APEC: Russia and the Asia Pacific

  • Dr Lockwood Smith
International Trade

Russian Diplomatic Academy

This year is a big year in terms of APEC for both Russia and New Zealand. In November, in Kuala Lumpur, members of APEC look forward to welcoming Russia as one of our newest partners, along with Peru and Viet Nam. The next month, New Zealand will take the chair of the group. We regard that as a great honour, particularly given that APEC will then include Russia, the United States, China and Japan.

The acceptance of Russia as a member of APEC is due recognition of your identity as an Asia Pacific country. Russia has the longest unbroken Pacific coastline of any country. Vladivostok is closer to Wellington than Moscow. And APEC membership acknowledges the vast economic changes you have made this decade.

New Zealand and Russia have vastly different economies. Geographically, we sit in part different parts of the Pacific. But, increasingly, our trade and investment relationship is growing. We're both part of the global economy and the Asia Pacific community. We both have a major interest in the stability and prosperity of the region.

I believe that despite the current difficulties in Asian financial markets, the next century will be the Asia Pacific century. The current difficulties notwithstanding, Asia Pacific is a dynamic and growing region. It is in our interests to understand it and be part of it. The way in which our governments and business communities respond to the opportunities and challenges in the region will have a major impact on the next century.

It's certain APEC will play a major role in the Asia Pacific century. Like the region itself, APEC is both dynamic and fast growing. It has been described as the biggest trade policy initiative in history. With Russia becoming a member, it is indeed just that.

From tentative beginnings in 1989, APEC has come a long way in a short time. The first ministerial meeting was held in Canberra less than a decade ago. The first leaders meeting was held only five years ago, in 1993 in Seattle. This year, as I mentioned, the group expands to 21 members, and includes Russia, the United States, China and Japan.

What has been achieved by APEC in such a short time is remarkable, particularly given the huge differences in size and economic development of the member economies - not to mention their diverse histories, cultures, languages and religions.

In less than a decade, APEC has devised a consensus based approach to decision-making. It has committed itself to free and open trade and investment by 2010 for developed economies and 2020 for developing economies. It has identified 15 sectors for earlier trade liberalisation, including three primary products - forestry, fisheries and food. It works through each economy drawing up individual action plans which define the unilateral contributions they are making or intend to make towards achieving APEC's publicly declared goals.

APEC has developed and begun to implement collective action plans addressing each of the 15 areas of the Osaka Action Agenda, covering every significant aspect of trade and investment facilitation. It has initiated a very broad range of economic and technical cooperation work, addressing regional needs in sectors such as human resource development, energy, transportation, telecommunications, small and medium scale enterprises, tourism, agricultural and industrial technology, fisheries, trade promotion, and the environment.

It has generated policy initiatives, information resources and exchanges between the public and private sectors to help reduce business costs, benefiting both business and consumers. And, very importantly, APEC makes a major contribution to the World Trade Organisation. Trade liberalisation deals at APEC have already provided a catalyst for global rules-based trade liberalisation through the WTO.

This degree of progress is to a large extent thanks to the dynamics of the annual APEC leaders meeting. It is difficult to overestimate the significance of those meetings. Our leaders meet, talk about common issues and know each other in a way they never did before. But valuable networking is not confined to leaders. APEC has created a multi-layered regional network, which has fostered personal relationships. Thousands of key players have had direct exposure to regional realities. That's led to a substantial increase in collective knowledge and understanding. Russia has already been involved in that through your participation in APEC working parties.

From New Zealand's point of view, APEC's value cannot be overestimated. It offers us the prospect of free trade next century with our regional partners, covering over 70% of our two way trade and the bulk of our investment and tourism flows.

And its goals fit in well with our domestic policy agenda. Prior to 1984, the New Zealand economy was tightly regulated and controlled by the state. We had high tariffs and import licensing. The Government owned and operated many of our productive assets. By 1984, that degree of central planning had clearly failed. Over a period of 30 years, our growth had been so low that we had slipped from having on of the highest standards of living in the OECD to having one of the lowest. Unemployment was high. Our debt was growing and becoming unsustainable. There was a "brain-drain" out of the country.

We were forced to take action. Both the main political parties in New Zealand contributed to establishing a better economic framework. We introduced macroeconomic stability through maintaining low inflation, controlling government spending and increasing the transparency of government decision making. We redefined the role of Government. We agreed that the primary role of Government was not to be in business itself, but to provide a light regulatory framework for competitive private business activity to thrive. And we reformed different sectors of our economy. We introduced greater competition in all sectors, including competition from overseas. We unilaterally lowered tariffs and other import controls and made it easier for foreigners to invest in New Zealand.

Our tariff reduction programme continues. We have no tariff quotas at all and over 90% of the value of our imports already enter New Zealand duty free. What tariffs remain are very low, and will be cut and then abolished prior to APEC's 2010 goal for free trade. Our average tariff rate will be approximately 3% in the year 2000, and no tariff will be higher than 15%. Next decade, all remaining tariffs will go to zero and we also have no other non-tariff barriers for protectionist purposes.

We are doing this because we believe that the economy which loses most from tariffs is the economy which charges them. Because of that, we have no difficulty meeting APEC's goals. We believe we benefit from leading - not following - APEC's free trade agenda.

I believe Russia too will benefit from being a member of APEC and meeting its goals, even if some the reforms may be difficult in the short term. APEC will give you open access to the largest and fastest growing economies in the world.

You will gain from that access to those dynamic markets; from their capital, their technologies and their skills. That will lead to higher rates of economic growth, more jobs, higher standards of living, a greater variety of consumer products and economic stability.

The benefits of trade and investment liberalisation will be maximised if capacity-building and infrastructure development are addressed simultaneously and effectively. To that end, APEC's trade and investment liberalisation and facilitation and its economic and technical cooperation agendas are complementary. Russia's membership of APEC will add weight to the group. Particularly after your accession to the WTO, it will increase the extent to which APEC developments lead developments at the WTO.

New Zealand's chairs APEC just before the WTO begins on the next round of global negotiations. We believe efforts at the WTO need to go beyond trade liberalisation to include improvements in the functioning of all markets. Domestic policies and regulations have implications for market access, and business is increasingly focussing on them. It raises the issue of the proper role of government in market economies.

Globalisation is making it easier than ever before for businesses - even small and medium sized businesses - to operate across national frontiers. It is becoming increasingly meaningless to speak of a company being a Russian company or a New Zealand company or being "based" in any particular country. That means that the issues for business are now often beyond the scope of any one national government. The distinction between "national" and "international" markets or between "trade" and "domestic" policies is nowhere near as clear as in the past.

What, then, is the best way to deal with this? How do we get different national governments to work together in concert, while not undermining their sovereignty in an unacceptable way? The APEC formula - let's call it the "APEC Way" - is in my view the answer.

It involves listening to the private sector. It involves setting clear goals, covering not only trade and investment policy but areas such as competition policy, deregulation, standards and conformance and intellectual property rights. It then gives members flexibility in how they go about reaching its goals. And it is not an exclusive group. As APEC economies open up to each other, they also open up to the rest of the world. It is clearly working.

The APEC Business Advisory Council, or ABAC, is working constructively on identifying what business believes are the priorities. The Chair of ABAC will provide a report to APEC trade ministers in Kuching next month on the progress of its deliberations this year. More and more ambitious goals are subsequently being set. There is the overall strategic goal of free trade across the Pacific Rim by 2010 for developed economies and 2020 for developing economies. In addition to that - and based on business advice - the focus is on Early Voluntary Sectoral Liberalisation. Liberalisation of nine key sectors will be finalised in Kuching, with a further six to be considered for agreement later in the year. Every APEC economy has something to gain from at least some of the sectors being liberalised. And every APEC member will be expected to participate fully in all aspects of these initiatives.

The goal setting is not limited to trade and investment policy. The Osaka Action Agenda covers those key areas of competition policy, deregulation, standards and conformance, and intellectual property rights.

With business, APEC is also working to make it easier and cheaper to trade and invest throughout the region, giving new entrants and consumers a better deal. We are working to reduce business costs in areas such as transportation and customs particularly for the benefit of small and medium sized enterprises. Once APEC settles on a goal, it is then for individual members to find the best way for them to meet them. It has been called "concerted unilateralism". We recognise that if meaningful change is to be achieved, it needs to be driven primarily at the domestic level.

That flexible approach is working. APEC economies are by and large meeting the regional goals. Changes have been remarkably rapid and are starting to be reflected in Individual Action Plans. We look forward to seeing how Russia will implement your APEC commitments in your first individual action plan later this year

And we are not falling into the trap of creating a closed regional trading bloc. The process is based on what you could call "open regionalism". APEC economies are opening up to the rest of the world at the same rate as they are opening up to one another.

What that means is that not only is APEC contributing to regional free trade, but to building a more trade-friendly world. Russia's membership can only be good for APEC and good for Russia. Next year, New Zealand will be the first small APEC member to chair and host the group. We are seizing the opportunity and the challenge with relish. We hope to use our year in the chair constructively, particularly to build upon the early sectoral liberalisation work. And we very much look forward to welcoming your president, along with all other APEC leaders, to Auckland in September 1999.

It will be an historic meeting. New Zealand is very excited about it. We very much look forward to working with Russia as one of our new APEC partners.