Executive Summary · in the Busan Declaration of innovation and sharing of advanced technologies. ABAC endorsed information and communication technology (ICT)-enabled growth activity

Driving Forward a Prosperous and Harmonized APEC Community 13

Executive Summary

ABAC Report to APEC Economic Leaders • Hanoi, Vietnam 200614


Executive Summary

The global economy is witnessing an unprecedented periodof high growth. But there are serious risks to that outlookwhich have intensified in recent months. The key risks arisefrom the growing current account imbalances between majoreconomies and the threat of further sharp rises in oil pricesgiven the conflict in the Middle East and the limited excessproduction capacity. Inflation is increasingly becoming acause for concern with the prospect of continuing upwardmovements in global interest rates. Financial markets havebecome more volatile and there is a perception of increasedrisk in the global system. The World Trade Organization(WTO) trade talks have been suspended, making the prospectof successfully concluding the Doha Round by the end ofthis year less likely. So long as these risks remain, globalstability and growth are threatened. They provide theenvironment in which protectionist pressures would takehold. Careful management by economies and increasedinternational cooperative efforts could go some way toameliorating risks to the global system but even if thatwere to occur, market adjustments in the period ahead couldbe more pronounced than was seen over the recent periodof high growth and relative stability.

Against this background, ABAC puts forward the followingrecommendations to APEC Leaders:

1. Lead the way in the successful conclusion of theWTO DDA negotiations. ABAC is deeply disappointedat the suspension of the Doha Development Agenda(DDA) negotiations. This Round, so critical tomaintaining economic growth and promotingdevelopment, is now moribund with no clear prospectsfor resumption. Suspension of negotiations means thatthe Round will not be completed this year, andbusinesses and consumers around the world willcontinue to be excluded from the benefits of expandedtrade liberalization. ABAC maintains its strongcommitment to a robust and balanced outcome. It urgesAPEC economies to reevaluate and enhance their offers,focus efforts in advancing negotiations in areas withthe most potential for tangible progress such as tradefacilitation. Further, it is critical that economies movein a timely manner while current offers are on the table.Like the Rounds that have come before, the DDA is aonce in a generation opportunity to make progress ontrade liberalization and must end in a positive outcomefor the world trading community.

2. Promote high-quality RTAs/FTAs. ABAC is concernedthat the proliferation of regional trading arrangements

(RTAs) and free trade agreements (FTAs) is adding tothe complexity of doing business and for that reason,it strongly endorses as a matter of priority, thedevelopment of model measures as proposed in theBusan Roadmap. Model chapters provide valuablebenchmarks to judge the consistency of existing andnew agreements in complying with the objectives ofboth the Bogor Goals and the WTO. To complementthese efforts, ABAC undertook jointly with PECC afeasibility study of the Free Trade Area of the Asia-Pacific (FTAAP) to explore ways and means of advancingtrade and investment liberalization in the region as analternative to the existing situation, characterized bythe proliferation of bilateral and plurilateral preferentialtrade agreements. ABAC strongly urges Leaders todevelop an APEC initiative to promote convergence andconsolidation among existing agreements and thosecurrently being negotiated. To this end, ABAC believesthat a region-wide FTAAP offers the highest degree ofachieving such convergence and consolidation, howevera study undertaken by ABAC and PECC this year indicatespractical difficulties in negotiating an FTAAP at thistime.

3. Implement the Busan Business Agenda. ABACbelieves that there is a strong link between aneconomy’s regulatory environment and its economicperformance – and that the process of regulatory reformin APEC has had mixed results. Bolder policy action isrequired by APEC economies to ensure that oureconomies do not progressively lose their internationalcompetitive edge. ABAC and APEC cooperated inorganizing a joint symposium on ‘ease of doing business’in our region. Priorities for reform and capacity buildingidentified by business included the burden ofregulations, complex taxation regimes, difficulty inaccessing finance and rigid labor laws. These challengesare particularly onerous for small and mediumenterprises (SMEs). ABAC calls upon APEC Leaders tocommit to bold action to promote transparency andimprove the regulatory environment for business in theireconomies. The success of this session reflects the needto not just identify these issues, but to address them.ABAC requests that a follow-up meeting is convenedagain next year.

4. Foster a secure and favorable environment for tradeand investment. ABAC believes that securing trade isvital to continued prosperity in the APEC region. ABACurges APEC to remain committed to securing trade flows


in a way that is complementary to APEC’s goal of tradeand investment liberalization and facilitation. Measuresbeing proposed include the implementation of the APECFramework of Standards to Secure and Facilitate GlobalTrade and the Trade Facilitation Action Plan 2006-2010taking into account the lessons learned from the 2001-2006 Action Plan, single window electronic datainterchange, expedited clearance, risk management basedinspections, de minimis value thresholds and the provisionof customs clearance on a 24/7 basis. APEC economiesshould seek to improve efforts to implement the APECTransparency Standards. Finally, ABAC encourages Leadersto extend the membership of the APEC Business TravelCard Scheme to include the final four member economies(the United States, Canada, Mexico and the RussianFederation) through a proposed two-tiered schemecentered on providing fast track entry/departure at majorairports.

5. Respond urgently to critical energy situation. APECLeaders are urged to show leadership in addressing theregion-wide challenges posed by energy imbalance andvolatile oil prices. Priority initiatives are needed toincrease and diversify supply, improve efficiency usage,promote alternative and sustainable sources, encouragecross-border trade, identify benchmarks, and implementpolicies designed to reduce regulatory and marketuncertainty in commercial investment in innovativeenergy technology.

6. Strengthen financial systems. ABAC considers it vitalthat APEC member economies take action to strengthentheir macroeconomic and prudential frameworks so asto increase their capacity to withstand external shocksand to make them more resilient to the vagaries of theglobal economic system. Necessary measures includeefforts to improve risk management and governance inthe region’s banking systems and in other financialsectors, strengthening financial regulatory capacitiesand in promoting greater cooperation between nationalregulatory authorities and regional and internationalagencies aimed at limiting risk to the global financialsystem. ABAC also highlights the critical role thatforeign direct investment can and is playing insupporting the restructuring of banking and otherfinancial sectors, of the great value in open and liberalinvestment policies which have been demonstrablysuccessful in increasing investment flows in the region.ABAC urges APEC economies to implement measures to

deepen capital markets, in particular bond markets, inthe region and strongly recommends that they intensifycapacity building initiatives to strengthen financialsystems.

7. Support the growth of SMEs. ABAC continues toemphasize the importance of removing regulatoryobstacles to SME growth and improving access tofinancing, technology and information and of measuresto enhance the capacity and competitiveness of SMEs.It encourages region-wide efforts to promote creditrating agencies, the development of businessassociations and network linkages to encourageinformation dissemination and of policies that reflectthe importance of SMEs in the client base of banks andfinancial institutions. It likewise encourages financialsector participation to support the commerciality ofguarantee schemes and the development of creditevaluation capacities as they relate to SMEs.

8. Develop avian influenza/pandemic preparedness.ABAC believes that there is a critical need for moreinformation about avian influenza within the regionalbusiness community to help individual companiesprepare continuity plans for the possibility of a futurehealth pandemic. It encourages APEC to review itsprograms and activities related to avian influenza andpandemic preparedness to identify additional areaswhere cooperation and collaboration between businessand governments can be enhanced, specifically thereview of initiatives related to assisting SMEs indeveloping their business continuity plans.

9. Strengthen Standards Organizations and RegulatoryDialogue. ABAC is committed to making capacitybuilding in standards a priority and is developing atwo-year agenda aimed at highlighting the need for –and assisting in the realization of – stronger standardsbodies in the APEC region. Such efforts will beundertaken in concert with the promotion of global/international standards efforts. As a contribution toreducing technical barriers to trade, ABAC recommendsmore dialogue between standards-setting regulatoryauthorities on a sector-by-sector basis.

10. Implement APEC’s Intellectual Property RightsCommitments. In 2005, APEC Leaders in Busancommitted to strengthened intellectual propertyprotection and enforcement, and adopted the APEC


Anti-Counterfeiting and Anti-Piracy Initiative. ABACapplauds the public commitment made to intellectualproperty rights (IPR) protection principles, and notesthat a clear work program arises from the Leaders’commitments, but notes that despite considerableprogress that is being made, traffic in counterfeitproducts continues to grow faster than the trade inlegitimate products. As ABAC celebrates its tenthanniversary, it notes that strengthening IPR protectionhas been a recurring recommendation from ABAC ineach of its reports to Leaders, and it urges all APECgovernments – once again – to redouble their effortsto prevent and interdict the production and trade incounterfeit and pirated goods, make the legitimatelicensing of content and respect of copyright arequirement for the issuance of cable licenses, andpromote the sharing of new technologies by reducingvarious barriers which are hindering capacity buildingin the APEC region.

11. Encourage innovative and emerging technologies.Economic growth and prosperity in APEC will be drivenby technological innovation and access to information.An appropriate policy and regulatory environment willbe underpinned by technology choice, data privacy,and expanded broadband access. Leaders are asked toreaffirm their commitment to intellectual propertyprotection, and to give special and urgent attentionto devising effective measures to address counterfeitingand pirated goods. ABAC welcomed the endorsementin the Busan Declaration of innovation and sharing ofadvanced technologies. ABAC endorsed information andcommunication technology (ICT)-enabled growthactivity on a regional collaborative basis in fields asdiverse as health care delivery, geospatial and sensortechnology, isotope-based solutions, and biosecurityand horticultural research. ABAC has initiated acomprehensive study of the challenges to creating aninformation society for APEC by 2010.

12. Life sciences and environment. Regional business isconscious of the implications including steeplyescalating costs, associated with infectious disease,chronic disease, and ageing demographics. Leaders areurged to ensure priority is given to implementing theLife Sciences Strategic Plan’s recommendations onresearch, access to capital, harmonization of standardsand regulatory procedures, and health services.

13. Foster closer APEC-ABAC relations. The above pointsto the relationship between government and businessnever being at a more critical point. Greater interactioncan help policy makers prioritize and pursue morefocused, business-friendly policies that will in turn furtherenhance trade and investment liberalization andfacilitation in the APEC region. ABAC calls on APEC toestablish a more structured process at all levels of theAPEC process from working groups to Ministerial meetingsto review business input and respond, in order to furtherimprove our dialogue and strengthen cooperation.


Main Report



Outline of Recommendations

I. Introduction

II. Advancing the Busan Roadmap to Achieve the Bogor Goals

A. Support for the Multilateral Trading SystemB. Promotion of High-Quality RTAs/FTAs

1. Development of Model Chapters and Catalog of RTAs/FTAs in the APEC Region2. Feasibility Study on a Free Trade Area of the Asia-Pacific (FTAAP)

C. Implementing the Busan Business Agenda1. An Expanded Work Program on Investment Liberalization and Facilitation2. An Integrated Program of Structural Reform Issues3. Private Sector Development/Ease of Doing Business

III. Building Prosperity Together through Economic and Technical Cooperation and Shared DevelopmentA. Avian Influenza/Health Pandemic PreparednessB. Emergency PreparednessC. Strengthening Standards Organizations and Regulatory DialogueD. Supporting the Growth of SMEs

1 Improving SME Access to Financing2. Anti-Corruption and SMEs

E. Strengthening Financial SystemsF. Strengthening APEC’s ECOTECH Agenda

IV. Fostering a Secure and Favorable Environment for Trade and InvestmentA. ABAC Support of the Implementation of the APEC Framework of Standards to Secure and

Facilitate Global TradeB. Trade FacilitationC. TransparencyD. Business Mobility and the APEC Business Travel CardE. Business Labor Mobility

V. Promoting APEC LinkagesA. Implementation Agenda for Energy (IMAGEN)B. Implementing APEC’s Intellectual Property Rights’ CommitmentsC. The Advancement of Technology Infrastructure in APEC – Technology Choice, Broadband

Access, and Data Privacy1. Moving Toward Universal Broadband Access2. Data Privacy3. Technology Choice

D. Implement the Life Sciences Innovation Strategic PlanE. The Challenges in Creating “The Information Society Vision 2010 in the APEC Region”F. Emerging New Technologies

VI. Fostering Closer APEC-ABAC Relations- Formalize Interaction and Dialogue with APEC Ministers and Senior Officials


Annexes

A ABAC Letter to APEC Leaders on the state of the Doha Development Agenda negotiations (dated 12 May 2006)

B ABAC Letter to APEC Ministers Responsible for Trade on the ABAC 2006 Interim Report to APEC Economic Leaders(dated 12 May 2006)

C ABAC Letter to APEC Energy Ministers urging early action on energy issues (dated 15 May 2006)

D ABAC Letter to APEC Leaders in the wake of the suspension of the Doha Round (dated 15 August 2006)

E ABAC Letter to APEC Finance Ministers (dated 15 August 2006) and Report to the 13th APEC Finance Ministers’Meeting, 7-8 September 2006, Hanoi, Vietnam

F ABAC Letter to APEC SME Ministers on measures to support the growth and competitiveness of SMEs in theAsia-Pacific region (dated 15 August 2006)

G The APEC Business Advisory Council


I. Introduction

The world economy is headed for another good year, thethird of significantly above-trend growth. Growth isbecoming more balanced with Japan picking up stronglyand the euro area showing advance signs of steadier growth.Investment is gradually picking up helping to weather thecontinued headwinds from high oil prices. At the sametime, a number of challenges and risks remain. Theseinclude: current account imbalances between majoreconomies; the vulnerability in the oil market given limitedexcess production capacity, the conflict in the Middle-East,and with prices increasingly driven by supply side concerns;rising protectionist pressures and the risks associated witha disappointing outcome of the Doha Round; the possibleinflationary effects of rapid global growth and given theprospect of continuing upward movement in global interestrates; an abrupt tightening in financial market conditions;and a possible avian flu pandemic.

Against this background and recognizing the need toconsolidate efforts in order to achieve the goal of one APECcommunity, ABAC adopted the theme “Driving Forward aProsperous and Harmonized APEC Community”. The ABACtheme addresses the following key issues:

■ Advancing the Busan Roadmap to achieve the BogorGoals

■ Building prosperity together by strengtheningeconomic, financial and technical cooperation forshared development

■ Fostering a secure and favorable environment fortrade and investment

■ Promoting APEC linkages

■ Fostering closer APEC-ABAC relations

The ABAC 2006 Report to APEC Economic Leaders addresseseach of these issues and puts forward recommendations onissues of priority concern.

II. Advancing the Busan Roadmap to Achieve the BogorGoals

In 2005, APEC undertook a midterm stocktake of APEC’sprogress towards the achievement of the Bogor Goals. The

stocktake showed that while significant progress has beenmade in the three pillars of liberalization, facilitation andeconomic and technical cooperation, much more needs tobe done. APEC therefore adopted the Busan Roadmap toBogor which outlines key priorities to reshape APEC workso that it can better respond to the new businessenvironment and continue to drive free and open trade andinvestment in the region. ABAC urges APEC economies toimplement with vigor the Busan Roadmap to Bogor. Itsubmits the following recommendations with respect to thekey elements of the Roadmap.

A. Support for the Multilateral Trading System

ABAC is deeply disappointed at the suspension of the DohaDevelopment Agenda (DDA) negotiations. This Round, socritical to maintaining economic growth and promotingdevelopment, is now moribund with no clear prospects forresumption. Suspension of negotiations means that theRound will not be completed this year, and businesses andconsumers around the world will continue to be excludedfrom the benefits of expanded trade liberalization.

Failure to conclude the Round means that governments havemissed an historic opportunity to lower barriers to trade inagricultural products, improve non-agricultural market accessand trade in services. Successful conclusion of the DDAnegotiations would have provided a stimulus to worldeconomic growth and extended the benefits of a liberalizedtrading system to people in developing economies who standto gain the most from lowered barriers.

The current developments are not without precedent. Priorrounds have similarly hit what seemed to be insurmountableobstacles, but negotiators were able to overcome thesebarriers and ultimately steer the negotiations to a positiveoutcome. With the aim of reviving the DDA negotiations,ABAC urges APEC economies to reevaluate and enhance theiroffers, focus efforts in advancing negotiations in areas withthe most potential for tangible progress such as tradefacilitation. Further, it is critical that economies move in atimely manner while current offers are on the table. Likethe Rounds that have come before, the DDA is a once in ageneration opportunity to make progress on tradeliberalization and must end in a positive outcome for theworld trading community.

ABAC maintains its strong commitment to a robust andbalanced outcome. Multilateral trade negotiations havehistorically proved to be the most effective way to stimulate


Financial Services

Given the critical importance of services in contributing to overall economic efficiency and to sustainable growth,much greater importance should be attached to financial services sector liberalization both in the WTO and in APEC.ABAC has revised a checklist it developed last year for use in negotiations on financial services in the WTO. The listprovides a guide on how economies could judge the quality of offers by using the list as a benchmark; it should alsohelp encourage high quality offers by WTO members.

The revised list – Attachment 1 – clarifies the scope and the objectives of the original list, including importantlyin area of “national treatment”. ABAC will work with officials in promoting APEC’s influence in the WTO and inpromoting investment in APEC member economies. ABAC endorses efforts by WTO members in developing collectiveor “plurilateral” requests on financial and other services and commends this approach to APEC economies.A copy of the collective or plurilateral requests on financial services made by some WTO members is attached(Attachment 2).

Recommendation

■ Use the revised checklist as a benchmark to assess the quality of offers and as a means of encouraging higherquality offers, and promote “plurilateral” requests.

B. Promotion of High-Quality RTAs/FTAs

1. Development of Model Chapters and Catalog ofRTAs/FTAs in the APEC Region

The plethora of bilateral and regional trade agreementsin the APEC region, commonly referred to as thespaghetti bowl, presents businesses with additionalcosts and administrative burdens. To further explorethis issue, ABAC has undertaken a “Catalog of RTAs/FTAs in the APEC Region”. This resource will compile allregional trading arrangements (RTAs) and free trade

agreements (FTAs) in the 21 APEC economies and willserve as a useful tool for trade negotiators,businesspersons, and others to obtain a panoramic viewof trade agreements in the APEC region. The Catalogwill include model FTA provisions that the APECCommittee on Trade and Investment (CTI) is workingon and an across-the-board compilation of severalsectoral provisions of RTAs/FTAs. More importantly,the catalog will analyze the various RTAs/FTAs andprovide a matrix indicating whether the chapters ofthese agreements are WTO plus, WTO consistent or WTOinconsistent.

trade and thus world economic growth. The multilateralprocess is the most efficient and feasible avenue for reachingthe Bogor Goals. And while the world at large will benefit,a comprehensive and balanced outcome to this Round willbe especially helpful to millions of people in developingeconomies most in need of greater economic opportunity.

Through the APEC Geneva Caucus, APEC should identify areaswhere it can take a common position on World TradeOrganization (WTO) issues to catalyze the development ofconsensus among other WTO members and advance the

negotiation process; a specific example being the treatmentof electronically delivered goods and digital products.

ABAC calls on Leaders to support the accession of all APECeconomies to the WTO so that they may share the benefitsof multilateral trade liberalization and the rules-basedmultilateral trading system. Taking into account theanticipated gains for both the acceding economies andcurrent parties to the WTO, ABAC looks forward to thesuccessful outcome of accession negotiations for Vietnamand the Russian Federation and to working with them onappropriate capacity building measures.


ABAC commends APEC’s efforts to develop modelmeasures for common chapters in RTAs and FTAs. TheModel Measures for Trade Facilitation, endorsed byLeaders in 2005, provide a basis for negotiation anddevelopment of a high-quality trade facilitation chapter.Additionally, the Model Measures serve the dualfunctions of capacity building for economies withcomparatively less experience in negotiating FTAs andproviding a first step towards future efforts to createconvergence among agreements in the APEC region.ABAC applauds APEC’s continuing efforts to targetadditional RTA/FTA chapters for the development ofmodel measures and looks forward to actively providinginput into the process.

Recommendations

ABAC urges APEC to:

■ continue efforts to identify new RTA/FTA chaptersfor the development of model measures inconsultation with the private sector which wouldbest serve to enhance trade and investment in theregion; and

■ work in an interactive process in consultation withthe private sector and ensure that the views andpriorities of businesses in the region arerepresented in the model measures.

2. Feasibility Study on a Free Trade Area of the Asia-Pacific

In 2004, ABAC recommended that APEC undertake astudy on the feasibility of a Free Trade Area of theAsia-Pacific (FTAAP). ABAC members considered theFTAAP as an option to advance the trade liberalizationagenda within APEC and as a possible fallback planshould the Doha Development Agenda negotiations fail.It was also recognized as an alternative to the existingsituation characterized by the proliferation of bilateraland plurilateral preferential trade agreements.

This year, in partnership with the Pacific EconomicCooperation Council (PECC), ABAC undertook afeasibility study on the FTAAP, involving prominentscholars throughout the APEC community. This studyexamined both the political and economic variablesinvolved in negotiating an FTAAP.

ABAC is disappointed by the suspension of the DohaRound and the strong possibility of its failure. It isconcerned that there will be a further rush towardsmore bilateral agreements and regional FTAs. WhileRTAs/FTAs may enhance trade among its participants,they have the potential to create discrimination againstnon-participants and with their conflicting rules, mayraise transaction costs. To minimize such adverse effectsfrom occurring and to maximize the benefits from thesearrangements, ABAC urges APEC to promote theconvergence and consolidation of RTAs and FTAs in acomprehensive and WTO-plus manner.

ABAC believes that an FTAAP offers the highest degreeof achieving such convergence and consolidation.However, our study indicates practical difficulties innegotiating an FTAAP at this time. Nevertheless, ABACbelieves that it would now be timely for APEC toundertake a serious consideration of a more effectiveprocess than presently available for achieving its goalof free and open trade in the Asia-Pacific region, includingcombining existing FTAs which could create a roadmapfor advancing the FTAAP initiative. Such a process shouldbe evolutionary, its pace reflecting the changingdynamics of political and economic conditions in theregion and allowing like-minded economies to jointlytake the lead.

C. Implementing the Busan Business Agenda

As part of the Busan Roadmap to Bogor, APEC economiesagreed to implement the Busan Business Agenda – acomprehensive business facilitation program which aimsto improve the business environment and addressesbehind-the-border administrative burden andimpediments to trade and investment. ABAC urges APECeconomies to adopt the following recommendationswith respect to the Busan Business Agenda.

1. An Expanded Work Program on InvestmentLiberalization and Facilitation

Improving the environment for investment in the regionis a major business priority. Many impediments existwhich deter investment, both domestic and cross-border. In ABAC’s 2005 Report, it appended a checklist“Barriers and Impediments to Foreign Direct Investment(FDI) in Financial Sectors”. The list outlined ABAC’sviews on the optimal investment environment that


would encourage foreign investment flows into aneconomy; it incorporated suggested policy responsesto overcome barriers to investment. Given the primacyof this issue in promoting growth in the region, ABAChas reviewed the 2005 checklist to broaden itsapplication to all services and other sectors. The revisedlist is attached to this year’s report (Attachment 3).ABAC considers this could be a major contribution toboth supporting efforts in the WTO round to promotecross-border investment, particularly under Mode 3 ofservices, and in improving the environment for domesticinvestment in APEC economies. ABAC supports officialprocesses to reduce behind-the-border impediments toinvestment, to provide frameworks and tools to guidemember economies in the removal of investmentimpediments, including the Organization for EconomicCooperation and Development’s (OECD) PolicyFramework for Investment (PFI).

Recommendations

ABAC recommends that APEC economies:

■ use and promote the revised checklist on barriersand impediments to FDI in the WTO negotiations;and

■ endorse ABAC’s participation in officials’ processes,including the CTI and the Investment Experts’Group (IEG), and work with the OECD, in improvingthe region’s investment environment and inencouraging the adoption of the PFI in the region.

2. An Integrated Program of Structural Reform Issues

ABAC strongly endorses an integrated approach by APECto structural reform and notes that measures to encouragefinancial market liberalization complement structuralreform. Measures it recommends elsewhere in this reportto ameliorate the impact of adverse capital flows, onpolicies relating to health costs and pensions in ageingsocieties, on the promotion of regional bond markets,and measures to liberalize investment are interconnectedand will contribute to market openness, competitionand to the capacity of economies to withstand financialshocks. Greater commitment by economies is needed toimplement reform. Frankly, ABAC is disappointed thatinsufficient progress has been achieved by someeconomies in implementing earlier recommendations forthe development of regional capital markets and inaction

by economies and relevant international and regionalagencies to deal with the impact of adverse volatilecapital flows.

Recommendation


■ endorse ABAC’s involvement in promoting andsupporting structural reform and measures toimprove market openness, and intensify action todeepen regional capital markets through a regionalmechanism for the promotion of bond markets, inparticular corporate bonds, and the adoption ofgeneral principles that underpin bond markets, thepromotion of regional framework for informal work-outs of insolvency, and the adoption of measuresto improve data collection and dissemination oncapital flows, aimed at ameliorating the impact ofadverse volatile capital flows.

3. Private Sector Development / Ease of DoingBusiness

At the APEC Economic Leaders’ Meeting in Busan, Koreaon 18-19 November 2005, Canada and New Zealandannounced a joint initiative aimed at creating anenabling environment for private sector developmentwithin the APEC region. The Busan Declarationwelcomed this initiative.

An APEC Symposium on Private Sector Development(Ease of Doing Business) was held in Montreal,Canada in May to coincide with ABAC’s secondmeeting in 2006. ABAC members were activelyinvolved in the symposium and made significantcontributions, including delivering the results of aregional survey of business priorities with regard toregulatory reform.

Key themes to emerge from the Symposium of particularinterest to regional business – and especially to SMEs– included:

■ The identification of a strong link between thequality of an economy’s regulatory environmentand its economic performance;

■ The observation that the process of regulatoryreform within the APEC region has had mixed


results – and that, while APEC economies continueto improve their business environment, this hasbeen at a slower pace than other parts of the globaleconomy;

■ Priorities for reform and capacity building in theareas of regulatory burden, complex taxationregimes, difficulty in accessing finance and rigidlabor laws; and

■ That existing measurement tools – such as theWorld Bank’s private sector developmentmonitoring infrastructure – could be used to trackAPEC progress on regulatory reform.

Recommendations

ABAC calls upon APEC to:

■ improve the regulatory environment for businesswithin APEC, especially for SMEs which are mostaffected by the burden of regulation, and inparticular, study four priority areas in more detailin order to plan concrete activities with a definitetimeframe and tangible measurement;

■ further enhance APEC’s collective ease of doingbusiness performance through ongoing referenceto the World Bank study as a guide to help identifycommon characteristics in specific businessregulatory areas and define successful/bestpractice;

■ continue collaboration with ABAC and utilizeABAC’s checklist on “Barriers and Impediments toFDI” as one of the best tools to address suchchallenges; and

■ consider a follow-up APEC/ABAC session: “Ease ofDoing Business 2” be held in conjunction with theSecond ABAC Meeting of 2007.

III. Building Prosperity Together through Economic andTechnical Cooperation and Shared Development

ABAC highlights the crucial importance of economic andtechnical cooperation (ECOTECH) in achieving the BogorGoals and in ensuring that all economies share in thebenefits of trade and investment liberalization andfacilitation. ABAC believes that ECOTECH - the capacity

building agenda of APEC – should be viewed as completelycomplementary to APEC’s trade and investment liberalizationand facilitation (TILF) agenda. Indeed, if APEC is to achievethe Bogor Goals, greater attention and resources need tobe directed to ECOTECH priorities.

Through its Capacity Building Working Group, ABAC iscommitted to working closely with APEC to highlightECOTECH priorities from the business sector’s perspective.These include such areas as the need to strengthen standardsbodies; measures to improve access to financing, technology,and managerial expertise by SMEs; steps to strengthen theregion’s financial systems; and anti-corruption initiatives.ABAC is also undertaking work in the areas of avianinfluenza/health pandemic preparedness and emergencypreparedness.

A. Avian Influenza / Health Pandemic Preparedness

Although international cooperation by governments hasbeen extensive in responding to the spread of avianinfluenza, the response to this threat by the businesscommunity has not kept pace. While large multilateralcorporations may have continuity plans in place, manysmaller companies are not as well prepared, viewing avianinfluenza as a threat that is ultimately a public healthproblem.

ABAC believes that there is a critical need for moreinformation about avian influenza within the regionalbusiness community to help individual companies preparecontinuity plans for the possibility of a future healthpandemic. To help build awareness, ABAC has held twobusiness conferences this year – in Singapore in Januaryand Hong Kong in May – aimed at highlighting the need forbusiness preparedness and providing companies with theinformation needed to develop their preparedness plans.

A number of key themes have emerged at these businessconferences. First, public-private partnership is the key toensuring an effective response to a potential healthpandemic – whether related to communications, deliveryof essential services or development of vaccines andtreatments to battle the spread of the pandemic. Second,effective communication channels are critically importantin disseminating accurate information about avian influenza.In this regard, the media has a major responsibility both tosharing information and avoiding sensationalism and ‘scare-mongering’. Whether communicating with the public – orto employees, shareholders or customers – transparency is


the key to maintaining trust in the event of a pandemic.Finally, taking steps now to seek to prevent the spread ofavian influenza amongst bird populations is imperative toslowing the spread of the disease.

Recommendations

ABAC encourages APEC to:

■ review its programs and activities related to avianinfluenza and pandemic preparedness to identifyadditional areas where cooperation and collaborationbetween business and governments can be enhanced.This may include business input in the development ofkey protocols to ensure continuity of essential services;a private sector role in stronger regional surveillancesystems; and in the development of effectivecommunication strategies to educate citizens about avianinfluenza and how to assist in its prevention; and

■ specifically, review initiatives related to assisting SMEsin developing their business continuity plans byhighlighting some of the basic requirements and stepsthat small businesses can take to protect themselves.ABAC looks forward to working closely with the APECHealth Task Force in identifying further areas forcollaboration.

B. Emergency Preparedness

Whether related to health pandemics, natural disasters orterrorist threats, recent events of scale in the region havehighlighted weaknesses in critical infrastructure and theneed for further capacity building in emergency preparednessand disaster response protocols in the APEC region. Lastyear, ABAC made specific recommendations related to thedevelopment of an all hazards APEC regional responsenetwork. ABAC is pleased to note the steps that economieshave taken so far in this regard, however more workneeds to be done. ABAC is committed to working with APECin providing input from the business community in thedevelopment and implementation of a regional emergencyresponse system in 2007.

C. Strengthening Standards Organizations andRegulatory Dialogue

A key challenge related to capacity building in standards is toconvince all the stakeholders (i.e. governments, industry,consumers, and certifiers) that standardization is crucial to

the success of the economy and it is therefore in their interestto support it. Understanding and support for standards isnecessary in terms of funding allocations, commitment toparticipate in standards processes, and recognition andacknowledgement of the importance of international standards.

Strengthening standard-setting bodies and organizationsinvolves clarifying the objectives of these groups andengaging and raising awareness amongst stakeholders inboth the public and private sectors. Many APEC economieshave in place well-established and developed standardsbodies which, in turn, can be of assistance to thoseeconomies that are in the process of establishing orstrengthening their national standards organizations.

ABAC is committed to making capacity building in standardsa priority and is developing a two-year agenda aimed athighlighting the need for – and assisting in the realizationof – stronger standards bodies in the APEC region. Thisprogram will include: identifying those standards bodieswithin APEC that are in need of assistance andstrengthening; organizing a meeting of national standardsbody (NSB) heads in early 2007 to discuss opportunitiesfor cooperation; and a program of public awareness on theimportance of standards. Serious problems in market accessarise from the use of different standards and conformityassessment procedures among APEC economies. As acontribution to reducing technical barriers to trade, thereneeds to be more dialogue between standards settingregulatory authorities on a sector-by-sector basis. Priorityareas for standards cooperation identified by ABAC includesecurity standards, farm/food standards, and furtherstandardization of information technology (IT) andelectronic products. Efforts to strengthen national standardsbodies will be undertaken in concert with the promotion ofglobal/international standards efforts.

Recommendations

ABAC recommends that APEC:

■ work closely with ABAC in the development of anambitious program aimed at highlighting the need forcapacity building of standards organizations within theregion, identifying specific areas for cooperation, anddeveloping practical measures to build public awarenessof the critical contribution of standards to the economy.As a first step in this regard, ABAC will be facilitatinga meeting of the heads of NSBs in the APEC region inearly 2007, to which the APEC Sub-Committee on


Standards and Conformance (SCSC) Chair will be invitedto participate; and

■ develop a framework for regulatory dialogue on a sector-by-sector basis and ensure that relevant stakeholders,including the private sector, participate in standardsand conformance-related activities.

D. Supporting the Growth of SMEs

Micro-, small- and medium-enterprises (MSMEs) form thebackbone of the economy in all APEC economies, providingemployment and income to millions. For this reason,capacity building for SMEs must remain a priority if APEC isto effectively implement its TILF agenda. ABAC continuesto emphasize the importance of removing regulatoryobstacles to SME growth and improving access to financing,technology and information.

1. Improving SME Access to Financing

The quality of access to formal finance systems can be amajor impediment to the growth of SMEs, particularly insome emerging economies. The under-development ofcredit rating agencies is also a barrier to SME growth.Work undertaken by ABAC this year highlights obstaclesto SME access to finance, and policy recommendationswhich, if implemented, would promote the developmentof SMEs and the growth of regional credit rating agencies.The policies require a holistic approach by officialagencies, public and private financial institutions andindustry associations and regional groups, includinginternational financial institutions (IFIs).

Recommendations


■ ensure governance arrangements are in place toavoid resource misallocation occurring whentraditional fiscal incentives are used to promoteSMEs;

■ promote credit rating agencies and encourage thedevelopment of business associations and networklinkages between banks, SMEs and associations topromote information dissemination, and encouragebanks and financial institutions to develop policieswhich reflect the importance of SMEs in their clientbase; and

■ where guarantee schemes exist, encourage financialsector participation to support the commercialityof such schemes and for financial institutions todevelop credit evaluation capacities as they relateto SMEs.

2. Anti-Corruption and SMEs

While SMEs face many of the same corruption issuesthat larger companies do, they are disproportionatelyaffected by this problem because they do not have thetime, knowledge of government systems, connectionsor other resources to respond to bribery or other formsof coercion by corrupt officials. ABAC continues tohighlight the importance of anti-corruption measuresby both governments and businesses in the APEC region.

Recommendations

ABAC calls upon APEC to:

■ review opportunities for strengthening theparticipation of SMEs in future anti-corruption workwithin APEC;

■ improve transparency by taking specific steps toimprove access to information on individualmember economy’s laws and policies related to suchissues as business licensing and customsprocedures; and

■ focus greater efforts on capacity building andtraining in such areas as: awareness building forSMEs of their rights when confronted by corruption,alternative dispute resolution mechanisms that aremore accessible to SMEs, and capacity building forlocal government business licensing.

E. Strengthening Financial Systems

The Asian financial crisis demonstrated the need for robustand resilient financial systems in dealing with financialshocks, and supporting economic growth and development.Increasing imbalances in the major economies point to theprospect of future shocks to the region. More efforts areneeded in some economies to strengthen the regulatoryand supervisory frameworks and the International MonetaryFund (IMF)/World Bank Financial Sector AssessmentPrograms can be extremely useful in assessing an economy’sprudential strengths and weaknesses. Globalization of


financial markets requires more intensive cooperation amongthe financial supervisory authorities both within andbetween jurisdictions. Capacity building helps institutions,in both the public and private sectors, strengthen theirmanagerial and technical capacities to effectively undertakecritical finance functions, thereby buttressing economiesagainst shocks. The Advisory Group on APEC Financial SystemCapacity Building is helping strengthen the region’s financialsystems by supporting the implementation of Basel 2 inbanking, in improving risk management and governance,and in promoting capital markets, in particular bond markets,in the region through public-private capacity buildingpartnerships with IFIs and regional agencies, and inimproving the culture of credit rating agencies.

Recommendations

ABAC urges APEC to:

■ continue to give priority to strengthening their financialsystems. APEC economies most vulnerable to externalshocks which have not participated in an IMF/WorldBank Financial Sector Assessment Program, should doso as a matter of priority;

■ encourage greater official participation in capacitybuilding initiatives promoted through public/privatepartnerships by the Advisory Group on APEC FinancialSystem Capacity Building. Financial supervisoryauthorities in APEC economies should participate inand promote cooperative approaches to financial systemsupervision in their own jurisdictions and within andbeyond the region; and

■ encourage relevant financial institutions – especiallyin emerging economies – in the region, to be rated bycredit rating agencies in conformity with internationalpractices.

F. Strengthening APEC’s ECOTECH Agenda

ABAC acknowledges that the capacity building needs of theAPEC region are both daunting and diverse. APEC is in dangerof losing focus, with a wide range of priorities competingfor limited budgetary resources.

ABAC believes that the only realistic way for APEC to addressthe region’s ECOTECH needs is in close partnership andcooperation with the business sector and IFIs. In addition,non-profit organizations play an important role throughout

the region in delivering “grass roots” capacity building tomicro-enterprises, women and youth. Taking steps tostrengthen the capabilities of these organizations also needsto be a priority.

Recommendations


■ continue to review its ECOTECH activities to ensure thatthey complement the TILF agenda and contribute tothe achievement of the Bogor Goals;

■ wherever possible, focus on opportunities for public-private partnerships in the delivery of capacity buildingprograms;

■ leverage its limited resources through enhancedcooperation with development banks (IFIs), multilateralorganizations, and bilateral aid programs; and

■ strengthen the capacity of “grass roots” organizationsto deliver training and other capacity building activitiesas an APEC ECOTECH priority.

IV. Fostering a Secure and Favorable Environment forTrade and Investment

ABAC believes that securing trade is vital to continuedprosperity in the APEC region and the world. ABAC thereforeurges APEC to remain committed to securing trade flows ina way that is complementary to APEC’s goal of trade andinvestment liberalization and facilitation.

A. ABAC Support of the Implementation of the APECFramework of Standards to Secure and FacilitateGlobal Trade

In 2005, ABAC and the APEC economies endorsed theimplementation of the APEC Framework to Secure andFacilitate Global Trade. The APEC Sub-Committee onCustoms Procedures (SCCP) has adopted theimplementation of the APEC Framework as a newCollective Action Plan with the hope of improving supplychain security through expedited facil itation oflegitimate and low-risk cargo. ABAC called upon APECeconomies to move expeditiously in implementing theAPEC Framework and also encouraged APEC economiesto work closely with industry in this effort. In


implementing the APEC Framework, both trade andsecurity and smooth movement of containers and cargoshould be secured concordantly. It can be realized onlyby the establishment of globally harmonized operationin collaboration with the private sector.

In its 2005 Report to Leaders, ABAC called on all economiesto expeditiously submit letters of intent to implement theFramework. Since its adoption by the World CustomsOrganization (WCO), 16 APEC economies have submittedletters of intent.

Recommendations


■ that are members of the WCO expeditiously submitletters of intent to implement the Framework;

■ partner with industry to develop demonstrationprojects that showcase implementation of many ofthe APEC Framework requirements. Projects shouldprovide benefits to both traders (e.g., moreexpeditious clearance) and customs authorities (e.g.efficiencies obtained through implementation of

automated processes, human resource development).Lessons learned through the development ofdemonstration projects should be shared with othereconomies through existing networks such as theAPEC Sub-Committee on Customs Procedures. Thissharing of experiences and best practices will laythe foundation for mutual recognition agreementsrelated to the Framework;

■ establish a system to provide measurable benefits tosecure traders (e.g., reduced inspections, reducedcustoms clearance time) and a system for reporting onthese benefits to demonstrate the results afterimplementation of the APEC Framework relatedprograms; and

■ share and utilize all of the necessary manifest documentsamong shippers, importers and governments of bothorigin and destination, by way of the common format ofadvanced electronic cargo information. In this respect,traders and government will need to work together toassure that in such new systems, the integrity andsecurity of the data is assured and data is made availableonly to authorized parties for legitimate legal purposes.

Customs Modernization Project

The Socialist Republic of Vietnam and the United States, along with the National Center for APEC and several leadingU.S. companies firms will form a public/private partnership to implement a trade facilitation project that willmodernize Vietnam’s customs procedures and practices with a goal to facilitate and secure trade links betweenVietnam and its trading partners, and bring Vietnam Customs more closely into line with the standards laid out bythe World Customs Organization (WCO) and the APEC Customs Framework.

The centerpiece of the project is development and installation of an “e-Manifest” system. This system uses advancedelectronic information to identify high-risk shipments, which is a key component of the Customs–to-Customs Pillar ofthe WCO Framework of Standards to Secure and Facilitate Global Trade (WCO Framework). The e-manifest will enableVietnam Customs to provide timely clearance of express deliveries. While it will be demonstrated at two leadingairports, the system will eventually be extended to both airports and seaports. The Conference of Asia-Pacific AirExpress Carriers (CAPAEC) along with Unisys Corporation will jointly implement this project with Vietnam Customs byNovember 2006. This will provide a very visible deliverable for Vietnam prior to the annual APEC Economic Leaders’Meeting in Hanoi. It will also provide significant benefits to the private sector – Vietnamese and non-Vietnamese alike– as well as the Vietnam Customs in terms of a more secure and expedited clearance of express shipments.

Finally, the public-private partnership will lay the groundwork for a bonding system for customs shipments. This phasewill consist of a pilot bond program that will be limited to either the express shipment carriers, participants in anAuthorized Economic Operators (AEO) program, or some other small subset of importers. The public-private partnershipwill help Vietnam Customs establish the program, enroll trade participants, and measure its financial and operationalimpact. The program could generate rapid results for both the Government of Vietnam and the trading community.


B. Trade Facilitation

ABAC believes businesses, in particular SMEs, can greatlybenefit from trade facilitation agreements that enhancetransparency, simplicity, standardization, and theexpeditious movement of business people and goods acrossborders. ABAC further believes greater progress by APECofficials in this area will enable economies to achieve bordersecurity while at the same time advance commercial andtrade priorities.

ABAC is encouraged by the progress made thus far on tradefacilitation by all 21 APEC economies, leading the way forpositive contributions to WTO negotiations in this area.ABAC is particularly encouraged by APEC’s development ofModel Measures for Trade Facilitation.

As a core element of the APEC agenda, ABAC members willcontinue to support facilitation efforts through thedevelopment of public-private initiatives with specialattention to capacity building.

Recommendations


■ evaluate the results of the Trade Facilitation ActionPlan (TFAP) 2001-2006 using tangible measurementsto prove the achievement of the 5% transaction costreduction as a useful basis for TFAP 2006-2010. Inthis regard, a recent report by the Asia PacificFoundation of Canada suggests some useful tools inmeasuring such achievement1 ;

■ implement TFAP 2006-2010 based on the results andlessons learned from TFAP 2001-2006 to ensureconsistency and continuous improvement;

■ implement the following concrete trade facilitationmeasures:

❏ Single window electronic data interchange – it isnecessary to implement a paperless declarationprocess in a single window environment to reduceoperating costs and minimize clearance times. Thedata required should also be harmonized andstreamlined (perhaps using such models as the WCOCustoms data model).

❏ Expedited clearance – customs agencies shouldenable brokers and traders to pre-submit shipmentinformation before shipment arrival and issueshipment release when specific conditions are met.Most goods should be pre-cleared before arrivaland physical release should be separate from fiscalrelease.

❏ Risk management based inspections – to maximizeoperational efficiency and reduce resource usage,regulatory agencies should adopt appropriate riskmanagement based inspections.

❏ De Minimis Value Thresholds – customsadministration should institute de minimis valuethat will reduce all parties’ transaction costs. Thecost of collecting marginal duty and tax oftenoutweigh the revenue collected.

❏ Customs working hours – modern trade moves 24/7 around the globe, so customs clearance must beavailable at all times to facilitate trade and increaseeconomic efficiency.

C. Transparency

Transparency in government is essential to businesses aroundthe world. ABAC applauds the agreement by APEC Ministersand Leaders to reflect the Transparency Standards into theAPEC Individual Action Plan so that economies can reportprogress on implementation of the Standards. ABAC providedofficials with concrete examples of areas where economiescan improve the transparency of their governmental, legal,regulatory and administrative functions and is looking forwardto continuing to receive responses to the issues raised.

Recommendations

ABAC calls on all economies to:

■ step up efforts to implement the Transparency Standardsinto domestic laws, regulations, procedures andadministrative rulings of general application and provideclear plans for addressing impediments toimplementation;

■ use the APEC Geneva Caucus to transmit APEC’s workon Transparency Standards to the WTO and explore thepossibility of taking relevant initiatives in the WTO;

1 APEC’s Trade Facilitation Action Plan, Yuen Pau Woo, Asia Pacific Foundation of Canada, 2006 (www.asiapacific.ca)


■ include provisions to address transparency in RTAs andFTAs; and

■ continue to engage the private sector to identifyspecific areas of concern to businesses in the region.

D. Business Mobility and the APEC Business Travel Card

The APEC Business Travel Card is a successful businessfacilitation scheme in operation since 1999. There arecurrently 12,000 ABTC, issued across the region, with 17APEC economies participating.

The ultimate goal of the scheme is to facilitate the movementof bona fide business travelers within APEC economies. Itis essential that all 21 APEC economies are part of thescheme and a substantially higher number of cardholdersin order to achieve this goal.

As a means of ensuring the participation of the final fourAPEC economies in the ABTC scheme (i.e., USA, Canada, Mexicoand the Russian Federation), ABAC would encourage the APECBusiness Mobility Group to explore the concepts of a two-tiered system, whereby these economies could join the schemeby providing the sole benefit of fast-track entry/departure toABTC cardholders.

With a view to improving the implementation of the ABTCscheme, ABAC conducted a survey of cardholders this year.The objectives of the survey were to:

■ prioritize suggestions of ABAC for resource-efficientimprovement;

■ promote business mobility in the region with more user-friendly ABTC operation; and

■ further develop trade and investment activities in theregion.

ABAC is grateful that some of the issues highlighted in thesurvey have been tackled by recent developments, includingefforts to reduce the application processing time throughinterim card issuance, and improvements to the BusinessMobility Group website that allows tracking of theapplication process and provision of application formsonline.

Recommendations


■ strongly encourage the remaining four non-participatingeconomies to become full members of the Scheme, asthe ABTC facilitates both visa and border processing.In the interim, a two-tier system can be considered toassist in the transition for those economies whichcurrently cannot become full participants in the Scheme,whereby cards are issued that will only allow the useof the APEC lanes at ports of entry;

■ urge participating economies to promote the Schemeand make it more useful to participants by speedingup issuance of cards and providing more dedicated APEClanes; and

■ develop an APEC Business Travel Card Handbook thatincludes basic information such as immigrationprocedures, map of ports of entry, location of ABTClanes and a telephone directory. ABAC proposes thedistribution of the ABTC users’ handbook for cardholdersand all pertinent implementers of the scheme, includingcapacity-building activities for immigration officials,airlines, airport personnel, among others, to ensureappropriate and consistent application of the ABTCscheme in all 17 participating economies.

E. Business Labor Mobility

There is a growing concern about migration in manyeconomies around the region. ABAC supports businessmobility as a key element to business development, foreigninvestment and skills transfer. Recent studies offer evidencethat international migration provides many benefits for bothrecipient and origin economies. ABAC will further considerthe issue of business labor mobility in the APEC region.

V. Promoting APEC Linkages

ABAC highlights the importance of developing linkagesamong APEC economies in the following key areas: energy,intellectual property rights, technology infrastructure andenvironmental and life sciences innovation.


A. Implementation Agenda for Energy (IMAGEN)

In 2005, ABAC played a critical role in highlighting theimportance of addressing the energy imbalance in APEC.This year, APEC Leaders have the opportunity to demonstrateAPEC’s ability to deal effectively with this kind of region-wide issue by implementing several of the principles adoptedlast year before these issues escalate and become crises.

Last year, the Energy Ministers shifted their discussion to aconstructive menu of options for addressing both supply anddemand challenges facing the region. They directed theEnergy Working Group to: develop initiatives to supportdiversity in fuel supply, improve transport and vehicleefficiency, identify benchmarks to assess efficiencyimprovements, implement the Liquefied Natural Gas (LNG)Public Education and Communication Information SharingInitiative, increase cross-border energy trade, and encouragethe uptake of technologies for new and renewable energy.This was supported in the Leaders’ Statement in which theLeaders agreed to respond “urgently” to the current energysituation.

Recommendations

ABAC urges APEC economies to:

■ expand the LNG Public Education and CommunicationInformation Sharing Initiative to include LNG supplychain security from source to delivery;

■ promote international energy efficiency standards forindustrial and consumer products;

■ take measures to further increase energy supply byidentifying new areas for exploration and development,and diversifying energy services, including thepromotion of alternative and sustainable sources, incoordination with the reduction of demand;

■ encourage investment in energy infrastructure byworking to implement the principles adopted by theLeaders;

■ continue promoting transparency, rule of law, andmarket-based pricing, perhaps as element of regionalFTA work; and

■ endorse a set of ‘policy principles’ developed by theAPEC Energy Business Network designed to reduceregulatory and market uncertainty in the promotion ofinnovative energy technology and sound commercialinvestment decision.

B. Implementing APEC’s Intellectual Property RightsCommitments

In 2005, APEC Leaders in Busan committed to strengthenedintellectual property protection and enforcement, andadopted the APEC Anti-Counterfeiting and Anti-PiracyInitiative. ABAC applauds the public commitment madeto IPR protection principles, and notes that a clear workprogram arises from the Leaders’ commitments.

Despite the considerable progress that is being made, trafficin counterfeit products continues to grow faster than thetrade in legitimate products. ABAC notes as an example arecent annual global report by an international anti-counterfeiting organization which identified continuingchallenges globally in achieving IPR protection, including inAPEC economies.2 The continuing problems are mainly inthe areas of inadequate enforcement action by police andcustoms agencies. As ABAC celebrates its tenth anniversary,it notes that strengthening IPR protection has been arecurring recommendation from ABAC in each of its reportsto Leaders, and it urges all APEC governments – once again– to redouble their efforts to prevent and interdict theproduction and trade in counterfeit and pirated goods.

Recommendations


■ reinforce and comply with commitments made in the2005 APEC Anti-Counterfeiting and Anti-PiracyInitiative. In particular to:

❏ implement APEC model guidelines for economies’competent authorities to inspect, suspend, seize anddestroy counterfeit and pirated goods in each phaseof import, export and transshipment of these goods,recognizing existing constitutional requirements,

❏ identify customs and law enforcement contactsfrom each economy who would be an agency, or

2 International Anti-Counterfeiting Coalition, February, 2006 (www.iacc.org)


individual within an agency, with operationalauthority and expertise in investigating andprosecuting intellectual property offenses.

■ reaffirm their commitments to the Anti-Counterfeitingand Anti-Piracy Initiative and Three IPR Model Guidelinesagreed upon by Leaders in 2005, and commit to the twodeveloping guidelines on: IPR Public Awareness Campaignand Ways to Ensure that Supply Chains are Free ofCounterfeit and Pirated Goods, and for all APEC economiesto make increased efforts in preventing counterfeitingand pirated goods;

■ move to implement the 2005 Guidelines with input andsupport from the business community. ABAC notes thatthe guidelines represent good progress in gettingagreement on what needs to be done, but counterfeitingand piracy remain ongoing problems;

■ make the legitimate licensing of content and respectof copyright a requirement for the issuance of cablelicenses, and revoke licenses from cable operators thatbroadcast content without authorization from copyrightholders; and

■ promote the sharing of new technologies by reducingvarious kinds of barriers which are hindering capacitybuilding in the APEC region.

To strengthen interaction between business and government,ABAC wishes to continue its dialogue with the IntellectualProperty Rights Experts’ Group (IPEG) Chair in an on-goingexchange of information, such as providing a stocktake onwhat has been done with the earlier Effective Practices andBest Practices Survey on Optical Media Protection and othercommitments.

C. The Advancement of Technology Infrastructure inAPEC – Technology Choice, Broadband Access, and DataPrivacy

Twenty-first century economic growth and prosperity in theAPEC region will be fueled by technological innovation andaccess to information. For APEC economies to capture thisgrowth it will be critical to develop the appropriateregulatory and policy environment. This will be sustainedby a sound infrastructure that includes three integratedparts supported and recommended by ABAC. TechnologyChoice, Broadband Access, and Data Privacy will togetherdrive economic growth within APEC.

Recommendation


■ support the development of a tool kit of regulatoryand policy measures to promote innovation and captureinformation and communication technology (ICT)-enabled growth.

1. Moving Toward Universal Broadband Access

ABAC has long recognized that universal broadbandaccess in the region is a critical element to technologyinfrastructure that will lead to optimized growth andprosperity. APEC Ministers of Foreign Affairs and Tradeadopted key principles for broadband development inBusan, Korea in 2005, focusing on Market Access andUsage, Facilitation of Continued Competition andLiberalization, Fostering Enabling RegulatoryFrameworks, and Building Confidence in the Use ofBroadband Networks and Services.

Recommendations


■ actively pursue a target date of 2010 for universalbroadband access in the region having agreed toprinciples, and access to funding for capacitybuilding, recognizing that this target could presentdifficulties for some developing economies; and

■ support projects, such as publishing the keyprinciples for broadband development and the bestpractices where broadband has been established.

2. Data Privacy

In 2005, the drafting phase was completed in whichAPEC’s E-Commerce Steering Group (ECSG), worked closelywith the private sector and with ABAC’s encouragement,developed an APEC Framework on Data Privacy to addressthe complex issues raised by the movement ofinformation across borders.

Ministers endorsed the Data Privacy Framework and thecontinued work of ECSG on the implementation of theFramework.


Recommendations


■ promote continued work on implementationbetween ECSG and the business community in theAPEC region;

■ seek to identify uniform, streamlined and cost-effective methods of trans-border data flows; and

■ support efforts to have economies participate inpathfinder projects to framework implementation,as appropriate.

3. Technology Choice

In 2003, both the APEC Leaders’ Statement andMinisters’ Statement called for senior officials toundertake work on “technology choice” within theDigital Economy Pathfinder Initiative. Technologychoice is relevant in the context of standards, provisionof services, and procurement.

Recommendations


■ develop technology choice principles to beincorporated into the APEC Pathfinder DigitalEconomy Statement or adopted as a standalonePathfinder. General principles would include:

❏ on Standards, use of industry-led, voluntary,open, consensus-based, global standards thatrespect intellectual property;

❏ on Procurement, use of merit-based procurementpolicies where procurement specifications areperformance-based and do not mandate orextend preferences to specific technologies; andcommitment by member economies toimplement the 1999 APEC Non-Binding Principleson Government Procurement; and

❏ on Service Providers, promote freedom oftechnology choice for service providers andconsumers.

■ complete the Technology Choice initiative in 2006,or if necessary, adopt a standalone pathfinder

approach that will encourage economies that maynot yet be ready to agree to these principles tojoin at a later date.

D. Implement the Life Sciences Innovation StrategicPlan

At their meeting in Busan in November 2005, Ministersendorsed the recommendations of the third Life SciencesInnovation Forum (LSIF), held in September 2005 inGyeongju, Korea, including that implementation of the LSIFstrategic plan should initially concentrate on projects in fourpriority areas: research; harmonization of standards andregulatory procedures; access to capital; and health services.

Criteria for selecting these priorities included theirsignificance to emerging health and economic challengesin the region, including infectious disease, the rise in chronicdisease, and ageing demographics.

Recommendations


■ support LSIF projects underway in the research,harmonization and health services pillars of the LSIFstrategic plan implementation, including the biomarkerand cohort research projects, Certificate ofPharmaceutical Product (CPP), Quality by Design andanti-counterfeiting capacity building workshops;

■ urge interested APEC economies to engage in bilateralconsultations with the Chair of the LSIF Access toCapital Group with a view to examining the prospectsfor venture capital to support the development ofContract Research Organizations and other innovationinfrastructure in the region;

■ support LSIF interaction and collaboration with relatedgroups and initiatives, including the annual PacificHealth Summit; and

■ support an LSIF focus on measures and projects todevelop sustainable health systems to supportinnovation.

E. The Challenges in Creating “The Information SocietyVision 2010 in the APEC Region”

An information society has been defined as one in whichthe creation, distribution and manipulation of information


is becoming a significant and cultural activity. The APECTelecommunications and Information Working Group (TEL)is developing the core infrastructure to underpin the “AsiaPacific Information Society (APIS)”.

ABAC supports this concept and acknowledges it raisesserious policy issues that are also profound for regionalbusiness. They include concerns over privacy, intellectualproperty, cyber security and permanent non-imposition ofcustoms duties. The technology is evolving, and researchon concepts such as broadband and multi-platform access,and a universal communication identifier (UCI), is rapidand already well advanced.

ABAC has initiated a comprehensive Study of the Challengesin creating an information society for 2010 in the Asia-Pacific region (to be completed) that will focus ontechnology issues, legal and economic consequences,capacity building implications, and the desirable policyand regulatory framework for APEC member economies.Subsequently, ABAC intends to organize one or moresymposiums to evaluate the findings of the study, furtherexplore the medium-term technology outlook, itsintegration into society, definitions, legal and regulatorysettings, and other related issues.

Recommendation


■ ensure that relevant APEC officials (APEC TEL) liaisewith ABAC as the Information Society Vision 2010 studyproceeds.

F. Emerging New Technologies

ABAC wishes to draw APEC Leaders attention to the range,depth and sophistication of new IT-supported technologiesbeing “rolled out” in the region. The application of state-of-the-art research originating in APEC economies andmaking substantial use of innovative IT systems, has excitingpotential to drive economic progress, sustainabledevelopment, and improvements to human wellbeing.

A significant and growing volume of collaborative researcheffort is taking place among research institutions in APECeconomies. There is also an encouraging trend for thoseinstitutions to remain committed to cooperative effortbeyond the ‘pure’ stage into active marketing andimplementation of commercially-attractive technologies.

Much of this work is being done largely at the initiative ofthe institutions with minimal government involvement.

Recommendation


■ ensure there is full exposure and exploration of thescope this regional research activity holds, for capacitybuilding projects based on partnerships with economiesin a position to advise and assist.

VI. Fostering Closer APEC-ABAC Relations

Formalize Interaction and Dialogue with APECMinisters and Senior Officials

APEC is premised on the concept of consensus-building andvoluntary engagement. The APEC Business Advisory Councilwas born out of this attempt to fully engage the businesscommunity in developing a robust trade policy for the region.

In the context of the current global ecology, the relationshipbetween government and business has never been at a morecritical juncture. Economic growth depends on the energyand drive of business and commerce – and as stakeholdersin the global economy, there is a need for greater interactionbetween government and business to ensure a robust,business-friendly, and cohesive policy-making process thatwill further enhance trade and investment liberalizationand facilitation in the APEC region.

Recommendation


■ intensify interaction and dialogue between ABAC andAPEC Ministers and Senior Officials. Regular interactionbetween ABAC and SOM should be established throughthe presence of key Senior Officials during ABACmeetings and of ABAC representatives in SOM meetingsand relevant working groups. Both Senior Officials andABAC representatives should be invited to participatein deliberations in each other’s meetings on all agendaitems of relevance to them. In addition, ABAC and SOMshould formally meet once during the middle of theAPEC year to tackle specific priority issues.

ABAC is committed to full participation in the nextround of IAP Peer Reviews beginning 2007.


Attachments



Attachment 1

CHECKLIST

FINANCIAL SERVICES LIBERALIZATION:GOALS AND BEST PRACTICES

For use by economies in assessing and evaluating the quality of financial services offers in the Doha negotiations.

BANKING

GOALSThe offer should create new market-opening and investment opportunities.To what degree does it satisfy the following goals?

1) Improves upon 1997 commitments (where applicable)2) Creates new business opportunities through the lifting of restrictions3) Creates conditions that will attract new capital4) Addresses market access, national treatment and transparency of domestic regulation measures in a

comprehensive manner (as elaborated in the best practices which follow).

BEST PRACTICES

A high-quality offer in the banking sector should contain the elements enumerated below.

ESTABLISHMENT1) Permits investor to choose the form of establishment – whether as a branch, joint venture or wholly-owned

subsidiary – that makes the most business sense.2) Contains no “economic needs tests” or other geographic or product-specific restrictions.3) Grandfathers existing investments in operations and activities.

TEMPORARY ENTRY OF NATURAL PERSONSFacilitates the temporary entry of key financial services personnel required for managerial, technological,system or risk management purposes (add other categories as may be required by applicable investments).

NATIONAL TREATMENT1) Provides assured national treatment for asset management activities provided by financial services firms.2) Avoids discriminatory treatment between international firms doing business in a member economy and

domestic companies.3) Should treat locally established affiliates of foreign banks on the same basis as domestic companies for

regulatory and other purposes. Where differences in such treatment exist, they should not create conditionsof competition more favorable to domestic service or service suppliers than for like service or servicesuppliers of other WTO Members.

4) Where commitments are below the level of access to the market provided under domestic law, the offershould not limit or restrict the present degree of market opportunities or the benefits already enjoyed byany financial service supplier or any other member in the market, whether cross-border or through acommercial presence, but nor should this preclude those benefits being available to all other members.

5) Non-discriminatory treatment against a foreign service provider introducing new products or services.


EXAMPLES

Attachment 1

a) Publication in national gazette.b) Standard procedures for submitting public

comments.

Clearly defines a standard “reasonable amount of time”.

E-government procedures.

a) Creates an enquiry point for licensing and applicationmatters.

b) E-government procedures.c) Employees are evaluated on accountability to the

public.Justifications are provided in writing and within afixed timeframe, known to all.

a) Spells out appeals process, sequence and timeframes.b) E-government procedures.

a) E-government procedures.b) Regular interchanges between regulatory and

supervisory bodies and private sector throughpublic forums or other mechanism.

ADDITIONAL COMMITMENTS

TRANSPARENCY

1) Commits to improved transparency overall.2) Spells out procedures for providing interested

parties with notice of proposed rulemaking andopportunities for comment on proposed newrules.

3) Gives interested parties a reasonable amount oftime to comment on, understand and take stepsto comply before new or revised regulations takeeffect.

4) Commits to current and proposed regulationsbeing easily accessible in writing and on theInternet.

5) Commits to a clear and accessible licensingprocess, including creation of a system foranswering inquiries about regulatoryrequirements, interpretation, exceptions that areeasily accessible and responsive to the public.

6) Commits to providing justifications for denials oflicenses or applications based strictly on factorsexplicitly identified in the pertinent regulations.

7) Commits to the making of prompt licensingdecisions and provides a timely,nondiscriminatory appeals process available forapplicants whose applications are denied.

8) Commits to provide clear and reliable informationabout an economy’s financial services laws andpractices.


Attachment 1

INSURANCE

GOALSThe offer should create new market-opening and investment opportunities.To what degree does it satisfy the following goals?



BEST PRACTICESA high-quality offer in the insurance sector should contain the elements enumerated below.MARKET ACCESS

1) Contains no “economic needs tests” or other geographic or product-specific restrictions.2) Grandfathers existing investments in operations and activities.

Reinsurance: marine and transportation insurance allowed cross border (Mode 1).

Reinsurance: Access to marine and transportation insurance and intermediation on cross border basis (Mode 1 foreach).

Life and non-life reinsurance:

a) Elimination of mandatory cessionsb) Elimination of restrictions for cessions to foreign reinsurance companiesc) Elimination of right-of-first refusal privilegesd) Elimination of discriminatory collateralization and localization of assetse) Abolition of reinsurance monopoliesf) Guarantee of freedom of form for reinsurance contracts

ESTABLISHMENT1) Permits investor to choose the form of establishment – whether as a branch, joint venture or wholly-owned

subsidiary – that makes the most business sense.2) Provides full regard for relationship between parent and subsidiary.3) Allows use of home company name in host economy.4) Does not permit denial of form of establishment on the basis of the legal entity in the home market.5) Permits freedom to determine percentage of foreign equity shares in joint ventures.6) Provides for staged elimination of foreign equity limitations (if any) with minimum 51% ownership during

staging period.

Compulsory lines: Fully bound by national treatment and market access, as defined by GATS

Monopolies: Best endeavors to eliminate insurance monopolies and exclusive services providers

TEMPORARY ENTRY OF NATURAL PERSONS1) Avoids nationality / residence requirements irrespective of nationality2) Provides freedom to foreign insurance company to select its own representatives in host economy3) Provides for temporary visa or work permits for short periods of stay

NATIONAL TREATMENT1) Provides the ability to compete for insurance coverage otherwise provided by state-owned or state

affiliated enterprises.


2) Provides full national treatment with respect to capital, solvency, subject to prudential carve out (mustexplain reasons for less favorable treatment under prudential carve out)

3) Insurance mediation: monetary transfer obligations limited to what is necessary to assume legalresponsibilities in host economies.

4) Avoids discriminatory treatment between international firms doing business in a member economy anddomestic companies.



TRANSPARENCY1) Regulations to be made publicly available2) Prior comment on new and revised regulations3) Reasonable time interval prior to new regulations entering into force4) Written explanations provided for rejected or accepting proposals5) Written statement to insurance applicant outlining necessary documentation6) Ability to provide information to the public on creditworthiness of a company7) No restrictions on availability of financial services information to insurance suppliers8) Availability of rules and procedures with respect to identification of financially troubled institutions9) New tax measures affecting insurance enter into force only after their notification to the WTO on a semi-

annual basis

SOLVENCY AND PRUDENTIAL FOCUS1) New products, rates and services for other than personal or compulsory lines not subject to file and

approval requirements2) Regulations aimed at allowing the market to determine which products and rates are to be applied3) Written explanation required of products that require file and approval procedures4) “Deemer” method for use in file and approval procedures5) No limits on the number or frequency of new products by an insurance supplier6) No restriction on dividend payments, provided that solvency provisions are met7) Encouragement of use of international “best practices” standards in accounting and auditing activities

INSURANCE MONOPOLIES1) Monopolies generally prohibited from offering products outside monopoly designations, with provision

that they not abuse monopoly position where authorized2) Insurance suppliers with monopoly rights will keep separate accounts regarding monopoly and non-

monopoly activities

INSURANCE REGULATORMust be an independent government entity.

PENSIONS1) When private pensions are allowed, provide immediate obligations for full market access/national

treatment to those providing private pensions in the market2) Private pension fund managers designated to manage public or private pensions in host economy3) Freedom to select form of commercial presence4) Ability to offer range of product / investment options.

Attachment 1


ASSET MANAGEMENT

GOALS

The offer should create new market-opening and investment opportunities.To what degree does it satisfy the following goals?



BEST PRACTICES

A high-quality offer in the ASSET MANAGEMENT sector should contain the elements enumerated below.

ESTABLISHMENT1) Removes barriers to establishment by foreign investors in the financial sector and allows wholly-owned

subsidiaries.2) Allows establishment in the form of branches or other forms of presence.3) Commits to permitting locally established affiliates of foreign asset management firms to use the services of

affiliates outside the host economy to provide asset management services to domestic clients in the hosteconomy.

4) Commits to removing prohibitions on foreign firms from managing pension assets, including public assets,on the same basis as domestic firms.

5) Contains no “economic needs tests” or other geographic or product-specific restrictions.6) Commits to grandfather existing investments in operations and activities.7) Ensures market access for the full range of asset management services, including cash or portfolio

management, all forms of collective investment management, pension fund management, and custodial,depository and trust services and auxiliary services, including credit references and analysis, investmentportfolio research and advice on acquisitions and on corporate restructuring and strategy.

8) Permits the dissemination and processing of financial information necessary to provide clients with necessaryservices.

9) Commits to support the provision and transfer of financial information, financial data processing, and theprovision of advisory and software related services.

CROSS BORDER

1) Permits foreign asset management firms to provide services on a cross border (Mode 1) basis2) Commits to support financial services provided cross border without requirement of local establishment

(Mode 3) and also permits by consumption abroad (Mode 2)

TEMPORARY ENTRY OF NATURAL PERSONS1) Facilitates the temporary entry of key financial services personnel required for managerial, technological,

system or risk management purposes (add other categories as may be required by applicable investments).2) Removes requirements for a minimum number of senior or key personnel to be resident or located in the

economy.

NATIONAL TREATMENT1) Provides assured national treatment for the full range of asset management activities provided by financial

services firms.2) Locally established affiliates of foreign asset management firms should have the same access to domestic

and international markets as domestic companies.3) Locally established affiliates of foreign asset management firms should be treated for regulatory and other

purposes on the same basis as domestic companies. Where differences in such treatment exist, they should

Attachment 1


not create conditions of competition more favorable to domestic service or service suppliers than for likeservice or service suppliers of other WTO Members.

4) Avoids discriminatory treatment between international firms doing business in a member economy anddomestic companies.



a) Publication in national gazette.b) Standard procedures for submitting public comments.

Clearly defines a standard “reasonable amount of time”.

E-government procedures.

a) Creates an enquiry point for licensing and applicationmatters.

b) E-government procedures.c) Employees are evaluated on accountability to the

public.

Justifications are provided in writing and within afixed timeframe, known to all.

a) Spells out appeals process, sequence andtimeframes.

b) E-government procedures.

a) E-government procedures.b) Regular interchanges between regulatory and

supervisory bodies and private sector through publicforums or other mechanism.

EXAMPLES

ADDITIONAL COMMITMENTS

TRANSPARENCY

1) Commits to improved transparency overall.2) Spells out procedures for providing interested

parties with notice of proposed rulemaking andopportunities for comment on proposed newrules.

3) Gives interested parties a reasonable amountof time to comment on, understand and takesteps to comply before new or revisedregulations take effect.

4) Commits to current and proposed regulationsbeing easily accessible in writing and on theInternet.

5) Commits to a clear and accessible licensingprocess, including creation of a system foranswering inquiries about regulatoryrequirements, interpretation, exceptions thatare easily accessible and responsive to thepublic.

6) Commits to providing justifications for denialsof licenses or applications based strictly onfactors explicitly identified in the pertinentregulations.

7) Commits to the making of prompt licensingdecisions and provides a timely, non-discriminatory appeals process available forapplicants whose applications are denied.

8) Commits to provide clear and reliableinformation about an economy’s financialservices laws and practices.

Attachment 1


Attachment 2

Collective Request:

The GATS provides a framework under which economies canundertake financial services liberalization while enablingregulators to protect the stability and integrity of thefinancial system. Improved GATS commitments shouldinclude and build upon existing financial servicesliberalization as appropriate.

The following objectives should help WTO Members considerthe scheduling of meaningful GATS commitments:

■ Definitions: Use the agreed definitions in the GATSAnnex on Financial Services for scheduling commitments(see attachment).

■ Mode 1: undertake commitments for marine, aviationand transport insurance; reinsurance; insuranceintermediation, insurance auxiliary services; financialadvisory services and financial information and dataprocessing services.

■ Mode 2: undertake commitments for marine, aviationand transport insurance; reinsurance; insuranceintermediation, insurance auxiliary services; and allnon-insurance financial services (subsectorsv-xvi).

■ Modes 1 and 2: there can be advantages of additionalliberalization, especially where the consuming agentis sophisticated, for example, an institutional consumerof securities services.

■ Mode 3: for all financial services sectors, undertakecommitments encompassing rights to establish new andacquire existing companies, in the form of wholly-ownedsubsidiaries, joint ventures and branches.

■ Modes 1, 2 and 3: remove discrimination betweendomestic and foreign suppliers regarding applicationof laws and regulations (‘national treatment”).

■ Modes 1, 2 and 3: remove limitations such asmonopolies, numerical quotas or economic needs testsand mandatory cessions.

Financial Services Collective Request

■ Transparency in development and application of lawsand regulations, transparent and speedy licensingprocedures, and other regulatory issues should beaddressed in the negotiations.

Attachment: Definitions:

Insurance and insurance-related services

(i) Direct insurance (including co-insurance):(A) life(B) non-life

(ii) Reinsurance and retrocession;(iii) Insurance intermediation, such as brokerage and

agency;(iv) Services auxiliary to insurance, such as

consultancy, actuarial, risk assessment and claimsettlement services.

Banking and other financial services (excluding insurance)

(v) Acceptance of deposits and other repayablefunds from the public;

(vi) Lending of all types, including consumer credit,mortgage credit, factoring and financing ofcommercial transaction;

(vii) Financial leasing;(viii) All payment and money transmission services,

including credit, charge and debit cards, travelerscheques and bankers drafts;

(ix) Guarantees and commitments;(x) Trading for own account or for account of

customers, whether on an exchange, in an over-the-counter market or otherwise, the following:(A) money market instruments (including

cheques, bills, certificates of deposits);(B) foreign exchange;(C) derivative products including, but not

limited to, futures and options;(D) exchange rate and interest rate

instruments, including products such asswaps, forward rate agreements;

(E) transferable securities;(F) other negotiable instruments and

financial assets, including bullion.


(xi) Participation in issues of all kinds of securities,including underwriting and placement as agent(whether publicly or privately) and provision ofservices related to such issues;

(xii) Money broking;(xiii) Asset management, such as cash or portfolio

management, all forms of collective investmentmanagement, pension fund management,custodial, depository and trust services;

(xiv) Settlement and clearing services for financialassets, including securities, derivative products,and other negotiable instruments;

(xv) Provision and transfer of financial information,and financial data processing and relatedsoftware by suppliers of other financial services;

(xvi) Advisory, intermediation and other auxiliaryfinancial services on all the activities listed insubparagraphs (v) through (xv), including creditreference and analysis, investment and portfolioresearch and advice, advice on acquisitions andon corporate restructuring and strategy.

Attachment 2


Attachment 3

The World Bank and others, including private sector groups,have provided advice on the optimal investmentenvironment. The following guiding principles seem to beused by many multinational corporations to evaluate directinvestment opportunities. These are divided into two maingroups: (1) The basic requirements, meaning those that apotential investor will want to see met before going anyfurther; and (2) Specific requirements, those that inhibitthe willingness of an investor to seriously consider aninvestment or inhibit the ability of the investor to operateefficiently and effectively in a market. The over-archingmessage is that governments must take steps towards greaterfinancial sector openness and address specific impedimentsin conjunction with broader structural reform policies inorder for both entities, the investor and the host economy,to fully realize the benefits of FDI.

1. Basic Requirements

■ Stable and sensible economic policies. Businessneeds confidence that the host economy will bemanaged in a competent and predictable way and thatthe rules of the game will not change mid-way through.

■ Low political risk. Capital tends to flow towardenvironments with low political risk. An investor’sability to rely upon the integrity of the hostgovernment, and its ability to maintain local law andorder, are both essential to any long-term investment.

■ A well educated labor force and availability ofnecessary inputs to an operation, including accessto technology. While the investor brings capital, oftennew technologies and management to the table, thequality of the local work force, and the availability ofin-country materials are also important for success. Asbusiness operations, financial systems and commercebecome increasingly IT-enabled, access tocommunications infrastructure and the Internet becomecritical.

■ The size, value and potential for growth of the hosteconomy’s domestic market, especially the purchasingpower of its consumers. Companies will not invest inareas where there is little potential to make a profit.Note: some markets are small but attractive becausethey are high value.

Barriers and Impediments to Foreign Direct Investment (FDI):Checklist and Recommended Policy Response

■ Reliable infrastructure. The ability to completetransactions, get products and services to market,resolve disputes, and enter into contracts depends uponthe presence of reliable telecommunications services,transportation services, power generation, officesupport services, a competent financial system, legaland judicial services, and other basics. Investmentscannot yield reliable returns without them.

■ A stable currency, especially protection fromcurrency devaluation or manipulation. Investmentsare often made in a foreign currency, usually dollars oryen, but the local products are sold in the local currency.While businesses recognize they need to adopt goodmechanisms and management regimes to hedge againstcurrency fluctuations, businesses are wary of economieswith a history of currency devaluations and artificialcurrency manipulations. For example, they will beunwilling to make an investment in dollars if theysuspect that local assets (valued in the local currency)will be devalued, and they will lose part (or possiblyall) of the original dollar-based investment.

■ Stable and well-functioning market system. Privateproperty and the freedom to make contracts areessential components as are financial disclosures basedon sensible accounting practices. Investors andcreditors are rewarded for their good decisions and notshielded by government from the consequences of baddecisions.

■ Ongoing program of regulatory reform and efficiency.Increased regulatory uniformity among economiesshould lower regulatory costs for market participantsand the governments.

2. Specific Requirements

■ Market access and non-discrimination. Investors willgauge the degree to which foreign governments willinterfere with the company’s ability to enter the marketand compete fairly with domestic or other foreignproviders. In some cases joint ventures are a conditionof market entry. These can increase the risk to theinvestor if the regulatory framework is not transparent,is discriminatory and the local partner is not wellestablished. The freer the market, the more attractiveit becomes as an investment opportunity.


■ Sensible capital requirements and the ability tomanage assets. Investors will look favorably oneconomies that adhere to international best practicesfor paid up capital and capital reserve requirements,and where foreign and local investors are treated inthe same way. They also look favorably on markets wherethey have the ability to manage assets on a globalbasis (for example, in the ability to invest funds wherethe return is likely to be greatest, rather than beingforced to invest all funds domestically).

■ Policies that encourage the development of strongand stable capital markets. Investors need to be ableto borrow and invest locally as they wish withcompetitive sources of capital.

■ Provision for the remittance of dividends, interest,and royalties. Investors are reluctant to placesignificant investments in economies that do not allowthe repatriation of profits.

■ Property rights and the protection against the unfairseizure of or nationalization of assets. Investors willnot put their resources into economies that confiscatethem. The importance of government protection ofproperty and asset rights cannot be overstated.Property, includes real assets as well as intangible assetslike patents and copyrights.

■ A good corporate governance ethic, supported bythe host economy to ensure that the owners of acompany and all its stakeholders get their fair share.

■ Potential for the provision of goods and servicesbeyond the geographic area of establishment. Abusiness will not necessarily locate in a particulareconomy or geographic region of a particular economysolely to operate there. Companies value the ability tosource from an operating unit in one market to servenearby external markets, or geographic regions in aneconomy. Often companies may decide to invest in an

Attachment 3

economy for the sole purpose of exporting the productsof that investment to neighbouring economies. Theextent to which barriers to trade in neighbouringeconomies can determine where the investment isplaced, for example, where an economy is a participantin a bilateral or regional free trade or other preferentialagreement, rules of origin within that agreement andlocal/regional content issues become important.

■ A consistent and transparent standards regime in linewith international best practices. This is especiallyimportant in the agriculture, food and goods sectors.For example, adherence to Codex, WTO Technical Barriersto Trade and Sanitary and Phytosanitary Agreementsand the ability of an economy to regulate the productsof such investment to world-class standards will beimportant determinants of investment.

■ A transparent and open legal and regulatory regimeand good regulatory supervision. Companies seekmarkets with fair and consistently enforced businesslaws, sensible and well-designed regulatory regimes,which do not impose undue burdens and impede theability of the company to grow and create moreopportunities. At the same time, they want to be surethat their investment is subject to sensible andpredictable regulatory supervision consistent withinternational best practices.

■ Favorable taxation and tax incentives. While taxincentives geared to attract initial investments areimportant, governments have to think long term. Thefinal investment decision is usually based on how aneconomy’s taxation will affect the normal operatingenvironment.

■ Temporary entry of natural persons. Companies wantto have the ability to move in professionals from otherareas or regions on a temporary basis as needed.


Attachment 3

Barrier/Impediment Issues/Concerns Recommended Policy Response

Checklist of Barriers and Impediments to FDI in the Financial Services Sectorsand in other sectors and Recommended Policy Response

Restrictive conditions of marketentry and operation:

- inhibits the willingness orability of investors to bring infull range of capital, skills andtechnology and theefficiencies of managementand new product lines

- increases risk to potentialinvestor

- benefits of new capital, skills,technology and products onlyavailable to a portion of themarket where establishmentor trade is restricted tocertain geographic regions

- SMEs in restricted regionsunable to profit fromcompetitive benefit of newservices

- Incentive reduced for hostgovernment to upgradeprudential standards tointernationally acceptedrequirements (foreigninvestors generally subject tohigh standards of prudentialsupervision in their homeeconomy)

- foreign equity caps- joint venture requirements

including ownership andcontrol issues

- limits on range of products- limits on ability to operate in

an integrated national orregional market

- onerous capital requirements

- phase out foreign equity caps- phase out joint venture

requirements as condition ofmarket access

- remove limits on range ofproducts offered (subject toappropriate supervisorymechanisms)

- permit comprehensive marketaccess in all regions of aneconomy

- ensure that bilateral and/orregional trade or preferentialagreements do notdiscriminate against productsof foreign investment

- consider export controlpractices that do notconform to internationalnorms

- consider external barriersthat may be a disincentive toinvestment

- permit foreign majorityownership

- establish a strong regulatorysystem (thereby makingestablishment and operatingrestrictions unnecessary)

Strengthen Local Industry- support and encourage

capacity building inregulatory supervision

- encourage local providers toparticipate in Basel 2capacity building workshops(capital adequacy, riskassessment and management,operational risk and financialdisclosure); and otherfinancial sector capacitybuilding programs such asthose promoted by the IAIS,World Bank, ADB, IMF, PECCand APEC.


Attachment 3

Lack of National Treatment andMFN

- reduces competitivenessand discourages growth andefficiency of local providers

- local providers less resilientto shocks

- increase risk by over-reliance on a few foreignservice providers

- discrimination between localand foreign providers,including differing capitalrequirements

- differential requirements on3rd country providers

- discriminatory tax- equal treatment for foreign

and local providers

- improve operational riskmanagement in thefinancial services sector andin other sectors throughcapacity building (e.g.Basel 2)

- remove discriminationbetween foreign goods andservice providers in terms ofmarket access andoperations

Restrictions on AssetManagement

- inability to get best returnon investment

- increases risk- inability to match liabilities

with assets

- restrictions on financial serviceproviders; banks, insurers, assetmanagers

- restrictions on assets forinvestment

- restrictions on personnel

- allow cross borderinvestment

- allow fund managementfrom overseas

- provide for commercialpresence of overseas servicesuppliers

Lack of transparency,predictability and openness inlegal and regulatory regimes

- increases risk to investorand consumer

- encourages discriminatorybusiness practices

- increases risk of corruption- promotes market

inefficiencies

- procedures for right of redressand/or appeal

- license application and awardprocedures

- inconsistent anddiscriminatory treatment ofbusiness entities

- clear, published processesfor legal and regulatorydecisions and right of appeal

- clear published process forregulatory policy formulationand stakeholder consultation

Weak regulatory and legalinfrastructure

- inhibits smooth functioningof the market

- encourages monopolisticand cartel practices

- inhibits ability to enterinto contracts

- increases risk and costs toinvestor and host economy

- poor prudential supervision- enforcement of binding

contracts- lack of expertise- inadequate solvency and

creditor rights- inadequate standards- framework and regulatory

processes- weak property protection

rights and enforcement

- capacity building ininternationally recognizedbest practices for financialsector regulation

- strengthened economic andlegal infrastructure,including bankruptcy lawsand regulations

- capacity building to bringstandards and regulatoryprocesses up tointernationally acceptednorms and best practices



Attachment 3

Capital controls- potential to increase cost of

capital to investor andconsumer

- inhibits ability of investorto source and place capitalappropriately and efficiently

- difficulty in hedging risk- inhibits willingness of

investor to participate inthe market

- future exchange ratevulnerabilities without clearexit strategy

- repatriation of profits,dividends, remittances

- inability to source capital andplace investments on a globalbasis

- phase out capital controls- strengthen capital markets

infrastructure- regulatory reform- phase in flexible exchange

rate arrangements

Weak governance- increases threat of

corruption- reduces market efficiency- promotes monopolistic

practices- threat of market failures- corruption

- lack of accountability- unpredictable market

situation- lack of competition

- strong corporate and publicsector governance ethic

- capacity building measuresto promote understandingand awareness of goodgovernance

- competition policy and laws

Poor property rights protection- inhibits ability of investor

to offer innovative productlines

- inhibits willingness to fullyparticipate in the markets

- asset seizure, includingnationalization

- patent, copy right andtrademark protection

- adequate laws and rights ofredress

- eliminate ability tonationalize assets

- enforcement of propertylaws

Restrictions on the Movement ofNatural Persons

- reduced ability to shareexpertise, technology andskills

- increases operationalinefficiencies

- inhibits ability to offer andservice innovative productlines on time

- delays in processingtemporary visa applications

- limited adjudication ability- lack of clear criteria and

procedures

- facilitate business travel andintra-company transfers

- expedite visa processing forprofessionals


Documents

Executive Summary · in the Busan Declaration of innovation and sharing of advanced technologies. ABAC endorsed information and communication technology (ICT)-enabled growth activity