APEC Currents - The Newsletter of the Australian APEC Study Centre
Issue April 2008

Welcome!

In this edition we look at:

  • Climate change strategies
  • What APEC means for business
  • Asset management challenges in the Asia-Pacific

Plus we catch up with the former Executive Director of the APEC Secretariat.

We encourage your feedback and hope you enjoy the new design.


APEC Secretariat

Flexibility required if climate change strategies are to work
PERSPECTIVE: by Alan Oxley, Chairman of the Australian APEC Study Centre

At the Sydney APEC Summit last year, Leaders pledged to try to develop common approaches to addressing the problem of climate change. Developments since then underline the importance of building approaches which enable countries to develop strategies which work best for their national circumstances.

At the climate change conference in Bali in December, Lee Hsien Loong, Singapore’s Prime Minister pointed out that circumstances in individual economies differed. Research published last year by the Australian APEC Study Centre at Monash University, Melbourne shows how. It assessed the effect on different economies of the cut in world gross domestic product (GDP) of one percent which was recommended by the British Government economists, Sir Nicholas Stern, to meet the cost of reducing emissions. His report is the basis for calls by the European Union for countries to cut emissions by 60 percent by 2020.

Some economies rely more on carbon based fuels than others. The Monash research showed this worldwide one percent cut would reduce annual economic growth in China by 14 percent and average economic growth in ASEAN economies by 10 percent. Clearly Europe’s strategy to reduce emissions does not work in Asia.

Thailand might find it easier than others in Asia to cut back on power derived from carbon fuels because it has the long-term prospect of securing power from hydro power resources in Laos and Cambodia. The Thai delegate to the UN climate change meeting in Bangkok last week may have spotted another option. He said Thailand wanted to learn how to use its forestry to reduce emissions.

This is an important option. The report on strategies to reduce emissions published last year by the UN Intergovernmental Panel on Climate Change (IPCC) included observations from forestry experts that expansion of forestry is the quickest, cheapest and easiest way to reduce emissions of carbon dioxide.

This is because trees absorb carbon dioxide (they breathe it) and growing trees absorb more carbon dioxide than mature trees.  So, if forests, both natural and plantation, are expanded and continuously harvested on sustainable cycles so they are continuously growing, forests draw more carbon dioxide from the atmosphere and expand as carbon sinks. Further more, carbon remains locked up in paper and wood products.  It would be easier for forest-endowed economies to suck emissions out of the atmosphere than reducing emissions by cutting back on generation of energy from carbon-based fuels.

There is a significant amount of forestry in all ASEAN economies, except Singapore. Even Thailand, which is conventionally treated as largely de-forested, remains 25 percent forested. So for developing countries, this is a growth-friendly strategy.

But environmental groups like Greenpeace and the World Wide Fund for Nature (WWF) object to using natural forests for commercial purposes, even after forest areas are set aside as biodiversity reserves, and are deeply divided over how to use plantation forestry.

They reflect a rich country bias. Their countries long ago cleared large tracts of forest to grow food and establish towns and cities. When they insist developing countries leave forests as they are, they deny them the opportunity they had to raise living standards and reduce poverty. But eradication of poverty is less important to of Greenpeace or WWF than stopping commercial forestry in developing countries.

They have successfully pressured the World Bank to restrict provision of aid to help developing countries to develop commercial forestry. They have also pressured banks not to lend to forest industries in developing countries and lobbied governments and importers in industrialized countries to ban imports of timber which they label, often erroneously, as illegal timber.

They now blame loss of forest land in the developing world as a major reason emissions are increasing and have singled out commercial forestry in Indonesia as the leading culprit. The case does not stand. WWF’s assessment of emissions from Riau Province in Sumatra in a report released in February, largely attribute that to forest fires caused by commercial forestry. A joint ASEAN/Asian Development Fund report examined this question in 2001. It found that rapid landclearing for agriculture and adverse weather patterns were the principal cause of Sumatra’s now troublesome palls of smoke.

Expanded sustainable forestry, in both natural and plantation forests, is an extremely cost effective way for ASEAN countries to make a tangible contribution to reducing emissions of greenhouse gases. Greenpeace wants to limit this to restricting de-forestation. Its idea is that rich countries should pay poor countries to keep trees in the ground.

Expanded sustainably harvested forestry will produce a much better and bigger dividend for ASEAN economies and for the environment. But like their head in the sand attitudes to nuclear power as a global warming solution, Greenpeace and WWF only want to see forestry in developing countries managed by their rules.

No global strategy on climate change will succeed in Asia unless it enables all major developed and developing economies to use the tools that work best for them. Green NGOs need to set aside bias against commercial forestry in developing countries and long held prejudices. We will not develop a global strategy to reduce emissions unless it includes pathways that Asian economies can follow without penalizing economic growth.

From the inside out - a year at the Secretariat
PEOPLE: Ambassador Colin Heseltine was Executive Director of the APEC Secretariat

Ambassador Heseltine shares some thoughts with Currents from the point of view of Australia as APEC host in 2007, and highlights a number of key changes at the Secretariat during his tenure…

Australia was of the original creators of APEC in 1989. Since then Australia has been one of APEC’s strongest and most active champions.  For Australia, APEC is our most important regional organisation and the opportunity for us, as host this year, to play a major role in shaping the organisation’s future agenda and work program was a matter of major national policy interest. 

A key feature of APEC is that most of its best work occurs under the radar - it doesn’t make banner headlines in the media. APEC’s work over the years has, however, undoubtedly produced results: people and capital are moving more freely around the region; the APEC Business Travel Card is facilitating travel procedures for regional business people; there are more efficient customs procedures; there has been progress towards paperless trading and mutual recognition of standards; and much more. APEC’s trade facilitation measures are saving businesses millions of dollars every year.

These highly commendable and practical measures are, however, not sufficient on their own to form the basis for APEC Leaders to meet together each year. Leaders want to deliberate on major issues confronting the region and the world. The Leaders meeting in 2007 was no exception.

The headline outcome in 2007 was undoubtedly the Sydney Declaration on Climate Change, Energy Security and Clean Development.  The consensus reached by APEC Leaders on a range of practical, cooperative actions and initiatives was a notable diplomatic achievement and has already formed a foundation for the work undertaken since by APEC economies in other international fora, notably the United Nations Framework Convention on Climate Change. Sydney 2007 was the first time that a group of developed and developing economies, including over 60% of global energy capacity, have come together in such an agreement.

APEC Leaders also issued a strong statement of APEC’s commitment to the current WTO Doha Round of negotiations and set out a range of measures to deepen regional economic integration. These include fifty separate items that will determine APEC’s priorities and work program on trade, investment and economic reform in coming years including work on options and prospects for a Free Trade Area of the Asia Pacific.     

In recognition that there is more to achieving economic integration than simply removing trade barriers at the border – important as this is – APEC Leaders in 2007 made domestic structural economic reform one of APEC’s key priorities. This is an important new focus for APEC and responds in particular to views of the business community that the greatest impediment to doing business in the region are barriers that occur behind the border, in areas such as competition policy, deregulation, corporate and public sector governance, strengthening the economic and legal infrastructure, corruption, etc.

In terms of strengthening APEC as an institution with a more efficient and effective Secretariat to serve the membership, 2007 was a watershed year. Ministers and Leaders agreed to the establishment of an APEC Policy Support Unit, to which Australia pledged $10 million in seed funding. The new Unit will for the first time give APEC capacity to undertake research, prepare policy papers and give substantive support to initiatives of key APEC fora such as the Economic Committee’s work on structural reform and the Committee on Trade and Investment’s examination of the potential for an FTAAP. In 2007 we also appointed a new Chief Operating Officer to oversee financial management, communications and outreach, HR and IT functions, areas I had found to be less than well-coordinated. Work is also continuing on the possible appointment of term Executive Director (to replace rotating EDs from each host economy) which would further improve continuity and strategic leadership of the organisation in the future.

Only time will tell what the lasting impact of 2007’s APEC outcomes will be. But I’m confident that if the forum maintains our Australian year’s momentum and focus, and continues to respond flexibly to major emerging global and regional issues, to balance vision with practical results, and to address the specific concerns of business people, its standing as the pre-eminent organisation promoting economic growth in the Asia Pacific region will be secure.

Dynamic Asia demands new capacity to fund pensions for ageing workforce
EVENTS: Asia-Pacific Regulators' & Industry Dialogue

Research by Mercer undertaken for Monash University shows that pensions and funds under management are expected to grow on average by 15 percent over the next ten years - with China, Korea, Chinese Taipei and Thailand well exceeding this.

The Melbourne APEC Finance Centre organised a dialogue recently for Asia-Pacific officials and local industry participants concerning the opportunities and challenges presented by the rapid demand for funds and superannuation products in the region.

With growth so strong, pressure is being placed on many governments to reform their pension arrangements and to put in place systems that will meet the needs of their ageing workforces.

Australia is able to share its experience and technical capacity with emerging economies as they continue to grow and demand new regulatory frameworks to strengthen their superannuation and pension systems.

During the course of the dialogue, Australia’s superannuation structure, a system of compulsory contributions, was compared to economies in Asia and Latin America. Superannuation funds in Australia have ballooned to over one trillion dollars under management. Senator the Hon. Nick Sherry, Minister for Superannuation and Corporate Law, who delivered an address at the dialogue dinner on a range of superannuation issues observed ‘Australians have accepted that the government mandates compulsory contributions’.

Many economies in Asia, however, do not have such compulsion in their policies. And as the traditional family-based support systems for old age financial security decline, populations age and more women enter the workforce, the forces of change shall invariably prevail.

For more information on the dialogue including discussion papers click here.

Business: What value APEC?
ANALYSIS: by Ken Waller, Director of the Melbourne APEC Finance Centre

The goals for free and open trade and investment in Asia-Pacific by 2010 for developed economies and 2020 for developing economies, shaped in the Bogor declaration of 1994, perhaps reflected an era of optimism and confidence in the region.

They were and remain laudable goals and set a high bar in their attainment. They have been criticised by many as being unrealistically ambitious and by some as having little real meaning because they are hard to attain. They are ambitious, but arguably they are on the road to being achieved.

In 2004 the APEC Business Advisory Council (ABAC) provided a business assessment on the First Decade since Bogor and APEC’s progress.

Business noted a host of significant structural shifts and economic shocks and their implications for the region in the decade since the Bogor declaration. It confirmed the value of the Bogor goals in the context of those shocks, however, and argued that the package of liberalisation, facilitation and capacity building was just as relevant for growth and participation as it was a decade ago.

ABAC’s key recommendations then were:

  1. to eliminate threats to liberalisation APEC should be and be seen to be a front line supporter of the WTO Doha Round
  2. to ensure that bilateral and regional trade initiatives do not undermine WTO and the Bogor goals as well, i.e. they should not limit market access

The world has moved on since that assessment. Major shifts in global and regional affairs in the short space of 4 years have occurred. These include:

  • further strengthening of China’s economy in the world economy and the growth of the Russian economy
  • growth in importance of services to economies and the massive increase services trade across borders
  • current temporary slowing down in world output as a consequence of seismic shifts in global capital markets and which requires major new thinking on ways to cooperate to better regulate capital markets
  • major readjustments to the value of the $US
  • sharp rises in energy, commodity and agricultural prices
  • continuing developments in ideas about strengthening regional architecture in Asia, particularly in ASEAN and North-East Asia
  • climate change and energy sources and the consequential defining of policies to improve energy efficiencies, to promote clean energy sources and to develop relevant technologies
  • enlarging of India’s economic influence in the region and globally

It is these changes that are shaping APEC’s contemporary agenda.

In trade, primacy is given to the WTO Doha Development Round. Success in the DDR still seems far from assured but the difference now with rising agricultural prices will mean that one of the major impediments to the round, agricultural subsidies in Europe and the US, are becoming less a dominant factor.

That reality could create some positive movement in the current negotiations.  

Another important factor regarding the WTO is a growing realisation that the dispute settlement processes that are a critical part of its framework are worth preserving. They are seen by major trading groups as highly important in the settlement of disputes and that recourse to the mechanism is a most valuable part of the international trade fabric.

Trade in services and global and regional arrangements to encourage and promote services are becoming intertwined with market opening, trade and investment liberalisation.

Changing values of the $US is inevitably reducing the US current account deficit and as that occurs rising protectionist sentiments in the US may subside.

China’s economic growth, brought about greater market opening of its economy, is an obvious determining factor in the policy choices other economies have to make, individually and collectively. WTO accession by Vietnam is already influencing that economy’s reforms toward a market oriented system. Russia is moving to accede to the WTO and meeting accession requirements will almost certainly have major implications for economies that trade and invest with Russia.

So, it is important that APEC continues to keep its strong support for the WTO. APEC members do meet in Geneva in attempts to form cooperative strategies and to give effect to Leaders’ Statements. ABAC will be visiting Geneva in May to meet with APEC trade negotiators and will give regional business support to their efforts.

ABAC has also developed links with business groups in Europe and in North America to enlarge business support for a successful WTO outcome.

Business is deeply concerned that rules of origin clauses add significantly to the costs of trade. Given the reality of supply chain production and management, they hinder rather than support trade and business development.

While trade is a critical driver of APEC, greater attention is being devoted to improving members’ investment environments. APEC is involved in important work on ways to remove impediments to increase the efficiency and productivity of domestic investment flows; approximately 85 percent of investment in member economies is from domestic sources so it is critical that best use be made of these funds, that is that there are real gains to be achieved from reducing or eliminating “behind the border” barriers to growth

APEC is also promoting measures to enhance foreign investment flows within the region and globally.

An Investment Facilitation Action Plan will be adopted this year to shape a coherent investment strategy for the Group.

To further engender stable growth conditions, APEC is giving more prominence to ways to promote structural reform, through its Economic Committee. APEC is helping define policies that are needed to identify and drive reforms to promote competitive markets, productivity growth and the regulatory arrangements that enable the achievement of those objectives.

Australia has been a major force in promoting structural reform in APEC and this first Ministerial meeting on this subject will be convened in Melbourne this coming August.

The central objectives of trade, investment and now structural reform to promote growth are deeply inter-related. Understanding the components of a coherent structural reform strategy and ways to promote and implement strategies will contribute much towards strengthening individual member economies as they institute policies to liberalise trade and investment and to create open and competitive markets.

As a grouping committed to open regionalism and to bringing together key economies of the Asia and the Pacific, APEC will have a profoundly important role in shaping the region's future. Business needs to remain an integral voice in the APEC process and to express views on best approaches towards improving trade and investment environments and structural reform measures that will be a force for economic growth and poverty reduction across the membership.

 

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