Official tariff barriers within APEC have reduced dramatically; an APEC report noted the average applied tariff rate in APEC’s industrialised economies had fallen to 3.9 per cent as of 2008. But plenty of work still confronts APEC leaders — expanding trade and investment, and boosting trade flows are each a matter of urgency. APEC economies have also shown unbalanced growth and are still affected by the sluggish rate of world economic recovery. Despite this present context, decisive action — and in some cases dramatic reform — can put APEC economies on a faster path to recovery and combat some odd paradoxes, too.

Some developing economies are generating excess domestic savings, which are being diverted and invested overseas in industrialised economies. This paradox arises from unseen, informal barriers, known as ‘behind-the-border’ barriers. APEC members need to address this reality if they want to expand trade and investment. Behind-the-border barriers are increasing costs, increasing risk and discouraging competition. And reducing tariffs to zero per cent serves little purpose if behind-the-border barriers prevent investment and trade, and thus restrict poverty-reduction efforts.

Infrastructure reform can help remove such barriers. This includes reforming large monopolies in the electricity sector.

In APEC, around 35–40 per cent of members have made little to no progress in removing barriers to competition throughout their electricity provision. But these necessary changes are too important to be ignored. Inability to reform can impede investment in critical infrastructure and the adequate provision of electricity, with the ultimate losers being consumers and businesses, while jobs and trade also suffer.

In light of these hazards, leaders are restructuring, privatising and improving regulatory oversight. Structurally unbundling competitive activities from natural monopoly elements encourages competition and investment. Competition is often the catalyst for innovation and productivity increases. Conversely, monopoly situations have allowed state enterprises to neglect innovation or cost retention. Politicised operation of state enterprises has also seen electricity being purposely under-priced, leading to underinvestment in some cases. A World Bank report shows that intentionally under-priced electricity imposed a US$90 billion fiscal burden on developing nations’ budgets in the 1990s. But the high costs of provision are eventually passed onto consumers and businesses in such a scenario.

APEC members that have pursued reform have seen significant benefits. For instance, labour productivity and service quality has improved in Chile, Peru and New Zealand. The performance of existing-generation plants has improved, and wholesale prices have fallen. Retail prices now better reflect the true costs of production.

But widespread reform has been blocked for various reasons. First, influential unions may oppose the sale. Second, there could be a sentimental attachment or communities may fear the sale of public assets. Or third, the government may lack the technical capability or insight to successfully carry out complicated reform.

Australia is an APEC member that has set a fine example in reforming electricity infrastructure provision. There are elements of partial to full reform in most of the country’s states and territories, except the Northern Territory. This includes unbundling the supply chain and the introduction of competition, which has led to greater investment in the industry. This sequencing and experience of reform should be shared with other APEC members. Short-term politics should not prevail over the long-term interests of APEC, its people and its future.

Andrew Fragomeli is a student at the University of Western Australia and was a Global Voices delegate to APEC 2011.