APEC Post 2020

Brian Lynch*
Chair, New Zealand Institute of International Affairs, Wellington Branch;
Chair, New Zealand Committee of PECC; 
Former alternate New Zealand member of the APEC Business Council.

The swirls and eddies currently sweeping across the Asia–Pacific region's geopolitical and economic landscape do not offer a promising setting for the review of any regional agency, even one as long-established, and soon to enter its fourth decade, as the institution known as 'Asia–Pacific Economic Cooperation'. APEC has recently been described as the 'premier economic forum'¹ for promoting regional growth and integration and 'a global leader in addressing pressing problems'. The 21 APEC member economies, including New Zealand, are home to 40 per cent of the world's population and account for around 60 per cent of global production.

Seemingly undeterred by the regional volatility, APEC leaders have launched a major project to chart APEC's forward path and identify its place in regional economic architecture beyond 2020. The 30th anniversary will be a significant one for APEC; 2020 will be notable, too, because it was the target date which APEC set, in 1994 in the 'Bogor Goals', for full realisation throughout the region of the vision of 'free and open trade and investment'.

Along with APEC's own Business Advisory Council (ABAC), the Pacific Economic Cooperation Council (PECC) has been invited to provide input to the APEC review. PECC was established in 1980 and has 26 member committees around the Asia–Pacific region. As a genuinely representative and region-wide organisation, PECC is well-placed to respond to the APEC invitation. It can utilise its unique tripartite composition of academia and research institutes, the export business com- munity and experts from the public policy arena. Of advantage as well is the observer status PECC has had in APEC throughout the latter's existence. The two-year exercise to generate the PECC offering to the APEC review is being jointly led by the PECC member committees of Malaysia and New Zealand, assisted by a 'task force' drawn from several other PECC member committees.

The primary ambition of the APEC review is to obtain agreement among member economies on a 'vision' of the organisation's post-2020 purpose, objectives and priorities. A key aspect will be a stock-take of the level of economic liberalization and growth that has been accomplished in the past 30 years, and for which APEC could fairly claim some credit. Where actual outcomes have fallen short of what was anticipated, can the review shed light on why this was the case? What lessons could be drawn to help sustain APEC's future contribution to regional economic integration, serving, as leaders have said, as 'an incu- bator of credible and innovative ideas and proposals'.

Outcome interest
The APEC review is important for New Zealand, one of the twelve founding members. Successive governments have been firmly committed to the APEC process. Without forgoing long- standing ties elsewhere and especially in Europe, today's reality is that the Asia–Pacific region has become the cornerstone of New Zealand's interests worldwide. Seven of New Zealand's ten major trade partners are in the region, which is also the main source of foreign direct investment, the surge in tourism num- bers and the most rapidly growing migrant groups. About three-quarters of New Zealand's exports now go to APEC economies.

Another significant factor for New Zealand associated with the APEC review is the responsibility already assumed to be the agency's chair in 2021. New Zealand's performance that year as convenor and chair will come under close scrutiny at home and abroad. Fulfilling the manifold organisational tasks involved will be even more onerous than the previous experience New Zealand had of playing APEC host in Auckland in 1999. There will be opportunities for policy leadership too. As New Zealand demonstrated in 1999 when it launched the initiative called 'Strengthening Markets Framework', with solid support from NZPECC New Zealand, that added impetus to the shift in APEC's focus from the traditional array of mainstream trade items to a broader economic and regulatory agenda.

APEC came into being in 1989. This was in part a response to the renewed drive towards European integration, and it was largely on the initiative of the Hawke Australian government with strong backing from Japan. Very pertinent at the time to APEC's mandate to foster regional economic integration were the woes of an ailing global economy suffering its most severe contraction since the 1930s. The existing multilateral architecture was struggling to cope with that challenge, reflected in the glacial pace of the WTO Uruguay Round.

Even so, there was initial caution in the region about APEC's likely utility and impact. The early meetings involved only trade and foreign ministers and officials, and produced little more than exchanges of views bereft of conclusions and recommendations. Only after 1993, pressed to do so by the Clinton administration, did the practice begin of APEC concluding each year's programme with a gathering of the heads of government of its member economies. That annual assembly sets a useful deadline for all minor APEC bodies to have finished their yearly work schedule.

Over the near-30 years of APEC's existence, the original trio of core 'pillars' of its activity have remained largely unaltered: liberalisation of trade and investment, trade facilitation and economic and technical co-operation often called capacity building. Those general headings now provide the context for several hundred meetings annually of ministers from a diverse group of portfolios and their attendant officials, ahead of the APEC leaders' caucus. However, while there has been broad continuity around APEC's primary points of focus, there has been nothing passive about the specific content of meetings and related work programmes. Agendas have become more involved, with cross- cutting themes such as 'sustainable development' and 'structural reform' having growing importance, as new ways have been sought to respond effectively to unfamiliar forces impacting on the region and domestic economies.

Core elements
As for core elements of APEC's modus operandi, here again and notwithstanding the fluid nature of the Asia–Pacific region's economic and political dynamics, the essential features have also stayed largely unchanged. To date there has been no disposition on the part of leaders of economies large and small, developed and developing, to move away from the hard-won accord among founding members, driven by ASEAN's preference, that APEC was not to function as a regional negotiating instrument. There was ready acceptance that it should be a forum to 'enable' and 'facilitate'. But while charged with fostering 'open regionalism' for the common good, it was agreed from the outset that APEC would proceed by consensus and its recommendations would not be mandatory for member economies to accept and adhere to. They could ignore, embrace or modify individual APEC commitments to fit their own domestic situations, as they chose.

That non-prescriptive term of reference has not been easy for APEC's 'Western' developed economies to reconcile with the concept of meaningful trade-enhancing arrangements being de- tailed, enforceable, reciprocal and verifiable.² The non-binding, non-interventionist approach at the heart of APEC's operational culture has sat more comfortably alongside the 'Asian' preference for cross-border agreements to give prominence to community- building, connectivity and inclusivity.³

It was probably inevitable that APEC's lack of a formal negotiating mandate, no arsenal of enforcement measures and small secretariat would attract criticism. Much of it has come from outside the region. APEC was never intended to follow the European Union model, but unfavourable comparisons have been drawn with the European Union's expressions of supra-nationality, open borders, single currency, common external service and agreed judicial framework. It has to be said those criticisms have lost much of their emotive force in recent times as the European Union, while celebrating 60 years on from the Treaty of Rome, has had to confront its own internal financial, migration and populist crises that only slowly are being resolved.

Impressive growth
It is beyond argument too, that since APEC was set up the Asia– Pacific region has achieved an impressive level of economic integration and remarkable economic growth:

• average regional tariff barriers have fallen from 17 per cent to under 5 per cent
• business transaction costs have dropped by over 10 per cent
• intra-APEC trade has risen six-fold
• the region's total trade has increased five-fold
• more than 50 trade agreements have been signed among APEC members and most of these are operational.⁴

As APEC settled into place in its early years, approval of the 'Bogor Goals' was followed in the mid-1990s, after agreement on the 'Osaka Action Agenda', by the development of Individual Economy Action Plans and Collective Action Plans and an agreed set of processes for peer review. The focus of all this activity was on ways to free-up the movement of merchandise goods across the region. As the web of multinational company supply chains (see below) began to spread, there was growing pressure from foreign firms for governments to make it easier for business to be done behind the borders of offshore markets. That is, to remove costly and time-consuming non-tariff barriers such as tortuous customs procedures, excessive documentation, constraints on the recruitment of local staff, problems in accessing in-market finance and the time required to establish subsidiaries offshore.

Complicating developments
By the early 2000s APEC was coming to grips with disappointment over the WTO's failure to deliver in the Doha Round, and the surge in sub-regional trade agreements, of which the 1999 Singapore–New Zealand free trade agreement was among the first.⁵ This coincided with the arrival of the digital age and the emergence of 'new generation' issues such as e-commerce, dispute settlement, environment and labour factors, government procurement and intellectual property. Moving into the second decade of the new century, the preoccupation in the continuing process of APEC agenda modernisation has been with activities captured in the terms 'regulatory coherence' and 'structural economic reform'. Here the purpose has been to establish as much certainty and predictability as possible among the institutional and legislative frameworks of APEC members, the objective being to create a 'coherent' setting and common 'rules of the road' within which private enterprise is able to go about its business in the big data and digital era. The differences in economic advancement levels among APEC members has complicated the process of negotiating institutional targets and regulatory thresholds that all economies could reasonably be expected to achieve within a given timeframe.

There has been nothing pre-ordained, smooth and seamless about the manner in which the successive phases of economic reform have unfolded in the Asia–Pacific region. The pace of trade 'regionalisation' was not anticipated; no one expected the volume of intra-Asian trade to grow from 25 per cent to over 50 per cent between 1989 and 2014.⁶ Nor could it be claimed that what observers witnessed was a case of needed reform being identified and driven by far-sighted governments and their cohorts of trade negotiators. Indisputably this was 'business-led' economic integration.

Prime movers
The two prime movers behind regional economic expansion were a huge influx of foreign direct investment followed by the entry of large, aggressive and innovative multinational companies. These multinational companies built production networks (often called 'supply' or 'value chains'), along which partially completed products move across many national jurisdictions, progressively adding value before final assembly, sale and delivery. They are as diverse as electronic components, Toyota car parts, tennis balls and textiles. Trade negotiators now have to factor into their calculations that small- and medium-size enterprises are increasingly involved in supply chain operations.⁷

The days when Asia–Pacific trade consisted largely of a seller in one country locating a willing buyer in another are long gone; three-quarters of all regional goods trade is now in semi-finished products.

For the past three decades, and in every APEC economy, as business models are constantly changing, regulators have been in catch-up mode to establish new baseline rules suitable for managing the exacting norms of modern commerce. The narrow range of policy measures implied in the rallying cry of 'free and open trade and investment' that initially lay behind the Bogor Goals is barely recognisable alongside today's APEC agenda and its multiple work programmes. There was only slow recognition over time that better regulation of the environment, and of health and safety and labour practices, had a legitimate part to play in promoting inclusive economic growth.

The Asia–Pacific regional economy has become relentlessly more complex and intertwined. It is a process being vigorously driven by the impact of the new forces beginning to make their presence felt and which it has become fashionable to call 'the fourth industrial revolution': artificial intelligence, advanced robotics and on-line retailing. APEC ministers and advisors from the formative years would struggle to grasp the relevance and meaning of many modern-day terms in common use such as digital trade, e-commerce, intra-regional connectivity, disruptive technology, regulatory coherence, service sector reform, supply chain management and 'the internet of things'.

Leaders' meetings
This brief overview of APEC's history would be incomplete without mention of the particular significance of the annual leaders' meeting. Among their number are the heads of government of the world's three largest economies and most powerful nations. Several other APEC economies are in the global 'first eleven'. The leaders' annual public 'Declaration' after their talks is a 'must read' assessment of the health of the region's economy and its prospects. While economic and trade matters have appropriately dominated the formal programme, discussion of urgent non-traditional issues has often forced its way onto the agenda. Notable examples have been climate change, counter- terrorism, disaster relief and energy security.

The yearly gathering has also offered a convenient setting for one-on-one 'pull-aside' exchanges between leaders. Or for a limited number of economies to consider off-site a pressing issue of common concern, as the deteriorating security situation in East Timor did in Auckland in 1999, and the most recent leaders' meeting in Vietnam in November 2017 did, to enable leaders of the TPP-11 to inject fresh energy into that project after the decision of the Trump administration to withdraw, and agree to launch the Comprehensive and Progressive for Trans-Pacific Partnership (CPTPP).⁸ Those positive side-benefits of the leaders' annual meeting, at which attendance is always impressive, help explain why economies as distant from each other as Colombia and Mongolia have shown interest in joining APEC.

Regional setting
Moving to the present, and without sounding too gloomy about it, the regional and global settings for APEC's review of its future after 2020 could scarcely have appeared less favourable. A number of seemingly intractable regional security issues, especially in north Asia and the South China Sea, attract a near-daily diet of scary headlines. World trade has only just begun to recover in the aftermath of the 2008 global financial crisis. Few economies can claim to be enjoying a period of sustained if modest growth; New Zealand is one of them, in overall GDP if not in per capita terms. The multilateral rules-based regime enshrined in the WTO/GATT that has sustained the liberal approach to international trade order is threatened by the Trump administration's 'America First' attachment to one-on-one transactional deals.⁹ And the spread of government-sponsored protectionist measures that hamper cross-border trade flows is more pervasive than at any earlier time in APEC's existence.¹⁰
Nor has there been any precedent for the widespread expressions of concern in many economies over social and economic inequality, manifest in successive election campaigns around and beyond the region, New Zealand's included. The 'self-evident' proposition advanced over decades by pro-trade advocates, that economic integration and less regulated commerce would assuredly bring benefits for all sectors of society, has been found wanting. Undeniably there has been rapid economic growth in the region that lifted many millions out of poverty, but it papered over a multitude of scars. The level of disenchantment with the case for open markets and the accompanying protests in support of 'those left behind' is not confined to individuals and groups often dismissively termed 'the usual suspects'. The most recent leaders' Declaration 2017 was largely silent on the subject, apart from a passing reference to 'vulnerable groups'. The ministerial meeting prior to the leaders' deliberations was more forthcoming.¹¹

PECC approach
PECC welcomed the invitation to contribute to the wide-ranging consultations that will be the basis for recommendations and leaders' ultimate decisions about the future direction of APEC's substantive programme and work methods. For PECC, the primary objective is to provide an input of value to the APEC review process. To that end PECC will seek to maximise the strengths of its tripartite mix of academic, private enterprise and policy engagement. Also available is the near-40 years' experience PECC member committees have had of hands-on participation in the twists and turns of Asia–Pacific economic reform.

As far as the present and familiar is concerned, PECC set forth in its annual review, The State of the Region 2017–18, what stakeholders and member committees regarded as the major cur- rent risks to regional growth.¹² These were identified as increased protectionism, a lack of political leadership, a loss of momentum in the China economy, the slowdown in world trade and a failure to implement structural economic reform. The State of the Region 2017–18 was released on 7 November 2017 in Danang, Vietnam, on the eve of the APEC leaders' meeting. It highlighted three immediate policy priorities recommended for leaders to concentrate upon in their meeting. They were the promotion of sustainable, innovative and inclusive growth; measures to ease anti-globalisation and anti-trade attitudes through more people-focused social policies; and concrete steps towards final achievement of the Bogor Goals and the vision of a free trade area encompassing the whole Asia–Pacific region (FTAAP).¹³

In the context of APEC Beyond 2020, leaders, ministers and officials will justifiably expect PECC to look beyond the here and now and the near-term. PECC members are aware their contribution will have to be a credible response to the fundamental question underpinning the APEC review. 'What influential forces of transformative change will be at work in the Asia–Pacific over the next couple of decades and more, and how are these likely to impact and reshape the region's economic landscape, its institutional architecture and commercial behaviour?'

First step
The first substantive step PECC has taken in this exercise has been to request by way of a detailed questionnaire the considered views of its member committees and of other sources of authoritative input in regional economies. The questionnaire invited respondents to offer frank comment on a range of topics, including the modern-day relevance of APEC's longstanding goals and policy settings; APEC's role in relation to core aspects of economic integration such as service sector competition and e-commerce; and the continuing usefulness of the large number of APEC working groups, task forces and policy forums. Another major set of questions focused on APEC's operations, covering the ministers/officials committee structure and the status of the secretariat based in Singapore. Respondents were also asked to comment on the adequacy of present arrangements for private sector participation in the APEC process, principally through ABAC and PECC.

The questionnaire was circulated to PECC member committees in September 2017. A statistically tenable number of responses came forward and these are currently the subject of analysis by the co-chairs (PECC Malaysia and PECC New Zealand) with the help of the project task force. Indications are that a manageable set of major issues around APEC's future are top of mind for PECC member committees. Some will need to be explored in greater depth, evidence-based conclusions drawn and recommendations formed before the content of a definitive PECC report will begin to appear. The final report, once feedback is obtained from member committees, will be sent to the PECC Standing Committee for consideration. Thereafter, it is planned in late 2018 to submit the final PECC report to APEC senior officials and relevant ministers.

The PECC report will have the overriding purpose of helping APEC to show that it can move with the times as regional dynamics continue to evolve; not be locked-into the assumptions, policy settings and business practices that befitted a previous era. Second, that APEC is able to recognise, too, through practical initiatives, the need to support inclusive growth across the region. And finally, for APEC to demonstrate convincingly that it is responsive to the issues that trouble a wider range of community groups than it was required to take account of in the past. New Zealand's role beyond 2020 in the stewardship of that demanding process will call for skilful statecraft.

* This article was published in the March-April, issue of the New Zealand International Review  and is republished here with the permission of the author. The views presented here the authors and not the institutions  which is associated.

NOTES
1. APEC Leaders' Declaration, Danang, Vietnam, 11 Nov 2017.
2. At least until the late 1990s APEC members firmly believed these objectives would largely be met through further trade liberalisation at the WTO and help advance their own goals.
3. Gary Hawke has written extensively on this subject. See, for example, G. Hawke, What kind of Economic Integration? Background paper, Economic Research Institute of ASEAN, 2012.
4. APEC Secretariat, About Us: Achievements and Benefits, Singapore. Also Second-term Review of APEC's Progress towards the Bogor Goals, APEC Policy Unit, Singapore, 2016.
5. R. Scollay and F. Gonzalez Vigil, Asia Pacific RTAs as Avenues for Achieving APEC's Bogor Goals (Singapore, PECC, Sep 2003).
6. The Economist, 31 May 2014.
7. ASEAN Investment Report 2016.
8. 'Long Live the TPP–Pacific pact survives largely intact', Financial Times, 14 Nov 2017.
9. The APEC 2017 Leaders Declaration short section on the multilateral system, contained only a commitment to 'work together to improve the functioning of the WTO, including its negotiating, monitoring and dispute settlement functions'. See also Evan Rogerson, A "New Trade Frame- work?", RSIS Commentary, Singapore, 20 Nov 2017.
10. 'Rising protectionism — the top risk to growth', PECC, Danang, 7 Nov 2017.
11. The 2017 Joint Ministerial Statement spoke of 'inclusion' policies that would encourage 'further spreading of the benefits of growth to all segments of society including the most vulnerable.' Danang, 8 Nov 2017.
12. www.pecc.org/research/state-of-the-region. Singapore, Nov 2017.
13. R. Scollay, 'APEC's Role as "Incubator for the FTAAP'". Presented at APEC Dialogue on Information Sharing on RTAs/FTAs in the Asia–Pacific Region, Qingdao, China, 8 May 2014.