Accelerating Regional Integration in the Asia-Pacific Region

• 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?

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.

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.