Economic integration in the Asia-Pacific region and the role of APEC
Introduction
Good morning, ladies and gentlemen. I would like to extend my sincere greetings to all of you and thank the Ministry of Foreign Affairs and Diplomatic Academy of Viet Nam for your tremendous hospitality and offering me an opportunity to talk about economic integration in the Asia-Pacific region and the role of APEC.
Now, there are some who say that efforts to bring economies closer together through broad policy consensus are at an impasse. In particular, they may point to the challenges of lowering global tariff barriers and diverging interests such as those between developed and developing economies which have stalled the Doha Development Agenda.
Even my good friend in Geneva, Pascal Lamy, Director-General of the WTO, reported in February that “the current political environment dictates that the most realistic and practical way forward is to move in small steps, gradually moving forward the parts of the Doha Round which are mature, and re-thinking those where greater differences remain”.
Others may point to protectionist inclinations brought on by global uncertainty as a sign that a move towards a greater free flow of goods and services is too difficult.
Indeed, world trade expansion dropped to 5.0 percent in 2011, compared to 13.8 percent the previous year, the WTO announced just last week. And growth is projected to slow further to 3.7 percent in 2012, weighed down by alarm over factors such as the European sovereign debt crisis.
It’s true that downside risk to the global recovery remains high. Just last week Director-General Lamy said, “It is time to do no harm. WTO members should turn their attention to revitalizing the trading system and to ensuring such a scenario does not materialize.”
And I agree.
It would be misplaced for anyone to downplay or ignore issues such as these, especially those of us within APEC.
After all, they are counter to the principles that Viet Nam and fellow APEC economies embrace and are working to bring about: sustainable growth and prosperity, free trade and investment, economic integration, and robust business and technical coordination.
Nobody ever said that progress in these intersecting areas would come easily, but neither is it proving beyond our reach. To the contrary, there is a great deal happening across the Asia-Pacific that demonstrates that we are still very much on the right path forward.
Regional economic integration efforts in the Asia Pacific Region
Notably, around 50 free trade agreements and regional trade agreements, or FTAs and RTAs, currently exist between APEC’s 21 member economies.
An FTA between Korea and the US went into effect just last month, for example. Notably, it’s the largest trade package for the US since the North American Free Trade Agreement which includes three APEC members in 1994.
Viet Nam and Chile’s FTA finalized alongside the APEC Leaders’ Meeting in November 2011 and a slew of earlier trade agreements ASEAN that were entered into force in January 2010 with Australia, China, Korea and New Zealand, respectively, are further milestones.
We have seen all ten ASEAN economies commit themselves to the elimination of tariff and non-tariff barriers between one another as part of the ASEAN Free Trade Area.
ASEAN Plus Three, including China, Japan and Korea, has shown that it can coordinate effectively, even in difficult times. Just a couple weeks ago, members agreed to double the Chiang Mai currency swap initiative to US$240 billion to make it easier for members to reduce their foreign exchange reserves and ward off possible crisis shocks from Europe.
Such progress appears to have helped create greater incentive for ASEAN economies, which together account for a third of APEC’s own membership, to deepen their integration with the rest of Asia and pursue a more harmonized and expansive framework for doing so.
ASEAN Plus Six is showcasing ASEAN’s ambition to become a center of gravity for integration within the region and that it has the wherewithal to collaborate effectively with larger economies such as Australia and New Zealand, and India.
With an eye on the future, ASEAN economies are working toward making the planned ASEAN Economic Community a reality in 2015. And Trans-Pacific Partnership deliberations are of course drawing considerable attention and involvement from APEC economies such as Viet Nam.
The East Asia Summit is meanwhile thriving, with Russia and the US joining the political, socio-economic and security forum in 2011 and helping to create a bridge with APEC that allows our two integration-focused organizations to better compliment one another’s respective focuses and strengths.
This is particularly the case in cross-cutting areas such as disaster preparedness, food and maritime security and structural reform and green growth—each crucial components of APEC’s agenda.
Role of APEC
I am deeply encouraged by these developments and proud of the contribution APEC and its members have made over the last 23 years in fostering the kind of understanding, interest and propensity for action needed to mobilize the building of a more integrated and prosperous region.
APEC is neither a binding institution, nor a negotiating body. Instead, APEC operates on the basis of open dialogue and consensus.
The non-combative environment APEC provides allows new ideas to be tested, and mutual understanding and closer collaboration to develop between members and other stakeholders, including business, academia and peer multilateral institutions.
This non-binding nature is a particularly valuable tool given the social and economic diversity of APEC’s members, which straddle four continents and account for more than half the world’s population.
APEC’s pathfinder approach, for example, allows member economies, who are ready, to introduce policy changes and for others to follow suit when their circumstances allow.
Though APEC doesn’t institute rules, it does set targets, including quantitative ones, and assesses progress to ensure APEC delivers on its promises.
The Bogor Goals established by APEC Leaders in 1994 for free and open trade and investment in the region are a key example.
They include a broad timetable of 2010 for developed economies and 2020 for developing ones, and directly feed into APEC’s cooperative, integration-focused objectives. Members’ progress on these goals is scrutinised annually through a peer review mechanism.
In 2010, such an assessment was carried out by APEC’s Policy Support Unit or PSU, with inputs from the World Bank and other international bodies, revealing significant progress in breaking down barriers to trade at, across and behind borders.
The PSU is one important mechanism for APEC to measure its progress. Established in 2008, the PSU helps members and APEC’s working groups improve the quality of their deliberations and work, including by conducting rigorous research and analysis on APEC initiatives.
To achieve its goals, APEC proactively builds members’ capacity via economic and technical cooperation. Projects focus on everything from standards and conformance issues to micro-finance and customs procedures. In the process, APEC promotes skills transfer, knowledge and best practices, reform and concrete action based on APEC strategies.
Since 1993, when APEC’s capacity building work started, over 1,600 projects have been undertaken, with than 150 projects being implemented at any given time.
Last financial year, APEC committed more than US $14 million to this effort.
Delivering results
APEC’s work has achieved significant tangible results. The region’s tariff averages, for example, have fallen from 17 percent when APEC was established in 1989 to 5.8 percent in 2010. This translates into substantial savings for consumers and cost reduction for manufacturers.
Non-tariff barriers have also been substantially reduced across the APEC region, most of them being World Trade Organization-consistent measures.
This free trade progress has created a much greater level of regional economic integration than would otherwise be expected. And it is enhancing APEC members’ attractiveness to trading partners and the business community in general, as recent data illustrates.
Between 1989 and 2010, intra-APEC merchandise exports and imports increased nearly six-fold from $1.7 trillion to $9.9 trillion, occupying 67 percent of APEC economies’ total merchandise trade.
What is more, APEC economies’ total goods and services trade increased more than five-fold during this same period to US$16.8 trillion.
For people living across the APEC region, particularly in developing economies such as Viet Nam, members’ support for free and open trade and investment, and economic cooperation has brought extraordinary gains and more critically, the chance for a better life.
From 1994, when the Bogor Goals for free and open trade were established, to 2010, the GDP of APEC economies grew by 59 percent compared to 53 percent for the rest of the world. Employment in the region meanwhile grew by 8.4 percent from 1996 to 2009.
Between 1989 and 2010, APEC economies’ per capita GDP rose from about US$8,000 to over US$13,000, with annual per capita GDP increases in the region nearly double the rest of the world’s during this period.
Turning to APEC’s work on streamlining the flow of trade or trade facilitation, APEC reached its target of reducing trade transaction costs by five percent across the region between 2007 and 2010 following successful implementation of its Trade Facilitation Action Plan 2 or TFAP2.
This reduction is in addition to an initial five percent reduction achieved between 2002 and 2006, under the first action plan. The latest reduction represents US$58.7 billion in total savings for businesses, including small and medium size enterprises that are the backbone of the region’s economies.
As part of TFAP2, APEC has been carrying out projects around the region to encourage members to undertake reforms and improvements to streamline trade in four priority areas:
1) Customs procedures to improve supply chain efficiency, cost effectiveness, reliability and safety
2) Standards and conformance to eliminate red tape, enhance transparency and promote regulatory convergence and harmonization
3) Business mobility to expedite travel time through initiatives such as the APEC Business Travel Card
4) Electronic commerce to protect data privacy and promote simple, easier paperless trading
This work is ongoing.
Russia 2012
In 2012, Russia took over the stewardship of APEC from the United States and has set four related priorities for this year.
The first priority – liberalizing trade and investment and expanding regional economic integration - builds on the whole of APEC’s work. To this end, APEC continues to address next generation trade issues.
Through APEC’s open, consensus approach, APEC seeks to identify ways to reconcile convergences and divergences between existing and up-and-coming free trade agreements and regional trade agreements.
APEC is also studying trade and investment agreements to develop principles for future deals as well as exploring ways to possibly enlarge, dock or merge existing agreements.
As members meanwhile negotiate their own free trade measures, APEC is identifying benchmarks to help them improve transparency and effectiveness. These range from trade in goods and government procurement, to origin procedures, competition policy and dispute settlement.
This is moving us closer to the long-term goal of a Free Trade Area of the Asia-Pacific which could extend the advantages of economic integration. Thus far, this has provided the region an environment for trade that is as open, free and fair as possible for the businesses, industries and innovators upon which the future of the region depends.
APEC is meanwhile continuing to search for ways to align technical standards and regulations across the region, making it easier, cheaper and faster for businesses to trade across borders.
The second APEC priority in 2012 is strengthening food security – a crucial issue for this region, which is vulnerable to food security risks and frequently exposed to natural disasters. Certainly this is the case here in agriculturally rich, yet dangerously flood-prone Viet Nam.
While much has been done in this area, APEC is focusing on raising food quality and safety, including enhancing conformity to food safety standards. At APEC meetings in Montana, USA last May, economies committed to work together to strengthen their food safety systems and harmonize their food safety standards with international ones.
APEC and the World Bank also signed a memorandum of understanding last year agreeing to jointly carry out capacity building projects across the region to promote food safety and supplies.
This year, APEC is also supporting sustainable development of the agricultural sector. This includes implementing projects that increase food market transparency, such as monitoring and exchanging information on supply, demand and production of food. It also involves implementing projects that reduce the costs and losses of producing food and getting these goods to market.
In 2012, APEC’s third priority is to push ahead with strengthening supply chains, which is critical in today’s modern globalized economy. Goods are no longer made in one market but rather produced by sourcing components from all over the region and the world. I’m sure everyone here has heard about the production of the iPhone, for example, and how its supply chain spans from California, Japan and Korea to Taipei and Shenzhen.
APEC is already working to improve the region’s supply chain to reduce the time, cost and uncertainty of moving goods and services. The goal is a ten percent improvement by 2015 by addressing eight priority chokepoints. These chokepoints relate to regulatory impediments, customs inefficiencies and inadequate transport networks and infrastructure.
APEC is also paying particular attention to the safe operation and protection of transportation facilities. This involves conducting capacity building activities on emergency preparedness and disaster relief.
APEC’s fourth priority in 2012 is the fostering of innovative growth. Leaders, in their 2011 declaration, stressed the need for policies that further boost competition, promote access to technology and encourage development of innovations.
With this in mind, APEC is facilitating cooperation across the region on major innovation projects and networking among businesses, academia and government institutions. We are also addressing barriers to investment in high technology sectors.
Viet Nam reaches out
Viet Nam is playing a key role in this equation.
Thirteen and a half years ago, in mid-November 1998, Viet Nam, together with Peru and Russia, joined APEC to boost our membership to 21 like-minded economies.
Though Viet Nam was one of APEC’s last three entrants, it has demonstrated, like other members, that time and again, its commitment to advancing liberalized trade and investment, and intra-regional cooperation is critical to its development.
In 2006, Viet Nam of course successfully drove forward this agenda as the APEC host economy. Here in Ha Noi, APEC Economic Leaders that year identified specific actions and benchmarks for delivering free and open trade, and capacity-building measures to assist APEC economies, facilitated by Viet Nam’s very significant contribution and support.
In the ensuing six years, we have seen Viet Nam continue to actively promote APEC’s work while taking it on board back at home. One need only consider that Viet Nam has in total implemented more than 60 APEC initiatives and co-sponsored hundreds more.
E-commerce, food safety, healthcare, human resources development and irregular flooding responses are just a few of the areas Viet Nam has focused on using APEC channels, in addition to broader trade, investment, and technical and economic cooperation issues.
In the process, we have witnessed Viet Nam grow closer than ever to fellow APEC economies.
In 2011, after 25 years of development and economic outreach in Viet Nam under doi moi market reform, APEC members accounted for 60 percent of exports, 65 percent of total foreign investment and 80 percent of imports.
In the margins of the Leaders’ Meeting last year, Viet Nam and Peru completed a customs agency mutual assistance agreement, reflecting a desire to maximize the value of these gains at home and across the region.
In the same vein, Viet Nam most recently hosted a series of APEC telecommunications meetings in Da Nang and will of course also host an APEC dialogue on air cargo security on Thursday and Friday to consider better ways for members and industry stakeholders to jointly address facilitation and secure trade questions. I’m thankful for the invitation to say a few words there, before so many esteemed experts.
Moving closer still
Viet Nam’s move towards greater goods and services free-flow, and collaborative economic engagement is in line with the many positive region-wide developments I have described today.
And there is an apparent thirst for more among APEC members.
Certainly, we will continue to see economies work with one another to hatch new trade and investment agreements, which are in keeping with the spirit and initiatives of APEC and its principles.
Correspondingly, there will no doubt be increased public and private sector demand for APEC’s guidance pertaining to trade facilitation, the ease of doing business and structural reforms.
There is still plenty of room for the additional narrowing of regulatory gaps and support for efforts to this effect. Significantly, 4,000 business and opinion leaders surveyed by the Pacific Economic Cooperation Council regard regulatory hurdles as one of their biggest challenges to doing business in the Asia-Pacific.
Moving forward, there will be opportunities for economies in the region to expand cooperation between them in the name of addressing such issues.
Based on where we are now, this could include stepped-up potential for the unlocking of trade and investment benefits constrained by lingering barriers.
To get where need to go on these issues, APEC will continue to do its part towards bringing Viet Nam and other member economies together, for the benefit of us all.
Thank you all very much.