APEC CURRENTS
December 2005

The Australian APEC Study Centre hosted the 6th Annual Monash University APEC Lecture recently where former WTO Director-General, The Rt Hon Mike Moore, delivered an address on the greatest opportunity to create wealth in history. more...

“So whilst it is fair to say that the overwhelming motivation for the formation of APEC was to bring forth the best combination of economic growth, and economic activity from the member countries. And to achieve that through striving towards free and open trade goals, defined as the Bogor goals, it is also fair to say that APEC has brought the member countries of that grouping closer together in so many ways. It is undeniably the most important international meeting with which Australia is associated. And the fashion in which it has brought together men and women in business in all of the member countries serves to underline that point.

“This country as you know is now enjoying its 15th year of unbroken economic growth. And we are living through a period of economic strength and prosperity, the like of which I don’t think we have seen on such a sound basis at any time since World War II. It is not without challenge, high world fuel prices being the principal amongst those challenges. But the growth and the expansion of the Australian economy has been based essentially on two things. It’s been based on some 15 to 20 years of fairly continuous economic reform. The latest example of which are the proposals of the Government to reform our industrial relations systems, proposals which in their legislative form will go before the Australian Parliament when it next convenes in just over a week’s time. But that growth and that expansion has also been based very much upon the internationalisation, and the growth in trade, of the Australian economy. And nowhere has that been more dramatic, and nowhere has it been more important to Australia than within the APEC area and amongst the APEC countries. And that’s the measure of the importance that I place on APEC. It’s a measure of the importance that I place on the support that members of the APEC Business Forum give to APEC and the contribution that all of you make.”

For the full speech transcript click on this link to the Prime Minister’s website. Headline image reproduced by kind permission of DFAT.

These include the increasingly unbalanced nature of expansion and rising imbalances between the major economies, tightening financial conditions that are leading to rising interest rates, and the inflationary effects of volatile energy prices. All of this at a time when the multi-lateral trading system is in danger of being supplanted by bilateral arrangements.

For ABAC, the paramount issue is seeing trade in agricultural products liberalised, including minimum market access obligations and the removal of export subsidies within 5 years. Further to this, a substantial reduction of barriers for non-agricultural products, enhancing trade facilitation and the removal of investment impediments in services complete this first item on ABACs wish list.

Recommendations towards achieving such includes a market access tariff cap of 50%, agreement on a harmonizing formula to achieve a tiered approach to tariff reductions, and a formula for the application of special and differential treatment to developing economies.

At the invitation of APEC leaders to provide views on the benefits and challenges for business regarding the increasing number of Free Trade Agreements, ABAC recommended a more structured and concerted approach in the launching of the Trans-Pacific Business Agenda in areas such as customs processing, professional qualifications and intellectual property regulation. The outcomes of which would be faster reform through sharper prioritization and more concerted implementation.

It also recommended the development of model measures to encourage free trade and the convergence of design and content for regional and bilateral FTAs in order to reduce trade diversion, increased costs and complexity of doing business.

The ABAC report reaffirms the commitment to the Bogor Goals by striving to be “WTO plus” by exceeding WTO commitments and coverage in trade and investment, establishing more effective planning mechanisms for executing ECOTECH programs that support the TILF agenda with participation from private enterprise, and reforming the way APEC operates. This includes examining the feasibility of a Free Trade Area of the Asia-Pacific, a more robust IAP review process, and according the APEC Secretariat the authority and resources to undertake policy reviews, advocacy, research and analysis.

In addition, ABAC also provides annexes on goals and best practices in financial services liberalisation, ABAC’s mid-term contribution towards the Bogor Goals, and recommendations on policy responses to barriers to foreign direct investment.

To view the full publication click on this link to the ABAC website.

In his 2001 book “In Defence of Global Capitalism”, Norberg argued persuasively that the unequal distribution of wealth was not the cause of poverty, but the unequal distribution of capitalism. On the 11th of October Norberg delivered this insight at the Centre for Independent Studies' 22nd Annual John Bonython Lecture. Titled “The Wealth of Generations: Capitalism and the Belief in the Future”, it was an optimistically charged offensive of the opportunity of market capitalism and globalisation.

Stepping through the stages of anti-capitalist thought, a) Marxism’s zero-sum game argument; b) Lenin’s view that capitalists bribed the proletariat; c) socialist thought that capitalism is too efficient and costs the environment; and d) recent alarmists claiming that material wealth does not make us happy; Norberg agues that we suffer from a bias towards problem-solving. This problem-solving, brought on through evolution where the anxious survive and the complacent are consumed by their environment, undermines our recognising our triumphs. Instead we just look for the next problem to be solved. Arguing it is a natural human tendency and, despite problems looking insignificant in retrospect, we tend towards alarmism when we are dealing with them, Norberg believes this is precisely how we interpret capitalism and globalisation. Norberg argues that this bias resonates greatest in the media. In a world where connectivity is substantial, there is always poverty somewhere that we could not see before.

Norberg also argues that exceptions are over-exposed, versus the day-to-day achievements; using air travel as an example, he argues that we live in a world where airplane crashes make front page stories, not the successful departure and arrival of thousands of planes daily. If we based our air travel habits on the myopia of media reports, people would never fly, it would be seen as dangerous and unsafe. This is precisely how we view globalisation and capitalism, not through the images of the people who are regularly escaping poverty because of it, but because of those are stuck in it and do not have access to the tools of capitalism to lift themselves out. 200 years ago we were all poor, it is just that some of us having managed to escape it.

Further he argues, if globalisation and capitalism cause poverty, shouldn’t those countries with the deepest penetration of globalisation and capitalism also be the poorest? Instead the reverse is true.

Norberg argues that knowledge is the solution. The opportunity to regain optimism and belief in the future comes with levelling the unequal distribution of capitalism. Capitalism provides the freedom to unleash the spirit of enterprise. The outcome is rapidly increasing wealth, technological innovation and longer, healthier and happier lives.

Norberg’s energizing address was a timely reminder of the challenges that face the debate of improving the future. It promotes an understanding of the cause of the development enjoyed by developed nations and those that are crippling the developing. A copy of the lecture can be downloaded from the CIS website and Johan Norberg’s book “In Defence of Global Capitalism” can be purchased online at the CIS Bookstore

The following are excerpts:

Advancing Freer Trade
With a firm belief that the engine of this region's economic growth is a strengthened multilateral trading system, APEC Economic Leaders have supported the World Trade Organisation (WTO) since the inception of the Leaders' Meeting. We believe that APEC, as a forum of the world's leading trading economies must manifest leadership in strengthening the multilateral trading system. We showed our strong political will in a separate statement, in which we declared our firm support for the WTO Doha Development Agenda (DDA) negotiations to proceed expeditiously so as to achieve an ambitious and overall balanced outcome at the end of the Round. We also supported the efforts to promptly conclude the accession of Russia and Viet Nam to the WTO.

We welcomed the outcomes of the Midterm Stocktake on the progress towards achieving the Bogor Goals, which confirm that APEC has made momentous strides towards free and open trade and investment. We are convinced that both our individual and collective efforts towards the Bogor Goals have contributed to rapid and sustained economic growth as well as to significant improvements in the welfare of our people.

Safe and Transparent Asia-Pacific Region: Enhancing Human Security
We condemned terrorist acts in the region that took thousands of lives and aimed to destabilise economic prosperity and security in the Asia-Pacific region. These acts constitute a clear challenge to APEC's goal of advancing prosperity and its complementary mission of enhancing security. To confront these ongoing threats, we reaffirmed our commitment made in Bangkok and Santiago to review progress on our efforts to dismantle trans-boundary terrorist groups, eliminate the threat of weapons of mass destruction and their means of delivery, and confront other direct threats to our region, and to take the appropriate individual and joint actions to further these important goals. We affirmed our commitment to ensure that any measure taken to combat terrorism comply with all relevant obligations under international law, in particular international human rights, refugee and humanitarian law.

We encouraged implementation of APEC counter-terrorism, secure trade and safe travel commitments. We welcomed new initiatives on the safe handling of and trade in radioactive sources, the reduction of airport vulnerability to Man-Portable Air Defense System (MANPADS), Total Supply Chain Security and the APEC Framework for the Security and Facilitation of Global Trade. We welcomed the successful Regional Movement Alert List (RMAL) pilot and work on its expansion in 2006, and capacity building undertaken to advance ship and port security standards and other security initiatives.

APEC's Progress into the Future
We are confident that important milestones have been set this year in paving the way for APEC's future. We firmly believe APEC will increasingly contribute to its members' prosperity and meet any new challenge with confidence.
We acknowledged the importance of ensuring that all of our citizens have the opportunity to share the benefits generated by trade liberalisation and economic growth. We agreed to conduct a study of ways to confront the challenges and impediments related to socio-economic disparity issues. APEC intends to build on its ongoing work to expand the circle of beneficiaries of economic growth through such means as providing economic and technical cooperation, particularly, measures of capacity building, encouraging economic reforms and fighting corruption.

For the full declaration text click on this link to the APEC Secretariat website.

In an address to almost 100 delegates at the Sofitel Melbourne, Mr Moore also spoke of the diverging Australia-New Zealand alliance (“the elephant in the living room… is the defence and security issue”) and the consequences of bilateral and regional Free Trade Agreements on the global trading system.

On the WTO he noted the prize for implementing a new trading round would be the equivalent of another China to the world economy. “Brazil alone would gain quarter of a million new jobs, half of which would go to the poorest third of its workers”, said Mr Moore.

Whilst his speech covered the European Union’s billion dollars a day in agricultural subsidies, attention was also given to why the removal of US support of certain commodities would bring much economic relief to countries such as West Africa (cotton), the Caribbean (sugar) and Ethiopia (coffee).

Despite the obvious gains a new round would bring, however, Mr Moore warned talks in Hong Kong are in trouble. With a French election next year and a US Congress that may not extend the President’s authority to negotiate, which expires in 2007, key nations will be wanting to take something home to claim a victory.

But trade is a two-way street and Mr Moore said “this round will not be cost and change-free to developing countries, some progress must be reported in opening services, this is in their interest and gives the agricultural protectionists something to bank in their capitals”.

In conclusion he noted to the audience that every time we trade, we make agreements, and in the absence of coercion, respective parties walk away better off. In this environment international frontiers will cease to be a concern and real progress towards tackling the problems of poverty, terrorism and mass-migration can be realised.

The Rt Hon Mike Moore finished his address by proposing that the Doha Development round offers the greatest redistribution opportunity, and then generation of wealth, in history, and that the stakes are the highest for the poorest.

For the full speech text click on this link.

APEC’s original mission was a defensive: promote open trade in the region in case the US and EU built regional trade blocs. It laid down a vision: remove barriers to trade and investment within 20 years. If regional economies continue to liberalize at existing rates the vision will be generally achieved. Urging achievement of a done deed is pointless. Worse for politicians, it is not news.

They have struggled to keep the trade mission fresh. They have made APEC a cheer squad for the WTO, but when things get dirty in Geneva, it is nowhere to be seen. APEC officials are now trying to headline programs for trade facilitation and improved conditions for business. These are useful, but that is all. Most people don’t even know what trade facilitation is.

Trade liberalization is no longer a paradigm breaker for development and growth in East Asia. More is always better. But sustained growth over the long term in Asia requires something else. Competition has to be entrenched in the domestic markets. It is why performance in key areas in East Asia is bad. These are areas upon which future growth depends.

William Lewis, head of the McKinsey Global Institute shows in “The Power of Productivity” (Chicago 2004) that Japan’s productivity is only 70 percent of that in the US. While high in some industries like autos, it is dismal in telecommunications, banking, retailing, construction and health services. Services generate most GDP in advanced economies. Lewis states the obvious: productivity in services is the key to growth.

This penny has not dropped in rest of East Asia. Singapore’s services are heavily regulated. Hong Kong analysts love showing how the average rate of return on capital in Hong Kong, a well de-regulated economy, is higher than in Singapore. The overall record in ASEAN of deregulating services is also poor.

Productivity is highest in the United States. Lewis shows its services sector is king. No wonder Wal Mart is now one of the biggest companies in the world. The lesson for advancing economies in East Asia is clear – improve competitiveness in the domestic economy. This requires domestic policies which promote de-regulation and competition, not trade liberalization.

Lack of competition masks a deeper problem in Asia. There is not one economy in Asia where business can be confident the government may not reach into its business environment in way that would be unacceptable in most Western economies. Property rights and legal systems are not yet fully secure.

Some argue APEC is likely to be displaced by the East Asian Summit. Consider this. China or Japan would be the leader of any East Asian economic bloc. Which of them is in a position to promote competition in domestic markets and set the standards to guide East Asia further down the free market path?

If APEC did not exist, it would have to be invented. Any regional effort to set goals for a continuing transition by East Asia towards fully functioning free market economies requires US engagement. It is global standard setter on productivity as it revels in the gains of adapting information technology.

How do we renovate APEC to make this its mission? First we set a new long term mission for APEC – building competitive domestic economies. That is the key to sustained growth.

To do that, you would not use Trade and Foreign Ministers. It is not their game. Leaders need Finance Ministers and heads of economic regulatory agencies at their side for this one. APEC has a Finance Minister’s forum in APEC, but historically it has worked in the sidelines. It needs to be mainstreamed. That will happen naturally if APEC’s mission is recrafted to focus on competitiveness.

This is a natural mission for APEC. But it will not happen naturally: it has to be made to happen. If APEC is left to focus on yesterday’s global economic agenda it will leave the field clear for others to craft alternative missions for economic development in East Asia. In that event, we would all losers.

Alan Oxley is Chairman of The Australian APEC Study Centre at Monash University.

16-18 Jan: Manila, Philippines HLPDAB APEC Conference on Biosafety Policy Options

22-26 Jan: Singapore, ABAC 1st Meeting of ABAC

20 Mar: Beijing, China 5th Meeting of MESG

21-22 Mar: Beijing, China SMEWG 22nd Meeting of SMEWG

28-29 Mar (tentative): Manila, Philippines 30th Meeting of ISTWG

29-30 Mar (tentative): APEC Secretariat, Singapore BMC 1st Meeting of BMC

Source: APEC Secretariat