Dodwell's Blog on APEC 2014 ISOM Meetings in Manila

December 17, 2014



The Philippine APEC year was formally launched on December 8-9 with the Informal Senior Officials Meeting (iSOM) and the brainstorm symposium attached to it.
 
The meeting was originally planned for Legazpi City in Albay province, but as Typhoon Hagupit bowled in towards the central Philippines in the days before iSOM, officials agreed at the very last minute to retrench to Manila. With 60+ days of APEC meetings scheduled for the Philippines next year, and with the country being battered by an average of 20 typhoons a year, this was clearly a dress rehearsal for emergency readjustments that will inevitably occur several times over the year.
 
So it was a credit to the Philippine hosts that the 11th-hour shift was managed with such fluency. We suffered lots of heavy rain, but the iSOM was able to go ahead unaffected.
 
At the end of the ISOM Symposium in Manila on day one (December 8), ABACs Tony Basilio bravely and very effectively summarized key points from the day. Rather than reinvent the wheel, I will leave this summary to Tony words:
 
Setting the Scene
“The world is in another moment of transformation, bringing with it risks and challenges. Let me highlight a few takeaways from the symposium:
 
  1. Trade remains a driver of growth although the multilateral trading system is undergoing change: is the era of big multilateral negotiations over? Are we now dealing with either mega-regional economic integration or plurilateral agreements dealing with specific issues such as the ITA, the Government Procurement Agreement or the Trade in Services Agreement?
  2. International commerce is also changing, with the emergence of global value chains. How those GVCs operate has profound implications.
  3. Globalization and integration have spurred growth and prosperity, but brought heir own unique challenges:
  1. The urbanization that has come with development has led to densely populated areas with implications on spatial inequality, management of food and energy requirements and the possible impacts of disasters.
  2. Globalization means that crises spread much faster – be they financial, natural disasters or epidemics.
  3. Higher incomes and middle class lifestyles are putting pressure on our ability to produce the products that feed and clothe us and ultimately threaten the sustainability of the livelihoods of the communities that produce them
  4. Globalization and rapid growth has also come with income inequality. APEC’s challenge is to tackle this, and to ensure that more share in the benefits of the opportunities created by deeper integration.
Session 1: 21st Century Megatrends and Challenges

Our presenter outlined a range of megatrends and I will pick two that are most relevant to what we do here in APEC: the emergence of mega-regionalslike the Trans-Pacific Partnership, the Regional Comprehensive Economic Partnership which are working towards an eventual FTAAP, and the emergence of global value chains. How these trends can be managed to ensure that our businesses - particularly SMEs – capture advantage  was the subject of discussion throughout the day.
 
Session 2: Towards an Inclusive Growth Strategy

In 2010, APEC agreed on a new growth strategy, which included “inclusion” – making sure that all our citizens have the opportunity to participate in, contribute to, and benefit from global economic growth. The recently released PECC State of the Region survey showed that respondents felt that we have tackled least satisfactorily: Even as our region has become more prosperous, inequality has been rising. Technological progress, globalization and market-oriented reform - while creating enormous new opportunities – were cited as unintended causes for rising inequality.  And these impacts have been compounded by unequal access to opportunity due to weaknesses in governance and social inclusion.
 
It was suggested that policymakers act to address rising inequality through better education, job creation and labor market reform; fiscal measures to reduce inequality in human capital; interventions to reduce spatial inequality; and reducing inequality in opportunity. Presenters suggested productivity catch-up, structural transformation, and competitiveness-enhancing structural reforms designed to move economies and individuals up the value chain.
 
Session 3: Regional Economic Integration and the Multilateral Trading System

There was a dramatic recounting of events leading up to Bali and afterwards.APEC has  always been a strong supporter of the multilateral trading system. When APEC officials last met, the breakthrough made at MC9 in Bali seemed in jeopardy. Since then significant progress has been made. The challenge ahead is not only implementing the Trade Facilitation Agreement and getting all economies to list their commitments but also to help in the process of preparing a clearly defined work program on the remaining Doha Development Agenda issues.
 
APEC can further support the multilateral trading system by advancing regional economic integration, in particular through on global value chain development and cooperation.  Possible APEC agenda in this area could include: improving the investment climate to attract FDI; cooperation to promote resilience of GVCs against the risks of natural and economic disasters; promoting efficiency in services related to manufacturing; and promoting the participation of SMEs and women in GVCs.
 
Session 4: Regional Economic Integration and Inclusive Growth; Regional Economic Integration, Services, Global Value Chains and Supply Chains

We noted that free trade agreements are evolving towards mega-regionals and that GVC participation is growing in APEC. The efficient functioning of GVCs depends on the seamless circulation of inputs to the final products: goods, services, capital, people, human capital, technology. In short, any economy’s barriers to import create barriers to export too. Ease of doing business, trade policy and investment openness therefore are factors that affect the degree of participation by individual economies in GVCs. The importance of trade facilitation, the cost and availability of services and the commonality of standards was also highlighted.
 
Countries can gain from participation in GVCs by reducing trade distortions through RTAs. RTAs should cover as many industries as possible and as many countries as possible to be supportive of as much as possible of the whole value chain.
 
On trade facilitation, it was noted that automation of trade formalities, the streamlining of border procedures and dialogue with the private sector have the strongest positive impact on trade for the region. The areas where APEC economies seem to lag the most compared to worldwide best practice are external border agency cooperation, followed by information availability, advance rulings, fees and charges and automation.
 
Among bottlenecks to growth, perhaps most important is the infrastructure backlog, which needs to be addressed in order to sustain APEC’s growth,  and needs effective collaboration between public and private sectors.
 
Session 5: SMEs and Inclusive Growth: Mainstreaming Small and Medium Enterprises (SMEs) in Global and Regional Markets

How can more people benefit from integration? Promoting SMEs is clearly critical, but few have been active in international commerce, and many feel threatened by it. This is changing. The internet and e-commerce platforms - big data - reduce both information gaps and the cost of doing international business as well as facilitating micro-financing. Despite this development many more SMEs continue to face challenges including financing for R&D, regulatory complexity; lack of knowledge about overseas markets; and how to remain resilient in the face of natural disasters or economic downturn. The importance of investing in women entrepreneurs is also key. It was suggested that a framework for SME development be created involving a holistic and integrated approach, with public and private sector working together, with diagnostic tools to measure government support for access to finance and SME internationalization.
 
Session 6: Investing in Human Capital Development and Inclusive Growth

The vision of a stable, prosperous and secure Asia-Pacific region depends on the ability of people to take advantage of the opportunities provided by deeper integration. Even as we remove barriers to trade, and facilitate the building of infrastructures to allow broader participation in the global economy these will not bring about the dynamism and innovation we need if people lack the skills and mindset to compete in a global economy. We have to focus on human capital development to ensure sustainable and inclusive growth.
 
Education systems need to provide skills that enable people to adapt to rapid change. This will require unprecedented collaboration between the public and private sector.
 
Session 7, Building Sustainable and Resilient Communities
Part One: Disaster Risk Reduction and Management
 
We met in Manila because of the risk of a super typhoon hitting the previously designated venue, Legazpi City in Albay. The province of Albay has been cited as a global model for disaster preparedness and the near zero casualty and minimal damage from Typhoon Ruby, which had at one point reached supertyphoon status, clearly showed why.
 
The Asia-Pacific region is disproportionately plagued by natural disasters. Because it is also home to the world’s most complex and dense supply chains, these disasters have huge economic impacts. Future resiliency must be built on good business continuity plans; investment in better workplace protection; greater supply chain visibility; and development of multiple sourcing and duplication of production locations. International and regional research is needed to build better knowledge of hazard risks; to build contingency measures for business continuity; to provide subsidies and credit for “creative reconstruction” of damaged regions; and to provide insurance for economic losses.
 
Part 2 : Food Security and the Blue Economy
 
APEC has spent a number of years strengthening its ability to contribute to greater food security and to mainstreaming blue economy issues, since seafoods account for an increasing share of the protein intake in the region. The Asia-Pacific accounts for about 60 percent of global fish production but rapid increases in population and wealth are putting pressure on the eco-systems to sustain this. If we are to achieve food security, protect the marine environment and ensure that fishing communities have a sustainable source of livelihood APEC must strengthen cooperation in this area. Regional cooperation is critical because of the complex and trans-boundary nature of ocean and coastal issues and challenges.
 
Summary of Key Messages
  1. Global value chains are changing the global trading system – in terms of the structures that govern trade between economies, and in the way companies conduct international commerce
  2. The prosperity and interconnectedness that these GVCs deliver, also raise risks and challenges - including income inequality; vulnerability in natural disasters and long-term food security.
  3. An APEC strategy based on inclusive, innovative, sustainable and balanced growth can help address these risks and challenges – and justifies the Philippine priority of inclusive growth. This involves improving the capacity of our people – empowering individuals, companies and communities to take advantage of the opportunities of regional economic integration and to withstand economic shocks.
  4.  APEC working groups can share information and better coordinate or collaborate with each other. As APEC has grown over the past 25 years this is a challenge for all groups.
    
 

 

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