APEC Integration: Opportunities, Challenges and Results for Business

I am honoured to be invited to speak to you today, and pleased that you have chosen to include APEC on your program.

No doubt Vietnam's great success in hosting APEC last year has left a strong sense in this economy of APEC's contribution to promoting regional economic integration and growth. Building on Vietnam's outstanding achievements last year, this year's host is Australia where the first APEC meeting was held in 1989. I think it is fair to say that there is a certain expectation that because Australia was one of the founders of APEC, and has always been one of its strongest champions, there will be renewed effort to strengthen and focus the organization, or, in the language of the APEC leaders' meeting in Hanoi last November, to make it more outcomes oriented.

Australia will certainly aim to do this but does not intend to reinvent APEC in 2007. APEC already has an excellent set of objectives. The task ahead of us is to keep our focus fresh and responsive to the challenges the region currently faces, to keep moving forward towards our longer-term goals, and to find ways to work more effectively to achieve these goals. And one important element that I see is learning to work better with key stakeholders such as business.

When APEC was created in 1989 its aims were founded on three "pillars": trade and investment liberalization (especially support for the WTO); trade facilitation; and economic and technical cooperation, also referred to as capacity-building. These remain APEC's core priorities in 2007 although as we shall see, how we go about pursuing them, and the focus we give them, have changed a lot as the international environment has changed. Let me briefly run through this year's priorities.

APEC economies continue to view the WTO as the primary mechanism for achieving free and open trade and in 2007 will continue to support the multilateral trade negotiations in the WTO. APEC has made contributions in the past and we will continue to keep this at the top of our agenda.

We are also paying close attention to Free Trade Agreements (FTAs) and Regional Trade Arrangements (RTAs). Business people tell us that the multiplicity of FTAs is confusing and for this reason many simply find they are unable to take full advantage of them. To reduce this confusion, and to introduce greater uniformity into FTAs, APEC is developing a series of model measures that economies will be encouraged to use when they negotiate FTAs to help ensure that new agreements are comprehensive, transparent and of high quality - and reasonably uniform. APEC completed six sets of model measures in 2006 and more are planned for 2007.

Last November APEC Leaders tasked officials to prepare a study on ways to promote regional economic integration, including as a long-term prospect a Free Trade Area in the Asia Pacific. This is the first time an FTAAP has been on the formal APEC agenda.

APEC is also focussing more on trade facilitation to make transacting business easier and cheaper, especially by removing behind-the-border impediments to trade and investment. This is a high priority for APEC, and I will talk more about it later.

Human security is now high on the APEC agenda. It's a fairly recent topic, certainly not one we thought much about in 1989. Human security is about addressing threats ? both natural and man-made - to our people and our markets as a result of terrorist activities, natural disasters, health pandemics and so on. It is not enough simply to liberalise our markets if we do not address potentially destabilising risks.

Energy is another aspect of security. APEC members include some of the world's largest producers and consumers of energy, all of whom have been strongly affected by recent market volatility. It is therefore fitting that APEC focus on energy security and sustainable development this year. APEC Energy Ministers will develop a series of initiatives when they meet in Darwin in May, and we expect Leaders to consider energy issues when they meet in Sydney in September.

Finally an important theme this year is building APEC's relationship with business. APEC leaders have often stressed that business is a key stakeholder but as I will explain a little later I see the potential for even greater cooperation in pursuing our common goals. In a very real way, you - the business community - are as much a part of APEC as, for example, I am. I believe that what APEC as an intergovernmental forum is doing is important, but it is only part of the larger story of what is happening in APEC the community.

For those less familiar with APEC, let me provide a little more context before I go on. APEC was founded with 12 members in 1989 in Canberra with the aim of promoting sustainable economic growth through trade and investment liberalization and facilitation, thereby increasing regional economic integration. Membership has since expanded to 21 members, representing 41 per cent of world population (2.6 billion), 49 per cent of world trade (US$8.4 trillion), and 56 per cent of world GDP (US$23 trillion).

From 1994-2004, 195 million new jobs were created in the region including 174 million in lower-income economies, and 165 million people have been lifted out of poverty ( a one third reduction). Exports increased by 113 per cent, foreign direct investment by 210 per cent, and average tariffs across the region fell from 12 per cent in 1995 to 5.5 per cent in 2004.

These are remarkable achievements, driven mostly by market forces, by people like you doing business. While governments want to promote economic growth and increased standards of living, they are not best at carrying out the trade and investment activities that create economic growth. It is business, not governments that constitute the engine of growth and lead the way in the development and adoption of new technologies.

Nonetheless governments and intergovernmental forums like APEC play a significant role in adopting effective policies and building the business environment in which you operate: by providing stable and open markets; a business-conducive environment; and addressing sudden shocks to our markets and communities.

And it is here that APEC makes a real contribution, by providing a forum where members share experience and expertise on a wide range of governance issues that members can then take back home to study and implement. The extent to which economies succeed in implementing what they have learned in APEC of course varies. Viet Nam's recent economic progress is visible evidence that it is benefiting from its APEC experience. The latter undoubtedly helped it adopt the various disciplines and policy measures required for its successful bid to join the WTO.

The bottom line for APEC economies is that if they are not committed to implementing the sorts of best-practice policies advocated by APEC they will be less competitive than others that do, and their economies and people will be less well off.

Thus, while APEC is often criticized for being just a talk-fest, lacking binding rules and relying too much on consensus, this belies the constructive and invaluable work it does, in practical and technical ways, to contribute to regional economic growth and prosperity.

APEC also recognizes the importance, as one of its key pillars, of capacity building to complement the policy work I've just described, to assist economies that need help implementing new ideas and participating in increasingly competitive regional and global markets. We implement around 100 projects every year, across a diverse range of topics. These projects are funded from members' annual contributions and from special voluntary contributions from Japan; Australia; Korea; Chinese Taipei; and, just this year, China; and the United States. I am pleased to note that private sector organizations also participate in and contribute to some of these projects, and that our capacity building resources are growing.

APEC is now operating in a very different environment from 1989 when it was formed. At that time, in the aftermath of the Cold War, our priority was liberalizing market access in order to open doors to greater economic integration. There was much concern about what was seen as the emergence of exclusionary and protectionist trading blocs in Europe and North America, and how best economically to engage the United States with major Asian economies. How to include Japan in a pattern of regional economic interdependence was also a major concern.

APEC therefore was a bridge across the Pacific, and a means of engaging the great powers of the region in a more stable pattern of regional economic interdependence.

The world has however moved on since then. Dramatic changes have occurred as we sought to deal with the realities of truly global markets, and with challenges such as integrating China's spectacular economic growth smoothly into regional economic patterns. We have seen the internet emerge from humble roots into a force that touches all our lives and which has changed our societies. There have been exciting advances in medical and life sciences, and in information technology and telecommunications that are contributing to the creation of entirely new markets around the region.

Over this same period, the APEC community has been sorely challenged: the Asian financial crisis and bursting of the IT bubble; terrorists attacks in the US, Bali and Jakarta and elsewhere; price and supply challenges in energy markets; and, after SARS and Avian Influenza, some experts tell us that the question to be asked about pandemics is not one of if, but when.

Very recently, volatility in equities markets from Shanghai to New York reminded us that economic integration is well underway.

Through this period of change and challenge not only the private sector has had to adjust. Governments too have had to develop new models and methods to cope with critical tasks: providing stable and open markets and a business-conducive environment; and addressing sudden shocks to our markets and communities.

And, recognizing that in many cases the private sector is out in front driving economic integration, I think we need to be prepared to accept new partners and find new and effective modes of public-private sector cooperation.

In 2004, when Chile hosted APEC, then-President Ricardo Lagos challenged us, suggesting that governments and international institutions were falling behind as the pace of change in the world accelerated. So while we welcome the benefits of globalization we must also recognize our responsibility to regulate and provide good governance in the face of the challenges that are the other side of globalization.

In facing these challenges we must go behind national borders, indeed into issues at the heart of domestic structural reform, such as deregulation, competition policy, economic legal infrastructure, transparency, fighting corruption, financial sector reforms, standards and conformance issues, and so on. The term "behind-the-border" is used to define these issues to contrast them with traditional barriers that occur at the border, such as high tariffs.

Thus while trade liberalization and supporting the multilateral trade system remain key priorities for APEC, it has become clear that we must go further than the scope of liberalization within the WTO and that we must explore ways for our markets and our economies to operate in more seamless and integrated ways.

This has become more apparent with the competitive pressures from large emerging economies like China and India.

Addressing structural or behind-the-border impediments can make a significant contribution to growth and development in the region. Indeed many economists and business people now argue that there are greater gains to be achieved for international trade and investment through removing behind-the-border barriers than by removing tariffs.

Business and governments across the region have come to realize that many of the barriers to promoting economic growth through increased trade and investment result from the way their domestic markets are structured and regulated. Where domestic rules and regulations prevent markets from operating efficiently, reforms in competition policy, market regulation, governance, economic and legal infrastructure and so on are necessary to enhance the flow of resources to their most productive use.

This in turn contributes to economic stability and resilience and improved economic competitiveness through greater productivity. Thus, structural reform is a win both for business and for growth and macroeconomic stability.

Most APEC members, however, are emerging market or transition economies, with economic systems and institutions still being formed.

Structural reform is therefore easier said than done. Sometimes governments simply do not have full knowledge of what constitutes best practice policy; often they know but face domestic political resistance from vested interests opposing change. Because of this, and because the issues are literally behind the border, domestic structural reform is not easily the subject of formal negotiations between countries.

This is where APEC's key strength lies: it is the right forum to address these behind-the-border, structural issues in the region. Because APEC is not a negotiating forum, where cut-and-thrust confrontation is the modus operandi, it actually provides an exceptional opportunity for countries to sit down with each other and with experts, to compare and contrast better policy choices, and to talk frankly about objectives and principles, how to implement them in practical ways, and how to support this process by strengthening domestic institutions and providing technical support where required.

I would further argue that not only can these behind-the-border issues be effectively addressed in a non-binding forum like APEC that builds best practice through consensus but that government-private sector partnerships, such as those APEC is encouraging, will also make an important, indeed essential, contribution. This leads on to my second theme: public-private partnerships.

For an example of the role of public-private partnership in addressing domestic economic reform issues, we need do no more than look at the interesting story of the emergence of modern express delivery services on whose efficient and speedy operations many businesses now depend.

In 1989, customs officials generally had a conservative view of their statutory responsibilities to monitor and enforce customs regulations, seeing them resting heavily on their own shoulders. Shippers and logistics companies, on the other hand, faced customs processes which could be slow and unpredictable, were often under-resourced, and were seldom automated.

What has changed over the past two decades is that these two sides have found new forms of cooperation. They have found benefits in sharing the load. Business has taken on aspects of customer interface, data collection and even compliance monitoring. In return, and based on growing confidence in such models, customs officials have felt able to step back and turn over more of the process to their private sector partners.

Such partnerships depend critically on trust and must be proven to work, but if both sides are benefiting then, in a mutually reinforcing way, there are incentives to make the cooperation work. And as businesses internalize some of the roles and functions historically performed by government, they are also in a better position to profit from offering their customers speed, predictability, tracking, and good customer service. They have incentives and can allocate resources to tasks like modernizing or automating systems, provided there is a solid business justification for doing so.

In addition to bringing together customs officials and businesses to discuss topics like these, APEC also continues to explore new areas. Currently, members of APEC's Sub-Committee on Customs Procedures (SCCP) are discussing how to promote wider and more effective adoption of single window processing by means of conveying the information collection needs of numerous government agencies through a single channel.

Another good example of the efficacy of public-private partnerships is supply chain security. Discussions about security raise many issues that potentially influence the flow of goods across borders. Concerns include smuggling weapons and dangerous substances such as nuclear material on behalf of terrorist or other illicit groups, and the direct targeting of ports and other critical logistics infrastructure. Everyone - in government and business - obviously wants to do everything possible to avoid a serious incident or, if one does occur, to mitigate its effects. But this comes at a cost which is a major concern for business.

Since 2002, APEC has held an annual Secure Trade in the APEC Region (STAR) conference, in addition to other events like the annual APEC Customs-Business Dialogue, which seek to engage with the private sector, to seek business input, and share experiences. Information on participating in these and other events can be found, by the way, on the APEC website or by contacting the APEC Secretariat.

A couple of key initiatives coming out of these dialogues have been work on supply chain security and model port projects, both of which have been driven by private sector involvement.

Supply chain security depends on the introduction of new monitoring and tracking technologies, and there are significant up-front costs to set up such systems. But the case for business is gradually being proven, and companies such as IBM and Unisys are breaking new ground and developing business models to help logistics companies and governments. And as new systems are put in place, customers are discovering benefits in more robust and lower risk supply chains.

An illustration of comprehensive local applications of such systems is the three model ports projects launched by APEC in recent years: in 2006 here in Viet Nam, in 2004 in Thailand, and in 2002 in China. These projects focused on integrating new technologies, modernizing public-sector operations, and depended heavily on private-sector participation and support. Unisys and FedEx played key roles in setting up and supporting operations of Viet Nam's model port systems, and it is our hope that the lessons from such projects can be carried to other parts of the region.

Another interesting area of public-private cooperation has emerged from regional efforts to respond to crises, whether pandemic health threats such as Avian Flu or SARS, or natural disasters such as tsunamis, earthquakes, storms or fires. As government officials have wrestled with questions of how to better prepare for and respond to such emergencies, some responsible businesses have stepped forward and are helping to articulate the critical roles that business can play.

One of the clearest examples is in the area of business preparedness and business continuity planning. In time of crisis, there will be many critical services that we depend on the private sector to provide: telecommunications, information and broadcasting, transportation, electricity and water, food distribution, medical services and financial system clearing and so on. In some sectors I understand business continuity planning is already a requirement, but in many it is not. And in discussions among businesses, many acknowledge that the disciplines involved could actually represent important improvements to their own understanding and management of their business processes.

So, these examples I have cited - express delivery services, supply chain security and emergency planning - demonstrate the broader point that in so many areas related to economic and business activity it is clear that we will do better working together, promoting public-private cooperation, than we will working separately.

I would therefore encourage you to think of APEC not just narrowly as an intergovernmental forum, but broadly as a community in which you are active participants. I believe that by promoting shared values and interests, and building more of a sense of community among members, APEC will bring benefits which in some cases we cannot yet anticipate.

To conclude, I hope to leave you thinking about new opportunities for public-private partnership, and feeling empowered to propose new ideas where you see a need.

I hope you'll think about helping us, in our policy discussions, to better understand business needs and where we should be focusing our efforts.

And I want to leave you with a sense that you are also an important part of APEC.

And with that, I'd like to thank you, and invite any questions you may have.