APEC tackles "next generation" trade issues
We need to understand what these issues are, but really our goal is addressing them…
To better understand “next generation” trade and investment issues, former World Trade Organization director-general Michael Moore tells a relevant story about yoghurt.
A Singaporean businessperson wants to make and sell yoghurt throughout the Asia-Pacific region, Ambassador Moore explains. Singapore doesn’t have many cows, so his company imports milk powder from the United States and New Zealand. Sugar comes from Australia and Mexico and the fruit from Japan and Thailand, and in the offseason Peru and Chile. Packaging is imported from Malaysia and Indonesia.
“Immediately the company has a potential rules of origin dilemma. While labour costs (in Singapore) would represent some value, you’d better hope the value of the yoghurt meets the local content threshold required by its export markets,” says Ambassador Moore.
Labelling will also be a problem. “Chances are, there’s more than 15 labelling standards across the various APEC markets, each requiring a different label to be printed and attached.”
“And then of course there will be different customs forms for most markets, not to mention different food standards, which may actually require separate production runs.”
Shipment of the yoghurt should be seamless from Singapore’s efficient ports. “But arbitrary interpretation of customs procedures” could see the product held up at the importing economy’s border, meaning it never gets to a retailer.
Supply chain and investment rules present other problems. Unreliable supply chains could see the product spoiled before it reaches the retailer. An exporter could address this by investing in the supply chain or in the relevant export market. But restrictive investment rules could prevent this, or the rules could limit their ability to manage the investment. “Often companies just won’t take this risk.”
The list of possible hurdles for the businessperson continues all the way to the supermarket shelf.
“That example shows why addressing these “behind-the-border” barriers is not simple. Neither are the barriers insignificant,” Moore, now New Zealand’s Ambassador to the United States, says. “Our private sectors have been telling us for years that they’re (barriers) a drag on profitability. They impose heavy compliance costs. They impede more efficient methods of production, and thus limit movement of goods and services across the APEC region.”
“They impose increased costs on consumers, ultimately limiting wages and stifling job creation.”
Ambassador Moore was speaking at a recent dialogue in Washington, D.C., organised by APEC’s Committee on Trade and Investment (CTI) to better understand the type of “next generation” trade and investment issues that businesses face when trading across borders. At their annual meeting in Yokohama last year, Leaders tasked APEC with defining, shaping and addressing such issues that a future Free Trade Area of the Asia-Pacific should contain.
As traditional trade tariffs have been reduced over the years, thanks in part to APEC’s work on trade and investment liberalisation, these “across-the-border” and “behind-the-border” challenges have become increasingly prominent. And advances in communications, transport and supply chains in an increasingly globalised world mean the challenges have become more acute.
“We need to understand what these issues are, but really our goal is addressing them, to do what Leaders directed - to define, shape and address them,” Arrow Augerot, Deputy Assistant US Trade Representative for APEC Affairs, told the March dialogue.
Ms Augerot says the issues can broadly be placed into two baskets: those that are traditional but that should be addressed in new ways given the changes to the global trading environment and; issues that either did not exist or were not considered as traditional trade issues 15 years ago, but now seriously impact on companies’ ability to do business. These include issues such as innovation, data privacy and cyber-security policy that impact on trade in technology, and the ability to provide services with new business models – such as cloud computing.
One of APEC’s goals for this year is to launch a new agenda to address many of these issues, including those relating to supply chain connectivity, innovation policy and SMEs. And APEC’s unique structure of a mix of developing and industrialised economies means it will continue its tradition of economic and technical cooperation and capacity building to help developing economies in particular address them.
“The reality is, APEC is well placed to provide solutions for all the ‘behind-the-border’ barriers which I’ve talked about,” Ambassador Moore says.
Shiumei Lin, director of public affairs at transport giant UPS, applauds APEC’s work on improving supply chain connectivity in the region, although more work needs to be done. Disruptions and bottlenecks in the flow of goods across borders cost business, customers and economies money. Going further, the benefits of a better connected region result in higher economic growth and greater prosperity.
“The 1990s were about service and time. But the 21st century is about being nimble,” Ms Lin says of supply chain trends. A multinational sporting goods company learns that legend footballers Eric Cantona and Pele are making a last-minute visit to Singapore and sees an opportunity in the market, she explains. The company plans a “quick strike” and needs 5,000 Cantona and Pele shirts made and sent to Singapore to coincide with the visit. The company scans its database of manufacturers throughout the region. “The manufacturer in the economy with the longest lead time and port clearance process will not win the contract,” she says. That manufacturer, its workers and the economy lose out. “A ten-day lead time is these days too long for an economy to be competitive.”
APEC has developed a Supply Chain Connectivity Framework to facilitate a better flow of goods and services. After identifying eight priority chokepoints in the supply chain, APEC has adopted a set of action plans, with initiatives by member economies across a range of sectors such as customs and transport, to address them. The CTI has set an overall target of 10 percent by 2015 for reducing the time, cost and uncertainty of moving goods across the region.
Another issue discussed at the dialogue was greater assistance for small and medium sized enterprises (SMEs) to take part in international production chains, and trade across borders. “As the world becomes more globalized, the number of companies that want to engage in trade has increased. But these companies that have great ideas and great products really do not have the kinds of resources or capacity to address the issues that multinationals face and know how to handle,” Ms Augerot told the dialogue.
Greater regulatory cooperation and convergence – both among agencies of the same economy and between economies throughout the region – is therefore crucial for SMEs. Regulations are essential for protecting the health and safety of consumers as well as the environment. But making them transparent, easy to understand and familiar are also crucial for helping businesses comply.
“Next generation” trade and investment issues will be back on the APEC agenda in May when APEC Trade Ministers, SME Ministers, Senior Officials as well as APEC committees and working groups hold a series of meetings in Big Sky, Montana in the United States.