REPORT TO NEW ZEALAND BUSINESS – APEC Business Advisory Council, July 2019

THIRD MEETING, HANGZHOU, 22-25 JULY 2019

SUMMARY

The third meeting of the APEC Business Advisory Council for 2019 took place in Hangzhou, China, from 22 to 25 July 2019.   ABAC New Zealand members Phil O’Reilly and Tenby Powell and alternate member Stephen Jacobi attended, with staffer Stephanie Honey in support.  

Members finalised their annual report to APEC Economic Leaders and began their preparations for the November Leaders’ Dialogue, emphasising three major themes: (i) supporting and preserving the WTO (alongside a broader commitment to open markets, including the Free Trade Area of the Asia-Pacific, FTAAP); (ii) the urgency and importance of finding solutions to climate change, to which business could make an important contribution; and (iii) better enabling the digital economy.  These three themes were set in the context of the development of APEC’s Vision Post-2020; ABAC argues that the Vision should comprise the creation of an ‘Asia-Pacific economic community’ – a “seamless, dynamic, resilient, sustainable and inclusive” APEC region – in which open markets, sustainability and the digital economy would play a pivotal role.  During a separate dedicated session on this with Chinese and Chilean Senior Officials, Phil gave a presentation on ABAC’s contribution to the Vision debate, a workstream which he leads.

As always, ABAC New Zealand members played an active role in the finalisation of the Annual Report and preparations for the Dialogue with Leaders.  In addition, Phil gave a presentation on the need to address environmentally-harmful subsidies affecting fossil fuels, fisheries and agriculture in the WTO and in APEC, and also secured agreement to lead an ABAC mission to Geneva to meet with WTO delegations and others, to continue to press for urgent resolution of the current crisis in WTO dispute settlement and broader reforms, based on the ABAC Statement on the WTO, the development of which he had led at ABAC II.   Tenby presented on addressing barriers to small-business success in trade, looking particularly at the digital dimension, building on a research project he had led last year.  Phil also provided an update on a project he is championing which is examining ‘non-tariff barriers’ affecting digital trade, which ABAC has commissioned from the University of Southern California’s Marshall School of Business this year.

REPORT

ABAC New Zealand’s Phil O’Reilly and Tenby Powell, along with alternate member Stephen Jacobi, took part in ABAC’s third meeting for 2019 from 22 to 25 July in Hangzhou, China.  Staffer and policy advisor Stephanie Honey attended in support.    

Discussions took place in Plenary sessions and in five themed Working Groups: Regional Economic Integration (Phil O’Reilly serves as co-Chair); Digital and Innovation (Tenby Powell serves as co-chair); Sustainable Development; Micro-, Small and Medium-Sized Enterprises (MSMEs) and Entrepreneurship, and Finance and Economics. 

Key Chinese political and business leaders were featured at various points in the programme, which also included an APEC China ‘CEO Summit’ (at which Alibaba’s Jack Ma gave a keynote address), a public-private dialogue on services focused on transport and logistics, and site visits looking at 5G technology and Alibaba.  The 2019 SOM Chair, Mr Mathias Francke, and the Chinese SOM, Lu Mei, also took part in the programme.

Three major themes:  the WTO, climate change/sustainability and digital

The focus of the meeting was on refining ABAC positions on three major themes:  (i) supporting and preserving the WTO (along with a restatement of commitment to open markets, including the Free Trade Area of the Asia-Pacific (FTAAP)); (ii) the importance of sustainability and in particular of finding solutions to climate change; and (iii) better enabling the digital economy and digital trade. 

These themes were set in the context of the development of APEC’s Vision Post-2020, and specifically ABAC’s position that the goal should be for an “Asia-Pacific economic community” – a “seamless, dynamic, resilient, sustainable and inclusive” APEC region in which economies would be committed to and capable of achieving equity and ensuring that all could benefit from deeper integration and more open markets.  Specifically, on the issue of “seamlessness”, it was agreed that a well-functioning WTO was fundamental to this, and likewise that an eventual FTAAP would be central to the future ‘Asia-Pacific economic community’.   On “sustability” and “resilience”, members agreed climate change should be addressed  as a matter of urgency, but also that business could be part of the solution here, developing win:win outcomes for sustainability and trade.  Finally, members agreed that a robust, open and market-oriented digital economy, including free-flowing digital trade, would help to ensure that the region was both “dynamic” and “inclusive”.

These themes were in turn emphasised in ABAC’s annual Letter and Report to APEC Economic Leaders (which were finalised at the meeting), in anticipation of the Dialogue with Leaders which is due to take place in Santiago, Chile, on 16 November.

Economic outlook

Dr Zhang Longmei from the International Monetary Fund briefed ABAC members on the current state of the global economy.  She reported that IMF analysis suggested that the risks to global economic and trade growth remained heavily tiled to the downside, thanks to heightened trade tensions and a rise in broader global protectionism and the increased uncertainty that these shifts had generated, along with a structurally-driven slowdown in the Chinese economy, accelerated by the transition from an export-led to a consumption-driven economy, domestic regulatory tightening and deleveraging to reduce credit growth.  Both investment and manufacturing were trending downwards, Dr Zhang noted, and bilateral US-China trade was contracting sharply.  Dr Zhang described this as a “synchronized slowdown” across the APEC region and other parts of the world economy.  This was a matter of concern.  

Responding to Dr Zhang’s comments, a member from ABAC Singapore noted that Singapore – as a highly globally-engaged, open economy – could be seen as the ‘canary in the coalmine’ for the global economy; it was accordingly deeply troubling that Singapore’s GDP forecast was sharply down and demand in developing economies was projected to continue slowing.

The global and regional trading system: the WTO, FTAAP and the Vision for APEC

As noted above, discussions around trade liberalisation, globalisation and inclusive growth were once again a major theme for the week’s discussions.   Building on earlier work which had been led by Phil (see ABAC’s statement of support for the WTO), members reaffirmed their support for the WTO and expressed dismay at the lack of progress on resolving the current crisis in the WTO dispute settlement system, specifically the Appellate Body.  Phil proposed to lead a group of ABAC members on a visit to Geneva to talk to APEC WTO representatives there as well as other key figures including the WTO Director-General if possible, to advocate for the urgent resolution of the current impasse in appointing new members of the WTO Appellate Body (to enable the WTO dispute settlement system to continue to function), along with other necessary reforms, including around transparency, the ‘unfinished business’ of further liberalisation in agriculture, services and rules, and modernisation including on e-commerce.  This proposal was warmly welcomed by ABAC colleagues and a number, including from Singapore, Hong Kong (China), the US and others have signalled an intention to take part.   

Building on his earlier workstreams on the WTO, Phil delivered a very well-received presentation on environmentally-harmful subsidies affecting fossil fuels, fisheries and agriculture, arguing that an approach to identify, analyse and ultimately phase out such subsidies would generate a win:win outcome for trade, sustainability and food security.   He drew on the very useful research undertaken by the OECD in this area.  Phil noted that APEC could show real leadership in this area, both by tackling such subsidies within the region and by championing ambitious outcomes in the various related negotiations and discussions underway in the WTO.  It was agreed to include this concept in the Report to Leaders, including a call for the phasing out of inefficient fossil fuel subsidies and other environmentally harmful subsidies affecting fisheries and agriculture, drawing on a needed analytical process to identify potential such subsidies and seek to ascertain their harmful environmental impacts.

A member from ABAC USA proposed a new initiative for a plurilateral agreement on gender and trade in the WTO, to be finalised at the next WTO Ministerial meeting in June 2020.   The proposal would see WTO members making new commitments (via their GATS (services trade) Schedules) for legal equality/non-discrimination, to enable women to participate equally and fully in international trade and business and thereby realise more inclusive and greater economic growth potential across the region.  The proposal was warmly welcomed by ABAC members including from New Zealand.

ABAC progressed discussions on how most effectively to realise an eventual Free Trade Area of the Asia-Pacific (FTAAP), with presentations on pathway agreements to FTAAP and on the expansion of CPTPP and RCEP.   Members supported the expansion of CPTPP in due course and the conclusion of RCEP this year.

Phil updated ABAC members on the state of play on the vision for the Asia-Pacific region post-2020, and also presented ABAC’s position in a separate dedicated session which included the Chilean APEC Chair and the Chinese APEC Senior Official, as well as the Chinese member of the APEC Vision Group (AVG).  These colleagues and ABAC members were usefully able to explore both the general direction of the thinking of APEC SOMs and the AVG but also how ABAC should most effectively continue to engage.   Phil noted that ABAC and the AVG were thinking broadly along the same lines but that ABAC appeared to place greater weight on free trade (including FTAAP), sustainability (including climate change, and food and energy security) and the importance of a “big idea” that could capture public imagination, as ABAC had developed with its ‘Asia-Pacific economic community’.   It was agreed that Phil would craft a letter to the AVG, to be sent by the ABAC Chair, which set out the updated ABAC perspective ahead of the AVG meeting, at which the AVG would be seeking to finalise its report ahead of presenting it to SOMs and Leaders in November.

(Readers may recall from previous reports that ABAC’s view is that the ‘Vision’ should be ambitious, that FTAAP needed to be central to the future of the region, and that it should be grounded in practical, commercial business realities, but also incorporating broader objectives for inclusive and sustainable growth, and achieved over a ten-year timeframe.  This pointed to the concept of a “seamless, dynamic, resilient, inclusive and sustainable region”, where all could enjoy the opportunities and benefits of deeper regional economic integration.)

Liberalising trade and investment: NTBs, investment

Phil shared a written update on the research project he is championing that is being undertaken by the University of Southern California’s Marshall School of Business on digital NTBs.   This research would seek to identify major impediments to digital trade from the business perspective, particularly those which were an unwarranted or excessively costly barrier to trade, were discriminatory, and/or were more restrictive than needed to meet a legitimate objective.  The research report is due to be completed by ABAC IV in November.   Separately, ABAC Australia has proposed a complementary piece of research on regulatory settings relating to cross-border data flows.

In the margins of the meeting, there was a short but useful public-private dialogue on transport, distribution and logistics services.  Key themes included the importance of liberalising trade in this area, not least to support trade in goods and global value chains; and the crucial enabling role of data flows and digital technology for these services. 

During the ABAC meeting itself, ABAC Singapore provided very helpful updates on liberalisation and facilitation of trade in services, which is a priority issue for ABAC (focusing in particular on education services, environmental services and digitally-enabled services).  ABAC members welcomed the efforts in APEC to develop new business-friendly tools such as the inclusion of services information in the APEC Trade Repository and the development of a new database which would provide information about trade restrictions on services in the APEC region.

The digital economy

ABAC members explored a range of digital issues, including regulation of the digital economy for privacy, looking in particular at the APEC Cross-Border Privacy Rules, and more broadly the importance of ensuring free cross-border data flows for trade and e-commerce, to enable inclusive growth and to facilitate cross-border and domestic financial systems.   

Tenby gave a further presentation in the series he has led this year looking at the “digital trade” elements of last year’s report from the USC Marshall School of Business on enabling MSMEs in trade.  Tenby focused on the importance of capacity-building for small businesses in this area, along with the value of robust and accessible digital infrastructure and structural reforms to ensure that MSMEs could gain access to the opportunities that the digital economy offered.

ABAC Chile provided a further update on its “Start-Up Challenge”.  The challenge – which is open to New Zealand start-ups as well as firms in other parts of the APEC region – would focus on sustainability/circular economy and digitisation.  Finalists would have the opportunity to participate in training, earn the chance to apply for funding from the Chile Foundation, and would present at the APEC MSME Summit on 14 November.  The top three finalists would be flown to Singapore to present to investors there and learn more about the APEC region.    ABAC Chile also updated members on the ‘Monde B2B platform’ that they are developing for use by MSMEs around the region, which is in a pilot phase in some economies.   (More information can be provided via ABAC Chile – please contact Stephanie Honey, stephanie@honeyconsulting.co.nz, if you would like to learn more.)

Enhancing sustainable growth

A major focus during the meeting was on sustainability and climate change.  Members and guest speakers presented on the transition to a low-carbon economy, various climate-change mitigation approaches and creating a ‘circular economy’.  Many members, including ABAC New Zealand, emphasised the importance of addressing these issues but also the importance of business being part of the solution, not the problem.   There was broad support for the idea that business was both energised to address climate change but could also help lead the way with innovative approaches and creative solutions.  Members discussed a range of possible different approaches, including agreement to urge Leaders to intensify efforts to achieve the APEC goals of doubling the share of renewables in the APEC energy mix by 2030 and reducing the region’s energy intensity by 45 percent by 2035, along with increasing the use of transitional fuels such as natural gas and LNG.  Members also discussed the value of stimulating demand for, and freeing up trade flows of, energy- efficient, low-carbon goods and environmental goods and services; and of phasing out harmful policies including inefficient fossil fuel subsidies.

Next meeting

The next ABAC meeting will be held in Santiago from 11 to 13 November 2019.  The ABAC meeting will be followed by an SME Summit, the APEC CEO Summit and the ABAC-APEC Leaders’ Dialogue.

Further information

Further information about ABAC and ABAC New Zealand is available at www.abaconline.org and at www.tradeworks.org.nz.   Copies of reports and studies mentioned in this update may be available on request from Stephanie Honey, stephanie@honeyconsulting.co.nz.   Information about the APEC CEO Summit in Chile from 15-16 November is available on https://apecceosummit.cl/.