> The Newsletter of The Australian APEC Study Centre

The APEC Summit - Structural Evolution for APEC

APEC Summits inevitably highlight the contemporary issue in front of leaders at the time they meet. For the Sydney Summit it was Climate Change. At others in the past it has been SARS, Avian Flu and terrorism.

The focus on climate change was valuable and set in train a process which will be central to global efforts to tackle climate change.

Possibly of more importance to APEC was the strengthening of APEC to deal with national economic growth strategies. This was strategically important. In the longer term, APEC’s capacity to do this will be more important than trade liberalization because setting up the international structure of economies properly will be the key to future prosperity in the APEC region.

The Sydney Summit will in time be more likely remembered for accelerating the structural evolution of APEC than advancing climate change.

This is not to say trade is no longer important. For the second year in a row, APEC Leaders expressed interest in an FTA among APEC members. This is important. Regrettably their call, for the fifth year in a row, for a speedy conclusion to the Doha Round of multilateral trade negotiations is likely to have as little effect as all the others.

APEC’s role in Climate Change

2007 is the year a decision was taken to replace the Kyoto Protocol. This was agreed among G8 Leaders at the German G8 Summit in June. It will be formalized when the parties to the UN Framework Convention on Climate Change, the parent treaty of the Kyoto Protocol, meet in Bali in December.

The Secretary General of the UN, Ban Ki-Moon, invited members of the General Assembly to set out how they envisaged this task at the UN General Assembly in September. By the time the APEC Summit took place, President George Bush had already called a meeting of the sixteen largest emitters of greenhouse gases also in late September.

John Howard, Australia’s Prime Minister, decided the Sydney Summit was an important opportunity to lay the basis for success in these deliberations. It was a natural step for APEC. Nearly two years before, the United States and Australia announced the formation of the Asian Pacific Partnership on Climate and Clean Development.

The partnership included the world’s biggest emitters of greenhouse gases – Australia, China, India, Japan, Korea and the US. The aim of the Partnership is to show how greenhouse gases can be reduced without binding, mandatory targets.

With all but India members of APEC, the Leaders week was a good opportunity to set out at the foundations for a post Kyoto strategy. This was the key point of the Sydney communiqué.

It set the criteria to make a post-Kyoto convention effective – respect for different domestic circumstances, flexibility, the importance of low and zero emission technologies, importance of forests, promotion of open trade and investment, and effective adaptation strategies.

This was criticized by Green groups for not endorsing targets. Those critics fail to appreciate that no global consensus on effective action on climate change can be developed if mandatory targets are demanded. Developing countries like China and India have made clear they will not support mandatory targets.

There can be no effective global strategy on climate change without all major emitters being on board.  China forecasts it will be the world’s biggest emitter by 2030.

The APEC Communiqué lays down the criteria that will need to be met if an effective global strategy is developed once negotiations begin at Bali in December.

Economic structural change in APEC

The attention to issues “beyond the border” has now featured in APEC activity for several years.  It is recognition that there is more to achieving economic integration than removing trade barriers at the border.

It has been a natural progression to move the focus on to what internal measures are important for growth, in particular how economies are structured. Structural adjustment has been on the APEC agenda for two years, although as a secondary subject.

The Sydney Summit elevated economic efficiency and structural adjustment to a priority issue and as well agreed to alter APEC’s institutions to reflect this. Leaders specifically agreed:

“on the need to further improve the efficiency of our domestic markets, raise productivity, enhance the resilience of our economies and sustain strong rates of growth through structural reform”

The Economic Committee in APEC has been revamped and now has direct involvement of Ministries for Economic Affairs and Finance in the APEC region.  Its program to promote structural adjustment has been strengthened.

In addition, a permanent pool of researchers will be added to the APEC Secretariat and new forum of Vice Ministers of Economic Affairs will be established.

In addition the Secretariat has been strengthened by the appointment of permanent senior finance official and enhancing the term of office of the Secretary General.

While modest, this is a very important institutionalisation of the capacity of the Secretariat to support economic policy work.

Ultimately we need to see Economic Affairs Ministers taking the leading role in APEC discussion of economic issues.

Trade and integration

Leaders again ritually called for a successful result of the Doha Round.  Since the EU is the major problem, the call did not amount to much. And even the APEC members who can play a leading role in moving things along in the Doha Round, such as China, the ASEAN States and the US, do little in Geneva in the aftermath of such calls to action.

In contrast, interest in trade liberalisation remains formally high among APEC economies, if the number of regional agreements being negotiated is any guide. Some are important, such as the completed, but not yet adopted, FTA between the US and Korea. 

It was not expected that this agreement would be so quickly negotiated and has stimulated interest in Japan in an agreement with the US. Perhaps as a trial run, Japan has started negotiating an FTA with Australia.

The idea of a US/Japan agreement was for a long time regarded as unlikely as an FTA among all APEC countries. However that not dismissed by APEC Leaders for the second year in a row. We think it is inevitable that negotiations on a regional agreement will start within a decade, once a Japan/US FTA is in place.

An important component of the recent APEC Leaders’ meeting held in Sydney, was the APEC Business Summit held on 6/7th September, chaired by Australian businessman Mark Johnson one of the three Australian business representatives on the APEC Business Advisory Council. The Summit was addressed by APEC political leaders and by prominent regional business leaders, academics and commentators. The discussions covered major issues on the APEC Leaders’ agenda, including importantly, climate change and energy security, trade policy, human capital and education information and innovation, fiscal and monetary reform and the relevance of APEC itself.

The central purpose was to add depth to thinking on the theme “Strengthening our Community. Building a sustainable future”.  In brief, the purpose was to help shape policies that business can confidently advocate to APEC Leaders, to strengthen the region’s institutions and to deepen economic and social ties across the APEC region. While the focus was economic, the cultural diversity, strategic and security challenges confronting the region and the planet formed the backdrop to the Summit as indeed they do to all APEC forums.

Some sharp and penetrating realities arising from the Summit discussions may be summarised in the following ways:

Momentum in Australia’s trade was maintained in the financial year ending June 2007 compared to the previous year with overall merchandise trade in exports growing by 10 percent (see graph A below). Exports were worth $A168 billion compared to $A152 billion in the previous period.

Underpinning this result was solid growth in resources as well as manufacturing, together with strong prices for commodities.

Trade in exports to APEC as a proportion of world trade accounted for 72 percent of the total, or $A121 billion.

Trade with China grew by 21 percent to the year ending June 2007, or $A22.8 billion (June 2006, $A 17.9 billion). Comparing 2007 with 2005, Australia’s exports to China have increased 44 percent, or $A 9.8 billion.

The Minister for Trade, Warren Truss, noted “exports to Japan, China, Korea and India accounted for 47 percent of all merchandise exports, compared to 34 percent in 1999-2000. These figures demonstrate the increasing importance of Asia to Australian exporters”.

Whilst China looms, Japan continues to be our largest export destination in value with merchandise trade for 12 months to June 2007 totalling $A 32.6 billion, or 20 percent of total exports.

As a sign of things to come, a mercurial rise in exports, albeit off a lower base, saw Australia’s trade with Viet Nam grow from $A 915 million in the 12 months to June 2006, to $A 1.63 billion to June 2007 – a 44 percent increase in a single year.

Concomitantly, overall import merchandise trade grew in the year ending June 2007 by $A13.3 billion, or 8 percent. Total value was $A180.7 billion compared to $A167 billion in the pervious period. The result across the reporting period saw growth tapering off to June 2007 (graph B), which resulted in a lower overall trade deficit compared to that of the previous year.

Merchandise trade in imports with APEC as a proportion of world trade accounted for 71 percent of the total, or $A 128 billion.

Import trade from China grew significantly by $A 3.9 billion in the year ending June 2007, or 15 percent, to total $A 27.1 billion.

The combined value of import trade from Taiwan, Thailand and Viet Nam also increased year on year by an average of 18 percent, or from $A13.3 billion in the year ending June 2006 to $A16.1 billion in the latest reporting period.

The overall result for Australia in the balance of merchandise trade with the world in the year to June 2007 was a deficit of $A 12.6 billion. This was a decrease of $A 2.5 billion from the previous period, attributable to an increase in exports (10 percent) offset by an increase in imports (8 percent).

The resulting deficit with APEC to June 2007 totalled $A 7.5 billion.

The Australian dollar continues its rise against the US$. How this affects trade and current account positions will depend on a mix of factors including demand for resources and manufactures from abroad, domestic consumption and domestic interest rates which according to economic observers look set to rise in the coming days.

Figures: ABS

Source: APEC Secretariat