Pacific Economic Cooperation Council (PECC) Singapore Conference 2012
Fellow panellists, distinguished guests, colleagues, ladies and gentlemen:
Please allow me to first acknowledge PECC’s Co-Chairs, Dr. Charles Morrison and Mr. Jusuf Wanandi, for their leadership and commitment to regional growth, and specifically to APEC. I would also like to acknowledge the Chair of the Singapore National Committee for Pacific Cooperation, Professor Tan Khee Giap for his role in this conference.
Thank you all for the invitation to speak and to share some thoughts this morning.
Regional Economic Integration in the APEC Region
First of all – when we discuss regional economic integration (REI), we need to acknowledge the presence of ASEAN. ASEAN accounts for a third of APEC’s own membership. There is the ASEAN Free Trade Area, where all ten ASEAN members committed to eliminate tariff and non-tariff barriers. There is also ASEAN Plus Three that includes China, Japan and Korea, coordinating effectively during difficult times.
A few weeks ago, ASEAN 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 creates incentive for ASEAN economies to deepen their integration with the rest of Asia and pursue a more harmonized and expansive framework.
There is also ASEAN Plus Six seeking to become a center of gravity for integration within the region, collaborating effectively with larger economies such as Australia and New Zealand, and India. ASEAN economies are also working toward making the ASEAN Economic Community a reality in 2015.
Other groupings also exists and this includes the Trans-Pacific Partnership (TPP) negotiations that are drawing attention and involvement from nine APEC economies – Australia, Brunei, Chile, Malaysia, New Zealand, Peru, the United States, and Viet Nam.
The East Asia Summit (EAS) is also thriving, with Russia and the US joining the forum in 2011. Security matters are one of the main topics being discussed at the EAS. The EAS is helping to create a bridge with APEC that allows two integration-focused organizations to better compliment each other’s priorities and strengths. Cross-cutting areas such as disaster preparedness, food and maritime security and structural reform and green growth are discussed – they are also components of APEC’s agenda.
Between APEC’s 21 member economies, around 50 free trade agreements and regional trade agreements, or FTAs and RTAs, currently exist. An FTA between Korea and the US went into effect just last month – this is the largest trade package for the US since NAFTA, which includes three APEC members in 1994.
Viet Nam and Chile’s FTA was also finalized alongside the APEC Leaders’ Meeting in November 2011. Other earlier trade agreements ASEAN were entered into force in January 2010 with Australia, China, Korea and New Zealand, respectively.
The APEC Agenda
Going back to APEC’s original agenda in 1994, Leaders had emphasized the strategic importance of regional economic integration and cooperation as a way to achieve sustainable growth and equitable development in the Asia-Pacific.
This is APEC’s raison d'être – and this is the Bogor Goals that underpin most of what we do.
In the Bogor Declaration, Leaders stated:
“As we approach the twenty-first century, APEC needs to reinforce economic cooperation in the Asia-Pacific region on the basis on equal partnership, shared responsibility, mutual respect, common interest, and common benefit, with the objective of APEC leading the way in:
- Strengthening the open multilateral trading system;
- Enhancing trade and investment liberalization in the Asia-Pacific; and
- Intensifying Asia-Pacific development cooperation.”
The Bogor Goals is a clear target set by Leaders for APEC members to achieve free and open trade and investment by 2010 for industrialized members and 2020 for developing economies. The Bogor Goals are about a further reduction of trade and investment barriers.
And it is important to recognize that the reduction of barriers in the APEC region has been significant since APEC’s inception to present. Members’ progress on these goals is also scrutinized annually through a peer review mechanism.
In addition to concrete initiatives, APEC also fulfils another important function in the region and globally. As an organisation based on open dialogue, APEC takes a leadership role on issues of immediate and pressing importance to members.
During the economic crisis, members used APEC to take a stance against protectionism and to discuss concerns over trade finance.
Now – given the uncertainty surrounding the health of the global economy and persistent concerns related to climate change and energy and food security – APEC’s focus has turned to considering how to secure future economic growth.
For these reasons, APEC developed a Growth Strategy for the Asia-Pacific region in 2010 that will sustain prosperity in the future. Five attributes of growth have been prioritized: balanced, inclusive, sustainable, innovative, and secure.
Balanced Growth refers to dealing with the imbalances that exist both between and within economies. The G20, almost half of whom are APEC members, is dealing with trade deficits and surpluses. APEC also has a role to play.
In 2010, APEC Leaders endorsed the APEC New Strategy for Structural Reform (ANSSR) that aims to promote balanced, inclusive and sustainable growth by fostering transparency, competition and better functioning markets in the Asia-Pacific. In addition, this new strategy also emphasizes a social dimension that includes enhancing opportunities for women and pressing for more education and SME development.
Several ANSSR workshops have been conducted that helped member economies identify priority areas for reform. Members have also committed in November 2011 to implement ANSSR plans by 2015 to reduce behind-the-border barriers, improve social safety nets, and promote growth that is balanced, inclusive and sustainable.
Members have also agreed on the need for Inclusive Growth to allow everyone to benefit from trade and ensure as many citizens as possible have the opportunity to improve their lives. This is translated into action through initiatives that promote job creation, enhance human resources and SME development, create new economic opportunities for women, and improve access to finance for businesses.
Sustainable Growth refers to the need to make growth compatible with environmental imperatives and energy constraints. Already APEC has embarked on new projects that focus on improving energy efficiency and promoting the Environmental Goods and Services (EGS) sector.
APEC Leaders agreed to reduce applied tariff rates to 5% or less on environmental goods by 2015, taking into account their economies economic circumstances. As such, members will work to develop a list of environmental goods by the end of this year that would be subject to those tariff cuts.
Innovative Growth is about creating an environment that promotes and facilitates the development and commercialization of ideas. Cooperating to foster innovative growth has also been identified as a priority for the APEC Russia 2012 year.
APEC has been implementing initiatives that provide policy and regulatory infrastructure conducive to innovation, such as intellectual property rights protection, information and communication technology application, and research and development promotion.
Lastly, Secure Growth means protecting people, businesses and economies from natural disasters, health pandemics or human-made interference that reduce an economy’s productive capacity. Projects that promote good policies and practice in areas such as counter-terrorism, preventing and countering of emergency preparedness, diseases, and food security help realize this goal.
Strengthening food security has also been identified as a priority for the APEC Russia 2012 year. The second APEC Ministerial on Food Security will be held next month in Kazan, Russia. Ministers will be deliberating on how to enhance sustainable development of the region’s agricultural sector, facilitate trade and investment in this sector, and expand APEC’s food supply capacity.
Members are expected to report to Leaders in 2015, for their review, on APEC's progress in promoting the APEC Growth Strategy.
Economic and Technical Cooperation within APEC
The strategic importance of regional economic integration also translates to fostering greater economic and technical cooperation among APEC economies. 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.
APEC 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, as well as reform and concrete action based on APEC strategies.
APEC: Delivering Results
In 2010, an assessment of progress towards the Bogor Goals was carried out by APEC’s Policy Support (PSU) with assistance from the World Bank and other international bodies. The results were positive, showing that member economies have taken concerted action and progressed in a wide array of economic, trade, investment and social areas.
Average tariffs in the region have been reduced from about 16.9% in 1989 to around 5.8% in 2010. Besides tariffs, the assessment also showed significant progress in other areas such as non-tariff barriers, services, investment and trade facilitation. Despite these achievements, more work needs be done to continue reducing existing barriers.
Following the success of APEC’s first Trade Facilitation Action Plan (TFAP I), overall business transaction costs in the region fell by 5% between 2002 and 2006. To encourage further cost reduction, APEC implemented the Second Trade Facilitation Action Plan (TFAP II) from 2008. It includes a set of projects and initiatives that help economies in a variety of trade-related areas from simplifying custom procedures to adopting electronic commerce when conducting trade.
This resulted in an additional 5% in cost reduction was achieved between 2007 and 2010. This latest reduction in trade transaction cost represents total savings for businesses of US$58.7 billion.
Research by the Policy Support Unit also shows that APEC membership has a very strong effect on trade. APEC members are three times more likely to export to, and two times more likely to import from, a fellow member than a non-member. Impact of APEC membership on trade among members is therefore comparable to a free trade agreement, even though APEC members are not bound by formal rules or trade treaties.
APEC economies also enjoy a higher share of intra-regional trade than even the EU, and a much higher share than NAFTA and ASEAN economies.
Pathways to a Free Trade Area of the Asia-Pacific
In 2010, APEC Leaders agreed to take concrete steps toward realization of a Free Trade Area of the Asia-Pacific (FTAAP), which is a major instrument to further APEC's regional economic integration agenda.
FTAAP should be pursued as a “WTO-plus”, high-quality free trade agreement by developing and building on ongoing regional undertakings, such as ASEAN+3, ASEAN+6, and the Trans-Pacific Partnership.
APEC will make an important and meaningful contribution as an incubator of an FTAAP by providing leadership and intellectual input and by playing a critical role in defining, shaping, and addressing the "next generation" trade and investment issues (supply chain, SME participation, and innovation) that an FTAAP should contain.
APEC will also contribute to the pursuit of an FTAAP by continuing and further developing its work on sectoral initiatives in areas such as investment; services; e-commerce; rules of origin; standards and conformance; trade facilitation; and environmental goods and services.
APEC Russia 2012
Following a successful year in 2011, Russia took over the stewardship of APEC from the United States and set out the priorities for the year ahead:
The first priority – liberalizing trade and investment and expanding regional economic integration – builds on the important work undertaken in 2011, which will also move us closer to the long-term goal of an FTAAP.
APEC will also continue 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 is strengthening food security – a crucial issue for this region, which is vulnerable to food security risks and frequently exposed to natural disasters.
The third is establishing reliable supply chains, which is critical in today’s globalized world. The goal is to improve APEC’s supply chains to reduce the time, cost and uncertainty of moving goods and services throughout the region – by addressing eight priority chokepoints that relate to regulatory impediments, customs inefficiencies and inadequate transport networks and infrastructure.
The fourth priority is cooperating to foster innovative growth. Leaders, in their 2011 declaration, stressed the need for policies that further foster competition, promote access to technology and encourage development of innovations.
APEC will continue this work in 2012. One area of focus is fostering cooperation across the region on major innovation projects, as well as addressing barriers to investment in high technology sectors.
APEC’s Economic Outlook
APEC is not ‘de-coupled’ from the rest of the world. APEC clearly understands the threats facing the region from the challenges in the Euro zone crisis and the global economic slowdown.
In the recent IMF World Economic Outlook published this month, the Fund revised up its global growth forecasts, with the global economy expected to grow by 3.5 per cent in 2012, up from 3.3 per cent in the January update. A forecast of global growth of 4.1 per cent in 2013 has also been revised up from 3.9 per cent.
The first APEC Economic Trends Analysis shows that most APEC economies in 2011 were affected by the spread of negative ripples from the Euro zone crisis, mainly via trade and financial linkages. Nonetheless, real GDP in the APEC region is projected to grow by 4.1% in 2012 and 4.5% in 2013, slightly higher than the forecast for world growth.
APEC’s Commitment
With the Growth Strategy, the 2012 priorities and other initiatives, APEC continues to be an important platform to foster economic cooperation.
Indeed, APEC Leaders have strengthened their commitment to regional economic integration and cooperation – and firmly resolved to support strong, sustained and balanced growth in the region.
APEC will forge ahead with its work to break down barriers to free trade and investment and encourage the reforms necessary to enhance the competitiveness and resilience of our economies.
Thank you for your attention.