Australian APEC Study Centre Issues Paper 12

APEC - The Gains and Losses for Australia

By Tas Luttrell Luttrell Consulting Services, Canberra, ACT December 1997

The APEC process has, to some peoples surprise, moved forward from the "vision" of the Bogor Declaration and on to the practical problems of implementing the concepts of that Declaration. Moving to the practical phase has not meant, however, that the misgivings of those who doubt the viability of the APEC vision have been assuaged.

APEC is a unique regional grouping in several ways. It lacks the formal bureaucratic structure which typifies most regional groups and international organisations. APEC proceeds on a consensus basis, reflecting that lack of formal structure, and does not have the power of enforcement which is available to organisations such as the World Trade Organization (WTO). It also includes a very diverse range of economies in the membership - the highly developed US and Japanese economies, mid-level (or so-called transition) economies such as Korea and Chinese Taipei and economies still working their way through the early stages of development.

Not everyone sees the development of APEC as a desirable process. There are fears that there will be detrimental effects which may outweigh the benefits of APEC. Alternatively, there may be severe, although localised, sectoral effects, which could be politically difficult to resolve. This was the essence of the arguments presented for retention of substantial levels of protection in the recent Industry Commission inquiries into the Automotive and Textiles, Clothing and Footwear (TCF) industries. There are also concerns that the very diversity of APEC members will make it impossible for the group to succeed.

In Australia there have always been those who doubted the wisdom of a close economic bond between Australia and Asia (and some in Asia doubtful of Australia's full commitment to the bonding process). The recent financial crisis in Asia has strengthened the voice of the doubters and weakened the resolve of some of those previously convinced that full economic engagement with Asia would be in Australia's best interests.

The recent meeting of APEC leaders in Vancouver at which the members presented the second round of Individual Action Plans, makes this an opportune time to examine the validity of such doubts and to ask: Is APEC a worthwhile exercise for Australia? Do the benefits outweigh the costs or vice versa? The results of the Vancouver meeting will be a guide to the progress in APEC and assist in answering those questions.

It is important to note at the outset that one of APECs key decisions has been to ensure that changes introduced through the group are WTO consistent - i.e. that the activities of APEC will supplement the activities of the WTO and not compete with or undermine them.

There has been a tendency in this debate (as in many others) to see the issues as black and white, with no shades of grey in between. The protagonists on both sides tend to magnify their own arguments and either ignore or play down the opposing arguments.

To achieve that aim, it will be necessary to examine the major advantages of the integration process in APEC and to weigh them against the major cost factors which also flow from that process. The benefit and cost factors must be examined in the context of current economic conditions. The public attitude to industry reconstruction in Australia, for example, would be quite different in a period of full employment, to the public response in the present circumstances of high unemployment and meagre prospects for those thrown out of work in the reconstruction process.

The APEC Ministerial Meeting in Vancouver in November 1997, acknowledged the importance of a clear understanding of the impact of the liberalisation and facilitation programs. The Ministers requested further study, with an interim report to be presented in June 1998 to the meeting of APEC Ministers responsible for trade.

The Gains From APEC

Trade and Investment Liberalisation

The commitments made at Bogor call for free trade and investment in all the APEC economies by 2020. Achievement of this goal will provide duty free access to economies which in 1996/97 accounted for 71 per cent of Australia's total trade. APEC economies in that year bought 75 per cent of Australia's exports and supplied 66 per cent of imports. Their overall economic importance is indicated by the fact that in 1995 APEC member economies produced 56 per cent of world Gross National Product.

Australia has already made great strides towards liberalisation of its protective regime and as other APEC members progressively implement their liberalisation plans, Australia can expect growing export opportunities. With the exception of the Automotive and TCF industries, Australia has already reduced tariff levels to a maximum of 5 per cent. In these circumstances, the gains to Australia from liberalisation by other APEC members should increase rapidly by comparison with any additional costs incurred as the Australian program proceeds.

In a report in 1995 examining the potential gains from APEC, the Bureau of Industry Economics commented:

For Australia, the APEC process provides a significant opportunity to ensure that its largest trading partners will continue the trend towards deregulation and internationally oriented policies which has been crucial for the growing prosperity of the APEC region. This will reduce barriers to Australian exports and lower uncertainty about future market access. It could also result in new opportunities for exports, such as for

services.1

A recent report by the Department of Foreign Affairs and Trade (DFAT)2 observed:

Australia has benefitted substantially from trade liberalisation, despite significant short term adjustment costs. Even conservative estimates suggest that in the past decade, the average Australian family has gained around $1,000 per year from tariff reductions.

Falls in trade barriers have contributed to a stronger industrial base, higher productivity, better access to international markets and new technologies, and more competitive manufactured and services exports.

Similarly, derestriction of the investment regimes of the APEC economies will provide investors with improved opportunities to compete for projects - infrastructure projects alone already planned for the APEC region have been

estimated at $1.5 trillion over the next ten years.3 While some of these projects may well be cancelled or delayed because of the current financial crisis, there will still be immense opportunities for Australian investors if foreign investment regimes in the region can be progressively harmonised and derestricted.

At the 1996 APEC meeting at Subic Bay in the Philippines, the member economies presented their first Individual Action Plans (IAPs). The plans are to be revised annually and will be a guide to the progress of liberalisation in each economy. The initial IAPs mainly covered initiatives to which the members were already committed under the Uruguay Round or through unilateral programs previously announced: e.g. the Philippines agreed to reduce its applied tariffs from an average of 16 per cent to 5 per cent for most products by 2004, and Indonesia to reduce tariffs of over 20 per cent on manufactured products to a maximum of 10 per cent by 2003.

New tariff initiatives in the 1996 IAPs were modest but gave some indication of the benefits Australia can expect as liberalisation proceeds: e.g. China proposed to reduce its simple average tariff from 23 per cent in 1996 to 15 per cent by 2000, and Hong Kong and Singapore agreed to bind all tariffs at zero by 2010.

Investment measures in the 1996 IAPs were varied, with most members either promising reviews or announcing liberalisation measures: e.g. China to progressively open more sectors to foreign investment and grant national treatment; Korea, the full range of sectors to be liberalised, 92 sectors from 1997 to 2000; Chinese Taipei to relax restrictions on foreign investment, such as reinvestment requirements, types of capital and remittances; Japan to deregulate the foreign exchange law, remove notification restrictions for mining and ease restrictions on telecommunications carriers by 2000.

The Department of Foreign Affairs and Trade in its submission to the Senate Inquiry on APEC, stressed the advantages for Australian business of the use of IAPs in the APEC process:

first, by helping to maintain the momentum of future policy toward more liberal trade and investment regimes, they help create a more favourable operating environment for business in the region; second, they promote liberalisation on a "most-favoured-nation" as distinct from discriminatory liberalisation within free trade agreements; and

third, most plans include at least some measures which improve market access for Australian business ... 4

The Governments Trade Outcomes and Objectives Statement early in 1997 commented:

The process of informal bilateral consultations on IAPs provides an opportunity for Australia to press individual APEC members to include liberalisation measures that address Australia's market access concerns. In this way, APEC complements bilateral efforts and those in the WTO in keeping the pressure on our regional trading

partners to continue and accelerate the rate of liberalisation. 5

The 1997 IAPs built upon the 1996 lists and included reductions in tariffs in a number of areas of interest to

Australia6 : e.g. Korea to reduce tariffs on 182 items, including sugar and wool; China reduced its average tariff rate to 17 per cent on 1 October 1997; Malaysia to review 254 tariff lines to which high tariffs apply and Hong Kong eliminated all tariffs on information technology products from 1 July 1997.

In the investment area, Indonesia has abolished the 49 per cent limit on foreign holdings of listed shares in several sectors; Malaysia has exempted companies in the Multimedia Super Corridor from local ownership requirements and from restrictions on the hiring of foreign skilled workers; Japan will review investment restrictions in its remaining reserved industries and Chinese Taipei will privatise 42 government corporations within 5 years and will open the previously closed tobacco, wine, spirits and beer sectors.

Although most public attention is usually given to the trade and investment liberalisation program, it would be a mistake to regard that program alone as the dominating feature of the APEC agenda. The programs for Trade Facilitation and for Economic and Technical Co-operation offer potential benefits to the APEC members which are largely free of the political difficulties faced when reducing industry protection but promise very impressive benefits.

Trade Facilitation

The program for Trade Facilitation among APEC members is designed to reduce the cost of transactions in the region. It covers a diverse range of subjects including Customs Procedures, Standards and Conformance, Mobility of

Business People, Services, Intellectual Property, Government Procurement and Electronic Commerce.7

At the end of 1996 in a speech discussing the merits of free trade, the Chairman of the Hong Kong Trade Development Council referred to an estimate which indicated that reducing tariffs could add US $300 billion to the regions real income by 2020. He then said:

But perhaps even more important, they calculate that more than twice this sum will be generated by modest and unglamorous regulatory reforms - like customs harmonisation, mutual recognition of industrial standards

- and the opening up of procurement business.8

In areas such as the streamlining of Customs procedures, the program has the potential to generate very large savings for APEC trading companies through faster processing, reducing formalities and making rules and regulations more transparent. A very recent estimate suggested possible cost savings of US$56 billion per year through harmonisation and the use of electronic processing in this area.

The program to align national product standards with international standards is intended to overcome another costly bottleneck in APEC trade flows. Work is progressing on the adoption of Mutual Recognition Arrangements (MRAs) under which product testing and certification systems of exporting economies are recognised by their trading partners. Importing economies do not need to re-test products covered by such Arrangements and estimates of cost savings range from 5 to 15 per cent of exporters costs for a new market.

MRAs are already in operation or under development for food and food products, automotive products, telecommunications, electrical and electronic appliances. In 1993 the Economic Planning and Advisory Committee estimated that a modest liberalisation of restrictive standards could increase regional trade by around 20 per cent and add 3 per cent to regional Gross Domestic Product.

The services sector is the fastest growing sector in world trade. The value of Australia's services trade has grown by 11 per cent per year for the last five years. In 1996/97 it was valued at $24.3 billion. Consequently, Australia has much to gain from the APEC work program aimed at facilitation of trade in services. Of particular interest to Australia is the work intended to facilitate improved trade in professional services and the development of standardised principles and guidelines for APEC trade in services.

Similarly, Australia has a deep interest in the effective protection of intellectual property rights. This area is growing in importance because elaborately transformed manufactures (ETMs) are the fastest growing segment of Australian exports - 24 per cent of total merchandise exports in 1996/97. Protection of intellectual property rights is also important for the continued progress of Australian exports of computer software, pharmaceuticals, music, films and for goods covered by patents and trade marks, featuring unique designs or linked to geographical locations (such as wines).

Government procurement makes up some 10 per cent of global trade but Australia and most of the other APEC members are not signatories to the WTO Agreement on Government Procurement. At the Osaka meeting of APEC, however, members agreed to liberalise government procurement and to make the processes more transparent.

Among the measures to be adopted is the advertisement of tenders on an APEC government procurement homepage on the Internet. This arrangement will improve access to the tendering process for interested Australian firms and combined with improved transparency, will give greater certainty to the processes and procedures and should result in overall cost savings. It will also make the tendering process more open and accessible, providing Australian firms with more opportunities to compete for large-scale contracts.

APEC also has work in progress in several other areas of trade facilitation where improved policies and greater co-operation between the member economies are expected to result in further reductions in the cost of international transactions. These sectors include: dispute mediation, competition policy and deregulation, information gathering and analysis, and assistance with the implementation of Uruguay Round commitments.

Economic and Technical Co-operation

The third major strand of the APEC program is Economic and Technical Co-operation, now becoming known simply as ecotech. This program also covers a variety of subjects and in a similar way to efforts in the Facilitation program, seeks to reduce costs and improve resource allocation. The coverage of the ecotech program includes: energy, telecommunications, transport, infrastructure, human resources development, fisheries, tourism, industrial science

and technology, trade and investment data and assistance to small and medium enterprises. 9

The aims for the Ecotech program have been summarised by the Minister for Trade as:

... to achieve sustainable growth and equitable development in the Asia-Pacific region, and to assist developing economy members to participate fully in APECs trade liberalisation agenda. APECs ecotech and trade and investment liberalisation and facilitation ... agendas are thus complementary and supportive. Many ecotech activities, such as those designed to improve regional infrastructure in energy, transport and

telecommunications are of direct relevance to business.10

In the energy sector APEC is seeking to improve access to regional energy markets and to reduce costs and impediments to trade and investment in energy infrastructure, technology and services. Australia has the resources to supply the APEC economies through sales of coal, gas, petroleum products, technology and equipment. Other opportunities will arise from a continuing demand for expertise in management, operations and training in mining ventures and investment in the energy production sector.

In telecommunications Australia has already made substantial progress towards an open market. For some APEC members, however, the telecommunications sector presents particular problems in moving from monopoly control to a competitive market, a situation new to some of the countries involved. High priority has therefore been assigned by APEC to consultation, development of standard training techniques, cooperative projects and agreement on an MRA. An Asia-Pacific Information Infrastructure is being developed to assist this process, as are techniques for dealing with the growing problem of electro-magnetic interference in the region.

Australia is well placed to take advantage of the opportunities which will flow from a liberalised and increasingly integrated Asia-Pacific telecommunications market. Australia can expect benefits from reductions in technical barriers, cost reductions and greater access for exporters and service providers. Network expansion, electronic commerce and management of education and training projects are expected to provide opportunities for Australian contractors and consultants.

In its submission to the Senate Inquiry on APEC, the Australian Telecommunications Industry Association indicated the potential for Australia in this industry:

The market potential for the Australian industry in Asia for example is enormous with a Bureau of Transport and Communications Report estimating the accumulated export potential in the region over the next 15 years could total $US163 billion. ... APEC offers significant scope to increase export opportunities for Australian

industry ...11

In the transport sector, APEC Ministers have endorsed a Model MRA on Automotive products. This will assist Australian industry by reducing barriers to trade in automotive parts and components, already a major export item. Common standards for Intelligent Transportation Systems are also likely to benefit Australia's established manufacturers of reliable and efficient systems.

Reconstruction of APECs transport infrastructure is gathering pace. The Asian Development Bank has estimated that US $350 billion will be needed to modernise the regions transport network. Australia has already achieved some

notable successes in this area. 12

The construction or reconstruction of economic infrastructure is one of the biggest tasks facing the Asia-Pacific region. APEC leaders have nominated this as a priority area for economic and technical cooperation. Efforts are being directed towards cooperation and sharing of information on planning and implementation; several projects are already underway in various APEC Working Groups. Australia has been asked to carry out a review of analytical work on infrastructure and the capacity of APEC economies to carry out infrastructure projects.

Another important task is the development of human resources in the region. Part of APECs development plan is to work towards a well-trained, well-educated workforce and an effective, efficient and flexible labour market. To fulfil these expectations, the APEC economies will have a continuing need for high quality education and training. Australia is already an established exporter of education products (total exports are expected to exceed $3 billion in 1997). There is also likely to be an increase in demand within Australia for courses designed to help companies gain a foothold in APEC economies.

In one sector, the mutual recognition of professional qualifications, this task ties in with the trade facilitation program and its work on the alignment of standards. Australian organisations are particularly interested in a positive outcome because many professional bodies, especially in engineering, expect a strong demand for their services if the barriers are removed.

The Fisheries Working Group has as its aim maximisation of economic benefits and sustainability of fisheries resources in the APEC economies. Australia has much to gain from the work of this group because 90 per cent of Australia's seafood exports go to APEC members. APEC members are responsible for about 80 per cent of the volume of world aquaculture trade, which is Australia's fastest growing primary industry. The activities of this group will provide Australia with improved sources of business oriented market information and access to those markets.

Other Working Groups which are likely to produce benefits for Australia include:

Tourism Group, which is seeking to reduce barriers to tourism movement, business operation and investment; Industrial Science and Technology Group, which seeks improved distribution of technology and information and to contribute to sustainable development; Trade and Investment Data Group, which is improving the collection, compatibility and compilation of trade data; Small and Medium Enterprises Group (SMEs), which is assisting SMEs with improved access to markets, market information, finance, managerial skills, and technology; Trade Promotion Group, which promotes trade-related activities for goods and services, trade financing, trade skills and training; Marine Resource Conservation Group, which seeks to protect the marine environment and its resources; Agricultural Technical Cooperation Group, which promotes cooperation on agricultural technical issues and encourages sustainable agricultural development and improved production capacity. The group covers plant and animal quarantine, biotechnology and the marketing, processing and distribution of agricultural products.

There is also a group which draws together strands from several other groups and examines the long term effects of rapid population growth and sustained high levels of economic growth on food, energy and the environment.

The Losses From APEC

What are perceived as the detrimental effects on Australia from APEC, the costs or losses from the APEC process, fall generally into four main areas:

effects on employment, control of foreign investment, environmental issues, and technical standards.

Employment Effects

Of major concern to those opposing the APEC liberalisation process is the effect on Australia's level of unemployment. The argument is that Australia has already given away too much of its manufacturing industry and that improved access to the economies of its trading partners received in return has failed to compensate. Consequently, there is strong support for the idea that Australia should suspend its tariff reduction program and use

the remaining protection as a bargaining counter in negotiating multilateral agreements. 13

There are fears that reduction in tariff and non-tariff trade barriers will leave Australia vulnerable to the loss of further significant sectors of industry. An important factor is the suspicion that low wage levels in the developing countries of the APEC region will influence investors (particularly multi-national companies [MNCs]) to move their manufacturing operations offshore. This argument is applied to any industry which is a large employer of labour but the most forceful application has been in the recent debates over protection levels for the Automotive and TCF industries.

In the present climate of high unemployment, there is considerable public support for the argument that by reducing protection for these vulnerable sectors, Australia is exporting the jobs of Australian workers. As a substantial proportion of the workers displaced in the reconstruction of the TCF industries in recent years have been female immigrants (many of whom lack fluent English), there are quite reasonable concerns that Australia's industry policy should not worsen their future employment prospects.

There is no doubt that some sectors of Australia's manufacturing industry are going through a very difficult period of restructuring and realignment; the relevant question, however, seems to be: Is it reasonable to blame all of these problems (or even a substantial part of them) on the trade liberalisation process in APEC?

This question was directly addressed in the DFAT report mentioned earlier:

Trade liberalisation creates jobs but these tend to be scattered widely among unprotected sectors and often go unnoticed. Instead the public usually sees the factory closures and is made aware of some costs which nearly always accompany change of any type. Trade liberalisation tends to be a scapegoat for any adverse

effects of a range of changes in the way we work and live.14

Similar thoughts were expressed in an article in the series ABARE 15 Current Issues. These comments describe exactly what is occurring in Australia at present:

When protection is removed, the costs of adjustment are often concentrated in regions where supported industries operate. This can impede public acceptance of reforms that will eventually benefit the national economy. The costs can also be highly visible and relatively immediate. In contrast, the benefits are diffused throughout the economy, not highly visible and longer term.

The relative immediacy of the costs of adjustment and the longer term nature of the benefits can focus public

concern on the costs of adjustment arising from removing protection. 16

In any adjustment process there are difficulties to overcome as an economy moves from one development stage to the next. In human terms those difficulties show themselves in the workforce through the stresses involved in learning new skills, in the hardship and loss of self-esteem involved in long-term unemployment and in the loss of independence for people too old to be retrained or lacking the language skills to easily move to new tasks.

It is these human costs which are, understandably, put forward as reasons to halt the process of change. There is a suspicion that the only winners from trade liberalisation are the MNCs and that the individual is overlooked in the rush of economic change. The related arguments are prominent in the reasoning of those who wish to halt the APEC process. The political weight of such arguments has already been demonstrated in the decisions to delay the reduction of tariff protection for the Automotive and TCF industries.

If APEC is to succeed and if Australia is to fulfill its promises on tariff reduction, the Government must take up the challenge of convincing the public that the planned reforms promise the best available outcome for the further development of the Australian economy. It will not be enough, however, to present a convincing argument, well founded in economic theory. Economic rationalism will hold little interest for anyone who has just lost their job; nor will their relatives and friends be convinced. The reasoning must be backed by programs which help to overcome the human problems and demonstrate that the structural changes will be of benefit to all, not just to MNCs.

The Department of Foreign Affairs and Trade noted:

Trade liberalisation can, however, pose formidable adjustment difficulties for affected workers and the communities in which they live. Dealing effectively and sensitively with structural adjustment issues is central to successfully managing tariff reform, including phasing reforms in gradually and applying special measures

to assist displaced workers. 17

The Secretary-General of the OECD, in comments referring to the WTO but equally applicable to APEC, summed up

the problem in this way:

Managing such change and dealing with the human anxieties that go with it require special efforts. Governments have to explain to their citizens the advantages of the open rules-based trading system, particularly when there are protectionist calls for adjustment and innovation to stop. The arguments against open trade ... in the developed economies often raise the spectre of massive job losses to unfair low-wage competitors in developing countries. But trade with those countries in fact offers enormous opportunities and, as with all trade, mutual benefit. ... Ultimately it is the citizen who has to be reached - and to be reassured that trade-induced changes are beneficial for society and that society is committed to helping those faced by

adjustment.18

While APEC is a consensus-based process rather than the rules-based system of the WTO, the principles outlined above can be directly applied to APEC and are especially relevant to Australia's approach to the APEC agenda. The human and social costs of major economic changes can be difficult to quantify but they quickly produce emotive responses, readily taken up by the media. Such problems can be very difficult to solve unless they are tackled with full commitment. The adjustment process must include planning for programs which "... stress the importance of helping individuals to adapt through better education and training policies in the context of life-long learning."19

Control of Foreign Investment

The control of foreign investment is another area of deep concern for opponents of the APEC integration process. The concern is that closer integration accompanied by relaxation of the foreign investment laws, will result in a society which has little control over the plans of foreign investors. They see such a society as helpless to influence MNCs and unable to resist the pressure of threats to move investments elsewhere if conditions are not tailored to the investors demands. There is also a fear that there will be no way to refuse unacceptable projects, such as dumping of toxic waste. None of these arguments are unique to APEC; similar fears have been expressed about the OECD negotiations for a Multilateral Agreement on Investment.

There is, however, no reason why the APEC governments should fall into the trap of leaving themselves without the power to say no to unacceptable investments. It is unlikely that any government would be willing to compromise their sovereignty to that extent. Bigit Bora in the book Regional Integration and the Asia-Pacific commented:

... there are still many sensitive sectors such as broadcasting, public utilities, banking, insurance, telecommunications, fishing and mining that remain protected from foreign interests. The political economy of foreign investment is such that no economy will ever give up the unqualified right to reject foreign

investment, and further liberalisation in these sensitive sectors will prove difficult.20

He suggests that the nature of APEC could in fact pose the opposite problem:

The problem in trusting APEC with investment rules is that the political economy of the region and the variance on the discipline in many developing countries investment regimes could force APEC to deliver an

instrument which is exceptionally weak on the important provisions ...21

Bora also suggests that rather than establishing conditions under which foreign investment will be allowed into the country, what is needed are clear guidelines on conditions which would cause investment to be restricted. He proposes three grounds for such restrictions:

a) if the investment threatens national security; b) if it is anti-competitive under local laws; or

c) if it is contrary to the national interest.22

A set of conditions like these would seem to provide an adequate safeguard against unwanted investments. They would also give prospective investors due notice that the host government, although welcoming foreign investment, fully intended to maintain a substantial measure of control. The difficulty then would be to ensure that the exclusion conditions were not applied arbitrarily.

Distortions arise when governments seek to attract investment by offering trade-distorting concessions. The Pacific Economic Cooperation Council drew attention to this problem:

... many APEC members are still using various types of incentives and promotional policies to attract capital to their jurisdiction. ... The issue of the proper use of incentives should be considered seriously since the inefficient and wasteful use of resources caused by rent-seeking and subsidizing projects should be addressed. 23

There are concerns in Australia that in the competition for investment, issues such as health and safety and the environment will be neglected. Although the APEC Non-Binding Investment Principles adopted in Jakarta in 1994 specifically provide that those requirements should not be relaxed to attract investment, it is an issue which must be kept under review if foreign investment is to continue unhindered, its vital role in the development of the APEC economies.

Repatriation of profits can be a contentious issue and complaints are often heard in Australia that foreign investors remit too large a proportion of profit earnings to their parent companies. Arising from this issue, is the argument that APEC will make matters worse if restrictions on repatriation of profits are reduced or eliminated in the region. The other side of that argument, of course, is that as restrictions are reduced in the other APEC economies, Australian firms will also have greater freedom to remit their profits to Australia. This will offset the outflow of funds to some extent and Australia will still have the benefit of funds the foreign owned companies spend in Australia on salaries, local manufacturing inputs and use of services.

The problem of large investors threatening to take their money elsewhere is with us already. In Australia it was clearly in evidence during the debate on the Industry Commission report on tariff protection for the Automotive industry. In the end, that problem comes down to how much a government is prepared to compromise to gain or keep an investment. The parameters on which such a decision is made might have little to do with any set of principles negotiated in APEC (or OECD).

Environmental Issues

Some of the submissions to the Senate inquiry on APEC expressed concern at the damage being caused to the environment by the progress of rapid economic growth in the Asia-Pacific region. Particular issues of concern highlighted were the depletion of forests, degradation of water supplies and growing pollution of the atmosphere. The submission from the Australian Conservation Foundation included this warning:

Rapid growth, fuelled largely by foreign investment and trade openness, has made East Asia the economic success story of the world. Economic success, however, has come at the expense of severe and rising ecological degradation, including the pollution of water and air systems, rapid depletion of resources such as forests, wetlands and fisheries, and loss of flora and fauna. Ecological degradation will impose large financial costs in Asia-Pacific and globally. Moreover, some losses in ecosystem goods and services will be irreversible. 24

On a more general level there is a body of opinion which considers that free trade is detrimental to the environment simply because it stimulates economic growth. The theory is that economic growth brings greater consumption, which in turn increases pollution and the depletion of natural resources. The problem is said to increase as trade

volumes grow and more intensive use of transport requires more energy and produces more pollution. 25

The danger is that without suitable standards for protection of the environment, industries producing high levels of pollution will gain a comparative advantage by moving to a location where there are lower standards (and hence lower costs). The result of this would be faster degradation of the environment in the host economies and a rapid widening of the gap between the poorer and richer economies.

It is essential that these problems be addressed by the APEC leaders without delay. The danger was apparent early in 1996 when the then Prime Minister, Paul Keating, brought it to attention:

Sooner than many people expect, environmental problems will begin to affect not only the degree to which people in Asia and the rest of the APEC region can enjoy the fruits of recent growth, but more fundamentally will begin to impede the extent of that growth. ... We must see protection of the environment in the Asia-

Pacific not as an alternative to economic growth, but as the only thing that will ensure its continuation.26

The threat to the environment in the Asia-Pacific region cannot safely be ignored. The penalty for failing to respond quickly, will be a rapid decline in living conditions and an escalation of costs in the countries worst affected - eating away the promised gains from APEC. The recent fires in Indonesia demonstrated that environmental problems in one country of the region can quickly become the problems of its neighbours.

Technical Standards

One of the main effects of tariff liberalisation is to bring non-tariff barriers to the forefront of international discussions. The Kean Committee examining Australia's standards and conformance infrastructure observed:

... as border protection has been lowered, the focus has increasingly shifted to barriers posed by technically based impediments to trade. These stem from differing technical requirements in product standards in different countries, usually written into mandatory regulatory requirements for health, safety and

environmental reasons.27

In relation to standards, the concerns in Australia arise on two levels. Firstly, there is the concern that adoption of generic standards for all APEC members will result in the adoption of the lowest common denominator as the standard for all. For a country such as Australia which adheres to strict internationally accepted standards in many fields, there is a natural reluctance to see lower standards adopted. Secondly, there is dissatisfaction at the likely costs of adopting particular standards which may differ from the current Australian standard.

It is unlikely, in fact, that any of the developed APEC economies would agree to a lowering of standards. It is much more likely that the other members will be assisted to lift their standards and upgrade their testing facilities as part of the ecotech program. While this would undoubtedly slow down the process, in the end it would give the region uniformly high standards and a substantial transfer of modern technology to the developing APEC economies.

The National Association of Testing Authorities (NATA) in its submission to the Senate inquiry on APEC obliquely addressed the possibility of Australia needing to alter its standards and testing arrangements:

In the APEC context, ... , technical barriers have been identified as a significant issue deserving specialised attention by APEC economies. In this area, Australia is taking a leading role due largely to the sophistication of our technical infrastructure and the regional reputation of our national bodies involved in standards and conformance. ... NATA is the worlds leading provider of laboratory accreditation, being the first national program established to recognise competent testing, measurement and calibration laboratories. ... to date has

accredited more than 2,500 laboratories in Australia and internationally.28

NATAs comments would seem to indicate that far from being forced to change its own standards, Australia will be closely involved in helping others adopt accepted international standards.

Quarantine is the other area of particular interest to Australia. For many years Australia has maintained very strict quarantine standards because this country is free of some of the worlds worst diseases and pests. For some products these standards are now being challenged as unwarranted, e.g. cooked chicken from South East Asia and salmon from Canada.

The primary industry sector, which relies on Australia's reputation as a safe source of plant and animal products, is very critical of any attempt to relax the quarantine safety net and possibly damage that reputation in export markets. They therefore view discussions regarding alignment of quarantine standards within the APEC region with deep suspicion.

The Nairn Committee which reviewed Australia's quarantine arrangements in 1996, recognised the need to preserve Australia's unique environment through effective quarantine policies. The Committee saw the need for a fresh approach to the problem of "preventing the establishment and spread within Australia of exotic pests and diseases", involving the whole community. It proposed a nationally co-ordinated awareness campaign designed "to ensure that

the vigilance that has characterised Australia's approach to quarantine protection is not diminished." 29

Conclusion

The integration of the Asia Pacific region and the continuing development of APEC promise many opportunities for the Australian economy. It is best to remember, however, that they remain simply opportunities until the work has been done to bring them to fruition. In this very competitive environment there are no promises and no guarantees of success. Australia does have the natural resources, the skills and the manufacturing capacity to reap great benefits from APEC. What is required now is the political will to maintain support for the group and the business acumen to seize the opportunities.

Public discussion of APEC in Australia seems to focus very tightly on the trade liberalisation program and its effects. While that program is a very important part of the APEC agenda, the greatest gains to Australia seem likely to stem from Trade Facilitation and the Economic and Technical Cooperation program. Because these programs are mainly concerned with reducing transaction costs, they are not so politically volatile and do not catch the public attention. There is a need to publicise the gains in these areas of the APEC agenda, to apprise the public of their value and to offset the controversy over tariff reductions.

There are many opportunities for Australia to gain from APEC but there are costs as well - and many of those costs have to be borne by individuals. It may be through loss of employment, or the need to be retrained, or an unwanted

change to a different type of employment, or the need to live in a different area. All of these changes can produce stress, loss of income and loss of self-esteem. They can be especially damaging to families. There is a need for government to recognise that these problems must be dealt with as a priority and that individuals must not be allowed to become alienated by the changes stemming from APEC.

Other legitimate concerns about the progress of APEC must also be recognised and discussed. Concerns about quarantine, standards, the likely actions of MNCs and other investors, etc. these should all be discussed as part of the public education process on APEC. Where there are problems to be overcome, Australia will be far better served by an open discussion, drawing in ideas from all sides, than by attempts to ignore the difficulties. Notes

1. Potential Gains to Australia From APEC, Bureau of Industry Economics, Occasional Paper No.29, AGPS, Canberra, 1995, p.viii.

2. Trade Liberalisation Opportunities for Australia, Department of Foreign Affairs and Trade, 1997, http://www.dfat.gov.au/trade/trade_lib_opps.html, Executive Summary p 2.

3. APEC after Subic Bay-the Road to Free Trade, Tas Luttrell, Current Issues Brief No. 25 1996-97, Information and Research Services, Department of the Parliamentary Library, 24 March 1997, p.14.

4. APEC Inquiry, Senate Foreign Affairs Defence and Trade References Committee, Submission No.19, Submissions Volume 3, p 13.

5. Trade Outcomes and Objectives Statement, The Hon Tim Fischer MP, Deputy Prime Minister and Minister for Trade, February 1997, p 43.

6. Individual Action Plans, Briefing Paper, Department of Foreign Affairs, Defence and Trade, November 1997, pp 1and 3.

7. Information in this section is mainly drawn from: Trade and Investment Facilitation, APEC Briefing Paper, November 1997, Department of Foreign Affairs & Trade.

8. Debating the Merits of Free Trade, Victor Fung, Chairman, Hong Kong Trade Development Council, 15 November 1996, http://www.wto96.org/Congress/05fung.htm.

9. Information in this section is mainly drawn from: Economic and Technical Cooperation, APEC Briefing Paper, November 1997, Department of Foreign Affairs & Trade.

10. Trade Outcomes and Objectives Statement, The Hon Tim Fischer MP, Deputy Prime Minister and Minister for Trade, February 1997, p 44.

11. Maximising the Benefits of APEC for the Australian Telecommunications Industry, Australian Telecommunications Industry Association, August 1997, Submission to Senate Foreign Affairs, Defence and Trade References Committee, APEC Inquiry, Submissions Volume 2, p 186.

12. For example: a $55m contract to supply 20 light rail vehicles for the Kowloon Canton Railway; $83m for rail electrification in Kuala Lumpur; and $80m for computer based signalling systems for the Bekasi-Bandung Rail Corridor in Indonesia. Economic and Technical Cooperation, APEC Briefing Paper, November 1997, Department of Foreign Affairs & Trade.

13. Australia in Relation to APEC, Victorian Government, August 1997, Submission to Senate Foreign Affairs, Defence and Trade References Committee, APEC Inquiry, Submissions Volume 2, pp 126/7.

14. Trade Liberalisation Opportunities for Australia, Department of Foreign Affairs and Trade, 1997, http://www.dfat.gov.au/trade/trade_lib_opps.html, Executive Summary, p 3.

15. Australian Bureau of Agricultural and Resource Economics.16. Advantages of trade reform, Ivan Roberts, ABARE Current Issues, No.5 July 1997, p 317. Trade Liberalisation Opportunities for Australia, op cit p 4.18. The Imperative of Free Trade, Donald L. Johnston, Secretary-General of the OECD, The OECD Observer

No.201, August/September 1996, pp 4/5.19. ibid: p 5.20. Foreign Direct Investment, by Bijit Bora in Regional Integration and the Asia-Pacific, Edited by Bijit Bora and

Christopher Findlay, Oxford University Press, Melbourne, 1996, p 90.21. ibid p.93.22. ibid p 94.23. Perspectives on the Manila Action Plan for APEC, Pacific Economic Cooperation Council, December 1996, p 30.24. APEC and the Environment, Australian Conservation Foundation, September 1997, Submission to Senate

Foreign Affairs, Defence and Trade References Committee, APEC Inquiry, Submissions Volume 6, pp 33/34.25. Environmental Issues, Peter Crowley and Christopher Findlay, in Regional Integration and the Asia-Pacific,

Edited by Bijit Bora and Christopher Findlay, Oxford University Press, Melbourne, 1996, pp 140/141.26. Quoted in APEC and the Environment: is free trade sustainable?, Catherine See and Jeremy B. Williams,

Current Affairs Bulletin, April/May 1997, p 23.27. Linking Industry Globally, Report of the Committee of Inquiry into Australias Standards and Conformance

Infrastructure, AGPS, Canberra, March 1995, pp 174/175.28. National Association of Testing Authorities, August 1997, Submission to Senate Foreign Affairs, Defence and

Trade References Committee, APEC Inquiry, Submissions Volume 2, pp 222/223.29. Australian Quarantine. A shared responsibility, Report by the Australian Quarantine Review Committee,

Department of Primary Industries and Energy, Canberra, 1996, pp ix/x.