The Trans Pacific Partnership FTA - Setting Standards for Economic Integration
||ANALYSIS: by Kristen Bondietti , Principal Consultant at ITS Global.
The decision of the Obama Administration to participate indicates a clear intention to engage on trade in the Asia-Pacific region. It will give new weight to the negotiations and provide impetus for progress by 2011, when the US will host APEC. It should encourage, over time, broader membership from important economies in the region, including China, Korea, Japan, Malaysia and other ASEAN countries.
The TPP has been touted as a possible platform for an FTA involving all APEC members. It will build on the Trans Pacific Strategic Economic Partnership Agreement (P4) among Chile, New Zealand, Singapore and Brunei to include Australia and Peru, as well as the US and possibly Viet Nam. The P4, concluded in 2006, is generally regarded as a comprehensive and high quality trade agreement. Indeed, one of the objectives in negotiating it was to create an FTA that could be seen as a model within the Asia-Pacific region and could potentially attract new members.
Most tariffs, generally already quite low, have been removed under the P4 or are being phased out over a 7-10 year period. Members committed to further open their market for services and government procurement. In services, they agreed to grant each other most favoured national treatment, which mean each will automatically receive the benefit of commitments the other members make in future free trade agreements that are more liberal than those in the P4. This is desirable for reducing the scope for discrimination and extending the benefits of liberalisation. Negotiations to liberalise investment (and financial services) are currently under way. Measures relating to customs procedures, sanitary and phytosanitary procedures, technical barriers to trade, intellectual property and competition policy, are also dealt with, designed to reduce barriers to doing business.
Notwithstanding this, negotiating a new agreement with an expanded membership will be challenging. The TPP will need to deal with a wider set of interests (for example, some agriculture products and textiles could be sensitive for the US) and reconcile the ‘patchwork’ of FTA commitments which exist as a result of bilateral and regional agreements already concluded. Australia, Peru and the US for example, have bilateral FTAs with other APEC economies. Its capacity to do so will test the prospect of concluding wider arrangements involving more economies.
US involvement in the TPP is strategically important. Not only is it an economically significant trade and investment partner for most countries, its economic presence helps shape the regional trade and investment landscape. Although it now carries some undesirable values into FTA negotiations, such as on labour and environment standards, overall its insistence on comprehensive agreements with clear targets for economy wide liberalization and related domestic structural reform is very important. This can balance or counter less desirable measures in FTAs which tend to tend to reflect the status quo rather than set leading standards for integration and liberalization.
The TPP sets the stage for APEC economies to forge greater economic integration in the Asia Pacific region which is built on solid frameworks to achieve gradualist commitments to promote open markets among the world’s leading economies. In the absence of progress in the Doha Round this must be a priority.
Public Private Partnerships in Infrastructure - Managing risks in the Post Global Financial Crisis environment: a priority for APEC
||PERSPECTIVE: by Ken Waller, Director of the Australia APEC Study Centre
The financing and provision of infrastructure across the APEC region is a major challenge for all economies and has been so identified by APEC Leaders and Finance Ministers. Massive investment needs for economic and social infrastructure requires correspondingly large funding. Public sector budgets can and do play a part, but major private sector funding is also required to finance major projects, whilst private sector expertise is needed to design, build and operate them. To be attractive to private finance, economies are required to provide an environment conducive to long-term investment, from both domestic and foreign sources. Investment involves long-term contractual commitments by both sectors and agreed arrangements for risk-sharing. The global financial crisis has resulted in serious constraints on credit availability and caused large increases in the premiums that private sector financiers would require to cover the risks involved. The policy challenge is to resuscitate long-term financing and to increase the flow of financing – essentially private financing – into the infrastructure sectors of developing economies.
The crisis has impacted on the dynamics of Public Private Partnerships and caused changes to the relationships – often expressed in contractual arrangements. PPP arrangements differ across economies. In some economies, domestic savings are seen as the major source of finance and some of those economies are less exposed to the impact of the global financial crisis. Others, which rely more heavily on foreign funding, are clearly more exposed to the vagaries of international financial markets. To be successful, developing economies are required to develop a pipe-line of sustainable, bankable projects which will attract and sustain private capital over time.
Part of the global challenge arising from the crisis relates to the role of IFIs. More financing has been made available to them to ameliorate the impact of the crisis on developing economies and this has resulted in expansions of IFI programs in providing guarantees and other forms of underwriting in efforts to maintain private sector and public sector investment in infrastructure.
While PPPs are most often set in the context of national development policies, the location of PPP investments invariably impacts on localities which are frequently subject to sub-national jurisdictions. A private financier has to be satisfied that risk sharing arrangements fully reflect the risks that might arise from the exercise of authority by all levels of government within a national jurisdiction. In the implementation of projects which may cross national and sub-national jurisdictions, the need for effective coordination and clarity in authorisations is of paramount importance, both to the governments and their communities, and to the private sector partners. The legal frameworks under which the relationship between the public and private sectors are established and protected, and confidence in the legal processes and its outcomes, are also highly important components of successful PPPs.
An important policy factor derives from the long-term nature of PPPs. Communities can be quick to criticise governments if the PPPs they enter into do not deliver expected benefits at the right price over time or if a private sector investor/operator appears to make windfall gains. While the circumstances under such events occurring may not be known at the time a long-term contract is entered into, the visibility of the outcomes often manifests itself in a political issue. To minimise these impacts, the nature of the forms of monitoring, accounting and auditing of information to the public and representative bodies is critically important, and as such is increasingly recognised by governments and private investors as an integral part of the PPP process. An aspect of the global financial crisis is the preparedness by governments to recognise the limited tenor of finance and the fact that private financiers may well have to renegotiate large debt obligations made in the early phase of the implementation of a PPP and at premiums which may not be clearly known at the time of the origin of the contract. This prospect creates an onus on governments and private financiers to agree how to handle significant changes to terms in the event of market turmoil at a future time, when an arrangement is first being entered into.
For both domestic and foreign partners in the PPP process, the openness of government policies in welcoming private participation in infrastructure investment is a critical first step. Clarity in government objectives, transparency in the processes of tendering and determination of successful bidders, and in the administration of projects through the design, implementation and operational stages, are all clearly vital factors if governments are to attract private participation. For foreign investors, the security of the legal process and the protection of investments on a fair and equal basis with domestic investors, and the capacity to convert funds and profits through orderly markets, are also of primary importance.
The Melbourne APEC Finance Centre a facility of the Australian APEC Study Centre at RMIT University is working with experts in the Commonwealth and Victorian Governments and with policy makers and specialists from the APEC Business Advisory Council, specialists from the World Bank and the Asian Development Bank and the ADB Institute, in promoting initiatives to support PPP infrastructure developments in the region.
For more information about a recent forum on PPPs, visit the APEC Study Centre's website.
APEC's Interim Assessment of the 2nd Trade Facilitation Action Plan
REPORT: by Jeff Rae,
Chief Economist at ITS Global
The Australian APEC Study Centre was part of the consortium of consultants that were engaged by the Policy Support Unit of the APEC Secretariat to undertake an Interim Assessment of APEC’s 2nd Trade Facilitation Action Plan (TFAP II). The consortium was led by ITS Global and included the Centre of Customs and Excise Studies at Canberra University.
TFAP II consists of the Actions and Measures to be undertaken by APEC economies from 2007 to 2010 to reduce the transaction costs incurred in their international trade as a consequence of government regulation. APEC Leaders have committed to a goal to reduce the trade transaction costs in APEC economies by 5 per cent over this period. The Actions and Measures in question cover four priority areas: customs procedures; business mobility; product standards and conformance; and electronic commerce.
The consultants presented their Report on the Interim Assessment to the APEC Committee on Trade and Investment (CTI) at the end of 2009.
The Report reviewed the existing TFAP II Actions and Measures, their Key Performance Indications (KPIs), and the progress that has been made to the end of 2008 towards the Leaders’ goal to reduce trade transaction costs.
As a consequence of its findings on TFAP II, the Report recommended a series of changes to the programme. These changes included the extension of the Plan to ports and terminal handling, and inland transport, as well as revision of its KPIs to measure the impact that each of its Actions and Measures has on trade transaction costs. The Report also recommended a methodology and an approach for the conduct of the Final Assessment of TFAP II in 2011.
To assess the progress towards the 2010 goal set by APEC Leaders, the consultants estimated the change in APEC trade transaction costs between 2006 and 2008. The estimates revealed that APEC was on track to realize this goal.
These estimates were based on survey data collected by the World Bank for the Trading across Borders component of its Doing Business Index. Since presentation of the Report to the CTI, the World Bank has decided to revise some of these data in the light of the results of its more recent surveys. Once this revision has been completed, the consultants will revise their estimates of trade transaction costs and their Report for the CTI.
Recent Activites from the APEC Study Centre
UPDATE: from the APEC Study Centre
In October 2009, the Centre conducted a training program on financing and managing risks in Public-Private Partnerships (PPPs), aiming to enhance the capacity of policy officials to understand the policy choices and mechanisms in the development and delivery of PPPs in infrastructure in national and sub-national development. The course, with additional sponsorship from Asian Development Bank Institute (ADBi), responded to the current need to resuscitate long-term financing and to increase the flow of financing into the infrastructure sectors of developing economies. The focus was to enhance understanding of the impact of changing global financial conditions on longer-term financing on debt markets and the sharp responses from the private sector to highly constrained credit conditions.
Another PPP-related initiative that Centre was involved in was an international symposium jointly organized by the ADBi in December 2009. The symposium, utilizing video conferencing facilities, centred out of Manila, Philippines and included along with Australia, participants from Indonesia, China, Thailand, and Vietnam. It focused on sharing experiences on practices and lessons learned by policymakers, project managers and financiers. Around 160 experts participated in the program.
In November 2009, the Centre organized a training program on pensions. The objective was to help strengthen regulatory capacity in the supervision and governance of private pensions, funds and asset management, in order to encourage stable financial environments conducive to investment and sustainable wealth creation. The program was designed to meet capacity building needs identified at an MAFC dialogue held in March 2008 in Melbourne.
In December 2009, the Centre convened a training program on managing risks, enhancing governance and the role of capital modelling tools in risk management in the region’s financial and regulatory agencies in response to the global financial crisis. The program focussed on developing an understanding on governance arrangements and on the role and limits of capital models used by banks.
The Centre's most recent training program was held in February 2010. It dealt with developing a Policy Framework for Investment (PFI) and the public policy environment needed to ensure policy coherence to improve investment flows and increase economic growth. It was the 4th program that the Centre has done using the OECD's PFI tool as a guide.
The training programs described above involved participants from China, Chile, Indonesia, Fiji, Malaysia, Mexico, Papua New Guinea, the Philippines, Singapore, Hong Kong, Thailand and Vietnam, and from the non-APEC economies of Bangladesh, Cambodia, India, Laos and Pakistan.
They were funded by AusAID under the PSLP program and supplemented by funding from the Victorian Government through the Melbourne APEC Finance Centre facility. ADBi generously contributed to the program in October 2009 on PPPs, whilst some participants were self-funded.