John W.H. Denton Partner & CEO, Corrs Chambers Westgarth

Transcription

1 Corrs Chambers Westgarth A world class law firm committed to driving Australia s competitiveness and its economic engagement with Asia 48th Australia-Japan Joint Business Conference Plenary Session Six "Improving the Trade Environment: APEC's programme for the improvement of the business environment John W.H. Denton Partner & CEO, Corrs Chambers Westgarth

2 Distinguished guests, ladies and gentlemen, It is an honour to be invited to speak here today at the Australia Japan Business Cooperation Committee a pioneer of second track diplomacy and cross-border business-to-business engagement. As a member of the APEC Business Advisory Council, I am appreciative of the contribution fora like the Australia Japan Business Cooperation Committee have made to developing the architecture and intellectual case for economic cooperation in the Asia-Pacific. Once a year, usually around November, some very unusual photos appear in the world media. They typically show a stage where a group of some of the world's most powerful political leaders stand all in a line, all wearing the same outfit. The outfits represent that national dress of the host nation. In some years it has been Indonesian batik, in some year's a Chilean poncho or, a traditional Vietnamese silk gown and in Australia, it was dry-as-a-bone outfits with Akubras! Of course, we all know that when politicians appear in ponchos or other forms of exotic dress, that the Asia Pacific Economic Co-operation leaders meeting must be on. This, ladies and gentlemen is APEC! Today, I would like to expand further on the concepts of regional economic cooperation integration in the context of APEC. Specifically, I would like to explore how APEC has improved, and can continue to improve, the business environment in the Asia-Pacific. APEC comprises 21 of the world's major economies located around the Pacific Ocean. Economies not countries, otherwise China would not sit down at the table with Taiwan (or Chinese Taipei) or Hong Kong. It is a relatively young international institution (just over 20 years old) that promotes co-operation between nations on major economic issues by way of consensus and voluntary objectives (rather than being a highly prescriptive rules-based binding international institution like the WTO). More Asia or ASEAN then European EU! And lets not forget one of the new great truths i.e the locus of global economic power is moving inexorably to the APEC region. The Asia-Pacific region has a population of 2.7 billion and currently accounts for 54% of the world's GDP. Even after the recent financial crisis, the region has continued to demonstrate its energy APEC is the regional framework that unites East Asia and the Americas. Since its humble beginnings hatched from an idea dropped from on high by Bob Hawke in his Seoul speech in 1989, it has made significant contributions to economic development in the Asia-Pacific region. This year will mark a turning point in APEC history; by 2010, APEC's industrialized economies are scheduled to achieve what are known as the Bogor Goals for free and open trade and investment. My overarching contention is that, in order to maintain its relevance, APEC needs to embrace a broader range of issues than its original unifying ambition of tackling at-the-border barriers. It is measures like structural reform, building the capacity of small, medium and micro-enterprises, and ensuring food and energy security that will allow APEC to build on its historic gains of facilitating business growth and development. These are the issues that really matter to the citizenry and businessmen of APEC. But before I expand on my line of argument, I first would like to provide you with some context about the APEC Business Advisory Council, on which I sit and where it fits in to the regional architecture. 2

3 The APEC Economic Leaders created ABAC in November 1995 to provide advice on the implementation of what was known as the Osaka Action Agenda and on other specific business sector priorities. ABAC was also established to act as a business sounding board on specific areas of cooperation, as well as to respond when the various APEC fora request information about business-related issues. ABAC comprises up to three members of the private sector from each APEC economy, nominated by the respective leaders. I share the honour of being one of Australia s ABAC members, alongside Mark Johnson and Lindsay Fox. ABAC is the sole non-government entity that has an official role in APEC (it is actually unique in world affairs). It is an independent body and when we meet with leaders, no officials are permitted to be present. We take to this meeting the big issues we consider are important to business. ABAC is a little bit like a fulcrum trying to shift a great weight. But in this case, what we're trying to shift is APEC and what we are trying to do is to shift it to make sure it remains relevant to business (i.e. to the organisations that actually drive trade, investment, create jobs and facilitate national property). If we're the business community, and we want some policy changes in APEC, what is the mechanism that we have been given to effect those policy changes? The wonderful mechanism we've been given is ABAC. That is the forum in which we can argue for policy changes to improve conditions for trade, investment, and doing business through a region that conducts more than 50% of the world's business. So if we're to do that properly, as ABAC, we've got to have proper engagement with our business community. The big issues that we take through to leaders have got to be representative and important issues to business. ABAC thus has an important role to play to ensure APEC remains relevant to business through the provision of rigorous and independent advice. Key ABAC initiatives in recent times have included advocating the creation of a Free Trade Area of the Asia Pacific, and the development of a Strategic Framework for Food Security in APEC. ABAC also exerts considerable effort on monitoring the member economies and testing their commitment to the goals of APEC that is, trade liberalisation and economic growth. This brings us to an important question how well has APEC performed in opening up regional economies and improving conditions for business? APEC s PERFORMANCE APEC was and remains a unique entity. It was created not as a closed bloc, but an open forum where the benefits of free and open trade and investment would be accessible by everyone, not just member economies. The cornerstone of APEC s activity over the past 15 years has been the Bogor Goals. During the 1994 APEC meeting in Bogor, Indonesia, APEC Leaders committed themselves to achieving free and open trade and investment in the Asia-Pacific by 2010 for industrialised economies and 2020 for developing economies. APEC has sought to pursue the Bogor Goals by undertaking work in three main areas: Trade and investment liberalisation Business facilitation primarily encompassing the reduction of business transaction costs across borders Economic and technical cooperation 3

4 As we have entered the first target year of the Bogor Goals, there has been increasing interest in evaluating how APEC has performed. If we were grading APEC, I think it would be fair to say that the forum has earned a solid B. On the one hand, it is clear that member economies have made impressive progress in reducing barriers to business. In its recent review of the Bogor Goals, for example, ABAC concluded that the Bogor Goals have delivered positive outcomes for APEC businesses with observable reductions in the region s tariff barriers, and improvements in trade and investment freedom. Peter Drysdale and Shiro Armstrong from the Australian National University have also recently sought to measure the APEC effect. They found that being a member of APEC is associated with higher trade volumes and a greater openness to foreign investment not only among APEC members, but between members and non-members as well. APEC is thus a global good, not just a regional one. Drysdale and Armstrong also conclude that, in terms of influencing trade and economic performance, APEC compares more than favourably with NAFTA or the European Union despite being less exclusive and binding than its North American and European counterparts. These achievements notwithstanding, it is also clear that barriers to trade and investment still exist across the Asia Pacific. Furthermore, protectionist pressures generated by the Global Financial Crisis have seen the introduction of new discriminatory measures in member economies. While considering the progress of the Bogor Goals, it is important to recognise two key factors. The first of these is the wide-ranging nature of the Bogor Goals. As Andrew Elek also from the Australian National University notes, neither the GATT, nor the WTO, have ever set [a target similar in scope to the Bogor Goals], let alone a deadline for its achievement. We should thus be wary of condemning APEC s failure to secure complete free and open trade and investment simply because the ambition of the Leaders was initially so great. The second factor is that the Bogor Goals were conceived in an earlier and much different age. The Berlin Wall had just fallen and, with the seeming triumph of the Western economic model, market liberalisation was seen as a key mechanism to drive economic growth across the Asia Pacific. Today, however, there is greater realisation about the intractability of tariff reduction in some sectors, ensuring that future progress is likely to be slow, fitful and effort-intensive. There is also greater understanding about the full range of issues that affect the effective and efficient conduct of business. These include conventional tariff barriers, but also behind the border, business capacity and resource management constraints. 4

5 It is these broader issues that have increasingly come to drive ABAC s agenda and condition its advice to APEC. In our latest report to APEC Leaders, which will form the basis of our discussions in Yokohama, ABAC has highlighted a range of non-tariff issues that we believe member economies should address to support business development and drive economic growth. I would like to focus on what I see as the three key non-tariff issues raised by ABAC: structural reform; capacity building of small, medium and micro-enterprises, or SMMEs; and food security. STRUCTURAL REFORM Structural reform is increasingly seen as a key means by which APEC can deepen regional economic integration and make demonstrable improvements to the business environment. Shifting APEC s focus to structural reform has been a key focus of people like me. And if we're going to shift the APEC focus to these issues ABAC knows we need to bring more hands into the engine room. Historically, the mechanics of APEC have been turned by the Ministers for Trade and the Ministers for Foreign Affairs as they ran the APEC ministerial meetings which report to the leaders. And so that is the thrust as you would expect from an organisation set up to liberalise trade. However as we move behind the borders new engineers are needed. There is a process called the APEC Finance Minister's process out there. They need to be brought in from the cold. When you think about it, the Finance Ministers are responsible for economic matters which actually affect business and they must be firmly part of any process that seeks to go behind the borders. ABAC recognised this deficiency several years ago and has spent a lot of time on it, particularly over the last couple of years to get greater convergence between those responsible for economic affairs and those responsible for trade and so on. This is now an important part of the process and it is critical for the business community to keep the pressure on finance ministers to stay involved and ensure the right kind of economic focus in APEC. The goal of structural reform is to minimise behind-the-border barriers to trade and investment by enhancing institutional frameworks, regulation and government policy. By aligning regulatory requirements, allowing for the mutual recognition of standards, and developing collaborative policy frameworks, structural reform aims to reduce the drag that can hinder businesses operating in different countries. The vision is a seamless regional economy, with businesses facing minimal compliance and transaction costs as they function across borders. Key aspects of structural reform on which ABAC has recommended member economies take action include: Strengthening intellectual property rights cooperation particularly by developing a framework for coordinated engagement against piracy and counterfeiting; Developing the regulatory, legal and financial requirements to facilitate the cross-border flow of funds in bond and equity markets; and 5

6 Establishing a set of principles to guide the development of regulatory chapters of future Free Trade Agreements Key principles proposed by ABAC include non-discrimination, comprehensiveness and transparency. A key challenge facing APEC in pursuing structural reform is finding a way to do so in the context of voluntarism. Since its inception in 1989, the functioning of APEC has been underpinned by the principles of consensus and voluntary action. In terms of tariff reduction, these principles have not prevented member economies from realising benefits. As the Australian Productivity Commission recently noted: the main benefits that arise from trade liberalisation result from a country purchasing its inputs and final goods from the lowest cost sources of supply, and exposing its industries to greater import competition by reducing its own trade barriers. In other words, a country can realise benefits from trade liberalisation through unilateral action, without necessarily requiring other countries to undertake similar action. With structural reform, however, it is as yet unclear whether member economies can realise benefits in the absence of more formal, binding agreements. It is difficult to see, for example, how countries can benefit from regulatory harmonisation unless there is clear agreement about how the harmonisation will occur and by what date. Addressing this issue will be a major test for APEC Leaders as they seek to progress structural reform in the future. It is a big challenge for APEC Yokohama. SMMEs Let me now turn our attention to small, medium and micro-enterprises, or SMMEs. A key focus of APEC Japan 2010 has been developing a new growth strategy to ensure that APEC economic growth is sustainable, balanced, inclusive, innovative and secure. ABAC supports the intent of the new growth strategy and has called on APEC Leaders to ensure the strategy is focused on supporting the growth of SMMEs in the Asia-Pacific. SMMEs account for approximately 90 per cent of all businesses across the APEC region and employ just under two thirds of the workforce. Fostering the development of such organisations through targeted capacity building programs is thus likely to make a significant contribution to economic growth and the development of regional business networks. Particular areas on which ABAC has called APEC Leaders to focus include: Revising finance structures to help provide SMMEs with micro-financing; Facilitating greater ICT utilisation by SMMEs particularly by identifying enablers or barriers to ICT utilisation, and, where practical, reducing broadband costs for SMME users; and 6

7 Building the capacity of SMMEs to drive innovative growth through the provision of ICT training, the establishment of specialised Institutes of Excellence, and the development of mechanisms and frameworks for shared training facilities and infrastructure. It is also vital for member economies to ensure that SMMEs are not specifically disadvantaged by other areas of APEC reform. Changes in regulation, for example, can increase the transaction costs faced by businesses. SMMEs generally lack the capacity in terms of financial and technical resources to absorb these increased transaction costs and can be forced out of business as a result. APEC needs to ensure that it has a program in place to foresee and manage potential burdens imposed on SMMEs by its various reform activities. FOOD SECURITY Lastly, I would like to talk briefly about food security. This is an issue of vital interest to APEC and its citizenry. The APEC region represents a cross-section of food needs. Some economies still experience extreme poverty and malnourishment. Other economies, meanwhile, enjoy among the highest per capita incomes in the world and are more likely to face the problem of over-nourishment, rather than under. Traditionally, member economies have addressed their varied food needs separately. This patchwork approach has tended to produce food policies that: Discourage agricultural and rural development where it is most need; Encourage economies to pursue costly self-reliance measures in the face of food crises; and Blend science and politics in regulatory frameworks that can disrupt trade flows. To remedy these many problems, ABAC recently developed a Strategic Framework for Food Security in APEC. This framework calls on member economies to adopt a comprehensive APEC food system approach that would promote food security through a focus on supply/demand, food safety and dietary health, and sustainability concerns. The Framework also calls on APEC to establish a high-level food dialogue and end export restrictions. It is vital that we do not under estimate the importance of food security to doing business in the APEC region. A well-functioning food system can underpin efforts to liberalise trade more broadly; just as punitive measures to guarantee food supply through self-reliance such as Russia s recent introduction of restrictions on wheat exports can undermine confidence in the trading system. Furthermore, a nourished and healthy population is more likely to provide the physically and mentally productive workforce required by modern businesses. It is also important to recognise the latent potential that exists in APEC to increase food security. A remarkably high proportion of food in developing member economies is lost due to spoilage before it even reaches a customer. 7

8 China alone is estimated to account for approximately 40 per cent of the world s vegetable production, yet nearly half of this production is lost due to post-harvest spoilage. A significant investment in better handling practices and cold supply chains in China alone could make a considerable improvement to food security in APEC. CONCLUSION In summation, I have provided you with a brief overview of the role APEC has played, and could potentially play, in improving conditions for business across the Asia-Pacific. In contemplating APEC s historical, current and future performance, however, it is hard not to get caught up with the issue of expectation management. As I discussed earlier, it is possible to link APEC with considerable reductions in barriers to trade and investment across the Asia-Pacific. It is in part because of these reductions that APEC members have been able to drive global economic growth and lift the living standards of millions of people. Yet, because APEC has not completely eradicated barriers to trade and investment, people have begun to question the effectiveness of the forum. Moving forward, the temptation is for APEC to step back from the ambition of the Bogor Goals and manage people s expectations by focusing more on smaller, but achievable gains. I think this view is understandable, but ultimately counterproductive. While they may have raised people s expectations about what APEC could actually do, the value of the Bogor Goals precisely lay in their ambition. They framed the issue of trade liberalisation not just as a piecemeal process, but as a paradigm shift in how the economies of the Asia Pacific should interact. In determining APEC s future direction then, I think the forum should continue to embrace ambition. In light of what we now know about trade liberalisation and economic performance, this ambition can come from not just focusing on tariff barriers, but by seeking to achieve deeper regional integration by addressing behind-the-border barriers, and capacity and resource management constraints. Our goal, ultimately, should be a seamless regional economy with businesses able to grow and operate across the Asia-Pacific as easy as it is easy to grow and operate across the States and Territories of Australia. So, in conclusion, this year the leaders will probably wear kimonos and wooden wedges as they stand on the podium overlooking Yokohama harbour. So in that sense all that may have changed in APEC is the venue for the photo-op! However, beneath the cool silk, a quiet revolution in focus is appearing as long as officials don t stop it! Thank you for your attention and I look forward to your questions. 8