“Coping with International Business in the turbulent times of Covid – the example of APEC.”
Stephen Jacobi, Executive Director, New Zealand International Business Forum, APEC Business Advisory Council
Havelock North, 15 March 2021
It’s a pleasure to be with you all in Hawke’s Bay once again.
I’ve lost count how many times I’ve addressed this illustrious gathering, but I do believe my first ever presentation was on 9 May 2006 !
Time certainly flies when you’re having fun, although the fun has been somewhat reduced of late as everything is now being transacted on Zoom, sometimes quite late at night.
For the fifteen years since our first get-together I’ve worked primarily on how New Zealand business connects with the rest of the world.
When I talked to you in 2006, I told you there were 149 members of the World Trade Organisation: today I am pleased to say there are 164, and it is a very good thing to see the rule of trade law continue to spread around the world.
In 2006 I spoke to you about improving the relationship with the United States – now the relationship is restored, although without a much sought after FTA.
I’ve spoken with you since about the once much-maligned, but today highly valued Trans Pacific Partnership, finally consummated as the Comprehensive and Progressive Agreement on Trans Pacific Partnership, but alas without the USA.
I’ve spoken about China, Japan and other markets in Asia whose economies have been transformed in the last decade as their middle classes have expanded: today they provide the larger part of New Zealand’s export revenue.
In February 2019 I even spoke to you about the FTA negotiation with the European Union, still not concluded – now of course we have a parallel negotiation underway with post Brexit Britain.
Today I’d like to wrap up a number of these themes and talk to you about a big opportunity before New Zealand this year as we chair the Asia Pacific Economic Co-operation forum or APEC.
In many ways APEC provides a window on how we are pursuing international business in these turbulent times of Covid and on the pressures bearing upon us.
There are 21 member economies of APEC which means we only get a turn to chair every 21 years – we last chaired in 1999.
Chairing APEC puts New Zealand at the cross-roads of the trends and issues facing the Asia Pacific region – Covid recovery, the threat of protectionism, geo-political rivalry between two large powers, the menace of dangerous climate change.
There’s stuff for a novel in all this, but let me focus on a quick explainer about APEC, the things that are on our mind as we come to our task as Chair and some of the big geo-political issues at play.
Missing those shirts
APEC is most often associated with that annual parade of APEC Leaders wearing tropical shirts and dresses.
There has been no such parade for the last few years – the Chile APEC Summit in 2019 was cancelled due to civil unrest in Santiago and the Malaysia Summit in 2020 took place entirely on line.
This year’s Summit will not hold up the traffic in Auckland either as the entire year’s meetings are being held virtually.
Oh, how I miss those tropical shirts !
Not that I was ever important enough to get one, but I have been fortunate to travel to every APEC Summit since 2008 and I can tell you the Zoom version isn’t nearly as much fun!
As I said, APEC stands for Asia Pacific Economic Co-operation.
It’s where the Leaders of APEC’s 21 economies come together to chart a course for sustainable and inclusive growth in the region.
APEC is an intra-governmental forum: it’s about governments working together.
APEC is voluntary and non-binding so not like a trade agreement – it’s where new ideas and concepts can be tried out.
Over 70 percent of our exports go to APEC economies so it’s a big deal for New Zealand.
In 2021 we get the chance to set the agenda for APEC and find ways to advance some key ideas which are critical for our future – like how to expand trade and investment, how to create better sustainability, how to promote the inclusion of women and indigenous people and how to grow the digital economy.
But APEC is not just about governments.
There’s a business aspect to this too: the APEC Business Advisory Council or ABAC is also chaired by New Zealand next year, by our own Rachel Taulelei in fact.
ABAC is the voice of business in APEC.
Three members from each economy provide their advice to APEC Leaders, Ministers and senior officials.
New Zealand’s member are:
- Rachel Taulelei, the CEO of the Maori food and beverage exporter Kono
- Malcolm Johns, CEO of Christchurch Airport
- Anna Curzon, Chief Product Officer at Xero.
My job is to advise them on how to build and drive New Zealand’s agenda and to work with the 60 Members from the other 20 economies to get the job done.
Of course, as Chair we can’t focus exclusively on what we want but we can help steer things in the right direction.
We’re in the process of building up a strong work programme focused on our theme of “People, Place and Prosperity – Tāngata, Taio me te Taurikura”.
We have to come up with solid recommendations in all three areas by the time we meet with APEC Economic Leaders at the end of the year.
Some areas that are important to us include supporting the WTO and the rules-based trading system, making progress towards the Free Trade Area of the Asia Pacific, developing principles for climate leadership, showcasing the successes of Māori businesses to encourage other indigenous groups and finding ways to create a better environment for digital trade.
The way we build that work programme has had to evolve since the pandemic struck.
Instead of four physical meetings in exotic locations around the Asia Pacific we now have five working groups in thematic areas each comprising 3 or 4 task forces looking at specific issues.
For example, our Sustainability Working Group has three task forces in the areas of climate leadership (that one convened by Malcolm Johns), renewable energy and the food system.
The job is to develop advice to Leaders, Ministers and senior officials so they know how to focus their decision-making on things that matter and can make a tangible difference to the region’s future.
Of course, they get advice from officials, but our advice reflects the views of the region’s business community.
If you do the maths, you’ll realise that sixteen task forces meeting three times is 48 meetings of one to one and a half hours each.
That’s a lot of Zoom and doom !
Things on our mind
APEC doesn’t take place in a vacuum and the substance needs to reflect the times in which we live.
These are very hard times for many around the world – lives and livelihoods have been lost.
The human cost of the pandemic is incalculable.
The pandemic which brought economic growth to a halt last year is continuing to cause extreme difficulty in many of New Zealand’s offshore markets.
Throughout this difficult period trade has continued although there has been serious disruption to supply chains.
Imports into New Zealand have taken a hit, exports have dropped but only slightly year-on-year since the all-time-high of 2019, although the early part of this year has not been as positive.
In many ways trade has saved our bacon during this crisis.
That’s largely because the things we sell in significant volume – especially food – are what consumers around the world still want to buy.
One positive thing is that growing protectionism around the world has not tended to target New Zealand directly.
There is one big exception to this currently and this relates to the problems the sheepmeat industry is having in Britain and the EU, but these arise from Brexit not Covid.
You may remember me discussing this with you when I last spoke.
Protectionism remains a serious problem and was already on the rise before the pandemic started.
The most recent and egregious example is that both the EU and the US, despite signing up to numerous international statements to the contrary, have introduced measures to restrict the flow of vaccines.
That is disappointing behaviour from some of the world’s largest economies and ultimately self-defeating as we will not recover from the pandemic until we all recover.
Many other economies also continue to apply tariffs to essential goods like vaccines, soaps, syringes and the like – all of which simply adds to the cost of defeating the virus.
Even though New Zealand’s markets have remained largely open, getting products to market has become increasingly difficult and is getting more difficult as time goes on.
There are increasing bottlenecks at our ports and airfreight capacity is a problem as airlines cut back flight schedules.
This is currently a major challenge for our exporters and a lot will depend on the evolution of the virus and the success which overseas jurisdictions have at containing the spread and vaccinating the population.
This will take time and we may be living with an unstable environment for some time.
What this pandemic has shown us is that trade is vital to our economic performance.
New Zealand has been spectacularly successful at containing the virus, but our economy has taken a huge hit.
That the hit was not bigger is largely due to trade.
As we work to get out of the mess that has been created by the virus, our economic recovery will be accelerated as we work to build greater co-operation with other economies and better connectivity with our offshore markets.
APEC is an essential building block in this regard.
Some other challenges also loom large over the world.
The threat of dangerous climate change has not gone away and in many respects the pandemic is a dress-rehearsal for the renewed and hopefully significantly increased effort that needs to be made to avoid another planetary disaster.
The same spirit of international co-operation that we have called for in respect of Covid is required even more in respect of climate change.
APEC has not been at the forefront of these efforts, but with a changed Administration in the United States and a changing attitude on the part of global business there may be scope for some more meaningful commitments to reducing emissions and moving towards carbon zero by 2050 if not before.
Certainly, the New Zealand Government wishes to move in this direction and will be doing what it can to encourage others.
In ABAC Malcolm Johns is leading a work programme aimed at developing some principles for climate leadership modelled on the work of the Climate Leaders’ Coalition here in New Zealand.
Another major challenge is the digital revolution and what is sometimes called Industry 4.0 or the Future of Work.
Digital technologies offer the prospect of building new businesses and business models based on speed of transaction, weightless delivery and lower carbon emissions.
Much of existing trade is increasingly using digital enablers like e-commerce to reach consumers or digital processes which ease the passage of products through the supply chain.
We are all connecting digitally these days including in APEC and ABAC.
But digital technologies also have impacts on employment and skills development.
McKinsey estimates the impact on jobs arising from the future of work is far more significant than will be required by climate change mitigation.
These are all the issues of the future that APEC and ABAC need to factor into their thinking.
I want to finish by looking at some big geo-political issues which also hang over APEC and international business more generally.
I mentioned before the rise of protectionism which continues to pose problems and climate change where global co-operation needs to expand significantly.
The world’s two largest economies – the United States and China – are both members of APEC.
Several other significant global players like Japan, Russia and Indonesia, are also at the table.
APEC’s other members are a mix of developed and developing economies which brings another level of complexity.
New Zealand participates in APEC as an equal partner alongside some economic giants and this year has the added responsibility to lead the whole group.
It’s sometimes said that when elephants fight, it gets hard on the grass.
Geo-political tension has been rising in recent years resulting in a trade war between the United States and China which did no-one any good.
Markets were destabilised even before Covid.
The protagonists have resorted to large scale subsidisation which penalizes unsubsidised competitors like New Zealand.
A “phase one trade agreement” was even reached that wouldn’t survive the scrutiny of WTO rules if it came to that.
The WTO itself, despite its growing membership is in an enfeebled state.
Lest anyone is in doubt, APEC can’t solve these deep-seated problems.
But it can provide a forum where all economies can work together for mutual benefit.
I mentioned earlier that there was cause for optimism with the Biden Administration which has re-joined the Paris Agreement on Climate Change and the World Health Organisation.
The President has also spoken about re-engaging with multilateral organisations like the WTO.
He has so far been lukewarm about re-engaging with CPTPP so our quest for an FTA with the United States may have to wait.
We might also see a more traditional approach to the relationship with China – climate change might just provide the thing that can bring the two together – but I don’t think for a minute that American concerns have lessened about China’s rise and its more assertive foreign policy and repressive behaviour back home.
The contest between the United States and China constitutes the most pressing geo-political issue of our time.
Similarly, New Zealand’s ability to maintain mutually beneficial relations with both is our greatest foreign policy challenge.
When I spoke to you back in 2006, I actually quoted former President Jimmy Carter: “we must adjust to changing times and still hold to unchanging principles”.
The changed times are that China is our largest trading partner and the driver of growth in Asia.
The unchanging principles are New Zealand’s deep attachment to the rule of law, the market economy and to fundamental respect for human rights and freedoms.
These two need not be mutually exclusive – indeed they must not be if we are to thrive both politically and economically – but their management requires care, commitment and diplomacy to get right.
I stand before you today much as I did in 2006 convinced that New Zealand’s prosperity, security and sustainability lie in our connections to the outside world, even in these most challenging and disruptive of times.
I believe too that our active engagement in institutions like APEC contributes to achieving what we want to achieve as a nation.
These changing times require a different approach to the way we do business – out with the tropical shirt, in with the Zoom – but not to the principles that need to continue to guide us.