APEC 2011: Can the US deliver?

Andrew Elek
ANU and member of AUSPECC

This article is cross-posted from the East Asia Forum website

The most important objective of international economic cooperation in 2011 is to conclude the Doha Round. The United States has the influence to do that if it is prepared to show political initiative and have realistic expectations of others.

The APEC group can also provide leadership within the G20 to tackle global problems. APEC’s Committee on Trade and Investment (CTI) can begin to set out a strategy on how the WTO might operate beyond the Doha Round. Bringing the WTO up to date with the 21st century world of international commerce is an essential dimension of cooperation to narrow development gaps.

Delivering an end to the Doha Round is what all APEC governments want to see. It is far more valuable than any progress towards a TPP deal that, if ever concluded, may benefit some but create problems for others.

A high quality Trans-Pacific Partnership (TPP) cannot be negotiated in time for the Honolulu meeting. An acceptable agreement would need to achieve considerably more trade liberalisation than recent bilateral agreements among prospective participants. For example, the Australia-United States trade deal did not lead to significant change in United States agricultural trade policy, since none of the protectionist provisions of relevant legislation were amended. Australia and others should no longer be prepared to accept a TPP that does not address the most important limits on access to US markets for either agricultural or labour-intensive manufactures.

Significant decisions on Japanese trade policy are not scheduled until October 2011. If Japan was to join the TPP and consider substantial liberalisation of agriculture, they should insist on some hard political decisions from the United States. There is little likelihood that Congress will endorse, even in principle, a significant reduction in subsidies and other market access barriers during 2011. Therefore the prospects for a TPP, let alone a Free Trade Area of the Asia Pacific (FTAAP), will remain unclear for quite some time.

On the other hand, there is ample room to move in the direction agreed by leaders in Yokohama. The 2010 declaration sets out an up-to-date view of the challenge of economic integration, alongside a strategy to promote high quality, sustainable growth that can narrow development gaps. Further work towards a seamless regional economy is an essential component of this growth strategy.

The Yokohama APEC declaration explains that reducing impediments to the international movement of goods, services, people and capital needs to be backed by many other reforms, often behind-the-border, to create a genuinely integrated platform for production in the most efficient locations as well as an integrated market for consumers.

Border protection of some sensitive products remains high and costly, but these account for a rapidly shrinking share of trade and concern a very small proportion of businesses involved in international commerce in the Asia Pacific. The greatest gains from cooperation now come from dealing with problems of communications and logistics, often linked to security concerns, and the efficiency and transparency of economic policy implementation in national markets.

Designing policies and cooperative arrangements to deal with these issues is the proven comparative advantage of the voluntary APEC process. As discussed in the progress report to leaders, voluntary cooperation to reduce transaction costs is already saving billions of dollars each year and is expected to improve the ease of doing business by a further 25 per cent by 2015.

The experience gained in dealing with ‘next generation’ issues in bilateral agreements can be used for region-wide integration. The very similar chapters on customs administration in several agreements set disciplines that could be used to create a non-binding APEC code for customs administration. APEC’s Committee on Trade and Investment (CTI) could also explore whether other model chapters on new issues could be used to draw up codes of practice that could be endorsed by any APEC government interested in facilitating trade with other economies.

Asia Pacific governments that are committed to moving towards a more seamless environment for business should be willing to apply such provisions. There is no need to wait for codes of conduct to be incorporated in preferential trade agreements; decisions on these practical issues do not affect leverage in negotiations on liberalising sensitive products.

Widespread adoption of common disciplines on economic regulations or administration procedures would be a useful down-payment towards an economically-integrated region. But much more is needed. For example, agreeing on disciplines can help ensure that product standards are not designed to impede trade, unless justified for other reasons. That is nowhere near enough for widespread mutual recognition of many standards: that is a long-term capacity-building challenge.

Progress on dealing with many behind-the-border, or across-the-border, issues is not due to a lack of political will or the need to negotiate some balance of short-term pain against long-term gains. The effective constraint is limited capacity (including human resources, institutions and economic infrastructure). The United States could use its considerable influence to help mobilise the resources that are needed to create the capacity to administer an economically integrated region.

In 2011, APEC should create synergy with other international forums, especially the G20 in order to preserve the necessary conditions for sustained improvement in living standards. Dealing with issues such as rebalancing economic growth and averting disastrous climate change need global cooperation.

These days, the key to raising productivity is ever-deeper engagement in global production networks. The rapid emergence of these multi-economy networks makes it possible to for economies to attract investment and participate in supply chains even if they have no more to offer than cheap land and labour. The G20 growth agenda draws attention to the need to mobilise investment in economic infrastructure, especially transport and communications links, to help more economies become part of global supply chains.

World leaders also need to ensure that the door remains open for others to follow the examples set in East Asia. The region’s success depended on an open non-discriminatory international economic regime underpinned by the WTO. Within this system, if they could produce efficiently and competitively, they could sell anywhere.

Such an international economic order remains needed, more than ever. New economic giants cannot be accommodated in less than a global economy. Leading a APEC push to finish the Doha Round is the most important contribution the United States could make to APEC and the world in 2011.

Andrew Elek was the inaugural chair of APEC senior officials.
This article is written on behalf of the Australian Pacific Economic Cooperation Committee (AUSPECC).