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The Challenge of Structural Change in APEC Economies - WP 07/06

5.3  Role of APEC in progressing structural reform

APEC’s cooperative, voluntary and informal manner of operations means that it is a good forum for discussions on economic policy challenges facing the Asia-Pacific region. Because structural policies are behind the border they cannot easily be negotiated between economies. Therefore, APEC has sought to promote improvements in an economy's domestic structural policies through policy dialogue rather than a “target-setting” approach. APEC promotes structural policy reform by providing a forum for senior-level officials across the region to discuss economic policy challenges, share experiences, discuss good practices and provide technical support where necessary.

By comparison, a target-setting approach would involve setting targets to improve structural policies (eg, targeting a 5% reduction in structural reform indicators over five years). While a target-setting approach would allow greater measurement of the progress of economies in improving structural policy settings, such an approach also has a number of potential drawbacks. An agreement may be difficult to reach given the subjectivity of structural reform indicators, such as measures of governance. This approach may also result in a number of difficult (yet potentially important) domestic policy concerns being “taken off the table” and little progress being made in certain areas. A “policy dialogue” approach potentially creates a better platform for discussion of more difficult economic policy issues.

Because of APEC’s voluntary nature, and its avoidance of setting target-type goals in the area of structural policies, identifying quantifiable structural policy reform outcomes can be difficult. However there are examples emerging of how APEC has assisted in promoting improved structural policies. For example, APEC has assisted economies in identifying areas of domestic regulatory policy that could be enhanced, through the application of regulatory self-assessment tools, such as the “APEC-OECD Integrated Checklist on Regulatory Reform”.[24] For APEC to progress its work on structural policy reform, it will take concerted input from APEC economies, particularly developed economies, given the resources and expertise that they have at their disposable.

In addition to the Economic Committee (EC), there are a number of APEC fora that have a focus on structural policy issues, including the Competition Policy and Deregulation Group (CPDG), the Strengthening Economic Legal Infrastructure (SELI) Coordinating Group, the Finance Ministers’ Process (FMP), the Small and Medium Enterprises Working Group (SMEWG), the Anti-Corruption and Transparency Taskforce (ACTTF), and the Investment Experts Group (IEG), as well as a number of sectoral working groups. The EC has the mandate to lead and coordinate APEC’s structural reform work to ensure consistency and prevent unnecessary overlap across APEC fora.

The literature identifies a number of challenges and strategies for managing the ongoing process of structural policy change for APEC economies. While the benefits of structural policy change are becoming increasingly clear, reforms often involve quite fundamental changes to how markets operate, and so can face resistance from groups that have a vested interest in the status quo. Reform can also involve transitional dislocations. Hence there are potentially significant social and political tensions and challenges involved in undertaking structural reform.

Figure 9 illustrates a framework for thinking about how the set of desirable and feasible structural policies (zone “SR”) can be expanded by making improvements across the three dimensions of policy dialogue, capacity building and awareness raising. The next three sub-sections provide an overview of lessons from the literature and the role of the EC in providing tools to manage structural change.

Figure 9: Framework: Increasing the set of feasible structural policy improvements
Venn Diagram:Framework: Increasing the set of feasible structural policy improvements.
Source: Adapted from World Development Report (2005).

5.3.1  Policy dialogue

The pervasiveness of structural policies makes identifying and setting priorities a key challenge of structural reform. Given the diversity of situations there is no standard formula for identifying priorities. However, the World Development Report (2005) suggests that governments may wish to start by:

  • Assessing current conditions: Comparing performance with other economies (eg, by using the World Bank’s “Ease of Doing Business” indicators, the “Index of Economic Freedom” and/or the IMD Business School’s “World Competitiveness Yearbook” to benchmark performance).
  • Assessing potential benefits from improvement: There may be a greater impact from addressing constraints that affect a large share of economic activity (eg, macroeconomic stability).
  • Implementation constraints: Administrative and political constraints should be taken into account when setting priorities (eg, a high level commitment and process for managing change may be necessary).

An EC Seminar on “Priorities in Structural Reform in APEC Economies” held in January 2007 aimed to promote understanding of the national and common regional priorities in structural reform across APEC member economies to help inform the focus of the EC’s future work. It was evident from the discussion at the seminar that economies are able to identify specific priority areas in their local contexts. Where the EC can add value is by providing a forum for discussion and sharing of experiences of the tools for assessing and implementing reforms.

5.3.2  Capacity building

Economies need the financial resources and technical expertise to drive structural change. The World Development Report (2005) suggests that governments may wish to start strengthening capacity by improving the expertise of the civil service and the quality of information available to guide and administer reforms.

The Report identifies the importance of economies creating a skilled, professional and accountable civil service and drawing on specialist expertise where necessary. Some economies have established more autonomous administrative structures to make it easier to recruit and retain staff with the necessary skills. For example, research has found that autonomous tax authorities can bypass restrictive civil service rules and pay better salaries to attract and retain well-qualified professionals; and can therefore promise better performance than traditional ministries (Bird, 2004).[25]

Many economies have also tried contracting-in or contracting-out specific functions to outside experts. For example, a recent survey of developed economies undertaken on behalf of the World Bank found that three-quarters of regulatory agencies for infrastructure engaged consultants or other external parties in regulatory tasks. Furthermore, the study found that in more than 90% of these cases, contracting-out improved the competence of regulatory agencies (Environmental Resources Management, 2004).

The Report also highlights the importance of economies improving processes for ongoing learning from within economies and from overseas experiences. This can be achieved through greater access to reliable data, introducing consultation processes or by introducing or improving enterprise surveys to gather information on factors such as productivity and job creation.

The work of the EC has a capacity-building dimension. For example, the Australian APEC Study Centre ran a training course in May 2007 on “Strategies to Promote Structural Reform by Focusing on the Drivers of Economic Growth in APEC”, which was endorsed by the EC.[26] This course aimed to enhance the capacity of participants to appreciate the key drivers that improve productivity and to devise policy responses to improve economic performance.

Another activity that has a capacity-building aspect is the “APEC-OECD Integrated Checklist on Regulatory Reform”. The Checklist is a voluntary tool that member economies may use to evaluate their regulatory reform efforts. The Checklist highlights key issues that should be considered during the process of development and implementation of regulatory policy. This year Australia and the Republic of Korea undertook a self-assessment using the Checklist. The results were reported and discussed at a joint EC-CPDG-SELI Roundtable session. In 2006 the United States; Chinese Taipei; and Hong Kong, China undertook a self-assessment using the Checklist, the results of which were also discussed at a Roundtable session.[27]

A seminar was held in Indonesia in early June 2007 on “Utilizing APEC-OECD Integrated Checklist on Regulatory Reform in Competition and Deregulation Aspects”. This seminar was attended primarily by officials from Indonesia and other member economies that are considering undertaking the self-assessment exercise in the future.

5.3.3  Awareness raising

The benefits of structural policy reform are not generally well understood by the public. For reforms to be successful it is important that the costs and benefits of policy approaches are well communicated and understood by key stakeholders.

While recognising that the appropriate awareness-raising strategies will differ across economies, the World Development Report (2005) identifies some practical steps economies can take to raise awareness about structural reform:

  • Communicating to build support: Raise public awareness and mobilise a broader range of support (eg, by using tools like World Bank “Ease of Doing Business” indicators and the “Index of Economic Freedom” to benchmark performance).
  • Maintaining momentum: Establish institutions to sustain progress of reform. Institutions can facilitate consultation and coordination and review existing and proposed policies (eg, institutions such as Mexico’s Economic Deregulation Unit and the Australian Productivity Commission).

It will often be important for policy makers to clearly communicate to key stakeholders why structural policy changes are necessary. While the most appropriate form of communication will vary among economies, a good example of the use of communication to build support is the New Zealand reform experience of the 1980s. New Zealand went through radical reforms in the 1980s that transformed its economy from one of the most regulated to one of the least regulated in the OECD in a matter of a few years. The incoming administration extensively publicised why regulatory changes were necessary, what the goals of reforms where, and what the strategy was. While strong debate existed, most of the reforms have not been repealed. History also tells us that programs of structural change often involve taking advantage of opportunities as they present themselves. New Zealand’s 1980s structural reforms were implemented when the New Zealand economy was undergoing severe financial stress, following a decade of very poor economic growth.

The main publication of the EC, the “APEC Economic Policy Report”, is a tool for raising awareness of the benefits of structural reform.[28] Last year’s report focused on the importance of structural reform and captured the experience of member economies with structural reform over the past 10 years. The report is provided to APEC Economic Leaders and is available to the public on the APEC website. The 2007 report will focus on the LAISR priority area of public sector governance and aims to capture general principles of good public sector governance and economy experiences with public sector governance reforms over the past 10 years. Future reports will focus on other LAISR priority areas, such as competition policy, regulatory reform, corporate governance and strengthening economic and legal infrastructure.

Notes

  • [24]The “APEC-OECD Integrated Checklist on Regulatory Reform” is available from http://www.oecd.org/dataoecd/3/53/36326815.pdf
  • [25]Bird (2004) sites cases from Latin America and elsewhere.
  • [26]Further information about the APEC Study Centre is available from
  • [27]Further information on the “APEC-OECD Integrated Checklist on Regulatory Reform” is available from http://www.oecd.org/dataoecd/41/9/34989455.pdf
  • [28]The “APEC Economic Policy Report” is available from
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