The share of trade to GDP for developing countries doubled since 1985 and the share of manufactured exports out of total exports are also approaching that of the advanced country proportions with the increase going from 22 to 60 per cent since 1990s, compared with developed countries of 75 per cent.

This trend is evident in the story of the trade recovery after the recent global crisis. After contracting 12 per cent in 2009, world trade is expected to grow at 13.5 per cent this year with the growth of trade for developed countries 11.5 per cent and for developing countries 16.5 per cent. Indonesia has experienced this shift and diversification of markets, where the share of its trade going to developing countries has increased from 29 per cent to 39 per cent over 2005-9. China’s share of south-south trade in its total trade is currently around 25 per cent but is expected to go up to 60 per cent by 2027. South-south trade with China as a hub will drive global trade in future.

Intermediate goods and parts are an important part of south-south trade, but intra industry trade with production chains across a range of different countries is a very important part of the process. International trade is also increasingly done through firms, with one third of transactions in the IT sector and 46 per cent of US imports being within the same firm. The degree of intra-firm trade is also sector specific, with intra firm trade in textiles and apparel and footwear at 10-15 per cent, and for electronics and transportation, 60-70 per cent.

There has also been a growth in trade in services from developing countries with the GDP share of export of services going up from 2 to 4 per cent for developing countries compared with 7 per cent for OECD economies.

Since the global crisis of 2008, the premier forum on global economic order has shifted to the G20. It is made up of developed, emerging and developing countries, which in total account for 85 per cent of the world GDP, 80 per cent of world trade and two thirds of global population. The global crisis has led to a call for reform in the financial architecture and in the governance of international financial institutions. This is a clear recognition of the growing role of emerging economies. The G20 has clearly recognised as having prevented the great recession post global crisis but also faces increased challenges in maintaining unity and concerted effort in the recovery. This is mainly because of the imbalances between, and different situations faced by, the different sets of economies.

While the jury may still be out on its strengths and weaknesses, and the deliverables from the Seoul G20 Summit, a number of important decisions and turning points were reached. First was the IMF reforms: this was an important deliverable and reflected the impetus in global governance for more representation of emerging economies. Second on trade, the political commitment to resume negotiations and recognising the critical window of opportunity in 2011 can still be considered as a positive development. Leaders discussed trade in one session and were clear regarding their commitment to start negotiations where things had been left in December 2008, and to complete it within the time frame set. Third while there is no conclusion on the currency and current account imbalances, a currency war and tensions have been averted and there is a willingness to come up with some indicators for adjustment sometime next year.

A most important result is the introduction of development issues into the G20 agenda. It is significant that Korea is the first non-G7 country to host the G20 summit and, along with other developing emerging countries such as Indonesia, has worked hard to include financial safety net and development issues. This is after all the third pillar of APEC, and is now in comprehensive partnership agreements in the region. It is important to keep G20 focused on a few priority areas such as macro framework, the financial sector, trade and development.

When APEC was created in 1989 and up to the launch of the Bogor Goals in 1994, the WTO did not exist yet. The Uruguay Round of negotiations had been going on for a number of years. To its credit, APEC contributed to the conclusion of the Round and the creation of the WTO in 1995, after the deadlock in agriculture between EU and US was resolved in the year the US hosted APEC in 1993. Since the creation of the WTO, APEC economies have enjoyed an open and rules based trading system. APEC has often been described as acting as the ‘cheer leader’ and champion of the multilateral trading system. Post global crisis, the trading system has faced the pressures of protectionism. However, the discipline and framework of the WTO has enabled prevention of a surge of protectionism.

There has also been a proliferation of regional trade agreements (RTA), with some 100 RTA today compared to only 3 when APEC was created. This includes the deepening and widening of ASEAN to include comprehensive economic partnerships with China, Japan, Korea, India, Australia and New Zealand. The issue is how to ensure that we avoid the ‘spaghetti’ or ‘noodle bowl’ effect of overlapping regulations, schedules and different rules of origin.

What about the way forward? The issues are going to become more complex and the importance of domestic stakeholders much more important. The number one priority is the WTO and concluding the Doha Round. The risks of not concluding the round are great, including increased protectionism, proliferation of bilateral and regional agreements which would tax the resources of developing countries, and inefficiencies because of distortions in trade and investment flows to global companies. Furthermore, the removal of trade distorting agriculture export subsidies and domestic support, dealing with sensitive sectors, rules, and to some extent services sector liberalisation and reduction of tariffs for south-south trade, can only be done through a multilateral deal. Another important point is that bilateral and RTA negotiations need to be done under the overarching WTO framework. Therefore, as host country, the best outcome of the US APEC year is to deliver the successful conclusion of Doha Round.

The second priority is concrete deliverables of the APEC vision for the region by strengthening the three pillars in APEC, especially the facilitation and economic cooperation pillars. We should take a building blocks approach and identify concrete cooperation potential and outcomes in each area. It could be the APEC Standards Initiative the US is evaluating or taking components of the target of 10 per cent reduction costs related to supply chain connectivity which would have the biggest impact, such as APEC single window, full functioning of APEC Business Card, or infrastructure.

Third given that the negotiations of bilateral and regional agreements will continue, on top of the identified costs of implementing the existing ones, it is also important to consolidate and maximise the benefits of the current RTAs/FTAs utilising the principles of the APEC Model RTA/FTA such as harmonisation of rules of origin and customs, multilateralising regional preferences by certain time lines, and allowing for open accession.

Given the issues faced in developing countries, including emerging economies and the high unemployment in advanced economies, ultimately trade has to be the means for increasing prosperity and job creation. Thus, it is also about ensuring that certain sectors, regions and groups which can be affected by liberalisation, understand the implications and take anticipatory and preparatory actions. The pressures of competitiveness will also become more complex and it is no longer about low cost of production, but how to value add and move within a much more fragmented supply chain. It must include manufactured goods as well as services. Sources of increased efficiency and innovation have to come from improved hard and soft infrastructure (especially human resources), reforms and streamlining of institutions, the appropriate incentive framework. The economic cooperation and capacity building must also be an integral part of the ‘package’ so we should never forget the third pillar in APEC or the Aid for Trade component in the multilateral package.

Mari Pangestu is Indonesia’s Minister for Trade.

This essay is an excerpt from her Richard Snape Memorial Lecture for the Australian Productivity Commission.