By John W.H. Denton
Chairman, BCA Global Engagement Task Force
Member of Australia’s APEC Business Advisory Council
Partly as a consequence of the global financial crisis, we have seen the G20 become the principal global economic policy institution. This change in the global economic order has rightly received a great deal of attention of late. But we should not overlook the importance of the Asia Pacific Economic Cooperation (APEC) forum to Australia’s interests and as an influential institution for economic dialogue and policy.
The meeting of APEC leaders in Singapore this weekend is taking place at a critical time. APEC has a unique opportunity to extend its global influence. But it will need to renew its structures and demonstrate tangible policy outcomes in free trade and investment, if it is to succeed.
The shift in economic power to the Asia Pacific, and to Asia in particular, has been reinforced by the global recession. Within Asia, 22 nations are categorised as ‘developing economies’ that are expected to achieve positive growth in GDP for 2009 at the remarkable average of 6.2 per cent. Australia has been virtually the only advanced economy to achieve positive growth, thanks in large measure to our trade and investment links with emerging Asia. The economic performance of Asia has helped to hasten a transition in global governance arrangements.
The recent transition in global economic leadership from the G8 to the G20 recognised the need to include a place for the emerging economies of the world within the leading global institution. Developed nations expect emerging nations to be responsible global actors. This requires that we include them as partners in global institutions.
APEC has the chance to increase its global influence as part of this same transition. Nine members of the G20 are also members of APEC. Furthermore, APEC’s membership spans Asia and North and South America. Kurt Tong, the senior official responsible for APEC in the US State Department, recently testified before a Congressional subcommittee. He said that because the economic affairs of the Asian region were linked so closely with the Americas, ‘effective regional economic institutions must include members from both sides of the Pacific’. Currently, APEC is the only regional institution that does this. While it has some clear advantages over other regional bodies, APEC needs to pursue two objectives if it is to continue to be a leading regional institution with global influence.
First, APEC will need to reform its structures to align with new developments. It will need to consider the future membership of the institution, including whether India should be invited to join. Given the size and the rapid expansion of India’s economy, combined with the influence that India will exert into the future, Australia and other APEC members should be giving a high priority to its accession.
Also, in terms of the structure of APEC, we have recently seen a greater involvement by treasury and finance ministers, as well as better integration between economic and trade policy. Business has welcomed this development. We would like to see even greater engagement with treasurers, because this will enable APEC to link more closely with the G20 where treasurers and central bank governors have a leading role.
Second, APEC’s policy initiatives must also achieve tangible outcomes that justify the time and resources committed by its members and their constituents. The most important priorities are the investment, trade and structural reform agendas.
Practical steps towards the establishment of free trade among APEC members have been part of the agenda for at least 15 years. This continues to be a key priority for business. The best way to take this forward is to establish a Free Trade Area of the Asia Pacific.
APEC members, including Australia, should ramp up deliberations on how best to achieve a free-trade area, together with detailed consideration of what it would involve. This does not mean focussing only on the creation of a new instrument or instruments. Rather, we should look at how we might harness a multiplicity of tools to achieve an effective free-trade zone.
The business community also recognises the important work undertaken on investment. APEC’s Investment Facilitation Action Plan has the potential to be an effective mechanism for lifting investment flows within the region. It offers a way to simplify and improve the consistency of investment rules, including the protections available to investors within APEC member economies. These outcomes are essential in order to provide investors with the confidence they require for making medium to longer-term commitments.
The effectiveness of APEC’s practical policy reforms will reinforce its potential as a highly influential institution when it comes to setting the global policy agenda, and as the only regional economic body that brings together the major economic powers on both sides of the Pacific.