Structural reform in APEC vital for economic growth

Structural reform in APEC vital for economic growth, analysis says

Issued by the APEC Secretariat

Singapore, March 4, 2011 – Introducing more competition in the energy, telecommunications and transport sectors of the APEC region would generate USD 175 billion a year in additional income, new analysis shows.

The calculations are contained in a new report by APEC’s research arm, the Policy Support Unit, and underline the need for ongoing structural reforms, including of competition policy, to increase the potential for strong, long-term economic growth in the wake of the global financial crisis.

The report includes 14 case studies of reform of competition frameworks already undertaken in the APEC region in these three sectors and the subsequent impact on their economies in terms of increased competition and improved efficiency and productivity.

In New Zealand for example, Auckland’s urban rail system has undergone competition reform. Tenders to operate the system were called in 2002, and traffic doubled between 2005 and 2010 under the new model. Services more than doubled between 2005 and 2009 and reliability also improved. In March 2005, only 77 percent of trains arrived on time. This figure increased to more than 85 percent for most of 2009.

Over five years, 21 of the 41 trains on the network were upgraded. The system has more services, higher frequency, greater punctuality and better trains, the report says.

The report says a package of further such reforms in the three sectors would generate USD 175 billion a year in additional real income (in 2004 dollars) across the whole APEC region. APEC-wide, the projected gains from these structural reforms are almost twice as big as the gains from further liberalization of merchandise trade, the report concludes. However, the sectors where the structural reforms are targeted are less than one quarter of the size of those engaged in merchandise trade.

These additional reforms could lead to weighted average productivity improvements in the range of 2-14 percent across the three sectors in the APEC region, it says.

The report shows the benefits for consumers and small and medium sized enterprises arising from introducing competition in terms of improved quality of service, greater choice and lower costs. Removing barriers to open markets involves introduces competition, encourages companies to become more productive and innovative, and potentially leads to better economic growth.

Another benefit of structural reform is economic resilience and stability, meaning economies in the region can become less vulnerable to shocks and turbulence in global markets, the report further says. More efficient, flexible and productive economies could be better protected against a future global financial crisis.

“Structural reform is crucial to achieving growth and to providing greater flexibility and resilience with which to deal with and withstand shocks, both internal and external,” said APEC Secretariat Executive Director, Ambassador Muhamad Noor.

“This report underlines the importance of APEC’s agenda on addressing ‘behind the border’ barriers to trade and investment,” he said.

Over the last five years, APEC has been promoting the importance of structural reform with initiatives in five key areas: regulatory reform, competition policy, corporate governance, public sector governance and strengthening economic and legal infrastructures.

Building on the success of this agenda, APEC Leaders meeting in Yokohama in Japan last November endorsed the APEC New Strategy for Structural Reform going forward, stressing the importance of structural reform for balanced, sustainable and inclusive growth.

The report says structural reform is challenging “because it takes time amid the economic and political complexities in all economies.” It requires steady adaptation for a specific purpose and outcome. With APEC economies are at various stages of reform, continuing to share experiences is valuable so that economies can examine measures and strategies and then shape and adapt them to their own situation.

“It (reform) requires changes in economic structures, innovation and the adoption of new technologies and market responses to shape effective regulation as well as transform APEC economies and their current regulatory systems,” it says.

ENDS

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