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APEC: Meeting the challenge of the new millennium



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AUSTRALIANLABOR PARTY-+r

MEETING . THE CHALLENGE OF THE NEW MIILENIVIUM

A policy discussionpaper • prepared by a^. the Shadow Minister for Trade, \ '^ K Senator the Hon Peter Cook

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Table of contents

Listof acronyms .......................................................................................................... 3

Summaryof recommendations ................................................................................. 4

Introduction................................................................................................................. 5

Theorigins of APEC ................................................................................................... 6

Whatdid APEC achieve under Labor? ..................................................................... 8

How has APEC fared since the Coalition came to office? .................................... 10

Initiativesfor Australia ................................................................ .............................13

1. Use APEC to spearhead a successful round of VVTO negotiations ...................... 13

2. Have the Bogor Declaration goals endorsed by the WTO .................................. 13

3. Support China's entry to the WTO ...................................................................... 14

4. Real reform of the international financial system ................................................ 15

5. Cooperation between Attorneys General ............................................................ 15

6. Continue to pursue standardisation .................................................................... 16

7. Encouraging small and medium enterprises (SMEs) .......................................... 17

8. Play an active role in the task force on the integration of women in APEC......... 17

9. A more established administrative structure ....................................................... 18

10. Transparency .................................................................................................... 18

11. Accountability .................................................................................................... 19

12. Tackle the broader agenda ............................................................................... 19

13. Continue to persuade Australians of the need for reform .................................20 20

Conclusion ................................................................................................................ 22

AppendixA — APEC in brief ..................................................................................... 23

A ppendixB - APEC and other international bodies .............................................. 24

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List of acronyms

ABAC - APEC Business Advisory Council AFTA---ASEAN -Free Trade-Area

APEC — Asia Pacific Economic Cooperation

ANU — Australian National University

ASEM — Asia-Europe Meeting

CER — Closer Economic Relations Trade Agreement

EAEC — East Asia Economic Caucus

EMDG — Export Market Development Grants scheme

EU — European Union

EVSL — Early Voluntary Sector Liberalisation

GATT — General Agreement on Tariffs and Trade

GDP — Gross Domestic Product

GMO — Genetically Modified Organism

IAP — Individual Action Plan

IMF — International Monetary Fund

IOR — Indian Ocean Rim Association

MFN — Most Favoured Nation

NAFTA — North American Free Trade Agreement

NGO — Non-Governmental Organisation

OECD — Organisation for Economic Cooperation and Development

PAFTAD — Pacific Trade and Development Conferences

PBEC — Pacific Basin Economic Council

PECC — Pacific Economic Cooperation Conference

SMEs — Small and Medium Enterprises

TPAC — Trade Policy Advisory Council

US — United States of America

WTO — World Trade Organisation

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Summary of recommendations

1. Australia should work to ensure that the next APEC meeting adopts a powerful position in favour of further trade - liberalisation at the next round of WTO negotiations.

2. Australia should push for the Bogor Declaration goals of free and open trade and investment by 2010 (for developed countries) and 2020 (for developing countries) to be adopted by the WTO.

3. Australia should propose that the next APEC meeting adopt a resolution that members will work to promote China's entry into the WTO.

4. Australia should ensure that the next APEC meeting develops a coherent strategy to promote financial sector reform in the region.

5. Australia should propose that APEC commence annual meetings of the first law officers of its member states.

6. Australia should encourage APEC to have its achievements in the trade facilitation area taken up by the WTO.

7. Australia should provide increased support to APEC's small business activities, and reconsider the short-sighted cuts to the Export Market Development Grants scheme.

8. Australian representatives must attend, and actively participate in, future - meetings of the Ad Hoc Task Force on the Integration of Women in APEC.

9. Australia should explore ways in which APEC can develop a more substantial administrative structure, perhaps by way of a virtual secretariat.

10.Australia should explore ways in which APEC's activities and fora can become more transparent.

11.Australia should explore ways in which APEC's activities and fora can become more accountable, and establish an Australian Policy Advisory Committee on Trade.

12.Australia should endeavour to see that "new" trade issues, including labour standards, environmental protection and genetically modified organisms, are discussed at the next APEC meeting, in preparation for the upcoming WTO Round.

13. The Australian government should maintain a continuing dialogue with the Australian people on the topic of trade liberalisation.

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Introduction

Trade is of vital importance to Australia. In the last financial year, our exports amounted to. $114 billion — over one-fifth of the value of our GDP. Likewise, one in five Australian jobs — a total of 1.7 million jobs, depend on exports.

Moreover, strong trading relationships are beneficial in other ways. In the words of British policy analyst Geoff Mulgan:

"The world can be more easily unified through the peaceful activity of buying and selling than through international treaties or fantasies of world . government ... Trade breeds trust, and trust breeds trade."'

During our time in government, Labor recognised that an important way of expanding employment was to boost exports, and that the needs of consumers and businesses would be best served by facilitating greater trade between nations. With these goals in

mind, we created the Cairns Group to lobby within the GATT (later the WTO) for freer trade in agricultural products. We embarked on a comprehensive program of bringing down Australia's tariff walls and pushed hard for more open world markets during the Uruguay Round. Perhaps most boldly, we created APEC — an organisation comprising just under half of the world's peoples, and just over half of the world's GDP.

Since its inception, APEC has been an integral part of Australia's trading policy. It has boosted productivity, added to economic growth, and helped reduce unemployment. In its tenth anniversary year, APEC faces a range of new challenges — from electronic

commerce to biotechnology, the Asian financial crisis to burgeoning protectionist sentiments. As the WTO has grown in stature, other regional multilateral institutions like APEC have an opportunity to build international consensus for trade liberalisation.

APEC is now under greater pressure than ever before. Its architecture is in place. Its goals are established. What it requires is strong and determined leadership. This is something the Howard Government has manifestly failed to deliver. Fischer is an irregular attendee at APEC trade ministers' meetings. Howard seems to see the

institution as a platform for a domestic press release, rather than a stage for international trade liberalisation.

APEC is now an institution adrift. Under Labor, APEC continued to evolve. The institution we left in 1996 was substantially different to the one we created in 1989. But in the past three years, APEC has struggled to demonstrate that it remains relevant to the new global environment. The institution is now at an important juncture in its

evolution. If it continues to mature as a significant trade body, it will play a primary role in boosting economic growth in the region. If it falters, under the combined weight of rising protection in the US and Japan, and the complications of the Asian financial crisis, it will fail to deliver and lose relevance.

Labor believes APEC should be revitalised. .This paper seeks to articulate our vision for APEC in the new millennium. Before discussing the future of APEC, however, it is necessary to briefly review the history of the organisation.

1 Mulgan, G, Connexity: How to Live in a Connected World, 1997, Chatto & Windus: London, 62-65.

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The origins of APEC

The idea of the Asia-Pacific Economic Cooperation forum was first proposed by Prime Minister Bob Hawke in 1989. Prior to APEC, less ambitious regional groupings had existed. But APEC was far bolder. Built on the principle that trade liberalisation could be the engine for economic growth, it allowed Australia to take the initiative in bringing together regional ministers and leaders. Through APEC, Australia was able to act as a

bridge between the United States - one of our closest allies, and the region with which we were becoming increasingly enmeshed.

As the Department of Foreign Affairs and Trade has described APEC's origins:

"Ideas for Pacific economic cooperation were extensively discussed for more than two decades before APEC was created. But apart from cooperation at the business and academic level - the establishment of the Pacific Basin Economic Council (PBEC) in 1967 and Pacific Trade and Development Conferences

(PAFTAD) in 1968 - there was little support for formalising regional economic cooperation at the governmental level...

Circumstances had changed however by the mid to late 1980s and the mood for closer cooperation among regional governments was more positive ... Difficulties in negotiating the Uruguay Round drew to the attention of Asia Pacific economies the importance of a coalition which could effectively represent their

interests in a successful conclusion to the Round, while at the same time providing a fall back mechanism if the Round were to fail and inward-looking pressures in European and North American trading blocs were to become more prominent. Other factors included East Asia's growing economic significance, the growth of regional interdependence, and increasing awareness of common

interests in the region as contacts within it multiplied ... And there were many in the region who saw significant political and strategic benefits from an APEC-type process as part of a more viable and stable order in the region as the Cold War waned. An important intellectual "grounding" for APEC had already been established (in 1980) through the Pacific Economic Cooperation Conference (PECC), a joint initiative of Australia and Japan embodying a tripartite structure

involving business, academics and government officials. Many see PECC as the forerunner to APEC."2

APEC held its inaugural meeting in Canber ra in November 1989. In attendance were representatives from Australia, Brunei, Canada, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand and the United States.

As Labor Prime Minister Bob Hawke said at APEC's inaugural meeting:

"This is the first time the region has met, as a region, to discuss the 'economic future ... By coming together at this time we are expressing both the dynamism of our region, and tangibly demonstrating our commitment to see what more we

2 Department of Foreign Affairs and Trade, Submission for the Senate Foreign Affairs, Defence and Trade References Committee: Inquiry into Australia and Asia Pacific Economic Cooperation (APEC), August 1997.

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can do to enhance our prosperity, to the benefit of those hundreds of millions of people whom we represent and whose interests we seek to advance."3

3

Hawke, R, Speech to the welcome dinner for delegates to the Ministerial Meeting on Asia Pacific Economic Cooperation, Canberra, 5 November 1989, 2.

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What did APEC achieve under Labor?

• Following a proposal by the Hawke Government to establish the organisation, Australia hosted a meeting in November 1989, at which the establishment of APEC was agreed upon.

• In 1991, APEC became the first international organisation to include the "three Chinas" — mainland China, Taiwan and Hong Kong.

• Since 1993, APEC leaders have met annually, following the ministerial meetings. Its composition is unique among multilateral fora, providing an opportunity for the leaders of superpowers such as the United States, Japan and China to come together and discuss trade issues.

• In 1994, APEC agreed upon the Bogor Declaration, whereby member economies committed themselves to achieving negligible tariff levels by 2010 for developed members, and 2020 for developing members.

• In 1995, APEC members agreed to embark on an ambitious program of trade facilitation, which involved simplifying and harmonising customs procedures, ensuring the transparency of standards, introducing or enhancing competition policy, developing a common agreement on government procurement and enhancing the mobility of businesspeople. An Industry Commission report completed in early 1996 pointed out the benefits of such a strategy. Since the total cost of paperwork and procedures could amount to 10 to 15 percent of the value of goods traded 4 , businesses and customers within APEC stood to benefit

substantially from these reforms.s

Also in 1995, APEC introduced regular annual meetings of small business ministers — a recognition that free trade and economic globalisation have implications, challenges and opportunities for small and medium sized enterprises.

• By the time Labor left office, Australia's exports to APEC economies had grown at a rate of 8.5 percent per annum, compared to 6.7 percent for the rest of the world. 73.2 percent of Australia's exports now go to APEC members.

More than that, APEC had served to strengthen the bonds between Australia - and our region. It is the main multilateral agreement that links us with our Asian neighbours. Without APEC, Australia risks becoming marginalised in our own

region. With it, we can work together to find mutually beneficial solutions. We also reap another benefit — from increased trade and dialogue will flow better security relationships.

" Dee, P, Geisler, C and Watts, G, The Impact of APEC's free trade commitment, 1996, Industry Commission Staff Information Paper, Ausinfo, Canberra, 10. 5

Trade facilitation is particularly valuable, as the report pointed out, because "the benefits of facilitation

are assumed to accrue by being able to economise directly on existing resources in a given use, which is analogous to having more resources": Dee, P, Geisler, C and Watts, G, The Impact of APEC's free trade commitment, 1996, Industry Staff Information Paper, Ausinfo, Canberra, 14.

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APEC was only part of Labor's wider goal of trade liberalisation. Recent research showed that gains from trade liberalisation in the decade before we left office amounted to nearly 1.5 percent of GDP, giving the average Australian family an extra 1000 dollars per years

6 DFAT, Trade Liberalisation: Opportunities for Australia, 1997, 16

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How has APEC fared since the Coalition came to office?

• The Coalition took office in 1996 with a promise to place less emphasis on multilateralism and to pursue the goal of "aggressive bilateralism". 7 This had more to do with 'product differentiation between the major parties than serious trade strategy. The notion of aggressive bilateralism was borrowed directly from the

United States, without regard to the limited clout Australia could wield compared to the US in bilateral negotiations. Negotiating market access to a single country for a single product appears more straightforward than building an international coalition for freer trade. The rewards are usually small but politically enunciable, giving an image of action. By contrast, multilateral negotiations take years, and successful outcomes are generally too complex to explain on the evening news. Some trade ministers believe they get more kudos from bilateralism than

multilateralism. Yet the benefits of multilateralism easily trump any market access deal even the best trade minister can achieve — and the national interest is far better served.8 This is not to say that bilateralism is unimportant. Indeed it is an important element of a nation's external relations, but must be complemented by a comprehensive and active multilateral trade strategy.

Neglect of multilateral institutions also creates problems when our trading partners begin to slide into protectionism. If Australia can only comment on problems, without addressing them, aggressive bilateralism risks becoming petulant bilateralism. This phenomenon has been demonstrated over the past year in

Europe, Japan and the United States, all of which have experienced a domestic backlash against trade liberalisation. Country to country relations can be soured by this approach. Left unchecked, it threatens to curb the benefits of freer trade held out by APEC and the WTO.

Early in his term, the Prime Minister was manifestly uncomfortable when meeting regional leaders. The Government's tepid treatment of Hansonism was also a source of problems, and a fact which was frequently commented upon by the Asian media.9

Shortly after coming to office, the Government slashed the staff of the Department of Foreign Affairs and Trade by 20 percent. As a result, much of the corporate memory of the Department was lost, diminishing its ability to operate strategically and act with vision. The East Asia Analytical Unit and the Australia-Japan

Foundation were also subject to substantial budgetary reductions. As the Asian financial crisis and the Japanese recession loomed, Australia was cutting the budgets of the very agencies that could best help us understand and deal with these problems.

Australia was not alone in being caught unaware by the suddenness and severity of the Asian financial crisis. But even when we began to react, the Government's

Liberal and National Parties, Advancing Australia's Trade Interest, 1998, 13 8 For example, in March 1999, ABARE estimated that the Australian economy would receive a $1.03billion boost if substantial trade liberalisation could be achieved at the upcoming WTO negotiations:Roberts, I, "Agricultural Trade: Economic significance of multilateral reform" in ABARE, Outlook 1999: Agriculture, 1999, 51. 9 Hartcher, P, "Hanson: high cost, low return", Australian Financial Review, 5 June 1997, 1, 16.

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response fell short of what was required. Internal restructuring was undoubtedly vital, but the focus on internal financial and economic changes led to a neglect of the role that further trade liberalisation could play to assist those countries in trouble to trade themselves out of recession.

• Ultimately, both Australia and APEC failed to deal adequately with the Asian financial crisis. Certainly, individual APEC members contributed to IMF "rescue packages", and APEC Finance Ministers met on several occasions during 1998. But as the Foundation for Development Cooperation has pointed out, APEC was

not able to take more pro-active steps, such as initiating significant economic and technical cooperation to help member economies strengthen the management and structure of their financial sectors. Trade had the potential to play a major part in solving the Asian crisis — but APEC has not performed the leading role in this that it • should have.

• In November 1996, APEC opted to pursue a program of Early Voluntary Sector Liberalisation, selecting sectors in which they were prepared to proceed more rapidly in reducing protection. In 1997, APEC members identified fifteen sectors in which EVSL would proceed. None of Australia's priorities were included in the first tranche of sectors. The second tranche only tangentially addressed our

interests. The Government's own Productivity Commission was critical of the proposal. It published a report on EVSL which concluded:

"It remains a real question, therefore, whether the EVSL initiatives are likely to guarantee real income gains to a majority of APEC members. "10

Others have also been highly critical of the notion of EVSL." Yet the real disaster

came in the implementation. Despite considerable work leading up to the leaders' meeting in 1998, APEC members failed to agree on the EVSL proposals. Resistance came both from Japan and the US. Japan's objections stemmed largely from their increasingly powerful agricultural lobby. The US, bound by domestic legislation which prevents them from offering concessions unless a "critical mass" of nations make the same concessions, judged that the APEC

member economies did not constitute a critical mass. The proposals as they relate to tariffs have been referred to the VVTO 12 , where they are likely to be subsumed in future negotiations. The other elements of the EVSL package remain in limbo, still undecided on the APEC agenda. APEC's ability to .achieve any EVSL-type reforms in future must be considered highly doubtful.

1998 also saw APEC admit two new members — Russia and Peru. Australia supported — albeit under protest in Russia's case — these new admissions. The Australian Government was ambushed by Japan, China and the US on Russia's membership. After being given notice by the US on the eve of the leaders'

10 Dee, P, Hardin, A and Schuele, M, APEC Early Voluntary Sectoral Liberalisation, 1998, Productivity Commission Staff Research Paper, Auslnfo, Canberra, 14. " See, for example, three papers presented to the recent APEC Study Centre Consortium Conference,

held in Auckland from 31 May — 2 June 1999: Lloyd, P, "EVSL and Sector-Based Negotiations"; Rae, A, Chatterjee, S and Shakur, S, "The Sectoral Approach to Trade Liberalisation: Should we try to do better?"; Woo, Y, "APEC After 10 Years: What's Left of Open Regionalism?".

12 An outcome even John Howard acknowledged was "second best": Alford, P, "APEC backs reform plan", The Australian, 19 November 1998

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meeting, Howard meekly acquiesced. These new members accepted APEC's goals (albeit with special conditions) but the question is whether they will show a strong desire to give effect to these goals. Their inclusion threatens to make APEC a more unwieldy and less focussed organisation.13

Yet despite its size, APEC has increasingly found itself having to work hard to gain concessions from the US and Japan, both of whom carry out a substantial portion of their trade with the EU nations. In a press conference on 15 November 1998, US Special Trade Representative . Charlene Barshefsky said that the US administration had always felt that agreement on EVSL by APEC would be a useful catalyst, but that only agreement of other nations outside APEC (in particular

Europe) would create sufficient "critical mass" for the US to endorse them. Her comments suggest that even if Japan had agreed to the EVSL proposals that were being put forward, the US would not have agreed to them without broader approval through the WTO.

Domestic problems in APEC's two r largest economies — Japan and the United States — has encumbered their effective participation in APEC. Clinton's failure to attend the 1998 APEC meeting (due to the Gulf Crisis) and to get his fast-track negotiating authority renewed by Congress have both hampered APEC's ability to achieve significant progress. Likewise, Japan experienced a domestic backlash from its powerful farming constituency, which will continue to make future

agricultural trade liberalisation difficult.

The Individual Action Plans (IAPs) lodged by APEC members at the trade ministers' meetings14 have essentially been driven by the implementation of WTO commitments agreed upon in the Uruguay Round, with some changes for domestic economic reasons. Given that it now appears likely that a new WTO round will be initiated in -Seattle later this year, APEC will struggle to motivate further liberalisation progress through this year's IAPs. With a new round of WTO negotiations in the offing, APEC members are unlikely to make many concessions through their 1999 IAPs.

13 As evidenced by the fact that Malaysian Prime Minister Dr Mahathir — one of the most sceptical APEC leaders — was among the strongest supporters of expanding the organisation. 14 Since 1996.

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Initiatives for Australia

APEC will hold a meeting of trade ministers in Auckland, New Zealand, on 29-30 June 1999. It will be followed by its annual leaders' meeting on 9-10 September 1999. This is a chance for the institution to be revitalised. Initiatives for Australia:

1. Use APEC to spearhead a successful round of WTO negotiations

APEC should be at the vanguard of trade liberalisation during the next round of negotiations. But the Howard Government has also been slow to recognise the crossover between APEC and the WTO. Together, the APEC member economies constitute over half of the population and GDP of the WTO.

APEC can also provide intellectual stimulus for further trade liberalisation. Over the past decade, APEC has been the focus for a good deal of valuable research on the benefits of freer trade. The APEC Secretariat, member governments, and non-governmental organisations such as the Australian APEC Study Centre 15 , the Australian National University's Asia Pacific School of Economics and Management's, the University of Wollongong's Centre for Research Policy", the University of Adelaide Centre for International Economic Studies 18 and Victoria University's Centre for Asia-Pacific Studies 19 have between them provided a body of research which is valuable not only within APEC, but also potentially within the WTO.

Rather than attempting to save its pennies by cutting the research budget of bodies such as the East Asian Analytical Unit, the Australian Government should be drawing upon the rich intellectual groundwork to develop a powerful case for trade

liberalisation. Australia must work to ensure that APEC members act together at the upcoming WTO- negotiations. This requires a vision that stretches well beyond the next election.

Recommendation: Australia should work to ensure that the next APEC meeting adopts a powerful position in favour of further trade liberalisation at the next round of WTO negotiations.

2. Have the Bogor Declaration goals endorsed by the WTO

In addition to invigorating the next round of WTO talks, APEC needs to pay more attention to the implications of its Bogor Declaration goals for future WTO negotiations.

The Bogor Declaration remains one of APEC's greatest achievements. At Bogor, Indonesia, in 1994, members committed themselves to achieving free and open trade. and investment by 2010 (for developed members) and 2020 (for less-developed

15 See http://www.arts.monash.edu.au/ausapec/ 16 See http://apsem.anu.edu.au/ 17 http://www.uow.edu.au/crp/apec.htm 18 See http://www.adelaide.edu.au/CIES/ 19 See http://www.vut.edu.au/caps/

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members). These goals were reaffirmed at the 1998 meeting, and will probably also

be reaffirmed at the 1999 meeting.

However, there is considerable concern as to whether these goals will in fact be met. This arises because, under WTO rules, all cuts in quotas and tan s fs must be offered on a "most favoured nation" basis. The only exception to this rule applies to free trade blocs — of which APEC is not one. Indeed, an original APEC principle was "open

regionalism".

By the middle of the next decade, developed members of APEC such as Australia, Canada and the US may find themselves in a bind. Regardless of what is agreed in the next round of WTO negotiations, developed APEC members must lower their tariffs to negligible levels by 2010. If there is a significant discrepancy between WTO

and APEC commitments, this could mean less reformist pressure on European countries in 2010. Europe could potentially reap the benefits of open access to the markets of developed APEC members, without having to provide the same access to its own markets.

At the very least, therefore, APEC members must work to ensure that the. Bogor Declaration goals are adopted by the WTO. Whilst this will be difficult, it ought to be supported by all APEC members that are seriously committed to achieving the Bogor goals. The next round of WTO negotiations will, in all probability, be the last round to

be concluded by 2010.

Australia, as a leading player in APEC, will be vital in such an endeavour. It is doubtful that the lead will come from Japan or the United States — both of which seem to be encountering a domestic backlash against trade liberalisation. It is critical that Australia holds them to their commitments at Auckland.

Recommendation: Australia should push for the Bogor Declaration goals of free and open trade and investment by 2010 (for developed countries) and 2020 (for developing countries) to be adopted by the WTO.

3. Support China's entry to the WTO

Australia should take the initiative to develop a "friends of accession" group within APEC and more widely to push for China's WTO entry. China's entry into the WTO offers valuable benefits to Australia. As Kim Beazley pointed out earlier this year, recent estimates put the benefit to Australia of China's entry into the WTO at over $10

billion annually.20 Labor supports the accession agreement which the Australian and Chinese Governments have reached. We also believe that Australia should do more to bring China's thirteen year journey to the WTO to a close. One option would be for the APEC leaders to resolve in September 1999 that they will work together to

promote China's entry into the WTO.

Recommendation: Australia should propose that the next APEC meeting adopt a resolution that members will work to promote China's entry into the WTO.

20 Beazley, K, Speech to the Economist's 6th Foreign Investor Roundtable, Canberra, 31 March 1999.

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4. Real reform of the international financial system

The region's financial problems have stemmed primarily from inadequacy in financial systems — poor corporate governance, poor prudential regulation and inadequate transparency. It is in our individual and collective best interests to come to terms with the economic and social issues underlying the Asian crisis. But the real lesson of the

regional crisis is that such crises can still occur in our global economy.

The report of the government's Task Force on International Financial Reform is an important contribution. The need for reform of the international financial architecture is heightened in an environment of increasing capital flows and the cur rents of globalisation. To meet the needs of a world in flux, reform of the international financial architecture must be an ongoing process in which intellectual blueprints are tempered

by feasibility.

Australia has much to offer in this domain. It is therefore disappointing that the Prime Minister did not use the credibility our economic stability has given us, the considerable progress made by the G22 or the work of the Task Force, to take a greater leadership role at the recent APEC meeting.

Financial sector reform must be an integral element of the region's recovery from crisis. As New Zealand Labour leader Helen Clark has pointed out, "for Asia it is a return to growth which is paramount". 21 APEC has the potential to play a leading role

in the process of financial sector reform.

Recommendation: Australia should ensure that the next APEC meeting develops a coherent strategy to promote financial sector reform in the region.

5. Cooperation between Attorneys General

Presently, the only regular official meetings that occur are between leaders, finance ministers and trade ministers. 22 Other annual ministerial meetings have been organised on an ad hoc basis 23 — but never between Attorneys General. It would be valuable for APEC to consider arranging annual meetings of the first law officers of the member economies. This would assist APEC members to work towards model legislation in the commercial field, as well as to consider law enforcement issues and jurisdictional issues.

To some extent, this work is already being engaged in by the Organisation for Economic Cooperation and Development (OECD). But as many of APEC's members are not part of the OECD, it is proper for there to be some cross-over of responsibility.

21 Clark, H, "APEC at a crossroads", New Zealand International Review, Vol 24, No 2, Mar/Apr 1999, 4 22 Leaders and finance ministers meet annually. Trade ministers meet twice a year. 23 APEC member economies have hosted a number of ad hoc ministerial meetings for Ministers ofenergy, small to medium enterprises, education, environment and sustainable development, humanresources development, regional science and technology cooperation, telecommunications andinformation industry and transportation. Some of these (notably ministers responsible for small andmedium enterprises) have developed an annual meeting schedule, but this has not yet been formallyadopted by APEC.

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APEC's role does not end with trade liberalisation. The oft-neglected area of economic and technical cooperation is one of the three pillars of APEC. Legal reform has an important part to play in creating a stable economic and political environment, in which long-term growth can occur.

Recommendation: Australia should propose that APEC commence annual meetings of the first law officers of its member states.

6. Continue to pursue standardisation

The program of trade facilitation had its genesis at the 1995 APEC meeting. It is an area which offers significant savings to member economies. 24 Successes have come in a number of areas.

• simplifying and harmonising customs procedures, with the aim of moving towards "paperless trading" in the region

• aligning domestic standards with international standards in a series of sectors

• offering multiple-entry visas to frequent business travellers from other APEC economies .

• establishing non-binding guidelines for the simplification and standardisation of systems of administering intellectual property rights

• providing a range of services to business through the APEC secretariat website 25 -

including tariff rates, requirements for certain professions and policies on government procurement, foreign investment, and dispute resolution.

• publishing an overview of laws and regulatory barriers affecting e-commerce

Trade facilitation has been one area in which APEC is able to boast of its successes. Labor welcomes the survey of business needs for trade facilitation cur rently being conducted by the Department of Foreign Affairs and Trade. 26 But we are also conscious that trade facilitation is an issue which has confounded the WTO. In recent years, APEC's ability to make progress on trade facilitation has been well in advance of its progress on trade liberalisation.

Recommendation: Australia should encourage APEC to have its achievements in the trade facilitation area taken up by the WTO.

24 The Pacific Economic Cooperation Council (PECC) estimates that trade facilitation measures have reduced the cost of cross-border trade within APEC by up to 10 percent. 25

http://www.apecsec.org.sg 26 The survey may be downloaded from http://www.dfat.gov.au/apec/

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7. Encouraging small and medium enterprises (SMEs)

APEC ministers responsible for small and medium enterprises have met annually since 1995. Their deliberations have implications right across the spectrum of APEC's activities and fora. Small and medium enterprises have the flexibility to adapt to market changes, and will play an increasingly important role in the new knowledge economy. The publication in 1996 of the APEC Directory of Support Organizations for Small and Medium Enterprises, and the establishment the following year of a

Framework for APEC SME Activities have enhanced the opportunities for SMEs to benefit from APEC's reforms.

Australian SMEs gain a particular benefit from the Export Market Development Grants scheme, which is directed towards assisting such firms to develop a presence in new markets. Unfortunately, the Coalition's shortsighted budget cuts and red tape have slashed EMDG grants by $75 million, thus reducing the number of jobs created by over 17 000, and the resulting exports by $1.5 billion. Strong support for SMEs at the

APEC level is to be encouraged, but in Labor's view, it means little if the EMDG scheme is ineffective.

Recommendation: Australia should provide increased support to APEC's small business activities, and reconsider the short-sighted cuts to the Export Market Development Grants scheme.

8.. Play an active role in the task force on the integration of women in APEC

At the last APEC meeting, it was agreed that an ad hoc taskforce on the integration of women in APEC be established. The purpose of establishing such a taskforce was to investigate ways of integrating women into APEC taskforce activities. In common with most trade bodies, APEC is overwhelmingly dominated by men. The taskforce aims to

make members aware of that imbalance, to work to address it, and to ensure that APEC members are better informed on gender issues.

The taskforce met in Wellington, New .Zealand, on 5-6 February 1999. Unfortunately, Australia's representatives did not attend the meeting. 27 Hopefully, the Australian Government will give this forum a higher priority in future.

Recommendation: Australian representatives must attend, and actively participate in, future meetings of the Ad Hoc Task Force on the Integration of Women in APEC.

27 Chair's Summary Report of the Preparatory Meeting for the Senior Officials Meeting Ad Hoc Task Force on the Integration of Women in APEC, 11 March 1999, available on the APEC website, at http://www.apecsec.org.sg/virtualib/v-taskforcewomen.html

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9. A more established administrative structure

APEC's operational efficiency from year to year depends in large part upon which of its members holds the chair. Its Singapore-based secretariat, consisting of 23 officials seconded by member economies for fixed terms and a similar number of locally recruited support staff, is clearly inadequate.

One of the problems at Kuala Lumpur was that the host country was not one of APEC's strongest champions. The inadequacy of APEC's existing secretariat means that the question of who holds the chair in a given year can be decisive. If APEC had a more substantial administrative structure, it might help alleviate this problem.

Australia should explore the option of a "virtual secretariat" — a network of bureaucrats in member economies, linked together by some sort of Internet or Intranet. If feasible, we should put such an option to APEC's next meeting.

Recommendation: Australia should explore ways in which APEC can develop a more substantial administrative structure, perhaps by way of a virtual secretariat.

10. Transparency

With some APEC members carrying out major restructuring programs, it is the ideal time for us to be encouraging them to harmonise standards and entrench good corporate governance. Transparency was an issue highlighted by the Prime Minister's Task Force on International Financial Reform, which reported in December 1998.

But Australia should also consider how APEC itself can become more transparent. As President Clinton has said in relation to the WTO:

"We must modernise the WTO by opening its doors to the scrutiny and participation of the public. Through long trial and error, we have learned that governments work best when their operations are open to those affected by their actions. As American Supreme Court Justice Lewis Brandeis said a long time ago, 'sunshine is the best of disinfectants."28

Naturally, a balance needs to be struck between permitting candour in discussions between heads of state, and allowing citizens and interested groups to learn as much as possible about such negotiations. But APEC members ought to view transparency not as a brake on their discussions, but as a means of ensuring that their constituencies travel with them along the road to trade liberalisation.

Recommendation: Australia should explore ways in which APEC's activities and fora can become more transparent.

28 Remarks by the US President at the Commemoration of the 50th Anniversary of the WTO, Geneva, Switzerland, 18 May 1998.

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11. Accountability

APEC should consider ways in which indigenous groups, unions, small enterprises and other non-governmental organisations can be accommodated within its structure. Just as the APEC Business Advisory Council (ABAC) allows business voices to be heard, an APEC NGO Advisory Council should be considered.

As the Canadian Foreign Minister, Lloyd Axworthy, has stated:

"APEC must engage its sceptics ... Only by engaging those directly affected by APEC's agenda can we make APEC more transparent and democratic, and in the process help to make globalisation work better".29

President Clinton has made similar comments in relation to the WTO.

"The WTO was created to lift the lives of ordinary citizens. It should listen to them. I propose the WTO for the first time provide a consultative forum where business, and labour, and environmental, and consumer groups can provide regular and continuous input to help guide further evolution of the WTO ... The world's trade ministers should sit down with representatives of the broader public to begin to do this." 30

On the domestic front, Australian submissions to APEC, and other international fora,

should also be held accountable to a wide range of interest groups. Labor will establish a Policy Advisory Committee on Trade, comprising representatives of NGOs and trade unions. Its work would parallel that of the Trade Policy Advisory Council (TPAC), and allow a greater diversity of voices to be heard in the creation of Australian trade policy.

Recommendation: Australia should explore ways in which APEC's activities and fora can become more accountable, and establish an Australian Policy Advisory Committee on Trade.

12. Tackle the broader agenda

The upcoming WTO negotiations will see a range of new issues brought on to the international agenda:

• whether labour standards should be considered at the WTO, or confined to the International Labour Organisation

• whether environmental standards should be considered at the WTO, or confined to environmental fora such as the Rio Earth Summit

2'•Quoted in Far Eastern Economic Review, 17 December 1998. 30 Remarks by the US President at the Commemoration of the 50th Anniversary of the WTO, Geneva,Switzerland, 18 May 1998.

issues relating to genetically modified organisms (GMOs), including banning,

labelling, the exercise of market power by suppliers of GMOs, and how the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement applies to GMOs

These issues will be fundamental to the future of the WTO. In regard to the first two, Canada and the United States have already indicated that they support a broader role for the WTO. Unsurprisingly, the Australian government has taken the opposite stance. APEC cannot afford to ignore these issues. Whilst it is unlikely that it will be able to arrive at a settled position on them, they must be placed on the next APEC agenda.

Recommendation: Australia should endeavour to see that "new" trade issues, including labour standards, environmental protection and genetically modified organisms, are discussed at the next APEC meeting, in preparation for the upcoming WTO Round.

13. Continue to persuade Australians of the need for reform

The challenge of trade liberalisation is not just persuading our trading partners of its benefits. There is also a domestic challenge — convincing Australians that it's good for us. As Rod Cameron of ANOP Research Services, one of Australia's most respected pollsters, said recently:

"There were a few brief years in the late 1980s and early 1990s, when ANOP was finding that some issues of macro economics did permeate through to become topics of backyard conversations at Blacktown or Moorabbin. Years when concerns about the debt, the deficit and the balance of payments really did

reach ordinary voters.

"Times have changed. ... Macro economic issues are off the agenda of the general public. And they are off the agenda largely because the government has stopped forcing them on to that agenda. With the exception of the goods and services tax, the government is no longer trying to educate the Australian people about the need for continuing reform."

In 1997-98, the One Nation spectre began to threaten the Coalition Government, and in particular the National Party, led by the Minister for Trade. At this point, the Prime Minister and the Minister for Trade backed off the task of explaining trade liberalisation to the Australian people. The process of trade reform slowed. But worse, the

Government ceased to justify it to the Australian people. It is difficult to imagine John Howard now saying to a Queensland audience, as Paul Keating did in 1994:

"Free trade in the APEC region would bring Australia benefits several times those of the Uruguay Round. And the benefits in terms of increased competitiveness and integration with the region would be far greater. It can underwrite Australia's future. It can give us sustainable growth, employment, a

role . in technological innovation, cultural stimulation and enrichment. It can

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substantially underwrite the democratic, rich and dynamic nation we want to be in the twenty-first century."31

The task of selling government policy is a fundamental one. This government has a

duty not simply to put out press releases touting new initiatives, but also to maintain a continuing dialogue with the Australian people on the fundamentals of economic policy.

Recommendation: The Australian government should maintain a continuing dialogue with the Australian people on the topic of trade liberalisation.

31 "Australia and Asia", Brisbane, 26 October 1994.

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Conclusion

In a rapidly changing environment, APEC must evolve or die. Yet the Howard Government seems to be doing little to assist the evolutionary process. With a myopic focus on aggressive bilateralism and 20 percent less staff in the Department of Foreign Affairs and Trade, APEC's inadequate response to the Asian crisis and the failure of the EVSL proposals should have come as no surprise.

APEC today faces a new and daunting set of challenges. More than ever before, its members must develop a common approach within the WTO. It needs to become more transparent and more accountable. Where possible, it should integrate women into its forums. Its Attorneys General should meet regularly. Financial sector reform must be high on the agenda. It needs a twenty-first century secretariat. Meanwhile,

APEC must continue to deliver in the areas of trade facilitation and promoting the needs of small business.

Yet whilst APEC must adapt to this new environment, Labor's end goal remains the same as it was when we established APEC in 1989. Trade liberalisation in the Asia-Pacific region will bring more high-skill, good-wage jobs, a well educated workforce,

and a better future for all Australians.

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Appendix A — APEC in brief

APEC began with a membership of twelve. It added three more in 1991 (China, Hong Kong and Taiwan), two in 1993 (Mexico and Papua New Guinea), one in 1994 (Chile) and three in 1998 (Russia, Peru and Vietnam), bringing the total membership to twenty-one economies.32 There is now a moratorium on new members until 2007.3

The members of APEC are Australia; Brunei Darussalam; Canada; Chile; the People's Republic of China; Hong Kong, China; Indonesia; Japan; the Republic of Korea; Malaysia; Mexico, New Zealand; Papua New Guinea;* Peru; the Republic of the Philippines; Russia; Singapore; Chinese Taipei; Thailand; United States of America;

and Vietnam.

The combined population of APEC member economies is now 2.4 billion, or 42 percent of the world's people. The total GDP of APEC members amounts to A$26 trillion — 55 percent of the world total.

APEC's program is built around three "pillars":

• trade facilitation — removal of non-tariff bar riers, harmonisation of standards, simplification of customs

• trade liberalisation — focussing on the Bogor Declaration goals for 2010 and 2020

• economic and technical cooperation — reducing economic disparities within the region

32 APEC is made up of "economies", not countries. This allowed it to be the only international body which included the "three Chinas" — China, Taiwan and Hong Kong. 33 Although there is no explicit statement in either the 1997 or 1998 Leaders' Declaration about a

membership moratorium, it is clear that one was agreed upon. Following the 1997 Leaders' Meeting, the host, Canadian Prime Minister Jean Chretien, issued a press release stating "[APEC] have welcomed Peru, Russia and Vietnam as new members and agreed on a ten year period of consolidation after which membership issues will be considered further" (25 November 1997).

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Appendix B - APEC and other international bodies

There are a wide range of other international bodies whose work overlaps with that of APEC.

Asia-Europe Meeting (ASEM)

ASEM is a forum for countries in the two regions to enhance cooperation in economic, political and cultural fields. The first meeting was held in Bangkok in 1996, and a second in London in 1998. Korea is to host a third meeting in 2000. The forum evolved from an idea of Singapore's Prime Minister Goh Chok Tong as a balance to existing transatlantic

and Pacific-rim links. Membership at both meetings comprised the fifteen members of the European Union, a representative of the European Commission and ten Asian nations (the seven members of ASEAN in 1996 — Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, plus China, Japan and the Republic of

Korea). While participation may be expanded on both sides in the future, there has been some disagreement over expansion (to; for example, Burma/Myanmar, India, Australia or New Zealand). ASEM operates as an informal gathering of leaders. Its principal objective is to establish common ground for developing a more productive relationship between the two regions. Future ASEM projects are likely to include business and cultural exchanges, twin cities and university links.

ASEAN Free Trade Area (AFTA)

At its 1992 Summit, ASEAN decided to establish an AFTA by 2008. This deadline has since been brought forward to 2002. 34 In 1993, ASEAN launched the Common Effective Preferential Tariff (CEPT) scheme, covering most goods. 35 This requires that, by 2003, tariffs on all products in the Inclusion List 6 be reduced to 5 percent or less on intra-ASEAN trade.

AFTA is also involved in trade facilitation — involving some harmonisation of customs standards and product standards. Other AFTA agreements relate to the services sector — in particular banking, telecommunications and tourism. Last year, ASEAN agreed to strengthen macroeconomic and financial cooperation and further economic integration.

Many had been sceptical as to AFTA's continued relevance, given trade liberalisation agreements put in place by APEC and the WTO (and the fact that only Malaysia and Singapore consistently met their targets). However, it now appears more relevant with more ambitious targets set out in the 1998 Hanoi Plan of Action.

Cairns Group

The Cairns Group is a grouping of fifteen agricultural exporting countries within the WTO. Its members are Argentina, Australia, Brazil, Canada, Chile, Colombia, Fiji, Indonesia, Malaysia, New Zealand, Paraguay, the Philippines, South Africa, Thailand

Although the 2002 deadline only applies to the six original members (Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand). When Vietnam joined in 1995 it was given until 2006 to meet the AFTA objective. Laos and Burma/Myanmar joined in 1997 and were given until 2008 to meet the AFTA goals. When Cambodia is admitted into ASEAN, it will be given until 2010 to comply.

Though there is a list of excluded "sensitive" products, mainly agricultural. Which, by 2003, must cover 90 percent of total tariff items.

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and Uruguay. Its annual ministerial meetings are chaired by the Australian trade

minister. The Group has facilitated coordination among members on a range of issues, including EU and US agricultural export subsidies, trade and the environment, and moves towards China's accession to the GATT/WTO. The fact that eight Cairns Group countries are also members of APEC amounts to a substantial bloc in favour oT placing agricultural trade liberalisation squarely on the APEC agenda.

Closer Economic Relations Trade Agreement (CER)

The first CER agreement between Australia and New Zealand was concluded in 1983. Its central agreement is the creation of a free trade area between the two countries. Since its inception, a protocol on free trade in services and a protocol to.accelerate the achievement of free trade in goods have been agreed upon.

The free trade area created by the CER is designed to be WTO-consistent, allowing its benefits to be confined to the two members. CER is one of the most comprehensive bilateral free trade agreements in the world, and the first to include trade in services. As well as bringing about greater economic cohesion, CER also. offers the potential to improve the cultural, social and political ties between Australia

and New Zealand.

CER AFTA Linkage

Established by Labor in 1995, CER-AFTA is a program of cooperation and trade and investment facilitation between the members of AFTA and CER with practical business-oriented activities. The CER-AFTA dialogue operates on four levels - ministerial consultations; business leaders' dialogue; trade facilitation activities; and trade and

investment information. The linkage between AFTA and CER was the first between AFTA and another regional trade arrangement. Other linkages have been developed in view of AFTA's commitment to open regionalism.

Although CER-AFTA has achieved some useful outcomes, it appears to have now been moribund for nearly two years. Annual ministerial meetings took place in 1995, 1996 and 1997. But no CER-AFTA meetings of ministers or officials have taken place in the past eighteen months.

CER-NAFTA Agreement

There has also been some recent discussion of an open trading agreement between the CER states (Australia and New Zealand) and the NAFTA states (Canada, the US and Mexico). Labor went to the last election with a promise that, if elected, we would investigate the economic advantages of such an agreement. The Howard Government

continues to disregard this issue.

East Asia Economic Caucus (EAEC)

This dialogue between members of ASEAN and other East Asian economies was first proposed by Dr Mahatir in 1990. Conceived as a loose consultative forum, EAEC never met, due to opposition from the US and Australia. However, since 1998, a de facto EAEC may now be emerging, in the form of a regular summit between the leaders of

ASEAN nations, plus heads of state of China, Japan and the Republic of Korea. Whether

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"ASEAN + 3" meets annually or biennially, it seems likely to become increasingly

institutionalised.37

Indian Ocean Rim Association (IOR)

IOR held its inaugural meeting in Mauritius in March 1997, comprising South Africa, India, Kenya, Mauritius, Oman, Singapore and Australia. It has since changed its name from the "Indian Ocean Rim Initiative" to the "Indian Ocean Rim Association", and now also encompasses Indonesia, Madagascar, Malaysia, Mozambique, Sri Lanka, Tanzania and Yemen. Australia has also been encouraging other Middle Eastern states to join. At this stage, however, it does not appear likely that it will play a major role in trade liberalisation.

Mercado Comun Del Sur (Mercosur)

Argentina, Brazil, Paraguay and Uruguay established Mercosur in March 1991 with the Treaty of Asuncion. This aims to achieve economic integration by means of a free flow of goods and services between members, the establishment of a common external tariff, the adoption of common commercial policy, and coordination of macroeconomic policies. Chile has negotiated a free trade agreement with Mercosur, as has Bolivia, which is also an associate member. 'A free trade zone, with no tariffs on 85 percent of intra-regional trade, came into effect in 1995. However, there are a number of important exclusions,

notably cars, computers and agricultural products. Despite the current turmoil in the region's financial markets, Mercosur has played an important role in liberalising trade within South America. More recently, the four members of Mercosur have begun discussions on the possibility of developing a European Union-style agreement.38

World Trade Organisation

At the heart of the multilateral trading system lies the WTO. Known until 1994 as the GATT, the WTO has more than 130 members, accounting for over 90 percent of world trade. Its agreements —negotiated and signed by a large majority of the world's trading nations, and ratified in their parliaments — are the legal ground-rules for international commerce. The WTO also provides a dispute resolution procedure, which provides for consultation between the parties in the first place, but also for judgements by specially-appointed independent experts.

One of the basic principles of the WTO is trade without discrimination. All WTO agreements therefore contain a "most favoured nation" (MFN) clause, requiring the contracting parties to grant to the products of other contracting parties treatment no

less favourable than that accorded to products of any other country. Whilst an exception exists for free trade zones, MFN has been a pillar of the world trading system since the inception of the GATT in 1947.

The increased prominence of the GATT/WTO over the past decade has led some observers to wonder whether there is still a role for APEC to play. Admittedly, the coherence of the APEC economies was a significant factor in closing the Uruguay

37 See Johnson, T, "E. Asian Leaders agree to hold regular summits", Japan Economic Newswire, 16 December 1998 38 Schneider, S, "South America embarks on path to EU-style pact", The Age, 16 June 1999, B2

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Round of WTO talks in 1994. However, in recent years, European monetary union and

the Asian crisis have made the world's two largest economies — the United States and Japan — reluctant to pursue trade liberalisation through APEC, a forum which does not include the European nations.

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