Connectivity and the Bali Agenda

Professor Christopher Findlay
Executive Dean of the Faculty of the Professions at the University of Adelaide
Vice-Chair of AUSPECC

Connectivity is a hot topic in regional cooperation and rightly so.  Greater levels of and improved performance in connectivity saves real resources, improves access to markets, plugs economies into regional supply chains, raises income and helps deal with shocks and disasters.  The values of connectivity apply to movement of goods, to movements of people and provision of services.

The benefits are great but the nature of connectivity is complex.  Hitting the target means action in a lot of areas – investment in physical infrastructure and its financing, the efficient provision of services on or in that infrastructure, and the manner of operation of government processes like customs and accreditation.   The latter are elements of the so-called trade facilitation agenda in trade policy. There is an international dimension since connectivity is sought among economies.  There is a domestic component, for example, to link smallholder farmers with global food markets means good roads inside economies.

Take just one of these areas of physical infrastructure and its financing.  Industry participants, like those at this week’s PECC-Boao Forum meeting, say that there is a lot happening in the region, many economies are making good progress and they list a number of interesting projects across a range of sectors. This progress is tribute to the private sector in the region, and ABAC members, who have been pushing a dialogue on this sectors.  Impediments remain, however, and they include the lack of quality of project specification, the regulatory structure to apply to natural monopolies, the pricing and willingness to pay for services and the lack of efficient allocation of risks.   Faster progress is sought by dealing with these issues.

The goals connectivity face special challenges among smaller and isolated economies, the Pacific Island Forum economies for example, and in the larger archipelagic economies.   The discussion at the PECC Boao meeting this week stressed in this context the value of experimenting with different modes of connectivity in these circumstances, highlighted the importance of making sure there was a competitive environment for different models to be tested, and noted the scope for innovate solutions under a value for money rule rather than operating according to standards and expectations of more densely settled areas.

How to get progress on connectivity given the wide scope of issues to manage?  That scope while it’s a challenge also offers a way forward, with the right leadership.   APEC working with the WTO, one meeting this week and the other in a few months and both doing so in Indonesia, have the chance to make grand bargain to push ahead this agenda by their different focus on its various elements.  And in the process they can each help restore their lagging standings

Broadly, the deal is the following – call it the Bali Agenda.  APEC really does commit to action on its connectivity agenda, while the WTO nails the agreement on trade facilitation.  WTO members also make good progress on services negotiations, with a focus on connectivity.   APEC supports the package through capacity building, directed at each area, that is, in investment (in physical connectivity), services trade and investment and trade facilitation, but the focus is to get runs on the board for connectivity.

This is easy to say, but how to get this together?

Having leaders with a clear vision to which they are committed is critical for change.  Leadership is clearly required here, and Indonesia which is hosting both meetings is well place to do so, with the support of other APEC members and especially China as the inbound Chair of APEC, with support of a vocal private sector and with support of some hard-nosed work by second track bodies like PECC.  More on that in a moment.

The same ministers are meeting this weekend in Bali for APEC as would meet in December in the same place for the WTO.  They are in the right place at the right times to get this done.  However, both organizations have challenges though in making their contribution, even though the areas of action for each proposed here play to their strengths.

APEC has this year committed to a multi-year framework on connectivity, which will offer a menu of actions for members to undertake to achieve the connectivity goals. Having a menu is good, but will the members make actually feed from the offerings – that saying about horses and water springs to mind. Some extra forces are required to take that next step.  Well-run APEC processes would help, since those processes generate the confidence effect (‘others have done this, so can we’) and the mutual benefit effect (‘others are doing this, we’ll gain more if we do it too’).   Let’s add to these the competition effect – ‘others are further down the track than us so we are going to miss out on the trade and investment that follows from better connectivity if we don’t catch up’.  The problem is that making that connection and driving competition though such explicit benchmarking is not something that APEC officials are always comfortable with, but this is a gap that organizations like PECC and its network of analysts can play.

The WTO is struggling with its trade facilitation negotiations and the services negotiations have moved into a sector specific deal outside its formal processes.  Work would be required to push on and then re-connect these again to the purpose of the Bali Agenda, but at least the specification of that Agenda and a vision of what could be achieved could help drive the work to be done.

The saddest news this week was from the PECC State of the Region Survey.  A steadily falling share of participants regard APEC as effective and the WTO negotiations did not even rank in the priorities for action by APEC members.  Yet these institutions have so much to offer an important and topical agenda for the region.  The same respondents ranked highly the elements of the Bali Agenda as presented here.  That Agenda offers new opportunities for structures to reassert their relevance.

The bottom line is that physical and people connectivity offers great rewards but getting there is going to require some institutional connectivity as well.

(This opinion piece appeared on the Jakarta Post on October 8, 2013. Re-posted with permission.)