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APEC summit in Russia: New Opportunities for Old Europe

These days Russian city of Vladivostok hosts the summit of APEC (Asia-Pacific Economic Cooperation) group, one of the largest economic unions in the world, which members account for over 55% of world GDP and 47% of world trade. The dynamics of this relatively new integration group in East and North-East Asia allows APEC to become one of the main centers of power in the global economy along with NAFTA in North America (North American Free Trade Area) and the EU.

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September 4, 2012 (FPRC) --

These days Russian city of Vladivostok hosts the summit of APEC (Asia-Pacific Economic Cooperation) group, one of the largest economic unions in the world, which members account for over 55% of world GDP and 47% of world trade. The dynamics of this relatively new integration group in East and North-East Asia allows APEC to become one of the main centers of power in the global economy along with NAFTA in North America (North American Free Trade Area) and the EU.

Unfortunately, due to their geographical position the European economies, including big ones like France and Germany, are involved only in one of them – the EU, which is in crisis for quite a long time. In contrast with them, the US tries to actively participate in both NAFTA and APEC.

Paradoxically, but the only country to represent Europe in APEC is Russia which tries to play a more active role in setting the agenda of integration processes. It is no coincidence that chairing the 2012 APEC, Russia has spent so much money on the summit of the group in Vladivostok.

As Pyotr Shchedrovitsky, a member of the expert board of the Russian Agency for Strategic Initiatives said in one of the interviews, “the fact that the Far East welcomes the APEC summit, which inter alia formulates today’s agenda of the macroregion, is a very important step for Russia integrating into the Asia-Pacific region.”

The fact that Russia is seeking to integrate into the rapidly growing Asia-Pacific region is not surprising.

According to the 2012 edition of Economic and Social Survey of Asia and the Pacific published by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), in 2012 Asia-Pacific region has become a new “pole” of the global economy development, but Asia-Pacific countries are facing new challenges today. However, the growth in domestic demand, the financial resources available for economic policy maneuvers, and closer regional economic cooperation gives reason to believe that the growth of the economies in the Asia-Pacific will continue to be higher than in any other region of the world, and significantly higher than in developed countries.

In this regard, it remains unclear why the major European countries continue to view Russia only as a source of relatively cheap raw materials and a market for goods, but not pay much attention to the prospects of using Russia as a potential partner in deepening and expanding cooperation with the APEC countries.

Despite existing disagreements on Middle East settlement and human rights, Russia continues to view the EU as one of its strategic partners.

Moreover, Russia’s Deputy Prime Minister Igor Shuvalov made it clear that Moscow is ready to act as a bridge between the EU and APEC, saying that Russia will call on Asian-Pacific countries to cooperate in developing nuclear energy, including in partnership with Japan, the United States and France.

Even a cursory analysis of the documents adopted at the APEC over the past two years shows which opportunities Europe is missing by not regarding Russia as a bridgehead to new markets. So, after the meeting of APEC leaders in 2010 in Yokohama, Japan adopted a development strategy up to 2015 with a focus on five aspects of economic growth: it must be balanced, inclusive, sustainable, innovative and secure. The strategy includes an action plan for structural reform, human resource and entrepreneurship development, green growth, economy based on knowledge and personal security. The action plan will be supported by specific work programs, the implementation of which will involve all formats of APEC activity and other international forums, including the G20.

The agenda of the APEC summit in Honolulu in 2011 was focused on the problem of stimulating economic development in the Asia-Pacific region in conditions of instability of the world economy. The leaders discussed the issues related to economic growth and employment, promotion of “green” development, energy security and efficiency, and convergence of national systems of government economic regulation.

In recent years, working bodies of APEC strongly promote structural reform in the field of legislation regulating business activities; the implementation of public policies that promote free and open competition; good corporate governance; strengthening the legal framework of market economy; improvement of the quality and accessibility of education; transport, energy, telecommunications, and finance reforms.

Ultimately, the current APEC activities aimed at eliminating behind-the-border trade and investment barriers, which are the result of imperfect legislation and weak law enforcement within the national market. This aspect of the APEC’s work complements the efforts to liberalize and facilitate conditions for trade and investment by reducing the barriers blocking the access to national markets (tariff and non tariff trade barriers, etc.)

These trends are likely to continue after 2012 APEC summit in Russia.

Increase of energy security and energy efficiency, promotion of “green” development, human resource and entrepreneurship development, creation of economy based on knowledge – European companies could make effective competition in all these areas. Moreover, there is a number of areas of cooperation which are interested to both the European and Russian companies.

The Asian part of Russia (Siberia and Far East) is not only the mineral deposits and endless forests called taiga, it is also a large area of land suitable for agriculture. Land, water, cheap energy available in this region of Russia together with advanced European technology and virtually unlimited markets in Asia (especially China) – is all that is necessary for a successful agricultural business.

Location of Russia is ideal base for the development of the transport and logistics East-West corridor with the possibility of duplication and redistribution of traffic loads. Of course, there are significant problems associated primarily with the peculiarities of the Russian railway network which has a track width different from the European (including those working in China).

But China addresses this problem by promoting the creation of logistics centers for storage, handling and distribution of freight traffic flows on the border with Kazakhstan, which railways can carry cargo to central Russia and further to the west. Transportation corridor South Korea – Russia can also be promising if there are guarantees of special transportation regime without registration and inspection of North Korea.

Now Russian representatives in ABAC APEC Business Advisory Council are consistently working to compile the best practices of APEC member countries in logistics and a single road map of the way the movement of goods across the border should look like with the purpose of its implementation in Russia.

Given the focus of the Kremlin to the development of transport infrastructure in Siberia and the Far East, the prospect of turning Russia into the most convenient East-West route for goods transportation is more than real. Moreover, not only Russia, but such countries as Poland and Finland can also benefit from this as their significance in the European freight transport system will increase substantially.

The financial sector of APEC deserves special attention.

In contrast to other integration associations, the APEC countries have actually two systems of the banking sector construction represented by the Asian Development Bank with flexible financial programs that allow investors to easily enter and leave the project, and by the Islamic Development Bank, the instruments of which are 80% funded by co-financing and only 20% – by debt financing, which is used to create financial models as a risk-free asset.

This feature, which allows businesses to more effectively manage the risks, is well understood in Russia which not only actively uses the financial market opportunities of the region but also tends to be the equal partner through the establishment of the Eurasian Development Bank.

The bank is trying to copy the practices of the Asian Development Bank, focusing on trade finance, providing comprehensive financial and economic services, and maintaining economic stability. But it also has a handy instrument in the form of sub-borrowers; credit lines, suggesting the fan funding allocation; credit lines for trade finance, etc. That is not financing but acknowledgement of obligations.

If current Asia-Pacific trend to build its own, largely independent economic policy continues, the role of APEC in the global financial market will certainly grow. It is possible that a new wave of financial crisis will encourage the APEC governments (especially Russia and China) to create an alternative bank for international settlements, which will reduce the impact on the national economies of international financial and banking institutions, such as the International Monetary Fund and Bank for International Settlements.

The first steps in this direction have already been made: it is switching to mutual settlements in national currencies between the countries. With the development of information technology and telecommunications, the system of using several base settlement currencies will become simpler – thus, influence of speculative factors of currency markets on trade flows between the countries will reduce.

I would suggest that in the near future APEC will determine the vector of the world economy and politics, with the influence far beyond the geographical boundaries of the region. If these projections are correct, Europe must cease to be a marginal participant and try to influence the processes unfolding in Asia not to stay on the periphery of global change driven by the APEC countries. First of all, Europe should establish constructive cooperation with APEC through the partnership with Russia located in both Europe and Asia.

While Moscow is interested in cooperation with the EU by reason of technological backwardness and lack of direct investments, the European leaders should use the opportunity offered by Russia’s APEC presidency to influence the processes that could have global implications for the world.

Currently, APEC has 21 members: Australia, Brunei, Vietnam, Hong Kong (Special Administrative Region of China), Indonesia, Japan, China, South Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, Russia, Singapore, Thailand, Taiwan, the Philippines, Chile, Japan. Given the Taiwan and Hong Kong participation in the APEC, members of the forum are called “economies.”

India, Cambodia, Colombia, Costa Rica, Macao, Mongolia, Pakistan, Panama, Sri Lanka and Zimbabwe show interest in joining APEC.

Total trade in the APEC (goods and services) increased from 3.1 trillion US dollars in 1989 to 16.8 trillion US dollars in 2010.

Intraregional trade(exports and imports) in APEC has increased from 1.7 trillion US dollars in 1989 to 6 trillion US dollars in 2009, which is 67% of the total trade of APEC.

Guenter Schneider,
an economic analyst (Federal Republic of Germany)

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