APEC Business Advisory Council (ABAC)
Liberalisation Working Group (LWG)
First Meeting 2010, Melbourne, February 2010
FTAAP concept – identifying business requirements for new generation FTAs:
Regulatory Principles
Introduction
This paper builds on discussions in LWG during 20091 aimed at identifying, from a
business perspective, new issues of commercial importance that should be reflected in
new FTA negotiations particularly in the context of the proposed Free Trade Area of the
Asia Pacific (FTAAP) and the Trans Pacific Partnership (TPP) now under negotiation by
eight APEC member economies2.
Background
Whether through FTAAP or TPP ABAC has a strong interest in the development of new
generation agreements which set high standards for liberalisation leading to business
growth and address the requirements of business in the 21st century.
Setting high standards in traditional areas of border trade should be relatively
straightforward. For example, in the area of tariffs, negotiators can aspire to
comprehensive tariff elimination. Setting standards in many other chapters of the
agreement is likely to be more challenging as these chapters cover specific areas of
domestic regulation. However, as economic and business relations are today more
about market integration – and with it deeper economic security and growth – rather
than the traditional approach of market access, high standards outcomes under these
chapters are increasingly important to the business community. This paper argues that
ABAC should promote the adoption of regulatory principles to guide such work.
Context
International trade and investment are fundamental to economic growth and
development in all our economies. World trade as a proportion of world GDP has
increased from 20 percent in the early 1970s to about 55 per cent in recent years.
But more broadly, facilitating the operation of business transactions across borders is a
key contribution to the financial health of business in the current global environment.
As global trade flows have increased, the production of both goods and services has
become more fragmented. There is greater international competition, lower mark-ups
1
LWG 2009-003 and LWG 2009-007 both refer
Brunei Darussalam, Australia, Chile, New Zealand, Peru, Singapore, United States and Viet Nam (as
observer)
2
967400
available to firms and a reduction in the home bias of production, with a declining share
of domestically produced inputs in many countries.3
This has resulted in the increasing “atomisation” of production internationally where
countries specialise in varieties of particular goods rather than in industries. Features of
“atomisation” include:

“offshoring” of production;

“outsourcing” of input provision;

“supply chaining” inputs and outputs;

“insourcing” of services; and

niche marketing using web based applications.
Collectively, these developments have coalesced into business practices that have
come to be known as “global supply chains”. This kind of trade tends to occur between
close neighbours and amongst developed as well as developing countries and involves
concomitant flows of investment, knowledge and skilled workers. Supporting these
trends has been the growing importance of Asia/Pacific countries to world trade. Many
global value chains concentrate their production processes in Asia (eg manufacturing in
China and services in India) or are run by major investors from the Asia/Pacific region
(eg the United States and Japan). At the same time, the demands of consumers in the
region are rapidly growing more sophisticated, as is their ability to compete in
increasingly high human capital industries.
The comprehensive integration of the global supply chain demands free and open trade
and investment. But instead of simply seeking lower border barriers to trade and
investment, business is seeking to operate in regulatory environments that are fair,
consistent, competitive, support innovation and involve low compliance costs. These
trends have been intensified by the fact that many global consumers have become
increasingly discerning about the health, safety and environmental standards of the
goods and services they buy and are demanding verification that such standards are
being achieved.
These developments have significant implications for business. Rather than simply
lowering trade and investment barriers at the border, the private sector is looking to
FTAs to generate new business by addressing areas that have previously been seen as
the preserve of domestic regulation. These include such areas as TBTs, SPS,
competition law and IP regimes.
Advantages of Regulatory Principles
To guide the development of chapters in future FTAs including FTAAP and TPP with a
strong regulatory focus, ABAC could advocate that the partners agree on a set of
3
World bank 2005 review of globalisation
967400
principles to ensure these chapters are of a high standard. This would have a number
of advantages:

Principles would provide a set of criteria against which “quality” could be defined.
This would be particularly useful when countries have differing ideas of the factors
that provide for “high quality” in regard to specific outcomes.

They would maximise the flexibility available to Parties in the development of these
chapters. Instead of seeking the harmonisation of law and regulations, the use of
principles would permit differing approaches to laws and regulations as long as such
differences, through mechanisms such as mutual recognition, led to the same or
similar regulatory outcomes. This approach would also be permissive of exceptions
as long as they were transparent and in place for sound public policy reasons.

Principles could be used to gain the support of domestic business and regulators
within the parties who are seeking to raise the quality of domestic regulatory
frameworks, thereby strengthening reform lobbies that would be supportive of high
quality outcomes under the FTA.

They would provide standards against which prospective additional parties could
assess membership in the future. The fact that existing parties could demonstrate
that regulatory chapters adhered to core principles would leave no doubt of the high
standards required to join the TPP while also making it clear that there is significant
flexibility in how these standards are attained.

They would also ensure consistency of approach to issues that cut across several
chapters.
What Would Regulatory Principles Look Like?
Principles would need to be agreed between all negotiating partners at the beginning of
the FTA negotiating process. It could be useful to build on principles already agreed on
in international fora. For example, the APEC Principles to Promote Competition and
Regulatory Reform4 have already been agreed between APEC members to promote
regulatory integration and a competitive business environment within the APEC region.
These consist of four core principles:

Non-discrimination – which calls for “application of competition and regulatory
principles in a manner that does not discriminate between economic entities in like
circumstances, whether these entities are foreign or domestic”;

Comprehensiveness – which calls for “broad application of competition and
regulatory principles to economic activity including goods and services and private
and public business activities”? The principle also recognises that “competitive
markets require a good overall legal framework, clear property rights and nondiscriminatory, efficient and effective enforcement”;

Transparency – which calls for “transparency in policies and rules, and their
implementation”; and
4
Endorsed by APEC Leaders at their meeting in Auckland, 1999
967400

Accountability – which calls for “clear responsibility within domestic administrations
for the implementation of the competition and efficiency dimensions in the
development of policies and rules and their implementation”.
A fifth principle could be added – least efficiency distorting – which is not necessarily
covered by any of the four principles listed above. This would encompass the normal
trade principle of “least trade distorting” when examining regulations in areas such as
health, safety and the environment. It would also drive for improved efficiency
outcomes when FTA members are considering regulations that are not necessarily
trade distorting.
A limited number of additional and/or elaborated principles could be developed to cover
specific regulatory areas. A good deal of work has already been done on these in
APEC and other areas. Some of these are mentioned below. Many of the APEC
“model measures” chapters for FTAs also point to the desirability of making use of
regulatory principles.
What Chapters of the Agreement would the Principles Cover?
Essentially principles would appear to make sense for those chapters of FTAs where
regulatory alignment is an objective. As such, the principles could be applied to the
following chapters:

Rules of Origin - where we have mounting evidence that the efficient operation of
global value chains can be impeded by complex, protectionist and/or inconsistent
rules of origin;

Technical Barriers to Trade – where more advanced agreements are increasingly
adopting a flexible, principles based approach to the development of chapters.
These chapters often seek to allow negotiating parties to regulate for health, safety
and environment but to ensure that such regulations minimise the impact on trade
and efficiency;

Sanitary and Phytosanitary Barriers – like TBT chapters, high quality SPS chapters
increasingly employ flexible, principles based approaches while at the same time
putting in frameworks that seek to ensure that any regulations are based on sound
science and minimise distortions to trade and efficiency;

Trade in Services – agreement on regulatory principles would be useful to
developing high quality outcomes for many service sectors under the Agreement.
The WTO’s own work programme has recognised the importance of developing
such principles;

Investment – the use of core regulatory principles have long been recognised as
useful to assist the negotiation of international investment agreements, both in terms
of investor protection and market access for investors. APEC has endorsed a set of
such principles in the form of 1994 APEC Non-Binding Investment Principles.
967400

Intellectual Property – this is a challenging area of both trade and domestic
regulatory policy that calls for a careful balance between innovation and competition
objectives;

Competition Policy – core competition principles are now well accepted both by
competition regulators and by many FTA negotiators;

Government Procurement – again, the use of regulatory principles has been
recognised as useful in the development of government procurement regimes and in
the negotiation of FTA chapters. APEC has endorsed “APEC Non-Binding
Principles on Government Procurement”5 for these purposes.
Conclusion
Given the increasing integration of business in the Asia/Pacific region, there is a strong
desire on the part of business for achieving high quality outcomes in future FTA
chapters that cover domestic regulation. Agreement on regulatory principles would
assist in achieving such high quality outcomes. A number of models are already in
place which could guide the development of such principles, both at the high level and
under specific chapter headings, helping to achieve the business vision of the APEC
community where a transparent and predictable operating environment underpinned by
effective and legal regulatory systems exists.
Recommendation
It is recommended that ABAC agree to promote the concept of regulatory principles as
outlined in this paper in the context of FTAAP and TPP and that this view be conveyed
in the appropriate manner to APEC senior officials and incorporated in ABAC’s annual
recommendations to APEC Economic Leaders.
ABAC New Zealand
February 2010
5
Last updated in September 2006
967400