Document prepared by
APEC SECRETARIAT

I. Relation between CPD activities and Strengthening the Functioning of Markets initiative.

In the 1999 meeting in Auckland, New Zealand, APEC Ministers agreed that 'strengthening markets' provided an integrative framework for APEC's work in key areas such as trade and investment, competition and regulatory reform, and capacity building, with a view to generating sustained growth in APEC economies. APEC Leaders endorsed the 'APEC Principles to Enhance Competition and Regulatory Reform' and approved a 'road map' to set out future work by APEC to strengthen its regional markets, stressing that open and competitive markets were the key drivers of economic efficiency and consumer welfare.

Strengthening the Functioning of Markets (SFM) is a broad concept which can mean different things. The elements which can help us to figure out the meaning of SFM are: the road map as set out by Ministers and the background of the initiative.

The road map is comprised by eight elements:

· Individual and collective implementation of the APEC principles to enhance competition and regulatory reform;
· Economic and corporate governance;
· Economic and technical cooperation;
· Strengthening market infrastructure;
· APEC's analytical work;
· Trade facilitation;
· Improving the IAP mechanism; and
· Implementation strategies in specific areas of APEC's work.

On one hand, the road map consists of very specific elements like the implementation individual and collective implementation of the APEC Principles to Enhance Competition and Regulatory Reform. On the other hand, it also consists of broader issues like Economic and Technical Cooperation or analytical work.
Strengthening the Functioning of Markets (SFM) is an instruction, which attempts to be one of the APEC responses to prevent the negative effects as observed during the Asian economic crisis in the final part of the last decade. It is common to find out in APEC literature that one of the main reasons of this crisis was the lack of market discipline. What conditions generated such situation? From an economic point of view, the answer is market distortions. From a legal point of view, the answer is the absence of an appropriate legal framework. Both answers can be complemented: there were distortions due to the absence of an appropriate legal framework.

The economic crisis experienced in Asia seemed to challenge the efficacy of trade and investment liberalization processes. Basic economic theory tells us that distortions disappear by simply aligning internal prices to international level. However, in real life things are not that easy. The benefits from liberalization can not be exploited without eliminating distortions. Incentives both to invest and to participate in a market do not only depend on the level of prices. It also depends on how clear are the rules for economic agents when participating in a market.

Since SFM is about eliminating distortions by creating a positive legal framework, CPD activities are directly related to SFM. In terms of the road map, CPD achievements contribute directly to the implementation of the APEC principles to enhance competition and regulatory reform. In addition, the incentive to improve and implement Competition Policy as generated by CPD contributes to corporate governance and strengthening economic infrastructure which are indicated in the road map of SFM. For instance, the application of Competition policy is a substantive element in the promotion of good Corporate Governance either by preventing or eliminating the concentration of economic power in financial institutions. Additionally, Competition Policy is one of three areas for which a menu of options was developed within Strengthening Economic and Legal Infrastructure initiative.

Conclusion: CPD activities contribute to eliminating distortions in the market by creating a legal framework to encourage market discipline. Therefore, all CPD activities contribute to SFM strategy.

In 2001, in Brunei leaders launched an Action Agenda for the New Economy (information and communication technology) that outlines programs that will help to boost productivity, stimulate growth and extend services to the whole community. In response to Leaders instructions, in February 2001, Senior Officials decided to establish and Ad-hoc Task Force for e-APEC. The major deliverable of this task force was the development of the report e-APEC strategy.

According to this report, there are three main pillars for the e-APEC Strategy:

• Promote economic growth with sound macroeconomic framework
• Structural Reform (removal of subsidies and support programs in line with WTO agreements, etc).
• Accelerate Regulatory Reforms (open public utilities to competition, adoption of transparent regulatory systems using best practices, international standards and government practices).
• Financial Issues and Corporate Governance
• Competition Policy
  • Reduce barriers to competition and maintain an open policy stance for international trade and investment so as to reduce the costs of hardware, software and services, improve international standards and promote e-commerce
  • Instigate APEC research, dialogue and cooperation on anti-competitive conduct between APEC jurisdictions, including via the internet
  • Build upon the information provided in the Summary Report on the Competition Policy and Law Database which includes information on all APEC member economies'competition policies.
• Venture Capital Markets
• Intellectual Property
  

3. Enhance human capacity building and promote entrepreneurship.