Today, trade in goods is just one thread of intertwined international movements of investment, services, components, expertise and information. Global supply chains are becoming ever more important. The relative importance of obstacles to international commerce has also changed. Traditional border barriers to some products remain costly, but affect a rapidly-shrinking share of international commerce.
It is now more efficient to concentrate on problems caused by communications, logistics and needless differences in domestic economic regulations. For example, the EU and the US have both noted that cooperation to reduce regulatory impediments to trade and investment between them could increase the EU’s GDP by 0.7 per cent, a significantly greater amount than from removing residual tariffs.
A recent policy review by APEC sets out the many opportunities to tackle logistical and regulatory impediments to Asia Pacific integration. For example, World Bank research indicates that improving the efficiency of APEC ports half way to the APEC average efficiency would result in a 10 per cent increase in intra-APEC trade, worth about US$280 billion per year. That is of the same magnitude as the benefit of removing all remaining tariff barriers — and is much more likely to be achieved.
Governments around the world are trying to respond to these new opportunities and priorities for integration but, all too often, they expect to use the same policy instruments that were designed to deal with trade in goods.
Trade negotiations are no longer proving very effective in terms of their main objective of reducing traditional border barriers to trade in goods. Doha Round, for example, has been stalled for years. Preferential trade agreements (PTAs) are proliferating, but they largely exempt sensitive products, or ensure that rules of origin prevent any significant new competition to their producers. That avoids hard political decisions, but leads to only marginal gains in reducing traditional border barriers.
Despite this evidence, governments are expecting the same worn tools as the means to tackle new issues – established habits are preferred to policy innovation. Rather than assessing the constraints on policy making to deal new issues, governments still expect that the scope of multilateral, regional and bilateral trade agreements can be readily expanded to deal with all new issues.
Some negotiated agreements can be useful, but are not sufficient to address new issues. For example, new disciplines can rule out policies which might raise transaction costs, but additional measures are required to reduce them. Similarly, agreements which encourage governments to adopt existing international standards can promote mutual recognition, but much more is needed for mutual recognition of procedures for testing compliance with these standards. As Holmes and Rollo point out, this requires a long-term effort to create institutional capacity and mutual trust among regulators.
In many cases, negotiations are not needed for agreement on codes of conduct, or even disciplines to facilitate international commerce. The vast majority of governments are keen to engage their economies in international production networks. They are aware that policies to enhance trade logistics, and make regulations increasingly transparent and compatible with international norms, are in their interest. Accordingly, there is no need to delay cooperation to facilitate trade or investment until a comprehensive trade agreement is negotiated.
It is certainly not necessary to deal with all new issues at the same time. For example, there is no need to wait for agreement on liberalising sensitive agricultural products before cooperating to enhance business mobility. Some governments are taking advantage of the potential for dealing with new issues outside the context of trade negotiations, while others are beginning to recognise the opportunity to do so.
ASEAN is working towards an ASEAN Economic Community by focusing on facilitating investment, reducing needless differences in regulations and improving transport and communications links. The capacity building needed to implement ASEAN’s Master Plan on Connectivity is not being delayed by negotiations on unrelated matters.
The EU is beginning to explore imaginative opportunities to cooperate with others. In Africa, the World Bank is encouraging closer economic integration, especially by improving the availability and efficiency of transport and communications infrastructure. They are not waiting for the conclusion of the Doha Round to encourage capacity building for trade and investment facilitation. They are seeking to reduce the transaction costs of commerce among economies, regardless of whether such efforts are part of traditional trade agreements.
APEC economies have been reducing non-border impediments to international commerce since 1993. Cooperation to adopt more efficient customs procedures and other practical arrangements to facilitate trade are already saving billions of dollars per year. This work is continuing in order to move closer to APEC’s newly-adopted vision of a seamless regional economy.
At the multilateral level, there is growing awareness that the issue of trade facilitation can be separated from apparently interminable negotiations on traditional market-access issues. Agreement on an issue with potential all-round gains does need to wait for a single undertaking. No one believes that holding up agreement on this non-contentious issue will have a significant effect on the balance of perceived pain and gain on trade liberalisation.
APEC could also promote progress towards a seamless regional economy by adopting codes of conduct on new issues by drawing on some of the provisions in model “chapters” on matters such as customs administration. There is no need to wait for hundreds of traditional PTAs before adopting some common-sense codes of conduct to reduce the cost and risks of international commerce with trading partners.
At long last, there is growing recognition that the problems of solving zero-sum or prisoner’s dilemma games need not hold up progress on plus-sum games. The emerging consensus that the greatest gains from international economic cooperation will flow from dealing with regulatory and logistics impediments may be followed by a consensus that it is not necessary to use old instruments to deal with new issues.
Andrew Elek is a Research Associate at the Crawford School of Economics and Government, Australian National University. He was the inaugural Chair of APEC Senior Officials in 1989.