Pacific Economic Congress

Vladivostok, Russia, 26 July 2008
  • Speech by Ambassador Juan Carlos Capuñay, Executive Director, APEC Secretariat
I would like to thank Governor Darkin for inviting me to participate in this event and permitting me to speak with you about APEC and the opportunities that exist for Russia.
Much has changed since APEC's inception and the world's political and economic landscape is much different today than it was 20 years ago.
The world's financial system has been affected by the fluctuation of a traditionally stable currency; the consequences of climate change can be seen throughout the world; food prices are escalating and the energy market has been impacted by the dramatic increase in the price of oil, with non-oil producing economies possibly experiencing the most adverse effects.
International relationships have also experienced a transformation: once-marginal economies are flexing their muscles to secure new and more open participation in the global market.
It is a precarious time and might even be considered catalytic - similar to 1989, the year that APEC was first established. The Cold War had ended but not before affecting dramatic geo-political changes. Political and ideological confrontation has been replaced by interdependence and a global economy.
The initial regional economic body in South East Asia (ASEAN), has evolved into a major entity, not only regional but also extra-regional power. By the end of the last decade, the international scene observed the creation of the "Asian Dialogue Partners" and the "ASEAN Regional Forum", which now includes not only economic issues but also strategic and political considerations.
At the beginning of this century, in 2005, a new initiative was adopted: the "East Asia Summit" includes ASEAN, India, Japan, China, Korea, Australia and New Zealand as members and Russia as an observer. This body is in the process of drawing together important members, in response to the real politik of Asia and the Asia-Pacific.
It was in this context that APEC introduced a most innovative approach, guided by rules that were based on consensus. APEC members were in various stages of development, cultures could not have been more diverse and a shared language was among relatively few commonalities.
The only thing that members held in common was the will to sustain economic growth throughout the region and a conviction that this could be achieved through trade and investment liberalization and facilitation throughout the Asia-Pacific region.
Apparently, this single commonality was enough.
Since its inception, APEC has grown from just 12 members to 21. Foreign direct investment inflows to the region are 50 percent greater, exports 433 percent higher and average tariffs have fallen from 17 percent to 5.5 percent in 2004. More than 200 million new jobs have been created in the region including 180 million in lower-income economies, and almost 200 million people have been lifted out of poverty - a reduction of one third. Per capita GDP in the region has almost tripled; cellular phone subscriptions have increased by over 55 percent; and internet users by over 30. APEC members account for almost half of world trade, over 40 percent of the world population and 56 percent of world GDP. It is a different world today and it is a better one.
These achievements have been remarkable but success should come as no surprise. APEC is, after all, based on the premise that regional economic prosperity is driven primarily by market forces. While governments want to promote economic growth and increased standards of living, it is private business that constitutes the engine of growth and leads the way in developing and adopting new technologies. It is the private sector that carries out the trade and investment activities that create economic growth.
But governments and intra-governmental bodies build effective policies which shape the environment in which business operates. By providing legal frameworks, good governance and stable and open markets; a business-conducive environment; and addressing sudden shocks to our markets and communities, APEC members have the capacity to influence the economic environment at a global level.
While APEC's original "three pillars" - trade liberalization, trade facilitation and economic and technical cooperation - continue to underpin all of its work, the way APEC pursues its objectives continues to evolve to accommodate the needs of all their members. However, its flavor largely determined by the host economy.
As the host of APEC 2008, Peru has given priority to projects that will not only satisfy imminent needs but which anticipate and address challenges of the future. For example, Peru has taken a leadership role in strengthening trade relations between established economic players and newly emerging ones.
APEC 2008 Peru is also paying close attention to enduring challenges and the issues most relevant to the social dimensions of the APEC agenda.
For example, it is frequently argued that globalization is of obvious benefit to large corporations but potentially damaging to owners of small and medium sized businesses. APEC 2008 recognizes that the ability to compete in an international arena is indeed critical to SMEs. SMEs account for over 80 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 the context of APEC 2008, this represents a phenomenal opportunity. By empowering SMEs, the globalization can stimulate returns that are both more notable and more broadly experienced.
This is also why APEC 2008 has focused specifically on the development of private/public partnerships. By engaging the private and public sector in projects of mutual interest, both enjoy the benefits of their commitment while at the same time, the playing field is leveled. Small and medium sized businesses are being developed and positioned to take advantage of the opportunities available to them. And, ultimately, this will lead to better business and greater gains for all.
Another particularly relevant example is the region's stake in global responses to the challenges of climate change, energy security and clean development. APEC economies account for 60 percent of global energy demand and include the world's four largest energy consumers, as well as some major energy producers. Apart from a responsibility to deflect the scale of its own environmental impact, addressing issues such as energy and climate change is fundamental to the macroeconomic stability and sustainable growth of the region.
It is generally acknowledged that higher domestic fuel prices will drive inflation, and that this will be a threat to macroeconomic stability. This is particularly true as people throughout the region are already feeling the effects of rising food and fuel prices and governments find themselves facing a dilemma: stricter monetary policies may seem an effective response to inflation but threaten to exacerbate the situation and lead to political instability.
A range of policy instruments are therefore being discussed with a view to protecting member economies from the effects of higher and more volatile energy prices. Finance Ministers have noted the importance of adequate investment in oil production, refining capacity, and technology transfer for energy conservation, and have advised economies to foster the reduction of demand-distorting subsidies on the energy market. Perhaps one alternative is the promotion of new sources of energy, such as natural gas or biofuel.
Our ability to find sound economic solutions to environmental challenges will be fundamental as the world becomes increasingly globalized.
The Senior Officials Committee on Trade and Investment is working to put forward an APEC list of environmental goods for potential tariff reduction and possible elimination to complement the WTO process. If this is achieved, barriers to trade in energy saving and energy efficient products will effectively be removed.
The Asia Pacific region has before it both new opportunities and new challenges. Markets are now truly global. Relationships between some economies are waning while others are being strengthened.
In addressing the challenges of our time, the importance of alliances cannot be overstated. The success of APEC, which may have seemed to defy reason, is largely attributable to the will of diverse economies to cooperate toward a single common goal. Now, as we consider the seismic shifts in the modern landscape, perhaps the most significant is the increased interdependence amongst world economies.
This year alone, Peru has signed free trade agreements with Canada, the United States, Singapore, and Thailand; and is in negotiations with China and the European Union.
There are an approximate 385 free trade agreements throughout the world. Of these, no less than 119 are within the Asia Pacific region. Completed FTA/RTAs amongst APEC members total 27 and an additional 16 are currently under negotiation.
The Asia-Pacific is now one of the most dynamic economic regions in the world, accounting for 45 percent of the world total imports and 44 percent of exports. But 70 percent of APEC's trade activity is conducted within the region. While it is a long-term vision, APEC is currently exploring the possibility of a Free Trade Area of the Asia Pacific. Stakeholders should have the freedom to explore all opportunities so as to ensure a stable and secure trading environment for the region.
Culturally, Russia has most often been aligned with Europe and, at present, the majority of Russia's trade partners are within the EU and CIS.
But the pendulum of economic growth now swings toward the Asia-Pacific. APEC outranks the world average in GDP growth as well as GDP per capita. As the Asia-Pacific continues to grow, so too will the need for it to achieve greater economic efficiency, productivity and competitiveness. In addition to opportunities in trade and enhanced trade relationships, the value of APEC to Russia will become increasingly pronounced.
In the years after Russia's joining APEC in 1998 through 2005, its exports to APEC member economies increased by 97 percent and imports from the same economies by 208 percent. As Russia's economy continues to grow, structural reform will be fundamental to the development of a market that is healthy and robust. The role of APEC in this process should not be underestimated.
Consistent and sound economic strategy, a fully modernized financial system in which investors feel confident is essential to expansion. In recent years, a number of important reforms have already been implemented in the areas of tax, banking, labor and land codes.
As Russia develops and implements such reforms, it reaps the benefits of participation in APEC policy-related and technical working groups and in capacity-building initiatives. This is particularly true as Russia prepares to host APEC in 2012.
In addition, APEC's principles of free and open trade and the work being done in areas such as structural reform, SMEs, education and transparency will be helpful as Russia's trade relationships proliferate. Fifty percent of world trade occurs through free trade agreements.
As a major power in the Asia Pacific region, Russia plays an important role, both as an APEC member economy and as a rising global entity.
Russia belongs to the economic group, referred to by Goldman Sachs as BRICS - Brazil, Russia, India and China - which is one of the main actors in the new international economic structure. This group is transforming the balance of power between developed and developing economies. Today, once-secondary economic players are competing alongside and in some cases succeeding traditional powers in the international market. Moreover, in 2006, BRICS invested 75 billion in other economies. From that amount, 55 billion were invested in OECD economies.
APEC economies with the greatest recent GDP growth rates are Russia, Peru, China and Vietnam and this illustrates the ephemeral nature of global wealth concentration. Latin American economies have been particularly ambitious in fostering relationships within the region, conducting almost 185 billion dollars in trade with Asia in 2006.
For Russia, APEC 2012 represents an opportunity for development and integration and an excellent platform for the promotion of its potential to throughout the world.
At the same time, APEC 2012 presents a great challenge for its government and society: the Russian economy will benefit greatly from business opportunities created by the 2012 APEC CEO Summit - particularly in terms of investment and trade, which will directly benefit SMEs. By the end of 2012, Russia's relationship with the Asia-Pacific will have been renewed and stronger than ever before. It will be fully inserted to both regional and markets.
Russia is a cornerstone to the region that has come to epitomize economic prosperity in the 21st century and its voice will be increasingly influential in the global arena.
The Russian chairmanship of APEC 2012 is an unparalleled opportunity not only to exhibit Russia's own economic achievements and some dramatic advances made in a relatively short space of time. But perhaps more importantly, Russia will be positioned to facilitate critical debate, affect the international agenda and to shape the global economic landscape.