Accelerating Regional Integration in the Asia-Pacific Region

Singapore, 15 July 2009
  • Speech by Ambassador Michael Tay, Executive Director, APEC Secretariat
Good morning ladies and gentlemen.
We've come together today to talk about regional economic integration in the Asia-Pacific.
At the very outset this gives us two 2 hurdles to clear:
First, the very notion of an Asia-Pacific region may be considered improbable. Certainly, it doesn't comply with the usual prerequisites of geographical proximity and a common culture.
Secondly, many see Asian and Latin American economies as competitors rather than complementary, hence making the ideal of economic integration tenuous.
Nevertheless, there has been an instinctual desire to bring both sides of the Pacific closer together. There's a feeling that, despite the obstacles, better integration will boost trade and investment, and increase prosperity and living standards for all.
The most notable attempt to give shape to these aspirations came in 1989 with the establishment of APEC.
In part this was due to the rise of post Cold-War international norms that emphasised the benefits of state cooperation and interdependence. This was particularly the case for the emerging powers of Asia and the Pacific, who decided that their future lay in open markets and integrated economies.
But it was also based on politicians and bureaucrats finally waking up to what had already happened in the private sector. Multinational corporations were disregarding borders so it made sense for governments to start thinking that way too.
Once again we're seeing massive shifts in the dynamics of the region. The United States is not going to be the insatiable market it once was. The emerging economies of Asia and Latin America will have to be more than just commodity providers, manufacturers, or the funders of the United State's consumption. Going forward, the US is not going to be the foreign direct investor it once was either, and that vacuum will be filled by others. Indeed China is already rivalling the World Bank and the Inter-American Development Bank as a major lender to Latin America, at a time when China is flush with cash and many companies can't get access to bank loans.1
All these things will have a huge impact on strategic and commercial networks in the region.
This also has profound implications for those promoting integration in the region - especially for APEC. From the very beginning APEC was designed to focus on the economic elements of integration and to provide a better regional environment for business. So once again, as businesses' needs change, APEC has to evolve.
This year business has told APEC to put regional economic integration front and centre on the agenda, so that's what it's done. In fact, starting today, and running for 25 days straight - right here in Singapore - there will be scores of Ministerial, senior official, senior financial official and APEC fora meetings considering exactly this issue.
Therefore, I'd like to use the opportunity of this conference to consider with you:
  • what has APEC done on REI in the first 20 years of its existence, and has it been successful?
  • and, what does APEC intend to do in the future to meet new commercial realities and needs?
The evolution of REI in APEC

Stage 1: At-the-border
When APEC was established the main impediment to trade between members was the high level of at-the-border barriers; so APEC turned its attention to tariff and non-tariff measures.

Unlike the WTO, APEC chose to pursue a consensual and unilateral liberalisation approach, with members reporting on their progress through annual Action Plans.

Although it doesn't look like APEC's original goal of free trade by 2010 for industrialised economies will be reached, substantial progress has been made. A report done in 2005 shows that tariff barriers had been reduced from an average of 16.9 percent in 1989 to 5.5 percent in 2004.

Also because APEC acts as a facilitator of bilateral discussions between members, it has been a launch pad for many free trade agreements. At last count 42 such agreements exist between members.

But in terms of real tangible impacts, I have no doubt that this process of liberalisation has helped bring about: the three-fold increase in GDP2; and the five-fold increase in intra-APEC merchandise trade3, that the region has seen between 1989 and 2007.

Right now APEC's main concern is that these achievements aren't lost to protectionism. That's why at last year's Leaders' Meeting in Peru, APEC Leaders committed to a 12 month standstill on protectionism.

Since then domestic calls for protection have grown louder as the crisis has become more intense, and as a result some slippage has occurred. To tackle the issue, APEC is now working closely with the WTO Secretariat to monitor measures introduced by members that could be considered trade restrictive or trade distorting. And later this week, WTO Director-General Pascal Lamy will be attending the APEC Meeting of Ministers' Responsible for Trade, to give us our report card.

APEC will also be taking the opportunity of Mr Lamy's visit, to give new impetus to the Doha Round negotiations, so that global economic integration can progress.

As a Plan B, APEC is examining options for a Free Trade Area of the Asia Pacific. This is an initiative of the APEC Business Advisory Council. Through ABAC, the region's business leaders have expressed frustration with the WTO delays, and have made plain their desire for a regional alternative.

While a lot of groundwork has already been done, a Free Trade Area of the Asia Pacific remains a long-term prospect. Therefore in the interim APEC is working on things that can make a difference to businesses now.

Although many FTAs already exist between APEC's members, take up is low due to the complexity of the agreements. This year APEC is working on ways to simplify Rules of Origin so that businesses can take advantages of the preferential treatment that already exists.

And to ensure that future FTAs are more consistent, APEC has developed 15 model chapters that members can refer to when drafting new agreements.

Behind-the-border
However, in the last decade as the marginal benefits of further tariff reductions have fallen, it has become clear that economies can benefit more from structural reform - or the removal of behind-the-border barriers.

For example, a 2007 report by Philippa Dee at the ANU in Canberra shows that regulatory reform in East Asian economies would generate annual gains of over 100 billion US dollars, whereas a successful conclusion of the Doha Round would result in annual gains of just 30 billion US dollars.

This academic research is echoed by the business sector, which has been telling us of the need to better coordinate domestic policies on things like customs, competition policy and regulatory regimes.

Since 2004 APEC has had a comprehensive Leaders' Agenda for the Implementation of Structural Reform (LAISR), and in this area APEC has been a leading light - no other organisation in the region does anything comparable.

APEC has also embarked on a series of grass-roots Trade Facilitation Action Plans. The first Plan reached its goal of reducing business transaction costs in the region by 5 percent in 2006, and the next Plan aims for the same by 2010.

An Investment Facilitation Action Plan - a regional first - is also being implemented.

And in response to the growth in importance of the services sector, a Services Facilitation Action Plan has been mooted, and it should take shape by the end of the year.

This year however, APEC has prioritised regulatory reform as the way to improve the business environment. The Economic Committee - with input from the APEC Business Advisory Council - has identified 5 priority areas for regulatory reform, based on the World Bank's Ease of Doing Business Indicators. Work is now being done to develop an Action Plan to remove the impediments identified, and the Plan will be presented to Leaders for their approval at the end of the year.

Across-the-border
Simultaneous with this work, APEC is also moving to accelerate integration on a third front - namely, across-the-border. Again, in consultation with the business sector, it has become clear that major cost and time benefits can be reaped, if connectivity and logistics in the region are improved. This is especially true for a region like ours where supply and manufacture chains involve many players.

Consequently APEC is developing what's called the Supply Chain Connectivity Initiative. Work is now being done to identify choke points along the entire supply chain, with the objective of formulating a Supply Chain Connectivity Framework by the end of the year.

APEC has already addressed the mobility of businesspeople through the APEC Business Travel Card scheme. The cards allow visa-less travel and fast-track immigration processing in APEC economies, saving valuable time and money. Over 57,000 businesspeople are now cardholders, and all APEC member economies but one participate in the scheme.

Conclusion

As you can see, APEC's integration agenda has evolved over time and APEC is always acutely aware of the need to make policy, not in a vacuum, but to suit the realities of the day.

The economic crisis is a wake-up call that tells us, the business and economic models of the past are not going to work in the future. We can expect new patterns of production and trade, new strategic alliances between globally integrated companies, and new opportunities and threats in this fragmentation for SMEs. Critical issues such as climate change and food and energy security will also force massive change.

Therefore in the discussion that follows today, I'd like you to consider what an organisation like APEC can do, in terms of concrete programs and initiatives, to provide a regional ecosystem which will allow our businesses and economies to continue to thrive and prosper.


1. Bridges, T, 8th July 2009, "China makes its move as U.S. falls back in Latin America", Mc Clatchy Newspapers (http://www.mcclatchydc.com/226/story/71510.html).
2. From US$11.8 trillion to US$40.5 trillion
3. From US$1.7 trillion to US$8.44 trillion