George Washington University
I would like to begin by thanking Dr. Cynthia McClintock for her kind invitation to speak with the students and faculty of the George Washington American & Hemispheric Studies Program at the Elliott School of International Affairs. It is a particular pleasure to address all of you and an excellent opportunity to share with you some of the background to APEC as well as its priorities and Peru's Chairmanship in 2008.
This particular period in time could be viewed as a catalyst for the international community; the World Trade Organization's Doha Development Agenda is at a critical stage; the world's financial system has been and continues to be shaken by the rapid fluctuations of a traditionally stable currency; the consequences of climate change can be seen throughout the world and the energy market has been impacted by the dramatic increase in the price of oil with non-oil producing economies experiencing the most adverse effects.
And it is in this context - that is the current state of international affairs - that I would like to talk about APEC's approach and significance in the world.
APEC was founded in 1989 as a means to ensure economic stability and growth throughout the Asia-Pacific. A forum for intergovernmental dialogue, APEC endeavors to liberalize trade and investment, facilitate business and encourage economic and technical cooperation among its member economies.
At what was to be one of APEC's most definitive meetings, the Second APEC Leaders Meeting held in Indonesia in 1994 established as an objective the formation of "free and open trade and investment in the Asia-Pacific". Leaders agreed that this could reasonably be achieved by 2010 by industrialized economies and by 2020 by developing economies. These are commonly referred to as the "Bogor Goals" and have consistently shaped the APEC agenda.
Free and open trade and investment helps economies to grow, creates jobs, stimulates international trade and investment and leads to greater opportunity for people of all social sectors. So to this end, APEC seeks to facilitate business in the region, by reducing tariffs and behind-the-border impediments to trade and investment, as well as simplifying procedures and aligning standards and regimes with international norms, facilitating innovation and new technologies and actively supporting the WTO process.
APEC also works to create a safe and efficient environment for the movement of goods, services and people across borders in the region through policy alignment and economic and technical cooperation.
Perhaps more striking than the fact that APEC brings so many different economies to the same table is the fact that dialogues are based on non-binding agreements. Uniquely APEC's approach is founded on principles of volunteerism and consensus. Economies can share their experiences and initiatives with one another so that commitments are genuine and not made because of perceived threat or pressure.
Inspired by exchanges of learning and the will to take collective action, member economies develop common goals and best practice guidelines to strengthen the position of the entire region within the global community. In fact, APEC is the only inter- governmental grouping in the world that operates solely on the basis of open dialogue and equal respect for the views of all participants.
Today APEC members account for around half of world trade, 41 percent of world population and 56 percent of world GDP.
Tariffs have been reduced to an average of about 5.5 percent in most member economies. And after achieving a five percent reduction in business transaction costs as set out in APEC's Trade Facilitation Action Plan - Part one, APEC members are continuing to work towards a further five percent reduction by 2010. More efficient customs procedures, progress towards paperless trading via the single-window system for processing goods, and other trade facilitation measures are saving businesses millions of dollars each year.
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 reduction of one-third. Exports increased by 113 percent, and foreign direct investment by 210 percent.
Between the year 2000 and 2005, APEC economies were adversely affected by a downturn in travel after terrorist attacks in New York and Indonesia; health pandemics including the SARS virus; natural disasters including the tsunami that virtually destroyed so many small Asian communities; a sharp upturn of energy prices; and the bursting of the now-infamous IT bubble. And yet, Gross Domestic Product and trade flow actually increased by 20 percent and import/export volumes by 30 percent within the same period of time. These were not steady or interrupted increases, of course. But they show that sound economic policies contribute to macroeconomic stability and resilience in the face of unpredicted challenges.
Over the last twenty years, the context within which APEC works has experienced unprecedented change: addressing the world's strained natural resources is now an issue of critical importance. Paradigms are being created in accord with the rapidly emerging economies like China. Relationships between some economies are waning while others - such as Asia and Latin America - are being strengthened.
So while the landscape is different it is still true that affecting positive change and preparing defences for future challenges is best achieved through collective action. APEC has grown to 21 Members and considers the growing interdependence of world economies an unequivocal opportunity. Indeed, trade among APEC economies is significant and growing. Intra-APEC merchandise trade has more than doubled since 1994, from US$ 1.4 trillion to over US$ 3 trillion.
APEC has always envisioned a synergistic relationship between the two sides of the Pacific Ocean - not only as an obvious facet of development but as a strategic positioning of the region within the world economic structure. This year's APEC Chair, Peru has been forthright in articulating its intent to link Latin America more securely to Asia.
As governments implement the structural reforms necessary to meet the standards of efficiency necessary to remain competitive amidst globalization, traditional economic powers are being succeeded by emerging economies in the bid for access to goods and financial services markets.
Latin America and Asia play an increasingly significant role in world trade. The economic groups and corporations of the main emerging economies, particularly those of the group called BRICs by Goldman Sachs: Brazil, Russia, India and China, are advancing not only towards external markets of other developing countries but also of industrialized markets of the OECD.
To illustrate, let me provide a few examples. The purchase that Mexico's "CEMEX" made of Australia's "Rinker" for a total of $ 15.3 billion made it one of the bigger businesses of the cement sector; ahead of the French company "Lafayette" and the Swiss company "Holcim". In 2006, Brazil received US$ 19 billion foreign investment and at the same time invested a total of US$ 24 billion abroad.
In fact, if Mexico and South Africa were added to the BRICS group, they would add more than US$ 70 billion to total investment abroad. Of that US$ 70 billion US$ 55 billion has been invested in industrialized countries.
As for Asia, the multinational Indian "Mittal Steel" acquired control of the European business "Arcelos" for a total of 27 billion Euros in 2006, thus becoming a world leader in this area. Total Chinese direct investment abroad in recent years has been in the region of US$ 21 billion; a figure higher than that of previous years, with investments in Latin America in the sectors of energy and commodities in Brazil, Peru, Mexico, Colombia, Chile, Ecuador and Venezuela, among others.
All this is to say that the rapidly increasing economic importance of Latin America and Asia to the world market and for business-to-business relationships can not be overstated. WTO Statistics for 2006 show that the trade of Latin America directed toward Asia was US$ 52.2 billion (2005), or 14.5 percent of total Latin-American trade. However trade figures of Asia with Latin America were greater in absolute terms and reached US$ 82.2 billion, but they only signify 2.9% of the total trade of the said region. One can see then that business opportunities certainly exist in the two regions.
The increase in trade between Latin America and Asia could be further supported with the development of strategic alliances among businesses of both regions. Strategic business alliances would allow a better use of the industrial fragmentation that promotes industrialization. And the development of alliances is one of the main goals of the CEO Summit to be held in Lima in 2008
The Peruvian Chairmanship of APEC has infused the agenda with a flavor as timely as it is distinct. In pursuing comprehensive and systematic trade, Peru has added a social dimension to the existing agenda. Traditionally tolerated disparities are now recognized as impediments to realizing economic potential at all levels; and so developing policies and practices to address them have become a priority.
For example, reaping the benefits of globalization can produce the most notable results for Small and Medium Enterprises and so the ability to compete in an international arena cannot be underestimated.
SMEs account for over 98 percent of all enterprises and employ as much as 60 percent of the work force in the APEC region. Yet, at present, they only account for about 30 to 35 percent of exports. In fact, research shows that many SMEs feel their full participation in the global economy is undermined by both internal and external factors.
APEC Peru is giving greater attention to the development of Small and Medium Enterprises, in order to facilitate their entry into the globalized market. One means of doing so would be to include SMEs in Free Trade Agreements.
Since 2006 APEC has had in place a four-year plan for private sector development which includes a focus on SMEs. This year Peru will concentrate on the issue of new business licenses.
While the WTO provides an international trading system, the relatively recent proliferation of Free Trade Agreements must also be taken in to account. Fifty percent of world trade occurs through free trade agreements and of the approximate 300 Free Trade Agreements that exist throughout the world, no less than 119 are within the Asia Pacific region.
And while it is a long-term vision, APEC is currently exploring the possibility of a Free Trade Area of the Asia Pacific so that stakeholders have the freedom to explore all opportunities so as to ensure a stable and secure trading environment for the region.
At the same time, economies and the business people driving them must be prepared to take advantage of opportunities as they arise. The "Digital Divide" is, in some cases a veritable gulf, alienating those who lack either access to or skills in information and communication technology. Data processing has proven to be an unparalleled medium for entry into the globalized world and I should direct your attention to the contribution of the United States Government, through its "Freedom Digital Initiative", which has been of great benefit to the small and micro enterprises of Peru.
Another priority area is the facilitation of private-public partnerships. One of the most high profile APEC meetings this year will be the APEC 2008 CEO Summit. In fact, it is quite likely the single most important business meeting for the Asia-Pacific. Showcasing the offerings of both Asia and Latin America, the forum allows participants to investigate the markets of continents and to meet directly with business leaders, ministers and government leaders from throughout the region. And Business Associations from non-APEC Latin American countries have been invited to attend and take advantage of an opportunity to develop, on a first-hand basis, contacts with businesses from the Asia Pacific region.
For the first time ever APEC's business arm, the APEC Business Advisory Council (ABAC), will be organizing an SME Summit in two parts. Part one will be held in August in Hangzhou, China and over 10,000 SME participants are expected to attend. As a point of interest this event is being organized by the lead Founder and Chairman of AliBaba.com Mr. Jack Ma. And for those of you who don't know AliBaba.com is the number one online marketplace for global and domestic China trade.
As many of the Latin American SME partners are unable to travel to China, Peru as Chair of ABAC is organizing a Part two to the SME Summit which will take place in Lima in September.
But APEC is also concerned with the private sector on a day-to-day basis and has incorporated into the agenda discussions of Corporate Social Responsibility. Drawing on the expertise of the APEC Business Advisory Council, as well as the actual experiences of member economies, talks will consider best practices and practical lessons from the private sector, incorporation of social and environmental factors to policy frameworks, and the role of government, industry and civil society in strengthening resource governance.
All these initiatives require time before fruits may be seen. As Chair and host of APEC 2008, Peru is taking the opportunity to plant seeds for the future. It is the hope of Peru that by the close of 2008 relations between Asia and Latin America will be even closer, and we are confident that the region will continue to grow stronger and see effects that are even farther reaching. Let us together, academia, business and governments take this on as a responsibility in the years to come.