Bollard navigates ‘noodle bowl’ of Asia-Pacific trade

During his five years heading up Apec, former Reserve Bank governor Dr Alan Bollard has been a witness to “significant disruption” in the Asia-Pacific. He spoke to Sam Sachdeva about the most significant trends in the region and where Apec may head next.

Nursing a cup of tea on a windy Wellington day, Dr Alan Bollard could be forgiven for missing his current, far warmer base in Singapore.

Bollard, who served as New Zealand’s Reserve Bank governor from 2002 to 2012, has been the executive director of the Apec secretariat since 2013 and says he has been a witness to “significant disruption” in the Asia-Pacific region.

“Since the global financial crisis, we’ve seen a whole bunch of changes that people have been struggling to really interpret and understand, are they temporary or ongoing?

“And I think a number of them are ongoing, and some of them are bigger than we had actually anticipated.”

Economies and productivity rates have grown more slowly than expected, while goods trade has slowed down considerably - although that’s been offset by a rapid rise in services trade, “quite underdeveloped in the Apec region”.

“By the end of the next decade, most people in the region will be middle class...they are quite different sorts of animals from the poverty-laden story of the last few decades.”

There has also been significant growth in the flow of data between countries, which Bollard says brings challenges of its own.

“In a way this is the new focus point for a lot of us, because roughly speaking data movements have probably increased 50 times in the last decade, they’re probably going to increase much faster in the next decade, and we’ve got to get that right in terms of the regulation around it and making sure that electronic commerce works for all the economies and all the small business in the region as well.”

Some sharp demographic changes are having an impact on the direction of countries as well, he says, with a rising middle class chief among those.

“By the end of the next decade, most people in the region will be middle class, they won't be poor, and they consume differently, they live differently, they’re urbanised, they’ve got different implications and requirements for governments for so on...they are quite different sorts of animals from the poverty-laden story of the last few decades.”

Then there is the rapidly aging population, with ramifications for the working-age population, productivity, savings, government services and retirement funds.

“You’ve got Japan, the oldest country in the world, you've got Singapore and Korea, the lowest birth rates in the world, you've got China, the fastest aging in the world - they’re all sorts of different angles on the same thing.”

Rising anti-globalisation

The growth of anti-globalisation has accelerated, with the United States under President Donald Trump the most visible example of wider discontent.

Bollard concedes more could have been done to look beyond the positives of globalisation to the potential negatives, saying “we took some of that for granted”.

“One billion people out of poverty, what else do I need to say - isn’t it bloody obvious? But of course that’s not good enough...and we have to look much more within countries who’s getting the benefits, who’s getting the costs, and that is a much more complex story.”

The issue is about perceived and relative inequality as much as actual inequality, he says, particularly in the United States, with some in the current generation worse off than their parents and China’s economic rise creating insecurity.

With the United States stepping away from its leadership role on trade, Bollard says there a range of countries that can fill the gap left behind.

Emerging markets like Vietnam and Peru are among those who can show the benefits of trade, while countries like Australia, New Zealand and Chile are leading the way on liberalisation of agriculture sectors and Japan has been encouraging progress on the TPP - although there is the slight problem of the country’s election.

“I would expect that trade is so important to the New Zealand economy, if we get 10 economies off signing the TPP, who’s really going to think it’s in New Zealand’s interests not to be part of what’s there?”

New Zealand’s own elections have thrown up potential obstacles, with kingmaker NZ First and potential governing party Labour both opposed to aspects of the TPP deal - although Bollard is hopeful it will still go ahead with some potential “sticking points” currently being negotiated.

“I would expect that trade is so important to the New Zealand economy, if we get 10 economies off signing the TPP, who’s really going to think it’s in New Zealand’s interests not to be part of what’s there?”

The TPP could eventually form part of a wider Free Trade Area of the Asia-Pacific (FTAAP) - a goal which Bollard says is still some way from fruition.

“New Zealand is leading work on that, doing a pretty good job on keeping it together and keeping the work programme going...but it’s a long way away from realisation, it’s not going to suddenly happen, and we do have to see what happens with all of those multiple deals I talked about all going through some sort of change at the moment, so we’ve really got to see how that noodle bowl arranges itself.”

With Trump and other leaders focused on matters within their own borders, Bollard acknowledges it’s “a tough time” for multilateral institutions such as the WTO, but says Apec is in a better position.

“Apec is different because we’re not actually a legally constituted, ratified institution - we’re just a group of economies that get together for a common interest, voluntary consensus...

“Apec’s traditionally been an incubator, try out new ideas, if they work and go really well you try and lodge them in WTO...if that’s going to get harder, then actually Apec’s quite valuable because countries can feel some comfort in that informal organisation.”

A new direction for Apec?

A refresh of Apec’s aims will soon be on the way, with the conclusion of the Bogor goals - based on achieving “free and open trade” throughout the region by 2020.

Bollard says there will be a review process in 2020, which could head in a range of possible directions.

One would be to continue to focus on border liberalisation and behind-the-border reform, but expanding beyond merchandise goods to cover e-commerce and associated areas.

“If we can get e-commerce right it can work for small business: for the first time ever small businesses could be big international traders, and that’s got a lot of implications as well.”

Another option is to “push the big rearranged noodle bowl” of trade agreements into FTAAP, while another again is to focus on policy changes in labour markets, social protection and tax.

"New Zealand will have to guide through the new direction and what it may be.”

“[Leaders have] said, well we haven't communicated well enough, we haven’t focused on what are the end impacts of trade and openness, we haven’t worked out who it’s benefiting and who it’s hurting, we haven't focused enough on policies about mitigating the costs...

“That’s the logical implication of what we’re talking about: I’m not sure that politically Apec economies would actually want us to be pontificating about stuff that OECD does for example.”

Bollard says New Zealand will play a critical role in that next stage: the country is hosting Apec in 2021 and could play host to critical discussions about the organisation’s future.

“The host sets the theme and priorities but quite apart from that, New Zealand will have to guide through the new direction and what it may be.”

Bollard will soon embark on a new phase of his own: having become the first Apec director to serve two three-year terms, he will step down at the end of 2018 with no regrets about taking the job.

“It’s been fascinating - enjoyable is a pretty thin word but it’s been a huge experience, just learning about the region, it’s such a dynamic region.”

As for what’s next, Bollard is coy, but don’t be surprised to see some more books from him in the near future.

“I make good use of a lot of time in planes and airports, and there’ll be times in hotel room next year when I’ll be using it [to write] as well.”

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