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APEC has become out of step with what generates economic growth, argues Alan Oxley. Australia has the occasion to change this in 2007. more ...

APEC Leaders met in Hanoi for what was just another APEC Summit: another call to finish the Doha Round, a pious statement about global warming and fresh speculation about an APEC free trade agreement; plenty of political gravitas but little action.

Journalists ask as they do every year, “what does APEC do?” ignoring the obvious as yet another government spends between $100 and $200 million to host the Summit, to show the world it thinks APEC and economic integration is important.

A few years ago the riposte would have been “So what; doesn’t everybody?”  Not today. Now there are new governments in Latin America and Africa with clear political agendas that do not include growth. They have become anti trade reform saddlebag deadweight in the WTO.  Even in Europe, economic growth is no longer a leading priority for governments.

In contrast, APEC’s host, Vietnam, is using the Summit to tell its people and international business it is the second fastest growing economy in the world and the newest member of the WTO.

Business understands. It likes APEC because of the technical work it does to ease the path for business. Leaders get no headlines trumpeting new arrangements to speed up tariff administration, although it gets caned when it slows it down, as Australian Customs found recently when its new paperless systems failed to start.

Officials also get this.  There is a myriad of technical working groups building an extraordinary network of systems throughout the APEC region.  

Yet something is missing in APEC. It is not just that the East Asia Summit threatens APEC’s place. APEC is out of step with what generates economic growth.

The reality in East Asia is that the trade reform agenda is well in hand.  Some pockets of protection remain to be removed, but today other things are the drivers of growth.

Business has already shown the way. Its focus now is less on trade restrictions than on the restrictions to growth which lie “beyond the border”. 

These are greater freedom to invest, higher productivity, structural adjustment, better competition, better intellectual property law, less regulation, and more effective technical standards. These are now what get domestic economies running faster.

At the last two Summits, Leaders have endorsed these issues, but have not recognized them as a core for a new economic agenda for APEC. Their political focus is still on yesterday’s paradigm, trade liberalization, and even that is not effective given the ritual ineffective calls to make the Doha Round a success.

APEC needs a new economic mission, not just because the East Asian Summit process might challenge APEC’s primacy in the region, but because growth matters to APEC economies: the need is palpable, the organization has to re-gear to serve it.

A new mission needs to be crafted and Treasurers and Finance Ministers need to be put in charge of it. Foreign and Trade Ministers currently run APEC but they are not responsible for the core policies that drive growth or the beyond the border issues which concern business.

A small start has been made in Hanoi. Responsibility for APEC’s Economic Committee is to shift to Finance Ministers. A big step is now needed. John Howard has the opportunity to take it as the next head of APEC.

 

There is an expectation within the APEC community that Australia’s year will be one of renewal and, with that, higher expectations that APEC will deliver more to its members. Renewal however, is not a one-off event – it is not a silver bullet – rather, it is setting a determined course to meet some well-defined outcomes. Defining the outcomes in an APEC context is somewhat easier than setting a determined course.  

First, the outcomes: A key outcome is stronger and more resilient economies.  Economies that are resilient in meeting domestic and external shocks – financial and economic – and which are growth oriented to provide increasing opportunities for investment, savings and jobs. These outcomes will be increasingly relevant, irrespective of whether or not, the WTO Doha Round succeeds. A successful Doha outcome would add value to economies which are both stronger and more resilient. And those same economies would better cope with a Doha which falls far short of its original targets. The most recent IMF World Economic Outlook points to continued strong regional and global activity, strong trade and services flows and consequential strong payments flows and capital movements. APEC regional economies are very much part of the current success that is the global economic system. However, the system will inevitably be subject to shocks. Currently, global imbalances, oil prices, possible changes upwards in interest rates, and housing markets are potential sources of shocks. Shocks from these sources would have far deeper repercussions to APEC economies than any failure of Doha. Hence the importance of supporting and encouraging greater resilience and more strength in APEC’s economies.

So, how should APEC provide for stronger and more resilient economies?

This question is central to APEC over the coming years and decades.  And it is why economic reform and financial system strengthening is moving imperceptibly to the centre of APEC’s agenda. These are not the only challenges which confront APEC as a regional group. Countering terrorism, better managing natural disasters, pandemics and  resource constraints are highly relevant to APEC’s political and economic agenda, as of course they are to other regions. But, ultimately, managing threats effectively, will be dependent on domestic economic capacities. And similarly, domestic capacities will determine members’ contributions to any collective efforts to mitigate against shocks.

APEC’s responsiveness is influenced but not nullified by voluntarism and its non-negotiable processes.  These characteristics shape APEC’s role and the way in which  APEC can contribute to improving domestic economic structures and the capacities of member economies. In my view, they contribute to rather than detract from APEC’s capacity to promote financial system reform and economic restructuring, objectives which have arrived at the centre of APEC’s agenda. APEC can and does contribute by focusing its agenda on ways to promote economic and financial system resilience, on economic growth and on ways to promote business investment, job creation and expanding opportunities for peoples of the region.

APEC’s role in the decades to come is to open and to drive discussion on policies and on processes that can assist individual member economies develop and implement this policy framework. Most, if not all emerging APEC economies are already embracing reforms to financial systems, to macroeconomic frameworks and structural reforms.   However, there is a growing awareness that deepening institutional capacities to formulate public policies and to implement them involves real and complex challenges within an economy and between economies in a regional grouping such as APEC.   Deeper institutional capacity building provides confidence in the process of reform and restructuring.

APEC has almost twenty years of experience, a deep network of specialists and many collegiate groups, including business and academia, which can help define and refine particular objectives and goals. It is timely now, to develop a deeper and comprehensive process to promote better research and analytical capacities within APEC that economies could draw on individually and which would supplement deliberations in APEC’s various groupings. This would have great relevance to all APEC economies; it would serve member economies if they determine to pursue reforms unilaterally or, if economies wish to move collectively, it would provide the basic research and analytics to give confidence in collective action.  Discussions on what kind of structure to give effect to this concept should be a priority in 2007 to those who wish to see APEC retain a preeminent place in Asia Pacific affairs. The structure would involve more resources and a highly skilled and professional base. Essential guiding objectives in APEC’s reform processes include:

1. reaffirmation of voluntarism and a non-binding approach
2. sound macro-economic policies
3. support for high quality financial sector supervision based on best international standards and practices
4. priority to good governance in public and private institutions, the promotion of  intellectual property rights and the development of property rights infrastructure
5. promoting access to markets on a non-discriminatory basis and with national treatment accorded all investors
6. removing border and behind-the-border impediments to doing business
7. promoting the conditions conducive to increased investment – domestic and foreign – to growth and competition

These economic and financial objectives are critical components now shaping APEC’s reform agenda.  There is an excellent opportunity to deepen capacity building to support institutional strengthening through changes to relevant APEC’s structures in 2007.

 

The APEC Secretariat and the Australian APEC Study Centre collaborated recently to compile, edit and publish APEC Perspective 2006 in time for the recent Economic Leaders’ Meeting in Hanoi.

It is a collection of essays written by various experts in the Asia-Pacific region and taken from extracts of papers or summaries of presentations delivered in 2006. Together they present a picture of where APEC currently stands.

Ambassador Tram Trong Toan, the 2006 Vietnamese Executive Director of APEC, suggests in his Foreword that this book is “intended to provide a snapshot of current thoughts on a number of important APEC issues that are at the forefront of thinking for APEC Leaders, Ministers, Senior Officials and the thousands of people involved in the APEC process”.

To that end, as Australia’s APEC chairman, Alan Oxley, indicates in the book’s introduction, “the papers included in this publication open discussion on the big issues on the table in APEC. They demonstrate the breadth of the APEC agenda, ranging from trade liberalisation and economic growth, to protecting human security and improving business regulation”

Amongst other topics in the publication, APEC reform is considered by Hadi Soesastro, the tasks ahead for the trade and investment liberalisation agenda by Ippei Yamazawa, and a business perspective of APEC by the US Chamber of Commerce.

Whilst APEC has become a broad church pursuing many issues through a variety of fora, this edition focuses on three pillars of the regional grouping including TILF, Business facilitation and ECOTECH.

As Alan Oxley suggests in the conclusion, “APEC is uniquely equipped to reflect the common interest of Pacific Rim economies in building economic interdependence to support growth. The papers in this publication address many of the key drivers. While they do not cover all the issues that such a reorientation will entail, they reflect an emerging consensus about how APEC can serve that common interest.”

As Australia begins its plans to host APEC in 2007, this book details many of the concerns that are relevant to APEC in 2006 and will remain so into the future.

 

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APEC Currents is edited and published by The Australian APEC Study Centre.
Copyright 2006, Monash University.

To be added or removed from this distribution list please email Jaime Jobson at jaime@apec.org.au