues are fundamental to banking reform and, in some ways, to the broader progress of APEC.

"Money from our part of the world was coming in so generously, it translated into easy money at their end," said James Dean, a professor of economics and international business at Western Washington University. "They were lending money hand over foot. . . . There was no reason not to lease nine Mercedes-Benzes. . . . Everybody was in everybody else's pockets.

"What we are seeing now [in countries like] Thailand is hundreds and hundreds of small- and medium-sized businesses are going broke. . . . That could in principle have been avoided if the banks had been better supervised."

Dean said an idea proposed more than a year ago by APEC finance ministers to establish an international school for bank supervisors in Toronto could prove to be one of the group's more important contributions.

Making it happen, and making it affect the countries involved, however, is diplomatically touchy in an organization that spans such a spectrum. From the world's premier democracies to the repressive autocracy of Indonesia, APEC's political sweep is as wide as its economic one; when the leaders sit down, the aggressive trade capitalism of Canadian Prime Minister Jean Chretien, this year's host, will be on one side of the table, while the Islam-based economics of Malaysia's Mahathir will be represented on the other.

Security is tight: A group of protesters now follows APEC, raising concerns about human rights, poverty, women's issues, the environment and the arms trade, and expressing doubt about the wisdom of globalization generally. A chunk of downtown Vancouver, around the conference center and main hotel for meeting participants, is off-limits to the public and under the control of 3,000 police, with 1,000 military personnel backing them up, with frogmen in the harbor and naval vessels docked nearby.

Protocol may even be tighter: The group's rituals include the use of the word "economies," rather than "nations" to describe the entities represented at the table, so that China and Taiwan, which is called Chinese Taipei in APEC circles, can both attend.

The details of the discussion may seem abstract. But don't tell Gerry Gill that. Gill is president of Chai-Na-Ta Corp., a company in British Columbia that is the world's largest independent producer of ginseng, grown mostly for export to China. To him, APEC means a chance to lower tariffs that can approach 100 percent, and lessen regulatory requirements that have kept the company's ginseng pills and other products out of some Asian countries altogether.

And don't tell Des Nobel, secretary-treasurer of the Northern Gillnetters Association, the union for the Pacific salmon fleet based in Prince Rupert and other northern coastal towns. As with forests, fish have taken a beating in the emerging world economy: The fishermen around this town now sell almost exclusively to Japan, captive in a market where the world price is influenced not by how hard they work or how many fish they catch, but by the massive fish farms of another APEC country, Chile.

"If this is the global economy, let's shut it down and feed ourselves," Nobel said. "Money is being made. Wealth is being generated. Who is getting it? Not the people that are next to the resources. I'm not interested in globalization. Keep it. Go home."