The Hon. Alexander Downer, MP
The Hon. Alexander Downer, MP

Speech to the Australian Institute of International Affairs and Australian Chamber of Commerce & Industry International Business Conference

27 July 2007, Sydney

APEC's Role in Asia Pacific Regionalism

Well thanks very much Ross and I appreciate very much your sponsorship of this event.

And let me acknowledge Peter O'Brien and Peter Hendy and Sue Boyd and other distinguished guests…I think Senator Alan Eggleston is here, Senator for Western Australia…and ladies and gentlemen.

First of all let me congratulate ACCI, the Australian Chamber of Commerce and Industry, and also the AIIA here in Western Australia for sponsoring this event on APEC. And I'm glad you've done it because APEC of course is not going to take place anywhere near Perth. The Leaders meeting and the central meetings of APEC in September will be on the other side of the continent. But it's a big event for Australia to be hosting APEC for the second time. The first time we hosted the inaugural meeting in 1989 in Canberra. And of course that was a much more of a ministerial and officials-level meeting rather than a Leaders meeting, which we'll be hosting this time.

But your two organisations, the Chamber of Commerce and Industry and the Institute of International Affairs of course have an enormous interest in it from your two different perspectives.

I just want to say, by the way, in relation to the AIIA here in Western Australia that I'm told that this is your 60th anniversary year. So it's a long and I'm sure distinguished history that the AIIA has had here and I congratulate you on that.

When we think about institutions like APEC-and there are others-the first thing to think about isn't the institutions for the sake of the institutions; but to think about them in terms of the ideas and policies that they may or may not be able to promote.

And I often think it's valuable to start with the negative and then build to the positive. And the negative in international relations in the Asia Pacific, and I think this really frankly applies globally, is that there is always a temptation to be swept up by bad ideas. And essentially there are a couple of very bad ideas in international economics which have a lot of traction with broader communities…are quite popular with, if you like, the international public.

One of those bad ideas-and it's been implemented on many occasions-is to have a closed economy. I think it's instinctive for people; the thought of foreign goods pouring in creates perceptions of lost jobs; the thought of foreigners buying up businesses or opening factories in your country creates a perception of loss of control and loss of sovereignty even.

And I say this as a Foreign Minister of long standing: don't underestimate whatever has happened in the world, in the last 20 or 30 years; in fact the last 60 years; don't underestimate the appeal of those sorts of inward-looking ideas. Never make the mistake of thinking even in our own country-even in Australia-that those debates are over, and we don't need to revisit them any more.

I think those debates are always alive; in any democracy in particular. Those debates always have traction. And it's important to find ways of countering those types of arguments. Because it's a simple proposition: we cannot think of an example of a closed economy that has ever become successful. And likewise, we can't think of an example of an open economy that has ever been a failure. And it's important people understand that.

The second, and if you like, related bad idea is the idea of what the French used to refer to, and what economists still refer to, as mercantilism…because I think it was a French idea, frankly, but not to say anything disrespectful of the French…but mercantilism is the idea that there is only so much wealth in the world and trade and international economics is about the distribution of that wealth in the world. It precludes the notion that wealth is something that can be and is created.

Now, that is an idea by the way that doesn't have as much traction as the closed economy, but it has some traction. I mention all of that for a couple of minutes at the beginning of my speech because people sometimes say, in fact you hear this the whole time: APEC…"it's not very interesting"..."that there was a burst of early excitement which was the Bogor meeting some years ago when the Bogor goals were agreed. But to be honest with you, all I can think of when you mention APEC is a line-up of famous leaders from around the Asia Pacific wearing unusual clothes for the end of session photograph."

We'll be trying to address that problem this time by the way. But of course I'm not going to let you into our greatest secret, which is what sort of clothes and hats they'll wear!

But the point I want to make to you is this: intellectual arguments are actually incredibly important. Policy arguments are incredibly important. And one of the great virtues of APEC is that amongst those in the 21 economies, it has helped to establish a norm, which is support for free trade and for the liberal market model.

And that is what we've seen through the APEC economies through the life of APEC; an increasing move in those 21 economies towards internal economic liberalisation, and greater openness to the rest of the region and, for that matter, the outside world.

People say, "what has APEC achieved?" By establishing that norm, what it has helped to achieve-and it hasn't achieved single-handedly I'd concede-are the following very impressive statistics:

First of all, since 1989, and I think this is an incredibly important point: poverty in the 21 APEC economies has been halved. There are only half as many people living an absolute poverty in APEC as recently as 1989. Now, I don't think that's going to make the front page main banner headline in the West Australian tomorrow. But I think it's something people need to reflect on. Or, looking at that another way around, per capita GDP - real per capita GDP taking inflation into account in the APEC economies - has doubled since 1989. So people, on average, are twice as well off in APEC economies today as they were in 1989; and only half as many people live in poverty.

I'm making the point to you because I am a massive champion of the liberal market model. It's a big thing for me. It's one of the things I went into politics to promote. And what has happened in APEC in that context, and what has helped to create this wealth that APEC has been creating, has been a very significant reduction in protection.

I hear this the whole time from people-particularly academics-make the point that APEC hasn't done much. They particularly make the point that in the last eleven and a half years-that's their sort of narrative-that it hasn't done much in the last eleven and a half years and it's sort of lost momentum and obviously the Australian government's not interested in it.

Actually, tariff protection in APEC, this is average applied tariff protection in APEC has gone from 17 per cent in 1989 to 5 per cent today. If you are a believer in the liberal market model, that is an absolutely astonishing achievement! APEC is now more than half the world's GDP.

So I hope I've transmitted the message to you that the norms of APEC; trade liberalisation, economic liberalisation, the liberal competitive market model, supported by the rule of law, that's been established as the norm, and that has been increasingly applied-in varying degrees-but it has been increasingly applied across the APEC region. And I think that's a wonderful thing.

APEC of course-and you would've no doubt heard all these things in your conference today-but APEC some people say, competes with other institutions or has to cope with other institutions in the Asia Pacific region.

Let me just say something about that. Because I'm heading off next week, on Monday, to Manila, to the ASEAN meetings, to the ASEAN Regional Forum, which is an Asia Pacific security meeting. And I'm having a dinner with the East Asia Summit Foreign Ministers on Tuesday night, and so the list goes on.

There are a series of institutions in the Asia Pacific region.

ASEAN, the ten members of the Association of the South East Asian Nations. There's ASEAN plus three: ASEAN plus China, South Korea and Japan. There's the East Asia Summit, which is the abovementioned countries plus India, Australia and New Zealand.

And then there's APEC.

Now, how do these institutions all relate to each other? Are they in competition or are they complementary? And which of them is the most important? It seems to me that they are actually quite important questions both to ask and to understand. I think there is a sense in the Asia Pacific region-and we will focus here on East Asia-a sense that some kind of Asian community could be established. Not an Asian community, by the way, which is somewhat akin to the European Union. Nobody who knows anything about Asia thinks that an Asian European Union is going to be created anytime soon; that kind of institutional structure and engagement is peculiarly European and built on the unique circumstances and affiliations and history of countries in Europe. Asia is very, very different from Europe.

But there is a sense that Asian countries could profit by working more successfully together; in security terms, in economic terms, in investment terms, through assisting each other in an exchange rate area, and so the list goes on.

And if that is the case-and I think that is the case-what is the best forum to do that?

ASEAN is tying to achieve those things-with a lot of difficulty-and moving very slowly. But they're putting together now an ASEAN Charter, which they'll probably sign up to this year, which will, if you like, institutionalise their ambitions to achieve some of those things. But ASEAN; it's not big enough. I mean, the ASEAN economy, if you take it collectively, is not a lot bigger than the Australian economy. ASEAN, of course, needs to work with other countries in the region and they recognise that.

Some countries think that ASEAN plus three-remember that's China, Korea and Japan-should be the foundation of the building of an Asian community. Some say, well, the problem with that is that it leads to an Asian community which will be too dominated by China. Others say, not necessarily and there's no need to worry about China's role in East Asia in any case; that might be a perfectly legitimate argument. But there are some concerns about that.

Some feel that you have ASEAN plus three plus India, and Australia as well as New Zealand, you will get a much more inclusive and much more balanced region; you will have greater input and greater strengths in the building of some kind of broad Asian community. According to that narrative you can end up with a free trade area that goes from the north of China to the west of India to Stuart Island of the south of New Zealand. And I would say to you that isn't a bad vision either.

The great advantage of APEC, is of course, it doesn't have much of a political flavour; it is much more focussed on economics. But the great advantage of APEC is that it includes most of the countries that I've mentioned-not quite all of them; it doesn't include India, I'll come back to that later and you're going to talk about that this afternoon-but APEC includes the United States of America. Why is that a good thing?

The United States of America is the world's largest economy. The United States of America strategically plays a very important role in East Asia; it has done for many years and will continue to do so for many years as, if you like, to use an old-fashioned phrase, a "balancing wheel" in the region. It helps to keep the region suitably balanced. There are a lot of traditional rivalries and jealousies in the Asian region, which I know you're all familiar with, which I don't need to rehearse here. And the role of the United States is important strategically and it's obviously important and beneficial, being the world's largest economy.

And from Australia's perspective, one of the things we do like about APEC is that it is the most inclusive of all the regional institutions because it does include the United States. And of course, it also includes Canada and Chile and Peru.

So this is a debate that will be an ongoing debate. I don't think that these institutions will particularly compete with each other. I don't think that politicians or governments will drive one institution at the expense of another.

But what I think is that these institutions will find their own level and sort these things out just through what these institutions are able to achieve. And I made the point at the beginning of my speech that APEC has achieved and can achieve an enormous amount in terms of economic liberalisation in all of its manifestations.

What, then, the last point I'll make to you, about the future of APEC, this year and beyond? Well the agenda in APEC, bearing mind all that I've said, needs to continue to be ambitious. I hear that some people say that the agenda is too ambitious that it's too broad and that it should be narrowed down. I think that's just because they can't understand the whole of the agenda.

But if you look at it and try to learn about it and understand it, you'll find the breadth of the agenda-and it is very broad-nevertheless covers areas that happen to be very important for people that live in the Asia Pacific region. Whether it's telecommunications or energy or small business or whatever it may be, the reason these things are on the APEC agenda is because they're important and they're important to people in the region. So we don't have the ambition of shrinking the agenda dramatically in order to find it easier to understand; we can understand it well enough.

I think the following five or six points are going to be important in terms of the way APEC moves forward.

The first is a mechanical thing. There's an argument that the best free trade area is a global free trade area. And any economist will tell you that that's right. And that's terrific. And some people say we should put all our energy into creating a global free trade area. And that's all right. I'm not arguing with that kind of proposition, except to say: what is your answer to the question, what if you can't achieve a global free trade area?

And I think with the Doha Round, some people say, maybe we won't get any agreement at the WTO on the Doha Round. I would say to you that in the end, we'll get an agreement, but we'll get an agreement to what? I think it will fall far short of the ambitions that we originally had for the Doha Round, I regret to say.

I think the danger for the Doha Round is that politicians will say, "we must have an agreement". And the idea of having an agreement, whatever the agreement is, becomes much more important that what you're trying to negotiate; so you end up with a fairly unsatisfactory agreement. I hope that won't happen but I think that's a risk.

And therefore in APEC we need to do two things about that. One is promote a truly liberal and successful agreement in the WTO. And to get more than half the world's economy to do that will be pretty powerful.

And secondly, to say, what else will we do if that fails? And one of the agenda items for APEC for some time now has been the extent to which we will commit ourselves to creating, perhaps in lieu of continual failure in the WTO rounds of negotiations, a WTO-consistent free trade area for the Asia Pacific.

Already there is a whole web of bilateral and regional free trade agreements emerging within APEC. Can they be knitted together? Can we end up with a more comprehensive free trade agreement for the whole region? By the way, that's not something that going to happen anytime soon. And the reason it's not going to happen anytime soon-and I use one illustration-is that it is improbable to believe that the United States Congress would feel comfortable with the idea, inter alia, of completely free trade with China. Even if they felt intellectually comfortable with it, they'd find it politically a step too far. So it's not going to happen soon.

Nevertheless, I think you'll find in this year's APEC Leaders declaration and over the next few years, APEC will continue to play a very, very important role in terms of promoting not just the trade and investment liberalisation agenda but greater liberalisation, economic liberalisation behind borders; that is domestic economic liberalisation.

The fourth thing that I think APEC will continue to promote very importantly is work on energy. There is no doubt about it but the Asia Pacific region is going to focus on the whole issue of energy security; on how energy is going to be provided at reasonably competitive prices to energy hungry and fast growing and highly populous countries, like China, and Japan and Korea-but we'll focus here on China.

That is a real preoccupation for the region. We have in APEC energy rich countries, like Australia, which are net exporters of energy, we have energy-neutral; well… energy positive countries like Indonesia, has quite a lot of energy, we have energy starved countries; we have a country like China which has energy resources but needs imports. And what can we do through APEC?

One of the things we can do through APEC is stop-and I mentioned this earlier-stop the temptation to think that the best solution to energy challenges in the Asia Pacific region is to close down the liberal market; is to restrict the market; to put in place obstacles; to put in place special regulations and special deals. In fact what APEC can do and what it is doing quite successfully is promoting the idea of an open and liberal energy market for the region.

Now, energy brings me to my fifth and last point. I know this year there is going to be a very special focus on the issue of not just energy but clean energy and the climate change.

When you've got together more than 50 per cent of the world's GDP, if we can get those countries to think about how, in a reasonable and a sensible and a practical way, the climate change agenda can be taken forward, then that could turn out to be incredibly important and a catalyst for a broader global agreement. And I think that's what we need to aim to try to do.

Now, I always say about climate change that there are a couple of principles that need to be applied. The first is to remember that if you are serious about dealing with the issue of CO2 emissions, then that can only be done on a global scale. In the end, one country here or one country there can do something or other. But, if you want to solve the problem, so far as you believe you can solve the problem, then that has to be done on a global scale.

The second principle is that it doesn't particularly matter what politicians will tell you; the honest truth is that different countries operate on different circumstances. Their economies have different structures. Different economies are at different stages of economic development. Some countries have massive problems of poverty and need to lift people out of poverty. Some countries are very rich and have the luxury of not having to do that. Different countries have different circumstances means different countries are going to have to approach this issue in different ways. There has to be a differential approach. Every country needs to make a contribution.

But not every country should make an identical contribution or should be asked to make an identical contribution. And I think APEC will be very important in terms not only of taking forward those principles, but coming up with some particularly practical ways of enhancing energy efficiency and thereby reducing CO2 emissions, looking at issues like stopping deforestation and encouraging re-forestation, very important in terms of CO2. And other very practical issues like technology development and technology transfer.

APEC can be a catalyst for common sense in addressing climate change rather than empty politician's rhetoric, which doesn't actually amount to practical solutions to these problems.

And finally, since you're going to talk about it this afternoon, let me address it straight away: I think there will be a lot of questions asked about the issue of APEC membership. Should India become a member of APEC is a question you're going to discuss this afternoon. And our answer to that is that of all the countries that are queuing up to join APEC, India is one in-principle that we would support; we would see virtue bringing India into APEC.

Do I think India will come into APEC? No I don't because there is no doubt about it, there is nothing like a consensus emerging in support of expanding membership at all. There is an argument that if you were to bring India into APEC-well I think it's a bit more than an argument, it's a fact-you would have to bring another East Asian country into APEC; that might for example, be Cambodia, or Mongolia. I don't think that would be particularly controversial. And that you would have to bring a Latin American country into APEC; that would almost certainly be Colombia. But there are other countries as well that have applied over and above the ones I've mentioned. And so you would have to reject all those countries unless you massively expanded APEC.

The argument against expanding membership and therefore expanding it at all and maintaining the moratorium, is an argument in support of consolidating the 21 economies' efforts rather than diluting them and making it harder to take the argument forward. The argument in favour of expanding is that the more inclusive APEC is, perhaps the more effective its philosophy and its ambitions will be. So, I think that debate might be over by the way, because I don't think we're going to get anywhere near a consensus on expanding membership.

Thank you very much for having me today. I'm very happy to come over here and talk to you a little bit about APEC. I'm delighted, as I said at the beginning, that ACCI and AIIA are having a seminar, a whole day discussion about APEC. I think that APEC will be a big success in Sydney and I'm very much looking forward to it.

Thank you.