The World Bank recently published a valuable research paper (World Bank Policy Research Working Paper 5940 by Justin Yifu Lin and Doerte Doemeland) which presents the evidence needed to justify a globally coordinated initiative in carefully selected infrastructure investment.

A G20 initiative in 2012 could make this happen. G20 leaders have the opportunity to launch a concerted effort to remove the policy and market failures causing serious infrastructure bottlenecks to growth, especially in developing economies. The prospect of a new sustainable source of effective demand could counter the current drift toward a ‘lost decade’ — an extended period of high unemployment, high risks and low returns on investment leading to continued weak growth,high unemployment and debt.

There is no prospect of repeating the coordinated 2009 Keynesian stimulus of increased government spending. Some countries have run out of fiscal space, while others have opted for needless short-term austerity. Consequently, the World Bank paper advocates a new form of fiscal stimulus that is not simply a boost to public consumption, but an investment in future productivity.This form of stimulus would catalyse parallel private investment and serve as a globally coordinated investment initiative, rather than an attempt to stimulate individual economies.

Such a global Keynesian initiative would remove constraints to growth in developing economies, and create new demand in developed economies suffering from high unemployment and excess capacity. Investment in infrastructure can thus generate a virtuous cycle of higher demand, productivity and growth that isconsistent with long-term deleveraging.

The proposal, based on extensive research, argues for the need to find a way out of the current situation, when monetary stimulus is proving inadequate, and when structural adjustment can only be expected to gain traction when demand is revived. Governments need to support demand and employment without adding further to debt levels in the medium run. Providing capital for potentially self-financing infrastructure investment to remove logistic and other constraints to growth would be the best way of doing this.

The report also cites evidence that such a stimulus does not risk crowding out private spending, but can be expected to contribute significantly to employment and growth. The authors demonstrate the potential for profitable infrastructure investment in all economies, while noting that the highest needs and potential returns are in developing economies.

By learning from experience, including the disappointing experience of Japan in the 1990s, it is possible to select the right kind of investment in infrastructure. The paper draws attention to initiatives that support good project selection and design, such as the Infrastructure Action Plan — drawn up in 2011 as part of the G20’s contribution to the development of low-income countries — and the Infrastructure Finance Center of Excellence, which aims at leveraging Singapore’s expertise in urban development and financing.

The G20’s ongoing effort to improve infrastructure in low-income economies should be extended to all economies. Recent estimates of annual requirements for investment and available financing for infrastructure identify a financing gap in the range of US$400 billion to US$650 billion per year. Narrowing this gap would have a significant global macroeconomic effect. The paper discusses numerous options for mobilising additional finance, ranging from domestic revenue raising to local and international bond issuance, and public-private partnerships. These are just some of the ways to steer more of the available global savings toward productivity-boosting infrastructure.

The potential contribution of infrastructure investment to promoting global economic recovery has been discussed for a while. And at a time of deficient global demand, the huge savings of emerging economies — most of which are generated in Asia — are intermediated chiefly in the financial markets of New York and London. Rather than financing productive infrastructure, much of the world’s savings are financing the deficits of already heavily indebted developed economies. The time has come to deal with this massive global financial market failure. Asian members of the G20 have put the infrastructure opportunity on the G20’s growth agenda. This well-researched World Bank paper should ensure it rises to the top of that agenda.

It will take time and creative thinking to meet the financing needs for infrastructure.  A High-Level Panel on Infrastructure appointed by G20 leaders delivered a useful report at the 2011 Cannes Summit. That report contains recommendations for improving the institutional and enabling environment for investment in infrastructure, and ideas for financing infrastructure projects with significant but delayed returns to investors and how to manage project risks.  But the Panel focused only on much-needed infrastructure in the world’s most difficult investment environments, especially sub-Saharan Africa.

The issues of institutional capacity, innovative financing and risk management need attention everywhere and need to be addressed if investment in infrastructure is to provide a globally significant boost to effective demand.  G20 leaders should now challenge their officials, financial-sector managers, and international financial institutions to find ways to intermediate savings to finance more investment in infrastructure.  These ideas can be directed to financing both public and private investment in commercially-viable investment in infrastructure wherever it is needed.  A high-level conference of the world’s leading experts on these issues, which might be organised by the World Bank could be a useful first step in that direction.

Dr Andrew Elek is Research Associate at the Crawford School of Economics and Government, Australian National University. He was the inaugural Chair of APEC Senior Officials in 1989.

1. How can Asia help fix the global economy?
2. Global imbalances and the paradox of thrift
3. APEC’s new ‘financial inclusion’ initiative

A revolution in information and communications technology since the 1990s has changed the nature of production, international commerce and the importance of integration.

Eager to engage their economies in global production networks, governments have moved unilaterally to lift most tariff and other policy barriers which inhibit trade at the border. They are turning their attention to the more significant costs and risks to international commerce resulting from unnecessary differences in regulation and problems of trade logistics.

The WTO is currently bogged down dealing with residual border barriers to a few sensitive products, so the action is shifting to bilateral and regional integration: this does not have to rely on proliferating preferential trade deals. FTAs (or PTAs) are policy instruments designed to deal with international commerce as it was practiced in the 1950s. Recent evidence indicates that they are not even leading to much preferential trade, let alone facilitating trade creation. Nevertheless, these agreements are still expected to deal with an ever-widening range of issues by negotiating increasingly complex single undertakings.

Fortunately, there is no need to hold hostage any progress on new areas of trade liberalisation to marginal gains in discriminatory trade liberalisation. It is more efficient to devise and use new instruments to achieve these policy objectives. The pattern of production has been unbundled with production occurring in networks across economies, leading to much greater efficiency. Unbundling the now more strategic dimensions of economic integration from mercantilist trade negotiations can also revolutionise the efficiency of international cooperation to promote mutually beneficial economic integration.

Richard Baldwin has published a valuable reassessment of regionalism in the 21st century. He describes two ‘great unbundlings’ of production. The first occurred when falling transport costs allowed geographical dispersion of production and international specialisation along lines of comparative advantage — although international transactions remained dominated by commodities and goods produced in one location.

The second unbundling was sparked by information and communications technology which made it possible to coordinate complex activities at a distance. Business has moved quickly to take advantage of these new opportunities. This has led to what Baldwin describes as 21st century trade: an intertwining of trade in goods, international investment in production facilities, training, technology and long-term business relationships; and the use of infrastructure services to coordinate dispersed production.

International investment in production facilities has accelerated, and a more sophisticated pattern of international commerce draws attention to new issues including policies on international investment, competition policy, rights of establishment and greater concern with intellectual and other property rights.

During this second unbundling, the WTO’s Doha Round has been held hostage by liberalising border barriers to trade in goods. Most of the new issues are not even on the Doha Round agenda, so governments and business are turning attention to bilateral and regional trading arrangements. These trade deals have usually been justified by a desire to accelerate trade liberalisation for some time. But as many observers have noted they are not making much difference since they dodge the hard issues. Even if many tariff rates are reduced, sensitive products are either exempted or protected by using rules of origin or other non-tariff barriers to trade.

Bilateral or regional negotiations have not led to much additional trade liberalisation. Only 16.7 per cent of world trade is preferential and margins of preference are quite low: less than 2 per cent of world imports of goods enjoy preferences over 10 percentage points.

Serious liberalisation has been happening outside these preferential deals. Once governments understood what needed to be done in order to participate in global production networks, tariffs on products moving along supply chains were reduced unilaterally. So why are governments persisting with bilateral and regional arrangements when they are not delivering the kind of liberalisation that matters?

Baldwin’s answer is that these so-called FTAs are now addressing other, new issues. Moreover, the way these bilateral and regional arrangements deal with new issues is not always discriminatory. Baldwin explains that it is very hard to apply rules of origin to disciplines on new issues, due to the difficulty of establishing the nationality of modern corporations and services and because better infrastructure services and improved regulations are public goods.

Accordingly, Baldwin believes that the risks to the WTO system posed by bilateral or regional arrangements are not due to their discriminatory nature but because the rules are being made elsewhere. Unless the WTO is brought up to date and begins to deal with new issues, the opportunity for consensus-based rules for modern international commerce will be lost. The rules of the game will be set, instead, by the most powerful.

Our political leaders lack the courage either to conclude or to abandon the Doha Round, so it will be some time before the WTO can achieve this. Thankfully, a world shaped by trade deals reflecting the wishes of the dominant economies can be avoided by using new instruments for realising policy objectives. There is no need to rely on mercantilist trade negotiations to deal with investment, competition policy, logistics and regulatory matters. Negotiating binding international rules is not the only way, and seldom the most effective way, to deal with all dimensions of integration.

The urgent need to engage in global production networks has driven unilateral liberalisation of border barriers. For similar reasons governments are moving unilaterally to complement an environment of low border barriers with less restricted movement of business people and capital, adequate respect for intellectual property rights, better regulations and modern trade logistics.

Governments are also aware that coordinated reforms of logistics and regulations, and concerted reform of national standards to harmonise with international standards, are more efficient than acting alone. In other words, cooperation on many new issues is seen as a positive-sum game.

Where cooperation is seen to deliver benefit, issues can be dealt with on their own merits. Where there are positive network effects, cooperative arrangements should be designed as open clubs: any other economy should be able to sign on to individual arrangements as soon as they perceive the benefit of doing so.

Deep integration can be pursued by policies aimed directly at new issues. APEC has been reducing the cost and risks of international commerce effectively by dealing with them on their own merits rather than waiting for a grand package deal. Southeast Asian governments have realised that their FTAs were nowhere near enough for genuine economic integration. They are now creating an ASEAN Economic Community by focusing on facilitating investment, reducing needless differences in regulation 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.

Just as there was never any reason to delay the benefits of progress on new issues by linking them to politically divisive old issues, there is no reason for restricting cooperation on new issues to economies which are part of preferential trade deals.

Dr Andrew Elek is a Research Associate at the Crawford School of Economics and Government, the Australian National University. He was the inaugural Chair of APEC Senior Officials in 1989.

1. Multilateralising Regionalism: Australia’s Role in ‘Taming the Tangle’ of Preferential Trade Agreements
2. Australia’s trade policy returns to multilateralism
3. The de facto ‘free trade area’ in East Asia

The 2008 global financial crisis catalysed a long-overdue transformation in the oversight of global affairs, bringing large emerging Asian economies to the G20 table.

A transition in the role of Asian countries at the G20 — from cautious and sometimes defensive to visionary and exemplary — was expected to unfold slowly, possibly taking a decade or more. Yet the renewed threat to recovery arising from the self-created problems of the US and EU has created an urgent demand for Asian leadership in 2011.

As in 2008, the world is looking to the G20 to deal with the renewed threat of recession.

The US and EU are certainly not going to boost global demand. Asian and other emerging economies have some scope to stimulate domestic demand, but not nearly as much as in 2008. By the time G20 leaders met in France in November 2011, the short-term prospect was, at best, to avoid recession in the US and EU.

Such an outcome may be adequate for one year but risks the future of the G20. Continued stagnation of mature economies will accelerate the ongoing shift of economic power and influence towards emerging economies. Economies with growing shares of wealth and dynamism will be blamed for not doing more. But aggressive attempts to attribute blame to dynamic economies, China in particular, just makes it politically harder for these economies to implement reforms.

To avoid falling into a swamp of unproductive recrimination, the G20 needs to find a strategy to stimulate effective demand which all its members can support.

At a time of deficient global demand, substantial savings generated by emerging economies are locked up in excessive foreign exchange reserves alongside vast potential for investment in economic infrastructure. Much of the vast unmet demand for infrastructure is in the emerging economies of Asia, which are also the source of much of these savings.

Asian governments have recognised the costs and risks of continuing to accumulate reserves. Those risks include significant capital losses, ongoing blame for inadequate global growth, and the costs of prolonged weak global demand on their own economies.

Now is a good time to address a global financial market failure in order to reduce these growing risks. Bringing forward some badly needed investments in infrastructure could be a decisive circuit-breaker to spark sustained global recovery.

Asian governments can put the challenge of fixing the current massive market failure squarely on the G20 agenda. A concerted effort by all members of the G20 to gradually make better use of Asia’s huge accumulated savings will allow them to work constructively to solve a shared policy problem, rather than blaming each other for there being too little growth and too many exports.

Channelling more of Asia’s savings into productive investment in infrastructure will not happen quickly or easily. G20 leaders can challenge their officials, financial-sector managers, and international financial institutions to use their expertise to find creative ways to intermediate savings to finance more investment in infrastructure.

The Asian Development Bank (ADB) and other multilateral development banks can step up their roles. They can be sound borrowers of Asian savings; they can invest them in productive projects, including projects to improve connectivity among economies. Commercial banks can also do more in credit-worthy emerging economies.

There will be some risks. One or two governments may act irresponsibly and make a mess of some investments. But, with care, most investments in infrastructure will prove to be viable. There is a lot of international experience on designing public-private partnerships and shaping policies to set prices and contain project risks within acceptable limits. And the risk of some projects being less successful than expected is far less than the risks of prolonged recession.

An effort to create more effective demand for investment will need to be accompanied by ongoing efforts to cope with long-term problems of debt in mature economies and structural adjustment in emerging economies. These complementary efforts can restore confidence in the world economy.

In the meantime, G20 leaders might delay thinking about other significant global problems. Unfortunately, the window of opportunity to avoid disastrous climate change is closing fast, and the future of an open non-discriminatory WTO-based regime for international commerce is being undermined by misplaced faith in preferential trade deals.

It will take a long time to find consensus on how to contain, let alone resolve, such problems. In a voluntary process of cooperation like the G20, there will be no big breakthroughs in any one year. It will not be possible to deal with these big problems in sequence. A more prudent option is to start a discussion of these issues in a patient, non-confrontational manner.

Right now, the US and EU are both caught in a vicious circle of acrimony and repeated attempts to defer hard decisions. They cannot be expected to lead the consensus-building needed to deal more adequately with global warming or rescue the WTO. Nor can Asian governments rely on them to deal wisely with global issues, respecting differences and searching for consensus rather than confrontation.

At a time of weak global governance the challenge of leadership is being thrust on Asia sooner than it had hoped.

The agenda of Asian institutions for regional cooperation can move beyond preoccupation with local issues and trade negotiations to an outward-looking effort to address important matters which require global solutions. Forums like ASEAN+3 and the East Asia Summit can be used to consult on how Asia can use the G20 opportunity — an opportunity which may not be repeated — to defend, then reform, the international economic order in ways needed to complete their emergence from poverty.

Andrew Elek is a Research Associate at the Crawford School of Economics and Government, the Australian National University. 

This article was first published in the most recent edition of the East Asia Forum Quarterly, ‘Asia’s global impact’.

1. How can Asia help fix the global economy?
2. Asian leadership and the global economic crisis
3. Asia’s challenge: to rebuild the global economic order in a generation

The global economy has another serious bout of the jitters around the deep problems in Europe and uncertain recovery in the United States.

The IMF meetings in Washington may have temporarily allayed the effects of the collapse in global confidence but there remain big challenges for the G20 in developing a response to the threat of the world’s slipping back into recession.

The manifestly inadequate response to the problems of some EU economies means that the prospect of a severe new financial shock is real, the future of the Euro is far from assured and confidence is fading, with many predicting up to a decade of weak growth or worse.

The self-imposed crises in the US and the EU have destroyed the capacity of industrial economies to contribute to global growth in the short term. China’s options are also problematic, with policy makers in Beijing increasingly worried about inflation China is will find it difficult to respond with an immediate, massive domestic stimulus, as it did in the 2008 paroxysm of the ongoing financial crisis.

Most economies need to undertake significant structural adjustment if there is to be rising productivity and sustainable long-term fiscal and external balance. But far too many governments have committed themselves, prematurely, to fiscal austerity at a time of deficient global demand, damaging prospects for sustained recovery in developed economies.

In the short-term, there will be enormous tensions as the relative economic weight of emerging economies grows apace. This is a defining moment for the G20, one that will either demonstrate or destroy its capacity to be an effective steering committee for the global economy.

The perverse reality is that, even at a time of deficient global demand, the savings of emerging economies, most of which are generated in Asia, are being intermediated chiefly in the financial markets of New York and London. These savings are then invested largely outside Asia with a significant part lent to governments of already heavily-indebted developed (usually western) economies to finance their fiscal deficits. This money can be put to better use.

The potential for profitable investment in economic infrastructure is enormous. The OECD has estimated global infrastructure requirements to 2030 to be in the order of US$50 trillion. Much of this demand is in Asia, also the primary source of these savings. China may be facing a temporary problem of over-heating, but its stock of capital relative to population and income is low. India and Indonesia offer vast scope for investment infrastructure. The US also needs to make large investments to rehabilitate or extend its economic infrastructure. More generally, global investment is a historically-low share of global output.

A concerted effort by all members of the G20 to make better use of global savings will allow them to work constructively to solve a shared policy problem, rather than blaming each other for too little growth and too many exports.

A G20 effort to deal with this policy issue can become a significant ongoing part of its international macroeconomic agenda: even a partial solution can begin to realise the potential for a sustainable and significant boost to global demand and production.

China and India are already investing more of their savings in infrastructure than in financing developing country debt. ASEAN governments have created an ASEAN Infrastructure Fund. From a modest base, the Fund can be leveraged to make a major contribution to removing domestic bottlenecks and accelerating integration towards an ASEAN Economic Community.

Many more opportunities await financing. Deeper and more liquid capital markets in emerging economies would certainly help. The International Bank for Reconstruction and Development (now known as the World Bank) was able to boost large-scale infrastructure investment after World War II at a time when international financial markets were far less well developed than they are now, suggesting that developing economies are in a good position to expand their infrastructure investment steeply.

The World Bank and regional development banks can all step up their roles. They can be sound borrowers of emerging economies’ savings; they can invest them in productive projects, including projects to improve connectivity among Asia’s economies. Commercial banks can also do more in credit-worthy emerging economies. The solvent economies of the world could create significant additional vehicles for infrastructure finance.

There will be some risks. One or two governments may act irresponsibly and make a mess of some investments. But most investments in infrastructure will prove to be viable. There is a lot of international experience on designing public–private partnerships and shaping policies to set prices and to contain project risks within acceptable limits. And the risk of some projects being less successful than expected is far less than the risks of prolonged recession.

The G20 can move quickly in this direction. Boosting infrastructure in low income countries is already one of the top priorities of its development agenda. G20 leaders have appointed a High-Level Panel on Infrastructure to advise on improving the institutional and enabling environment for investment in infrastructure, and innovative ideas for financing infrastructure projects with significant but delayed returns to investors.

The Panel’s present brief is to focus on badly needed infrastructure in some of the world’s most difficult investment environments, especially sub-Saharan Africa. That focus is too narrow. The issues of institutional capacity and innovative financing and risk management need attention everywhere. The Panel’s terms of reference need to be widened and G20 leaders need to challenge their officials, financial sector managers, and international financial institutions to use their expertise to find ways to intermediate more savings to finance commercially-viable investment in infrastructure where it’s needed.

With a bold development and global infrastructure investment agenda, the 2011 meeting of G20 leaders could restore confidence in recovery. This will require going beyond merely containing financial shocks emanating from Europe to leading the way on long-term investment-led global recovery.

Andrew Elek is a Research Associate at the Crawford School of Economics & Government, The Australian National University. 

1. Who is paying to de-carbonise the global economy?
2. G20 infrastructure initiative: Keynesianism going global
3. Asia’s global leadership at a difficult time

Sixty years ago, when the General Agreement on Tariffs and Trade (GATT) was established, trade in goods was the dominant form of international commerce and traditional, transparent border barriers, such as tariffs and quantitative restrictions, were the main impediments to that trade.

A recent report on challenges to the WTO and the international economic regime explains that the nature of international commerce has changed considerably. 

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.

1. Market driven economic integration in the 21st century
2. North-East Asian economic integration: APEC or FTA games?
3. Economic integration: an opportunity for the G20

A landmark speech by Dr Craig Emerson, the new Australian Trade Minister, may mark a turning of the recent tide of Australian trade policy. On December 10, Emerson outlined the Australian government’s intention to return to the sound principles of economic and trade policy of the Hawke-Keating Labor Government, which held office in Australia from 1983-1996. These first-best principles have lately been neglected in the rush to sign preferential trade deals before other nations beat them to it. These principles need to be revisited if trade policy is to facilitate, rather than interfere with, market-driven global economic integration.

We live in an age where technology (especially transport, communications and information technology) provides enormous new opportunities to gain from international trade and investment, allowing ever-finer specialisation along lines of comparative advantage. Business has shown itself to be more than ready to take advantage of these opportunities, leading to production networks which add value to products along multi-economy global supply chains. It is very hard to assess the origin of products in this new environment. There would be no need to do so, without the ever-more tangled rules of origin in so-called Free Trade Areas, which divert economic activity from the most efficient directions.

In his speech, Dr Emerson reaffirmed the most effective way for any economy to seize potential gains from engaging in this 21^st century model of international commerce is unilateral action to eliminate remaining policy obstacles, such as residual tariff barriers, on a non-discriminatory basis. The bulk of the gains from such unilateral reform will accrue to Australia; therefore, as Minister for Trade, he intends to:

‘… dispense with the bargaining chip approach to the remaining Australian tariffs.’

Emerson also noted that:

‘The principle of non-discrimination is the foundation stone of the World Trade Organisation’s global trading rules…. Discriminatory trade agreements can divert trade away from more efficient, excluded producers to less efficient parties to the agreements. Like currency wars, trade diversion amounts to no more than a redistribution of jobs and prosperity instead of the creation of more jobs and prosperity. Worse, trade diversion is inherently job-destroying and income-destroying from a global perspective.’

And later, he emphasised that:

‘… non-discriminatory trade agreements offer better long-run returns for Australia — they are more likely to result in trade creation instead of diverting trade from other countries that, in the absence of tariffs, would be lower-cost producers.’

Significantly, Emerson states that previous GATT/WTO negotiations had led to significant non-discriminatory liberalisation; therefore Australia would be pressing for the conclusion of the Doha Round.  Emerson noted that the APEC process had:

‘… helped establish the confidence necessary for economies to undertake unilateral trade policy reforms — a confidence in the knowledge that tariff reductions made sense from a domestic reform perspective and that regional partners were doing the same.’

It was this confidence which, in the 1980s, led Australia to implement a non-discriminatory lowering of average applied tariffs during the last quarter of a century; from more than 25 per cent to around 5 per cent, which in turn helped to modernise Australia’s economy and laid the foundation for continued growth.

Australia may consider future bilateral trade deals which would lead to significant liberalisation. But Emerson ruled out concluding any more deals which did not deal with remaining obstacles to trade in sensitive products and criticised the former Government for accepting a trade deal with the United States for political reasons, even though it did not lead to any significant new market access.

In the future, Australia would not embark on new negotiations based on overly optimistic modeling of the best-possible outcome. The real outcome of negotiations would be assessed before signing up to any new deal. Looking ahead, the government will not be interested in

‘… collecting trophies for the national mantelpiece, empty vessels engraved with the words ‘free trade agreement’ if they are nothing of the sort and of token value to our country.’

This renewed preference for unilateral and non-discriminatory ‘opening to the outside world’ is consistent with findings of the newly released report from Australia’s Productivity Commission on bilateral and regional trading agreements (BRTAs), which noted that the benefits of these preferential trade agreements had been oversold.

The report noted that preferential trade agreements did bind many tariffs at zero, but sensitive products were often exempted or liberalised after lengthy phase-in periods. Therefore, the effects on the Australian economy have been quite modest. The business sector had:

‘…provided little evidence that Australia’s BRTAs have generated significant commercial benefits.’

That is hardly surprising.  Preferential trade agreements are based on an business model of the last century, when international commerce was dominated by bilateral trade in commodities and finished manufactures.

The Productivity Commission noted that recent preferential trade agreements sought to cover more than trade in goods, but have not proved particularly effective. For example, provisions on trade in services:

‘…do not necessarily lead to significant reductions to services barriers in partner countries. In a number of areas, the main impediments to effective competition by Australian services providers in partners’ services markets are related to regulatory and institutional issues that lie outside the scope of BRTAs.’

On investment:

‘…provisions in Australia’s BRTAs have bound current arrangements and provided protections against future policy changes rather than reducing existing investment barriers.’

The report said that facilitating trade by means such as improved customs procedures, harmonisation or mutual respect or regulations or standards did not need to be negotiated.

All governments interested in promoting trade and investment want to reduce transaction costs in these practical ways. The constraint on progress is the capacity to design and implement appropriate policies. APEC working groups have proved effective in terms of identifying ways to reduce the cost and risks of international commerce and helping to build the capacity to implement them. The reforms and cooperative arrangements encouraged by the APEC process are already saving billions of dollars per year. These policy improvements yield greatest benefit if they are applied to all trading partners so there is no merit in linking such reforms to negotiations for preferential reductions of traditional border barriers.

Unfortunately, these realities, the findings of the Productivity Commission and the Australian government’s call for a return to best practice trade policy will not easily stop the proliferation of preferential trade agreements. Such agreements undermine the multilateral system which continues to underpin the bulk of world trade and economic growth. At the same time, other governments will take note of Australia’s new approach and look for the most effective ways to pursue their real multilateral interests, rather than without thought launching more and more bilateral and preferential negotiations which, at best, produce modest economic gains for participants, but damage other economies.

Andrew Elek is a Research Associate in the Crawford School of Economics and Government at the Australian National University. He was the inaugural Chair of APEC Senior Officials in 1989.

1. Trade policy needs to go global
2. Time to cure Australia’s FTA disease
3. Time for rethinking trade policy and refocusing on the WTO

The most important objective of international economic cooperation in 2011 is to conclude the Doha Round. The United States has the influence to do that if it is prepared to show political initiative and have realistic expectations of others.

The APEC group can also provide leadership within the G20 to tackle global problems. APEC’s Committee on Trade and Investment (CTI) can begin to set out a strategy on how the WTO might operate beyond the Doha Round. Bringing the WTO up to date with the 21^st century world of international commerce is an essential dimension of cooperation to narrow development gaps.

Delivering an end to the Doha Round is what all APEC governments want to see. It is far more valuable than any progress towards a TPP deal that, if ever concluded, may benefit some but create problems for others.

A high quality Trans-Pacific Partnership (TPP) cannot be negotiated in time for the Honolulu meeting. An acceptable agreement would need to achieve considerably more trade liberalisation than recent bilateral agreements among prospective participants. For example, the Australia-United States trade deal did not lead to significant change in United States agricultural trade policy, since none of the protectionist provisions of relevant legislation were amended. Australia and others should no longer be prepared to accept a TPP that does not address the most important limits on access to US markets for either agricultural or labour-intensive manufactures.

Significant decisions on Japanese trade policy are not scheduled until October 2011. If Japan was to join the TPP and consider substantial liberalisation of agriculture, they should insist on some hard political decisions from the United States. There is little likelihood that Congress will endorse, even in principle, a significant reduction in subsidies and other market access barriers during 2011. Therefore the prospects for a TPP, let alone a Free Trade Area of the Asia Pacific (FTAAP), will remain unclear for quite some time.

On the other hand, there is ample room to move in the direction agreed by leaders in Yokohama. The 2010 declaration sets out an up-to-date view of the challenge of economic integration, alongside a strategy to promote high quality, sustainable growth that can narrow development gaps. Further work towards a seamless regional economy is an essential component of this growth strategy.

The Yokohama APEC declaration explains that reducing impediments to the international movement of goods, services, people and capital needs to be backed by many other reforms, often behind-the-border, to create a genuinely integrated platform for production in the most efficient locations as well as an integrated market for consumers.

Border protection of some sensitive products remains high and costly, but these account for a rapidly shrinking share of trade and concern a very small proportion of businesses involved in international commerce in the Asia Pacific. The greatest gains from cooperation now come from dealing with problems of communications and logistics, often linked to security concerns, and the efficiency and transparency of economic policy implementation in national markets.

Designing policies and cooperative arrangements to deal with these issues is the proven comparative advantage of the voluntary APEC process. As discussed in the progress report to leaders, voluntary cooperation to reduce transaction costs is already saving billions of dollars each year and is expected to improve the ease of doing business by a further 25 per cent by 2015.

The experience gained in dealing with ‘next generation’ issues in bilateral agreements can be used for region-wide integration. The very similar chapters on customs administration in several agreements set disciplines that could be used to create a non-binding APEC code for customs administration. APEC’s Committee on Trade and Investment (CTI) could also explore whether other model chapters on new issues could be used to draw up codes of practice that could be endorsed by any APEC government interested in facilitating trade with other economies.

Asia Pacific governments that are committed to moving towards a more seamless environment for business should be willing to apply such provisions. There is no need to wait for codes of conduct to be incorporated in preferential trade agreements; decisions on these practical issues do not affect leverage in negotiations on liberalising sensitive products.

Widespread adoption of common disciplines on economic regulations or administration procedures would be a useful down-payment towards an economically-integrated region. But much more is needed. For example, agreeing on disciplines can help ensure that product standards are not designed to impede trade, unless justified for other reasons. That is nowhere near enough for widespread mutual recognition of many standards: that is a long-term capacity-building challenge.

Progress on dealing with many behind-the-border, or across-the-border, issues is not due to a lack of political will or the need to negotiate some balance of short-term pain against long-term gains. The effective constraint is limited capacity (including human resources, institutions and economic infrastructure). The United States could use its considerable influence to help mobilise the resources that are needed to create the capacity to administer an economically integrated region.

In 2011, APEC should create synergy with other international forums, especially the G20 in order to preserve the necessary conditions for sustained improvement in living standards. Dealing with issues such as rebalancing economic growth and averting disastrous climate change need global cooperation.

These days, the key to raising productivity is ever-deeper engagement in global production networks. The rapid emergence of these multi-economy networks makes it possible to for economies to attract investment and participate in supply chains even if they have no more to offer than cheap land and labour. The G20 growth agenda draws attention to the need to mobilise investment in economic infrastructure, especially transport and communications links, to help more economies become part of global supply chains.

World leaders also need to ensure that the door remains open for others to follow the examples set in East Asia. The region’s success depended on an open non-discriminatory international economic regime underpinned by the WTO. Within this system, if they could produce efficiently and competitively, they could sell anywhere.

Such an international economic order remains needed, more than ever. New economic giants cannot be accommodated in less than a global economy. Leading a APEC push to finish the Doha Round is the most important contribution the United States could make to APEC and the world in 2011.

Andrew Elek was the inaugural chair of APEC senior officials.

This article is written on behalf of the Australian Pacific Economic Cooperation Committee (AUSPECC).

1. APEC to tackle the Doha round?
2. Strategic choices for APEC in 2010 and beyond
3. North-East Asian economic integration: APEC or FTA games?

The economies of Northeast Asia are already closely linked. Most trade among them faces no, or negligible, formal border barriers. Nevertheless, there are many ways to promote even deeper economic integration.

Northeast Asia contains China and Japan, two of the three largest economies in the world. South Korea and Taiwan are in the top twenty. With dense populations and limited natural resources, they need global links and their economic interests cannot be accommodated in anything less than a single global economy.

There are many opportunities to integrate Northeast Asian economies consistent with their overriding interest in an open international economic regime. They could undertake more unilateral reform, especially of their agriculture and services sectors. They could show more leadership in the WTO.  And they could accelerate work to address behind-the-border and across-the-border obstacles to trade or investment within the APEC process.

Unfortunately , the current discussion of regional economic integration in Northeast Asia remains trapped within the paradigm of preferential FTAs. This inability to think beyond following the current fashion is problematic, for several reasons.

First, the preoccupation with preferential FTAs ignores the reality that that economic links in East Asia are market-driven. The different resource endowments of East Asian economies create the potential for integration. This potential is being realised by buyers and sellers responding to price signals, backed by:

• the confidence that governments will abide the WTO disciplines to limit protectionism;
• spectacular improvements in information technology,
• falling costs of transport,
• the extensive ‘opening to the outside world’ by these economies, most recently by China.

All of these trends are leading to ever-finer specialisation. Multi-economy production networks allow value to be added to products in the economies in line with their evolving comparative advantage.

Second, recent experience demonstrates that governments can facilitate this market-driven integration by removing politically-motivated discrimination against potential economic partners.  Trade and investment links between China and South Korea grew spectacularly after mutual diplomatic recognition in the early 1990s.  The 2010 ECFA between China and Taiwan will allow the potential for mutually beneficial trade and investment between these two to be realised.  With such evident gains from eliminating discrimination, it is surprising that governments want to negotiate trade deals to create needless new discrimination.

Third, fixation on preferential FTAs as the default option for trade policy fails to address the nature on international commerce in the 21^st century. Compared to the mid-1900s, trade in commodities and goods produced in a particular economy no longer dominate international commerce. The new model of international commerce is an intertwined flow of goods and services accompanied by international movement of information, capital and people. Trade in services and international investment is growing faster than trade in goods, while trade in components is expanding relative to trade in finished products.

Traditional border barriers to trade in a few sensitive products remain costly, but affect only a rapidly shrinking part of international commerce. Today, it is more efficient to concentrate on problems of communications and logistics, combined with the lack of efficiency, lack of transparency and often arbitrary implementation of economic policies in different economies.

Preferential FTAs, claim to address these new issues. But it is not sensible to hold up progress on new issues by making them hostage to tit-for-tat negotiations about residual traditional border barriers. Real progress on practical matters such as business mobility needs patient work to set up compatible information technology to allow movement of people consistent with security requirements.

Fourth, and more specifically to the region of North-East Asia, China, Korea and Japan have already entered into FTAs with several others, but not with each other. By choosing their FTA partners carefully and setting up ingenious, complex rules of origin they have been able avoid difficult political decisions, especially on sensitive topics such as agriculture. An attempt to negotiate preferential bilateral deals or a three-way ‘CJK’ trading bloc would focus attention on the most troublesome part of their economic relations, compounding the existing tensions over territorial issues. The likely outcome would be no agreements or more trade deals which fail to address significant traditional barriers.

Japan is also considering joining nine others in negotiations for a Trans-Pacific Partnership (TPP). These include the United States, but not China. Yoichi Funabashi sees this as the most significant way for Japan to endorse a liberal international order. A TPP may be a new opportunity to use gaiatsu to reduce Japan’s costly protection of its agricultural producers. But the TPP is also a risky policy tool, and it is not certain that negotiations to create it will succeed.

One possible outcome is a token agreement which wastes time and goodwill but leads to little change on protection of sensitive products. But it may be possible to clear the many political hurdles and reach an agreement requiring substantial new liberalisation by all participants. Such a deal would give Japan better access to some United States than its Northeast Asian neighbours. The faint prospect of such an outcome may prompt Korea to seek to be part of TPP negotiations. But such an arrangement would raise other difficult issues. Most importantly, because China is excluded from the TPP, it would damage economic and political relations with China, making it harder for Japan and Korea to facilitate closer economic links to their now most important trading partner.

And the problem could not be overcome by China joining the TPP. This is because the long-standing NAFTA contains carefully drafted, elaborate rules of origin to prevent significant new competition from labour-intensive products from the rest of the world. The probability of renegotiating NAFTA’s rules of origin is negligible.

Fortunately, Northeast Asian economies do not need to become involved in any of these preferential games. They are all part of the APEC process, which has already proven to be reasonably effective in dealing with the impediments to trade and investment that are of greatest relevance to people actually engaged in international commerce in the region.

Structural adjustment and cooperative arrangements promoted by APEC are already helping to complement a world of low formal obstacles with an environment of transparency, best practice, and consistency of regulations. APEC’s cooperative arrangements include competition policy, regulations on government procurement, mutual recognition of standards and qualifications, and efficient communications, including e-commerce and best practice logistics.

These arrangements effectively reduce the need for a separate free trade framework. Indeed, APEC leaders and ministers endorsed this strategy for economic integration in Singapore in 1999 and have reaffirmed their intent to promote a seamless regional economy in Yokohama in recent days.

Within East Asia, ASEAN is pointing the way forward. ASEAN economies negotiated a sub-regional free trade area almost 20 years ago. Since then, their experience has paralleled that of the European Union. In both cases, it became evident that eliminating traditional border barriers to trade in goods is nowhere near enough for substantive economic integration. Therefore, Southeast Asian governments have committed themselves to creating an ASEAN Economic Community.  Their reforms, for example to improve transport and communications links are not APEC initiatives. However, they are setting positive examples for other economies.

Northeast Asian governments could learn from and follow this example.  That could accelerate APEC’s ongoing effort towards genuine economic integration in the Asia Pacific.

Andrew Elek is a Research Associate of the Crawford School of Economics and Government, Australian National University; he was the inaugural Chair of APEC Senior Officials in 1989.

1. Market driven economic integration in the 21st century
2. The TPP, APEC and East Asian trade strategies
3. Asian economic integration? Address domestic inequalities

Two years ago, the global financial crisis was the catalyst that brought the emerging economic giants to the global table, promising a new world economic order. Agreement on simultaneous stimulus and sustaining openness was in marked contrast to the uncoordinated policies of the 1930s. A looming global depression was avoided and this early success has allowed the G20 to claim the right to supplant the G7/G8 as the steering committee for the global economy. The new forum now needs to shore up its legitimacy to represent the rest of the world, determine its priorities and pursue them in a credible way.

After just a few meetings, G20 communiqués are becoming longer, with nice words about an ever-wider range of important matters, while not committing participants to do very much. This combination  risks a loss of credibility and salience, but can be avoided.

The new forum should not attempt to compel participants  to make specific policy decisions. But a voluntary process of cooperation can be effective if it concentrates on just a few vital issues and is able to achieve a perceptible policy convergence on how they are addressed. Orchestrating a coordinated response to the global financial was important, but at least two urgent issues remain: international macroeconomic rebalancing and limiting climate change.

A more sustainable pattern of global demand and supply will not be achieved easily. It will need structural reforms to change incentives for saving and investment in all economies. A consensus is emerging for strengthening both domestic and international safety nets. The International Monetary Fund has already launched a Precautionary Credit Line (PCL) to reduce the need for large national foreign exchange reserves.

It will be harder to establish consensus on sharing the burden of limiting greenhouse gas emissions, where short-term national interests diverge and negotiations will be hard.

After the disappointment of Copenhagen, eyes are turning to the G20, but that is not the place for negotiations. If G20 leaders failed to negotiate policy convergence, the forum would lose credibility; if they succeeded, the forum would risk losing legitimacy as the rest of the world questioned its right to negotiate on their behalf.

A more viable approach is to focus on principles and modalities for getting climate change negotiated globally. These might include: reaffirming the shared commitments to limit temperature rise to 2 degrees; financial incentives for producers and consumers to adopt less carbon-intensive habits; and convergence toward equal emissions per capita by an agreed date, such as 2050. Endorsement of these guidelines would increase the prospect of successful negotiations in existing and accepted international organisations.

A principles-based approach, ideally backed by setting positive examples and cooperation in policy development, can be applied to other issues. While acknowledging that the slow pace of reforms on any issue are limited by domestic political realities, G20 participants  can exert peer pressure to implement policies in line with guiding principles. They can commit to frank reporting — to each other, not for communiqués — on what they have been able to achieve and to share their experience of successes and setbacks.

The G20 will also need to help raise living standards for economies not at the table. The challenge is to make it possible for all economies to follow the examples set in East Asia where many economies have integrated in the global trading system and reduced poverty substantially. The key is ever-deeper engagement in global production networks, while avoiding over-reliance on external demand. Individual governments bear most of the responsibility for implementing  the reforms that are needed to achieve this outcome, but the G20 can help in at least two significant ways.

One of these is to promote international commerce based on the fundamental international economic insight that products and factors of production should be compared on the basis of price and quality, not on the ownership or location of suppliers. The remarkable sustained increase in prosperity of the past 60 years could not have been achieved in a world split into rival trading blocs. Looking ahead, the structural  adjustments  needed to accommodate the rising productivity of China and India, and others, cannot be achieved in less than a global economy. The world cannot afford the current drift towards discriminatory trading.

Shoring up core World Trade Organisation rules and disciplines is now far more important than reducing the few remaining traditional border barriers to trade. The G20 needs to reset a tight deadline for winding up the Doha Round, without expecting significantly more than what is already agreed. We have to pursue the challenge of facilitating deeper economic integration in a world where international commerce is no longer dominated by trade in goods whose ‘origin’ can be meaningfully defined.

A second way to help all economies to engage global production networks is to mobilise the financial resources needed for massive investment in economic infrastructure, especially transport and communications links. The investments needed greatly exceed what can be expected from grants or soft loans. The G20 can encourage the policy developments that would allow attraction of funds to infrastructural investment via global capital markets. There is a wealth of good and bad experience about financing infrastructure to be shared in getting this right.

These few agenda items need urgent attention, working alongside already existing multilateral and regional bodies. The G20 should resist the temptation either to dodge them, or to add more to its load until it has been able to persuade its members to agree on the principles that will lead to coherent action on these important matters

Andrew Elek is a Research Associate of the Crawford School of Economics and Government, Australian National University, and previously served as Chief Economist of the Australian Government’s Economic Planning Advisory Council.

This is an article from the most recent edition of the East Asia Forum Quarterly: ‘Asia and the G20’.

1. Testing time in Japan for Hatoyama’s diplomatic skills
2. China: Testing for a major role on the world stage
3. The Great Crash – Weekly editorial

From the 1994 Bogor goals to today, ‘opening to the outside world’ is a history of economic success for APEC governments. Most traditional border barriers to trade have been reduced to negligible rates while policy development in APEC working groups has helped to make trade cheaper, easier and faster. Encouraged rather than compelled by the APEC process, these reforms helped the Asia Pacific become the most successful region in the global economy.

The host of the APEC summit in 2009, Singapore Prime Minister Lee Hsien Loong, recommended we declare victory over APEC’s Bogor goals and move on, despite not every goal being fully met. As Prime Minister Lee explained, while tariffs are now low, ‘much work remains: to harmonise trade rules, to remove non-tariff barriers, to simplify customs regulations, [and] to help companies realise more fully the benefits of free trade’

There is more to APEC than trade and investment. In a world emerging from a global financial crisis and seeking to grapple with climate change, it is clear that not all problems have regional solutions and there is far more to economic cooperation than simply reducing policy obstacles to trade.

The new G20 forum allows Asia Pacific governments to increase their role in global deliberations and accept responsibility for problems which need global solutions, including financial regulation, climate change and the future of the WTO.

Within the region, APEC needs to focus on all the foundations for balanced, inclusive and sustainable growth at the upcoming annual summits in Japan and the US. Recent meetings in Washington offer the suggestion that APEC now embark on a broad strategy promoting inclusive growth by encouraging all Asia Pacific governments to improve international and domestic market efficiency.

The challenge of promoting mutually beneficial, deeper integration has changed remarkably in recent decades. Opportunities created by advances in transport and information technology mean thatinternational commerce is coming to be dominated by production networks and supply chains which are increasingly global, rather than regional.

The relative importance of obstacles to trade and investment has also changed. Some traditional trade barriers remain on a few sensitive products; these residual problems are costly, but they affect only a small and rapidly shrinking share of international commerce. The greatest gains from cooperation now come from dealing with problems of communications and logistics, often linked to security concerns, and the efficiency and transparency of economic policy implementation in national markets.

APEC economies now need to choose between two quite different ways of dealing with these new challenges.

The first approach is based on the experience in the Asia Pacific region, driven by APEC governments’ eagerness to participate in the international economy and international production networks. Progress in this area is not limited by international political constraints, but by the capacity of national governments to design and implement appropriate national policy strategies. In this approach, statements of intent to cooperate need to be followed up by policy development and sharing of expertise, not by the enforcement of legal commitments.

APEC has an established comparative advantage in promoting policy development to address behind-the-border issues, which affect international trade and investment today. Successful cooperation relies on a combination of sharing the expertise needed to implement coordinated reforms and pioneering practical arrangements, such as harmonisation of customs procedures or the APEC Business Travel Card, then encouraging others to follow these examples.

Progress can be accelerated by high-level commitment to a long-term vision of deep economic integration. The concept of a single market was helpful for the European Union to take this agenda forward and a unifying vision of the same kind will also be useful in the Asia Pacific. This region will need to find a different approach to deep economic integration because this diverse region will not accept a supra-national authority in the foreseeable future. A new long-term vision would need to be backed by realistic, medium-term milestones by which to measure progress.

The second approach, strongly favoured by Fred Bergsten, continues to see regional trade negotiations as the main vehicle for regional economic integration. This would place the highest priority on concluding negotiations for a Trans-Pacific Partnership (TPP) among eight APEC economies. That should be completed as soon as possible, ideally by the time of the 2011 APEC meetings in Honolulu, even if that meant excluding sensitive products from the coverage of the agreement. Advocates of the TPP see it as a natural stepping stone for an eventual APEC-wide trading bloc: a Free Trade Area of the Asia Pacific (FTAAP).

If there were to be serious negotiations for a TPP (which may not happen for some years) APEC is not the body to handle them. APEC’s constitution is not designed for that and it has a more important and comprehensive job to do. If APEC is to support trade liberalisation by negotiation it needs to keep driving these through the WTO.

The second approach, based on discriminatory trade negotiations, is a strategy that may have been relevant in the 1950s or 1960s, but is not capable of dealing with the main issues in international commerce today. Nor is it a relevant strategy for APEC in the next two years and beyond.

The first approach is the one consistent with what APEC was set up to do and is good at doing. APEC’s agenda is to promote and shape growth, including a regional economic integration effort that reflects fundamental changes in the nature of international commerce. APEC also has a constructive role to play in global as well as regional cooperation which complements the work of the new G20 forum.

1. APEC turns 20: new opportunities
2. The TPP, APEC and East Asian trade strategies
3. APEC and community-building in the Asia Pacific