Chapter 2 APEC
2.1
APEC has now been operating for over twenty years. It has achieved
considerable success in removing, or at least reducing, tariff and quantitative
restrictions on trade in the region. This role was summed up by the Department
of Foreign Affairs and Trade (DFAT):
APEC is the pre-eminent regional forum for Australia’s
economic engagement with the Asia-Pacific region. It has a strong track record
of building support for the multilateral trading system, regional economic
integration and structural reform, and has been influential over the past two
decades in reducing regional tariff and non-tariff barriers, improving the
investment environment and contributing to capacity building among APEC
developing economies.[1]
2.2
One of the major effects has been to tie the group more closely
together:
...unpublished research by APEC’s Policy Support Unit
suggests that APEC economies tend to trade and invest more intensively with one
another than with non-members, underlining the complementarities between trade
and investment and the benefits that flow from international cooperation.[2]
2.3
Unusually for a grouping of this type, APEC is not a negotiating forum.
It seeks to reach agreement by consensus and has adopted the guiding concept of
“open regionalism”.
Open Regionalism
2.4
APEC has based its cooperative efforts on this concept of “open
regionalism”. It is used to promote regional economic cooperation and
integration “without discrimination against other economies”. It was designed
to be distinct from regionalism based on “discriminatory free trade areas and
customs unions”.[3]
2.5
The latter arrangements are:
... based on formal legally binding rules: partly because any
market-distorting arrangements need to be shored up by regulations and partly
because preferential arrangements for trade in goods are not permitted under
the General Agreement on Tariffs and Trade/ World Trade Organization (GATT/WTO)
in the absence of a formal agreement which meets (at least in broad terms) the
provisions of Article XXIV.
In contrast, Asia Pacific governments have embraced an
evolutionary and voluntary approach to promote mutually beneficial economic
integration.[4]
2.6
In their book on Open Regionalism, Drysdale, Elek and Soesastro
indicated that as APEC develops there will be a need to refine the open
regionalism idea to take account of ongoing developments:
There is now another set of challenges as governments begin
to implement the Manila Action Plan for APEC (MAPA). Up to this point, open
regionalism has been used to distinguish between most favoured nation (MFN) and
preferential liberalisation of border barriers to trade.
As APEC governments develop concrete proposals to facilitate
trade and investment, more precise guiding principles will be needed to ensure
that cooperative arrangements are consistent with the basic objective of
reducing impediments to trade and investment without detriment to other
economies.[5]
2.7
They added that application of one of the unique APEC features,
highlights the need to ensure that developments within APEC do not throw up new
barriers for non-members:
To promote rapid progress, APEC participants have agreed that
those who are ready to implement initiatives for closer cooperation can do so,
with others to join later.
This makes it imperative to ensure that cooperative
arrangements pioneered by some APEC economies are ‘open clubs’, which take full
account of the interests of other economies and encourage them to join.
As APEC gathers momentum, participants will become
increasingly aware of the need to ensure that cooperative arrangements among
some participants are indeed capable of subsequent region-wide application.
They will also need to ensure that new arrangements do not create new sources
of discrimination, thereby fragmenting, rather than integrating regional
markets.[6]
2.8
Its voluntary approach, despite the opinions of sceptics, has allowed
APEC to achieve considerable success. Much of this is attributed to the lack of
pressure on participating economies from overarching organisations:
APEC is not a negotiating forum. It is a voluntary process of
cooperation because Asia Pacific governments are not willing to consider ceding
significant sovereignty to a regional supra-national authority.
APEC’s successes have been in areas where governments have
perceived the benefit of cooperating, voluntarily, to achieve agreed practical
objectives. Problems, together with perceptions of failure, have arisen when
participants sought to engage in negotiations.[7]
2.9
In a recent paper, Dr Andrew Elek noted that:
In 1994, only five member economies were willing to define
themselves as developed economies and commit to 2010 as the target date for
free and open trade and investment; now 12 of them see themselves to be
developed and to be assessed against that ambition.[8]
2.10
In giving evidence to the Sub-Committee, Dr Elek commented that APEC:
...is not simply a trade organisation. A lot of people think
that the holy grail for APEC is some kind of free trade area of the
Asia-Pacific. I do not agree with that. It is not desirable because our
interests are increasingly global, not just regional.
...If you tried to include all 21 economies it would either
fail or be a bit of a joke. But probably most importantly, it is not really
relevant.
This idea of trading with a group of favourites and
discriminating against the rest of the world is a very old idea. It is just not
relevant to the way international commerce is conducted these days....[9]
Trade Facilitation
2.11
However, the question is now being asked “where does APEC go from here?”
Chapter 3 of this report provides part of the answer; there is still a lot of
work to be done in the process of trade facilitation; and not with APEC
economies alone.
2.12
DFAT commented that this is a priority area and acknowledges the
benefits that can be gained from substantial progress in this area:
Australia is keen for APEC to intensify work on regulatory
reform, competition policy and regional economic integration through structural
reforms at the border (for example, in customs procedures, standards and
conformance, and business mobility); across-the-border (for example, by
improving supply-chain connectivity); and behind-the-border (for example by
reducing regulatory burdens and squeezing transaction costs).
Australia is working with Singapore, Hong Kong, China and
other APEC members on a Framework on Supply Chain Connectivity to identify
chokepoints that impede trade logistics in the Asia-Pacific region; assess
measures currently in place to ameliorate these chokepoints; and recommend
further action to remove impediments to trade logistics.[10]
2.13
One result of that work was the announcement on 6 June 2010 that
Australia had allocated $2 million over two years to assist with programs “that
promote investment and stronger supply chains in developing APEC economies”.
The funding is designed to:
...contribute to APEC’s goal of regional economic
integration. It will directly benefit developing economies in the region by
improving their ability to attract and sustain foreign investment. It will also
complement efforts to help developing economies increase their resilience to
turbulence in financial systems.
The $2 million will be allocated from the AusAID-administered
Public Sector Linkages Program (PSLP), which provides grant funding to further
APEC’s mandate of facilitating open and secure trade, investment, development
and growth in developing APEC economies. Preference will be given to projects
that target more than one developing APEC member economy.[11]
2.14
DFAT recognised also that success in trade facilitation will depend
heavily on the capacity of infrastructure to efficiently handle increased trade
flows:
...Australia has been a strong advocate of progressing APEC’s
work to address infrastructure challenges within the region. At the sixteenth
APEC finance ministers’ meeting in November 2009, Australia tabled an expert
public-private partnership (PPP) study on the benefits of greater uniformity in
PPP procurement processes. This initiative builds on APEC’s previous work on
PPP frameworks.[12]
2.15
One of the most successful initiatives on trade facilitation in APEC has
been the introduction of the APEC Business Travel Card Scheme; designed to
streamline the movement of business visitors between APEC countries. Its
advantages have been summarised neatly by the Department of Immigration and
Citizenship:
The APEC Business Travel Card cuts through the red tape of
business travel. Through a single application form, the card allows accredited
business people to obtain multiple short-term business visitor entry to
participating economies.
This saves cardholders time and effort involved in applying
for individual visas or entry permits.[13]
2.16
So far, 18 APEC member economies have fully adopted the scheme. The US,
Canada and Russia are transitional members, allowing fast-track immigration
processing but not pre-clearance of visas.[14]
2.17
The card allows access to visitors who are: exploring business
opportunities; attending meetings; or conducting trade and investment
activities. It allows the visitor to stay for two months on each visit (three
months in some member economies) and is valid for three years or until a new
passport is issued. As a further assistance to business travellers, some
airports provide special ‘APEC’ lines for fast-track immigration processing at
international airports. In the US, holders can use air-crew lanes but must
still present valid passports and visas if required by US law.[15]
Future Development of APEC
2.18
Dr Elek acknowledged the changes of the last few years in the
international trade scene in a recent paper given to an APEC Study Centre
International Conference. There he sketched out a path for APEC’s future
development:
APEC’s core objective remains promoting mutually beneficial
integration, but the relative importance of obstacles has shifted. Traditional
border barriers to trade in some sensitive products remain costly, but affect a
rapidly shrinking part of international commerce. Today, it is more efficient
to concentrate on problems of communications and logistics, combined with the
lack of efficiency, transparency and sometimes arbitrary implementation, of
economic policies in different economies.
The effective constraint on collective action to deal with
these problems is not political will. It is limited capacity to design and
implement the necessary policy reform. And capacity cannot be created by
negotiation.
High-level political attention will be needed to catalyse the
resources which will be needed. That, in turn, needs a unifying vision to deal
with the across-the-border and behind-the-border obstacles to genuine economic
integration, that is, to build a single market.[16]
2.19
He summarised the essential APEC strategy, as follows:
Looking ahead, APEC should play to its strengths; using the
comparative advantage of voluntary cooperation to build consensus on ways to
promote shared interests, including in economic integration. At the same time,
it is essential to accept the limits of a voluntary process of cooperation.
Some issues will continue to need the negotiation of binding
commitments, for example to set trade rules or to deal with global warming. ...
The APEC process should concentrate on economic integration
in the region in a way which is consistent with the comparative advantage, and
the limits, of voluntary cooperation. Moreover, Asia Pacific integration should
not seek to divert economic activity away from any economy – it should set
positive examples for the rest of the world to follow when they become aware of
the advantage of doing so. That is the essence of open regionalism.[17]
2.20
In another recent paper he commented:
APEC now needs a new strategy and a new unifying vision,
which take account of:
n the changed international
environment for economic cooperation
n the nature of
international commerce in the 21st century.[18]
2.21
In his evidence to the Sub-Committee, Dr Elek expanded on this idea when
he said:
APEC really has broader ambitions. The idea is to help all
the Asia-Pacific economies to reach their potential for substantial growth,
including us. We see more and more how much we depend on the region, but not
just on the region; the region itself depends on the rest of the world.
The way to promote development is not by trying to force
people to act against their will... Basically, the idea is to talk to each
other, work out what does work and what does not work and encourage people to
make better policies and ...to think about the effect on the rest of the
region, not just on themselves.
This is best done by consensus building, working out how to
design policies and how to implement policies. You cannot do that by
negotiation; it is essentially a capacity-building exercise. I see APEC as more
or less building the capacity ...to reach our potential.[19]
2.22
Dr Elek also addressed the relationship between the Group of 20 (G20)[20]
and APEC and noted some similarities in their methods of operation:
To be useful in the global setting we need to think about
global initiatives. The one, if you like, complementary cooperation forum to
APEC, which is very important in my mind, is the G20. In a funny sort of way,
almost by default, it has emerged very much in the style of APEC.
It is a self-appointed group. It consults and does not try to
give directives but tries to get their officials to work out policy positions
and to talk about what is the best way to tackle the next financial crisis—it
will surely get back on to climate change sooner or later—and not in a
directive sort of way but in a consensus-building sort of way. How APEC relates
to G20 is very important.[21]
Dangers of Protectionism
2.23
The biggest challenge to APEC’s work in recent years has come from the
effects of the Global Financial Crisis (GFC). When the crisis took hold, some worried
governments tended to think in protectionist terms – trying to safeguard their
industries from the worst effects of the crisis.
2.24
Researchers have highlighted the risks inherent in this approach. For
example, Kristen Bondietti, of the Australian APEC Study centre in Melbourne,
wrote:
Resort to trade restrictive policy measures and regulatory
intervention can be expected to increase. The tendency of governments to erect
measures to cushion the impact on producers will intensify.
Creeping protectionism creates risks for trade,
competitiveness and recovery. It could see the winding back of many of the
historic trade reforms of the 1980s and 90s, which have underpinned high levels
of growth in the Asia Pacific region.[22]
2.25
The serious threat posed by protectionist sentiments was recognised and
addressed by the G20. The G20 leaders, in their London Declaration following
the Summit on 2 April 2009, agreed:
World trade growth has underpinned rising prosperity for half
a century. But it is now falling for the first time in 25 years. Falling demand
is exacerbated by growing protectionist pressures and a withdrawal of trade
credit. Reinvigorating world trade and investment is essential for restoring
global growth. We will not repeat the historic mistakes of protectionism of
previous eras. To this end:
·
we reaffirm the commitment made in Washington: to refrain from
raising new barriers to investment or to trade in goods and services, imposing
new export restrictions, or implementing World Trade Organisation (WTO) inconsistent
measures to stimulate exports. In addition we will rectify promptly any such
measures. We extend this pledge to the end of 2010;
·
we will minimise any negative impact on trade and investment of
our domestic policy actions including fiscal policy and action in support of
the financial sector. We will not retreat into financial protectionism,
particularly measures that constrain worldwide capital flows, especially to
developing countries;
·
we will notify promptly the WTO of any such measures and we call
on the WTO, together with other international bodies, within their respective
mandates, to monitor and report publicly on our adherence to these undertakings
on a quarterly basis;
·
we will take, at the same time, whatever steps we can to promote
and facilitate trade and investment; and
·
we will ensure availability of at least $250 billion over the
next two years to support trade finance through our export credit and
investment agencies and through the MDBs. We also ask our regulators to make
use of available flexibility in capital requirements for trade finance.[23]
2.26
At the Pittsburgh Summit in September 2009, the G20 Leaders reiterated
their stand against protectionism:
Continuing the revival in world trade and investment is
essential to restoring global growth. It is imperative we stand together to
fight against protectionism. ... We will keep markets open and free and
reaffirm the commitments made in Washington and London: to refrain from raising
barriers or imposing new barriers to investment or to trade in goods and
services, imposing new export restrictions or implementing World Trade
Organization (WTO) inconsistent measures to stimulate exports and commit to
rectify such measures as they arise.
We will minimize any negative impact on trade and investment
of our domestic policy actions, including fiscal policy and action to support
the financial sector.
We will not retreat into financial protectionism,
particularly measures that constrain worldwide capital flows, especially to
developing countries. We will notify promptly the WTO of any relevant trade
measures.[24]
2.27
Despite this seemingly uncompromising stand, the WTO, also in September
2009, noted:
... some slippage towards more trade restriction on the part
of many G20 members.
This compares unfavourably with the situation prevailing
prior to the crisis when the balance of trade policy actions worldwide lay
firmly for several years on the side of trade liberalisation.[25]
2.28
APEC has an important role to play in stemming this growing reliance on
protectionism. The DFAT submission to this inquiry commented:
In the current environment, APEC is well placed to contribute
to supporting, and delivering on, the G20 agenda, which is aimed at achieving
strong, sustainable and balanced growth.
APEC can mobilise resources and expertise on both sides of
the Pacific to: (i) advance financial market reform and trade liberalisation
and (ii) strengthen the resilience of member economies to external shocks
through its work on investment liberalisation and structural adjustment.[26]
2.29
Dr Elek noted the difficulties faced in eliminating entrenched
protectionist measures in “sensitive products”, and the consequent desirability
of preventing the addition of new products to the “sensitive” lists. He
commented that even in “so-called” Free Trade Agreements, products were
exempted from application of the general terms of the agreement and protected
by various measures:
The same sensitive products, which are proving hard to
liberalise in the Doha Development Agenda of the WTO, or among APEC economies,
are also routinely exempted from “free trade” deals. Any marginal
liberalisation of border barriers to these products tends to be negated by
product-specific rules of origin and by retaining the right to impose less
transparent forms of protection, such as anti-dumping actions.[27]
2.30
He noted also the success of APEC in keeping information technology
products free of protectionism:
It will take a long time, in any forum, to reduce the number
of products that are already sensitive and, hence, heavily protected by border
barriers or other less transparent forms of contingent protection... Therefore,
it is desirable to prevent the emergence of new sensitive products.
This paper proposes collective action by APEC governments to
immunise new products against trade policy distortions. It was possible to do
so for information technology (IT) products in the 1990s. Following leadership
from APEC governments, there is a WTO-wide agreement that such products should
remain freely traded.
That agreement has already helped a growing share of products
to remain duty free....It should be possible to build on the IT precedent to
cover more, or even all, newly invented products.[28]
Membership of APEC
2.31
An area that needs reassessment is the membership of the APEC group. With
the expiry of the embargo on new members this year, there is an opportunity to
reassess the exclusion of India – surely a strange omission in a group that
seeks to represent the Asia-Pacific region.
2.32
The addition of India would provide a convenient forum for the leaders
of the US, Japan, China, Russia and India to meet regularly and discuss,
face-to-face, issues that arise between them.
2.33
This would be a useful way of addressing some of the difficulties that
occur between the five nations from time to time. The Leaders’ Retreats would
provide an opportunity for frank discussions of differences in outlook, away
from the eyes of the media. It could also be an important step in getting these
huge economies to work together to achieve an acceptable outcome for the Doha
Round.
2.34
The Sub-Committee asked the Director of the Australian APEC Study
Centre, Mr Ken Waller, about likely candidates when the membership embargo
expires:
When we looked at this at the beginning of Australia’s
hosting year, 2007, the big issue was whether India should be invited in. That
proved to be a difficult point. You need a consensus of view across all the
member economies to expand it, and some were not ready to invite India in. When
the moratorium on membership ends..., I think that the issue will be not only
whether we should invite India in but also: should Columbia come in, or even
Brazil? The arguments are finely balanced.
One is that APEC is finding its feet; it takes time for
institutions to grow and become really effective. I have argued that to
increase its effectiveness it should support unilateral reform within APEC
economies. It has taken time, so it is pushing hard to achieve that. When you
broaden the membership to some new economies, will they be instantly supportive
of doing all of that or will they be a bit reluctant to come along as far as
APEC has now come?
My sense is that... Prime Minister Singh will be very keen to
continue opening up the Indian economy. I think that is a good sign. My
personal view is that it would be good to see India in this relationship.[29]
2.35
Mr Waller added that Brazil is also a country that must be seriously
considered for admittance:
As for Brazil, we have some very effective members now in
APEC in terms of Peru, Mexico and Chile—and of course the United States and
Canada.
If that group felt strongly that Brazil would make a very
serious impact and a positive one then I would go with that view from Latin
America. I think probably it would. But I think we should take advice from
those member economies of APEC.[30]
2.36
In summary, Mr Waller concluded:
My sense is that the issue for Australia is: where do we see
our emerging relationships with India? We could continue on the bilateral
front. I think APEC is on the front foot now with some important reform
initiatives that are going forward. In many ways, I think India would benefit,
if I could put it that way, from being part of that group.
I would judge this on those grounds—would India and Brazil
sign up for what we are trying to do? You would take them on their word. Russia
came on board. You see changes going on in Russia which are beginning to open
up the economy, and they are positive. We have to, I think, expand our horizons
a little bit.[31]
2.37
The Sub-Committee considers that the addition of India to the membership
of APEC would be of substantial benefit to the future progress of that group.
It may also be beneficial in encouraging India to work with the rest of the
APEC member economies towards a satisfactory outcome to the Doha Round in the
WTO. The Sub-Committee encourages the Australian Government to strongly support
the admission of India to APEC membership at the first possible opportunity.
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Recommendation 1
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Work towards the admission of India to membership of APEC as
soon as possible.
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Recommendation 2
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That Australia continues to strongly support the work in
APEC on the identification and elimination of choke points in regional supply
chains and the development of modern and efficient communications networks.
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Recommendation 3
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That Australia continues to set an example to other APEC
member economies by: (i) maintaining its momentum towards trade
liberalisation; and (ii) encouraging the APEC membership to push strongly for
a positive and forward-looking outcome in the Doha Round.
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