From Russia with love

Vladivostok may seem like an unlikely venue for this year’s summit of the APEC grouping, but the choice is deliberate.

After an absurdly long wait of 18 years, Russia has just joined the World Trade Organisation and the meeting’s venue has been chosen to celebrate that country's growing integration in the global economy, as well as highlighting business opportunities in the Russian Far East. 

An extraordinary amount of money has been spent upgrading the facilities in this once sleepy, distant port city, which has been transformed over the last few years. 

The Asia Pacific Economic Co-operation organisation needs such champions for growth and development because against the background of continuing risks to the global economy, notably from Europe, this year’s summit needs to anchor the role of business in securing the region’s fragile economic recovery. 

US President Barack Obama will not be here this year – he has sent Secretary of State Hillary Clinton instead – but a raft of other leaders, ministers, senior officials, CEOs, media and youth delegates are present, including Prime Minister John Key, ministers Murray McCully (Foreign Affairs) and Tim Groser (Trade) and a small delegation of business representatives.

Meeting aboard cruise ship

Earlier this week the APEC Business Advisory Council (ABAC) met on the Legend of the Seas cruise ship anchored at the Vladivostok wharf. 

It finalised preparations for the annual meeting of APEC economic leaders which will take place this weekend. 

The recommendations relate primarily to improving the environment for business in the region and enhancing the capacity to create conditions for sustainable economic growth. 

Free trade, supply chain connectivity, a more coherent approach to regulation, new ways of addressing food and energy security, infrastructure development and innovation should all form part of the policy mix. 

ABAC helps ensure these policies are grounded in business reality.

Now attention is focused on Russky Island, which has been joined to the mainland by an awe-inspiring suspension bridge built for the occasion. Official meetings have been taking place on the island in advance of the leaders’ arrival and where the annual APEC CEO summit will be held.

A New Zealand business team reflecting food, agriculture and technology interests will attend the CEO summit because it is a ideal place to meet other business representatives from around the region, exchange views and to develop ideas, contacts and leads. 

There are also specific interests in key negotiations under discussion at Vladivostok: the Trans Pacific Partnership (TPP) and the New Zealand/ Russia-Belarus-Kazakhstan Free Trade Agreement.

TPP is being deliberately negotiated as a pathway to a wider Free Trade Area of the Asia Pacific (FTAAP) which was endorsed by APEC in 2005.

Still remains a mystery

How to get to FTAAP still remains a mystery, but TPP is designed to show what can be possible when governments meet their words with action. The potential gains from FTAAP are enormous – up to $US1.9 trillion annually by 2025, according to the latest study presented here during the week.

That is around 1.5% of global GDP and bigger than the WTO Doha round. The gains from TPP among 11  members are more modest but still amount to $US1.7 billion annually, or just under 1% of GDP.

It is hard to think of other policies that can deliver such economic benefit, however difficult an outcome is to secure.

Ministers from the TPP economies met in Vladivostok on Thursday to welcome new members Canada and Mexico and take stock of the progress being made in the negotiations which will continue with another round, the 14th, to be held in Leesburg, Virginia, next week. 

Ministers are conscious of the need to avoid TPP becoming another Doha even while the new members get up to speed. Some aspects of the negotiation are controversial – most especially in relation to intellectual property which have been highlighted by several interests in New Zealand – and need careful consideration. 

The negotiation New Zealand has under way with Russia and its fellow Customs Union members Belarus and Kazakhstan will certainly be discussed when Mr Key meets Russian President Vladimir Putin this weekend.

Mr Groser has visited Moscow twice this year to keep the talks on track and negotiators have been working overtime in the run-up to Vladivostok. Concluding an agreement with Russia might be a little more straightforward than with the other two members of the Customs Union. 

Belarusis a large supplier of dairy products to Russia. Does this sound familiar? An FTA would be a significant development for a relationship which, while cordial, lacks substance. 

In fact, New Zealand has a lot to offer in terms of agricultural development for all three countries and as has been our experience with China, “first-mover advantage” can be a real plus for a small open economy like ours in opening new markets.

Reluctant to embrace reform

However Belarussian farmers are remarkably like their American, Japanese and Canadian colleagues and are reluctant to take on board New Zealand-style agricultural reform.  While short-term protection might seem attractive, in reality the problems are merely put off for tomorrow. 

The same is true for economies as a whole. Those who adjust to changing times emerge stronger and those who fail to do so lose out in long run. 

Unfortunately, too much of the energy in political discourse is aimed at preventing the inevitable rather than trying to bring about change at the lowest cost. Protectionism remains a concern for many business leaders.

A key APEC role and a focus for discussion in Vladivostok will be to encourage even greater openness and more trade and investment as way for cash-strapped governments to keep economies moving in challenging times.

For a few days this week the attention of policymakers and business leaders will be concentrated on this city, which is claiming a place for itself among the dynamic cities of the Asia Pacific rim.

At the other end of the ocean, New Zealand stands to benefit from these developments. New Zealanders are in Vladivostok because, as a government document recently put it, we cannot get rich by selling to ourselves. 

That is why APEC is of importance to New Zealand, and why it is to be hoped that some Russian love will inject new vitality into the region’s economy.

Stephen Jacobi is executive director of the NZ International Business Forum (www.nzibf.co.nz) and an alternate member of the APEC Business Advisory Council (ABAC).