Dialogue: Fortunes of New Zealand reliant on Apec's success

Jane Kelsey, an inveterate campaigner against trade liberalisation, adopted a subtle new line of attack in a Dialogue column last week.

Instead of portraying Apec as part of a global conspiracy to advance free trade and the interests of big business while selling New Zealand workers down the river - her standard line - she chose to dismiss it as moribund, peripheral and dispensable. Sometimes it suits to portray your enemies as weak and divided instead of dangerously powerful.

Neither view is correct.

The bottom line is whether you think it's better to have an open economy or a closed economy. Apec was formed with the belief that open economies are in the best interests of everybody. The results of the past 10 years have justified that belief. Let me outline a few facts from a report prepared for the Apec meeting in Brunei entitled "Open Economies Delivering to People."

Since Apec was formed, member economies have actively pursued the benefits of international economic integration. Tariff and non-tariff barriers to trade have been reduced, and foreign investment has been liberalised. Average tariffs fell in all Apec economies between 1988 and 1998 (with the exception of Vietnam where they rose fractionally).

Australia's average tariff rate fell from around 15 per cent to 5 per cent, Peru from more than 65 per cent to less than 15 per cent, South Korea from 19 per cent to about 8 per cent, the Philippines from 27 per cent to 7 per cent, and the United States from about 4 per cent to 3 per cent. New Zealand's tariffs have fallen from 15 per cent to about 4 per cent.

In the 10 years from 1989, Apec trade has more than doubled, foreign direct investment inflows have trebled, and the combined real gross national product has increased by a third.

The economies of Apec have generated nearly 70 per cent of global growth and, as a region, have consistently outperformed the rest of the world.

We have seen the strong link between openness and economic growth. Open investment policies facilitate access to foreign savings, which can be used to complement domestic resources to finance investment. More importantly, foreign investment, with the technology, know-how and production practices it brings, leads to improved productivity.

A recent study has shown that for emerging economies, a 1 percentage point increase in foreign investment, with other things staying the same, can lead to a 0.8 percentage point increase in productivity.

Open developing economies typically deliver growth in gross national product per person that is 5 percentage points higher than in closed economies. One only has to look at neighbours such as North and South Korea to see the evidence of that.

More recent research has confirmed the link between open trade and economic growth. For every 1 percentage point increase in the ratio of trade to gross domestic product, income for each person is 2 to 3 per cent higher.

Trade and investment liberalisation will not bring about sustained economic development by itself.

The most fundamental divider between successful and unsuccessful economies is whether or not good governance and the rule of law are enforced.

Economies with strong institutions and open policies have grown at nearly eight times the rate of those with weak institutions and closed policies.

Apec economies have made considerable progress in domestic economic reform and strengthening economic governance.

Stronger institutions and more open policies accounted for about three-fifths of the 320 per cent difference in average incomes for each person between East Asia and Africa. This is literally the difference between staying mired in poverty and lifting people to prosperity.

Apec's growth has delivered social advancement on a great scale. The United Nations human development index for lower-income Apec economies improved by nearly 18 per cent between 1985 and 1997. Poverty in East Asian Apec economies fell by about a third - some 165 million people - mostly as a result of strong economic growth. Apec economies created about 195 million new jobs.

New Zealand's growth and exports have benefited from the growth in the region.

The benefits are more than economic. Open and interdependent economies have contributed to better relations between countries. Cooperation in sharing experience and expertise has helped developing countries to share in the benefits of globalisation.

In Brunei, I was struck by the fact that there were ministers from 21 countries sitting round the table searching for ways to improve things for the region. That is not to say that consensus is easy to achieve. There are debates about how fast we should push ahead. Not all countries want to do everything at the same pace.

Far more striking, however, is the fact there is so much that Apec countries agree on. Apec is far from perfect but, as the growth in its numbers from 12 to 21 countries shows, it has had a positive impact on the region.

Apec will continue to be a strong voice for a healthy multilateral trading system underpinned by the World Trade Organisation. As a small country dependent on trade, New Zealand's vital interests depend on its success.

* Phil Goff is the Minister of Foreign Affairs and Trade.