The Ecotech agenda - APEC’s other side: will infrastructure be APEC’s new orientation?
By Alan Oxley
Australian APEC Study Centre Issues Paper Number 10
Summary
APEC has distinguished itself in three respects. It is the largest grouping where heads of government in the world meet to discuss international economic issues, it is the largest international economic forum that is dominated by Asian economies, and it has set out a very ambitious target to reduce trade and investment barriers for a large part of the world economy.
It is the last feature - encapsulated in the Bogor Declaration - that has been the public measure to date of the importance of APEC. There are those who argue that APEC has developed a new and unique style of trade liberalisation and that this is APEC’s distinct contribution to global economic growth. This is debatable and the prospects for significant liberalisation in APEC in the short term are poor.
There are other features of APEC that may be of more fundamental importance for its impact on global economic development and economic development among the APEC economies. APEC is a post North/South era body. It is bound by a common perception of economic interest. It is not bound by political preconceptions of the development process.
APEC is at risk of being judged by only one measure of success. Can it realise the trade liberalising objectives of the Bogor Declaration? It should be judged on its ability to meet the economic development interests of its members. These extend well beyond trade liberalisation.
The need to meet the infrastructure requirements of the dynamic growth economies is emerging as a key priority in the region. Over the next five years, acquiring the capacity to meet infrastructure needs is likely to be more important for growth in the region than accelerated trade liberalisation.
The other side of APEC - the Ecotech agenda
APEC’s work program is divided into three broad categories - the trade and investment liberalisation program, the trade facilitation program, and the program for economic and technical co-operation, the ecotech program.
The trade facilitation and economic and technical co-operation programs have origins that come from APEC’s earliest times. Trade liberalisation was always talked about as something APEC should promote. But reaching agreement to reduce trade barriers is controversial, even among two countries. The earliest work of APEC was not trade liberalisation, but economic development.
One of the first committees created in APEC was for trade and investment. But the first work programs were for economic development and trade facilitation. The first APEC working groups that were set up were for telecommunications, energy, tourism, and human resource development. The work programs of those groups were the origins of what later came to be known as the Ecotech Agenda.
The origins of the trade facilitation program were similar. The concept of ‘trade facilitation’ was new and basically borrowed from part of the set of measures developed by the European Community in its Single Market program of the mid-eighties to remove non-traditional barriers to trade1 . A primary focus of the APEC trade facilitation programs was to prevent national standards and administration of customs procedures from impeding trade. Measures to support trade such trade promotion and electronic commerce were included as well.
The economic development agenda of APEC rapidly acquired momentum. The work programs of the working groups rapidly expanded, the number of working groups steadily increased, and many working groups developed annual Ministerial level fora. In 1996, there were nine Ministers of meetings on matters other trade liberalisation and the annual forum. The work program for the Ecotech agenda as published at the Subic Summit covered 200 pages2.
These developments were incremental and tended to be overshadowed by more dramatic developments. In 1992, China, Taiwan and Hong Kong joined APEC. In 1993, the Leaders Summit was inaugurated. Then in 1994, the Bogor Declaration was adopted. The focus at the subsequent Summits in Osaka and Subic was on getting the first trade liberalisation dividends from the Bogor Declaration.
The Ecotech Agenda is now starting to acquire sufficient a weight that the inherent value of its work may start to become a new measure of the importance of APEC. A cursory overview of the Ecotech agenda will show why this might be so. But first it would be useful to be reminded of some of the features of APEC that give it its distinct global importance.
What distinguishes APEC
A post-North/South body.
The emergence of the market as the orthodox instrument for economic development since the switch over to market economies by the leading communist economies ended a related debate that ran throughout the sixties and seventies. This was about how economic growth should be encouraged in developing countries. The Bretton Woods institutions emphasised the need to free up market forces. In the UN system, particularly the UN Conference on Trade and Development, the focus was on increasing national economic capacity, economic autarky and import substitution.
The UN also turned international discussion of economic issues into class warfare between the North (the rich) and the South (the poor). Consistent with the autarkist view, the presumption underpinning all international economic discussion in the UN was that the rich north had an obligation to support the weak south, and that the south had to collaborate politically at all times to protect itself3.
Before the Berlin wall came down, the success of the faster growing developing economies throughout the eighties, in particular the Asian Tigers and Chile, had already swung the weight of argument over economic development philosophy against economic autarky. Until that point, the autarkists argued that free trade was something that benefited primarily developed economies. The view of the G77 was the GATT was a rich man’s club. The faster growing economies in Asia and Latin America did not eschew the GATT but collaborated in the Uruguay Round to push for global reductions in trade barriers.
Key “North/South” precepts were set aside. Developing and developed economies worked jointly in the Cairns Group coalition against both developed and developing economies who resisted reduction of barriers to trade in agriculture. The concept that a developing country had less of obligation to respect GATT disciplines was reduced significantly in the Uruguay Round4. It is one reason why China’s contention that it is entitled to special terms for admission to the WTO because it is a developing country is given only limited recognition by other members of the WTO.
It is significant that there is no traditional UN “North/South” language in the APEC Declarations and Communiques. There is no presumption that APEC is divided politically according to the economic status of its members. The emphasis in language is on collaboration in the common interest. APEC is the first regional organisation for economic co-operation that is composed of developed and developing economies that is not founded on the principle that collaboration must be based on the premise that there are inherent differences between developed and developing economies. It is the first major “post -North/South body5.
Institutionalising private sector input
A recurrent theme in APEC declarations and communiques is promotion of the role of the private sector. Given that the bedrock of the group is use of the market to promote growth, perhaps this should not be surprising.
APEC has established the APEC Business Advisory Council - ABAC. This is not so unique. Many other international organisations have private sector consultative forums.
The extent to which related private sector activity is undertaken throughout the organisation, however, is unique. It is commonplace for ministerial level meetings of working groups to be accompanied by private sector or joint private sector/official forums.
The value of this work is another matter. Few senior executives in business would refuse a request from a Prime Minister to take part in high level business forum to that the government attached importance. It is another matter for the private sector to take ownership of related forums and turn them into bodies that become a source of advice distinct from that emerging from official quarters. There are signs, however, that private sector forums are becoming independent sources of advice.
This is starting to occur in the Energy Working Group, the Telecommunications and Information Technology Working Group, the Tourism Working Group and the Transport Working Group. In all of these groups, business forums have been established and have provided direct policy input into the APEC processes.
Most APEC fora are still institutionalising. The overall structure of APEC still reflects its rather ad hoc beginnings. APEC is very unusual compared to other international bodies for its small organisational base. But as it develops, it is highly likely that the private sector forums that have sprung up will become a permanent part of the structure of APEC.
A distinct approach to trade liberalisation?
A commonly emphasised point of difference between APEC and other regional bodies is its approach to trade liberalisation. To date, APEC governments have elected to promote reduction of trade barriers by voluntary endeavours.
APEC is not an international agreement. It does not set out binding obligations to reduce trade barriers or rules to govern how the obligations are met. In APEC, members have set targets and spelt out principles to achieve them.
The first results of voluntary liberalisation were the Individual Action Programs produced for the Subic Summit. This process and the results were widely promoted by the APEC Governments as a success. This is to be expected. When do governments ever describe their actions as failures?
There are some who refer to the APEC process of trade liberalisation as an advanced model of international liberalisation. They ague that it promotes unilateral liberalisation - the form of liberalisation that produces the highest net economic gain and that it does not encourage mercantilist attitudes, like WTO6.
There is only one measure of the success of any process of trade liberalisation and that is the result. The more cautious members of APEC described the liberalisation results of the Subic summit as ‘modest’, for modest they were. There were some minor additional commitments to liberalisation that some APEC Governments announced. But generally, they were restatements of commitments made in the Uruguay Round or of the results of national programs of economic reform, like in the Philippines7.
The adoption of voluntary processes for trade liberalisation in APEC are likely to be a matter of expediency for Governments as much as preference. The United States does not have a negotiating authority to undertake trade liberalisation on a comprehensive basis in APEC. There are some areas where some APEC members do not want any trade liberalisation. Japan, Korea and Taiwan are opposed to further liberalisation of agricultural products. The inclusion of automobiles within the ASEAN Free Trade Agreement is a controversial issue, so presumably it would be controversial in APEC. Many APEC members do not want liberalisation of financial services.
In the face of very real obstacles to undertaking trade liberalisation on a comprehensive basis, a voluntary process where members of APEC self-select what they will liberalise is a much easier process to manage. The fact that ‘comprehensiveness’ of commitments to liberalise was one of the criteria adopted to guide the APEC process at Osaka has simply been set aside. It is too soon to declare that the process of unilateral liberalisation that has been followed so far is an effective process of collective trade liberalisation.
Imperatives for economic development in the APEC region
The character of growth of the APEC region has generated distinct development needs. The APEC economies include most of the world’s dynamic economies. Their patterns of development are typified by high growth, increasing demands for skills, supply of manufactured products to developed economy markets, imports of capital and need for greatly improved physical infrastructure.
Increasingly, leaders of the high growth economies identify inadequacy of infrastructure and shortages of technical skills in the workforce as leading impediments to development.
The Human Resources Development Working Group of APEC is one of its busiest. This is appropriate given the basic importance of the area across the region. However officials privately bemoan the fact that much of the work is not prioritised, the work lacks co-ordination and a lot of the effort in the working group is not to best effect.
Infrastructure - APEC’s new strategic priority
Infrastructure is emerging as the new star in the APEC firmament. And with good reason. The World Bank has estimated that Asia needs US$ 2 trillion spent on power plants, water systems. telecommunications systems, airports, highways and other infrastructure between 1995 and 2004. The international financial institutions further advise that the public sector cannot meet this demand. It must be provided by the private sector.
At the Subic Summit, lack of infrastructure was highlighted as a severe constraint to growth. Leaders issued a special declaration about the importance of infrastructure and directed Ministers to work with the private sector to develop a framework to mobilise private capital to meet needs.
APEC’s working groups had started to address the question of private provision of infrastructure even before it become a strategic priority of the organisation as a whole. The Energy Working Group has already produced a very detailed report on what needs to be done to facilitate provision of power by privatised infrastructure. It has developed a private sector forum to continue work on the issues raised. This is one of APEC’s most successful working groups. The Transport Working Group of APEC has established an expert group to examine the issues arising from the privatisation or corporatisation of transport infrastructure projects. The Telecommunications Group has also mounted private sector fora to provide input into the deliberation so the Ministerial meetings of the working group.
The APEC Economic Committee had also begun preparatory work. In 1995 it produced a report on a dialogue between the private sector and the public sector on infrastructure. A conference on “Best Practice in Infrastructure Development:” was held in 1996, and the proceedings were published. This is an excellent report.
Preliminary work has also been undertaken in the APEC Finance Ministers forum. It has an ancillary forum of private sector representatives, known as the APEC Financiers Group. In 1996, they conducted a conference on private financier perspectives.
Following the direction from leaders at Subic, in 1997, the APEC Finance Ministers adopted a set of “Voluntary principles for facilitation private sector participation in infrastructure”.
It is interesting that the initial push for the focus to be on infrastructure was ‘bottom up’. Officials started to use APEC to work on infrastructure issues before the Leaders declared it priority issue for APEC. This represents an important generational change for APEC. Whereas early work programs for the organisation were developed to “make work”, governments are now starting to use the forum for help with important development and growth issues. Infrastructure may the most obvious illustration, but the same thing is happening in other areas of the Ecotech work program.
Conclusion
There is a case to be made that the importance of trade liberalisation for the future development of the APEC region has been overstated. The argument would be that most economies in the region accept that open economies are essential for further growth and that most economies have demonstrated a preparedness to reduce barriers in order to promote growth.
The case for continuing trade liberalisation rests on the importance of tackling the remaining pockets of protection, as well as the new areas. Global efforts at trade liberalisation demonstrate that difficult areas for trade liberalisation seem to exempt themselves. It took nearly 50 years before the GATT/WTO was able to tackle protection of agriculture and clothing and textiles. In the Asian region, there is a distinct reluctance to tackle liberalisation of financial services. So these are areas where further trade liberalisation is necessary. On the other hand, average trade barriers in the region, while still above the OECD average, have come down significantly over the last decade, and the downward trend seems likely to continue. The Bogor trade liberalisation targets are long term. 2010 is the target for advanced economies.
In the short term – say the next five years, it is fair to ask the question – will further reduction of trade barriers or better provision of infrastructure contribute more to growth and modernisation of the economies in the region? The answer must be better provision of infrastructure.
This takes us back to the origins of APEC. The organisation always had a broader brief to promote economic co-operation among the APEC economies. The natural growth in the Ecotech agenda and in related areas demonstrates the need seen by APEC members for action to enhance economic co-operation. The need for greater provision of infrastructure has been pushing its way up into the Ecotech agenda, and in other areas of APEC for the last couple of years.
Finally at Subic, it received peak attention. Given that the premises of APEC are to promote economic co-operation by using market mechanisms; to work to promote common economic interests; and to consistently promote a role for the private sector, it would seem a natural function if the organisation focussed its energies for a few years on the massive task of meeting the region’s infrastructure requirements.
Perhaps the focus of the next few APEC Summits should be meeting the region’s infrastructure needs.
1. The Single Market program extended well beyond trade facilitation. It is arguably the first modern post-GATT trade arrangement. The Community was concerned that the Single Market that the Customs Union established in the Treaty of Rome had never been fully established. EC officials realised as well that achievement of the full benefits of economic liberalisation required much more than removal of barriers to trade in goods. Barriers to investment and services and other impediments to economic integration were identified. The latter included differences between national systems of standards and conformance to them and different approaches to customs administration. The idea that a regional trade arrangement should extend these other areas was adopted shortly after in the negotiations between Australian and New Zealand on the Closer Economic Relations and Trade Agreement and the US/Canada Free Trade Agreement.
2. The number of pages alone is no reliable indicator of the quality of a report. But the size of the report on the Ecotech activities does in rough form testify to the rapid expansion of these activities.
3. In the UN, this attitude was institutionalised into formal negotiating arrangements. In UN economic fora – UNCTAD and bodies of the UN Second Committee – developing countries caucus as the Group of 77 to form common positions and industrialised countries coalesce around common OECD positions before efforts are made to find universally agreed positions. It is one of the reasons the UN has been so unsuccessful in devising effective solutions to international economic problems.
4. Part IV of the GATT set out the general principle that developing countries were entitled to ‘special and differential treatment’. This was a political statement. There were only a few areas where they were given specific legal rights. They were permitted to impose restrictions on trade to protect balances of payments. Until the Uruguay Round most developing countries did not adhere to the GATT disciplines on tariffs. In the Uruguay Round, developing countries were obliged to accept all WTO obligations. In a number of new agreements, they were given longer periods to introduce new restrictions, such as on use of subsidies. But the clear spirit of the new agreements was that developing countries did not enjoy political rights as a result of their economic level.
5. The GATT does not qualify, having been established before the “North/South dichotomy was given currency.
6. This writer does not accept the contention that the WTO encourages mercantilist behaviour. Since the point of the paragraph was simply to state the views of others and the point of the paper is not to discuss that issue, the matter is not gone into here.
7. PECC published a lengthy analysis of the results of the Manila Action Plan (MAPA) that described the results as very positive. It should be noted that in its analysis of what it described as “APEC” liberalisation, the authors included unilateral actions of liberalisation that members of APEC undertook unrelated to their APEC obligations, in some cases before the APEC process of trade liberalisation was initiated. The report also sought to show that the rate of liberalisation under APEC was faster than the rate of liberalisation undertaken by the same countries in their WTO Uruguay Round liberalisation commitments. This was not an informative exercise because it did not compare like with like. First it included in the so-called “APEC process” unilateral reductions that were unrelated to APEC. Second, The WTO commitments are not to reduce existing levels of tariffs, but to reduce levels that parties nominate, or “bindings”. These are frequently higher than existing tariffs. The WTO commitment is to a legally binding promise. In truth, the APEC and WTO processes are highly complementary and little is to be gained by such artificial constructions.
Alan Oxley is Chairman of the Australian APEC Study Centre. He is a strategic consultant and a former Ambassador of Australia to GATT and UNCTAD. The Australian Centre has recently developed a training course for officials in the APEC region on management of the delivery of infrastructure.
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Http://www.monash.edu.au/ausapec/iss10.htm Last update: 13 June 1997