MICROECONOMIC POLICY REFORM STRATEGY FOR REGIONAL COOPERATION Hadi Soesastro CSIS, Indonesia

Economic Reform and Regional Cooperation Looking Back Economic Reform - agenda: focus on removing border barriers - manfestation: open borders - challenge: deal with the protection of “sensitive sectors”

Regional Cooperation - agenda: focus on liberalization and facilitation of trade and investment towards regional economic integration - manifestation: regional principles/norms and action plans (individual and collective) - challenge: regional arrangements to enforce members’ commitments

In East Asia they can be seen as Economic Reforms and Regional Cooperation of the First Generation

The “Second Generation” Towards A New Era Economic Reforms - agenda: focus on behind-the-border issues - manifestation: institutional and regulatory changes - challenge: more complex political economy

Regional Cooperation - agenda: focus on improving capacity for policy development and implementation - manifestation: policy and capacity building packages that are tailor-made to needs of individual members - challenge: existing regional arrangements need restructuring

Challenges for East Asia Regional competitiveness not only influenced by openness to trade and competition but also by the region’s regulatory and structural architecture Region needs to promote economic reforms of the “Second Generation” Region needs to design cooperation structures that supports “Second Generation” economic reforms

APEC is the regional cooperation structure involving East Asian economies that come closest to being able to meet the demand

Economic Reform and APEC Rationale for a New Agenda - momentum for “first generation” reform and cooperation in APEC region has run out of steam - a new “economic mission” to enhance regional growth, dynamism, productivity and competitiveness

Options for APEC (1)Transform V-APEC to B-APEC to strengthen and bind members commitment (eg. FTAAP) (2) Strengthen domestic capacity of members to undertake necessary economic reforms

Opening for Second Option exists in APEC 2003: Leaders recognized economic reform is painful but “necessary and beneficial in the long-term” 2004: Leaders adopted the Leaders’ Agenda To Implement Structural Reform (LAISR)

2005: Leaders instructed Ministers to work on behind-the-border issues and welcomed the adoption of the APEC Work Plan (“roadmap”) on LAISR 2010 “as a policy-oriented approach to bring about needed structural reforms” 2006: Leaders recognized the need to intensify work on structural reforms 2007: ?

On LAISR 2010 Priority Areas - regulatory reform - competition policy - public sector management - strengthening economic and legal infrastructure - corporate governance

Modality To discover good practice principles within each priority area that may be applicable to the more specific reforms that individual economies may choose to voluntarily adopt.

The Economic Committee Is mandated to promote structural reform within APEC, responsible for overseeing LAISR, and undertaking coordination with other relevant APEC fora (SELI, CPDG, Finance Ministers’ Process)

Work Plan “From 2006 to 2010, 2 to 3 coordinating economies, ideally from developed and developing economies, will take the lead on a particular policy issue. The coordinating economies will undertake policy-oriented work in this area, which may include policy dialogue …, capacity-building projects and a recommendation or good practice paper. This work will be conducted within a one to two-year time frame. The key findings of this work will be submitted to Ministers and Leaders”

Observations This New APEC Agenda/Initiative: (1)Introduced concept of Second Generation economic reform but is short of developing Second Generation-type of regional cooperation to support it

(2) Regional cooperation can help improve national capacity for policy development and policy implementation by developing of mechanisms for: (a) sharing policy experience (b) drawing upon international expertise in relevant policy areas (c) developing a regional vehicle that can be used for independent review and evaluation of policy performance

Proposed Steps (1) Strengthen the capacity of the APEC Economic Committee to undertake review of policies in some key areas by establishing an on-going APEC Productivity and Efficiency Commission (APPEC).

(2) APPEC should have the capacity to respond to requests by APEC and member economies for analysis of micro- policy and regulatory issues (3) This Commission could draw in capacities and research networks from around the region, and be associated with the APEC Secretariat

(4) A strengthened Economic Committee should be coupled with provision for Ministerial-level direction and responsibility for follow-through (5) Leaders might commission research and analysis of costs and benefits of policy regimes, and Ministerial Sub-Committees charged with follow-up and formulating responses to the implications of the work

Three Essential Elements (1)Arrangements to produce independent analysis with transparency in reporting and discussion of results (2)Delivery mechanisms to assist in enhancing capacity of member economies for policy development and implementation (3)Follow through mechanisms to ensure implementation by member economies