Volume 16 – Issue 4 – November 2020

SPECIAL ISSUE New Zealand and the Asia-Pacific New Zealand and the Asia-Pacific Economic Decade Agriculture Trade Reform and Sustainable and Alan Bollard 3 Inclusive Food Security The CER Negotiations – the real backstory Stephanie Honey 43 Tim Groser 7 Immigration and ‘Brain Waste’: an analysis of APEC immigrants in New Zealand Trade and Economic Integration in the Asia-Pacific Region Eyal Apatov and Asha Sundaram 50 Siah Hwee Ang and Gary Hawke 13 Under the Radar: international regulatory cooperation Driving New Zealand’s Economic Relationship With Asia: in ASEAN and New Zealand The Importance Of Growing Connections, Capacity And Confidence Derek Gill 59 Simon Draper and James To 19 Whither APEC post-2020? Centre stage for New Zealand The Economics-Security Nexus in the US-China Brian Lynch 66 Trade Conflict: decoupling dilemmas New Zealand’s Hosting of APEC in 2021 David Capie, Natasha Hamilton-Hart and Jason Young 27 Vangelis Vitalis 72 Structural Reform, Regulatory Practice and Digital Implications – the APEC experience Rory McLeod 36 Editorial New Zealand is a founding member of Asia–Pacific process. Without question, this decision has damaged Economic Cooperation (APEC), and will be hosting the egalitarian foundations of the democratic process APEC from December. Accordingly, this issue of Policy (i.e. one person, one vote) and increased the risk of Quarterly focuses on New Zealand and the Asia–Pacific. political corruption. Restoring the integrity of the US Volume 16 – Issue 3 – August 2020 Professor Alan Bollard has served as the guest editor. I political system without reversing Citizens United will be difficult, if not impossible. Merely replacing Trump Policy Quarterly (PQ) is targeted at readers am deeply indebted to him for his effective and diligent in the public sector, including politicians and stewardship of the November issue. and his cronies will be insufficient. Thoroughgoing their staff, public servants and a wide variety Alan brings a wealth of expertise, experience and institutional reform is essential. of professions, together with others interested insight to the task, having served variously as the Meanwhile, in New Zealand, the Labour-led in public issues. Its length and style are Secretary to the Treasury and the Governor of the government has handled the Covid-19 pandemic intended to make the journal accessible to tolerably well and the prime minister has been suitably busy readers. Reserve Bank and, more recently, as the Executive Submissions: The journal welcomes Director of the APEC Secretariat, based in Singapore. rewarded for her commendable efforts in the general contributions of about 4,000 words, written He is now a much valued colleague in the School of election. But the new government faces formidable on any topic relating to governance, public Government and, among other things, he chairs the new policy challenges. The list of problems is long: policy and management. Articles submitted Infrastructure Commission Te Waihanga. closed borders and ongoing disruption to the tourism will be peer reviewed. Please submit articles industry and international education; a large fiscal to the Editor: [email protected]. Alan has secured a diverse range of contributors Although issues will not usually have single for the November issue. Their articles address critical deficit; the need for massive long-term investment themes, special issues may be published from topics in the fields of trade and international relations. in public infrastructure, not least water services and time to time on specific or general themes, I trust that readers will find their varied contributions transport networks; a serious housing shortage and perhaps to mark significant events. In such both illuminating and thought provoking. grossly inflated house prices; multiple environmental cases, and on other occasions, contributions challenges; overstretched health services; significant may be invited from particular people. Undoubtedly, 2020 has been a tumultuous and Subscriptions: The journal is available in memorable year. Closed borders, lockdowns, working material hardship; marked ethnic divisions and PDF format on the Institute for Governance from home, social distancing, the wearing of masks and inequality; an ageing population; and the disruptive and Policy Studies (IGPS) website: https:// frequent Zoom meetings have been common phenomena. effects of rapid technological innovation. www.victoria.ac.nz/igps/policy-quarterly. While lower economic activity and travel restrictions To compound matters, New Zealand faces ever Readers who wish to receive it by email more severe – and costly – impacts from climate should register as PQ subscribers igps@vuw. have dramatically reduced air travel, and thus reduced ac.nz. This service is free. global greenhouse gas emissions (albeit probably only change (e.g. floods, droughts and fires), together with For all subscription and membership temporarily), the negative impacts of the Covid-19 ongoing seismic risks. 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Observing events during 2020 in series of deadly viruses, including HIV, SARS and Permission: In the interest of promoting MERS. Policymakers must prepare for more health debate and wider dissemination, the the United States, in particular, has been a sobering IGPS encourages use of all or part of the experience. Its democratic institutions, political leaders emergencies, including the looming challenge of articles appearing in PQ, where there is no and policy frameworks have all been found wanting. This antimicrobial resistance. element of commercial gain. Appropriate reflects years, if not decades, of multiple governmental And then there is the threat to democratic processes acknowledgement of both author and source failures: inadequate investment in public infrastructure, from fake news, artificial intelligence, cyber attacks, should be made in all cases. The IGPS anti-democratic movements, rogue states, and the retains copyright. Please direct requests public health and emergency preparedness; an for permission to reprint articles from this unwillingness to tackle gross income and wealth growing power of authoritarian regimes, not least China. publication to [email protected]. inequality; a failure to distribute fairly the benefits of Protecting democratic institutions will almost certainly Editor: Jonathan Boston decades of productivity growth; a lack of commitment be a matter of growing public concern as the century Guest Editor: Alan Bollard to conservation and environmental protection, not least advances. Editorial Board: Maria Bargh, Cheryl Barnes, the urgent need for decarbonisation; and a failure to Given this lengthy and disturbing list, there will be Roger Blakeley, David Bromell, Simon Chapple, Jo Cribb, Girol Karacaoglu, Gerald address racism and racial injustice. Little wonder the no shortage of important governance and policy issues Minnee, Gail Pacheco, Anneliese Parkin, populist revolt against elites and the increasing political for Policy Quarterly to address over the coming years. Kate Prickett, Mike Reid, Tim Ng, Andrea polarization. Gross injustice breeds contempt and To this end, I can foreshadow that there will be further Schollmann, Conal Smith, Mämari Stephens hatred, not kindness or compassion. articles on Covid-19 in February 2021 and a special and Julia Talbot-Jones Unfortunately, the integrity and fairness of the US issue on just transitions in August. ISSN: 2324-1098 (Print) ISSN: 2324-1101 (Online) democratic process has been severely undermined by Finally, many thanks to all those who contributed Volume 16, Issue 4 – November 2020 the landmark decision of the Supreme Court in 2010 articles to the journal during 2020, along with the many Copy Editor: Rachel Barrowman in a case concerning campaign finance known as people who served as peer reviewers, guest editors and Design & Layout: Aleck Yee Citizens United v the Federal Election Commission. In editorial advisers. A big thank you, too, to Lynn Barlow, Proof Reader: Vic Lipski brief, the court held that the free speech provisions in Rachel Barrowman, Vic Lipski, David Larsen, Lyne Todd Cover Illustration: Aleck Yee Production: Alltex Design the US constitution prohibit governments from limiting and Aleck Yee for their expert and diligent help with the independent expenditures for political communications, journal’s production and distribution. whether by corporations or other associations. As a result, there are no effective restrictions on campaign Jonathan Boston finance. Money is now the arbiter of the democratic Editor Alan Bollard

New Zealand and the Asia-Pacific Economic Decade assuming hosting responsibilities for APEC Abstract 2021. This introductory article sets the The last decade has seen the Asia-Pacific region undergoing new background for those that follow, patterns in economic development, driven by major changes in introducing the major structural changes in the region and the responses from trade, capital and technology flows, together with demographic governments. It asks how these trends disruption. On top of that, the region is experiencing the resurgence impact on New Zealand, and whether New Zealand policy is fit for purpose in this of the Chinese economy, a defensive US response, climate change turbulent time. concerns, and the problems of Covid-19. This brings new worries about globalisation and challenges for New Zealand hosting APEC Growth patterns For some decades the APEC (Asia-Pacific in 2021. Regional Cooperation) region enjoyed Keywords Asia–Pacific, economic growth, trade, globalisation, APEC strong GDP growth, both overall and per capita, driven by positive demographics he Asia-Pacific economy has increasingly integrated into the region and a liberalised trading environment. undergone significant changes over economically, but these changes spell big This growth meant guaranteed Tthe past decade. During previous challenges ahead. generational improvement in income, decades it enhanced the livelihood This issue of Policy Quarterly contains and this encouraged a societal consensus of billions of people. Now it is going a series of articles examining aspects of this for growth which papered over social through an era of intense uncertainty changing economic integration. Its inequities, environmental damage and and turbulence. New Zealand has become publication coincides with New Zealand political tensions. The economic model was based on the regional integration of production: raw materials from South East Alan Bollard is Professor of Pacific Region Business at the Wellington School of Business and Government at Victoria University. He is also chair of the New Zealand Infrastructure Commission, Asia, Oceania and Southern Cone countries chair of the universities-based Centres of Asia-Pacific Excellence, New Zealand governor of the feeding intermediate manufacturing Economic Research Institute for ASEAN and East Asia, and on the organising committee for operations in locations largely dictated by New Zealand’s 2021 hosting of APEC. Until recently he was executive director of the APEC Secretariat in Singapore. He was previously governor of the Reserve Bank of New Zealand, comparative labour costs and productivity secretary of the New Zealand Treasury and chair of the New Zealand Commerce Commission. in East Asia, financed by mobile capital,

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 3 New Zealand and the Asia-Pacific Economic Decade linked by sophisticated supply chains slower to develop. However, the current Asian investment has often been associated to assembly plants particularly in China, industry and national battles over 5G with residency, education access, apartment and via efficient container shipping to the networks and digital platforms are purchase and business start-up, which affluent markets of North America. indicative of the huge commercial and contributes to policy complexity. Some structural changes are now political possibilities in the Internet of disrupting that model. The high-growth Things in coming years. Demographic disruption period before the global financial crisis led While manufacturing, energy and The composition of East Asian and Latin to a large build-up in balance sheet debt, services trade are all changing, commodities populations in the Asia-Pacific region has including over-investment in housing in trade has been less affected. Demand for changed significantly. Birth rates have the West, and in infrastructure in the East. raw materials continues, but the economics dropped, education rates have increased, The global financial crisis itself led to losses still favour the bulk shipment of relatively child-bearing is occurring later, and in asset value, financial institutions being unprocessed product to be transformed in households are moving from extended more tightly regulated, and a growth in the factories of East Asia. The big New to nuclear or single-person. This marks sovereign debt from bank rescues. In the Zealand exporters of dairy, logs and meat the end of the ‘demographic dividend’; West this has meant lower productivity, have not managed to add much value workforces are no longer growing, but are higher-skilled, more costly and ageing. Lengthy retirement is a new phenomenon. Emigration of people and businesses These changes were predicted, but have raises the question of appropriate tax happened faster than expected. With income growth has come a surge policy in an Asia-Pacific region where in middle-class populations. Typically these are urbanised apartment dwellers, capital and labour have become so and their consumption patterns are changing. They are paying more for mobile. branded/imported/exotic/safe/environ- mental products, they are spending on services such as health, education and travel, and they have expectations of slower trend growth rate, low inflation and locally, instead increasing production government provision of social and near-zero interest rates. volume domestically and continuing to sell environmental services. They are more into the regional supply chains. New likely to search, purchase and pay on hand- Trade and capital flows Zealand commodity exporters will held digital devices. These middle-class Trade growth had been the key economic gradually face tougher environmental and households have significant savings, and driver for the region, but it slowed notably animal welfare market requirements from they are more mobile. after the global financial crisis and has never Asian consumers. Some smaller Asia-Pacific regional integration has returned to the previous highs. There have entrepreneurs with branded, high-priced involved large (but highly regulated) been several reasons: limits to the gains products such as päua, salmon and mänuka population flows. By 2018 there were over available from vertically dis-integrated honey have prospered in the new middle- one million student movements in the production models; Chinese regional class markets of Asia, but this constitutes region, considerable travel by business industry policy seeking to build domestic a small share of New Zealand’s export people with cross-border commercial supply chains; US policies discriminating receipts. interests, a growing trade in health tourism, against foreign expansion; a pressure to A feature of East Asian growth has been and a huge regional tourism industry. onshore investment; and other results of the very high household savings rates that The most complex of all these flows is the US-China trade tensions. have funded the region’s business and labour movement: there has been major Another major trade change has been infrastructure investment. As the financial growth in shorter-term professionals in radical disruption to energy markets: huge markets of the region have opened, there Pacific Rim countries flocking to buoyant new production capacity is turning the US are increasing flows looking for financial and business services sectors. into an energy exporter, OPEC market diversification and better returns available Businesses themselves, especially those that domination has been disrupted, through direct and indirect investments, are digitally based, have also become more environmental pressures are reducing the from corporate funds and from wealthy mobile. There has also been growth of coal trade, and for the first time gas has families. limited-term migrant labourers employed become a major traded commodity in the Direct investment in New Zealand in for home care, construction and other low- region. the past has been dominated by US, UK, wage duties, drawn from the poorer South While the Asia-Pacific has been leading Australian and Japanese flows, while East Asian and South Asian countries, the world in the integration of Chinese money is increasingly available, highly regulated by hosts and remitting manufacturing, trade in services has been though often politically contentious. East wages back to households. However,

Page 4 – Policy Quarterly – Volume 16, Issue 4 – November 2020 migration for permanent residency has production like New Zealand, trying to bilateral trade surpluses and capital flows been very limited and mainly restricted to capture value onshore. adding to the region’s economic tensions. wealthy/business/professional groups. There has been massive spread of China has launched some major regional The New Zealand economy has knowledge and ideas in the region, initiatives (Belt and Road, the Asia benefited from ongoing immigration from increasingly encapsulated in electronic International Investment Bank, the New the region, though the balance and data, and sometimes regulated through Development Bank), and these have mainly composition has sometimes been intellectual property laws and privacy rules. been welcomed in the region, while some contentious. On the other side of the These flows have grown far faster than more assertive Chinese security moves in account, New Zealand has lost a other cross-border flows, and that trend the South China Sea have been regarded considerable amount of talent – Kiwis who will continue. However, there are growing with suspicion and worry. have benefited from state-funded education tensions: so far, most of the region’s These are all concerns felt by New and health, but have then emigrated for consumer data is collected and owned by Zealand. New Zealand’s export trade, as in lengthy periods, particularly to the diaspora US technology giants, the exception being many countries, is now dominated by attractions of Pacific Rim cities. Many local China, where local technology Chinese markets. Their vigour has kept small technology companies have benefited conglomerates are now looking to commodity prices strong, but has given no from the New Zealand start-up environment and then moved offshore. Emigration of people and businesses ... major hurdles are ahead, and these raises the question of appropriate tax may intensify New Zealand’s policy in an Asia-Pacific region where capital and labour have become so mobile. traditional regional weaknesses – low New Zealand’s tax structure, which eschews capital and inheritance taxes, does not look export value-add, and leakage of resilient when New Zealanders, their trusts and their businesses can enjoy state-funded talent and value overseas. benefits, then move offshore so easily, avoiding income tax and offering their human capital to other jurisdictions. penetrate parts of the region. The encouragement to increased local Technology change international rules of digital engagement processing. By contrast, the US is now only In previous decades the important are still fluid: there are major regional New Zealand’s fourth-largest trading technological improvements mainly disagreements over data ownership, partner, though it is far more important in affected the physical movement of goods – participant privacy, cybersecurity, tax terms of foreign investment, technology containerisation, port handling, container liabilities, 5G and 6G standards, and digital transfer, digital development and related ship developments, and the partial platform design. security issues. New Zealand is trying to automation of large-scale production learn from ASEAN countries how to processes; labour costs were still important China’s resurgence balance its economic interests in China enough to determine choice of location China’s accession to the World Trade with its security interests in the US. through the region. Organization (WTO) in 2001 marks the The technology changes of the last moment when a huge cheap labour force Anti-globalisation decade, commonly labelled the Fourth began to power the region’s economy, Public attitudes to economic regionalism Industrial Revolution, have focused more resulting in new, highly competitive have changed significantly in some Asia- on advanced intelligent automation, production structures and cheaper Pacific economies, but not in others. As a leading to more highly capitalised consumer products. Today its workforce generalisation, Western countries have this production facilities with reduced labour has peaked, and the Chinese economy has decade shown more concern about the loss content. It is still too early to be sure of the entered a new phase, marked by massive of jobs and offshore business which they consequences for the region with regard to capital investment and technological have (not always accurately) attributed to location, scale and supply chains. advances. The sheer size of the country globalisation. In some cases, this has hit Of particular interest to New Zealand means that this has an impact the whole particular skills, regions or generations in a is the increased availability of new region, and it has already led to redesign way that is breaching the social consensus ‘tradetech’ and ‘fintech’ – digital of regional production and supply chains. for globalisation. In turn, this has had an technologies that offer automated sourcing, The US administration has viewed impact on domestic politics and policy, tracing, marketing, trade financing and these developments with suspicion: what most obviously in the US. payments systems. These have opened up used to be seen as complementary to These developments have affected interesting new business opportunities for Western economies has become a highly trading conditions around the Asia–Pacific, long-distance exporters of biological competitive relationship, with large as the US administration has withdrawn

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 5 New Zealand and the Asia-Pacific Economic Decade support from important political assertive about emissions taxing, carbon contraction, closed borders, slower growth institutions (the Trans-Pacific Partnership, trading and rubbish trading. But there is prospects and rising debt. East Asian the WTO, the Paris Agreement on climate little leadership, with unresolved arguments markets have bounced back more than change, the World Health Organization), about responsibility for emission legacies, American and European ones, and that has as its policies are confronted by an assertive and a focus in East Asian countries on helped New Zealand maintain positive rising China, and as the bilateral trade and carbon in consumption in response to the terms of trade. But Asian students for New technology tensions grow. The two West’s offshoring of production emissions. Zealand tertiary education, Chinese, superpowers appear to be increasingly The New Zealand economy has been Japanese and other tourists to New Zealand, locked in a trade/technology/financial war, alert to concerns about climate change far and other business interests have all been with decoupling and self-sufficiency longer than many others in the region. New hard hit. On the positive side, New policies. Consequently, third countries like Zealand has its own climate change Zealand’s relative success in limiting the New Zealand have had to take the lead in challenges. However, the impact on Asia spread of the disease has made the country promoting regional reforms. will likely increase demand for food stocks, an attractive safe haven in both Asian and The impact of this in the region has increase the need for emergency assistance, American perceptions. been ongoing concern in agencies such as change the nature of infrastructure APEC about the future of trade-driven investment, tighten requirements for Leadership in the region growth; churn as supply chains are climate-friendly agricultural production, The Asia-Pacific economies have altered reconfigured to reduce political risk; and result in the displacement of significantly over the past decade. New distortion to commodity trade from US populations and increased environmental Zealand has been insulated from some and China policies (including bilateral migration. of these changes and has benefited from trade deals and domestic production others. However, there are some major subsidies for soybean, pork and dairy); Covid-19 hurdles are ahead, and these may intensify increased domestic industrial policy The Covid-19 pandemic has had huge New Zealand’s traditional regional protection; and regional concern about impacts in the region in 2020. These weaknesses – low export value-add, and balancing US and Chinese economic and include concerns about ongoing pandemic leakage of talent and value overseas. security interests. So far, the US–Chinese risks emerging from densely populated As an open economy with major trading tensions have not significantly hurt New areas in East Asia; accusations and tensions interests, New Zealand has traditionally Zealand’s economy, but there are clearly particularly in the US-China relationship; played an active role in the region, risks ahead if these tensions prove long- experience that authoritarian, centralised promoting trading opportunities and (less running. Asian governments have been able to successfully) championing the The US is now suspicious of control the covert spread of the virus liberalisation of agricultural trade. It has globalisation; many East Asian economies more effectively than many democratic done this through formal regional want more of it (but on their own terms). governments; and evidence that East Asia initiatives (e.g. the P4 arrangement), pan- New Zealand is caught in the middle, has, subsequently, suffered less economic regional trade agreements (such as the reliant on regional trade but with pockets damage than the Americas. Comprehensive and Progressive Trans- of discontent. Throughout the whole region, travel Pacific Partnership (CPTPP) and Regional restrictions have meant massive problems Comprehensive Economic Partnership Climate change for migrant labour, business travel, (RCEP)), international reform initiatives Policy attention to the risks of climate diaspora populations, health services, (WTO) and pathfinder projects (e.g. the change has grown quickly through much student movements and the tourism New Zealand–Singapore Digital Initiative). of the Asia-Pacific region. Recent extreme industry. Still ahead are challenges to As New Zealand hosts APEC in 2021, weather trends have raised visibility and improve identification, treatment and this will be a key year for such economic exacerbated impacts, particularly in East inoculation against ongoing Covid-19 and leadership. After several years of debilitating and South East Asia, where the huge other epidemics. The trade in protective regional trade tensions and the delta-dwelling populations are extremely equipment and pharmaceuticals has unproductive experiences of previous vulnerable. The upstream damming of exposed further tensions, and these may APEC hosts, expectations are high for New rivers, saline infiltration into rice paddies, worsen with vaccine nationalism, despite Zealand to produce a year of useful flooding of deltas, temperature rise in cooperative efforts by APEC and ASEAN. initiatives, helping APEC to come to terms inland regions, and typhoon damage in Globalisation has brought many advantages with the economic regional challenges of archipelagos make this the most affected to the Asia-Pacific region, but with its this decade. This is made difficult by the zone in the world. international spread, Covid-19 has become spread of Covid-19 and the resulting need There is no agreed climate change the most obvious example of its costs. to run APEC by virtual technologies. Much policy in the region. Individual countries The impact of Covid-19 on New will depend on New Zealand thought are reducing coal use and becoming more Zealand has been a significant lockdown leadership and institution rebuilding.

Page 6 – Policy Quarterly – Volume 16, Issue 4 – November 2020 Tim Groser

The CER Negotiations the real backstory Abstract This article is an ‘insider’s account’ of the background to the Background These personal reflections on the CER negotiation of New Zealand’s first comprehensive bilateral trade negotiation are an unapologetic ‘insider’s agreement, the Australia–New Zealand Closer Economic Relations account’ of what I consider to be the Trade Agreement, or CER. It argues that this agreement marked the most important trade negotiation in New Zealand’s economic history – most first step in the process of a systematic reform of the New Zealand important because it was much more than economy along orthodox liberal economic principles, and, in that a trade negotiation per se; we were, in effect, using a so-called ‘trade’ negotiation sense, anticipated the comprehensive internal economic reforms to initiate a process of changing initiated some two years later by the Labour government headed by dramatically New Zealand’s economic David Lange. It analyses key ‘drivers’ of CER: the growing realisation policy settings, which, by 1979 – the formal commencement of negotiations – were that New Zealand was falling further and further behind Australia long past their use-by date. in its living standards, and the shock of the entry of the UK into One way or another, any reform at that time of the New Zealand economy would the EEC, which forced a diversification of New Zealand trade and have to include reform of New Zealand’s foreign policy away from the United Kingdom towards the Asia- highly unusual and deeply protectionist Pacific region. It includes a critical re-evaluation of the role of Prime trade policy regime, because of the huge resource misallocation it implied. Given Minister Robert Muldoon in the negotiations during a period of the scale of the adjustment problem and New Zealand political history in which he was dominant. the ferocious opposition to any unilateral Keywords CER, trade policy, economic reform, EEC, Muldoon liberalisation programme on an MFN (most favoured nation) basis, a systematic phasing out of trade barriers on a bilateral Tim Groser began his career in the New Zealand Treasury and spent several decades in the Ministry of Foreign Affairs, specialising in international trade and economic relations. He has chaired basis with Australia seemed a more realistic numerous international trade negotiations; has been executive director of the Asia New Zealand starting point. This was the real CER Foundation; and served as New Zealand ambassador to Indonesia, the WTO and the United States. agenda for the officials at the centre of the During his parliamentary career (2008–15) he held ministerial portfolios for trade, conservation and negotiations. climate change issues. He is currently a visiting fellow at Victoria University of Wellington, teaching a course on global political economy.

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 7 The CER Negotiations – the real backstory

The key targets were New Zealand’s (now the EU), which was more than an then extreme system of import licensing/ The CER agree- economic shock. However, in terms of high industrial tariffs combined with trade narrowly defined, it cut our performance-based export subsidies, ment would, in economic umbilical cord to the ‘Mother which were designed to offset the worst time, wash away Country’, in spite of the negotiation of the effects of such policies on our non- key transitional trading arrangement agriculture exports. This is not a ‘wise after a lot of political (‘Protocol 18’) that gave us some the event’ observation: the key New temporary breathing space to make our Zealand officials with responsibility for the and economic very different way in the world. CER negotiations were consciously • Driver C: the refocusing of our external strategising in exactly these terms. detritus that had relationships away from the UK and That said, one must observe that had Europe towards the Asia–Pacific, which the prime minister in either country accumulated in would inevitably require us to redefine decided not to proceed, that would literally our relationship with Australia. On the have been it, whatever the view of New Zealand. other side of the Tasman, meanwhile, Australian and New Zealand senior officials Australian decision makers, notably the – or any minister in either Cabinet – may then Australian deputy prime minister, have been. That is exactly what happened in the mid-1970s, with persistent double- Doug Anthony, but also leading with the CER precursor negotiation (‘All digit distortions throughout the New Zealand officials, had, by the mid-1970s, become The Way With Schedule A’), when officials economy, ten years of anaemic growth in per immensely frustrated both with New working to that implied free trade agenda capita incomes, a creaking fixed exchange rate Zealand’s idiosyncratic economic found themselves stranded on a political system that had failed to recognise the policies and with the existing formal atoll with no visible means of support implications of US president Richard Nixon framework for trans-Tasman trade when the political tide went out. It closing the gold window some years (NAFTA) that accommodated those happened again in the course of the previously, and the almost existential highly unusual policy settings. ultimately successful CER negotiations challenge to New Zealand’s trade structures when the Australian prime minister, posed by the entry of the United Kingdom Driver A: declining New Zealand per capita Malcolm Fraser, pulled the plug (thankfully, into the EEC, we New Zealanders were income – a period of reckoning only temporarily). looking over the edge of an economic New Zealand operated the developed More generally, it was CER, in my view precipice. For better or worse, something had world’s last comprehensive system of at least, that represented the real political to give. import licensing on industrial goods, ‘starting point’ of the long and controversial The CER agreement would, in time, and, to compound its negative impact on process of reforming the New Zealand wash away a lot of political and economic efficient resource allocation, we married economy along market-oriented lines. It detritus that had accumulated in New that with extremely high tariffs in the was not a matter of ‘which was more Zealand. Naturally, there were many ‘protected area’ (combined with zero tariffs important, internal or external reform?’ We tributary streams that fed into the process in the ‘unprotected’ area, thereby raising had to do both. In that sense, the systematic and gave it political momentum. I would the average effective rate of protection reforms of the internal New Zealand instance three main background influences, well above even the high nominal tariff economy, put in place by the Labour which were closely related. average). This was accompanied by many government elected on 14 July 1984, were • Driver A: the slow realisation that our deeply interventionist ‘industrial policies’, not, I believe, the initiation of the economic standard of living was declining relative including foreign exchange controls. reform process, but a logical and essential to Australia and to the world. Australia had started to move away from counterpart to the reforms of frontier Comparative data assembled by the these policy settings long before. Australia protection initiated by CER. I have no great economic historian and abolished comprehensive import licensing doubt that without these two interlocking statistician Angus Maddison shows that in 1960, although that left much adjustment sets of economic reform – or some New Zealand’s per capita income in yet to be undertaken in the area of high theoretical comparable reform process 1900 was an estimated 107% of industrial tariffs. I distinctly recall aimed at the same objectives – New Australia’s; in 1950 it was 117%; in comparative OECD measurements of the Zealand would have carried on looking – to 2000, 74% (Maddison, 2003). Suffice it average effective rate of protection (ERP) in use David Lange’s memorable phrase – like to say that midway between the latter our two economies: Australia had the second- a (Soviet-era) ‘Polish shipyard on a bad day’. two data points – 1975 – we in the highest average ERP in the developed world, Those who continue to decry those Treasury and other economic agencies yet this was no match for New Zealand – we reforms using the usual pejorative ideological were well aware that we were slipping were ‘number one’ and our average ERP was labels (‘neo-liberalism’) are guilty of the dramatically off the pace. about twice that of Australia. political sins of the Bourbons – imagining • Driver B: the shock of the UK’s entry into Many considered that this extreme the past and remembering the future. Back the European Economic Community system of protectionism was justified by

Page 8 – Policy Quarterly – Volume 16, Issue 4 – November 2020 the double standards of the rest of the balance, European officials discovered what developed world in maintaining similarly ... Britain’s decision they called ‘la vocation exportatrice’, an prohibitive barriers to our extraordinarily to go into the EEC absurd rationalisation which implied that efficient agriculture exports. And that was Europe had a ‘moral destiny’ to export certainly the case until the late 1980s and ... was a massive subsidised food, irrespective of its early 1990s, when the Uruguay Round of competitive position. GATT negotiations began to integrate wake-up call to It should be noted that the creation of agriculture into the framework of global this system owed everything to the United rules that governed trade in what were New Zealand to States and its overwhelming dominance of called ‘industrial’ goods. Yet in the late the architecture of the post-war 1960s and back in New Zealand, the deep diversify away from international trading system. Without the and understandable resentment about massive mistake by the US in 1947 in taking developed countries’ double standards on distant Britain agriculture outside the normal global protectionism astonished – it should not framework for liberal trade (to protect the have – an eminent group of World Bank towards markets in US Department of Agriculture’s sugar and economists who arrived in 1968 to produce our region ... dairy regimes), the common agricultural a landmark report on the New Zealand policy (in its unreformed state) would economy. They concluded: never have been legally possible. Among developed country suppliers of There is one particular argument for Zealanders’ references to Britain as ‘home’. agriculture products to the UK, only New protectionism which seems to carry I can recall distinctly my mother saying to Zealand received a special transitional great respectability in New Zealand, New Zealanders: why do you call the UK device when the UK entered the EEC: the even with several outstanding home; isn’t New Zealand your home? protocol 18 referred to above. However, economists and officials. The argument But economically, New Zealand was because of what was called ‘degressivity’ is that as long as other countries, described by the British prime minister, (i.e., trade ‘liberalisation’ in reverse), the including some of the richest, pursue Harold MacMillan – with perfect noose was always going to tighten around for their domestic agricultural products metaphorical accuracy – to President de New Zealand’s neck each time the protocol protectionist policies harmful to New Gaulle of France as ‘an English farm in the was reviewed (every three years). New Zealand, she should in turn protect her Pacific’. And for many years being Britain’s Zealand officials, ministers and farming own domestic industries against their ‘offshore farm’ was a political formula that leaders understood this only too well, and exports. (World Bank, 1968, p.44) worked, giving New Zealanders a very high so it provided a massive impetus to all of The second reason for the persistence standard of living by the international New Zealand’s efforts to diversify. I recall of policies of high protection in New standards of the day. This period of our two outstanding deputy prime ministers Zealand was basically that we could afford economic history was dubbed ‘living off the (who were also trade ministers), Jack the inefficiency it implied (until reality sheep’s back’, our vastly efficient farming Marshall and Brian Talboys, repeating ad imposed itself) – pace Ragnar Nurkse, one sector providing the platform for a confusing nauseam ‘diversify, diversify, diversify’. It of the outstanding development series of cross-subsidies and exceptionally was a slow-moving national crisis. economists of the mid-20th century, who high effective rates of protection for other The need to diversify our exports was once famously said, ‘no country is rich sectors of the economy. Our exports to the a powerful influence on the decision to enough to ignore inefficiency’. Like many UK were overwhelmingly meat and dairy upgrade our trading relationship with comments or predictions, it was right, products and we were an integral part of the Australia. We talked about creating a ‘single provided you kept repeating it for a long British food security system. area market’ that would, or so we hoped, enough period. And our policies of The UK entered the EEC prior to the reorient the vision of our companies extremely high protection, introduced initiation of any serious reform of its towards thinking of producing for our largely in the 1930s, lasted half a century. common agricultural policy. Its two key combined 18 million consumers (in 1975), policy instruments were the ‘variable levy’ not just the 3.5 million New Zealand Driver B: the UK enters the EEC – an and ‘export restitutions’. The variable levy consumers (the comparable figure today existential challenge was an adjustable tariff on designated tariff would be 27 million, of whom 5 million It would be a mistake to see the shock of lines which attempted to neutralise the are New Zealanders). To do this we needed Britain’s entry into the EEC simply in trade difference between competitive world a single economic area with none of the terms. Even a cursory familiarity with New prices for the designated commodities and direct frontier measures that had been Zealand history would show our economic, the uncompetitive internal European price. designed to do exactly the opposite – political and cultural dependency on the When this management system impede imports into each other’s market UK. When I arrived in New Zealand from overachieved and produced surpluses that – complemented by a sophisticated ‘behind the UK in 1958 as an eight-year-old, my could not be absorbed or stored indefinitely the frontier’ agenda of regulatory reform. parents were deeply puzzled by New until the internal market came back into

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 9 The CER Negotiations – the real backstory

The bigger political message of Britain’s signpost on a political map; there was no decision to go into the EEC (and thus ... the Nareen negotiating highway that connects the reverse its decision over a hundred years declaration signed on Malcolm Fraser’s previously to repeal the Corn Laws) can be Declaration should farm directly with the negotiating process. described simply: it was a massive wake-up ... be seen for what Further, as an official who attended (as far call to New Zealand to diversify away from as I recall) every important negotiating distant Britain towards markets in our it was, an acknow- meeting – and countless associated region, starting with Australia; and part of discussions in both countries – of CER, I that process involved rationalising the ledgement by New would say that the Australian states were strange bilateral agreement we had functionally irrelevant to the negotiations. negotiated in 1965 called NAFTA, the New Zealand that ... it It was entirely a central government to Zealand Australia Free Trade Agreement. central government negotiation. was time to treat Rather, the Nareen Declaration should, Driver C: reassessing our relationship with in my view, be seen for what it was, an Australia Australia ... as the acknowledgement by New Zealand that In the mid-1970s, and with the very ‘most important Australia needed to be treated directly, not important exception of our military and through the political lens of our shared security officials, we and the Australians country in the ‘British’ past, and that it was time to treat were, I would say, cousins, but distant Australia, not the UK or the United States, cousins who came together only on major world’ ... as the ‘most important country in the world’ family (read British Commonwealth) to New Zealand (this formulation was used occasions. We would indeed ‘look at many times in speeches written for Brian each other closely’, but, metaphorically Talboys – often by me – in the late 1970s). speaking, via a giant reflecting mirror Singapore and Malaysia by formalising our This intersected with increasingly located somewhere near Westminster relationship with the newly founded strong views held by key thinkers in the Abbey around 15,000 kilometres away. ASEAN. This started as a political/strategic New Zealand Treasury and the Reserve That is to say, we looked at each other via play; it would mature into a trade/ Bank (people such as Roderick Deane and our shared and deep historical and cultural economic strategy – the AANZCERTA Graham Scott). There were also some relationship with Britain, not as parties in agreement involving Australia, ASEAN and prominent New Zealand academic a true ‘bilateral’ relationship. New Zealand, then the P2 or Singapore/ economists, such as Frank Holmes and There were some brilliant, albeit New Zealand free trade agreement, which Peter Lloyd, who were advocating for a sometimes eccentric, intellectuals in the begat P4, which begat the Trans-Pacific radical shift in the direction of New Ministry of Foreign Affairs, including the Partnership (TPP), which begat the Zealand policy; I was one of a small group secretary of foreign affairs, Frank Corner, Comprehensive and Progressive Agreement of New Zealand officials working on the who by the early 1970s wanted a profound for Trans-Tasman Partnership (CPTPP). bilateral economic relationship who were realignment in our foreign policy Time alone will tell whether further policy deeply influenced by their academic relationships. I recall Corner saying in progeny, and yet another name change, lie writings and views. meetings: ‘For God’s sake, people still think ahead of us. On the other side of the Tasman, among we are located in the middle of the English Yet in the mid-1970s, the moment had senior Australian officials and political Channel.’ By the mid-1970s there was an arrived to think about Australia in a personalities there were unmistakable signs appetite to think ‘outside the box’ (to use different way. Although I was, at the time, of intense frustration with New Zealand’s a popular cliché of the time). We had at the official front line of our relationship, policies and our attachment to the started to prioritise our relationship with I cannot recall today who might reasonably hopelessly outmoded treaty that governed Japan (then the only ‘rich’ country in Asia) claim paternity, or at least shared paternity, our bilateral trade relationship, the 1965 in the 1960s. In 1973 we had established of the idea that culminated in the 1978 NAFTA. As noted above, by the 1970s diplomatic relations with Beijing Nareen Declaration; though it must have Australian policymakers were ready to join (admittedly only after Henry Kissinger’s included our trade minister and deputy the rest of the OECD in liberalising (non- historic visit opened the political door), prime minister, Brian Talboys, who signed agriculture) trade, and we were not. At least which would lead to a revolution in our the declaration. The Nareen Declaration in some collective political sense, since trading future: in the 12 months ending was the political culmination of the first neither National nor Labour governments February 2019, we exported on average systematic visit to each of the Australian had shown any interest in doing more than more to China every hour of every day than states by a senior New Zealand minister, at tinkering with import licensing/high tariffs, we exported in a year in 1975. least since the war and probably ever. Australia caught the wind and we stalled, We were also slowly developing our I agree with the assessment that the becalmed in protectionist waters. networks in South East Asia beyond the Nareen Declaration was a signpost on the The Australian frustration with the British Commonwealth countries of way to the CER treaty. But it was only a ‘Shaky Isles’ came to a head over two related

Page 10 – Policy Quarterly – Volume 16, Issue 4 – November 2020 matters. First was the deep disappointment issues ‘negotiated’ by Prime Minister of Australia with the results of the GATT When Muldoon Muldoon and Deputy Prime Minister Tokyo Round and the complete failure of Anthony. But the Australian and New contracting parties to start a process of finally signalled Zealand officials who negotiated, let us say integrating world trade in agriculture with 99% of, CER succeeded only because the the general rules-based framework for the shift in favour key political leaders established what we non-industrial trade. Doug Anthony, leader of CER, the effect would today call the ‘permission space’ to of the then Country Party and deputy move in this direction. Of those political prime minister, with the assistance of Jim was electric. leaders, only two – Muldoon and Anthony Scully, permanent head of the old – are, in my opinion, truly relevant to the Department of Trade and Resources (who actual CER. impressed me the most among a very The two sets of negotiators at the joint impressive group of senior Australian New Zealand Prime Minister’s working party level were not so much officials), arrived at a simple conclusion: Department, for New Zealand. The ‘negotiating’ with each other, as attempting put aside GATT and its failings and department technically responsible for to find a solution set that would pass promote multilateral trade liberalisation, trade policy, the Department of Trade political muster with their respective key at least for the time being – let’s sort out and Industry, was largely and stakeholders – the key lobbies and, most Australia’s trade relationships with our deliberately sidelined because of its importantly, those two key political neighbours, starting with New Zealand. deep ambivalence towards any trade personalities. With a few exceptions – there The second broad shift in Australian liberalisation and thus the CER were one or two destructive officials who perspectives that caught us off guard was negotiation, a legacy of the intellectual set out to wreck the negotiations – the the depth of Australia’s commitment to influence of its most famous head, W.B. personal relationships between the key redirecting Australia’s focus away from the Sutch. Australian and New Zealand officials who UK and Europe and towards Asia. We were • The meetings of permanent heads (of carried out the negotiation were late to the party – to repeat Frank Corner, the key Australian and New Zealand exceptionally good. New Zealand still felt we were an offshore departments) had the responsibility of I would also highlight the significance island somewhere in the English Channel. assessing (and approving) the of the key document launching CER: not These two strands in the direction of recommendations of the joint working the joint communiqué of prime ministers Australian strategic thinking about party. On both the Australian and New Fraser and Muldoon of 30 March 1979, economic policy and foreign policy are Zealand sides, the mid-level officials in which launched the CER negotiation itself reflected in the formal preamble to the CER the working party were constantly (that was well drafted, but with boilerplate treaty (of which I wrote the first draft, via checking informally with their more communiqué language), but the technical a draft heads of agreement). It states: senior colleagues on their ‘political annex accompanying it. That annex comfort levels’ before confirming their essentially ‘pre-negotiated’ some of the key BELIEVING that a closer economic advice to them. political decisions on import licensing and relationship will lead to a more effective • At the top were the New Zealand prime performance-based export subsidies, the use of resources and an increased minister, Robert Muldoon, and the two key Australian concerns. Both had to capacity to contribute to the Australian deputy prime minister, go; the negotiation was only about how. development of the region through Doug Anthony. I have deliberately Almost all the provisions involved closer economic and trading links with described the top political level in this gradualism and progressive liberalisation. other countries, particularly those of the way because, in spite of some The most important by far related to the South Pacific and South East Asia ... determined creative rewriting – even import licensing liberalisation formula, The actual negotiation invention – of history, I have yet to be initially agreed to be strung out to 1995. But, I was asked to write an essay on the convinced that any other ministers (not of course, once the process of progressive background to CER, not the negotiating even the New Zealand trade minister, liberalisation was under way, the commercial process itself; that would require me to Brian Talboys, once the Nareen and political adjustment to the new reality have access to all the files. But to round Declaration had served its pre- began. Within only five years, the New this account out, I will make a few large negotiation purpose) had any real role Zealand manufacturing community and observations about the negotiation, which in the actual negotiation. I will not New Zealand political leaders had realised took place at three levels. develop this here. that the sky had not fallen in. • At the mid-senior official level was the The key negotiations were all Officials were careful not to bite off CER joint working party, chaired by the undertaken at the first – joint working more than they could chew at the outset. For ebullient Frank Anderson, assistant party – level. Only rarely did the ‘sifting’ example, we did not deal comprehensively secretary of the Department of Trade process of the second level (the meetings in the first iteration with services or and Resources, on the Australian side, of permanent heads) make much material investment, but we provided for a and Graham Scott, at that stage in the difference to the results; less still were the comprehensive review of what were called

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 11 The CER Negotiations – the real backstory

‘second generation’ issues, and this proved New Zealand economic settings. Given his myself). I remember walking into the wise and successful. On the more traditional extraordinary predilection for crude room of a senior Trade and Industry problem of trade in goods, there were also interventionism and deep contempt for official (not involved in trade policy but the ‘hardest nuts’ which we did not try to market-oriented policies that I and my responsible for import licensing), who crack initially. But agreement was reached more senior colleagues were fighting for, it said to me essentially (and in mocking on a negotiating process: roughly, ‘industry would be an astonishing claim that he terms), ‘we know this is BS. Muldoon is plans’ that would develop a pathway to supported CER as a mechanism for re- never going to allow it to happen’ – a achieving the objectives of CER within (as engineering fundamental New Zealand view shared by many senior Ministry of I recall) five years. But there was a kicker in policy settings in a more market-oriented Foreign Affairs officials, with the very the tail: in the event of failure to agree on a direction (which is my strong view about important exception of the secretary of plan, the standard default option of CER the real purpose of those so-called ‘trade’ foreign affairs, Mervyn Norrish. would then apply. This helped with some negotiations). When Muldoon finally signalled the very tricky issues, such as dairy and, But what is certain is the following: shift in favour of CER, the effect was although less important, wine. The New • Muldoon approved the initiation of the electric. If I had written this not from Zealand wine industry fought CER tooth CER negotiations and signed off on the memory but from the archives I could find and nail – extraordinary in the light of its operationally effective joint communiqué the transcript of a Morning Report huge success in the Australian market once and annex that scoped the negotiations interview that I recall vividly, even though the industry was forced to compete. and set its terms. Muldoon read it is now nearly 40 years ago. When asked everything – he had an exceptional about the chances of CER being successful, The role of Prime Minister Muldoon intellect, was the most voracious and the prime minister said on radio: ‘I think Finally, a personal comment on the role efficient consumer of written material I it is about 60–40 in favour of success’. I of Robert Muldoon; and here my views have ever met, and had an elephantine recall the panic that statement created in are remarkably similar to those of the memory. certain quarters among those who had one academic study I have read which • Second, he monitored the negotiation wrongly assumed (see above) that the I think puts aside Muldoon’s divisive extremely carefully. There were frequent entire CER negotiation was simply never personality and extraordinarily abusive meetings of the key Cabinet committee going to happen. style of politics to look dispassionately – the Cabinet Economic Committee Following the prime minister’s first at the actual political record and his (CEC) – involving reports back from overtly positive assessment of the CER role in the CER negotiation (Mein New Zealand officials on progress in the negotiations, I recall two or three days later Smith, 2007). CER negotiations. Muldoon, a meeting between Muldoon, Laurie I later became his foreign policy adviser intriguingly, did not chair the CEC, Stevens, president of the New Zealand (a non-political job, and I carried on in that allowing the deputy prime minister, Manufacturers’ Federation, and three of his capacity with his Labour Party successor, Talboys, to do so. Yet in all that senior lieutenants from the regions in the David Lange). In literally hundreds of committee’s CER discussions he never prime minister’s suite. I was the only private conversations I had with Muldoon, once tried to torpedo the negotiation, official present. The Manufacturers’ I never once saw any evidence that he and that is crucial. I think he was testing Federation had passed a series of thought in terms that are customarily the waters and was genuinely neither coordinated resolutions up and down the described as ‘strategic’ – i.e., a systematic committed nor opposed to the radical country demanding that the prime minister series of steps targeted at a predetermined shift in direction CER implied. not proceed. long-term endgame. On the contrary, he • Third, and on the surface at least Muldoon was never going to back was the consummate tactician, adjusting paradoxically, it was immensely helpful down. He dissected the joint resolution of his position to the daily flux of his to New Zealand officials working on the the business leaders analytically and interpretation of daily events. Every negotiations that Muldoon did not brutally, sentence by sentence. Within a encounter I had with him was consistent proactively advocate for CER. All the short period of time, the knights of with his notorious reply to the question as forces in New Zealand that opposed CER industry melted politically. And that was to his ‘vision’ for New Zealand: ‘to leave assumed it was a bureaucrats’ parlour it: with the end of opposition to ‘fortress New Zealand no worse off’. game run by the very people Muldoon New Zealand’, we then embarked on a new So in no sense do I believe that Muldoon would himself call ‘ivory tower chapter of our economic history. saw CER as an opportunity to remould academics’ (such as Graham Scott and

References Maddison, A. (2003) The World Economy: historical statistics, World Bank (1968) ‘The World Bank report on the New Zealand economy, Development Centre Studies, Paris: OECD Publishing 1968’, Wellington: Government Printer Mein Smith, P. (2007) ‘Did Muldoon really “go too slowly” with CER?’, New Zealand Journal of History, 41 (2), pp.161–79

Page 12 – Policy Quarterly – Volume 16, Issue 4 – November 2020 Siah Hwee Ang and Gary Hawke

Trade and Economic Integration in the Asia-Pacific Region Abstract In 2021 New Zealand will chair APEC within a very different Asia- ew Zealand will chair APEC virtually in 2021, 22 years after Pacific economy than was the case when New Zealand last chaired Nits last and to date only hosting. APEC in 1999. The Asia-Pacific production network is now much This article reviews the Asia-Pacific more intensive, covers more economies and is a much larger and regional economy in which New Zealand participates, with an emphasis especially more influential part of the international economy than was the on the impact Covid-19 has had on its Japan-led ‘flying geese’ model of the years before 1999. The single prospects. most important change is China’s increasingly pivotal role in both the The Asia-Pacific economy is now a much larger part of world economic Asia-Pacific and the global economy, despite continuing challenges. activity, as production networks link firms United States dominance of the international framework is more in these economies and their outputs. This development was led initially by Japan’s constrained. Adaptation, which has always characterised global and activities in the region, joined later by the regional governance, will continue as China and the US contest ‘tigers’ – South Korea, Hong Kong, Taiwan technological leadership and the formulation of international rules and Singapore – and then extending throughout South East Asia, creating a and norms, especially in response to the digital revolution. ‘flying geese’ pattern of economic Keywords Asia–Pacific, rise of China, China–US, international development. The rapid rise of China and its overwhelming size, however, meant that governance it could not be seen simply as another member of a flock. Gary Hawke was Professor of Economic History and founding head of the School of Government at Victoria University of Wellington. He has been a member of the board of the New Zealand committee Building on GATT – the General of the Pacific Economic Cooperation Council since 1987 and chaired it from 2002 to 2009. Agreement on Tariffs and Trade – as the Siah Hwee Ang is Professor of International Business and Strategy at Victoria University of Wellington first major regional trade architecture post and director of Southeast Asia Centre of Asia-Pacific Excellence. He thus brings to bear to this forum not only academic analysis but also business knowledge. World War Two, APEC met for the first

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 13 Trade and Economic Integration in the Asia-Pacific Region time in November 1989 in Canberra. Today, Resources, especially a large supply of as China, grows faster than the aggregate it maintains some of the nature of ‘track 2’ affordable labour which had been isolated of which it is a part, it becomes a larger diplomacy, providing a venue for agreeing from the international economy, became fraction of the whole. But, given that its on common objectives and reporting on available, and the world benefited as many economy has grown tenfold since its progress towards their achievement. It does Chinese were lifted out of poverty. accession to the WTO, with an average not negotiate enforceable agreements. The The devaluation of the Chinese yuan annual GDP growth rate of 9.2%, its prominence of ‘track 2’ remains a in January 1994 by 33%, from 5.9 yuan to growth will inevitably slow down. Of distinguishing feature of the Asia–Pacific. 8.7 yuan to the US dollar, has created course it must. But there is still a great deal APEC has witnessed a significant rise significant cost advantages for China since. of underutilised resources in central and of the Asia-Pacific economies. But there By the time of its accession into the World western China which has yet to be fully have also been major setbacks, such as the Trade Organization (WTO) in 2001, China absorbed into the global economy. Asian financial crisis in 1997–98, the global had become the sixth-largest economy in financial crisis in 2008–09, and now the the world. By 2010 it was the second largest. More expectations from China Covid-19 pandemic. The economies in In 2013 it overtook the US to become the The Covid-19 pandemic has led to some APEC now contribute 50% of world world’s largest trading nation and it has concerns around China, one of which is over-dependence on it of other economies. Some instances of relocating factories Scepticism of China has ensured that from China to Vietnam and Thailand the Belt and Road Initiative continues have been observed, but there have been no discussions around how this could to receive a lukewarm reception in be undertaken on a larger scale that also involves trade. It takes significant some countries, most notably in the commitment, effort and time to displace a large trading partner. Commitment West. and effort can be driven by a government, but businesses are unlikely to act for nationalistic reasons. Arguments for reducing risks only make sense if the product trade and 40% of world service held this position since. China’s trade has current profits and opportunities are not trade. been a key instrument of its growth for the forsaken for a future potential reduction Thirteen of New Zealand’s 15 largest past two decades. And as trade rose, so did of risk. Governments that want to exploit trading partners are APEC members, with its economy. To contextualise, in 2018 this hollowing-out will need to have the the UK and Germany the only exceptions. China’s economy grew an equivalent of proper infrastructure and human skill Clearly, developments in the Asia-Pacific seven times the size of New Zealand’s sets in place to do it, and building these are critical from New Zealand’s perspective, economy. takes time. No country possesses the given that Asia-Pacific economies are likely The core of this achievement was the combination of capabilities and capacity to be leading global economic growth reorientation of resources in China towards needed to displace China’s role in the during this pandemic period, and are also satisfying the demands of consumers in global supply or value chains. the likeliest sources of growth in the next China and in the global economy. That Trade can be impeded by infrastructure two decades. required decisions of the Chinese limitations. Logistical challenges include The Covid-19 pandemic is a major government to permit utilisation of the limited and expensive air freight options disruptive force for the economic progress resources, and it required decisions of and limited throughput in shipping in the region. But the pandemic also puts other governments not to exclude Chinese services. This is one of the major a serious dent in many economies outside products – a win–win situation. China was motivations of China’s Belt and Road the region, so we are unlikely to witness a incorporated into the global economy Initiative, to service further trade growth drop in the economic contribution of this because it suited the Chinese desire for (among other benefits). Scepticism of region beyond 2020. We believe several development and modernisation, because China has ensured that the Belt and Road trends will dominate the next decade. it made products available to non-Chinese Initiative continues to receive a lukewarm consumers, and because it created reception in some countries, most notably Trends in the Asia-Pacific economy opportunities for non-Chinese interests to in the West. For the time being, cross- China’s ascendance in the Asia-Pacific participate in the mobilisation process border closures will slow the project down. and global economy through investment in China and related However, China’s commitment to the Belt China’s rise in the global economy is supply chains. and Road Initiative will remain, as it is now not an accident. Since its opening up in It is a mathematical truism that China’s part of the constitution of the Communist 1979, China has been a source of low-cost growth and world growth must eventually Party of China. manufacturing for the rest of the world. converge. When a large component, such

Page 14 – Policy Quarterly – Volume 16, Issue 4 – November 2020 Nor should one focus only on the surprise that China was among the largest technology transfer of foreign companies, immediate flow of goods and services contributors to it. refraining from manipulating its currency, across borders. Production in China has to We have experienced a ‘trade war’ strengthening intellectual property remain aligned with consumer demand. between the two in the last few years, with protection, increasing imports in some This may require knowledge and equipment the US imposing more tariffs on selected sectors and eliminating some non-tariff sourced from abroad, meaning that a Chinese imports and China retaliating with barriers to US exports is a major step. This smooth process of international investment its own list. The US has also demanded might take a few years to materialise, but is required. The environment has to be better trade terms by requesting that the when we eventually get there, the wait will attractive to foreign investors, in terms WTO treats China as a developed country. have been worthwhile. In exchange, the US both of the financial return it offers, and Developing countries are generally able to promises suspensions on some of the of being an attractive location for get away with higher tariffs being imposed; tariffs imposed on Chinese goods. conducting business. China has boosted its although, in this case, China has not really As Lee (2020) rightly points out, the ease of doing business ranking in recent used its developing country status to its full two countries contribute to the global and years, rising from 99th in 2012 to 31st in advantage (Gao and Zhou, 2019). Asia-Pacific economy in different ways, and 2019. In fact, the WTO has recently ruled in it is unimaginable to have one and not the Nonetheless, China has its challenges domestically. While the middle-income group is growing, the consumption Interestingly, even as the economy has not taken off. In 2019 China’s US pushed for more tariffs household consumption constituted only 39% of its GDP, way lower than the global on Chinese imports, US exports average of 63%. The older generation continues to rack up significant savings. As to China were affected more at August 2020, deposits in banks stood at US$30.2 trillion (the figure for the US was than Chinese exports to the US ... $15.6 trillion), slightly more than twice the size of its economy. The domestic economy would be boosted by a small percentage of these savings being spent locally. And the favour of China over its complaints about other for a while. China would rather see Chinese government is encouraging this. the US violating international trade rules a multipolar world, allowing other While the younger population has been by imposing tariffs that do not apply challengers to force the US to work with doing quite a bit of conspicuous equally to other countries (Wall Street Beijing (Yan, 2019). consumption in recent years, the Journal, 2020). This ruling is just going to Unfortunately, what is also brewing is uncertainty surrounding the pandemic is add fuel to the complaints the US has a ‘tech war’ between the two countries, as likely to slow the consumption economy a against the WTO of not being relevant and the US starts to impose rules of engagement little. useful for protecting it from unfair trading on Chinese technology firms in the US. China has become an economic practices. This also extends to US firms’ engagement centrepiece and an integral part of both Interestingly, even as the US pushed for with these Chinese firms abroad: for Asia-Pacific and global supply and value more tariffs on Chinese imports, US example, the use of components or chains. It has not issued a forecast of its exports to China were affected more than software. This will potentially spiral into a GDP growth since the Covid-19 pandemic Chinese exports to the US (Shan, 2019). massive decoupling of global supply and began, choosing to manage its growth in Nonetheless, officials in the US are arguing value chains, leading China and other more flexible and pragmatic ways. But, that trade liberalisation is to be balanced countries to create their own sets of rules given the financial muscle that it has, we with keeping Americans employed of engagement. Geopolitics and should expect it to continue to have a lot (Lighthizer, 2020). Meanwhile, US protectionism will then set in as a result, of say in Asia-Pacific economic matters. consumers are picking up the costs of leading to slower recovery of economies paying for higher-priced substitute imports and businesses from the Covid-19 US versus China: who blinks first? from third countries. It is hard to tell how pandemic. The year 2013 saw the US surpassed effective this tariff strategy will be for the by China as the world’s largest trading US in the medium to long term. The big issue of regional governance nation. When the Trump administration The phase one agreement between the A major challenge in the Asia-Pacific took office in 2016 it adopted a bilateral US and China in January 2020 may be a economy is the maintenance of structures view of trade, meaning a US trade deficit good starting point for the world’s two and processes for creating international with individual countries. The US balance largest economies and trading nations to rules and adjusting them to meet changing of savings and investment ensured reconcile some of their differences. For circumstances. The post-World War Two an aggregate trade deficit, and it is no China, a commitment to avoiding forced international economic architecture

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 15 Trade and Economic Integration in the Asia-Pacific Region of GATT, the World Bank and the Bank both evolved under changing rules. Managing such a process is complex, International Monetary Fund (IMF) circumstances. International economic but above all it requires a positive approach emerged from a more or less conscious architecture evolved, and there was never by all the major players. effort to draw boundaries around the a stable ‘liberal international order’. The The particular problem for the Asia- spheres for autonomous national decisions WTO in effect requires unanimity for Pacific economies is that they sit astride a and for agreed international constraints. important decisions. The US no longer major divide in the international The initial focus of GATT was on accepts that the WTO provides an community. If the Asia-Pacific economies reducing tariffs. But as tariffs were reduced, acceptable international framework and it can reach agreement, their wishes still must at least on manufactured goods, other has used its capacity to paralyse some WTO be reconciled with those of the Europeans, elements of interdependence became more activities, such as the Appellate Body. This yet there would be reasonable prospects of salient. The conditions of interdependence is happening at the same time as technology maintaining an international framework. were modified by subsidies on exports. and consumer demand are generating a If Asian economies reached an agreement Even if these were constrained, exports and need for changes to the agreed boundary without accommodating the US, this imports were modified if subsidies led to between domestic policy and international would be conceived as breaching changes in the composition of outputs. norms. The growth of trade in services has international understandings. And all that is conditional on the idea that there is an agreed understanding of what constitutes Governments should avoid the existing international framework. tempting businesses to focus on Business participation lobbying for preferential positions Both the longer-term development of the global economy and the more immediate against competitors, even in difficult needs of the response to Covid-19 require producers to remain close to their economic conditions. customers. In the modern economy, that means for many businesses being close to other businesses for which their products are an input or component. Even if they The flow of goods also depended on exposed gaps in agreed norms about the make products for final consumers in consumer safety. Agricultural products conditions under which services can be other economies, they are likely to use became subject to agreed sanitary and provided across borders, whether to firms intermediaries in the marketing and phytosanitary requirements, and other goods or to final consumers. The growth of digital servicing functions. were subject to safety requirements. processes within industry and as a For business-to-business links, a Furthermore, firms wanted their products to consumption item has generated even government’s position is important. First, be interoperable (or, sometimes, to prevent more need for renewal of the international businesses need to be confident that the competitors from making competitive economic architecture. rules governing their business relationships components) and private standards were While GATT and the WTO both will not change unexpectedly. They need established. It became more difficult to espoused as a basic principle ‘most assurance that their contractual distinguish safety requirements or private favoured nation’ treatment – that all arrangements will not suddenly become standards from efforts to exclude foreign members should be treated equally – an illegal or be penalised in some way. In this, competition, and ‘technical barriers to trade’ exception was made for free trade we can see economies working progressively became as important in managing agreements in which parties extended to improve their rankings in the ease of interdependence as tariffs. All of these preferential treatment for ‘substantially all doing business index, to attract investors developments took place while GATT was trade’ between them. What was intended and to create an impression of how stable the essential international constraint on to be an unusual exception became a their economy is. As businesses plan their domestic policy. They were formalised and common feature. Now, the WTO is best ongoing concerns, it will be good to taken into a modern world with the creation conceived as overseeing a framework remember that political and regulatory of the WTO in 1995. In the 25 years of the within which groups of economies can instability can cause angst among current WTO there have been continual complaints agree on the rules by which their economic and potential business investors. that the ‘policy space’ for national decisions interdependence is to be managed. The 26 It should also be apparent to businesses was being invaded by extensions of original members of GATT could reach that it is in their interests for the producer– international rules, but there was a agreement on tariffs as a single entity; the customer relationship to be their principal continuous process of adaptation of challenge for the current 164 WTO concern. Governments should avoid international rules to changing circumstances. members is to organise groupings with tempting businesses to focus on lobbying A similar process took place in the agreed rules, all of which are compatible for preferential positions against financial sphere: the IMF and the World with an overall envelope of international competitors, even in difficult economic

Page 16 – Policy Quarterly – Volume 16, Issue 4 – November 2020 conditions. Corruption is thereby avoided, logical advancement should feature highly academic researchers would want and so is distraction from effective business on this agenda. This can be facilitated restrictions on anonymised records of management. Perception of protectionism through frequent interactions between transactions, although most are aware of will lead to lower trust and investment. governments and businesses, allowing the complications which quickly arise There are particular issues around government policies to be as integrated as around the apparently simple notion of state-owned enterprises. Most Western global supply or value chains. ‘anonymised’. Respecting anonymity is economies have evolved mechanisms for We have already discussed the need to different from seeking to advantage insulating businesses from direct political revive a common understanding that domestic producers by giving them direction, the ‘arm’s-length management’ managing economic interdependence privileged access to databases so that they of European nationalised industries being requires finding acceptable balances can better tailor their products to consumer an example. Asian economies have between an agreed international framework preferences. The notion that access should generally developed with more direct and domestic policy choices. An agreed be available to academic researchers but government involvement in industry. international framework is not one that not those engaged in commercial Devising international rules to limit perfectly serves any one particular country, enterprise easily attracts support, but the political influence on international or even a self-appointed exclusive club of number and enthusiasm of academic commerce should not be impossible, but any such effort has been rendered so by the incompatibility of Chinese notions of ... as the region becomes more ‘markets with socialist characteristics’ and American beliefs that competition cannot integrated, economically as well be ‘fair’ when businesses are tied to a as in other ways, international communist government. The South East Asian economies were sensitivity and savviness of integrated into the world economy through the internationalisation of Japanese a government towards the industry. Inter-industry trade – trade among producing companies rather than development in the region trade of products to consumers – has intensified in recent years. China’s is expected. engagement with ASEAN economies has shown that, despite political tensions, businesses can continue to flourish. This allows continuation of the ‘business-led’ countries, imposing their rules as though entrepreneurs destroys any clear distinction character of Asian economic growth, which they are international. between academic research and research should be facilitated by proper alignment The international framework has to for commercial enterprise. National rules of trade regime structures and processes. follow from the construction of the should be developed through the standard contemporary world. In this world, much processes of policy analysis: problem Policy implications public action takes the form of electronic identification, formulation of feasible In our discussion above, we have communication. The boundaries for trade alternatives, conscious selection of the highlighted China’s ascendance in the Asia- set around privacy have to accommodate optimal option, and review. Such a process Pacific and global economy, the challenges this development. There is no point in would necessarily involve international of China’s growth, and its economic starting from a notion of an inviolable cooperation. relationships with the US around the right to privacy. Actions in public can be Managing databases has an obvious Asia–Pacific. We have also discussed the observed and knowledge can be shared and connection with the development of major issues around the structures and utilised. Achieving a balance between algorithms and artificial intelligence, and processes of the regional trade architecture accessibility of public information and has an immediate connection with the and business participation. We conclude privacy of personal information is a policy development of vaccines in response to here with some policy implications. problem in every economy, and in an Covid-19, and hence with the role of The policy implications which need interconnected world national rules have intellectual property. Deliberate and emphasis are not detailed interventions, to have a substantial degree of compatibility. conscious policy analysis cannot be but a focused determination to employ An abstract conclusion to this debate circumvented in the name of ‘medicines analysis to determine where collective will probably come not in a single step but for all’ to bypass intellectual property effort is required. There needs to be some through the gradual evolution of rights to withhold a vaccine. common understanding around data agreements about specific issues. The most The wider agenda includes the management, and the extent of obvious will be dealt with first. Data interaction between government and governmental interventions in techno- management is a likely early subject. Few business. The focus on state-owned

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 17 Trade and Economic Integration in the Asia-Pacific Region enterprises as an illegitimate participant in in resource allocation among competing agreed international norm or requirement, international commerce has always had an activities, even if that is a perfectly sensible but imposition of a national standard on element of American crusade about it. position for the government. There has to a trading partner with different standards European nationalised industries have be international agreement about what is much more questionable if it breaches always managed the delicate relationship becomes distortionary. another agreement. And with the elasticity of indirect and constrained political A similar argument can be made about that is inevitable in international direction, and the New Zealand debate of how economic integration relates to other agreements, there is plenty of space for the 1980s rightly focused on making aspects of international relations. Despite contention about which standard is government direction clearly articulated protestations to the contrary, there is no relevant and appropriate. Patient rather than prohibited. (A senior public serious argument that economic questions diplomacy and toleration of differences are servant of the time asked incredulously, can be entirely separated from other more attainable than any simple answer. ‘Do you really think ministers do not lean aspects of international relations. The The Asia-Pacific economy will take on private sector companies?’) fixation on separation exists because some centre stage in the next decades, and the Again, every society has to determine journalists and commentators wish to rest of the world will be moving closer to how it manages government–business write about security or human rights it. And as the region becomes more interactions, but their decisions have to pay without paying any attention to their integrated, economically as well as in other attention to international understanding economic components. The important ways, international sensitivity and savviness about where the inevitable indirect connections between economic and non- of a government towards the development influence of government decisions economic aspects of international relations in the region is expected. The overriding becomes illegitimate undermining of come when governments seek to use conclusion is that there is no shortage of appropriate economic decision making. control on economic interactions for non- tasks for appropriately qualified diplomats, There should also not be an expectation economic purposes. There cannot be any and that diplomacy is the only answer to that a government may subsidise without objection in principle to controlling in management of the international economy. limit research and development or human some way cross-border economic resource development, but not participate interactions which involve a breach of an

References Gao, H. and W. Zhou (2019) ‘Myth busted: China’s status as a developing Shan, W. (2019) ‘The unwinnable trade war: everyone loses in the U.S.– country gives it few benefits in the World Trade Organisation’, The Chinese clash – but especially Americans’, Foreign Affairs, 98 (6), Conversation, 7 October, https://theconversation.com/myth-busted- pp.99–108 chinas-status-as-a-developing-country-gives-it-few-benefits-in-the- Wall Street Journal (2020) ‘WTO finds some U.S. tariffs on China violate world-trade-organisation-124602 trade rules’, 15 September, https://www.wsj.com/articles/wto-finds- Lee, H.L. (2020) ‘The endangered Asian century: America, China, and the some-u-s-tariffs-on-china-violate-trade-rules-11600188559 perils of confrontation’, Foreign Affairs, 99 (4), pp.52–64 Yan, X. (2019) ‘The age of uneasy peace: Chinese power in a divided Lighthizer, R.E. (2020) ‘How to make trade work for workers: charting a world’, Foreign Affairs, 98 (1), pp.40–6 path between protectionism and globalism’, Foreign Affairs, 99 (4), pp.78–92 IGPS NEWSLETTER very fortnight the IGPS sends out a free newsletter, with editorials by IGPS research staff offering accessible Eexpert analysis of topical issues. The newsletter also features links to recent commentaries and op-ed pieces our people have published elsewhere, and information on upcoming events – both our own and those run by Victoria University’s School of Government and others our subscribers might find interesting. The size and suddenness of the COVID-19 shock has highlighted just that many of those surveyed saw no negative effects. The idea is how far New Zealand has allowed the welfare system to run down laughable; but that’s essentially what NIWA has been doing and become out-dated. Sylvie Mclean, IGPS Commentary, June 2020 Michael Fletcher, IGPS Commentary, April 2020 To subscribe to the newsletter, send an How bad is New Zealand’s freshwater quality? Worse than you email to [email protected] with subject line think, if you’ve been trusting government monitoring to tell you “subscribe to newsletter”. … Imagine a scientific study on the impacts of smoking which included the health outcomes of non-smokers and then claimed

Page 18 – Policy Quarterly – Volume 16, Issue 4 – November 2020 Simon Draper and James To

Driving New Zealand’s Economic Relationship With Asia The Importance Of Growing Connections, Capacity And Confidence population identifies as Asian, and one in six New Zealanders speaks an Asian language. Accompanying this growth Abstract has been a notable expansion of people- How does New Zealand’s engagement across the Asia region affect to-people ties and a deepening of New Zealanders’ Asia knowledge. New Zealand’s prosperity and security? New Zealand’s approach to In recent years the New Zealand developing economic, political and people-to-people connections government has moved to elevate its key across Asia has changed considerably over the last few decades. This relationships in Asia into ‘comprehensive’ and ‘enhanced’ partnerships. At the same article seeks to highlight some of those changes, including how the time, there has been a broadening out of New Zealand public’s perceptions of Asia have changed over time bilateral objectives to include regular and how this has shaped New Zealand foreign policy. The critical ministerial engagement, capacity building, and cooperation in areas such as climate question is whether enough is being done – across public, private change, research, science and film, as well and community sectors – to help position New Zealand as a high- as between Mäori and indigenous populations throughout Asia. value partner in Asia for the long term. While there is good progress being Keywords Asia, ASEAN, APEC, Covid-19, multilateralism, made, the outbreak of Covid-19 and the New Zealand inability to travel have tested the durability of New Zealand’s relationships across Asia. ver the last four–five decades, from being a largely Western-orientated As such, a more deliberate – but different New Zealand’s approach to economy to an Asian-integrated one, – approach to managing both the Odeveloping economic, political there has been a significant shift in New opportunities and the challenges emanating and people-to-people connections across Zealand’s focus, but also its skill set. Today, from the region is required. This has also Asia has changed considerably. From the seven of New Zealand’s top ten trading been true for New Zealand’s private sector late 1980s, when New Zealand moved partners are in Asia, 15% of New Zealand’s and public, whose movements to Asia have been disrupted and who must now find Simon Draper is the executive director of the Asia New Zealand Foundation. He has previously held new ways and means of keeping those several leadership positions within the Ministry of Foreign Affairs and Trade, and played a leading role in New Zealand’s successful campaign for a non-permanent seat on the United Nations Security connections vibrant. Council in 2015–16. James To is a senior adviser (research and engagement) at the Asia New Research conducted by the Asia New Zealand Foundation. He helps deliver the foundation’s Track II diplomacy programme through a Zealand Foundation Te Whïtau Tühono series of dialogues and exchanges with think tank partners across Asia, and works with academics, students and young professionals to develop Asia-related research, policy and career interests. highlights just how important the various

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 19 Driving New Zealand’s Economic Relationship with Asia: the importance of growing connections, capacity and confidence strands of any relationship are, and the As academic Andrew Butcher has important role that perceptions and ... 67% of observed of this period, ‘New Zealand’s experience play in shaping public opinion on New Zealanders engagement with Asia economically and Asia. In an era of Covid-19, when face-to-face demographically was undergoing rapid exchanges are not always possible, there is no agreed that it was and unprecedented change and New question that ‘team New Zealand’ must Zealanders’ needed to be prepared to face dedicate itself to keeping its Asia relationships important for this new reality’ (Butcher, 2015). While active and dynamic, in the same way it has those in business, government and Asian contended with combating the virus itself. New Zealand to ethnic communities were aware of these New Zealanders are well positioned in developments and what they meant, this this respect. For the first time in 25 years of develop political, was not the case for all New Zealanders surveying the New Zealand public, the Asia (Bollard et al., 1989). New Zealand Foundation found in 2019 that economic and over half of that population (51%) rated ‘Getting’ the importance of Asia themselves as having ‘at least a fair amount’ social ties with Asia In terms of New Zealand’s geopolitical of knowledge about Asia, up from 36% in outlook, its instinct and history would 2014. Asia was also recognised as playing an suggest looking towards Australia, the important part in New Zealand’s future. In and privatisation of state-owned United Kingdom or North America as the 2019 survey, Asia ranked second only to enterprises, and entering an age of kin, friends and partners. And indeed, Australia in terms of its perceived importance accelerated globalisation, with emphasis the Asia New Zealand Foundation’s (Asia New Zealand Foundation with Colmar on the movement of capital, goods and research has shown that New Zealanders Brunton, 2020, pp.19, 23, 26). services across international borders. have continued to place a high level of This article seeks to highlight the role New Zealand realised that its future – and importance on their historic Anglosphere of society and public opinion in New particularly its economic prosperity – connections, with many believing extra Zealand’s approach to building would be shaped by Asia. Prime Minister effort should be put into developing these relationships with Asia. It examines New Jim Bolger famously highlighted New relationships for reasons of security and Zealanders’ knowledge of and attitudes Zealand’s proximity to and relationship of like-mindedness – of having similar towards Asia, and how these views and identification with the region when positions, values or cultures (Asia New contribute to building bilateral he said New Zealanders were, in many Zealand Foundation with Colmar Brunton, relationships. It also looks at how New ways, more Asian than European (Rolls, 2020, pp.34, 38). Zealanders’ perceptions of the Asian region 2007, p.206). At this time, policymakers However, as its demography has evolved have changed over time. and officials began to explore ‘much and as its geography would dictate, New The article draws heavily on the more seriously’ the importance of Asian Zealand has found itself increasingly tilting findings of what is now New Zealand’s cultures and economies for New Zealand. towards Asia. A few decades of rapid longest-running study on New Zealand’s The Ministry of External Relations and economic growth in Asia has helped spur connections to and perceptions of Asia. Trade initiated a series of studies of trade New Zealand’s own economic development, The New Zealanders’ Perceptions of Asia patterns with Asian economies, and offering remarkable market opportunities. and Asian Peoples survey has helped to policymakers compiled a comprehensive For a small, export-led economy that is track trends in New Zealanders’ opinions study of trends and prospects for New reliant on comparative advantage, these and knowledge about Asia since 1997. The Zealand’s relationship with the East Asia trade connections have been hard won. It is findings show a clear link between building region (Bollard et al., 1989). necessary for New Zealand to continue to Asia-related knowledge and building Important demographic shifts were also invest in ensuring these links remain robust. confidence in Asia, and how that confidence taking place in New Zealand, driven by an The foundation’s research shows that often leads to a greater willingness to invest opening up of immigration, investment, the New Zealand public has been in doing more with the region. As their education offerings and tourism. Perhaps supportive of such engagement, and also knowledge and confidence have grown, the biggest domestic shift over this period positive about the benefits to New Zealand New Zealanders have tended to rate Asia was the growth in New Zealand’s population from tourism, investment and the transfer as more important to their future. This of Asian ethnicity. Changes to immigration of technology, as well as through article explores why that might be, and how legislation in 1987 saw the establishment of immigration and the exchange of cultures New Zealand’s engagement across the Asia new skilled and investor categories, and, and traditions. In the 2019 survey, around region affects New Zealand’s prosperity more significantly, the facilitation of two-thirds of New Zealanders saw Asia’s and security going forward. immigration from beyond ‘traditional economic growth, as well as the stability source countries’. New Zealand had started and security of Asia, as having positive New Zealand’s place in the region its journey towards becoming one of the effects for New Zealand (ibid., p.14). In the 1990s, New Zealand was emerging most Asia-Pacific multicultural societies in A March 2020 poll, taken as Covid-19 from an era of Rogernomics, deregulation the world (Cunliffe, 2007). was rapidly spreading across borders,

Page 20 – Policy Quarterly – Volume 16, Issue 4 – November 2020 showed that as a result of an increasing economic growth engine. Their rapid sense of interconnectedness with Asia, New New Zealand’s two- transition from being net receivers of Zealanders continued to prioritise the way trade with capacity building to becoming net drivers region as an important partner. In of regional investment and integration November 2019, prior to the Covid-19 ASEAN has grown means that New Zealand must also redefine outbreak, 67% of New Zealanders agreed what it can contribute to the region (To, that it was important for New Zealand to a remarkable 66% 2018). Staying relevant and ahead of the develop political, economic and social ties curve in an increasingly competitive trade with Asia. In March 2020 – mid-pandemic since 2010 ... environment are critical to New Zealand’s – this figure had risen to 79% (ibid., p.11; future prosperity and security. Draper, 2020a). Rather than shy away from Maintaining trade and investment flows Asia out of fear or negative association, are a good start. As of July 2019, the ten New Zealanders considered Asia to be even an ‘early mover’ and to lock in high-value countries that make up ASEAN represented more critical to their future. trade and other relationships before it is New Zealand’s fourth-largest trading bloc, locked out by others. at 12% of New Zealand’s goods trade. New New Zealand’s evolving integration with Asia In short, partnerships across Asia – not Zealand’s two-way trade with ASEAN has For most New Zealanders, Asia has often just with China – will be critical for New grown a remarkable 66% since 2010 been equated with China (Asia New Zealand’s Covid-19 recovery and future (Ministry of Foreign Affairs and Trade, Zealand Foundation with Colmar Brunton, prosperity. While Canberra and Wellington n.d.-b). And as with all high-value 2020, pp.24–5). This has largely been a result have discussed the creation of a ‘trans- relationships, this growth has been of the trade relationship, and also because Tasman travel bubble’, and then a ‘trans- supported by a deepening of people-to- China has been making international Tasman Pacific bubble’, it is also possible people connections across virtually every media headlines. For most countries, the that Asian partners can offer safe and sector, including artist residencies, academic growth of the Chinese economy has offered mutually beneficial connections. There exchanges, media programmes and sporting an unparalleled opportunity for trade and have been several examples of good tournaments (McMillan, 2016). expansion. But there have also been risks cooperation through the early stages of the New Zealand’s long-standing in getting overly exposed to one market. pandemic, with New Zealand and relationship with ASEAN also supports its China’s shutdown in the first quarter Singapore working together to reduce regional objectives (Makhlouf, 2016). New of 2020 showed how quickly economic tariffs on a range of essential products Zealand has viewed ASEAN and ASEAN- fortunes can change for trading partners. including medical supplies needed as part led organisations as being at the centre of Many New Zealand businesses have been of the Covid-19 response (Parker, 2020). a rules-based order and an important looking to diversification strategies for New Zealand’s participation in the United partner for engaging with other regional their ongoing economic resilience, while States-led Economic Prosperity Network actors. To put it another way, New Zealand the government has sought to ensure that (which includes India, Japan, South Korea, has heavily invested in ASEAN centrality the New Zealand–China relationship stays Vietnam and Australia) is another example because a strong, prosperous, stable on an even keel (MacNamara, 2020). The of New Zealand’s cooperation with Asian ASEAN is in New Zealand’s interests too challenge, however, is that governments do partners (Ministry of Foreign Affairs and (Rolls, 2017). not trade with each other; companies do. Trade, 2020). The New Zealand government’s ‘NZ Inc In this regard, market forces rather than ASEAN’ strategy has sought to lay out a plan regulation will ultimately determine the Building genuine equities in Asia’s that will help New Zealand become better number and scale of trade relationships. regional bodies connected and more influential in ASEAN Diversification has not meant that New New Zealand’s long-term investments in countries, and become better integrated Zealand leans away from Asia; in fact, the the Association of Southeast Asian Nations with the ASEAN community. This strategy opposite is true. Already, seven out of ten (ASEAN) and APEC (Asia-Pacific Economic is supported by other agreements such as of New Zealand’s largest trading partners Cooperation) have paid dividends in the Regional Comprehensive Economic are in Asia (Statistics New Zealand, 2019a) terms of establishing trusted relationships Partnership (RCEP) and the Comprehensive and almost all of New Zealand’s free trade and giving New Zealand genuine equities and Progressive Agreement for Trans-Pacific agreements involve Asian economies in the Asia region. In the case of ASEAN, Partnership (CPTPP), and upgrading the (Ministry of Foreign Affairs and Trade, relationships have been built up over ASEAN–Australia–New Zealand Free Trade n.d.-a). This speaks to the immediate decades of engagement, from development Agreement (AANZFTA). AANZFTA has connectedness New Zealand has with the assistance to deepening people-to-people been a high-quality and ambitious region, and the depth of its integration in links and business connections. ASEAN partnership for enhancing trilateral trade, terms of value and supply chains, trade and members have been developing at different but also for confronting some of the investment flows, and the movement of rates, and although some still look to New complex economic and development people. It also reflects the positive effort Zealand for assistance, countries such as challenges facing the region in the coming New Zealand has made over the years to be Vietnam have become part of the world’s 10–20 years.

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 21 Driving New Zealand’s Economic Relationship with Asia: the importance of growing connections, capacity and confidence

New Zealand stepping up in the region all sizes and strengths and offering a fair Dealing with Covid-19 has added another Historical records and predictable trading environment. layer of complexity to the Asia-Pacific And just as New Zealand has benefited region. Global existential issues such as show that in global from being part of the architecture, others climate change, management of migratory crises, the tendency have benefited from its participation too fish stocks and water competition – both (Makhlouf, 2017). New Zealand, together on land and at sea – continue to have has been for nations with other small and medium-sized states, significant implications for the world’s has a role to play in the region by working economic, social and security outlook. to recognise that collectively to protect common interests, These predicaments require collective particularly when protecting such interests action from governments all around the coordinated cannot be done through unilateral political, world if solutions are to be realised. military and economic strength alone. New Historical records show that in global international action Zealand has been a respected advocate for crises, the tendency has been for nations more effective rules to ensure that good to recognise that coordinated is needed ... standards are achieved for all, promoting international action is needed, and – aspects such as governance, transparency, more often than not – to turn to the responsible business conduct, United States to lead that response. simultaneously undermining it, Washington environmental protection and anti- Under the Trump administration, declared China a peer competitor and corruption measures. however, that regional leadership has decided to fight fire with fire. Needless to Looking ahead, the region’s economic been absent. The US retrenchment in say, Washington’s increasingly unilateral fortunes will not revolve around tariffs and Asia has been compounded by a growing approach to trade policy, multilateral duties, but around the evolution of new lack of confidence in multilateral organisations and regional agreements has trade architecture and the rules that govern organisations, and a reversion to resulted in some collateral damage for those structures. In times of uncertainty, nationalistic (or at best quasi-regional) others in the region – particularly smaller there has always been a role for small, strategies to deal with the Covid-19 countries like New Zealand, which have credible powers like New Zealand to join pandemic and its impacts. relied on agreements and multilateral with like-minded others and raise a While the global response to Covid-19 mechanisms to get their voice heard. moderate voice – a voice that does not has shone a light on the potential for cross- New Zealand will be navigating a much place a high premium on size to realise border cooperation, it has also prompted more complex environment not only domestic interests; a voice that reminds some to question whether globalisation because of these geopolitical tensions, but countries to stay calm, to be guided by has gone too far. Even finding a vaccine has also as other governments and regional balanced expertise, and to resolve disputes led to political and security competition, groupings come under pressure to reassess in a way that unites rather than divides especially in the case of Sino-American their own leanings in the face of economic interests (To, forthcoming). relations, where politicisation of the issues, recession and border closures. New The challenge ahead is to develop looking for scapegoats and the spread of Zealand, like everyone else, will be faced commonality of intent between politicians, misinformation have fostered a greater with some critical domestic challenges as bureaucracy and the public to work sense of vulnerability and isolation. The well. What are some of the foreign and together in support of a stable, prosperous situation has also ignited fears of a hastened trade policy areas and initiatives New region. New Zealand hosting APEC in 2021 economic ‘decoupling’ (Bisley, 2020) and Zealand should be looking at during these (albeit virtually) and the APEC Business claims of an ‘end of history’ (Haass, 2020). times of uncertainty and disruption? Advisory Council are examples of how New Even without Covid-19 the world was Rather than follow the lead of the Zealand can work to help inform and experiencing seismic geo-strategic shifts: United States and China, New Zealand’s shape the wider conversation around the challenges to the global trading system approach has been to double down on its benefits of globalisation and international (Young, 2018) and to the World Trade commitment to the rules-based order. New partnerships that reinforce rather than Organization (Epps, 2019); the waning of Zealand does not want to see the gains undermine its values and shared principles. the Bretton Woods model and the made in the Asia-Pacific over the years to emergence of bilateral ‘made-to-order’ be unhinged by single, large players. For Key economic policy challenges in a post- deals; the use of sanctions and growing small countries like New Zealand, investing Covid-19 environment protectionism to protect domestic early in regional organisations, plurilateral It is more important than ever for New economies. The US, leading this particular architecture and rule-making processes has Zealand to learn from Asia – whether it charge, argued that it had been wearing the been paramount in dealing with larger is in the design of smart cities, utilisation costs of the system it was supporting, but foreign and trade policy challenges. These of technology to enhance well-being, or not the benefits. Rather than continue to structures and systems have served New adoption of frugal innovations that can trade with countries like China, which it saw Zealand interests profoundly well by help use scare resources more efficiently. as taking advantage of the system while ‘levelling the playing field’ for countries of Asian countries have been driving

Page 22 – Policy Quarterly – Volume 16, Issue 4 – November 2020 developments in these areas as part of what drives the countries and peoples of their Covid-19 recoveries, but there is Currently, Asia, what motivates them, what interests also opportunity to partner and work investment from them and what worries them. together on shared solutions (Pham, 2019; Asia capacity is also about expertise. It Charoenphan, 2017). Asia accounts for is about knowing the region and developing An Asia New Zealand Foundation products and services that are fit for survey of businesses across the region in a relatively small purpose and future-focused. It is also about April 2020 identified plenty of challenges, making connections that will lead to new ranging from cashflow and supply chains, share of all foreign innovations and advancements. The good to the health and safety of employees. news is that the trend lines have been While the mood was generally pessimistic, investment in positive. The amount of knowledge that there were also some green shoots of New Zealanders say they have about Asia optimism, particularly around the ability New Zealand has grown 18 percentage points over six to innovate and to identify new market years, from 36% in 2014 to 51% in 2019 opportunities. Industries seen as likely to (ibid., pp.23, 26). A key trend observed by be the slowest to recover were tourism the foundation is that the more New (86%) and hospitality (56%). On the investment from Asia might be the Zealanders learn about Asia, the more they upside, respondents felt that manufacturing difference between staying in business or want to know. With greater knowledge, the for domestic markets, financial services not. Currently, investment from Asia more inclined New Zealanders have been and agriculture would recover the fastest. accounts for a relatively small share of all to rate Asia as important to New Zealand’s Manufacturing for export, however, was foreign investment in New Zealand: a 2017 future. To put this another way, having the predicted to be one of the slower industries foundation study showed that Australia, confidence to engage is key. to bounce back (Draper, 2020b). the United Kingdom and the US were New But there remain some obstacles to a Most significantly, respondents felt that Zealand’s largest sources of foreign wider acceptance of building Asia capacity. some technological changes that had been investment, representing 58%; Asian As well as building confidence, growing a adopted would become permanent, investment was less than 10% of the total sense of ‘Asia readiness’ among school including remote working and a shift to (Hamilton-Hart, Fiedler and Fath, 2017). leavers remains a challenge. While 69% of increasingly online interaction. This Investment from Asia has generally been students in 2016 viewed Asia as important highlights the increasing importance of well received in New Zealand. In 2019, 58% to New Zealand’s future, 37% did not see digital trade and the gig economy in a post- of New Zealanders agreed that Asian the need to build Asia-related skills and Covid-19 era. As more people look to investment in New Zealand businesses was knowledge; moreover, since 2012 fewer flexible working arrangements and new a good thing (Asia New Zealand students have been studying Asian income channels – domestically and Foundation Te Whïtau Tühono and languages (Colmar Brunton for the Asia externally – governments need to put in Colmar Brunton, 2020, p.18). And in a New Zealand Foundation, 2017, pp.5-6, place significant structural development post-Covid-19 era, businesses will be 28). If New Zealanders are not equipped and cross-border agreements so that risk to evolving their risk management strategies, for making the most of the opportunities business and the potential for exploitation including seeking to strengthen across the region, they may miss out. of workers and their rights are mitigated, connections with partners across the Languages are a pathway for New including in areas such as facilitation of region. New Zealand will be operating in Zealanders to connect more with Asia. payments, training and support, taxation, a highly competitive market where Currently, one in six New Zealanders can and privacy, security and authenticity in relationships flourish and investment speak an Asian language (Asia New Zealand online systems (Thompson, 2019; Chen, continues only when the right levels of Foundation with Colmar Brunton, 2020, 2020). Economies across Asia are effort and resourcing are applied. p.55) and these New Zealanders display a experiencing these same challenges and New correspondingly high level of Asia Zealand needs to look to the region for Building Asia capacity knowledge (Asia New Zealand Foundation insights into policy reform and development, If efforts to develop New Zealand into with Colmar Brunton, 2019, p.19). The as well as positioning itself through a broader knowledge economy are to majority of speakers come from families initiatives such as the Digital Economy succeed, then knowledge of Asia is a of Asian ethnicity, but although these Partnership Agreement (DEPA) in order to key part of that equation. As the world’s language skills remain strong in adults, be at the forefront of helping shape relevant economic engine continues to gravitate surveys undertaken by the foundation architecture and processes (Ministry of towards Asia, how does New Zealand show that for young children growing up Foreign Affairs and Trade, n.d.-c). deepen its integration into this dynamic in New Zealand these languages are less And in the face of a global downturn, region? One key to better economic frequently used and slowly erode over time, when many other countries will be working relationships with Asia is through building especially as they enter the New Zealand hard to attract capital and investment to knowledge and capacity. This encompasses school system. Yet these multilingual keep their own economies moving, an understanding of what makes Asia tick, students are real assets to New Zealand’s

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 23 Driving New Zealand’s Economic Relationship with Asia: the importance of growing connections, capacity and confidence future workforce. How can Asian skill sets with the challenges of Covid-19 disruption, and competencies be given more In both Asian and the role of social entrepreneurship has appreciation and value in New Zealand’s become an increasingly important part of education system, workforce, and society Mäori cultures, any business model (Draper, 2017; Asia as a whole? establishing a New Zealand Foundation, 2019). To ensure that New Zealand is geared to Ultimately, New Zealand’s make the most from its Asia relationships, relationship always connectedness to Asia has been New Zealand’s public and private sectors demonstrated by its demography. People need to be thinking holistically about how happens before who identify as being of one or more Asian they can support and increase their Asia ethnicities make up 15% of New Zealand’s capability. For some years now, the Asia New undertaking any total population; together they represent Zealand Foundation has been advocating the third-largest and fastest-growing ethnic for a more deliberate and sustainable transactions. population in New Zealand, at 707,598 approach to language learning in schools. people (Statistics New Zealand, n.d.; Asia What is required is a national languages Media Centre, 2020). Over one in five policy. Its survey has shown that 78% of people who identify with at least one Asian New Zealanders believe that children would of Mäori success in Asia has been the ethnic group were born in New Zealand benefit from learning a second language at importance of operating with a strong (Statistics New Zealand, 2019b). A 2017 school (ibid., p.30). But the reality is that sense of cultural pride, cultural integrity study found that 18% of all children under New Zealand has generally left the and mana, fostering mutual respect (Ihi five years of age were of an Asian ethnicity, responsibility of investing in upskilling New Research for the Asia New Zealand with 89% of these children being New Zealanders in Asian languages to foreign Foundation, 2019). Zealand-born (Ho, Cheung and Didham, governments and institutions. In both Asian and Mäori cultures, 2017, p.6). establishing a relationship always happens Nearly a third of Auckland’s population Partnerships, not just transactions before undertaking any transactions. In identifies with an Asian ethnicity; and People matter in Asia. This was made New Zealand’s dominant Anglophone Auckland contributes 40% of New clear in a March 2020 poll, when the contractual mode of operation, it has often Zealand’s GDP. Those two statistics foundation asked New Zealanders what been the transaction first and the demonstrate that Asian businesses make they thought of when they heard the word relationship second. If Asian partners have an important contribution to New ‘Asia’. Despite the pandemic, fewer than adjusted to other ways of working as they Zealand’s national economy. As such, 1% of New Zealanders responded with have integrated with the West, how have Auckland’s growing ethnic Chinese and the word ‘coronavirus’. For most, Asia was New Zealand businesses adjusted as they Indian business communities are uniquely about ‘people’, ‘culture’ and ‘food’ (Asia have developed their trade relationships placed to help New Zealand rebuild its Asia New Zealand Foundation with Colmar across the region? markets. From the first-generation Brunton, 2020, p.25; Draper, 2020a). These migrants who make up a large part of New softer, people-to-people connections are New connections Zealand’s franchise operations, hospitality the backbone of any bilateral relationship, Since 2006, the Asia New Zealand and service sectors, to the second and third and play a role in building capability, Foundation’s Leadership Network has generation of professionals, these confidence and a constituency to carry been nurturing a 400-strong cohort of communities have valuable Asia know-how new ideas forward. Flows of people and Asia-savvy young leaders from all parts of that could help others lift their game in ideas have the potential to lift the skills of a society, both onshore and offshore. These China and India (Asia New Zealand country’s workforce, raise its productivity, young people understand the importance Foundation, 2020). grow confidence and familiarity, improve of Asia for New Zealand’s future, and help its cultural literacy, and open up deeper to amplify that message among their peers, Asia perceptions links to overseas markets. in their workplaces and communities There is still plenty of work to do in terms This has been particularly evident in (Peters, 2006). They are a real-life example of New Zealand’s multicultural engagement the importance and value of tikanga Mäori of how Asia-capable skills and cultural with its Asian communities. While 43% of as an essential part of New Zealand’s awareness can open doors in Asia. New Zealanders in 2018 said they had a character. Mäori have long taken a Similarly, New Zealand’s Young connection with Asian people or culture, relationships-based approach to building Business Leaders Initiative has been helping more than half of all adults (55%) – connections in Asia and there is much to to support young entrepreneurs in New particularly those living outside urban be taken from this (Draper, 2019). Built on Zealand and across Asia who are involved areas – said they did not (Asia New Zealand similar values – including respect towards in cutting edge industries, sustainable Foundation with Colmar Brunton, 2019, elders, kai tahi (eating together) and mahi development initiatives and social p.20). Yet these people are often producing tahi (working together), manaakitanga entrepreneurship. These young the primary products that are exported to (hospitality) and mentorship – a key aspect entrepreneurs have shown how, in dealing Asia, and their children are just as likely as

Page 24 – Policy Quarterly – Volume 16, Issue 4 – November 2020 any others to travel and work in fields where the region are obvious from a trade, being Asia-savvy is a critical advantage. Now more than geopolitical and cultural perceptive. Within But New Zealanders recognise Asian ever is the time for New Zealand, an export-orientated cultural competence as being a valuable skill economy, coupled with demographic links set for New Zealand’s future workforce. In New Zealand to and social connections made through the 2018 Perceptions of Asia survey, 92% of travel, food, the arts, sports and other areas New Zealanders said it was important to realise its shared are all pushing and enabling New have confidence engaging with people from Zealanders to connect even more. Asian cultures; 88% said it was important future with Asia: New Zealand’s partnerships in Asia do to understand Asian protocols and not just provide for its prosperity as a etiquettes; and 84% said it was important we are all in this nation. They are also tied to its security. to understand Asian societies (ibid., p.29). These partnerships help shape robust Survey results also showed how trade together. regional architecture and deliver and personal experience (for example, New agreements that protect New Zealand’s Zealand signing a free trade agreement with people, sovereignty and environment. And China, or undertaking English language such objectives cannot succeed without teaching in Japan) have transformed New diplomacy, an engaged business sector, and public support. There is still much work to Zealanders’ views and understanding of Asia. a New Zealand public that is positively do in building a stronger consensus among When asked which parts of Asia they knew disposed to learn and understand its region stakeholders, businesses and the broader best, North Asia consistently rated highest, are critical ingredients in progressing New community about the growing importance followed by South East Asia and, lastly, Zealand’s economic relationship with Asia. of Asia for New Zealand’s economic well- South Asia. This leaning towards North Asia being. For the government, the critical has meant New Zealanders have tended to Conclusion policy question is whether enough is being rate North Asia as more important to New Since the first policy recommendations done in a concerted and focused effort to Zealand’s future, with 74% saying it was the urging greater engagement with Asia build the pathways that connect New most important region in Asia, followed by in 1989, how have New Zealand’s Zealanders to the many countries 41% for South East Asia and 36% for South relationships with Asia changed over the throughout Asia. These are the connections Asia (Asia New Zealand Foundation and last few decades? The first point to note is that will increase the knowledge, confidence Colmar Brunton, 2020, p.20). Yet South Asia, that there has been a clear and consistent and investment that help position New which includes the second-most populous positive shift of mindset regarding Asia’s Zealand as a high-value partner in Asia for country in the world and the world’s largest importance to New Zealand’s future, the long term. democracy – India – will be playing an among both policymakers and the public, In an age of Covid-19, such connectivity increasingly significant role in future the result of increasing levels of knowledge, has never been so important. The international affairs. Overcoming these contact and engagement over that period. uncertainty and challenges facing global blind spots and biases is important if New Trade potential is certainly a key driver for and regional economic recovery amidst Zealand is to maximise its chances at change, but successful trade relationships rising geopolitical tensions will be having diversification. need to be bolstered by people – the an impact on New Zealand’s economy and It is also true that more work is needed human connections and experiences that society for years to come. Now more than to ensure that Asia understands New give any relationship depth and warmth. ever is the time for New Zealand to realise Zealand and its value proposition as well. There are both external and internal its shared future with Asia: we are all in this One cannot assume that New Zealand is factors driving the growth of New Zealand’s together. known and understood across the rest of Asia relationships. Externally, the growing the world. Effective soft power, active pull of Asia and the opportunities across

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Page 26 – Policy Quarterly – Volume 16, Issue 4 – November 2020 David Capie, Natasha Hamilton-Hart and Jason Young

The Economics-Security Nexus in the US-China Trade Conflict decoupling Introduction: the economics–security nexus For nearly half a century after World War Two, a bipolar international system dilemmas encouraged Western policymakers to Abstract operate on the liberal assumption that economic policy, at least as regards For more than two decades, China was enmeshed in transnational non-adversaries, involved the pursuit of trade and investment networks. The complex interdependence that absolute gains. Such win–win thinking characterised the relationship between the United States and China differs from the zero-sum logic of competition for relative gains that drives is now threatened by policies that incentivise decoupling, including conventional security policy. Although the the partial unwinding of multinational supply chains. Since 2018 economic foundations of military power put forward in modern realist classics the ‘trade war’ between the US and China has taken on elements of (Gilpin, 1981) never disappeared from a ‘tech war’, in which national security concerns replace economic sight, liberal thought tended to prevail. To logic. The area for win–win gains is reduced, as both countries be sure, energy policy was never divorced from security concerns, and notions of pursue policies of greater technological autonomy. The bilateral rift ‘comprehensive security’ in many East creates challenges for companies and third parties who have no wish Asian countries, such as Japan, fused economic, security and technological to take sides and complicates APEC’s goal to promote growth and mastery goals (Samuels, 1996). But, for accelerate regional economic integration. the most part, economic policy and Keywords United States, China, trade, decoupling, security, technology international economic cooperation in the non-communist world proceeded on

David Capie is Associate Professor of International Relations and director of the Centre for Strategic the basis that distributive conflicts over Studies at Victoria University of Wellington. Natasha Hamilton-Hart is a professor in the Department economic matters would be insulated from of Management and International Business and director of the New Zealand Asia Institute at the core national security concerns. University of Auckland. Jason Young is Associate Professor of Political Science and International Liberal analyses suggested a positive Relations at Victoria University of Wellington and director of the New Zealand Contemporary China Research Centre. relationship between economic

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 27 The Economics–Security Nexus in the US-China Trade Conflict: decoupling dilemmas interdependence and reduced interstate manipulation’ (Rauhala, 2016). In office security conflict. The world’s rising power, In December his administration introduced a series of China, was enmeshed in trade and measures that signalled a sharp change in investment networks which dispersed the 2017 the American posture and policy towards the production of manufactured goods across congressionally PRC. As one recent analysis notes: national borders, creating a condition of complex interdependence. By the end of mandated US Although the Trump administration the 20th century the world economy was does not openly embrace the idea of more tightly linked than ever before. National Security decoupling, its various policies – Transnational production networks had restrictions on high-tech exports to fragmented production across national Strategy talked China, expanded investment limits, and borders, qualitatively changing the nature efforts to have American companies of interdependence in ways that would about ‘a new era move production out of China and on- substantially raise the costs of any shore manufacturing in the United disruption as a result of international of strategic States – effectively add up to a conflict (Ravenhill, 2013, p.12). competition’, decoupling strategy. (Kennedy and Tan, United States trade and investment policy 2020) settings tolerated this interdependence until referring to China around 2016. Criticism of China focused on Unlike many of the Trump barriers to accessing the Chinese market or as an ‘adversary’, administration’s actions over the last four unfair trade practices. Policy did not aim to years, the tougher posture towards China disrupt the complex interdependence that a ‘rival’ and ‘a has widespread support in Congress and characterised the United States’ economic across the national security and foreign relationships with both allies and China. This strategic policy establishment. As Gurtov and Selden is no longer the case. Since 2016 the US policy note: establishment has embarked on a radical competitor’ ... reversal of previous policy. China is now A bipartisan consensus in Congress viewed as a strategic rival and economic seems to have concluded that the era of policy has become infused with security engaging China is over. … a hard line concerns. This means that economic towards China. We then present the major on China seems to be the single policy competition is no longer contained within a elements of the Chinese policy, with a focus on which liberals and conservatives are sphere where absolute gains make win–win on China’s own aspirations for in general agreement with one another compromises viable. technological leadership and autonomy. and with President Trump. (Gurtov and The US-China ‘trade war’ of tit-for-tat Section three reviews firm-level responses Selden, 2019) tariffs is only one element of this to US and Chinese policy. It shows that competition. Although economically some firms are altering their supply chains The business community has been perverse, this element does not suggest an and business partnerships both reactively more ambivalent: while US firms have enduring economic rupture: on the US side, and pre-emptively. The concluding section longstanding complaints about unfair it is predicated on a neo-mercantilist desire draws out some policy dilemmas created commercial competition from China, to sell more to China, not to separate the by the US-China conflict for other APEC many are also significantly dependent on two interdependent economies. The ‘tech members. To what extent will they be sales in China. war’, in contrast, suggests a different forced to take sides in the US-China In the policy sphere, the new hard line dynamic at work. There is a strong current conflict as they make decisions around against China is reflected in a host of in policy circles which aims at some form public infrastructure and IT systems official announcements. In December 2017 of ‘decoupling’ of the two countries. This standards? What kinds of shared rules and the congressionally mandated US National could be narrow, with limited restrictions procedures may third countries put in Security Strategy talked about ‘a new era on trade and investment relating to place to manage the trade-offs they face? of strategic competition’, referring to China sensitive technologies, but there is potential as an ‘adversary’, a ‘rival’ and ‘a strategic for more extensive unwinding of supply The US: hardening attitudes and policies competitor’ (Department of Defense, chains and inter-firm linkages. This would Calls for the US to reduce its economic 2017). In a speech in October 2018, Vice substantially erode the complex ties to China have increased since the President Mike Pence accused China of interdependence that has characterised Trump administration came to office using ‘an arsenal of policies inconsistent global trade and production networks for in January 2017. On the campaign trail with free and fair trade’, threatening its the last two decades. Donald Trump railed against China’s neighbours and covert efforts to cultivate The rest of this article first summarises ‘outrageous theft of intellectual property’, political influence inside the United States. the change in the American policy stance ‘illegal dumping’ and ‘devastating currency Pence said: ‘America had hoped that

Page 28 – Policy Quarterly – Volume 16, Issue 4 – November 2020 economic liberalization would bring China additional powers to review mergers and into a greater partnership with us and with The [US] acquisitions. New regulations set out rules the world. Instead, China has chosen for how investments in ‘critical technologies’, economic aggression, which has in turn Department of ‘critical infrastructure’, sensitive personal data, emboldened its growing military’ (Pence, Commerce has and certain real estate and non-controlling 2018). investments would be scrutinised (Jackson, The new approach to the economic– employed its ‘Entity 2020). The result has been that CFIUS security nexus is visible in three distinct has been increasingly willing to block areas of policy: trade, foreign investment List’ under the transactions and force divestiture in cases and emerging technologies. involving Chinese firms. For example, it Export blocked Beijing Kunlun Tech’s purchase Trade of the dating app Grindr and the sale In mid-2018 the Trump administration Administration of Moneygram to the Chinese firm Ant announced new tariffs on a range Financial, apparently because of data privacy of Chinese products, following an Regulations concerns (Danzman and Gertz, 2019). investigation into unfair trade practices to impose pursuant to section 301 of the 1974 Trade Technology Act. The initial targets were solar panels, restrictions on a A third and crucial area of US concern washing machines, steel and aluminium. is control of emerging technologies, China duly retaliated with tariffs of its own. number of Chinese in particular AI, robotics, quantum After talks between the two sides broke computing, nanotechnology and down in June 2019, the US hiked the tariff companies, cutting biotech (Johnson, 2020). In a speech on $200 billion of Chinese goods from 10% in February 2020, Attorney General to 25%, with China again responding. In off their access to William Barr described what he called September 2019 Trump announced duties China’s ‘sustained, highly-coordinated on additional goods, taking the average US the US market and campaign to replace the United States as tariff to 21%. He told a rally that ‘anyone the dominant technological superpower’: who doesn’t want to pay the tariffs has a American ‘the dictatorship has mobilized all elements simple solution: build your product in technologies. of Chinese society – all government, all America, bring your factories back’ (Politi, corporations, all academia, and all of its Wong and Edgecliff-Johnson, 2019). industrious people – to execute seamlessly In December 2019 the two sides an ambitious plan to dominate the core announced agreement of phase one of a Over 90 percent of parts and technologies of the future’ (Barr, 2020). deal in which China committed to components imported from China will The US has introduced a raft of increasing purchases of US goods and continue to be hit. Tariffs on measures to try to counter this perceived services by $200 billion over 2017 levels, intermediate inputs make it more costly threat. The Department of Commerce has stopping currency manipulation, for American companies to integrate employed its ‘Entity List’ under the Export tightening intellectual property rules, and with supply chains in China. For these Administration Regulations to impose refraining from forced technology transfer. products, the result is continued restrictions on a number of Chinese In exchange, the US agreed to halve the pressure for some decoupling of the US companies, cutting off their access to the tariff increase that had been introduced on and Chinese economies. (Brown, 2019) US market and American technologies. $120 billion of Chinese products. More The highest profile case, Huawei difficult, structural issues were saved to be Investment Technologies, is discussed in greater detail dealt with in ‘phase two’. Washington has identified Chinese below, but, as James Lewis from the Center Although the deal was spruiked by the investment as another area of concern. A for International and Strategic Studies administration, the further deterioration key instrument here is the Department noted at the time, ‘the Entity List is reserved in ties between Beijing and Washington of the Treasury’s Committee on Foreign for our most dangerous opponents. It used over the Covid-19 pandemic has raised Investment in the United States (CFIUS), to be you had to be a terrorist supporting doubts about whether the phase one the inter-agency committee tasked with nation or a proliferator, so this is a new commitments will be honoured (Johnson, reviewing foreign investments to determine chapter’ (Swanson and Mozur, 2019). 2020). Furthermore, notwithstanding the their effect on national security. In recent The Department of Commerce has also deal, a swathe of tariffs remain in place (by years, CFIUS has taken on a more expansive expanded export restrictions on other one estimate, on around $370 billion of US understanding of national security and items, including chemicals, micro- imports from China). As Chad Brown has been more active in reviewing foreign organisms and toxins; materials processing; notes, many of these are intermediary investment. The 2018 Foreign Investment electronics design, development and goods: Risk Review Modernization Act gave CFIUS production; computers; sensors and lasers;

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 29 The Economics–Security Nexus in the US-China Trade Conflict: decoupling dilemmas marine technologies; and propulsion order to overcome the structural challenges systems, space vehicles and related With the pushback facing middle-income states and continue equipment. Although the regulations are its international ascent’ (Kennedy and Lim, designed to deny transfer to a military end on investment in 2018, p.554). In order to confront this user, the definition is sufficiently broad that and partnership challenge, China has invested in domestic it would include Chinese state-owned innovation, science and technology and enterprises and private companies with with American research and development (Kennedy, 2018), indirect links to the PLA (People’s and implemented policy to develop high- Liberation Army) (Panda, 2020). technology tech industries to claw its way up the value Finally, the Trump administration has chain and avoid the so-called ‘middle- introduced new restrictions on research companies, income trap’. The ‘pursuit of innovation’ collaborations. Federal agencies have threatens the position of existing tightened rules around transparency and there has been multinational tech companies and creates conflict of interest, requiring that grant the structural conditions for tech rivalry recipients not have links to China’s talent a strong reaction between China and the US (Kennedy and recruitment programmes. In May 2020 the in China to double Lim, 2018, p.571). How China pursues US government announced plans to cancel innovation and tech catch-up exacerbates the visas of and expel students with links down on domestic these concerns. to universities affiliated with the PLA China’s earlier focus on ‘economic (Wong and Barnes, 2020). Legislation has innovation and reform and marketization’ has been steadily been introduced to Congress that, if passed, replaced with ‘stronger state intervention would ban Chinese nationals from reduce their to shape the ongoing structural receiving student visas for science, transformation of the economy’ (Naughton, technology, engineering and mathematics over-reliance 2011, p.313). In the technology area, research (Petti, 2020). policymaking is driven by ‘a strong belief Across these three interrelated areas – on the US. that innovation can be “decreed” or steered trade, investment and technology – the by the government’ (Serger and Breidne, Trump administration and the 116th 2007, p.136). Such beliefs have led to Congress have shown that they are nascent companies through subsidies, industrial policies like Made in China 2025 determined to pursue a very different preferential investment and protection which ‘signal an evolution and relationship with the PRC. The overall from foreign competition; second, intensification of China’s state-led impression is of a zero-sum approach to guidance of China’s tech companies to go approach’ and put the United States and bilateral ties in which all the instruments abroad and invest in leading technology China ‘on a path of separation rather than of national power are used to counter firms to reduce strategic vulnerabilities and integration in critical commercial areas’ China in what has been described as ‘a acquire leading technology; third, efforts (US Chamber of Commerce, 2017; see also long-term strategic competition between to develop and capture market share in BDI, 2019 and Glaser, 2019). our two systems’ (White House, 2020). developing markets. China’s regulatory and legal practices Chinese policymakers are keenly aware are improving in some areas (Baeder, 2019), China: nationalism and internationalism of the limits of the growth strategy that giving the impression of the type of Chinese economic policy seeks to make drove growth from the 1980s. This strategy regulatory system expected of a market China a leading technological nation involved relaxing restrictive labour economy. However, it is naïve to assume (see, for example, State Council, 2018). migration regulations, attracting foreign that a Leninist party state would withdraw This threatens the leading position of investment through preferential policies, from control and guidance of such an existing multinational tech companies and huge investment in infrastructure. As important sector. Science and technological and creates the structural conditions China became the ‘factory of the world’, innovation are central to Xi Jinping’s vision for tech rivalry between China and the multinational companies, including tech for China to become a ‘strong country’ (see US. China has publicly championed companies, were attracted by the promise CPUCPC, n.d.) and to military multilateral commitments to globalisation, of lower production costs. Their investment modernisation and national security but is also expanding its vision of national and activities helped build China’s industrial (Cheung, 2019). security and reassessing the risks of capacity, upskill its workforce and facilitate China’s tech ambitions are also closely interdependence (Gewirtz, 2020). The the development of large-scale production. linked to its relations with the global resultant policy pushes the two economies But the dividend from this strategy has run economy. The opening up in the 1980s towards decoupling. its course (Whyte, 2020). attracted multinational companies to the As discussed here, China’s innovation As a ‘catch-up’ economy, China faces an Chinese market, sought to bind them to drive covers three areas: first, domestic ‘innovation imperative’: ‘the need to Chinese economic interests, and sought to policy which seeks to build up and protect acquire and develop new technologies in hedge against overdependence on the US

Page 30 – Policy Quarterly – Volume 16, Issue 4 – November 2020 market through foreign acquisitions. China aims to develop advanced microprocessors then made efforts to pivot towards For many for analysis of large data sets (Gallagher, domestic innovation, and leverage companies, 2019). An analysis of Apple’s supply chain economic engagements to acquire leading data from 2015 to 2019 showed that, despite tech and internationalise Chinese isolating China Apple’s primary contract manufacturer, companies (Friedberg, 2018). This has Foxconn, having opened facilities outside been a remarkably successful strategy, from their China, in India and Brazil, these locations which has spurred the rise of leading tech were outmatched by the increase in companies like Huawei, ZTE, Tencent and supply chains manufacturing capacity added in China. Alibaba. At the same time, however, China Apple’s suppliers were also increasingly has not provided reciprocal conditions for appears concentrated in China: from 44.9% of all leading tech companies such as Google and supplier locations being in China in 2015, Facebook to operate in the Chinese market, prohibitively to 47.6% in 2019 (Reuters, 2019). putting them at a global disadvantage due For many companies, isolating China to China’s growing market power. costly. from their supply chains appears With the pushback on investment in and prohibitively costly. A survey of American partnership with American technology companies in China in early 2020 found companies, there has been a strong reaction Overall, there is a disjuncture in that 44% of them regarded economic in China to double down on domestic Chinese understandings of the ‘decoupling’ decoupling of the US and China to be innovation and reduce their over-reliance debate. Chinese academic writing and ‘impossible’ (Tong, 2020). However, this on the US. Chinese commentators argue media use the term mostly in a pejorative was a sharp drop from 66% in a similar that the trade war and ‘relentless assault’ on sense, to describe the trade war and US survey only six months earlier. Other Huawei and ‘Chinese high-tech companies tightening of entry requirements for surveys of European and American in AI, robotics and quantum computing’ has Chinese tech companies, and very seldom companies show that the overwhelming ‘taught this country a good lesson’ (Sheng, to describe Chinese actions. State majority remain committed to their China 2020). The ‘lesson’, as articulated by Cai Fang, commentaries even describe decoupling investments (Kennedy and Tan, 2020). a leading Chinese economist and vice arguments as ‘fools dreaming’ (Zhong, Despite such evidence that foreign president of the Chinese Academy of Social 2020). China has employed industrial firms are persisting with ‘in China, for Sciences, is that China can no longer rely on policy and sought to leverage relationships China’ investment strategies, other cooperation with leading US tech companies with US companies while also pursing an indicators show that firms have reacted to and will therefore need to focus even more aggressive policy to decrease dependence the US-China security and trade conflict on domestic innovation and diversification on US tech companies and break into new by unwinding parts of the complex web of (Tang, 2020). Capturing market share in markets. Such policies have not only supply chain links that made for complex developing economies and other non-US created major pushback from the US, but interdependence (Economist, 2019). economies has become central to developing are in themselves effectively a policy of Chinese investment in the US has fallen China into a leading technology nation. Chinese economic decoupling. sharply since flows peaked in 2016. The Scholars have been arguing that China American Enterprise Institute tracks should implement a diversified export Firm responses: shifts in trade and investments of over $100 million by strategy and actively expand exports to investment partnerships Chinese entities in US assets (excluding emerging markets and developing Even as US-China trade conflict worsened bonds), and finds that such investments countries for many years (Cao, 2013). over 2019, liberal analysis of complex soared to reach $54.1 billion in 2016, and Chinese tech companies have made an interdependence remained optimistic, dropped sharply thereafter to $24.6 in 2017, impressive push into developing markets believing that the economic links forged $9.7 billion in 2019 and $2.5 billion in the in the Middle East, Africa, Asia, the Pacific in global supply chains would be too costly first half of 2019 (Scissors, 2019). A more and Latin America (Link, 2019). In these to disrupt. Such voices pointed out, for expansive measure of Chinese foreign markets, companies like Huawei have two example, that a quarter of components direct investment (FDI) in the US shows a major advantages over international used in Huawei’s products are produced by similar sharp fall from 2016, with total competitors. First, while production and leading US companies (Garrett, 2019). Even Chinese FDI in the US dropping to $5 labour costs are increasing in China, in sensitive high-tech areas, new links have billion in 2019, its lowest level since 2009. Chinese companies remain highly been forged. The OpenPower Foundation, US FDI in China, in contrast, remained competitive on price. Second, because tech for example, in which Google and IBM stable at an annual value of $14 billion, innovation is a national strategy, their executives have played central roles, has focused in sectors targeting Chinese activities have the diplomatic backing of facilitated a collaboration between IBM, consumer demand (Hanemann et al., 2020, the state as well as domestic support for Chinese company Semptian and US chip p.9). innovation and technology development. manufacturer Xilinx. The collaboration

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 31 The Economics–Security Nexus in the US-China Trade Conflict: decoupling dilemmas

Trade flows suggest that some likes of Cadence, Synopsis and Mentor decoupling is occurring. The Kearney Huawei and other is used by 85 per cent … it would be Reshoring Index, which captures the almost impossible to find a fabrication sourcing patterns of US manufacturing Chinese plant, or fab, that could still work with companies, rose to a new high in 2019 (Van technology Huawei. (ibid.) den Bossche et al., 2020). The index compares US manufacturing output with companies still The rules threaten HiSilicon, Huawei’s imports of manufactured products from chipmaker affiliate and China’s largest chip 14 Asian countries. Although the 2019 rely on chip- design company, which relies on chip index showed overall ‘reshoring’ of manufacturing by Taiwan Semiconductor domestic supply chains, driven by a sharp makers such as Manufacturing, as TMSC would be fall in US imports of manufactured vulnerable to US sanctions unless an products from China, this occurred Taiwan’s TMSC exemption or waiver is granted (Capri, alongside a large increase in imports of 2020). such products from Vietnam and Mexico for high-end These moves threaten Huawei’s direct- – a pattern attributed by the report’s authors chips, making to-consumer sales. Its share of global to US companies shifting their sourcing smartphone shipments peaked at 18% of strategies in response to the US-China them acutely the total market in the third quarter of conflict (PRNewswire, 2020). 2019 (Counterpoint Research, 2020). Firms were starting to reshore some vulnerable to Huawei is also under pressure in its mobile activity before the current escalation of infrastructure sales in many markets, with US-China conflict, due to increased tightened US its role in the development of 5G automation and a rise in nationalism in infrastructure increasingly thwarted. many countries (Economist, 2017). Rising controls ... Following outright bans by the US and labour costs in China meant that some Australia, more muted reactions in other labour-intensive production was leaving Western countries, such as the United the country for lower-cost locations before Kingdom and Germany, seemed to open the increase in US-China tension from Huawei itself launched a legal case against the door to a restricted role for Huawei. 2016. The exhaustion of China’s earlier the US administration (Lim and Ferguson, However, market players seem to be growth strategy described above was thus 2019). treating Huawei as a risky partner. driving a shift in trade and investment A year later, Huawei was found to be Vodafone, for example, announced in patterns quite independently of national using an array of components made by US February 2020 that it would remove security concerns or conflicts. companies in its newest flagship phone, in Huawei technology from the core of its It is equally clear, however, that some breach of the US rules for companies on European networks at a cost of more than of the decoupling under way is driven by its blacklist (Yang and Liu, 2020). $200 million, following the UK’s decision strategic competition between the US and Apparently in response to revelations that to restrict Huawei’s role in its 5G China. Huawei Technologies – in many Huawei was continuing to use American infrastructure (Reuters, 2020b). ways China’s champion of high-tech technology, the US Commerce Department Huawei has bitterly contested its globalisation – is the most prominent announced in May 2020 that it would exclusions from key markets, but also example of how US restrictions have further tighten the restrictions (Politi and adopted a placatory stance, promising to reconfigured supply chains and corporate Stacey, 2020). The new rules would cut off fix technical security problems. In Europe, strategy. Huawei was placed on the US Huawei and its affiliates from access to Huawei promised to develop a wholly Department of Commerce’s ‘listed entity’ chips that had been made or designed with European manufacturing capacity for 5G blacklist announced in May 2019. Along US equipment – a move that Huawei in Europe (Agence France Presse, 2020). with a presidential executive order issued claimed threatened its survival (Hille, However, Huawei executives have in the same month, this restricted US 2020). According to the same press report, repeatedly said that they have the capacity companies and government agencies from companies manufacturing chips for to develop autonomously, without technology transactions with a ‘foreign Huawei with US tools would have to apply American technology. Its alternative to adversary’ deemed to pose an ‘unacceptable for a licence to do so. This creates a Google’s Android operating system is risk to the national security of the United significant restriction, given that under development. Along with the other States’, unless they received a license to do principal Chinese mobile phone companies, so. Although the restrictions were US machines from the likes of Applied Oppo, Vivo and Xiaomi, it has formed a subsequently eased, they did prompt many Materials and Lam Research are used new alliance aimed at creating an firms to announce that they would restrict by about 40 per cent of the world’s alternative platform to Google Play and sales to Huawei and its affiliates, while chipmakers, while software from the attracting software developers (Reuters,

Page 32 – Policy Quarterly – Volume 16, Issue 4 – November 2020 2020a). As US policy put pressure on interdependence can only weaken the Huawei’s partnerships with university Leaders of APEC moderating effect of shared interests. research laboratories and companies in the Nonetheless, companies and governments US, the company was reportedly seeking economies do are increasingly forced to make a choice new collaborations to develop AI and other not wish to between China and the US. As noted with sensitive technologies with partners in respect to the American moves against Russia (McCarthy, 2019). choose between Huawei: At present, Huawei and other Chinese technology companies still rely on a China-led For the companies caught in the chipmakers such as Taiwan’s TMSC for middle, decoupling will not be a neutral high-end chips, making them acutely technological process. Firms will need to make vulnerable to tightened US controls (Capri, decisions regarding on which side of 2020). This dependence is unlikely to sphere and an the ‘economic Iron Curtain’ they want persist in the medium term, given China’s to fall, guided by considerations of longstanding push to develop more American-led profitability and political risk. (Lim and autonomous high technology capacity. As sphere. Ferguson, 2019) American pressure has ratcheted up, so has the Chinese response, both at the firm level Large companies such as TMSC are and through government directives. Most able to promise parallel supply chains; recently, in May 2020, Chinese state funds South Korea and Vietnam as US ‘allies’) smaller enterprises may be forced to choose invested US$2.25 billion in a wafer plant noticeably excluded China (Sachdeva, a side. owned by Chinese chipmaker 2020). Governments are faced with choices Semiconductor Manufacturing about which players they admit to play International Corp (SMIC), a move Policy dilemmas for APEC members roles in critical infrastructure development. perceived as an attempt to shore up China’s After more than two decades of economic Even when their decisions are explicitly not independent chip manufacturing capacity alignment which fostered complex grounded in nationality-based security in response to tightened US controls interdependence, tensions between the US concerns, the current environment means (Bloomberg, 2020). and China have risen. The two countries that their decisions will be perceived as The dramatic consequences of the now have an adversarial relationship and carrying such connotations. They will Covid-19 pandemic in 2020 are likely to no longer view deep interdependence to continue to need to make such potentially reinforce the decoupling trends described be in the national interest. Both countries fraught decisions on issues relating to here. Supply chain resilience through seek a degree of decoupling and to technical standards, public procurement diversification has become a new mantra diversify their global engagement. This and digital trade. (PRNewswire, 2020). China’s shutdown in shift is especially significant in the area of There may be some potential for APEC early 2020 highlighted discomfiting technological innovation and information and other multilateral groupings to dependence on China for many goods, technology, but is also evident in other develop standards in sensitive areas. including critical medical supplies. Thus, trade areas, as well as financial, health Multilateral rules and standards can the decline in sourcing from China across and education services. Businesses are insulate countries from allegations of a wide range of products seen before the responding by seeking to limit their ‘taking sides’ in the US-China conflict when pandemic is likely to continue (Tan, 2020). economic exposure or are being forced to they make unavoidable regulatory Incentives to de-risk and shorten supply exit the market. Companies are attempting decisions. If APEC can foster consensus on chains are in principle compatible with to restructure and rationalise global value standards and appropriate areas for continued interdependence involving chains to accommodate the new normal. national discretion, it may prevent a Chinese participants in global networks, This partial decoupling is unlikely to be limited decoupling in particularly sensitive particularly as many Chinese suppliers temporary, thereby presenting a series of technologies from escalating to a broader have the capacity to continue their own challenges for organisations like APEC. decoupling that could extend to virtually geographic diversification strategies. Leaders of APEC economies do not all industries. The APEC senior officials’ However, because the pandemic is taking wish to choose between a China-led Steering Committee on Economic and place against a backdrop of heightened US- technological sphere and an American-led Technical Cooperation has a China tension, it will be hard to insulate sphere. Such decoupling of complex telecommunications and information responses to the pandemic from this interdependence is not only economically working group which could potentially conflict. When the US announced the costly; it makes a deteriorating security establish agreed-upon guidelines that formation of a ‘trusted supplier network’ environment even more fragile. If the depoliticise national decisions, away from to avoid the disruption caused by the complex interdependence crafted by deeply the limelight of political leaders’ meetings. Covid-19 shutdowns, its membership enmeshed supply chains is ‘incompatible Such APEC guidelines cannot resolve the (Australia, India, Japan, New Zealand, with war’ (Garrett, 2019), unwinding this US-China conflict. To the extent that either

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 33 The Economics–Security Nexus in the US-China Trade Conflict: decoupling dilemmas

the US or China ultimately aims for such neutral rules and standards. standards or decision rules may limit the decoupling, they will have little interest in Nonetheless, for other APEC members, potential for secondary fallout from the developing, applying or even respecting coming to a consensus on appropriate US-China conflict.

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Barnes (2020) ‘US to expel Chinese graduate students smartphone-giants-said-take-google-play-app-store with links to China’s military schools’, New York Times, 28 May, Reuters (2020b) ‘Vodafone to remove Huawei from core of its European https://www.nytimes.com/2020/05/28/us/politics/china-hong-kong- network after UK decision to restrict Chinese company’s role in 5G’, trump-student-visas.html South China Morning Post, 6 February, https://www.scmp.com/tech/ Yang, Y. and Q. Liu (2020) ‘Huawei’s P40 phone contains US parts enterprises/article/3049264/vodafone-remove-huawei-core-its- despite blacklisting’, Financial Times, 31 March, https://www.ft.com/ european-network-after-uk-decision content/3716c4bb-de27-4920-ab87-46a8a2758ddf Sachdeva, S. (2020) ‘NZ joins US–led Covid coalition’, Newsroom, 8 May, Zhong, S. (2020) ‘“Decoupling” misjudges and goes against the general https://www.newsroom.co.nz/2020/05/08/1160894/nz-joins-us-led- trend’ [in Chinese], People’s Daily, 17 August, http://opinion.people. covid-coalition com.cn/n1/2020/0817/c1003-31823974.html Samuels, R. (1996) ‘Rich Nation, Strong Army’: national security and the technological transformation of Japan, Ithaca: Cornell University Press Scissors, D. (2019) ‘Chinese investments in the US’, American Enterprise Institute, 29 July, https://www.aei.org/multimedia/chinese- investments-us-handout/

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 35 Rory McLeod

Structural Reform, Regulatory Practice and Digital Implications the APEC experience Abstract History of structural reform in APEC In APEC, ‘structural reform’ refers to the This article provides a brief history of APEC’s work on structural set of policy processes designed to address reform under the various APEC instruments that have been structural or ‘behind-the-border’ barriers agreed for these purposes. It then examines the progress made by in order to improve regional economic integration. ‘Behind-the-border barriers’, individual APEC economies in implementing structural reforms in turn, refers to domestic policies, rules themselves. It concludes that APEC members have made good and institutions that impede the efficient operation of markets and the capacity of progress in developing basic policies and institutions in such areas businesses to access markets and operate as competition policy and law, good regulatory practice and ease more productively. The impediments of doing business. APEC has been less successful in encouraging that structural reform policies seek to address can take the form of poorly its members to reform heavily restricted sectors, where there is the designed regulatory systems, competition potential for significant productivity gains. There are also worrying frameworks or governance frameworks. Right from its inception, APEC has signs that recently the pace of reform in many economies has slowed. recognised that policies to promote free and These issues are likely to be thrown into sharp relief by the growth open trade and investment and structural challenges posed by Covid-19. Renewed efforts on structural reform reform are necessary complements in the achievement of regional economic will be required if APEC economies wish to return to a growth path integration. But a key feature of structural based on the expansion of services and the application of digital reform is that it must be developed in a technologies. manner that is specific to the circumstances of each individual APEC member economy Keywords structural reform, competition policy, regulatory reform, and, as such, is dependent on unilateral good regulatory practice, ease of doing business, digital action. Such reform can also be politically difficult, particularly as structural reform is technologies not always distributionally neutral in its Rory McLeod is a lead adviser in the APEC Policy Division of the Ministry of Foreign Affairs and effects. APEC economies have proceeded on Trade. For most of his career in the Ministry of Business, Innovation and Employment he worked the basis that all economies can learn from on structural reform issues, including competition policy, regulatory reform, corporate governance, financial sector law and intellectual property. He was chair of APEC’s Economic Committee from each other in this field by sharing their 2014 to 2017. experiences. They have also recognised that

Page 36 – Policy Quarterly – Volume 16, Issue 4 – November 2020 there is scope for assisting each other Figure 1: Initial work areas for the APEC Economic Committee through individually tailored capacity- building programmes. APEC’s work on structural reform has developed steadily since the 1995 Osaka Regulatory Action Agenda mandated work programmes Reform in such areas as competition policy, deregulation, domestic regulation of services, and cooperation between regulators and standards bodies. Work programmes in many of these areas continue to this day Strengthening under APEC’s Committee for Trade and Competition Economic Investment and its sub-bodies. In 1999, Policy and Legal APEC’s work on structural reform was given LASSR 2010 Infrastructure particular prominence when, under Leaders’ Agenda New Zealand’s host theme of ‘strengthening to Implement Structural Reform markets’, APEC leaders endorsed the APEC Principles to Enhance Competition and Regulatory Reform. This development laid the platform for APEC to create a separate work stream on structural reform issues. In 2004 APEC leaders agreed to the Leaders’ Agenda to Public Sector Corporate Implement Structural Reform (LAISR). By Governance Governance this stage member economies were steadily reducing tariffs and other border protection measures, meaning that behind-the-border barriers were becoming relatively more significant. In addition, APEC member further progress APEC’s structural reform its focus to encompass the work areas economies were becoming aware of the work programme. These instruments mandated under the ANSSR and the potential of e-commerce, thanks to the widened the focus of APEC’s structural RAASR. Under a series of chairs, it has growth of the internet and the early reform work to include a range of issues developed a relatively apolitical style which development of digital technologies. that were also starting to be considered focuses on the substance of the issues and Under the LAISR, leaders recognised under APEC’s trade and investment work on supporting member economies as they that ‘structural reform improves the programme. They were: seek to take forward their domestic policies functioning of market in order … to realize • the 2011 APEC New Strategy on on structural reform. It maintains strong the economic potential of the APEC region Structural Reform (ANSSR): this links with other APEC bodies, particularly by raising our economic efficiency and widened the focus of APEC’s structural the Committee on Trade and Investment increasing our competitiveness’ (APEC, reform work to focus on such areas as (in such areas as services regulation and 2004, p.3). APEC’s Economic Committee labour market opportunities, social and international regulatory cooperation) and (which up to that point had a relatively safety net programmes, and women’s the Finance Ministers’ Process (in such narrow focus) was repurposed to take and small to medium enterprise areas as the regulation of infrastructure, forward the new work programme on development; financial markets and financial services). structural reform. The agenda identified • the 2015 Renewed APEC Agenda on A convention has also developed five work areas: regulatory reform, Structural Reform (RAASR): while whereby structural reform ministers will strengthening economic and legal stressing the importance of existing meet every five years or so to set the work infrastructure, competition policy, work areas such as regulatory reform, programme for the committee. The corporate governance and public sector the RAASR further widened APEC’s mandate provided under the RAASR management. A sixth work area, ‘ease of structural reform agenda to focus on expires in 2020 and structural reform doing business’ (EoDB), was added in 2009 new areas such as innovation (as the ministers were due to meet in Malaysia this when APEC leaders endorsed a target of forerunner of digital policies), services, year to agree on a new instrument.1 achieving a 25% improvement in selected and the links between structural reform EoDB indicators by 2015. and inclusive growth. Implementing structural reform in The mandate extended by leaders under APEC’s Economic Committee has APEC economies this agenda expired in 2010. After that time, continue to divide its work under the six As with APEC’s work on trade and two new instruments were agreed to work areas outlined above, but has widened investment, the success of its work on

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 37 Structural Reform, Regulatory Practice and Digital Implications – the APEC experience

Table 1: Adoption of GRPs across APEC member economies, 2011-16 good progress on adopting the key General regulatory practice % change % of APEC % of APEC policies and institutions needed to achieve 2011–16 economies economies structural change. For example, the APEC adopting this adopting this GRP competition policy and law database GRP in 2011 by 2016 (maintained by Chinese Taipei) shows that Ability to manage regulatory reform 20 of 21 APEC members have now put in Adoption of national regulatory strategy 33% 57% 76% place competition laws and established Institutions tasked with managing a 27% 52% 67% enforcement authorities. Malaysia put government-wide programme of regulatory in place a Competition Act in 2010, the reform Philippines’ Competition Act was adopted Adoption of good regulatory principles 46% 62% 90% in 2015 and the Vietnamese Competition across government Law was passed in 2018. Many of these laws Publication of an annual regulatory/ 30% 48% 62% have been adopted in parallel with APEC legislative plan work and training programmes on the Systemic review of regulations for cost and 0% 100% 100% best approaches to competition law. The effectiveness Philippines in 2015 and Vietnam in 2017 used the profile provided by their APEC Adoption of regulatory impact assessment host years to promote the advantages Is there a mandatory RIA process? 8% 57% 62% of competition law to their domestic Does the government use any form of RIA? 75% 38% 67% audience. Are trade and competition principles NA* NA* 43% At the same time, many APEC integrated into regulatory review and developing economies still lack experience analysis? in operating competition law. Their Public consultation and transparency mechanisms competition authorities have taken Are draft legal documents and RIAs 50% 38% 57% comparatively few cases and lack the published for comment before adoption? expertise to take on more. Furthermore, Publication is done on a central web 75% 38% 67% the ‘competition culture’ in many APEC portal rather than on individual ministry economies is still embryonic. ‘Competition websites? culture’ refers to the group of people from Does the government use social media NA* NA* 67% government, academia and the private tools to notify stakeholders of regulatory sector who understand and advocate the activities or to consult? benefits of adopting pro-competition Is feedback given to stakeholders after 20% 48% 57% regulatory reforms across different policy consultation is completed? areas. This has meant that adoption of such Is there a single online location for NA* NA* 62% reforms in key sectors has often been slow. regulatory information across the whole of Further discussion on this follows in the government? next section. *This question was not included in the 2011 survey Similar progress is evident in the area structural reform can be assessed on the made on the basis of existing material. of regulatory reform. In 2017 the United basis of the extent to which APEC members These suggest that progress can be grouped States Agency for International have taken the lessons learnt in APEC and under two broad headings: Development, on behalf of APEC, unilaterally translated these into improved • progress made by APEC members in measured progress in implementing good domestic policies. Where structural reform developing the policies and institutions regulatory practices in APEC economies differs, however, is that APEC members do required to carry out structural reform; (Jacobs, 2017). (Good regulatory practices not generally have the opportunity to take • progress made in applying these policies are essentially institutions that APEC a further step and entrench these policies and institutions to effect change in member economies can put in place that in the form of internationally binding specific areas of the economy, particularly are designed to ensure the quality of rules. For trade and investment this heavily restricted sectors with scope for regulatory policy processes.) Table 1 shows occurs through agreements reached under significant productivity gains. that good progress has been made in three regional trade agreements and through the key areas: the ability to manage regulatory World Trade Organization, hence APEC’s Putting in place structural reform; adoption of regulatory impact traditionally strong support for the WTO. reform policies and institutions assessment; and public consultation A full assessment of progress made by Since the Leaders’ Agenda to Implement mechanisms. Yet the report also highlights APEC economies in the area of structural Structural Reform was agreed to in 2004, that many of these institutions are reform has yet to be undertaken. However, APEC economies, particularly developing embryonic and lack expertise, particularly some preliminary observations can be economies, have in many respects made in developing economies, and that there

Page 38 – Policy Quarterly – Volume 16, Issue 4 – November 2020 are significant gaps of coverage in Figure 2: Accumulated overall progress in second APEC EoDB action plan (2016–18) individual APEC member countries. 25% A third area where progress can be shown is in ease of doing business (EoDB). 20.9% Two APEC EoDB action plans have been 20% undertaken using the World Bank’s doing 18.1% 16.9% business indicators for five priority areas: starting a business; dealing with 15% construction permits; getting credit; trading across borders; and enforcing 11.8% 11.6% 10.8% 10.5% 10% contracts. The results of these programmes 10% target were: 7.1% 7.3% • a 14.6% improvement was shown for the first APEC EoDB action plan, which 5% 4.4% 3.6% 3.2% ran from 2009 to 2015 (against a target 2.5% 1.9% 1.2% 1.6% 1.4% of 25%) (APEC Policy Support Unit, 0.5% 2016b); 0% Starting a Dealing with Getting Trading Enforcing Overall • as detailed in Figure 2, an 11.6% business construction credit across contacts progress permits borders improvement was shown for the second End Of 2016 End Of 2017 End Of 2018 APEC EoDB action plan, which ran Source: APEC Policy Support Unit, 2019a from 2016 to 2018 (against a target of 10%) (APEC Policy Support Unit, The extent of the challenge was laid out low (especially when compared to trade in 2019a). in a seminal 2011 econometric study by manufacturing) and key services sectors EoDB improvements are based on the APEC Policy Support Unit, which were heavily restricted when compared to regulatory reforms that deliver tangible examined the effects of structural reforms developed economies both within and and meaningful improvements for to remove barriers to competition in air, outside APEC. Addressing these restrictions business. They also draw heavily on maritime and road transport, electricity would require significant structural reform. innovations such as the use of digital and gas, and telecommunications across Figure 3 is drawn from this report and technologies to deliver such improvements. all APEC economies (APEC Policy Support shows the restrictiveness levels in Across the APEC region over the period of Unit, 2011). The study outlined a package individual services sectors using OECD the second action plan, the time taken to of reforms which, across the APEC region, data that is available for 11 APEC register a new company fell from 16.9 to would have the effect of creating $175 economies under the OECD’s trade 10.1 days; the average time required to billion in additional real income (in 2004 restrictiveness index. This index measures obtain a construction permit was reduced dollars). The gains from these reforms restrictions in such areas as foreign entry, from 139 to 129 days; the average time alone would be almost twice as large as the discriminatory measures, regulatory needed to export and import goods fell by total gains that could be achieved from the transparency, the movement of people, and seven and eight days respectively; and complete liberalisation of mercantile trade. other barriers to competition. Figure 3 more than a third of APEC economies In terms of productivity effects, the reform shows that restrictions are particularly experienced an improvement in the would lead to productivity gains of high in such sectors as air and maritime perceived quality of their judicial processes between 2% and 14% across the sectors transport, logistics and courier, and for enforcing contracts. studied. The largest gains would occur in telecommunications and broadcasting.2 developing economies, such as Indonesia, Furthermore, there is little evidence Current structural reform challenges for Malaysia, Mexico, the Philippines, Chinese that APEC members have moved to reduce APEC economies Taipei and Vietnam. these restrictions over time. Figure 4 shows While the previous section has shown that Other APEC work on services changes in services trade restrictiveness for APEC economies have made good progress corroborates these findings. The 2016 selected APEC economies between 2008– in putting in place the key institutions APEC economic policy report on structural 11 and 2016. While there has been a slight needed for structural reform, there is less reform and services (APEC Policy Support drop in restrictiveness for some economies evidence that APEC economies as a group Unit, 2016a) argued that if APEC was to (such as China), for developing economies have made significant progress over the maintain current growth rates, future such as Thailand, the Philippines, Malaysia past decade in implementing structural growth would need to be based on services and Indonesia most have remained about reform policies in key areas where rather than on manufactured products. the same and stayed high. significant efficiency gains can be made. However, the report showed that making The evidence on the slow pace of This applies strongly to large services this transition was difficult for APEC structural reform in the services sectors of sectors such as telecommunications, developing members, given that the size of APEC economies is corroborated more energy and transport. services sectors was small, trade in services broadly by a recent IMF study. The IMF’s

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 39 Structural Reform, Regulatory Practice and Digital Implications – the APEC experience

Figure 3: Selected APEC data from the OECD Services Trade Restrictiveness Index

0.6

0.5

0.4 Score 0.3

0.2

0.1

0 g g ght g ght age g ution Legal Courier itecture Telecom h Insurance Logistics Computer c ics freight s customsbrokage transportDistrib Engineerin Accounting transport c Ar forwardinConstruction Road frei Air transport Road frei ercial bankin Broadcasting ogist Motion pictures Sound recording L Logisticsand warehousestor cargo-handin Logisti Maritime transport Comm Sector Restrictions on foreign entry Restrictions to movement of people Other discriminatory measures Barriers to competition Regulatory transparency

Source: APEC PSU computations based on OECD data for 11 APEC economies

2018 World Economic Outlook (IMF, 2019) convergence, raising annual GDP growth to return to a positive growth path. This shows, based on empirical analysis, that the by about one percentage point for some potential is all the greater thanks to recent pace of structural reform has slowed years. rapid growth in areas such as 5G and markedly in the past decade, and that this artificial intelligence. It is likely, therefore, is having real implications for growth and Structural reform and digital technologies that the region’s governments will seek convergence. At current growth rates it As the Asia-Pacific region emerges from to spend considerable resources on the would take more than 50 years for a typical the health shocks of Covid-19 and seeks to development of digital infrastructure and emerging market economy to close half of address the massive economic challenges skills to facilitate this growth path. its current income gap with developed the pandemic has caused, there is general However, there are a number of economies. Furthermore, the rate of agreement that digital technologies have structural reform issues that APEC slowdown has been greater for emerging a critical role to play. Digital technologies economies will need to address if they wish markets and developing economies in the have played a key role in allowing APEC to fully achieve the potential productivity Asia-Pacific region than it has for other economies to continue to function benefits of digital economies. In its advice regions in the world (other than sub- during the pandemic, albeit at a reduced to the G20, the OECD has consistently Saharan Africa). Overall, the study found level. There is also agreement that digital stressed that a precondition for realising that a structural reform package across six technologies will be pivotal as drivers of potential productivity gains from digital areas might double the speed of increased productivity as the region seeks technologies is workable competition in a converging communications sector (i.e. the Figure 4: Comparison of services trade restrictiveness indexes for 16 APRC economies in 2008–11 and 2016 sector that represents the coming together of telecommunications, broadcasting and 100 ICT) (OECD, 2017, p.8). The presence of such competition affects both the costs to 80 businesses and individuals seeking to use digital technologies, and the ease with 60 which firms can enter markets to compete by using new technologies. As noted in the previous section, these sectors are subject 40 to competition restrictions in many APEC economies, and costs for internet 20 connection, mobile and other technologies are relatively high.

0 Other structural reform challenges n m faced by APEC economies with respect to Peru USA Japa Chile Korea Canada Thailand digital technologies are: Australia Veit Na Philipines Malaysia Indonesia New Zealand China 2011 Mexico 2011 • ensuring that sectoral regulations are 2008-11 2016 Russia Federation ‘technology neutral’, so that firms Source: WTO seeking to use new technologies can

Page 40 – Policy Quarterly – Volume 16, Issue 4 – November 2020 effectively compete with firms using Table 2: ECIPE digital trade restrictiveness for APEC economies existing technologies; DTRI Type of restrictions • gaining a greater understanding of the 0 = least-restrictive 0 = least-restrictive, 1 = most-restrictive market power of digital platforms: this 1 = most-restrictive area is controversial due to the increasing Rank DTRI Economy Index Fiscal Establishment Restrictions Trading concentration and vertical integration 1 = most restrictions restrictions on data restrictions of these platforms on the one hand, and restrictive & market the potential for competition from new 65 = least access technologies to (eventually) sweep away 1 China 0.7 0.6 0.77 0.82 0.63 such platforms on the other; 2 Russia 0.46 0.4 0.4 0.63 0.43 • addressing network and natural 4 Indonesia 0.43 0.43 0.36 0.44 0.48 monopoly issues around spectrum and 5 Vietnam 0.41 0.22 0.50 0.43 0.51 broadband as the backbone of the digital 10 Thailand 0.35 0.27 0.54 0.29 0.28 economy; 11 Malaysia 0.34 0.20 0.45 0.35 0.35 • seeking to develop cross-cutting capability in areas such as payment 15 Korea 0.31 0.33 0.25 0.39 0.28 systems, electronic identities and 18 Mexico 0.27 0.24 0.30 0.26 0.27 communications systems; and 22 USA 0.26 0.37 0.38 0.15 0.12 • providing cross-border interoperability 23 Ch. Taipei 0.25 0.13 0.46 0.12 0.30 or harmonisation of regulatory 27 Australia 0.23 0.25 0.28 0.25 0.15 approaches to data flows, data privacy 29 Canada 0.23 0.10 0.29 0.25 0.26 and cybersecurity. 32 Philippines 0.22 0.27 0.34 0.11 0.17 Again, the gains for APEC economies 50 Japan 0.18 0.21 0.35 0.04 0.11 in addressing these challenges will be 56 Chile 0.15 0.28 0.17 0.04 0.12 significant, as restrictions on competition exist in all the areas listed above. Some are 57 Singapore 0.15 0.02 0.24 0.25 0.11 illustrated in data from the ECIPE Digital 58 Peru 0.15 0.11 0.24 0.22 0.05 Trade Restrictiveness Index set out in Table 61 HK, China 0.13 0.02 0.07 0.16 0.27 2, showing that many APEC economies 65 New Zealand 0.09 0.08 0.07 0.22 0.00 have relatively high levels of restrictiveness. Source: Ferracane, Lee-Makiyama and van der Marel, 2018, pp.15–16 It was for this reason that the most challenges posed by Covid-19. Eventually contraction of 6.8% of GDP in the first prominent recommendation of the 2019 the fiscal responses to the crisis will hit quarter this year. In a policy document APEC economic policy report on structural natural limits as government budgets released on 30 March 2020, the Chinese reform and digital technologies was that and borrowing capacity are depleted. government announced deep structural APEC economies should ‘get core structural Similarly, there appear to be limits to the reforms to be implemented in the aftermath reforms right with respect to the digital stimulus that monetary policy can provide of Covid-19 and aimed at making the economy’ (APEC, 2019b). in today’s low inflation, low interest rate economy more market driven and efficient. Yet APEC has been slow to get going on environment. These included: its collective work in this area. APEC’s main There is little doubt, then, that • removal of restrictions on how rural instrument on digital technologies, the structural reform will come to be seen as land can be sold and used for APEC Internet and Digital Economy an important part of the toolkit for commercial purposes; Roadmap, is light on structural reform governments in responding to the crisis. • significant labour market reforms, elements. One provision calls for Structural reform has the advantages that including the removal of the household ‘promoting coherence and cooperation of it seeks to improve the efficiency of markets registration system across much of regulatory approaches affecting the and the productivity of factors of China; and Internet and Digital Economy’ (APEC, production. It was employed widely as part • reforms to the banking system and 2017, p.2), but none address tackling of the response to previous economic crises, stock market rules, including the barriers to competition in the digital space. such as the Asian financial crisis in 1997 integration of benchmark and deposit Furthermore, there is no evidence of a work and the global financial crisis in 2008. It rates with market rates. programme emerging as yet to tackle even was these crises that allowed governments Commenting on the reforms, the chief this more limited focus. to confront the political challenges of economic commentator at Forbes Asia, structural reform, in that they created Yuwa Hedrick-Wong, stated: Structural reform and Covid-19 winners and losers. A key question now facing APEC It appears that the process of structural Ostensibly these structural reforms are economies is what role should structural reform may have already started in China, needed, above and beyond the cyclical reform play in responding to the economic which experienced an economic measures described, to revitalize an

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 41 Structural Reform, Regulatory Practice and Digital Implications – the APEC experience

economy ravaged by COVID-19. Upon for inclusive growth: three approaches’ doing business. It has been less successful closer scrutiny, however, it becomes (APEC Economic Committee, 2018), in encouraging its members to reform clear that these are some of the deepest outlined some thoughts on how this could heavily restricted sectors, where there is structural reforms that had been occur. The paper noted that, in addition to the potential for significant productivity proposed and debated for the last two undertaking core structural reform well, gains. decades, and were strenuously resisted member economies could also: In more recent years there have been and successfully blocked by local • give priority to ‘pro-inclusion’ structural worrying signs that APEC economies have governments. It appears that Beijing is reforms: examples in this area could lost momentum in the area of structural taking advantage of COVID-19 and the include improving competition regimes reform. Even prior to the advent of unprecedented GDP contraction to so that small businesses have improved Covid-19 it would have been necessary to ram through tough reforms that would access to digital markets, or seeking to quicken the pace of reform if individual otherwise be harder to do. (Hedrick- benefit the general population by economies wished to maintain their Wong, 2020) structural reforms in such areas as growth trajectories. This applied education, health and infrastructure particularly to structural reform of key In undertaking structural reforms, provision; and services industries, and of industries where there are at least two issues that APEC • seek to integrate structural reform digital technologies provided the potential economies need to think about. The first policies with polices in other areas for significant growth. is the phasing of reforms. In this respect, it designed to achieve broader inclusion These issues have been thrown into will be important to not seek to implement objectives: this could mean, for sharp relief by the current economic crisis reforms until there is a decent prospect of example, that structural reform policies in the region brought on by the Covid-19 economic recovery occurring. Otherwise are accompanied by industry policies pandemic. Structural reform must now be there is a risk that reforms will cause designed to facilitate the growth of seen as a priority if APEC economies wish further upheaval in APEC economies particular sectors, or skills development to return to a growth path. APEC without the concomitant gains. It will also policies designed to equip workers with economies have shown that they can help be important to give priority to reforms skills required in a new economic each other significantly with this process that provide the largest economic gains. In landscape. through work undertaken in the Economic that respect, the types of reforms outlined Committee and elsewhere. It does, however, earlier to promote the growth of key Conclusion mean that the next agreed structural services sectors and the digital economy This article has argued that since its reform instrument to take the work assume particular importance. inception, APEC has been successful programme forward (due in 2020 as a The second issue is that APEC in providing for the consideration of successor to the RAASR) will be of critical governments will need to think about how sensible structural reform policies importance and requires both significant to deal with the costs of structural reform, within its member economies. It has also thought and strong political support. particularly as the impact of the economic facilitated the development of specific 1 However, this meeting may be delayed because of the crisis brought on by Covid-19 has been structural reform policies and institutions, challenges posed by Covid-19. particularly hard on the region’s vulnerable particularly for developing members, in 2 Restrictions would almost certainly be higher if data were available for all APEC economies, given that all economies populations. A recent paper from the APEC such areas as competition policy and for which data is not available are developing economies, Economic Committee, ‘Structural reforms law, good regulatory practice and ease of where restrictions are generally higher.

References APEC (2004) ‘Leaders’ Agenda to Implement Structural Reform’, http:// APEC Policy Support Unit (2019b) APEC Economic Policy Report: structural apec.org/Meeting-Papers/Leaders-Declarations/2004/2004_aelm reform and the digital economy, Singapore: APEC Policy Support Unit, 2019 APEC (2017) ‘APEC Internet and Digital Economy Roadmap’ Ferracane, F., H. Lee-Makiyama and E. van der Marel (2018) Digital Trade APEC Economic Committee (2018) ‘Structural reforms for inclusive Restrictiveness Index, Brussels: European Centre for International growth: three approaches’, https://www.google.com/search?client=safa Political Economy ri&rls=en&q=Structural+Reforms+for+Inclusive+Growth:+Three+A Hedrick-Wong, Y. (2020) ‘China’s GDP contraction a window to its pproaches&ie=UTF-8&oe=UTF-8 post-coronavirus future’, Forbes, 19 April, https://www.forbes.com/ APEC Policy Support Unit (2011) The Impact and Benefits of Structural sites/yuwahedrickwong/2020/04/19/chinas-unprecedented-gdp- Reforms in the Transport, Energy and Telecommunications Sectors in contraction-opens-the-opportunity-for-sweeping- APEC Economies, Singapore: APEC Policy Support Unit, 2011 reforms/#35205c7bc165 APEC Policy Support Unit (2016a) APEC Economic Policy Report: IMF (2019) World Economic Outlook, International Monetary Fund, October structural reform and services, Singapore: APEC Policy Support Unit, 2019, https://www.imf.org/external/pubs/ft/weo/2019/02/weodata/ 2015 index.aspx APEC Policy Support Unit (2016b) APEC’s Ease of Doing Business: final Jacobs, S. (2017) 2016 Final Report on Good Regulatory Practices in assessment 2009–2015, Singapore: APEC Policy Support Unit APEC Economies, APEC/USAID APEC Policy Support Unit (2019a) APEC’s Ease of Doing Business: final OECD (2017) Key Issues for Digital Transformation in the G20, report assessment 2015–2018, Singapore: APEC Policy Support Unit prepared for a joint G20 German presidency/OECD conference, Berlin

Page 42 – Policy Quarterly – Volume 16, Issue 4 – November 2020 Stephanie Honey

Agriculture Trade Reform and Sustainable and Inclusive Food Security Abstract nsuring access for all to sufficient, safe, affordable and nutritious food The food system in the Asia-Pacific needs to be viewed as a Ehas long been a challenge in the whole, from production to plate, in order not only to achieve Asia–Pacific. Although APEC economies food security in the region but also to contribute to sustainable have made laudable improvements in recent decades, they have struggled to and inclusive growth. To that end, there is a strong case for Asia- achieve durable, inclusive and region- Pacific economies to bring a renewed focus to structural reform wide food security, against the challenging backdrop of an expanding population and in agriculture, including substantially reducing trade-distorting natural disasters and other shocks. APEC subsidies and liberalising market access barriers, alongside seeking economies agreed in a 2014 ‘roadmap’ to increase productivity, improve infrastructure and leverage digital that they would work towards creating an APEC food system which would free technologies. The Covid-19 pandemic underscores the importance the region’s people from hunger and of open, undistorted markets, and will also stand economies in good malnutrition and would at the same stead in the longer term as adverse impacts from climate change add time foster an agri-food sector that was ‘economically efficient and profitable, to production challenges and potential food insecurity. socially acceptable, and environmentally Keywords trade, food security, tariffs, subsidies, protectionism, sound’, including through encouraging food production and trade (APEC, 2014). sustainability, environment, inclusion, agriculture, food The year after the APEC Food Security Roadmap was agreed, policymakers from Stephanie Honey (Honey Consulting Ltd) is a trade policy consultant and was formerly around the world established the United New Zealand’s chief agriculture negotiator in the WTO Doha Round. She serves as the policy advisor Nations’ Sustainable Development Goals, to the New Zealand members of the APEC Business Advisory Council and has a number of other roles. This article has been prepared in her personal capacity and does not necessarily reflect the one of the signal aims of which was views of those other affiliations. achieving ‘zero hunger’ for all by 2030,

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 43 Agriculture Trade Reform and Sustainable and Inclusive Food Security including for the poorest and most induced food insecurity, including the need vulnerable. As with the APEC Food Security APEC accounts for for temporary income support to help the Roadmap, correcting and preventing trade most vulnerable consumers; short-term, restrictions and distortions in world over half the world targeted fiscal support to farmers; and agricultural markets, along with increasing production in greater use of digital technologies in all agricultural productivity and fostering stages of the supply chain, underpinned by sustainable production, were identified as cereals alone, and capacity building and investment in digital important factors for success. infrastructure (APEC Policy Support Unit, Achieving such a food system has several economies 2020a). In addition to those important become an increasingly urgent and measures, however, reducing trade complex task. The 2014 Roadmap – despite are global giants in distortions this article argues will its subheading ‘Towards 2020’ – is still a contribute to a more stable and predictable work in progress: the pace of reductions in their own right: trading environment for farmers and undernourishment has slowed in recent businesses, and at the economy level enable years, with the region still accounting for China will be the trade flows to become more diversified and around a quarter of the world’s hungry biggest agriculture reliable, as a countervailing force against (APEC Policy Support Unit, 2012). In 2019 the uncertainties and food insecurity the Food and Agriculture Organization producer by 2030 created by Covid-19. assessed that global progress towards achieving the necessary levels of investment ... with the US The role of agriculture in food security in rural infrastructure and research, and and rural livelihoods in the Asia–Pacific stability in food prices, was off track. With ranked third, APEC is a region of contrasts when it the advent of Covid-19, however, the comes to food and agriculture. Home challenge has become even more Indonesia sixth and to 38% of the global population, it formidable: the United Nations has includes both a sizeable number of the estimated that the number of people Russia seventh ... world’s poor and some of its wealthiest suffering from acute hunger could double consumers; the share of agriculture in by the end of this year, to 270 million. In GDP ranges from less than 5% in some any case, thanks to projected population economies to over 30% in others. While growth, the world will need to feed an better than merchandise trade overall the Asia-Pacific has less than one third of additional 2.2 billion mouths by 2050; and (WTO, 2020). Although some economies the world’s arable land, many economies climate change will make food production in the region, including Vietnam, Russia are significant producers and exporters an increasing challenge. and Indonesia, initially responded by of grains, proteins, fish and horticultural In order to create durable food security imposing export restrictions on rice and products. APEC accounts for over half the by 2030 and beyond, improvements are wheat, these have now been lifted, and the world production in cereals alone, and clearly needed throughout the food value stability of prices, food inventories and several economies are global giants in chain, taking account of the different stock-to-use ratios, although disrupted, their own right: China will be the biggest demographic profiles, resource remain relatively good, although not agriculture producer by 2030, accounting endowments and levels of development in consistently so across the region (Asian for almost a quarter of global farm output, the region (ibid.). This article does not Development Bank, 2020; APEC Policy with the US ranked third, Indonesia sixth attempt to address those multifaceted Support Unit, 2020a, 2020b). and Russia seventh (Glauber et al., 2020). issues. Instead, it focuses on one piece of At the same time, however, there has been At the same time, the pressures on the the puzzle: the potential for trade reform increasing talk of the need for greater self- region’s resource base are increasing, to enhance food security in a way that is sufficiency in food production, as well as a including not just natural limitations on both economically and environmentally ramping up of subsidies to agriculture by land and water, but also challenges in some sustainable. some economies. The pandemic’s impacts economies of low yields, environmental on food processing, supply chains and degradation, fragmented land holdings Covid-19 and food security infrastructure have served to highlight the and inadequate infrastructure (OECD/ The advent of Covid-19 has brought need to strengthen the resilience of those FAO, 2020). food security discussions to the fore – parts of the system. Covid-19 has also shown Food demand is forecast to increase although the effects on food security the need for greater resilience in food-related significantly over the coming decade: appear to be generated as much from the services such as financing, distribution, consumption of wheat and maize will each pandemic’s overall economic impacts as transport, logistics and wholesaling (Asian increase by over 9%, rice by 5.4% and from disruption to the food system as Development Bank, 2020). soybeans by 13.3% (calculated for a group such (Asian Development Bank, 2020). Considerable policy focus has been of 16 APEC economies1 in the FAO–OECD Certainly, food trade has fared significantly devoted this year to solutions to Covid- Agricultural Outlook database). In some

Page 44 – Policy Quarterly – Volume 16, Issue 4 – November 2020 cases – soy, maize, beef, pig meat – demand certainty in the trade environment creates will outpace supply; in others, exports will ... issues of new opportunities and encourages also increase, leaving a net deficit (ibid.). A vulnerability and innovation. number of factors are driving this demand. Finally, self-sufficiency approaches may The population is growing; many resilience will likely leave economies more vulnerable to economies are transitioning from rural become more external shocks, such as disruptions to subsistence to greater industrialisation and supplies of essential inputs such as seed or urbanisation, with Asia’s urban population, pressing as climate fertiliser, as has been seen during the including India as well as APEC countries, Covid-19 pandemic (Asian Development predicted to increase by 1.7 billion by 2050; change gathers Bank, 2020). Equally, economies and there is a large and expanding APEC pace. determined to be self-sufficient may feel middle class, which will drive dietary the impact more strongly of biosecurity diversification into protein, fruits, issues: witness the recent outbreak of vegetables and processed foods (APEC African swine fever, which has had Policy Support Unit, 2012). designed to achieve food self-sufficiency significant impacts on pork production In short, many APEC economies, and (that is, where local production is able and feed markets in a number of economies the region overall, will remain net food to fully satisfy domestic demand), an in the region (FAO, 2020). Covid-19 has importers, and the share of imports in approach that often necessitates the use of similarly revealed the vulnerability of consumption for key products is forecast import tariffs, subsidies and, in some cases, production and supply chains within to increase for that same group of export restrictions, to maintain or increase individual economies, including through economies. Wheat imports will rise from domestic production while shielding impacts on workers in labour-intensive 15% of wheat consumption in 2010 to farmers from external competition (APEC sectors such as horticulture or meat around 23% by 2029, rice imports from Policy Support Unit, 2012). processing (APEC Policy Support Unit, 3.1% in 2010 to 4.5% in 2019 to 5.1% by However, focusing primarily on self- 2020a, 2020b). 2029; there will be increases as well for both sufficiency policies to achieve food security These issues of vulnerability and maize and soybeans (OECD/FAO, n.d.). raises a number of structural challenges that resilience will likely become more pressing Trade in food accounts for a relatively may ultimately work against achieving the as climate change gathers pace. Acute modest share of total merchandise trade in goal. First, the trade measures that are needed climate events, such as floods or droughts, APEC (this is not surprising, reflecting the can mean that markets become more volatile as well as longer-term sea level rise and dominance of non-agriculture goods in and less efficient, and so less able to satisfy melting glaciers, can damage both global merchandise trade). The share of need: witness, for example, the price spikes production and infrastructure and increase food imports in total goods imports is that followed the tit-for-tat adoption of potential biosecurity threats as climate 8.8% on average. Food exports in overall export restrictions in 2007–08, and the patterns change. The Asia-Pacific is APEC goods exports span a wider range, impact of domestic support, export subsidies particularly vulnerable to such impacts from close to zero (Japan, Korea) to and tariffs on production in other markets thanks to its dense population, exposed New Zealand as an outlier at nearly 63%, (Asian Development Bank, 2020; Hepburn, physical geography and large number of but with most in a middle band of 10–30% 2019). This market volatility may ultimately smallholder producers. According to the of exports. That said, of the agri-food trade work against domestic production by World Food Programme, global hunger that does take place, intra-APEC trade is reducing incentives for investment, and malnutrition will increase by 20% by significant, accounting for over two thirds production and innovation. Equally, trade 2050 if a more climate-resilient and of total APEC agri-food trade with all measures such as import tariffs, designed to adaptable food system is not established markets in 2019 (International Trade protect local farmers, may have an impact on (APEC Policy Support Unit, 2019). Other Centre, n.d.). the affordability of nutritious foods for local research suggests that Asia’s production of consumers (FAO, 2020). irrigated wheat and rice will be 14% and Food security and the role of trade In addition, approaches that focus solely 11% lower respectively in 2050 than in APEC economies have deployed a on increasing the production of staple 2000 due to climate change; in East Asia wide range of policies to address food commodities may not be economically and the Pacific, yields for crops including insecurity. Approaches have generally viable without continued support, and may rice, soybeans and wheat will have declined been biased towards increasing local food funnel resources away from other uses that by 2050 by between 13% and 20% (APEC availability by increasing production, might overall be more welfare enhancing, Policy Support Unit, 2012). and cushioning populations from the such as spending on social safety nets or Economies that have recourse to the impact of higher prices. Economies have healthcare. In the alternative, creating an wider regional (or global) production base also used trade policy levers to address enabling environment for the production and markets may be able to smooth out the economic dimensions of the food and/or export of higher-value foods in any local disruptions to prices or security challenge. In particular, some response to market signals is likely to be production levels caused by climate events economies have prioritised approaches more durable; and, for producers, improved or other shocks. That said, for international

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 45 Agriculture Trade Reform and Sustainable and Inclusive Food Security markets to play that backstop role policies tend to generate surpluses that effectively, they need to be reliable; the ... from 2017 suppress world prices and disrupt global experiences of export restrictions in the markets, harming producers in other face of the food price spikes in 2007–08 to 2019, economies, and thereby in turn potentially have prompted some APEC economies to around jeopardising those economies’ ability to be rightly cautious about relying on produce food for their populations. international markets too heavily (Martin US$270 billion At the same time, the overproduction and and Glauber, 2020; Asian Development overuse of inputs that these policies Bank, 2020). was spent on incentivise can have a negative environmental All of this points to the need for further impact, on water quality, biodiversity and trade policy reform, to ensure that markets the most greenhouse gas emissions (OECD, 2019). are less volatile, food supplies are more Broadly speaking, the use of the most reliably available and food is more environmentally- environmentally harmful categories of affordable. Indeed, it has been estimated agriculture support has certainly been that around 2,500 new trade-restrictive harmful types decreasing over the last 15 years. However, interventions, encompassing tariffs, of subsidy ... the OECD has estimated that from 2017 to subsidies and other measures, were 2019, around US$270 billion was spent on introduced on food and agriculture in the the most environmentally-harmful types of period from the global financial crisis subsidy by OECD countries (of which eight through to 2019 (Global Trade Alert, 2020). enhance the efficient operation of food are in APEC) and 12 key emerging economies, Growing demand has effectively masked and agriculture markets. including a further five APEC the full impact of this rising protectionism, economies(OECD, 2020). but it must nevertheless be addressed. Support for the agriculture sector Although the Uruguay Round At the same time, agriculture trade Virtually all APEC economies continue introduced new disciplines on agriculture policy reform would also enable the many to provide at least some support to their support, and generated some significant economies in the region that enjoy a farm sectors. In many cases, this support reductions and retooling of subsidy comparative advantage in agriculture to is minimally distorting and focuses on programmes, since the global financial exploit that endowment by exporting to the delivery of public goods such as crisis, reform efforts have stalled in some world markets, enabling them to earn research and development, disaster relief economies, and support has in fact export returns, increase jobs and achieve or environmental programmes, as well as increased in others. This can be illustrated greater economic growth, including for income support that is decoupled from by looking at the OECD ‘producer support smallholder producers and small food production. This support is known in estimate’ (PSE), which measures the annual businesses. The relatively low share of food WTO terms as ‘Green Box’ support. APEC value of gross transfers from consumers exports in overall merchandise exports economies’ expenditure in the Green and taxpayers to producers arising from among APEC economies, compared to the Box spans from the very modest (1–3% policy measures. At the start of the Uruguay agriculture capacity of the region, suggests of the value of agriculture production; Round, for example, the United States had that there is unrealised potential there. New Zealand is in this group) up to 13– a PSE of nearly 23% of gross farm receipts; 15% of the value of production, with a by 2008 this had fallen to 8.3%, but since The process of agriculture trade reform significant outlier in the United States at then it has hovered at around the same The World Trade Organization (WTO) over 30% (WTO, 2020). level, rising to just over 12% in 2019. (Note Uruguay Round (1986–94) brought In some cases, however, APEC that these figures do not take into account agriculture into the global rules-based economies are also entitled to use ‘Amber large recent additional domestic support system for the first time and established Box’ support, which has a substantial payments made by the US.) Similarly, new disciplines on the use of subsidies impact on production and trade. This Japan had a PSE of just over 59% in 1986; and market access barriers. Those rules category includes ‘market price support’ by 2008 this had fallen to 43.9%, but it fell resulted in a substantial reduction in (where prices are kept artificially high or only slightly further to 41.3% in 2019. trade-distorting domestic support and low), or payments to producers that are Much of this support continues to be a modest opening up of agriculture linked to production or inputs. Typically provided in trade-distorting form, as markets in the APEC region, a process such subsidy systems also require market market price support and/or payments that was subsequently accelerated by a access restrictions to maintain producer based on outputs or inputs (ibid.). swathe of new trade agreements (although incomes by shielding them from more The level of support in some emerging these deals often still excluded the most competitive imports. Globally, a small economies has risen over the same period, ‘sensitive’ agriculture products, and handful of APEC economies are responsible particularly when looked at in terms of did not, of course, address agriculture for a large overall share of this type of dollar value, as can be seen in the case of subsidies). These reforms have helped to support (Bellman, 2019). By insulating China and Indonesia in Figure 1. A number deepen regional economic integration and farmers from market signals, Amber Box of other APEC economies, including the

Page 46 – Policy Quarterly – Volume 16, Issue 4 – November 2020 Philippines and Russia, have also increased Figure 1: Support for agriculture producers in selected APEC economies, 2001–19 agriculture support over the same period OECD “Producer Support Estimates” (USD$ millions) 000 (ibid.). As a point of reference, 250 New Zealand’s PSE was 0.7% in 2019.

While WTO disciplines go some way to 200 constraining spending, half of APEC economies are entitled to use the Amber 150 Box category, and could increase current expenditures significantly while still 100 remaining within their commitment levels. (In most cases, actual spending among 50 those economies ranges from close to zero up to around one quarter of potential 0 entitlements, although in the last two years the United States may have exceeded its 200 1 200 2 200 3 200 4 200 5 200 6 200 7 200 8 200 9 201 0 201 1 201 2 201 3 201 4 201 5 201 6 201 7 201 8 201 9 -50 ceiling (Congressional Research Service, China United States of America Japan New Zealand Indonesia 2020). Source: OECD Producer and Consumer Support Estimates database Equally concerning is the potential for significantly higher spending as a result of Figure 2: De minimis entitlements for Australia, Canada, China, Indonesia, Japan and the US other flexibilities in the current WTO rules. These flexibilities fall into several categories. De minimis entitlement 2001-2016, forcast to 2030 at 6% growth 000 in value of production for 6 APEC economies Most significantly, however, all economies 900 have recourse to the so-called de minimis category, which permits ‘minimal’ levels of 800 support as a percentage of the value of 700 agriculture production. While the 600 entitlements appear small in percentage terms, spending can be large in terms of 500 dollars, and, over time, the value of 400 USD $ mllions production – and hence entitlements – is 300 predicted to rise (OECD, 2020). By way of illustration, looking at a group 200 of six APEC economies (Australia, Canada, 100 China, Indonesia, Japan and the United 0 States), these de minimis entitlements grew by an estimated US$250 billion from 2001 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 to 2016 (the last year for which support has Source: WTO agriculture notifications of value of production, based on a concept developed in Australia and New Zealand, 2019 been notified to the WTO by many economies). Figure 2 extrapolates this on agriculture products in the APEC imports, especially for animals and animal trajectory at a conservative estimate of 6% region is around 11.6%, with a range of products, vegetable products and processed growth in the value of production per between zero and 57%, as illustrated in food (UNCTAD/World Bank, 2018). annum, although in some economies Figure 3, but these averages may conceal Research into the experiences of agri-food production will probably grow more significant tariff peaks, in some instances businesses in the region confirms that non- strongly than this. For those six economies well over 100%. (It is also worth recalling tariff barriers are a growing concern for alone, entitlements are projected to grow to that the average applied MFN tariff on producers, and fall disproportionately nearly US$800 billion by 2030. non-agricultural products is only 4.3%.) heavily on smallholders and small While in many cases free trade agreements businesses (APEC Business Advisory Market access have reduced applied tariff levels to well Council and Marshall School of Business, Market access barriers also have an impact below WTO bindings, the most sensitive 2016). In some cases, non-tariff barriers on food availability in the region. Despite products, such as meat and dairy, sugar, are the result of poor design rather than WTO reforms and subsequent free trade rice and some vegetable oils, are often deliberate policy intent, meaning that a agreement liberalisation, tariffs and other treated less ambitiously or excluded from more robust application of good regulatory measures at the border still act to restrict liberalisation altogether. practices to agriculture and food regulation food and agriculture imports in many At the same time, non-tariff barriers would deliver more food security-friendly economies. The simple average MFN have risen markedly and disproportionately approaches. APEC ministers agreed on a (most favoured nation) applied tariff relative to those affecting non-agricultural set of ‘cross-cutting principles on non-

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 47 Agriculture Trade Reform and Sustainable and Inclusive Food Security

Figure 3: Average applied MFN tariffs on agriculture products in APEC economies food ministers’ statement (APEC, 2020). Average Applied MFN Agriculture Tariff of APEC economies Clearly, this work is important and should 60 continue. Tackling trade distortions, however, will 50 be fundamental to achieving a sustainable and inclusive food system for the longer 40 term. In essence, trade reform is about

30 enabling and empowering domestic MFN Tariff reform: giving economies the confidence 20 to create good domestic structures that are more efficient, inclusive and sustainable 10 and create better economic opportunities for their communities. Trade barriers work 0 a a a d si ipei am against these goals, and potentially trap unei Chile Peru N Br Chin Japan Korea Ta Canada Mexico Russia hailan et Australi Malaysia T Indone Singapore Vi economies in less sustainable models. In New Zealand United States The Phillipines Chinese short, a well-functioning APEC food Hong Kong China Papua New Guinea system will require an approach that Source: StatsAPEC considers the food system as a whole, tariff measures’ in 2018 which would form economic development levels and vested including where trade policy settings have a good basis for tackling these kinds of producer interests, which can mean the an impact. The challenge faced by APEC barriers in the food and agriculture sector reform process is more heavily contested. economies is how to achieve these reforms (APEC, 2018). Budgetary considerations have not against a backdrop of significant traditionally played a decisive role in demographic, technological and climate Services agriculture trade policy choices: the change. Services are also a critical part of the contribution of agriculture to GDP is In developing a refreshed approach to food system, from those that support generally small, particularly in more food and agriculture, APEC economies production processes through to those advanced economies, and the cost of should, accordingly: involved in storage, transport, trade, distorting subsidies relative to GDP is also • reaffirm the goal of creating a robust, distribution and sales. In fact, it could be comparatively low. This has to date meant well-functioning food system (not just argued that in many ways the food system that fiscal imperatives to reform agriculture ‘food security’ per se), recognising that is being ‘servicified’, just as non-agriculture have not been a significant driver, even for achieving food security requires the manufacturing has been over recent big spenders; but this may change with the right settings throughout the food value decades. The costs of financing, transport, impact of the Covid-19 pandemic and the chain, including for trade, and logistics, distribution and wholesale/retail budgetary pressures it generates, as well as acknowledging, too, the contribution can add significantly to overall trade costs the opportunity it in effect creates to retool of agri-food trade to incomes and in the agri-food sector, and these are areas support to forms that help to make the economic growth in many economies; where in many cases APEC economies agriculture sector more sustainable and • to enhance predictability for production maintain trade-restrictive approaches resilient (for example, by increasing and trade, commit to enhanced (APEC Policy Support Unit, 2019). Clearly, research and development spending or transparency in the agri-food system reform in these services sectors could also reallocating funds to policies that enhance – for example, through a timely APEC- enhance food trade. environmental outcomes). specific reporting process to track production, consumption and trade The political economy of trade reform Greater food security through measures; The political, economic and social structural reform • actively seek to implement the 2018 challenges of agriculture reform should APEC economies have devoted ‘cross-cutting principles on non-tariff not be underestimated. Different considerable energy in recent years, guided measures’ in relation to agri-food trade; economies may have different policy by the APEC Food Security Roadmap, to this could include, as a starting point, drivers which may affect their attitude to increase production and efficiency through the development of an APEC non-tariff reform: wealthier economies with largely the food chain: for example, through barrier ‘clearing house’, in which urban populations, for example, may knowledge sharing, capacity building, economies and/or the private sector have more policy space for reform than research and development, and greater could identify significant problems and emerging economies with large rural adoption of digital technology, such as discuss possible solutions; subsistence or smallholder populations. ‘smart’ farming. Equally important have • commit to a standstill on trade- Equally, policy choices may be motivated been discussions around reducing food distorting support for agriculture and by a complex mix of past experiences of loss and waste. Not surprisingly, all of work towards phasing these subsidies food insecurity, social stability concerns, these elements feature in the 2020 APEC out; a good start would be to champion

Page 48 – Policy Quarterly – Volume 16, Issue 4 – November 2020 an ambitious outcome in the WTO logistics, distribution and wholesale/ In short, economies should prioritise negotiations; retail services), to enhance connectivity structural reforms in food and agriculture • set up a dialogue on structural reform and reduce trade costs; that make the biggest contribution to the in agriculture, to share ideas on how to • agree to a pathfinder on digital trade combined goals of food security, retool support to ‘build back better’ – facilitation for agriculture and food to environmental sustainability/climate for example, through shifting support lower trade costs – including, for change mitigation and inclusive growth – towards public investment in example, agreeing on a region-wide recognising that, in the end, the policy agriculture and food systems, including system for electronic certification or responses to achieving each of these goals research, pest and disease control, and digital supply-chain management are, in fact, mutually reinforcing. climate change mitigation measures; through global data standards or • commit to liberalisation of agri-food- blockchain, or achieving region-wide 1 Australia, Canada, Chile, China, Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, the Philippines, Russia, related services (including transport, adoption of digital single windows. Thailand, the United States and Vietnam.

References APEC (2014) APEC Food Security Roadmap Towards 2020 (version 2014), Congressional Research Service (2020) U.S. Farm Support: Outlook for http://mddb.apec.org/Documents/2014/PPFS/PPFS/14_ppfs_008.pdf Compliance with WTO Commitments, 2018 to 2020, R46577, 21 APEC (2018) Annex A: Cross-cutting principles on non-tariff measures, October 2020 agreed at the APEC ministerial meeting, Port Moresby, APEC https:// FAO (2020) The State of Food Security and Nutrition in the World 2020, www.apec.org/Meeting-Papers/Annual-Ministerial-Meetings/2018/2018_ Rome: Food and Agriculture Organization amm/Cross-cutting-principles-on-Non-Tariff-Measures Glauber, J., J. Hepburn, D. Laborde and S. Murphy (2020) What National APEC (2020) Virtual Ministerial Dialogue on Food Security Statement on Farm Policy Trends Could mean for Efforts to Update WTO Rules on Covid-19, 27 October 2020, Putrajaya, Malaysia, https://www.apec.org/ Domestic Support, Winnipeg: International Institute for Sustainable Meeting-Papers/Sectoral-Ministerial-Meetings/Food-Security/2019_food_ Development and International Food Policy Research Institute security Global Trade Alert (2020) 21st Century Tracking of Pandemic-Era Trade APEC Business Advisory Council and Marshall School of Business (2016) Policies in Food and Medical Products, May, Global Trade Alert, Non-Tariff Barriers in Agriculture and Food Trade in APEC: business European University Institute and World Bank, https://www. perspectives on impacts and solutions, Los Angeles: APEC Business globaltradealert.org/reports Advisory Council and Marshall School of Business, University of Hepburn, J. (2019) Food and Nutrition Security, Income Inequality and Southern California Trade: recent trends and considerations for inequality and sustainability, APEC Policy Support Unit (2012) Food Security Policies in APEC, Winnipeg: International Institute for Sustainable Development September, Singapore: APEC Policy Support Unit International Trade Centre (n.d.) Trade Map, https://www.trademap.org/ APEC Policy Support Unit (2019) Insights on the Regulatory Environment Martin, W. and J. Glauber (2020) ‘Trade policy and food security’, in R. within APEC Economies and its Impact on Trade in Services in Food Baldwin and S. Evenett (eds), Covid-19 and Trade Policy: why turning Value Chains, August, Singapore: APEC Policy Support Unit inward won’t work, Geneva: VoxEU APEC Policy Support Unit (2020a) Export Restrictions and Food Security in OECD (2019) ‘Exploring the linkages between agricultural policies, the Context of the Covid-19 Pandemic, policy brief 33, May, Singapore: productivity and environmental sustainability’, Paris: OECD APEC Policy Support Unit OECD (2020) Agricultural Policy Monitoring and Evaluation 2020, Paris: APEC Policy Support Unit (2020b) Food Security Response Measures to OECD Covid-19, policy brief 36, September, Singapore: APEC Policy Support OECD/FAO (2020) OECD–FAO Agricultural Outlook 2020–2029, Rome: Unit Food and Agriculture Organization, pp.80–94 Asian Development Bank (2020) Food Security in Asia and the Pacific amid OECD/FOA (n.d.) OECD–FAO Agricultural Outlook Database, https://apec. the Covid-19 Pandemic, ADB Briefs 139, June, Manila: Asian org/Groups/Other-Groups/APEC-Food-System Development Bank UNCTAD and World Bank (2018) The Unseen Impact of Non-Tariff Australia and New Zealand (2019) ‘Higher and higher – growth in domestic Measures: insights from a new database, Geneva: UNCTAD and World support entitlements since 2001’, submission from Australia and New Bank Zealand to the World Trade Organization, JOB/AG/171, 22 November WTO (2020) WTO member agriculture notifications, accessed via the Bellman, C. (2019) Subsidies and Sustainable Agriculture: mapping the Agriculture Information Management System, https://agims.wto.org policy landscape, London: Hoffman Centre for Sustainable Resource Economy

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 49 Eyal Apatov and Asha Sundaram

Immigration and ‘Brain Waste’ an analysis of APEC immigrants in New Zealand Abstract We analyse ‘brain waste’, or underutilisation of negatively related to brain waste. After accounting immigrant skills in the New Zealand labour market, for these drivers, there is no evidence that brain with specific reference to immigrants from APEC waste is mitigated among immigrants from APEC member countries. Using census data, we find wide member countries. Our study highlights the need variation across APEC countries in the likelihood for efforts to facilitate utilisation of immigrant that a typical immigrant from these countries with a skills in the region, such as cooperation among tertiary qualification works in a skilled occupation, APEC members in standardising certification consistent with brain waste. Our exploration of requirements and dissemination of information the drivers of brain waste reveals that GDP per on skills demand and supply and the nature and capita of the country of origin of immigrants, quality of the education system. its distance from New Zealand, expenditure on Keywords immigration, skills, mismatch, APEC, education and colonial links to New Zealand are New Zealand

Eyal Apatov is a senior analyst at Oranga Tamariki–Ministry for Children. at the Department of Economics, University of Auckland. She has an Eyal’s work focuses on evaluation and analysis using quasi-experimental MPhil in economics from the University of Oxford and a PhD in economics methods over large data sets. He has an MCom in economics from the from Syracuse University, United States. Her research spans the fields of University of Auckland, and has worked in research positions for various international trade and development. She has consulted for organisations public and private sector organisations. Asha Sundaram is a senior lecturer like the World Bank and the Asian Development Bank.

Page 50 – Policy Quarterly – Volume 16, Issue 4 – November 2020 he idea that has underpinned the For each origin country, we use these formation of organisations like Our results estimates to calculate the predicted TAPEC is that diversity in country size, suggest that probability that a typical immigrant of endowments and level of development average age and years in New Zealand (for gives rise to comparative advantage in GDP per capita each decade of arrival between the 1960s production, providing opportunities for and 2010s) would work in a skilled gains from international trade. Trade of the origin occupation if they hailed from that origin models of comparative advantage country and possessed a tertiary typically do not account for mobility country, its qualification. We then attribute variation of labour, which is considered a fixed, across origin countries in these predicted country-specific endowment. However, distance from probabilities to brain waste. The idea is that recent developments in travel and in the absence of brain waste, an individual communications have led to increasing New Zealand, with similar characteristics and educational movement of labour across countries, qualifications would have similar spawning a large literature that studies spending on probabilities of working in a skilled the economic impacts of immigrants on education ... and occupation, irrespective of origin country. host economies. This exercise also allows us to examine Labour mobility across borders can colonial links are patterns in brain waste among immigrants bring economic gains in a multitude of from APEC countries. ways. Immigrants can be a key resource for negatively related We find evidence of significant variation businesses, facilitate transfer of skills and in the probability of working in a skilled knowledge across borders, spur innovation to brain waste occupation conditional on having a tertiary in firms by increasing diversity of ideas qualification for immigrants from APEC (Docquier, Özden and Peri, 2014; Ottaviano member countries in New Zealand, and Peri, 2013; Hanson and Slaughter, suggestive of brain waste. For some 2016), help establish trade relationships, the host economy may not be seamless. immigrants from APEC countries like thereby fostering international trade (Genç, The rich literature on labour market Japan, China and Korea, there is evidence 2014), and help nations address labour and outcomes for immigrants has that brain waste is lower for immigrants skill shortages. This is particularly true for acknowledged the presence of ‘brain waste’, who arrived in earlier decades, at least as APEC member economies like Japan, a phenomenon where immigrants are far back as in the 1990s. Canada, the United States, New Zealand employed in occupations that are not Additionally, drawing on economic and Australia, where demographic commensurate with their skills and level theory and using regression analysis on transition has resulted in ageing of education (Mattoo, Neagu and Özden, data on all immigrants in New Zealand, we populations (OECD, 2020). 2008; Poot and Stillman, 2010; Peters and explore potential drivers of brain waste. It is, therefore, no wonder that Sundaram, 2015), resulting in immigrant Our results suggest that GDP per capita of organisations like APEC, which seek to skills being underutilised. A skills mismatch the origin country, its distance from New deepen connectivity and regional might also lead to inefficient levels of Zealand, spending on education (capturing integration to ensure economic investment by firms, with implications for education quality) and colonial links are development for member nations, have productivity and growth. negatively related to brain waste. Once begun exploring ways to maximise benefits In this article we explore underutilisation these origin country characteristics are stemming from international movement of skills in New Zealand of immigrants, accounted for, there is little evidence that of labour. The APEC Connectivity with a focus on immigrants from APEC APEC membership mitigates brain waste Blueprint for 2015–25 and the 2015 APEC countries. We ask if immigrants who among immigrants in New Zealand. To Human Resources Development possess tertiary education are matched to conclude, we draw policy implications ministerial statement emphasise the need skilled occupations in New Zealand. To from our findings. We suggest the need for to effectively manage labour mobility. The do this, we utilise data from New Zealand’s better coordination of certification APEC Business Advisory Council 2013 census and estimate a linear requirements, and information sharing on encourages research targeted at boosting probability model which relates the skills demand and supply and education labour mobility, which it views as probability that an immigrant in New systems, institutions and quality, to aid important for business competitiveness Zealand works in an occupation we APEC’s integration and development (Brooks, Posso and Abdullaev, 2015). This classify as skilled or highly skilled, efforts. focus on labour mobility, albeit recent, conditional on their age, years spent in The article is structured as follows. First, signals a recognition by members of its New Zealand, whether they hold at least we provide a broad context for immigration salience for achieving APEC’s goals. a tertiary qualification (a bachelor’s in APEC countries. The following section Though immigrants bring skills and degree or above NZQA Level 7), and their zooms in on immigration in New Zealand diversity with them, their assimilation into country of birth.1 from APEC countries, using data from the

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 51 Immigration and ‘Brain Waste’: an analysis of APEC immigrants in New Zealand

Figure 1: APEC immigrants by birth country in New Zealand 2013 New Zealand census, and offers a comparison of immigrants of APEC origin 20 with those from non-APEC countries, noting differences by demographics and occupation. Section three looks at brain 15 waste among immigrants in New Zealand, with special reference to APEC member countries. We then explore the potential 10 drivers of brain waste. The final section concludes and discusses policy implications.

5 APEC immigrants in New Zealand

Migrants by birth country (thousands) APEC boasts some of the largest immigrant- receiving countries, like the US, Canada 0 and Australia. Taken as a percentage of USA Peru PNG Chile China Japan population in 2018, Australia hosts the Brunei Russia Mexico Taiwan Canada Thailand Australi a Malaysia Viet Nam Indonesi a Philipines Singapore largest proportion of immigrants (30%), Hong Kong South Kore a followed by New Zealand (23%), Canada Source: 2013 New Zealand Census, Statistics New Zealand and authors’ calculations (22%), the US (16%), Malaysia (11%), Figure 2: Share of immigrants in New Zealand with a tertiary qualification by APEC 2 birth country Russia (8%) and Thailand (5%). All APEC countries saw a significant increase in the 60 stock of immigrants between 1990 and 2019, except for Russia. Immigrants from APEC origin countries form a substantial and rising share of immigrants in New 40 Zealand: from 21% in 1990 to 31% in 2019. Figure 13 shows the distribution of Share of migrants (%) immigrants in New Zealand from the

20 APEC region by birth country (or country of origin). The top five countries of birth for APEC immigrants in New Zealand are China, Australia, the Philippines, the US 0 and Malaysia.4 Figure 2 focuses on the USA Peru PNG share of immigrants from APEC countries Chile China Japan Brunei Russia Mexico Taiwan Canada Thailand Australi a Malaysia in New Zealand with a tertiary qualification. Viet Nam Indonesia Philipines Singapore Hong Kong South Kore a It shows wide variation in educational Source: 2013 New Zealand Census, Statistics New Zealand and authors’ calculations attainment among immigrants based on Figure 3: Share of immigrants in New Zealand with a tertiary qualification working in a country of origin. The top five origin skilled occupation by APEC birth country countries for immigrants with a tertiary qualification are Taiwan, Malaysia, the US, 80 Hong Kong and Russia, while the bottom five are Peru, Australia, Chile, Thailand and Vietnam, with China somewhere in the 60 middle.

Share (% ) Figure 3 plots the share of immigrants with advanced degrees who also report 40 working in an occupation classified as skilled. It presents evidence consistent with brain waste. The proportion of immigrants 20 with a tertiary qualification who report working in a skilled occupation differs

0 across APEC origin countries. More than 80% of immigrants with a tertiary USA Peru PNG Chil e China Japan Brunei Russia Mexico Taiwan Canada qualification from Canada, Australia, the Thailand Australi a Malaysia Viet Nam Indonesi a Philipines Singapore

Hong Kong US, Singapore and Malaysia report working South Kore a

Source: 2013 New Zealand Census, Statistics New Zealand and authors’ calculations in a skilled occupation, while this number

Page 52 – Policy Quarterly – Volume 16, Issue 4 – November 2020 is less than 70% for China and Peru, and Figure 4: Share of immigrants in New Zealand with a tertiary qualification working in a skilled occupation by decade of arrival: mean and standard deviation across less than 60% for the Philippines. Of APEC countries course, these observed differences are not 100 necessarily an indication of brain waste. They may simply reflect differences in the profiles of immigrants from different APEC origin countries, in, for example, age, 80 labour market experience and time spent in New Zealand to assimilate. We analyse brain waste more carefully below by 60 accounting for some of these differences across origin countries. Figure 4 displays the mean and standard 40 deviation of shares of immigrants with a tertiary qualification working in skilled

occupations across APEC origin countries Share of migrants with Bach+ qualifications (%) by decade of arrival in New Zealand. We 20 note two points. First, the share of 012345 immigrants with a tertiary qualification Decades since arrival Source: 2013 New Zealand Census, Statistics New Zealand and authors’ calculations working in skilled occupations rises as immigrants spend more time in New groups equally likely to work in managerial Brain waste Zealand. Second, the dispersion (across and professional occupations as in Using a linear probability model, we countries) of the share of immigrants with production-related occupations. This is estimate the likelihood that immigrants a tertiary qualification in skilled consistent with the idea of brain waste, work in skilled occupations in New Zealand, occupations tends to fall as the time spent since a cohort with a larger proportion of conditional on their origin country, age, in New Zealand rises, pointing to tertiary degree holders does not appear to number of years in New Zealand and convergence in outcomes for skilled work disproportionately in occupations whether they have a tertiary qualification. immigrants across APEC origin countries. requiring advanced degrees. For each decade of arrival, we define a This is suggestive of falling underutilisation The remaining rows of Table 1 look at typical immigrant as one whose age and of immigrant skills as immigrants potential drivers of brain waste, like years spent in New Zealand equal those of assimilate better into the New Zealand language ability and time spent in New all immigrants that arrived in that decade. labour market, and is consistent with Zealand in assimilating into the local For each origin country and decade of international evidence on brain waste.5 A labour market. Though both APEC and arrival, we then calculate the predicted key exception to this pattern are those who non-APEC immigrants in New Zealand probability that this typical immigrant migrated to New Zealand five decades ago report speaking English, fewer APEC would work in a skilled occupation, if or earlier, for whom the dispersion is wider. immigrants speak English than non-APEC they held a tertiary qualification. If the We speculate that this is a result of the immigrants. APEC immigrants are more predicted probability differs vastly across cohort’s relatively older age (associated recent arrivals and are likely to have arrived countries, this is consistent with brain with changes in employment preferences after 1990. They have therefore spent fewer waste, or underutilisation of immigrant towards retirement), differences in the years in New Zealand relative to non-APEC skills in the domestic labour market. educational/professional requirements for immigrants. Figures 5a–c present the predicted migrating to New Zealand in that period, Most APEC immigrants are from probabilities conditional on holding a and the relatively small size of the group north-east Asia, followed by South East tertiary qualification by decade of arrival (see Table 1). Asia, Oceania (Australia) and the Americas. for APEC origin countries in Asia and in Table 1 looks at the characteristics of Non-APEC immigrants are most likely to the Americas, and for key non-APEC immigrants in New Zealand from APEC be from western Europe (including the countries respectively. We first note broad and non-APEC countries to offer a UK), Oceania (including the Pacific patterns emerging. First, predicted comparative perspective. While both APEC Islands), southern and central Asia probabilities are higher for immigrants and non-APEC immigrants tend to be in (including the Indian sub-continent) and who arrived in earlier decades, but this their early 40s on average, APEC sub-Saharan Africa (including South trend only holds until the 1990s. For immigrants are more likely to hold a Africa). A majority of APEC immigrants immigrants who arrived before the 1990s, tertiary qualification than non-APEC report their ethnicity to be Asian, followed arriving in an earlier decade is often immigrants. However, there is no by European. Among non-APEC associated with lower predicted demonstrable difference in the distribution immigrants, the majority report European probabilities of obtaining a skilled job. One of APEC and non-APEC immigrants ethnicity, followed by Asian and Pacific possible explanation for this break in the across high-level occupations, with both peoples. trend is that prior to 1987, immigration

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 53 Immigration and ‘Brain Waste’: an analysis of APEC immigrants in New Zealand

Table 1: Characteristics of immigrants from APEC and non-APEC countries in decades seeing higher probabilities. New Zealand (shares) Predicted probabilities for immigrants Non-APEC APEC from Australia, Indonesia and Thailand are Immigrants 156,339 63,066 under 60%. This is true also of immigrants Age Average 44 41 from China, Japan and Korea, but for Qualifications Below secondary school 25% 24% immigrants from these origin countries, Secondary and higher education 41% 32% arrival in an earlier decade (in the 2000s Bachelor’s and honours 25% 34% and 1990s) is associated with much higher Master’s and PhD 9% 10% probabilities, consistent with improving Occupation Managers 21% 21% labour market outcomes over time. Finally, Professionals 26% 26% predicted probabilities are lowest for Technicians and trades workers 19% 20% immigrants from the Philippines, Vietnam, Community and personal service Peru and Chile, at around 50% and under. workers 5% 6% These probabilities are lower than those for Clerical and administrative workers 6% 6% India and South Africa, both emerging Sales workers 6% 7% 7 8 Machinery operators and drivers 8% 5% economies that are not APEC members. , Labourers 9% 10% Speak English 97% 91% Drivers of brain waste Decade of arrival 1960s or earlier 7% 3% In this section we explore potential drivers 1970s 10% 6% of brain waste. Using regression analysis, 1980s 12% 11% we study the relationship between the 1990s 16% 23% predicted probabilities for each origin 2000s 43% 44% country by decade of arrival shown in 2010s 12% 12% figures 5a–c above, and origin country Years in New Zealand Average 17 15 characteristics for the relevant decade that Birth region North Africa and the Middle East 2% 0% are likely to be correlated with brain waste. North-east Asia 0% 42% Note that we associate a lower predicted North-west Europe 45% 0% probability with greater brain waste. Oceania and Antarctica 19% 18% Economic theory suggests that South East Asia 1% 27% immigrants compare the gain in Southern and central Asia 15% 1% remuneration with the cost of migration Southern and eastern Europe 3% 0% and decide to migrate if the former Sub-Saharan Africa 12% 0% dominates the latter. Remuneration The Americas 2% 12% depends on the individual’s skill and the Ethnicity (multiple) European 60% 31% skill price (return to skill), which differs Mäori 0% 1% across countries. An individual with a given Pacific peoples 12% 1% amount of skill can earn more if the skill Asian 25% 67% price in the destination country is higher MELAA 4% 2% than in the origin country. The implications Other 1% 1% Source: 2013 New Zealand Census, Statistics New Zealand and authors’ calculations of this simple framework are twofold. First, assuming that the skill price in the policy in New Zealand gave explicit skilled job conditional on a tertiary destination country is higher, more skilled preference to British immigrants, followed qualification are the US and Canada, with individuals are more likely to emigrate by immigrants from Scandinavia and probabilities of between 70% and 80%, and from the origin country. In other words, northern Europe. Following the increasing for immigrants who arrived in immigrants are positively selected on skills. establishment of the points-based system, previous decades. These probabilities are This is because, for given skill prices, the the country of origin did not matter and comparable to probabilities for the UK, a gain from migrating is larger at a higher the system encouraged migration of large immigrant-sending country that is skill level.9 individuals whose skills could contribute not part of APEC. Predicted probabilities Next, the closer the destination and to the development of New Zealand. We are not much lower for immigrants from origin countries are in skill price (for therefore expect to see greater assimilation Malaysia, Hong Kong and Singapore, at instance, they may be at the same level of over time for skilled immigrants who around 70%. Immigrants from Mexico development) and the greater the distance migrated after 1987.6 have predicted probabilities of obtaining a (geographic, cultural or institutional) Focusing on APEC immigrants in New skilled job conditional on a tertiary between them, the higher the skill level of Zealand, the countries with the highest qualification of between 60% and 70%, immigrants from that origin country. The predicted probabilities of obtaining a with immigrants who arrived in earlier reason is that the gain from migrating is

Page 54 – Policy Quarterly – Volume 16, Issue 4 – November 2020 smaller and the cost of migration larger. As Figure 5a: Brain waste – APEC immigrants with a tertiary qualification from in the case of skill, a similar argument Asia by decade of arrival in New Zealand applies to innate ability and motivation. 80% Given that ability and motivation are 70% important determinants of outcomes in the labour market, the level of development 60% of the origin country and its distance from New Zealand can both drive brain waste 50% by determining immigrant selection into New Zealand. We note that immigrants 40% who are pushed to leave their home 30% countries due to political or civil conflict (such as refugees) may be selected on 20% 1970 1980 1990 2000 2010 different characteristics compared to Australia Viet Nam Malaysia Singapore Hong Kong Korea, Republic of immigrants looking for better economic Thailand Indonesia PhillipinesChina Japan or personal prospects. Our analysis of the Source: 2013 New Zealand Census, Statistics New Zealand and authors’ calculations drivers of brain waste recognises this Figure 5b: Brain waste – APEC immigrants with a tertiary qualification difference and accounts for the presence of from the Americas by decade of arrival in New Zealand 10 conflict in origin countries. 80% Second, educational quality or perceived educational quality can differ widely across 70% origin countries. Employers in New Zealand might perceive the same educational 60% qualification from two different countries differently. Besides, employers may have 50% imperfect information about the quality and content of educational qualifications and 40% the skills they confer, particularly if the origin country has an education system 30% unlike New Zealand’s. Quality assurance 1970 1980 1990 2000 2010 institutions like the New Zealand Canada United States of America Chile Peru Mexico Qualifications Authority can ease these Note: Statistics from country–decade with fewer than six migrants were not included due to confidentiality requirements. Source: 2013 New Zealand Census, Statistics New Zealand and authors’ calculations information barriers to a certain extent, but Figure 5c: Brain waste – key non-APEC Figure 5c: Brain waste – key non-APEC may not eliminate them, contributing to immigrants with a tertiary qualification by decade of arrival in New Zealand brain waste. Third, several skilled with a tertiary qualification by decade of arrival in New Zealand occupations come under the ambit of 80% professional regulatory bodies that issue certification requirements. Immigrants may 70% need to recertify in order to practice their profession in New Zealand, and often 60% recertification may prove onerous, exacerbating brain waste. Finally, cultural 50% and institutional differences can prevent immigrants from assimilating seamlessly 40% into the labour market. Immigrants may not be aware of the job search process and cultural and social etiquette around 30% 1960 1970 1980 1990 2000 2010 interviews, and they may face language United Kingdom India South Africa barriers, at least in the initial years after Source: 2013 New Zealand Census, Statistics New Zealand and authors’ calculations migration. Using proxy measures to capture conflict in the origin country, and total with a higher likelihood for immigrants of several of these factors, we ask if they are expenditure on education as a percentage obtaining a skilled job. correlated with brain waste. We consider of GDP as a measure of the quality of Finally, we consider the extent to which GDP per capita and geographic distance as education in the origin country. For the certification requirements are a barrier to determinants.11 Additionally, we include an same educational qualification, better assimilating skilled immigrants into the indicator variable for whether there is quality of education should be associated New Zealand labour market. We begin with

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 55 Immigration and ‘Brain Waste’: an analysis of APEC immigrants in New Zealand

Table 2: Brain waste and its correlates form of fast-tracking, assessments are done OLS Fixed effects on a case by case basis. Almost all APEC (=1 if APEC member) 0.054*** 0.028 professions require English language assessments (IELTS or OET), which may [0.030 – 0.078] [–0.013 – 0.069] be waived if the individual studied in GDP per capita 0.027*** 0.039** English or practices in an English-speaking [0.014–0.039] [0.006 –0.072] country. Some professions explicitly or Conflict (=1 if conflict) –0.047** –0.004 implicitly state that they are more likely to [–0.084 – recognise qualifications or experience –0.010] [–0.024 – 0.017] from/in countries that are more similar in Education spending (% of GDP) 0.038 0.031** institutions to New Zealand. Applicants [–0.017 – typically need to list relevant experience or 0.092] [0.003 – 0.059] practices similar enough to New Zealand Common language –0.040* practice for the New Zealand-based [–0.080 – assessors to approve.12 0.000] Given these certification requirements, Colonial link 0.087*** countries that are frequently mentioned for [0.050 – 0.123] fast-tracking, pre-approval or waiver other Population 0.033*** –0.07 than Australia are the UK, Ireland, US, [0.025 – 0.041] [–0.162 – 0.022] Canada and South Africa. Countries Distance 0.064*** occasionally mentioned are Hong Kong, [0.040 – 0.087] Singapore, Japan, Malaysia, Denmark, France, Sri Lanka, Pakistan, Korea and Zimbabwe. This list suggests that immigrants from Observations 370 370 countries that are former British colonies, Adjusted R-squared 0.773 0.972 Commonwealth countries and/or English- Decade fixed effects Yes Yes speaking countries are likely to more easily Country fixed effects No Yes navigate the certification regime for Notes: professional qualifications. We hence include Data are sourced from the 2013 New Zealand Census and Statistics Data Program. Common language is an indicator variable that New Zealand, and are an unbalanced panel of countries over six equals one if at least 9% of the population speaks English. indicator variables for whether an origin decades, 1960–2010s. The dependent variable is the predicted Colonial link is an indicator variable for whether the country was probability of working in a skilled occupation as calculated in colonised by New Zealand or the UK. Distance is with reference to country was a colony of either the UK or New the previous section. GDP per capita (PPP, current international the latitude/longitude of the most important cities/agglomerations. Zealand and whether more than 9% of the dollars), total population and education spending as a percentage The common language, colonial link and distance variables are of GDP are obtained from the World Bank’s World Development sourced from the CEPII database. Robust confidence intervals in population speaks English to proxy for ease Indicators. Conflict data are obtained from the Uppsala Conflict parentheses. *** p<0.01, ** p<0.05, * p<0.1 of obtaining certification. Note that with the a survey of professional certification unable to obtain registration and cannot exception of Japan and Korea, APEC member requirements. Immigration New Zealand practice in an occupation they are countries on the list all have colonial links to lists 27 professional bodies that provide otherwise qualified for. To get a sense of the UK or are English-speaking. accreditation for approximately 50 distinct these differences across countries, we Finally, we include an indicator for occupations. Examining the application identify prescribed overseas qualifications, whether the origin country is an APEC process to obtain New Zealand registration, pre-approval, fast-track registration or any member country. The motivation behind we find that for all but two of these other explicit preferences for professionals including the APEC indicator is to ask if occupations, registration as a professional from specific countries, including APEC membership of APEC, conditional on is required to pursue the occupation in member countries. For each profession, we other factors enumerated above, is New Zealand (with pathways to registration record ‘preferred’ countries (including associated with less brain waste (a higher varying by occupation). Almost all second and third preferences). predicted probability of working in a professional bodies use New Zealand- Due to the Trans-Tasman Mutual skilled occupation). obtained qualifications and/or work Recognition Agreement, almost all Results from the regression analysis are experience as baseline prerequisites for professions have a fast-track registration presented in Table 2. The first column accreditation, with some possibility of for professionals registered, accredited and/ presents results from a simple regression ‘converting’ overseas qualifications and or qualified in Australia. Eleven out of the that explores the relationship between the experience to assess against this baseline. 27 professions provide a fast-track process predicted probability of working in a We also find cross-country discrepancies or pre-approval for individuals holding skilled occupation conditional on a tertiary in how overseas qualifications are treated qualifications/registrations from or qualification (as estimated above) and to obtain professional accreditation. This practicing in certain assessed countries. For characteristics of origin countries that are could lead to brain waste for individuals the remaining 16 professions, and for potential drivers of brain waste. The second from ‘less preferred’ countries, if they are individuals not qualifying for some explicit column estimates a regression that

Page 56 – Policy Quarterly – Volume 16, Issue 4 – November 2020 additionally includes a set of country While immigrants with tertiary degrees indicator variables. The idea is to account APEC member from APEC member countries like the for unobserved country-specific factors nations have begun US, Canada, Hong Kong, Singapore and beyond the ones explicitly included, such Malaysia have a high likelihood of working as culture or immigrant networks, that to realise the in skilled occupations in New Zealand, determine brain waste and may also be this likelihood is low for immigrants from related to the key drivers we analyse. Not importance of Indonesia and the Philippines. An analysis accounting for such factors may lead us to of characteristics of origin countries that erroneously attribute their effects to the easing immigration are correlated with brain waste reveals that other drivers we investigate. Finally, both the origin country’s level of development, columns include indicators for decade of of skilled workers its distance from New Zealand, spending arrival, to capture shocks to immigrant on education and colonial links are outcomes specific to each decade. and immigrant negatively related to brain waste. After Because unobserved time-invariant, accounting for these potential drivers country-specific factors are accounted for assimilation across of brain waste, there is no evidence that in the second column, the relationships the APEC region. APEC membership reduces brain waste. between the drivers of brain waste and the While APEC’s recent focus on labour predicted probability of working in a mobility is a movement in the right skilled occupation are identified from direction, our results cast some doubt on changes across decades in the drivers. We coefficient is statistically significant. whether this focus has translated into prefer the estimation in the second column, However, this negative relationship between concrete action on the ground to maximise primarily because it allows us to account APEC membership and brain waste does not gains from immigration. There is scope for for additional unobserved confounders. endure in the second column, where the cooperation among APEC members in Note that in the second column, we cannot relationship is identified from changes in standardising certification requirements include drivers that do not change over APEC membership and the predicted and dissemination of information on the decades (like distance and colonial links).13 probability of working in a skilled nature of the education system and the Also, since education data are only available occupation due to the presence of country quality of educational institutions. APEC from the 1970s, we exclude observations fixed effects. The statistically insignificant can look to ASEAN for ways to design from the 1960s or earlier. coefficient on APEC is consistent with the mutual recognition agreements that From the first column, GDP per capita idea that the result in the first column is establish common skill and qualifications and distance are negatively associated and driven by unobserved factors related to recognition schemes in the region across conflict is positively associated with brain APEC membership. Education spending is professions (Gentile, 2019); this is in waste. This is consistent with immigrants now negatively related to brain waste and addition to ASEAN’s broader initiatives in being positively selected on ability and the coefficient is now statistically significant, encouraging ‘people mobility’, a key motivation. We expect that the higher the as expected. Conflict and population lose component of its Master Plan on Asian level of development of the origin country statistical significance. Connectivity 2025 (ASEAN, 2016), which and its distance from New Zealand, the Overall, results from the analysis includes reducing the gaps between skills higher the ability of individuals who decide suggest that GDP per capita, distance, supply and demand in the ASEAN region, to migrate. Conflict may result in negative colonial links and education expenditure encouraging intra-ASEAN international selection of immigrants. As expected, brain (capturing quality of education) are students at universities and supporting waste is mitigated for immigrants from important correlates of brain waste and higher education and skill development origin countries with a colonial link to New they are related to brain waste in the across ASEAN member states. Zealand. This is consistent with easier expected fashion. Importantly, there is no APEC member nations have begun to certification requirements (and, potentially, strong evidence that APEC membership realise the importance of easing cultural and institutional similarities) for mitigates brain waste among immigrants immigration of skilled workers and immigrants from these countries. from member countries. immigrant assimilation across the APEC Population size in the origin country is region. The APEC ministerial meeting in negatively correlated with brain waste. We Conclusions and policy implications the Philippines in 201514 highlighted the find that the quality of education and Using data from New Zealand’s 2013 importance of APEC projects in this area. common language are positively and census, we show that the predicted These include the APEC Labour Market negatively correlated, but the coefficients likelihood of an immigrant in New Portal, which collates data on labour are not statistically significant, suggesting Zealand working in a skilled occupation market and skills trends from member that the relationship is not meaningful in conditional on holding a tertiary degree economies and presents it in one location a statistical sense. differs substantially across APEC member in a coherent format,15 and the APEC Finally, being an APEC member is countries, indicative of brain waste or Occupational Standards Referencing negatively related to brain waste, and this underutilisation of immigrant skills. Framework, which enables comparisons of

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 57 Immigration and ‘Brain Waste’: an analysis of APEC immigrants in New Zealand

the skills held by workers across the region Brunei and Papua New Guinea are low, particularly in the migrate. Even if there is no difference in skill prices between case of immigrants arriving in earlier decades. Our estimates the origin and destination countries, differences in access to by bringing together the components of predicted probabilities for these countries in earlier decades and the quality of public services may motivate immigrants. are hence based on few observations and must be interpreted This type of immigration need not necessarily result in positive necessary for understanding and assessing with this caveat in mind. selection on skills. these skills.16 Such projects are a good start, 5 Additionally, this is in line with earlier findings in New 10 We acknowledge that conflict is but one push-factor leading Zealand (Stillman and Maré, 2009), suggesting that entry immigrants to migrate. More broadly, restrictions on human but a firm commitment to ensuring that disadvantage for migrants has been followed by relative rights and freedoms are an important determinant of the improvements in employment rates and (to a smaller extent) immigration decision. skilled immigrants are able to identify wages. 11 We recognise that geographic distance is an imperfect proxy opportunities and avail themselves of them 6 The finding that the likelihood of obtaining a skilled job with for institutional and cultural distance, both of which can also tertiary education is higher for immigrants who arrived earlier impact on the cost of migration. However, the two variables by smoothly assimilating into the host is consistent with the idea of assimilation into the New we include to account for certification requirements (an country labour market will ensure that Zealand labour market over time. However, other explanations indicator variable for whether more than 9% of the population for this finding are also plausible. For instance, the structure of in the origin country speaks English and if the origin country immigrant skills are harnessed for the the labour market may have changed over decades, affecting and New Zealand share a colonial link) can account for the likelihood of obtaining a skilled job. A weak labour market cultural and institutional distance to a reasonable extent. benefit of host countries, leading to growth characterised by higher levels of unemployment may have 12 In many instances these assessments include non-trivial and development in the APEC region. lasting effects in later years (due to atrophy of skills and and non-refundable fees. Fees vary by profession, and could networks, worker discouragement or failure to develop ‘soft’ range from $400 to $1,000 and above. In addition, some skills (DeLong and Summers, 2012)). professions state that more complicated applications (for 1 We classify the full list of ANZSCO occupations by skill level. 7 The extent of brain waste among immigrants in New Zealand instance, those that cannot be fast-tracked) will cost more to Occupations with skill levels 1–3 are defined as skilled is similar to that in the US. Mattoo, Neagu and Özden (2008) assess. Furthermore, some professions require an additional occupations in this study. For more information about ANZCO present a similar analysis for the US and document predicted exam to be taken in New Zealand. occupations and skill level, see: http://archive.stats.govt. probabilities of obtaining a skilled job conditional on holding 13 The indicator for whether more than 9% of the population nz/browse_for_stats/income-and-work/employment_and_ a tertiary qualification as being highest for immigrants from speak English only changes marginally over time and we do unemployment/skills-employed-people.aspx#gsc.tab=0. India and South Africa (69%), followed by immigrants from not include it in the regression in the second column. 2 Data from the Population Division of the United Nations Canada, the UK and Hong Kong (67%, 66% and 65% 14 https://www.apec.org/Meeting-Papers/Annual-Ministerial- Department of Economic and Social Affairs, 2019. respectively). Lowest predicted probabilities are in the low Meetings/2015/2015_amm. 3 Statistics New Zealand IDI disclaimer: The results in these 20s for immigrants from countries in Latin America. In 15 http://skillsmap.apec.org/home/overview. figures and tables are not official statistics; they have been comparison, the predicted probability of working in a skilled 16 https://aimp2.apec.org/sites/PDB/Lists/Proposals/DispForm. created for research purposes from the Integrated Data occupation conditional on holding a tertiary qualification is aspx?ID=2066. Infrastructure (IDI) managed by Statistics New Zealand. highest in New Zealand for immigrants from the US and UK The opinions, findings, recommendations and conclusions (both at 77%) and lowest at around 15% for immigrants from expressed are those of the authors, not Statistics New Samoa and Tonga. Zealand. Access to the anonymised data used in this study 8 We perform a similar analysis for immigrants with a master’s/ Acknowledgements was provided by Statistics New Zealand in accordance with PhD degree relative to immigrants with a bachelor’s/ security and confidentiality provisions of the Statistics Act honours degree. Interestingly, the predicted probabilities We thank James Jones and Souryabrata 1975. Only people authorised by the Statistics Act 1975 are do not increase for immigrants in New Zealand holding Mohapatra for excellent research assistance. allowed to see data about a particular person, household, a master’s degree relative to a bachelor’s degree. This is business or organisation, and the results in these figures/ contrary to evidence from the US, where holding a master’s Errors and omissions remain our own. tables have been confidentialised to protect these groups or professional degree significantly improves the probability from identification. Careful consideration has been given to of working in a skilled occupation for migrants. While We acknowledge funding from the the privacy, security and confidentiality issues associated investigating the exact reason for this difference is beyond University of Auckland’s Faculty Research with using administrative and survey data in the IDI. Further the scope of this article, we note this as a fruitful avenue for detail can be found in the privacy impact assessment for the future research. Development Fund, grant 3717586. Integrated Data Infrastructure available from www.stats.govt. 9 In addition to market-based remuneration, publicly provided nz. services like health and education in the destination country 4 We note that immigrant numbers from Peru, Chile, Mexico, are also an important component of immigrants’ decisions to

References ASEAN (2016) Master Plan on Asian Connectivity 2025, Jakarta: ASEAN Mattoo, A., I. Neagu and Ç. Özden (2008) ‘Brain waste? Educated Secretariat, https://asean.org/wp-content/uploads/2016/09/Master- immigrants in the US labour market’, Journal of Development Plan-on-ASEAN-Connectivity-20251.pdf Economics, 87 (2), pp.255–69 Brooks, D., A. Posso and B. Abdullaev (2015) A Report on Enhancing OECD (2020) ‘“Elderly population” (indicator)’, https://doi. Labour Mobility in the APEC Region, APEC#216-HR-01.1, APEC org/10.1787/8d805ea1-en Human Resources Development Working Group and Australian APEC Ottaviano, G. and G. Peri (2013) ‘New frontiers of immigration research: Study Centre, RMIT cities and firms’, Journal of Regional Science, 53 (1), pp.1–7 DeLong, J.B. and L. Summers (2012), ‘Fiscal policy in a depressed Peters, A. and A. Sundaram (2015) ‘Country of origin and employment economy’, Brookings Papers on Economic Activity, 43 (1), pp.233–97 prospects among immigrants: an analysis of south–south and north– Docquier, F., Ç. Özden and G. Peri (2014) ‘The labour market effects of south migrants to South Africa’, Applied Economics Letters, 22 (17), immigration and emigration in OECD countries,’ Economic Journal, pp.1415–8 124 (579), pp.1106–45 Poot, J. and S. Stillman (2010) ‘The importance of heterogeneity when Genç, M (2014) ‘The impact of migration on trade’, IZA World of Labor, examining immigrant education–occupation mismatch: evidence from 2014: 82, doi: 10.15185/izawol.82 New Zealand’, discussion paper 5211, Leibniz Information Center for Gentile, E. (ed.) (2019) Skilled Labor Mobility and Migration: challenges Economics and opportunities for the ASEAN economic community, Asian Stillman, S. and D. Maré (2009) The Labour Market Adjustment of Development Bank and Edward Elgar, https://www.adb.org/sites/ Immigrants in New Zealand, Motu working paper 09–10, Wellington: default/files/publication/517601/skilled-labor-mobility-migration-asean. Motu Economic and Public Policy Research, http://motu-www.motu. pdf org.nz/wpapers/09_10.pdf Hanson, G.H. and M. Slaughter (2016) ‘High-skilled immigration and the rise of STEM occupations in US employment’, NBER working paper 22623, September, https://www.nber.org/papers/w22623

Page 58 – Policy Quarterly – Volume 16, Issue 4 – November 2020 Derek Gill

Under the Radar international regulatory cooperation in ASEAN and New Zealand Abstract International regulatory cooperation (IRC) to Trade regime. Instead, regulators often work refers to a diverse range of ways government directly with their foreign counterparts through regulators from different countries work together informal networks. on developing and enforcing regulations. It has The economic and technological drivers of the grown rapidly over the last 40 years, but it is little growth in international regulatory cooperation understood because much of it occurs beneath the will persist in the post-Covid-19 era, providing radar. New research shows that ASEAN countries, continued impetus. For example, the need to along with the New Zealand government, are manage international spillovers will increase the deeply imbedded in a complex web of international need for cooperation on regulatory policy design regulatory cooperation arrangements and and enforcement and other regulatory practices to agreements. ensure that domestic regimes remain effective. Among ASEAN countries these groupings are The experience of Covid-19 has underlined predominately multilateral, bilateral and regional. the value of cooperative activities between states, In New Zealand, bilateral agreements with such as information gathering and exchange. Australia predominate. Much of this cooperation Dealing effectively with three of the principal occurs outside formal free trade agreements and issues currently confronting public policymakers – the World Trade Organization’s Technical Barriers pandemics, climate change and effective governance of the digital environment – requires extensive

Derek Gill is Principal Economist and Head of Public Good (International) international cooperation. at the New Zealand Institute of Economic Research and a research Keywords international regulatory cooperation, associate at the Institute for Governance and Policy Studies at Victoria University of Wellington. Among his previous experience, he worked on the regulatory harmonisation, mutual design of the governance regime for the unsuccessful attempt to establish a trans-Tasman therapeutics regulator. recognition agreements, networks

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 59 Under the Radar: international regulatory cooperation in ASEAN and New Zealand

Figure 1: New IRC networks established each decade preserve of domestic policy, but that now cannot be resolved by national authorities 60 alone’ (ibid., p.63). Regulation, used here in the broad 50 sense of the verb ‘to regulate’, means the use of legal instruments – primary laws, secondary rules, tertiary guidance and 40 codes – to give effect to a government policy intervention. This article focuses on

30 cooperation between central government regulators. In addition, international cooperation also occurs with subnational 20 government bodies, private standard setters (such as GSI and ISO) and private self-regulators. 10 Countries in East Asia have a history of actively engaging in international

0 regulatory cooperation of various types. A 1889 1911 1930 1950 1960 1970 1980 1990 2000 2010 new publication (Gill, 2020a) reports key findings from case studies, interviews, and Source: Abbott, Kauffmann and Lee, 2018 (drawing on the OECD database of 144 regulator networks where the establishment date is known) a survey of key decision makers and opinion leaders in ASEAN member states, Interconnected government through cooperation is not new, IRC networks have as well as New Zealand. IRC in New international regulatory cooperation grown rapidly in recent decades. Europe Zealand is discussed in Gill (2020b), so this in ASEAN+1 dominates the regional networks, with 40 article focuses on regulatory cooperation Growing international cooperation on bodies operating in the EU. ‘Asia’, ‘Asian’ in ASEAN. regulation and ‘Asia Pacific’ appear in the name of just The last 40 years have seen rapid ten regional networks in the OECD data Diverse range of forms growth in international cooperation as set. IRC is a little like art: people know governments increasingly work together. This growth has led to the proposition it when they see it, but it is hard to Cooperation among regulators is of long that what is emerging in international define its boundaries. It can range from standing: regulators have been working relations is a new style of global governance unilateral recognition by adoption of across jurisdictional boundaries for (see Slaughter, 2004). Rather than another country’s regulatory settings or well over a century. The International traditional intergovernmental, state-to- standards, at one end of the spectrum, Telecommunication Union was established, state relationships mediated through through to harmonisation of policies as the International Telegraph Union, in formal treaties, international organisations or practices at the other. As shown in 1865, just 21 years after Samuel Morse and foreign affairs ministries, regulatory Figure 2, in between is a range of forms: transmitted the first electronic message cooperation often occurs under the radar some are relatively soft and informal and before the first patents for telephones in more informal networks. What is trans-government engagements, such as were filed. What is new is the extent and striking about these ‘trans-governmental’ communities of practice. APEC hosts a intensity of this cooperation. network arrangements is that they are less range of informal forums where regulators While treaty-level agreements are visible than more traditional exchange information. Others are more formally recorded by governments, a lot of intergovernmental relationships or structured, formal intergovernmental the ‘below the radar’ activity through supranational agreements. Anne-Marie agreements, such as mutual recognition international networks of regulators is not. Slaughter has suggested that regulators are agreements covering standards and Figure 1 draws on the OECD data set to becoming the ‘new diplomats’, ‘on the front conformity assessments or mutual show that, while international regulatory lines of issues that were once the exclusive recognition of rules. The ASEAN mutual Figure 2: The international regulatory cooperation continuum

Unilateral Informal Formal Formal Harmonisation coordination cooperation cooperation coordination

e.g. unilateral adoption e.g. communities e.g. investigative e.g. mutual recognition e.g. common or recognition of practice assistance, cross agency agreements policy regimes appointments

Source: Gill, 2018

Page 60 – Policy Quarterly – Volume 16, Issue 4 – November 2020 recognition agreements for professional Figure 3: Trade barrier costs and regulatory divergence trade-off services are an example of the latter. IRC also goes beyond intergovernmental to H supranational agreements, although these are rare outside the EU. IRC can take a bewildering variety of Cost forms depending on the following elements: • ‘why’– the imperative for IRC; • ‘who’ – the number of actors: groupings can be bilateral, subregional/regional, pluri-lateral or multilateral; • ‘what’ – the areas on which the

cooperation focuses: regulatory policies Unique Domestic Reg. Regimes (making rules), regulatory practices (interpreting, applying and enforcing Benefit rules) or regulatory organisational management (supporting the L Low High administration of rules); Regulatory Divergence • ‘how’ – how intensive the cooperation is: informal networks of national Source: Gill, 2020a, p.9 regulators, mutual recognition through reduced non-tariff barriers. However, the characterisation of agreements and formal regulatory Regulatory diversity has been a growing international regulatory cooperation as an partnerships, among others; and policy concern, as tariffs have come economic trade-off between ‘trade barrier • ‘which’ – the structure of the legal form down to near zero in the ASEAN region costs’ and ‘regulatory divergence’ is too or other mechanism adopted. for many areas of trade, and multilateral narrow for the diversity of IRC liberalisation has stalled. In ASEAN arrangements and agreements. Why undertake international countries there is discussion of improving regulatory cooperation? regulatory coherence by removing Strengthening regulatory effectiveness The growth of international regulatory unintended and unnecessary barriers There are other logics at play for cooperation is a product of a range of to trade, thus facilitating international IRC beyond the economic logic of factors. There are the economic pressures trade and investment and participation in reducing non-tariff barriers. Somewhat to reduce the barriers to trade. Drivers global supply chains. Mutual recognition paradoxically, one of the major drivers of here include the growth in global supply agreements between Customs authorities regulatory cooperation is strengthening chains, increased globalisation and the for authorised economic operators are the ability of states to deliver regulation rise of multinational corporations. There a type of IRC that facilitates trade and effectively. The apparent paradox arises are also technological developments, such enhances global supply chain security because, as discussed below, perception as digitisation and the emergence of the (Williams and Maralani, 2019). that sovereignty was being eroded was one internet. Many of the issues currently The costs of trade barriers created by of the main challenges to introducing and confronting regulators in this sphere are regulatory diversity arise because of expanding IRC. transnational, so regulatory cooperation specification costs (compliance), There are a range of circumstances is important. In addition, there are conformity costs (the cost of demonstrating where increasing regulatory effectiveness geopolitical imperatives: for example, the conformity) and information costs. This encourages countries to participate in IRC. development of regional blocks, such as line of reasoning leads to a simple trade-off These include: increasing the reach of the ASEAN Economic Community. between trade costs and domestic policy regulation across borders, which manages In general, the drivers can be subsumed preferences for bespoke regulatory regimes, international spillovers; and improving under three headings: mutual economic as illustrated in Figure 3: if trade costs are regulatory capability and cost effectiveness benefits through liberalised trade and small but domestic preferences for a certain as regulators share resources and expertise. investment; strengthening the ability of regulatory regime are very strong, it is not Regulatory spillovers arise because states to deliver regulation effectively; and worthwhile to undertake costly IRC many of the issues currently confronting geopolitical and strategic imperatives. processes; however, if trade barrier costs regulators are transnational. Competition are high relative to the benefits of a law provides an example of regulatory Mutual economic gains regulatory regime unique to that country, spillovers. There has been a large increase Much of the literature on international the optimal outcome may be a significant in the number of countries with a domestic regulatory cooperation focuses on the reduction of regulatory divergence. competition law since the 1960s. Without economic gains from improved coherence competition law, there is no need for

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 61 Under the Radar: international regulatory cooperation in ASEAN and New Zealand

Figure 4: Ranking of types of international regulatory cooperation in East Asia interpreted as mutually exclusive

100% alternatives. Rather, they can be complementary: an ‘and’ not an ‘or’. The 90% case studies investigated by Gill (2018) 80% showed how regional arrangements, such 70% as ASEAN intellectual property cooperation 60% and ASEAN cosmetics harmonisation, led 50% to convergence with international

40% standards. Similarly, pluri-lateral ‘coalitions of the willing’ can add to multilateral rules 30% and procedures while remaining 20% compatible with them. 10% Regulatory agencies are typically 0% involved in a range of cooperation activities s s e at a number of levels: domestically with Joint Joint Policy MRAs X-agency local government and with other regulators; Dialogue Guideline Unilateraadoptiol n standards exchang International Enforcement Standards MR of RulesPartnerships institutions coordination Harmonisation Agreements subregionally with local partners; in the ASEAN New Zealand wider Asia-Pacific region; and Source: Gill, 2020a, p.22 internationally as part of an international regulatory cooperation. However, with a cooperation include geopolitical gains, organisation. competition law regime in place soft power through regulatory export, cooperation is needed to manage spillovers development assistance through technical What does international between jurisdictions. A range of trans- cooperation, and obtaining ‘a seat at regulatory cooperation focus on? governmental, intergovernmental and a the table’. One example of regulatory IRC is narrowly focused on specific areas few supranational agreements emerged as competition and export is how the United of common interest – the ‘sweet spot’ of a result (Petrie, 2016). The New Zealand States and the EU compete through mutual gain. A win–win situation can Commerce Commission is involved in their different approaches to regulation involve aspects of regulatory policy or international regulatory cooperation at through cooperation with neighbouring regulatory practices, such as enforcement. multiple levels: bilateral with Australia and countries and globally. In addition, The development of IRC is highly selected Pacific states; regionally with regulatory cooperation can sometimes path-dependent, with quite different APEC; pluri-lateral with the OECD; and be an important means of avoiding arrangements or agreements in apparently multilateral through the World Trade interstate jurisdictional conflict by similar sectors. Organization and the International limiting attempts by dominant countries Australia and New Zealand cooperation Competition Network. like the US to overreach in asserting on trans-Tasman competition law provides Concerns about regulatory capability extraterritoriality. an interesting example. In this case, the are particularly important for smaller and The ASEAN Economic Community cooperation focused on investigations of less developed countries, where regulatory (AEC) Blueprint 2025 lends authority to and remedies for mergers and cartels. agencies often struggle to achieve initiatives to promote good regulatory There is limited cooperation in other areas, minimum critical mass. These challenges practices, including IRC. IRC complements such as restrictive trade practices between are particularly acute when the regulatory good regulatory practice in the AEC the two competition authorities, despite regime has unique features, as there is less Blueprint 2025 and lends support for similar policy settings, as the spillovers ability to access other countries’ expertise promoting greater regulatory coherence between jurisdictions are smaller and the and experience. By contrast, convergence within ASEAN. other gains from cooperation less. on an international standard generally lowers the costs of operating a regime for Who is involved in international How intensively do countries work together? both regulators and businesses. regulatory cooperation? Countries often work together through IRC is highly pervasive, with all networks, as informal, regulator-to- Strategic and geopolitical dimensions ASEAN countries, and New Zealand, regulator communities of practice are Finally, international regulatory deeply embedded in a complex web of preferred over formal supranational or cooperation inevitably involves strategic arrangements and agreements. For ASEAN government-to-government agreements. and geopolitical considerations. The countries this involves a mix of bilateral, Over time these arrangements might Closer Economic Relations agreement regional and multilateral groupings, become more formal, as trust and between New Zealand and Australia whereas pluri-lateral arrangements or engagement increase within the network. and ASEAN both have their origins in agreements are less common. The survey used in the research published part in security concerns. Foreign policy The choice of multilateral, pluri-lateral in Gill (2020a) explored the perceived objectives of international regulatory or regional cooperation should not be frequency that different forms of international

Page 62 – Policy Quarterly – Volume 16, Issue 4 – November 2020 regulatory cooperation can take. Respondents Table 1: Examples of international regulatory cooperation in ASEAN countries were asked, for each type of regulatory Type of mechanism Illustrative examples cooperation, whether there were ‘none (that Harmonisation via supranational bodies Basel Committee on Banking Supervision I know of)’, ‘one or two’, ‘few (between 3 and International Accounting Standards Board 5)’ or ‘many (more than 5)’. Figure 4 ranks Specific negotiated agreements (treaties ASEAN Trade in Goods Agreement ASEAN the types of from high to low based on the and conventions) Framework Agreement on services number of respondents from ASEAN Regulatory partnership between countries ASEAN Consultative Committee on Standards countries who selected ‘many’, and contrasts and Quality that with New Zealand respondents. Intergovernmental organisations International Civil Aviation Organization The results for New Zealand and Regional agreements with regulatory ASEAN Comprehensive Investment Agreement ASEAN countries on the relative frequency provisions of different types of regulatory cooperation Mutual recognition agreements ASEAN mutual recognition arrangements for were relatively similar. The most common professional services were: Transgovernmental networks Chiang Mai Initiative Multilateralization • regulatory dialogues and exchange of agreement information with another country or region (e.g. the ASEAN and APEC Formal requirements to consider Comprehensive and Progressive Agreement for international regulatory cooperation when Trans-Pacific Partnership (CPTPP) regions); developing regulations • policy coordination with partner Recognition of international standards Philippines adopting ISO 9001 standard country on a specific area or sector and applying to government offices and their regulation; systems • adoption of international standards Soft law ASEAN Economic Community Blueprint 2025 developed by international public and private standard-setting bodies (e.g. the Dialogue or informal exchange of APEC information ASEAN Business Advisory Council International Maritime Organization, Source: Gill, 2020a, p.4 or the International Organization for Standardization); adoption of international standards ahead, beyond the Covid-19 pandemic, • mutual recognition agreements with and mutual recognition agreements. for the next decade many of these drivers other countries on conformity. Support was still present, but lower, for will continue to operate. These include: The less frequent forms used in both the unilateral adoption of policy or economic drivers (growth in global ASEAN countries and New Zealand harmonisation through a supranational supply chains, growth in multinational included: body. corporations, pressure for business to • joint institutions, or an institution reduce technical barriers to trade); and established by two or more countries; What is the future for international technology drivers (the Fourth Industrial • formal regulatory cooperation regulatory cooperation in ASEAN? Revolution, driven by the combination of partnerships with another country (or We turn from discussing the regulatory digitisation, artificial intelligence, cloud region) which stop short of cooperation that is in place within technology, big data analytics and high- harmonisation; ASEAN+1 to the possible future of IRC speed mobile technology). • mutual recognition of the regulatory in the region. No discussion of IRC outcomes from applying rules. would be complete without exploring the Geopolitical tensions impact of Covid-19. There were a number On the geopolitical side, there is significant Which type of international of common themes that emerged from potential for discontinuity, with the regulatory cooperation is used? the survey responses and the workshop slowdown in the growth of world trade, Form follows function. As international discussions about how regulatory lack of progress on further multilateral regulatory cooperation is diverse, and cooperation might play out in East Asia. liberalisation, ongoing strategic flexibility is important, practitioners take As the research was completed before the competition between the United States a ‘horses for courses’ approach to choosing outbreak of Covid-19, we first discuss the and China, and US disengagement from its structures, as different approaches are likely trends, before exploring how the traditional leadership role on international required in different situations. The type pandemic might change the outlook. economic issues. The erosion of public of IRC adopted depends on the sector support for globalisation in developed in question, the partners involved and Long-term drivers countries will also be a factor. As a result, the perception of what works best. The The growth of international regulatory there will be fewer top-down multilateral survey research showed that there was cooperation since World War Two has agreements that provide for widening and high willingness to consider all potential been driven by the combined impact deepening regulatory cooperation. Instead, types of regulatory cooperation, especially of globalisation, technological change the impetus for IRC may be more bottom- dialogues, trans-governmental networks, and geopolitical developments. Looking up development of shared regulatory

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 63 Under the Radar: international regulatory cooperation in ASEAN and New Zealand approaches and standards, with regulators free trade agreements that had proliferated areas such as emerging technology, as as the ‘new diplomats’ (Slaughter 2004). following the collapse of the Doha Round starting with a clean slate is much easier, In East Asia there are a number of of the World Trade Organization talks in both technically and politically, than overlapping regional trade and regulatory 2006. But, given the slow progress on RCEP cooperation in ‘brownfields’ areas, where initiatives that might help drive the future and economic rivalry between the US and different countries’ regulatory policy of IRC in the region, including: China, the prospects for FTAAP appear regimes and practices are more entrenched. • the ASEAN Economic Community dim. US/China tensions will inevitably spill In addition, the slowdown in the (AEC) Blueprint 2025; over into engagement between second-tier growth of world trade, and of economic • regulatory provisions in the free trade nations, making collective agreements growth in East Asia, may increase the agreements between ASEAN and six harder to achieve in regional forums like pressure for growth-enhancing structural countries in the region (Korea, Japan, ASEAN and APEC. policies, including greater interoperability China, India, New Zealand and The AEC Blueprint 2025 provides a of regulatory policies and practices. Australia); focus for good regulatory practice and IRC • APEC’s Agenda on Structural Reform, efforts in region. CER and the vision of a Flexible, pragmatic response which includes a number of ASEAN single economic market between New In the absence of progress in multilateral countries (Brunei Darussalam, Zealand and Australia have driven a lot of forums, there is scope for more emphasis Indonesia, Malaysia, the Philippines, the trans-Tasman initiatives. Similarly, the on pluri-lateral and regional groupings, Singapore, Thailand and Vietnam); ambition of the AEC Blueprint should be such as the ASEAN Economic Community, • the Comprehensive and Progressive a strong driver of regulatory cooperation APEC and the CPTPP. International Agreement for Trans-Pacific in the region. regulatory cooperation provides a Partnership (CPTPP), which currently pragmatic, flexible approach which can involves 11 countries in the Asia-Pacific Discontinuity alongside continuity be pursued selectively through the use of region, including Brunei, Malaysia, Other trends will persist, providing more informal mechanisms. New Zealand, Singapore and Vietnam; continued impetus for regulatory A number of examples of pluri-lateral • the Regional Comprehensive Economic cooperation. The technological ‘coalitions of the willing’ in the international Partnership (RCEP), which includes ten developments associated with the Fourth trade sphere point to what could be members of ASEAN plus five of the six Industrial Revolution will continue, achieved in the regulatory space. One countries with which ASEAN has free and these drivers don’t respect country recent example is the Digital Economy trade agreements. borders. The need to manage international Partnership Agreement. This is a In the longer term, the objective of the spillovers will increase the need for partnership between New Zealand, Chile proposed Free Trade Area of the Asia- cooperation on regulatory policy design, and Singapore to take advantage of Pacific (FTAAP) is to link Pacific Rim and enforcement and other regulatory opportunities from digital trade. In economies, from China to Chile to the practices, to ensure that domestic regimes addition, we can point to the Singapore– United States, with the aim of harmonising remain effective. Cooperation is more New Zealand-inspired agreement on trade the ‘noodle bowl’ of regional and bilateral likely to develop in newer ‘greenfields’ in general medical supplies and equipment,

Box 1 Future of international regulatory cooperation in East Asia Why undertake IRC? To gain economic benefits, improve regulatory effectiveness, and achieve geopolitical imperatives such as the AEC Blueprint 2025 for ASEAN countries. With whom will countries cooperate? There will be fewer multilateral and more regional and pluri-lateral groupings, the latter built on coalitions of the willing. How intensively will countries cooperate? Full regulatory integration will be the rare exception to the rule. Instead, cooperation will start at the less intensive end of the spectrum, and intensity will grow over time, stopping short of regulatory integration. What will they cooperate on? IRC will occur across the spectrum of regulatory policy and practices and, to a lesser extent, regulatory governance. It will expand based on selective, case-by-case, organic evolution rather than a big push. Cooperation will be more likely to develop in newer ‘greenfield’ areas, such as those associated with the Fourth Industrial Revolution, than in ‘brownfield’ areas with more entrenched regulatory regimes. Which structures will they use? There will be growing emphasis on more informal, below-the-radar cooperation mechanisms, such as trans-governmental networks. New supranational groupings and formal trade agreements will have a limited role in shaping IRC beyond Technical Barriers to Trade and SPS (sanitary and phytosanitary) measures. However, IRC will remain important in this space, where cooperation can occur as part of the wider regulatory agenda. Source: Gill, 2020a, p.45

Page 64 – Policy Quarterly – Volume 16, Issue 4 – November 2020 which has been joined by several other questions, ‘why’, ‘who’, ‘how’, ‘what’ and issues require more concerted action. So, economies, and the interim arrangement ‘which’. another significant driver is the use of on a temporary replacement for the WTO international cooperation to support the Appellate Body, in which New Zealand is The future for international regulatory effectiveness of regulation to achieve one of 17 participating members. cooperation in ASEAN post-Covid domestic policy objectives. Looking ahead, it is important to bear in The experience of Covid-19 is Sovereignty mind the old Danish proverb, ‘It is difficult underlining the value of cooperative There is an old international negotiator’s to make predictions, especially about the activities like standardisation and aphorism that ‘the people who cause future.’ In the case of the research discussed information gathering and exchange, even the most trouble in making a deal are in this article, the Covid-19 pandemic if at times it has been by their absence. not the other countries but those on occurred just as the documentation of the Dealing effectively with three of the your own side’. The importance of the research findings was being completed. principal issues currently confronting domestic political atmosphere came With the world currently still in the public policymakers – pandemics, climate up repeatedly in the research on IRC in middle of the pandemic, and with great change, and effective governance of the ASEAN (Gill, 2020a). A complex weave uncertainty around when or indeed if a digital environment – requires extensive of factors influences whether regulation vaccine will be developed, it is difficult to international cooperation. generally, and regulatory cooperation in confidently speculate in any detail on the particular, is adopted. While strengthening impact on the world economic outlook Implications for New Zealand the ability of states to deliver regulation generally, let alone IRC in particular. The prospects of further trade liberalisation effectively is one of the major drivers of That said, it is easy to overestimate the through top-down multilateral initiatives cooperation, managing the perception that impact of major events. While the Covid-19 appear dim for the foreseeable future. sovereignty was being eroded was one of pandemic may accentuate some of the This suggests that further gains from the main challenges. Perceptions that trends under way, it does not appear that greater economic integration are going regulatory cooperation poses a threat to Covid has fundamentally changed the to come from more bottom-up, ‘technical’ sovereignty risk becoming an all-purpose drivers of IRC. regional initiatives focused on greater tool to derail IRC proposals. In the face There is still an important role for regulatory interoperability. Greater of the loss of favour for globalisation regulatory cooperation even in a post- regional economic integration within generally and freer movement of people Covid world where cross-border movement ASEAN from greater regulatory coherence in particular, willingness to adopt formal of people and international trade in goods provides opportunities for trade creation regulatory cooperation will dissipate. This and services may be more restricted. IRC with limited risk of trade diversion. line of argument emphasises the likely can, of course, help to create an Except for the movement of people, importance of diverse ‘bottom-up’ routes environment that supports cross-border Covid-19 is unlikely to materially affect the to further deeper regulatory cooperation trade and investment. But, more drivers of greater international regulatory in the future. importantly, as the pandemic has cooperation, and, indeed, its importance The research participants developed dramatically demonstrated, there are few has been highlighted. In a world some speculative propositions about how regulatory regimes where there isn’t a characterised by increased international international regulatory cooperation may potential for factors outside domestic trade uncertainty and geopolitical tensions, play out in the future in East Asia. In Box territorial borders to have a significant local regulators will be the ‘new diplomats’, with 1 these are organised under the five key impact. Some regulatory effectiveness an increasingly important role to play.

References Abbott, K., C. Kauffmann and J. Lee (2018) The Contribution of Trans- Petrie, M. (2016) ‘Jurisdictional integration: a framework for measuring governmental Networks of Regulators to International Regulatory and predicting the depth of international regulatory cooperation in Co-operation, OECD regulatory policy working paper 10, Paris: OECD competition policy’, Regulation and Governance, 10 (1), pp.75–92 Gill, D. (2018) International Regulatory Cooperation: case studies and Slaughter, A-M. (2004) A New World Order, Princeton: Princeton University lesson learnt, report to the Ministry of Foreign Affairs and Trade and Press Ministry of Business, Innovation and Employment, Wellington: New Williams, J. and M. Maralani (2019) Economic Benefits of MRAs for Zealand Institute of Economic Research, https://nzier.org.nz/ Authorised Economic Operators, part 1: literature scan, report to the publication/international-regulatory-cooperation-case-studies-and- New Zealand Customs Service, Wellington: New Zealand Institute of lessons-learnt Economic Research, https://nzier.org.nz/publication/the-value-of- Gill, D. (ed.) (2020a) Interconnected Government: international regulatory authorised-economic-operators-aeosand-mutual-recognition- cooperation in ASEAN, Jakarta: ERIA, https://www.eria.org/ agreements-mras publications/interconnected-government-international-regulatory- cooperation-in-asean/ Gill, D. (2020b) ‘Regulators are the new diplomats: the role of international regulatory cooperation in a post-COVID world’, NZIER Insight, 91

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 65 Brian Lynch

Whither APEC post-2020? Centre stage for New Zealand Abstract he regional organisation known as APEC – Asia-Pacific Economic As APEC marks its third decade, a priority for the 21 member TCooperation – was formed in 1989. economies is to agree upon where the agency’s purpose and work New Zealand was one of the 12 founding programmes should focus over the next 20 years. APEC is the members, for trade and broader strategic reasons. APEC now has 21 members undisputed leading institution promoting Asia-Pacific economic and is about to enter its 30th year. This growth. It is not a negotiating body but draws strength from its ‘value is a significant milestone. Like most anniversaries, APEC’s is an occasion to proposition’ built on members’ support for consultation, consensus highlight accomplishments which may and collaboration. The review of APEC’s future is occurring in the fairly be claimed, and to reflect on lessons context of a global pandemic that has disrupted regional commerce, learned from areas of activity where performance fell short of promise. In travel and community well-being. The preoccupation of APEC 1994, the target date of 2020 was set for members is with economic recovery and renewed growth. The realising APEC’s overarching Bogor Goal challenge for New Zealand as APEC chair in 2021 will be to gather of ‘free and open trade and investment’ in the Asia-Pacific region. How close has collective commitment to further measures of regional economic APEC come to achieving that ambitious integration, inclusivity and sustainability designed to stimulate objective? How has the mix of regional economic and geopolitical dynamics recovery, and identify how a digitally enabled regional economy altered in the past 30 years? could contribute to that goal. The dawn of a new era would in Keywords value proposition, pandemic, economic recovery, regional ordinary circumstances be an appropriate opportunity for APEC’s members to renew integration, inclusion, sustainability, digital economy their commitments to the organisation’s underlying objectives, refresh agendas and Brian Lynch is currently chair of the New Zealand committee of the Pacific Economic Cooperation reinvigorate work programmes. The Council. He has 50 years of public service and private sector experience in governance and leadership roles. Much of his career has had a focus on the Asia-Pacific region, including involvement seminal decisions will be taken by APEC with the APEC Business Advisory Council. leaders at a forthcoming annual summit.

Page 66 – Policy Quarterly – Volume 16, Issue 4 – November 2020 They will want to do that informed by a the Economic Leaders Meeting, an region has made remarkable economic meaningful vision of where APEC could assembly of the political leaders of APEC’s progress. APEC’s members now jointly reasonably perceive its purpose, core members who at the close of their annual represent 40% of the world’s population activities and modus operandi to be over deliberations have traditionally issued a and 60% of the global economy. After some a realistic time frame, say to 2040. For New document resembling a ‘state of the region’ initial diffidence, APEC members Zealand, it is important to have such a declaration. This statement embodies the developed confidence in ‘the habit of vision agreed on and in place as essential leaders’ consensus view on the major consultation’. Working collectively or as preparations are made to assume the APEC trade and economic issues facing the partners in small groups, they have been chair in 2021. region and their response to the volume responsible for regional tariff barriers Transcending all other considerations, of material submitted by their ministers declining by two-thirds and business however, the timing of APEC’s and officials, and from accredited non- transaction costs falling by 10%. The contemplation of its future has come government organisations like the APEC private enterprise sector has responded to unexpectedly at a critical juncture in Business Advisory Council and the these incentives and developed complex regional and world history. The global Pacific Economic Cooperation Council. cross-border supply chains which have impact of the current coronavirus The yearly leaders’ statement also sets underpinned deeper integration. Intra- (Covid-19) pandemic has disrupted out specific recommendations they have APEC trade has increased six-fold and total economic growth and long-held assumptions and behavioural patterns at societal, business and national levels to an In its 30 years of existence, APEC has extent not experienced since the Second established itself as the undisputed World War (Patman, 2020). Two specific Covid-related questions arise for APEC. singular institution promoting Asia-Pacific How well equipped will APEC be organisationally, and how well motivated regional growth and integration. its membership, to work collaboratively to help manage the region’s recovery from the enormous damage inflicted by the pandemic? In the company of other approved and agreed should be built into regional trade five-fold (Foulis, 2014). instruments of international cooperation, action plans, blueprints, frameworks and More than 50 trade agreements have been such as the United Nations Security road maps. signed and put into effect among APEC Council, the World Health Organization In its 30 years of existence, APEC has members. The well-being of millions of the and the World Trade Organization (WTO), established itself as the undisputed singular region’s people has been lifted above the APEC’s ongoing purpose, and its readiness institution promoting Asia-Pacific regional poverty line. It has been through APEC’s and capacity to mitigate the impact of growth and integration. APEC was not ‘pathfinder’ initiatives that hitherto Covid-19 and immense adverse change will modelled on the example of the European unknown approaches have been identified be under scrutiny in ways unimaginable Union and does not have supranational and promoted multilaterally within the when work on the vision was launched. qualities, such as common citizenship and WTO in fields such as environmental goods, currency. Nor is APEC a negotiating body; information technology and trade APEC: brief historical overview it proceeds by consensus. Its facilitation (APEC, n.d.). APEC did not come into being to a fanfare recommendations and decisions point the of trumpets around the region. There was way forward but are non-binding. APEC APEC’s place in New Zealand’s early hesitancy about the new entity’s is essentially an enabling and facilitative regional setting likely utility as a vehicle for economic forum. As well as its modus operandi, the New Zealand did not hesitate to be one and trade liberalisation. At first the APEC original trio of ‘core pillars’ of APEC of APEC’s original 12 members. In the meetings were led by trade ministers and activity have also remained largely context of a global economic downturn their officials. Their initial endeavours did unaltered: trade and investment and painfully slow progress being not produce the wealth of conclusions liberalisation; trade facilitation, often made in the GATT Uruguay Round and recommendations that later shaped described as ‘ease of doing business’; and of trade negotiations, a new regional APEC’s work programmes. Importantly, technical cooperation (capacity building). organisation with a primary focus on however, commitments by individual Agendas have become longer and more economic integration was a project from economies as set out in collective action complex, with themes that cut across policy which New Zealand could not afford plans supported region-wide efforts silos, such as inclusivity, connectivity, to stand aside. There were three other to achieve greater integration. It was sustainable development and structural considerations behind New Zealand’s only after 1993, responding to pressure reform, growing in prominence. founding membership. One was that the from the United States, that the practice While APEC does not have a negotiating APEC project was driven by two of the began of finishing the APEC year with mandate, ‘on its watch’ the Asia-Pacific country’s closest political and trading

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 67 Whither APEC post-2020? Centre stage for New Zealand partners, Australia and Japan. Another economic profile have no provenance. The trade negotiators and regulators will find was the need to accelerate the penetration expectation among other economies will themselves constantly in catch-up mode of Asia-Pacific markets as the only realistic be that New Zealand’s forthcoming APEC to design new baseline rules, especially in long-term alternatives for the bulk of New year will build a consensus around the the digital economy and after Covid-19 Zealand’s dominant land-based exports, future work programme foreshadowed in is contained, for managing the exacting once the United Kingdom had joined the the vision. norms of modern commerce. Common Market (EEC) in 1973. Third, Almost certainly, in 2021 APEC’s The limited range of policy measures the initiative offered an opportunity to members, individually and as a group, will implied in the initial years by the Bogor engage the United States and maintain still be grappling with the economic and Goal’s rallying cry of ‘free and open trade that country’s interest in the Asia–Pacific’s social dislocation wreaked by Covid-19. and investment’ is barely recognisable future (Lynch, 2015). The challenge for New Zealand will be how alongside today’s heavy APEC agenda and All the same, few analysts or shippers perceptively it identifies the objectives and its multiple work programmes. Only slowly of exports would have confidently choice of themes for the year. These will did it become accepted among the political predicted in 1989 that within three decades, need to reflect the mix of priorities shared and policy community that better regulation seven of New Zealand’s ten major trade by other economies. New Zealand will need of the environment, and of health and safety and labour practices, had a legitimate part to play in promoting inclusive economic The spread of government-sponsored growth. APEC ministers and advisers today have to come to terms with disruptive protectionist measures that hamper technology, e-commerce, new dimensions cross-border trade flows is more of intra-regional connectivity, regulatory coherence, service sector reform, social insidious than at any other time in media, supply chain management, and the APEC’s existence ... ‘internet of everything’.

The setting for the current APEC review The regional and global settings for APEC’s consideration of its future after partners would be APEC members. Or that to discern how receptive the regional mood 2020 have not been the most propitious. the region would become the destination is for creative policy initiatives in a time of Regional security issues of long standing, for three-quarters of the country’s painful recovery, and appreciate the depth especially in north Asia and the South outbound trade (StatsNZ, n.d.). Or, of appetite for not simply making China Sea, continue to defy resolution. additionally, that to complement the commitments but driving remedial change Global trade has been slow to recover after growth in New Zealand’s regional trade, that matters. Crucially important and a key the 2008 financial crisis. Few economies the Asia-Pacific had emerged as the driver factor in determining the meeting’s success, have enjoyed measurable, much less for foreign direct investment in the country, how much scope will exist in 2021 for New continuous, growth. The multilateral become the catalyst for the surge in tourist Zealand to launch new policy endeavours, rules-based regime built into the WTO and student numbers, and provided the such as the Strengthening Markets that has underpinned a liberal approach to points of origin of the rapidly growing Framework project introduced and the international trade order is threatened migrant component of the population. shepherded through the Auckland APEC by a preference in some quarters for one- meeting in 1999? on-one transactional deals.1 Retaliatory APEC 2021 tariff exchanges between the two globally The looming responsibility to be APEC’s APEC’s role in the process of regional dominant economies have inflicted host economy in 2021 has meant that economic integration damage on themselves and collaterally work on the new vision and the review The summary above hardly does on others (Rudd, 2020). The spread of that underpins it has special significance justice to the Asia-Pacific as a region government-sponsored protectionist for New Zealand. How well the country of transformative economic change. measures that hamper cross-border trade performs in the role of policy coordinator There are two constants amid that fluid flows is more insidious than at any other and meeting convenor will be closely scene. One is that business models will time in APEC’s existence (APEC Business observed. The only previous experience ceaselessly evolve as the nature of trade Advisory Council and Marshall School New Zealand has of being APEC chair, continues to change and entrepreneurs of Business, 2016). The high incidence in 1999, will offer useful institutional identify new opportunities arising from of social and economic inequality found memory and guidance on what is required the phenomenon known as the ‘fourth in part or pervasively in most APEC of a successful host economy. However, industrial revolution’: artificial intelligence, economies is ascribed by the disaffected the region has been transformed since advanced robotics and online retailing. to the indiscriminate impact of trade then and many aspects of its current The second is that policy specialists, liberalisation and open markets. The

Page 68 – Policy Quarterly – Volume 16, Issue 4 – November 2020 fashionable ‘self-evident’ proposition That conclusion would have been emphasis on voluntarism, collaboration, favoured by pro-trade advocates of magnified many times had forewarning community building and connectivity (see, an earlier generation, that economic been available of the manifold impacts that for example, Hawke, 2012). The almost integration and less-regulated commerce Covid-19 would have. One consequence of certain outcome in the review and vision would surely bring benefits for all sectors the pandemic is that a dominant regional context is that member economies will of society, has been found wanting. constituency in continued support of continue to be at liberty without risk of Undeniably there has been rapid terms such as ‘connectivity’, ‘open markets’, institutional penalty to accept or modify economic growth in the Asia-Pacific region ‘inclusivity’ and ‘integration’ cannot be APEC recommendations, or put them to that rescued millions from poverty, but it assumed. The case in their favour must be one side, as they perceive their domestic papered over a multitude of scars. Other robustly remade. In that context, the circumstances deem necessary. unhelpful developments have occurred in common response recommended in the The anticipated continuation of the recent years. The failure of APEC leaders advice already presented to leaders is likely most fundamental aspect of APEC’s culture, to agree on a declaration at their 2018 to have remained the same: urgent, resolute the voluntary nature of its proceedings, has Papua New Guinea meeting and and collective action by all APEC members. several consequences. One is of special cancellation of the 2019 Chile meeting due That collaborative theme resonated in a importance. Acceptance that on agenda to domestic disturbances have raised statement on Covid-19 released by APEC issues APEC will continue to move only in doubts about what APEC may be capable of accomplishing in future. Those negative factors pale alongside the ravages of the Acceptance that on agenda issues APEC Covid-19 pandemic, which has damaged supply chain functioning, economic will continue to move only in accordance performance and regional productivity, with the general will attaches even and dealt a crippling blow to tourism and travel by air and sea. It has created greater weight to the need for APEC widespread apprehension and uncertainty within communities and severely eroded leaders to articulate clearly their post- regional business confidence at least in the 2020 vision of the Asia–Pacific. short to medium term (PECC, 2020).

APEC’s forward vision: what common messages have emerged? trade ministers after their most recent accordance with the general will attaches A substantial volume of work has been done meeting. They gave strong emphasis to even greater weight to the need for APEC over the past two years and reports finished keeping markets open, emergency leaders to articulate clearly their post-2020 as the basis for preparation of a refreshed measures being proportionate and vision of the Asia–Pacific. It requires them mandate and modus operandi for APEC. It temporary, and cooperation on long-term to highlight the region’s promise and has involved a single-purpose APEC Vision recovery packages (APEC, 2020). potential opportunities; but, at the same Group, senior APEC officials, the APEC Notwithstanding the scale of the known time, to not understate the seriousness of Business Advisory Council and the Pacific regional challenges, there appears no challenges where they are known to exist Economic Cooperation Council. Despite disposition to recommend that APEC be and identify forcefully how they might best the bleak regional backdrop described empowered in future with authority to be met in a concerted manner while risks above, there has been a conspicuous level compel member economies to proceed are managed. All the while using terms and of uniformity in the conclusions and other than by consensus. The ‘tyranny of expressions that can be commonly recommendations of the four groups that the majority’ and mandatory compliance understood and that will engage attention were tasked with providing input to the will remain foreign to APEC’s operational in the community at large, not appearing APEC review and vision. Understandably, ethos. In APEC’s formative years, some to be lifted, poorly framed, from an all- there are different points of focus among ‘Western’ developed APEC economies with purpose policy manual. them, and disparate aspects of the same GATT heritage experienced degrees of APEC leaders will want to offer a broad subject are covered. But there is discomfort finding themselves party to meaningful foreword to their vision for the much that is consistent in the main thrust trade-enhancing regional arrangements region and its future. It should be of the findings of these completed studies. that were other than explicit, prescriptive underpinned by a commitment to interact Not least is an unmistakeable sense of and enforceable. Over time, the merits of constructively together based on trust, unease underpinning all four submissions, that approach became generally regarded confidence and shared interests (Ayson and expressed in unambiguous terms, that the as less compelling in a region of such Capie, 2020). There is unlikely to be dispute process of economic integration in the diversity than the alternative ‘Asian’ that a concise, overarching aspirational Asia-Pacific has reached a critical stage, preference for a non-binding and non- statement could with good reason include perhaps a tipping point. interventionist philosophy that had an terms such as ‘dynamic’, ‘inclusive’,

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 69 Whither APEC post-2020? Centre stage for New Zealand

‘innovative’, ‘opportunity’, ‘prosperous’ and accomplishments, the retort from diverse the multilateral organisation itself remains ‘resilient’, with explanatory comment. An audiences is likely to be, ‘that’s all very well, beleaguered (Drysdale, 2020). essential ingredient will be a firm and but where to from here?’ In response, the Within the Asia-Pacific the concept of unqualified assertion that minimally leaders’ vision can be expected to dismiss ‘open regionalism’ was buttressed by the regulated trade, open markets, largely ‘business as usual’ as a credible option. The decision of the remaining 11 members, unfettered investment regimes and deeper growth formulas that worked in the past after the United States withdrew in 2016, regional economic integration will still be simply do not have the resilience and to press on and conclude the Comprehensive at the heart of APEC’s mission. That should capacity to exploit the potential and and Progressive Trans-Pacific Partnership be complemented by an equally ameliorate the risks in the array of (CPTPP). Negotiations on the 16-member unequivocal assurance from leaders that unfamiliar regional issues now making Regional Comprehensive Economic their common ambition is to advance the their presence felt. A refreshed APEC Partnership (RCEP) have concluded. The well-being of ‘all our people’. This would agenda is called for. Leaders can be expected Pacific Alliance is another promising acknowledge that earlier waves of APEC- to devote attention in their final vision to regional initiative. The goal of an sponsored economic liberalisation did not noting work agendas still relevant and to overarching organisational framework reach every regional shore; and even where highlight new trajectories along which through a free trade area of the Asia–Pacific, in which future sub-regional agreements could find their place, remains a work in From its embryonic and experimental progress. Final achievement of that concept in the long term will await the return to a early years as a fledgling regional entity, less turbulent regional landscape. APEC has grown steadily in stature A third policy domain inherited from earlier years and with an unfulfilled agenda to become the unrivalled Asia-Pacific relates to progress towards the Bogor Goal of ‘free and open trade and investment’. institution responsible for a broad There are areas where progress with reform economic mandate. has been spasmodic rather than sustained. Here there is opportunity for leaders to inject greater urgency and momentum around issues to do with services they did, there were segments of society APEC members might tackle the region’s investment and trade, non-tariff barriers, overlooked. In many cases, social welfare challenges; and to place emphasis as well intellectual property, and unreasonably safety nets for those ‘left behind’ were on how emerging opportunities, such as in high tariff peaks on agricultural goods absent or inadequate for the purpose. the digital arena, might be leveraged to (Honey, 2020). Similarly, cross-border An emphasis on ‘inclusive’, people- generate further economic expansion, with commercial transactions would proceed centred economic development would help the promise of benefits more broadly more smoothly if there was a greater degree dispel an impression frequently expressed distributed (Marshall School of Business, of commonality in process and substance that globalisation and economic reform 2017). between the regulatory regimes of APEC benefit only a ‘privileged minority’. Leaders economies. This would apply in settings will recognise the need for greater effort to Policy pathways that fall under the rubric of structural eliminate barriers to full economic When they shift their focus from general reform, such as competition policy, legal participation, higher incomes and better expressions of purpose and intent to the frameworks, and public and private sector living standards for disadvantaged sectors specifics of the vision’s implementation, governance. of long standing. In that category are the a cluster of dominant ‘policy pathways’ The credibility of the APEC vision for disabled, indigenous population groups, will demand attention from APEC the future will be influenced by how robust people still in poverty, remote and rural leaders. Only a few of those pathways its internal continuity and consistency communities, small enterprises, youth and were in the minds of the founding APEC appear to be. Here there are three policy women. members. One is support for the norms objectives that could be said to supply the With justification, APEC leaders will and values of an open, non-discriminatory adhesion needed to bind the vision together. want to draw attention to the indices that rules-based multilateral trading system, They are broadly defined as connectivity, illustrate the Asia–Pacific’s economic manifest in GATT in the early APEC years inclusivity and sustainability. In APEC’s progress during the past 30 years. But that and after 1995 in the WTO. A vital part early years, connectivity was taken to apply sense of achievement will not be inflated. of that architecture has been the dispute narrowly to the trade in goods and some It is not the prime focus of the APEC resolution system that is now under services and the modest flow of intra- review and the vision. Leaders and their siege (Uren, 2020). The option for APEC regional tourists. Today the policy focus is advisers will be conscious that no matter members of working in plurilateral groups on achieving a seamless, integrated region how much recognition is drawn to APEC’s in the WTO is a pragmatic response while by strengthening physical infrastructure,

Page 70 – Policy Quarterly – Volume 16, Issue 4 – November 2020 institutional linkages, and people-to- disruptive impacts of transformative 21 members in their economic, political people interaction that captures the technology in the digital age. The risk of and social systems, the readiness of explosion in commercial travel and market fragmentation is a major concern. APEC economies to engage in robust regional tourism. Inclusivity has graduated Significant work has already been and constructive dialogue within the from the status of being virtually ‘taken for completed or is under way on capacity parameters of the organisation’s unique granted’ to a commitment to make greater building, consumer privacy, data protection, modus operandi has been paramount. The efforts to ensure that the removal of human resource development and trade- practice of consultation and cooperation is barriers to economic participation does related aspects. A comprehensive Internet now deeply engrained. That collaborative not prejudice the interests of any substantial and Digital Economy Roadmap has existed spirit will be tested by the size and group in society. Sustainability was since 2017 which covers a formidable unprecedented nature of many of the mentioned in the declaration after the first agenda of issues awaiting attention in areas challenges now confronting the Asia- APEC leaders meeting in 1993, and under such as data access, infrastructure, Pacific region, none more immediately so pressure from global warming concerns interoperability and regulatory coherence. than Covid-19. Through the post-2020 has become an omnipresent consideration, vision anticipated from them, it will be built into nearly every APEC programme. Conclusion expected of APEC leaders that they will The widespread debilitating effects of the From its embryonic and experimental early deliver a staunch, timely and persuasive Covid-19 pandemic will apply pressure on years as a fledgling regional entity, APEC reaffirmation of APEC’s value proposition. APEC members to attach greater weight to has grown steadily in stature to become 1 The APEC 2017 leaders’ declaration short section on the environmental issues, and especially to the unrivalled Asia-Pacific institution multilateral system contained only a commitment to ‘work climate change. responsible for a broad economic mandate. together to improve the functioning of the WTO, including its negotiating, monitoring and dispute settlement functions’. Another priority policy field for APEC The ambitions of those present at the See also Rogerson, 2017. leaders to address in their vision is how best creation of APEC have been exceeded. to harness the potential and mitigate the Despite enormous diversity among the

References APEC (2020) ‘Statement on COVID-19 by APEC ministers responsible for https://www.tradeworks.org.nz/trade-in-the-time-of-corona-food- trade’, Kuala Lumpur, 5 May, https://www.apec.org/Meeting-Papers/ security-implications/ Sectoral-Ministerial-Meetings/Trade/2020_trade Lynch, B. (2015) New Zealand and Asia-Pacific Integration, Wellington: APEC (n.d.) ‘About us: achievements and benefits’, https://www.apec.org/ Centre for Strategic Studies, Victoria University of Wellington About-Us/ Marshall School of Business (2017) Inclusive Growth through Smarter APEC Business Advisory Council and Marshall School of Business (2016) Globalisation and Technological Progress, Los Angeles: Marshall School Non-tariff Barriers in Agriculture and Food Trade in APEC: business of Business, University of Southern California perspectives on impacts and solutions, Los Angeles: APEC Business Patman, R. (2020) ‘Another crisis that knows no borders’, Newsroom, 29 Advisory Council and Marshall School of Business, University of April Southern California PECC (2020) State of the Region: special report on Covid-19, Singapore: Ayson, R. and D. Capie (2020) ‘Geopolitics after Covid-19: who can New Pacific Economic Cooperation Council Zealand trust?’, Newsroom, 29 April Rogerson, A. (2017) ‘A “new trade framework”?’, RSIS Commentary, 20 Drysdale, P. (2020) ‘Asia will fall with the multilateral system unless it November springs to its defence’, East Asia Forum, 26 April Rudd, K. (2020) ‘The coming post-COVID anarchy’, Foreign Affairs, 6 May Foulis, P. (2014) ‘Business in Asia: how to keep roaring’, Economist, 30 Statistics New Zealand (n.d.) ‘Overseas trade indexes’, https://www.stats. May govt.nz/information-releases/overseas-trade-indexes-prices-and- Hawke, G. (2012) ‘What kind of economic integration?’, background paper volumes-march-2020-quarter-provisional for the Economic Research Institute for ASEAN and East Asia Uren, D. (2020) ‘Economic recovery means resisting the urge to back Honey, S. (2020) ‘Trade in the time of corona, food security implication’, away from globalisation’, The Strategist, 22 April Trade Works, New Zealand International Business Forum, 24 April,

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 71 Vangelis Vitalis

New Zealand’s Hosting of APEC

economic architecture and underpinned our prosperity. in 2021 The last time New Zealand hosted APEC was in 1999. It was a challenging Abstract year: except with Australia, we had no Hosting APEC in 2021 is a unique and timely opportunity for New formal regional or bilateral trade Zealand to take responsibility for providing regional leadership that architecture and had yet to venture into any free trade agreement negotiations; the can advance and sustain APEC as an institution, including through Y2K bug was a serious preoccupation; the its development of trade and economic policies that will support the region was grappling with the aftermath of a crippling Asian financial crisis; the region’s economic recovery from the effects of Covid-19. This article Cold War was a recent memory; and the reviews why APEC matters to New Zealand and the international World Trade Organization was in a parlous context which will influence New Zealand’s APEC host year. It state heading into the Seattle ministerial conference. It all suggested that Francis outlines how New Zealand will approach its virtual hosting of APEC Fukuyama’s declaration of ‘the end of 2021, and the key themes which will inform our priorities. history’ a decade before our host year was naïve at best, hubristic at worst. Keywords APEC, international organisations, regional economic In 2021 New Zealand will host APEC integration again. And, once again, the context is challenging, not least as the health, social he Greek general Thucydides, writing both of globalisation in general, and of the and economic impacts of the Covid-19 2,500 years ago, is supposed to have rules-based international trading system pandemic continue to unfold. Despite the Tsaid that ‘turbulence is a stern teacher’. in particular. At the heart of that system challenges, hosting APEC is a unique and Recent years have certainly been that for for the past quarter of a century has been timely opportunity for New Zealand to us as we have navigated an increasingly APEC – the Asia-Pacific home for a set take responsibility for providing regional complex and challenging international of regional norms and morés that more leadership that can advance and sustain economic environment. Covid-19 has than most institutions has shaped and APEC as an institution, including through further underlined the essential fragility informed the evolution of our regional its development of trade and economic policies that will support the region’s Vangelis Vitalis is Deputy Secretary, Trade and Economic at the Ministry of Foreign Affairs and Trade. He is economic recovery. also the APEC Senior Officials’ Meeting chair for New Zealand’s APEC 2021 host year. His previous roles Here I review why APEC matters to include: the chief negotiator who concluded the Comprehensive and Progressive Agreement for Trans- Pacific Partnership (CPTPP) and the ASEAN–Australia–New Zealand Free Trade Agreement; ambassador New Zealand, especially in such turbulent to the EU; and, more recently, New Zealand’s permanent representative to the WTO. times. I frame this against an international

Page 72 – Policy Quarterly – Volume 16, Issue 4 – November 2020 context which will influence New Zealand’s Since APEC was Partnership (CPTPP) outcomes. Practical APEC host year. I then outline how New outcomes like self-certification for rules of Zealand will approach its virtual hosting founded in 1989, origin secured with our close partner of APEC 2021, and the key issues which Malaysia – which significantly reduce will inform our priorities. its collective GDP transaction and financial costs for both of per capita has our countries’ exporters – would simply not APEC and New Zealand have been possible without the close APEC represents a crucial anchor point doubled and collaboration of our respective customs for New Zealand in a dynamic and rapidly officials working together for years in a evolving region. It is also a way to mitigate approximately a range of APEC forums. Put simply, the the risks posed by the ‘Kindleberger Trap’. billion people have familiarity and trust that evolved between This is the situation described by Charles officials in APEC processes built confidence Kindleberger, one of the architects of been lifted out of and provided the crucial building blocks of the Marshall Plan. He argued that the norms and best practice that shaped the disastrous decade of the 1930s was enabled poverty across the range of subsequent ‘hard’ trade rules found by the failure of countries (large and small) region. in our regional and bilateral trade to invest in and sustain key global public agreements. goods, such as the League of Nations. It has Since APEC was founded in 1989, its been suggested that this is the new ‘trap’ collective GDP per capita has doubled and confronting us internationally: whether developing best practices, and building approximately a billion people have been countries will support and invest in our common attitudes and norms around lifted out of poverty across the region. New existing global and regional public goods constructive trade, microeconomic and Zealand exporters have benefited not only to sustain the rules-based system. APEC macroeconomic policies. The APEC from being part of this growing region and is a good example of a public good that process of exchanging good ideas and its rapidly expanding middle class with a frames and sustains the international instilling best practice has already yielded taste for the high-quality and safe goods trading system, not least through its important gains across the region: it is, for we produce, but also from the average cooperative and consensus-based instance, radically faster for an entrepreneur tariffs in the APEC region falling from 17% processes, which drives collaboration, today to establish a business or obtain a at its founding to 5% today (although innovation and shared outcomes. We now construction permit in the APEC region average agricultural tariffs remain more have an opportunity, as a small economy than it was a decade ago. And that same than twice as high as non-agricultural that depends on a sustainable rules-based businessperson deals with less red tape and tariffs). This was achieved through what system, to make our contribution in enjoys a more level playing field thanks to we might call the ‘APEC effect’, whereby the support of APEC, and in this way avoid pro-competition policies. In this way, policies and thinking of APEC members Kindleberger’s trap. APEC has made significant contributions shifted towards placing value on voluntary There are also good practical reasons to New Zealand’s prosperity by reform and greater integration as a driver to ‘lean in’ on APEC. APEC members enjoy coordinating actions which helped the of economic prosperity and well-being. It a successful history of pursuing economic Asia-Pacific become the most economically is, therefore, not at all surprising that integration, which has driven the region’s dynamic region in the world. New Zealand’s trading relationships have prosperity. APEC’s design – centred on APEC’s activities also have a record of come to be dominated by APEC markets, consensus-based commitments, voluntary building over time into ‘hard rules’ (i.e. including as the home of eight of our top action and capacity building – has been key legally enforceable trade rules). To give you ten export destinations. to this success. Its non-binding and an example, I do not believe that we could This collective regional approach, in collaborative method of engagement has have concluded the ‘hard rules’ contained which the gradual opening of economies enabled the institution to serve as an in the ASEAN–Australia–New Zealand Free is seen as a means to benefit all, also incubator of ideas. It was APEC that Trade Agreement without the many years of includes a wide-ranging structural reform devised the first set of environmental goods patient work undertaken in APEC on issues agenda. This is a vital component in our in the 1990s as part of the ‘early voluntary like customs procedures, trade facilitation broader vision of a region that is prosperous sectoral liberalisation’ process, and it was mechanisms, competition policy and so on. and economically vibrant. APEC works to APEC – in Russia’s 2012 host year – which The norms developed through sharing foster transparency, competition and established the first internationally agreed information and best practice in APEC built better-functioning markets in the Asia- set of environmental goods on which confidence and familiarity. These fed Pacific through sharing information and member economies agreed to reduce or directly into the outcomes that were secured best practice on regulatory reform, eliminate tariffs. for New Zealand in 2008 with ASEAN (one improving public sector and corporate APEC has thus proven to be a flexible of our most important trading partners) governance, and strengthening legal and adaptable forum for sharing and subsequently into the Comprehensive systems. Crucially too, the APEC Business experiences, engaging the private sector, and Progressive Agreement for Trans-Pacific Travel Card provides our exporters with

Policy Quarterly – Volume 16, Issue 4 – November 2020 – Page 73 New Zealand’s Hosting of APEC in 2021 streamlined access to APEC economies. corporate environments that stimulate This is another concrete deliverable from The nature of productivity, jobs and incomes. APEC is the ‘APEC effect’. In practical terms, this where best practice to respond to the has all meant that it has become APEC, based on economic impacts of Covid-19 can be significantly cheaper, faster and easier to the principles of debated, shared and coordinated across the do business across the APEC region. region. APEC’s focus, then, is necessarily APEC’s work to advance integration by voluntary action both macro- and microeconomic. On the reducing barriers to trade and creating trade policy front, too, recovery strategies efficient markets is central to New Zealand’s and consensus, will need to avoid the kinds of protectionism economic well-being and the jobs that are that history has shown will leave everyone sustained by our export sector. Our links means that worse off. In this way, the APEC principle with the Asia-Pacific are essential to our of open trade and investment remains a prosperity. They will be a key plank both ultimately what key element in our shared strategy to stave in New Zealand’s economic recovery from off the worst of the pandemic’s economic the Covid-19 pandemic, and in our future can be achieved impact. resilience. in 2021 will New Zealand’s APEC host year in 2021 International context for APEC 2021 depend on the In a typical year APEC meetings would As I noted at the outset, New Zealand will see prime ministers, presidents and host APEC during difficult times. Most willingness of other leaders rubbing shoulders as they obviously, the global economic impacts worked to advance their shared trade of Covid-19 are likely to get worse before each member and economic interests, while CEOs from they get better. around the region would come together The OECD forecasts that Covid-19 will economy to to make deals to expand their commercial trigger a 4.5% decline in global growth this opportunities. Unfortunately, during year, with a resultant sharp increase in promote a global pandemic these kinds of close unemployment. It found that global trade and personal interactions are simply not collapsed in the first half of 2020, falling by cooperation rather possible, at least not in the near future. over 15%, and remains weak. At the same than competition. New Zealand is therefore hosting APEC time, there is a risk that the surge in 2021 in a virtual manner. restrictive trade measures being put in In hosting over 300 APEC meetings place around the world in response to the online, in what will arguably be the largest pandemic will herald a new era of First, at a time when major powers are digital diplomacy event ever attempted, protectionism. not actively defending global public goods New Zealand will make the most of the But even before the arrival of Covid-19, such as the rules-based trading system, opportunities provided by the virtual the broader international context was smaller countries need to step in to sustain format to underpin APEC’s important troubling for a small player like them. In this context, hosting APEC work. We will be innovative and creative in New Zealand. We have seen rising provides the opportunity for us to convene delivering a tightly focused programme of scepticism around the ability of key international actors and remind each work that can make a real impact on the international rules and organisations to other that we must not lose sight of the issues that matter most. cope with a range of trends, including values which have led to the Asia-Pacific As APEC host, New Zealand’s first increasingly assertive competition among being the most dynamic and fastest- responsibility will be to steward the large powers, unilateral trade actions, growing region in the world. APEC should, organisation through a tumultuous period fraying political consensus on liberal therefore, be a space for constructive defined by a health crisis and deep economic norms, and growing engagement and cooperation on regional economic shocks across the region. Much environmental pressures. and global norms, with a view to rebuilding of New Zealand’s role as host will APEC has a critical role to play across confidence in, and support for, the rules- necessarily centre on coordinating APEC’s these issues. It has been at the heart of based international system. response to this crisis and guiding its future regional economic diplomacy for decades, Second, our role as host next year is an strategic direction in light of the pandemic’s including previous periods of political and opportunity for us to support Asia-Pacific impact. As host, New Zealand will also economic turbulence. It is imperative that economies in sharing knowledge and place special emphasis on issues that will APEC now finds a way to sustain and build experience of policies that will support a be key to sustained economic recovery. on the progress it has made. There are two rapid recovery from a once-in-a-generation Five significant themes will inform our ways we can do this next year, building on economic crisis. We need to design and host year. First, this year APEC is expected the good work already undertaken by adopt policies that enable business with to replace the expiring Bogor Goals1 with Malaysia as APEC host this year. open, competitive and predictable a new mission statement for APEC. In 2021

Page 74 – Policy Quarterly – Volume 16, Issue 4 – November 2020 APEC will translate this new vision into a can distort markets in a range of resources, an opportunity to shape the emerging detailed plan of action to guide APEC’s from fish to fossil fuels. It also means norms and mores in this area as well. agenda in the decades to come. As host, a considering what best practice policies look core role for New Zealand will therefore be like to encourage emerging sectors in green Conclusion to facilitate agreement on this 20-plus year industries, renewable energy and At a time when the international system agenda. Given the state of the international environmental goods and services, and is under intense pressure, APEC should economy, this is a significant responsibility. removing barriers to their uptake. A seize the opportunity to demonstrate that It is also an opportunity for New Zealand sustainable economy will be more resilient collective international action not only to help design a work plan for APEC which to future shocks and better placed to works, but is in our shared interests. This galvanises its membership, responds to the undergo transformation in response to is the challenge not only for New Zealand challenges of Covid-19, and aligns as far as climate change. as APEC host in 2021, but for the entire possible with our core economic values Finally, the explosion of new APEC membership. and interests. technologies over the past 30 years has Given the economic pressures faced by Second, the APEC region is expected to resulted in more than 20 billion devices member economies as a result of Covid-19, lose around US$3 trillion in economic now being connected to the internet, this is no simple task. The nature of APEC, output due to Covid-19. In response, APEC transmitting 75,000 gigabytes of data every based on the principles of voluntary action must promote economic policies that will second. Digitalisation now touches on and consensus, means that ultimately what help the region resume its growth path. almost all aspects of economic activity. The can be achieved in 2021 will depend on the APEC members need to continue to find changes in consumer and workplace willingness of each member economy to ways to deepen integration, make it easier behaviours seen as a result of Covid-19 promote cooperation rather than to do business across the region, and have also highlighted how essential digital competition. As host, New Zealand will do reduce barriers to trade. New initiatives technologies are for work, commerce and all it can to help APEC live up to the ideals will also be needed to make our economies the delivery of public services. A digitally on which it was founded – that by working more resilient. We will have good ideas to enabled economy, with broad participation together to encourage free and open trade share, and also much to learn from the across our people and businesses, will be and investment the region will come closer experiences of other economies. better placed to recover and thrive. to achieving its full potential, making us Third, over recent decades rising Strengthening the digital economy all more prosperous and secure. inequality has been a global trend, with the requires grappling with a wide range of One way to frame our approach to top 1% of earners capturing twice as much complex issues that APEC is well placed to hosting APEC next year is with reference of the total income growth as the bottom help with. Rules around the movement and to the Aristotelian concept of knowledge. 50%. APEC can help its members find ways storage of data need to spur innovation This distinguishes between three types of to more fairly spread the benefits of and cross-border interoperability while knowledge: episteme (theoretical international connectivity across society, also preserving trust and confidence knowledge), techne (technical knowledge) and to ensure that inequality is not through appropriate privacy and security and phronesis (practical wisdom). For exacerbated by the Covid-19 crisis. safeguards. The ongoing debate regarding Aristotle, these three forms of knowledge Economic recovery should not leave the WTO moratorium on customs duties together were at the heart of eudaimonia, behind critical economic actors such as on electronic transmissions remains a the state of ethical and political well-being. small and medium-sized businesses, matter of keen interest to many APEC New Zealand has traditionally deployed all women, the regions, and the Asia–Pacific’s partners. Issues around artificial three of these forms of knowledge in indigenous populations. This is not only intelligence are now a part of the emerging support of APEC. Going forward, it will be the right thing to do as a matter of principle; agenda, as well as how digital tools should the application of phronesis in particular it is also essential to building a shared, be used to make it easier to export goods that may best help New Zealand to inclusive vision for our economic future. and services without being manipulated to effectively host this critically important Fourth, APEC economies represent create barriers to trade. Regulatory global public good in 2021. around 40% of the global population, frameworks must be designed to promote 1 The Bogor Goals, agreed by APEC leaders in 1994, include a consume more than half of the world’s investment in infrastructure and ensure commitment to achieve free and open trade and investment energy, and produce around 60% of global robust competition. And many emerging in the Asia-Pacific by 2010 for industrialised economies and by 2020 for developing economies. APEC members agreed greenhouse gas emissions. The region’s technologies hold exciting potential, but to pursue this goal by further reducing barriers to trade and investment and by promoting the free flow of goods, services economic recovery and future growth must, need to be developed responsibly to avoid and capital. therefore, be sustainable for the planet. unintended consequences. APEC has a role This means finding ways to tackle to play in convening and sharing best environmentally harmful subsidies which practice around all of these issues, and has

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