Evolving Asia Pacific Regionalism: Challenges and Opportunities

Thank you for the invitation to be here at the Peterson Institute today to speak on "Evolving Asia-Pacific Regionalism." It is a privilege to be hosted by Dr. Fred Bergsten. As a former member of the APEC Eminent Persons Group and author of numerous studies on Asia-Pacific trade and economic integration, Fred Bergsten's work on this subject has helped shape the policy dialogue in APEC and more broadly.

The starting point of my comments, however, goes a little wider than Asia-Pacific to the multilateral negotiations over the Doha Development Agenda.

Members of the World Trade Organization (WTO) have a historic opportunity to conclude a deal that will liberalize the terms of trade between 152 nations.

As a firm believer in a rules-based multilateral trading system, New Zealand believes the Doha Round has the greatest potential to remove obstacles to international trade. The boost to trade, growth, jobs, and living standards that will result if the Doha Round can be concluded this year would give a critical lift to the world economy at a time when the financial crisis, inflation (including food and oil prices), and a fall in property values threaten to cause recession.

A key outcome of the Doha Round will be reduced domestic agricultural subsidies and the elimination of export subsidies, which have long biased international trade in favor of developed agricultural producers at the expense of developing countries.

As an efficient agricultural producer with no agricultural subsidies, nor any protection of our agricultural sector, New Zealand, as well as developing countries, would also benefit.

The crisis in food commodity shortages and spiraling costs provides another urgent reason to complete this Round. For many of our countries, the hike in food prices causes discomfort for household budgets. But for low income households in developing countries where a high share of income is spent on food, the result is much more critical.

Estimates are that over 100 million more people could be cast into poverty and suffer malnutrition. Our achievement of the Millennium Development Goals will be further away than ever.

That in turn may result in social unrest and political instability.

The causes of the price spike in agricultural commodities are complex, as is the range of policy options available to respond to the situation. In part, the crisis in food supply and prices is demand driven. In particular, growth in incomes in big developing countries has seen increasing demand for more and better quality food.

Biofuels also contribute to the problem. Some 25 percent of US corn is now utilized to produce ethanol.

But structural supply factors are also in play. A key factor has been underinvestment in agriculture and infrastructure in developing countries. One of the key causes of this is unfair competition from heavily subsidized agricultural products from rich countries and the inability of developing countries to export over high tariff barriers to the wealthy countries.

With tight commodity markets forecast to continue over the next decade, the need to promote the efficient production of and free up the flow of agricultural goods through reduction and elimination of subsidies and tariffs has never been more important.

The liberalization of trade through the WTO is New Zealand's number one trade policy priority. The United States is an important partner in that process. New Zealand has worked closely with the USTR for a high quality outcome to the Round.

In addition to that, we continue to pursue other avenues for liberalizing trade with our key trade partners, both bilaterally and plurilaterally, within our region.

The Asia-Pacific region is a key driver of global economic growth: The APEC economies represent 55 percent of global GDP and roughly 50 percent of international trade.

Asia-Pacific countries are actively pursuing preferential trade agreements, both with one another, as well as with partners outside the region. At last count, there were at least 40 such agreements either concluded or under negotiation in the region.

The steady movement of East Asian economies toward establishing their own region-wide preferential trade agreement has important implications.

Given the strategic and commercial importance of the region to New Zealand, it is vital that we are involved in the major trade initiatives in the region, which otherwise could result not only in trade discrimination, but could marginalize us in key regional groupings.

Trade discrimination across the Asia-Pacific region could also have flow-on security effects.

After global free trade through the WTO, New Zealand also has an interest in Asia-Pacific free trade in line with the APEC vision. When President Clinton hosted APEC leaders for the first time on Blake Island, Seattle, in 1993, leaders produced a vision statement that declared that "we have the opportunity to build a new economic foundation for the Asia-Pacific that harnesses the energy of our diverse economies, strengthens cooperation, and promotes prosperity."

The following year the APEC Bogor Goals committed developed APEC economies to "free and open trade and investment in the Asia-Pacific by 2010."

Those words will sound familiar to Fred Bergsten, and I acknowledge the huge role that he played in these events as Chairman of the APEC Eminent Persons Group forum.

The region is far more significant now in both economic and strategic terms than it was a decade ago when the Bogor Goals were agreed. The case for realizing the 1993 APEC vision of closer trade and economic integration has gotten even stronger, though it is not yet clear that the will of member states to achieve this vision has grown commensurately.

APEC has begun work on the development of a Free Trade Area of the Asia-Pacific (FTAAP). The FTAAP concept offers a framework for maintaining progress towards APEC's trade and investment goals. New Zealand and the United States share the goal of trade and economic integration in the region and are working closely together on the early stages of the FTAAP initiative.

However, given the challenges that many APEC economies will have to achieve the Bogor goals, the establishment of an FTAAP has to be seen as a longer term goal. To a large extent the pace of its implementation, like the WTO, is set by its most reluctant members.

The alternative is to create a bottom-up process where like-minded countries agree to come together to liberalize trade between them at a much faster rate.

New Zealand is in a grouping of this nature called the Trans-Pacific Strategic Economic Partnership Agreement, or "P4." P4 is a model free trade agreement (FTA). It is the first trade agreement to involve several Pacific Rim countries-Singapore, Chile, Brunei, as well as New Zealand. It has a strong strategic dimension that serves to deepen the relationships between members spanning the Asia-Pacific region. The P4 achieves a benchmark matched by few preferential trade agreements in having a commitment by all four members to eliminate tariffs on all traded goods. At the same time the Agreement adopts a high-quality negative list approach to trade in services and includes progressive provisions on labor and environment.

The shared vision of P4 members is to stimulate more open trade within the Asia-Pacific region in line with APEC goals. One of the major strategic and economic advantages of the P4 Agreement is in its potential as a high quality building block towards establishment of free trade in the Asia-Pacific region.

We welcome the interest that the United States has shown in the P4 Agreement. US membership would provide critical mass necessary to establish P4 as a cornerstone of regional integration efforts. Early membership of the Agreement provides an unparalleled opportunity to influence the evolving regional trade and economic architecture.

Joining the P4 is an important way for the United States to be fully engaged in the architecture of the Asia-Pacific region, particularly given groupings such as ASEAN plus 3 (China, Korea, and Japan) and the East Asia Summit in which the United States is not a participant.

The East Asia Summit (EAS) is a high level forum for dialogue on broad strategic, political, and economic issues of common interest that aims to promote peace, stability, and economic prosperity in East Asia. It includes the ASEAN economies and China, Japan, Korea, India, Australia, and New Zealand. Together these countries represent a significant proportion of regional trade and economic activity.

In line with its efforts towards further integration and community building, the EAS has begun work on a Closer Economic Partnership in East Asia, "CEPEA." The EAS could become an important force for economic integration in the Asia-Pacific region.

New regional powers such as China and India are industrializing, urbanizing, and modernizing at a historically unprecedented rate. New Zealand has made a major effort to ensure it is positioned to take advantage of the opportunities presented by these dynamic and large economies, both by seeking involvement in regional groups and through bilateral agreements.

New Zealand recently became the first developed country in the world to sign a free trade agreement with China. The agreement will enter into force October 1, 2008. The FTA outcome meets our shared objective to achieve a comprehensive, high quality FTA that is of mutual benefit to both countries.

The agreement opens the door for enhanced trade and investment between China and New Zealand. China will have duty-free access to the New Zealand market for all originating goods within nine years.

For New Zealand, the opportunity China has afforded us to be first to conclude an agreement, notwithstanding that we are only its fiftieth largest trading partner, avoids a scenario where we could have ended up some way down on the list of its negotiating partners.

That would have left our exporters disadvantaged in respect to those from countries who negotiated FTAs before us.

The FTA provides for full elimination by 2019 of tariffs on 96 percent of New Zealand's current exports to China, with two-thirds of the tariffs gone within five years.

It also establishes a framework for resolving trade and investment, sanitary and phytosanitary, customs, intellectual property, and technical barriers to trade issues that may arise. The Agreement is a significant step in our bilateral relationship and a development that we hope will contribute to the objective of increasing integration in the Asia-Pacific region.

Other bilateral initiatives we are engaged in include preparations for free trade agreements with Korea, Japan, and India.

With Korea, the FTA study that was agreed to 18 months ago is complete and very positive. We have agreed to preparatory talks about negotiations in the second half of this year.

An FTA study is also under way with India.

With Japan, we recently agreed to begin an authoritative joint study to consider the potential for an Economic Partnership Agreement (EPA) for both of our countries.

These developments are significant in terms of the evolving regional dynamic and signify an important step in New Zealand's relationship with these countries and in regional integration.

New Zealand's trade and economic integration with Australia is of course almost seamless, underpinned by one of the most comprehensive free trade agreements in the world-Anzcerta. It is regarded by the WTO as the world's best quality bilateral FTA.

New Zealand and Australia are working together to conclude a plurilateral trade agreement with the ASEAN countries. Aanzfta (ASEAN-Australia/New Zealand FTA) countries have a combined population of over 500 million people and a GDP of well over US $700 billion.

Economic integration also has an obvious influence on regional security and stability. Polarization of the region between competing trade blocs on either side of the Pacific benefits no one. Our vision is of dynamic and open regionalization, governed by high quality agreements in which all players have a stake.

The vision of achieving progress and stability through cooperation and integration is not a new one. The Marshall Plan for European reconstruction following the Second World War had as its key objective, peace and prosperity.

The Bretton Woods system too had at its core the goal of security and stability. One of the first political figures to recognize the security link with trade and economic integration was President Franklin D Roosevelt. The Roosevelt administration believed that the fundamental causes of the two World Wars lay in economic discrimination and trade warfare.

The European Union, beginning as a common market and moving to higher levels of integration, has made one of its greatest achievements be that war never again occurs between its member nations.

Trade pacts enhance the relationships between countries, creating avenues for dialogue and increasing prosperity, reducing the opportunities for conflict. Similarly, achieving free trade in our region and the world requires a security environment conducive to the free flow of goods, services, and investment.

I would like finally and briefly to look at the question of Asia-Pacific regional security and stability from the perspective of my other portfolio, Defense.

A feature of Asia's contemporary security environment is the development of regional institutions that focus on promoting defense and security dialogue and cooperation in the region.

Prominent among these is the ASEAN Regional Forum (ARF), which was established in July 1994. It brings together the ASEAN countries and members of the wider Asia-Pacific region, including some of the larger players in the region such as China, India, Russia, and the United States.
The ARF's objectives are to foster dialogue and consultation on political and security issues and to promote confidence-building and preventive diplomacy in the Asia-Pacific region.

New Zealand welcomes the ARF's role in bringing together all the major regional players into a security dialogue. The inauguration of the East Asia Summit process, and the evolution of APEC's role in dealing with security issues, sharpens the focus on the ARF's capacity to contribute to regional security.

New Zealand is involved in other key regional fora. One is the Shangri La Dialogue, which has taken place annually in Singapore since 2002 and brings together defense ministers, chiefs of defense forces, and senior defense officials from 27 countries, including the United States.

New Zealand is also part of the Five Power Defense Arrangements (or FPDA), which was established in 1971 and which involves Singapore, Malaysia, the United Kingdom, Australia, and New Zealand and includes a host of bilateral defense and security arrangements.

Regional security architecture clearly is characterized by a set of overlapping arrangements. New Zealand welcomes the increasing security dialogue and cooperation in the region.

We recognize the important contribution regional institutions make to confidence building and preventative diplomacy.

We are pleased with the increasing focus on the development of exercises and practical cooperation between regional military forces in humanitarian and disaster relief operations.

And we welcome development such as the interfaith dialogue process to give us better understanding of each other and remove misconceptions that can generate conflict.

Against the background of the emerging defense and security architecture in Asia, a fundamental point that will remain is the important contribution the United States makes to security in the region. New Zealand views the role that the United States plays in the Asia-Pacific region as vital to regional stability.

New Zealand for example supports the efforts the United States and others are making to combat the threats posed by the perils of the proliferation of weapons of mass destruction and terrorism.

New Zealand has been involved since its outset in the US-led Proliferation Security Initiative (PSI), a multilateral initiative to prevent weapons of mass destruction, their delivery systems, and related materials ending up in the wrong hands. New Zealand is committed to the PSI and is currently preparing to host a PSI exercise in September 2008.

Over recent years, the United States and New Zealand have worked increasingly closely in areas where we share common values and objectives. This includes Afghanistan and areas in the South Pacific where there have been increasing problems of poor governance, instability, and failing states.

In conclusion, we live in a world in which both the scale and the pace of global change, economically and strategically, are of unprecedented proportions.

It is also a world in which Asia has become the focus of economic and strategic change.

By 2020, Asia will account for around 45 percent of global GDP, one-third of global trade and one-quarter of global military spending.

The regional architecture in Asia therefore takes on increasing importance, as a means of tackling the critical challenges that will arise and of maintaining regional security and stability.

New Zealand and the United States are of vastly different sizes. But it makes sense for countries that share so much in common systems, institutions, and values to work together as partners to ensure that the regional architecture is inclusive and to pursue the objectives which we have in common.