APEC Trade Policy Dialogue on Next Generation Trade Issues

Key note Speech

Rt Hon Mike Moore
New Zealand Ambassador

APEC Trade Policy Dialogue on
Next Generation Trade Issues

Washington DC
7 March 2011

Good morning, and thank you for the invitation to open this important meeting. I'd like to acknowledge the Chair of the Committee on Trade and Investment, Monica Contreras; our US hosts; and the distinguished group of speakers from Government, Academia and Business who will be contributing to today's discussion.

I suspect I'm one of the few people in this room who can claim to have witnessed the birth of APEC. In 1989 I was New Zealand's Trade Minister, and had the privilege of attending the first APEC meeting in Canberra, Australia, along with Ministers from eleven other economies.

It's been amazing to watch APEC develop over the years, taking big steps.

President Clinton's decision to elevate APEC to the Leaders' level in 1993 was a watershed moment, and established APEC as the preeminent trade and economic vehicle for the Asia Pacific region. Having leaders meet annually gave the organisation gravitas; and it required officials to develop ambitious work programmes to justify Leaders' ongoing participation.

The Bogor Goals in 1994 established the high ambition goal of an Asia Pacific region free of barriers to trade and investment by 2010 for developed countries, and 2020 for developing countries. Significantly, we accepted there would be a two track path. Developed and developing economies would share the same goals but developing countries were given more transition time.

Last year in Yokohama, APEC Leaders reviewed the organisation's progress, and found much to be pleased about. Since 1994, trade and investment have enjoyed strong and sustained growth, and we've made good progress towards the Bogor Goals.

But APEC Leaders also noted that more work remains to be done. And they're right.

Many of you will know that in the early part of this millennium, I had the privilege of serving as Director General of the World Trade Organisation, and overseeing the launch of the Doha Round.

I'm heartbroken by the lack of progress in Geneva. The multilateral system is by far the best means to deliver global economic growth, and to ensure that the developing and least developed countries get a good slice of the action.

It also pains me to see that many of the issues which were front and centre of discussions in the WTO at the dawn of the new millennium remain unaddressed now. Of course I'm talking about issues such as trade facilitation. Competition. Rules of Origin. Standards. And customs procedures.

I'm not saying that tariffs are not important. They are. Tariffs add costs for consumers and create economic inefficiencies across our region. That said, traditional market access issues are no longer the most important impediments to trade. We know what tariffs are; we know they're harmful; and we have experience with their reduction and removal.

These "behind the border" challenges are much harder to address. They were very real for the private sector 12 years ago. And advances in communications, transport and supply chains mean the challenges have only become more acute.

Part of the problem in talking about these next generation issues, I find, is that we usually do it in the abstract. That's fine if you're a trade aficionado. But it's also useful to think through the implications of policy issues on a practical level. So let's take a minute to look at these next generation "behind the border" challenges from the perspective of, for example, a Singaporean food producer who makes fruit flavoured yoghurt products.

As Singapore doesn't have many cows, and with US dairy exports growing 39% last year, the company would no doubt import milk powder from the US, and New Zealand in the offseason. Sugar could come from Australia and Mexico. Fruits would come from Japan and Thailand; and, in the offseason, from Peru and Chile. Packaging would be imported from Indonesia and Malaysia.

Immediately, the company has a potential Rules of Origin dilemma. While labour costs would represent some value, you'd better hope the value of the yoghurt meets the local content thresholds required by its export markets.

Labelling will also be a problem. Chances are, there's more than 15 labelling standards across the various APEC markets each requiring a different label to be printed and affixed.

And then of course there will be different customs forms for most markets, not to mention different food standards, which may actually require separate production runs.

Shipment of the product should be seamless from Singapore's efficient ports. But arbitrary interpretation of customs procedures could see the yoghurt held up at the importing country's border, meaning it never gets to a retailer.

Supply chains and investment rules present other problems. Unreliable supply chains can see product spoiled before it reaches the retailer.

An exporter could address this by vertical integration that is, investing in the supply chain in the relevant export market. But restrictive investment rules can prevent this. Or investment rules can limit an investor's ability to manage their investment. Often, companies just won't take this risk.

So let's assume that the yoghurt has thus far navigated these obstacles, and makes it to the retailer.

There are then a number of questions about a product's treatment, all of which impact on its value. For example, some countries maintain 'standards' for products that only domestic producers can achieve, thus putting an artificial ceiling on that product's value. And in some markets, retailers put imported products in completely separate areas from domestic product, or require labelling standards which have no relationship to consumer safety.

So that example shows why addressing these "behind the border" barriers is not simple. Neither are the barriers insignificant. Our private sectors have been telling us for years that they're a drag on profitability. They impose heavy compliance costs. They impede more efficient methods of production, and thus limit movement of goods and services across the APEC region. They impose increased costs on consumers, ultimately limiting wages, and stifling job creation.

If you then overlay these "behind the border" barriers with the noodle bowl of bilateral and regional preferential trade agreements, you make exporting exponentially more complex.

It is hard enough for major multinationals to successfully export through these barriers across a number of economies.

If you're a small or medium sized enterprise, or an enterprise in a developing country, many of these "behind the border" barriers are literally just that in many cases, the risks and costs associated with exporting to new markets mean it's just not worth even trying.

This is a tragedy. We've got to do better. These issues have got to be front and centre of APEC's agenda. The clock is ticking louder. If the Asia Pacific is to enjoy the next wave of productivity gains and technological advancements, we have to get serious about addressing these issues.

They're tough. No one denies that. Standards and regulations go to the heart of sovereign government. They're important safeguards of consumer safety. They encourage competition, transparency and corporate fair play. And they provide a means to enforce intellectual property rights.

It's not easy to talk about how national standards can be harmonised or how national regulations can be made more coherent with those of one's neighbours.

But we must do it. The fundamentals of our international trading rules and our national regulatory frameworks were developed in the 20th Century and modern business practices have totally moved on.

We're all familiar with the excellent study of the Apple i pod, which has "Made in China" stamped on the back. Of course our 20th Century methodology for measuring trade means the full value of each i pod is captured in China's export statistics.

But the study showed that most of the commercial return from the sale of every i pod is the property of Apple shareholders. And Japan actually gets more benefit from each i pod than China, because the hard drive is made by Toshiba.

Modern supply chains see goods produced by sourcing components, services, and intellectual property from a number of different economies. Technological advances particularly in the digital environment are leaving governments, trade negotiators and regulators well behind the pace.

So the challenge for us, this year, is to drag our regulations and rules out of the last century. We need to ensure they're appropriate for the new realities of doing business in the 21st Century. And they also need to be flexible enough to accommodate ongoing change, and the diversity of the 21 economies that make up APEC.

A one size fits all approach won't work. We need an approach that's appropriate for countries as diverse as Japan and Chile; or the United States and New Zealand.

The reality is, APEC is well placed to provide solutions for all the behind the border barriers which I've talked about today. There are APEC working groups focussed on investment; intellectual property; customs; standards and conformance issues; food security; and so on.

And APEC's unique structure the mix of large and small economies; of developed and developing economies; means that the excellent technical work done in APEC can easily transfer into other negotiations where countries are looking to address these next generation trade issues in legally binding ways.

One obvious beneficiary of APEC's intellectual leadership on the next generation trade issues is the Trans Pacific Partnership negotiations a regional trade negotiation between nine of APEC's 21 member economies.

TPP's participants share a common goal: To establish an ambitious, high standard trade agreement removing barriers to the movement of goods, services and investment between their economies.

We're also determined to ensure TPP sets new standards and will facilitate, rather than hinder, modern business practice.

TPP is certainly not incompatible with APEC, nor with the multilateral trading system. The successful conclusion of the Doha Round remains New Zealand's number one trade policy priority.

But TPP has a crucial difference. In my years as the WTO Director General, we pushed for a deal which would attract consensus. That sort of deal will, by definition, deliver a lowest common denominator result.

With TPP, we're pushing for the other end of the spectrum a highest common denominator agreement.

In the same way that APEC will contribute to TPP, I believe that TPP will have an impact on APEC. New Zealand's objective is that, at the APEC Leaders meeting in Hawai'i this year, President Obama will be able to announce that we have the main elements of the TPP negotiations in place.

The agreement will establish simplified business rules, regulations and standards which will allow goods, services and investment to transfer more efficiently across the region, improving returns for our exporters.

The agreement will also simplify the export process by providing just one set of rules for goods, services and investment being transferred across the TPP area.

The difference between TPP and other Agreements and the reason why I believe it will have an impact on APEC is that TPP is not an exclusionary Agreement.

Many of you will recall that TPP had its genesis in 2003, negotiated between Singapore, Chile and New Zealand. Brunei joined in 2004. And since then, the US, Australia, Peru, Vietnam and Malaysia have joined negotiations.

TPP has always been about expansion and there is a good level of interest from a new group of APEC members.

Our objective is that, once the current nine participants have concluded TPP negotiations, the Agreement will be opened to other APEC members, provided they share the same high level of ambition as that achieved in the first tranche of negotiations.

It's for this reason that New Zealand believes that the ripples from TPP will make a real impact on the Asia Pacific region.

Eventually, as a majority of APEC members sign on to TPP, the initiative could well provide a pathway to our ultimate goal a Free Trade Area of the Asia Pacific.

And we also believe that as TPP members take steps to make legal commitments to each other to address these next generation trade issues, these approaches could in turn usually inform the technical work in APEC, and might even help progress the Doha negotiations.

So that's the challenge for 2011. We have to make real progress on the behind the border issues. A decade is long enough. Achieving real progress will require economies to show flexibility not simply to dig in and try and persuade others to adopt its ways. It will mean trying to think through what is the better regulatory approach; and to accept and advance ideas with that goal in mind.

You'll find New Zealand a willing participant in these discussions in APEC. And we'll also be doing our utmost to push TPP ahead so we have a new framework which we hope many other economies will want to be a part of at the appropriate point in the future.

I wish you every success with your discussions today. We have a great opportunity to make real progress this year, and under President Obama's leadership, to reinforce that APEC remains the preeminent trade and economic forum for the Asia Pacific region, and beyond.

Thank you.

ENDS

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