Financial crisis must not hinder trader reform

By Nikki Mandow

The Asia Pacific Economic Cooperation forum (APEC) must continue to push towards liberalisation, but also has to recognise that the Asian crisis means rapid progress in this area will be difficult to achieve in the short term, says Rob Scollay, a leading member the New Zealand Committee of the Pacific Economic Cooperation Council (NZPECC).

Recently back from a three-day meeting of PECC's Trade Policy Forum (TPF) in the Taiwanese capital Taipei, Scollay said that to remain credible as an institution and to achieve its long term liberalisation goals, APEC now has to focus on playing a role in responding to the crisis. In this, New Zealand's role as host of the 10th APEC leaders meeting in 1999 will be crucial.

"The rest of APEC will be expecting New Zealand to keep the [APEC] process on the rails and see it moves forward. They will judge us on that, not on whether we achieve some short term market access gains," Scollay says.

"New Zealand is taking its turn in contributing to the continued viability of an institution from which we expect to be long-term beneficiaries. In this sense committing resources to hosting APEC has some parallels to taking a seat on the UN Security Council or sending peace-keeping troops to Bosnia.

" To say: 'We are spending $x million on hosting APEC, so we must tally up what we are going to get out of it,' is quite the wrong approach. It is true that New Zealand stands to benefit from the activity generated by APEC 1999, and that there may be some significant breakthroughs in market access in the short term.

However, the more substantial gains will come in the longer term from the impact on New Zealand of a regional economy restored to stability and prosperity. The crisis has clearly demonstrated how important this is to the health of our own economy."

Scollay, who is also Director of New Zealand's APEC Study Centre, says the feeling at the Taipei meeting was that APEC needs to produce a credible response to the crisis and one that is coherent, rather than focused on one or two specific areas. Issues such as sharing of experience, and provision of expertise between developed and developing countries in areas such as human resources and technology ("capacity building" in APEC-speak) are an integral part of a crisis response, he says.

"The experts were saying there are four parts of the agenda and they need to be integrated with each other to be effective. These are: liberalisation; capacity building; improving transparency and accountability in financial and other business organisations; and reconstituting the fabric of the financial system." PECC believes that for APEC to focus on liberalisation in isolation would be to risk being dismissed as irrelevant to the key needs and concerns of the region."

APEC has within it all the elements needed for a coherent response to the crisis, but there are some steps which must be taken urgently if this potential is to be effectively harnessed, Scollay says. "Crucially, the key issues relating to the reform of crisis economies' financial systems fall within the territory of the APEC finance ministers, who traditionally have held their own meetings, separate from the main APEC process. Not even the APEC secretariat get invited to these meetings," Scollay says.

PECC argues strongly that the finance ministers' process must be more closely integrated with the main APEC process if a coherent response to the crisis is to be produced. So far this is proving difficult to achieve.

Realistically, the politicians, officials and experts may be too far from consensus for APEC to produce a coherent response to the crisis at the next APEC leaders meeting in Malaysia next month. In this case, an intensive effort to develop such a response will become all the more urgent in the months following the Kuala Lumpur meeting. This of course will add further to the burden of New Zealand's responsibility, Scollay says.

The task will be a formidable one, demanding all the intellectual capacity and experience which can be mustered within the region - from governments, the research community, and business. "We need to recognise that we are in uncharted territory and everybody is struggling to find a coherent set of answers to the crisis," he says.

One result of the increased emphasis on the need for policy coherence is to help make clear the rightful role of APEC's Economic and Technical Cooperation (Ecotech) agenda. Until recently, Ecotech has tended to develop in a somewhat haphazard fashion, to the extent that some have seen it as little more than an assembly of "pet projects" in various areas.

NZPECC chair Kerrin Vautier says it is becoming clear that issues like technical cooperation and human resource development (part of the parallel "Ecotech" agenda in APEC-speak) are an integral part of freeing up markets, not an add-on extra to appease developing economies.

Take the issue of developing APEC-wide competition principles, one of PECC's key projects. Vautier, who convenes this international project, says there is a trend for countries to develop competition law - what New Zealand has with its Commerce Act - as they deregulate.

But imposing competition law without the underlying skills, human resource, technology and legal base is a waste of time, she says.

"If you are going to have the capacity to design and implement and enforce competition law you have to have the requisite skills and institutional capacity. If you do not have the relevant law and economics experience in your universities, where are those skills going to come from?"

In another example, progress in liberalising trade in food products - potentially of enormous benefit to New Zealand - is also likely to depend increasingly on finding ways to link liberalisation with Ecotech initiatives, Scollay says. This link is already occurring in fisheries liberalisation negotiations.

More comprehensive food sector proposals being spearheaded by New Zealand and US members of the APEC Business Advisory Council, and due to be presented to APEC leaders at their meeting in Kuala Lumpur in November, explicitly recognise that liberalisation will need to be integrated with extensive Ecotech programmes in areas such as rural infrastructure development. Only then, Scollay says, are more sceptical APEC economies, particularly the developing countries, which fear their rural populations will suffer unduly from the adjustment to a liberalised food sector, likely to be satisfied that their communities will also benefit from liberalisation.

Asia2000 Foundation Chief Executive Phillip Gibson is also urging the New Zealand officials involved in the lead-up to APEC 1999 to take a broad-based approach.

"Let's not fix on squeezing a bit of market access here and a bit of market access there and risk losing the fundamental goal of APEC, which is the long term creation of growth and prosperity for the whole of the Asia-Pacific region," he says.

"We need to lift our sights and not focus on short term measures where we perceive an immediate advantage for New Zealand. Wealth and prosperity for the region will lead to wealth and prosperity for New Zealand because we are inextricably bound up with the region."

Asia2000 recently released a discussion document called "APEC 1999: A New Momentum."

PECC economic experts might agree with Gibson's basic premise, but they are also keen to make sure the liberalisation agenda isn't ignored.

In a statement following the Taipei meeting, PECC's economic experts urged APEC leaders to "adopt immediate measures to bolster investor confidence and restore capital flows in the crisis-plagued economies of Asia."
PECC said a strong statement on continued commitment to liberalisation and economic reforms was vital to restore investor confidence, and proposed that APEC leaders at their summit in Malaysia in November this year "issue a statement reaffirming their commitment to market-driven economic integration through free and open trade and investment in the region."

*Nikki Mandow is the manager of external relations at the University of Auckland's New Zealand Asia Institute.