ASEAN-Japan Relations: Trade and Development 9789814377133

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ASEAN·JAPAN RELATIONS

Trade and Development

The Japan Center for International Exchange (JCIE) is an independent, non-partisan, non-profit organization. Its objectives are to broaden communication and understanding between Japan and the rest of the world, and to provide an avenue for interaction and the exchange of views between scholars and decision-makers from both the public and private sectors on major policy issues affecting Japan and the wider international community. The National Institute for Research Advancement (NIRA) of Japan was founded in 197 4 under a special legislation of the Parliament as a result of initiatives taken by representatives from the government, business, labour, and academic communities. NIRA's central purpose is the advancement of interdisciplinary research which seeks viable solutions to the major problems confronting modern society. The East-West Seminar, established in 1971, is a non-profit, non-governmental organization dedicated primarily to improving understanding between Japan and the Southeast Asian countries. It does this through supporting research projects, conferences, educational exchange., and training. The Institute of Southeast Asian Studies was established as an autonomous organization in May 1968. It is a regional research centre for scholars and other specialists concerned with modern Southeast Asia, particularly the multifaceted problems of stability and security, economic development, and political and social change. The Institute is governed by a twenty-two-member Board of Trustees comprising nominees from the Singapore Government, the National University of Singapore, the various Chambers of Commerce, and professional and civic organizations. A ten-man Executive Committee oversees day-to-day operations; it is chaired by the Director, the Institute's chief academic and administrative officer. The ASEAN Economic Research Unit is an integral part of the Institute, coming under the overall supervision of the Director who is also the Chairman of its Management Committee. The Unit was formed in 1979 in response to the need to deepen understanding of economic change and political developments in ASEAN. The day-to-day operations of the Unit are the responsibility of the Co-ordinator. A Regional Advisory Committee, consisting of a senior economist from each of the ASEAN countries, guides the work of the Unit.

ASEAN -JAPAN RELATIONS Trade and Development

Proceedings of a Workshop and a Conference organized by the Japan Center for International Exchange and the ASEAN Economic Research Unit of the Institute of Southeast Asian Studies held on 5-6 December 1981 and 20-23 May 1982 at Singapore and Oiso, Japan, respectively

edited by

N arongchai Akrasanee

Japan Center for International Exchange National Institute for Research Advancement East-West Seminar ASEAN Economic Research Unit Institute of Southeast Asian Studies

Published by Institute of Southeast Asian Studies Heng Mui Keng Terrace Pasir Panjang Singapore 0511 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior consent of the Institute of Southeast Asian Studies.

© 1983 Institute of Southeast Asian Studies ISBN 9971-902-63-X The respons,·bzldy for facts and opinions expressed in this publication rests exclusively with the contributors and their interpretations do not necessarily reflect the views or the policy of the Institute or its supporters.

Typeset by Richard Clay (SE Asia) Pte Ltd.

Contents

Foreword

vn

ASEAN-japan Trade and Development: A Synthesis Narongchai Akrasanee Indonesia-] apan Trade Relations 37 Dorodjatun Kuntjoro-Jakti and Pri:fono Tjiptoherijanto Malaysia-Japan Trade: Issues and-Prospects for the 1980s Zakaria HaJi Ahmad and K. C. Cheong

57

Economic and Political Factors Affecting Philippine-Japan Trade Romeo M. Bautista and Wiljrido V Villacorta Singapore-Japan Reiations: Trade and Development Lim Hua Sing and Lee Chin Chao

117

Trade and Development in Thai-Japanese Relations Narongchai Akrasanee and Likhit Dhiravegin

141

Japan-ASEAN Trade Relations Kazuo Nukazawa

163

79

Foreword

This volume has developed out of the Asian Dialogue project, which is an ongoing activity designed to promote policy-oriented research, discussion, and an interchange of ideas between Japan and Southeast Asia on problems of mutual concern. The Asian Dialogue project has made steady progress since its inauguration in 1977 by the Japan Center for International Exchange (JCIE) and the East-West Seminar of Tokyo, with the co-operation of a number of Southeast Asian scholars. The project was further expanded in late 1980 with the involvement of the Institute of Southeast Asian Studies (ISEAS) and the National Institute for Research Advancement (NIRA) of Japan and the establishment of two research task forces, one to study issues relating to foreign investment and the other to examine problems of trade and development. Each task force consisted of economists and political scientists drawn from all the A SEAN countries and Japan. They were to complete two sets of six papers, one each for the five ASEAN countries and the other for Japan - combining political and economic aspects of the issues involved. Two co-ordinators, Professor Sueo Sekiguchi of Osaka University, and Dr Narongchai Akrasanee, then of ESCAP, were responsible for integrating the various country reports as well as providing an "overview" of the findings of each task force as a whole. The net result of these efforts has been a set of seven papers each on Investment, and Trade and Development, edited by Professor Sekiguchi and Dr Narongchai, respectively. They are being published as companion volumes under the titles ASEAN-Japan Relations: Investment and ASEAN-Japan Relations: Trade and Development. These volumes reflect not only research by the individual Southeast Asian and Japanese scholars but also an extensive process of consultations amongst these scholars themselves and between them and others from the business community, the media, and the government in each of the countries involved. In the case of A SEAN, for instance, a seminar was held in each country at which were presented the initial findings of each country research team. These seminars were attended by both scholars and practitioners drawn from a wide spectrum of interests. These country-level discussions were followed by a regional seminar held in Singapore at which were present all the researchers concerned from Japan and ASEAN, together with participants from both the public and private sectors. Finally, the conference at Oiso, Japan, was held in May 1982. In addition to the Japanese and ASEAN scholars, businessmen, media representatives and government officials, participants in this conference included those from Europe, South Korea, the USA, and China.

Vlll

Foreword

This phase of the Asian Dialogue was co-sponsored by four institutions: the East-West Seminar, ISEAS, JCIE, and NIRA. The main financial support was provided by NIRA, whose president, Mr Atsushi Shimokobe, and researchers participated actively in the various aspects of the project. Mr Masahide Shibusawa, of the East-West Seminar, too played a major role in the project from its very inception, and we are grateful for his deep personal involvement in it and for the financial support from the East-West Seminar. The Ford Foundation, the Rockefeller Brothers Fund, and the Rockefeller Foundation have also provided support for the project and this encouragement and assistance is greatly appreciated. We are also indebted to Prof Sekiguchi and Dr Narongchai for their willingness to assume the burden of co-ordinating the task forces and for agreeing to edit the resulting volumes. They were substantially assisted by Dr Charles E. Morrison, a visiting scholar at JCIE and a fellow at the East-West Center of Honolulu, Hawaii, to whom we would also like to extend our thanks. Finally, in wishing the work that follows all the best, it is clearly understood that the individual authors are exclusively responsible for the facts and opinions expressed in their respective contributions, and their interpretations do not necessarily reflect the views and policies of JCIE or ISEAS themselves or their supporters.

Kernial S. Sandhu Director Institute of Southeast Asian Studies

13 june 1983

Tadashi Yamamoto Director Japan Center for International Exchange

ASEAN-Japan Trade and Development: A Synthesis Narongchai Akrasanee

Introduction

In this era of interdependence, Japan and the member countries of the Association of Southeast Asian Nations (ASEAN), which includes Indonesia, Malaysia, Philippines, Singapore, and Thailand, stand out as a classic case study of international relations. Japan depends on A SEAN for supplies of strategic raw materials, for markets for its industrial exports, and for political support in the Southeast Asian region. ASEAN, on the other hand, depends on Japan for supplies of industrial goods, investment funds, and industrial technology, and foreign aid in some cases. ASEAN also relies on Japan for political support in the international arena. The interdependence is so strong that both sides have found it to be of mutual benefit to co-operate in many fields of activity, including economic, political, and social affairs. J apancsc and A SEAN observers have become increasingly conscious of this interdependence so that the Japan Center for International Exchange, the National Institute for Research Advancement (Japan), and the Institute of Southeast Asian Studies (Singapore) selected this topic for systematic investigation by economists and political scientists of both sides. The project was divided into two parts, one focusing on investment and the other on trade and development. Six study teams were organized, one for each country, and each team was asked to prepare two papers, one on each subjecl. The findings of all the study teams confirm the perception of considerable interdependence, and conclude that this interdependence is likely to increase in the future. The findings have contributed to a better understanding of the economic and political mechanisms at work behind the ASEAN-Japan relationship, and have identified areas of potential conflict and co-operation. Recommendations are made to both sides to take the necessary steps to minimize conflict and to promote co-operation. This introductory paper attempts to synthesize and summarize the findings of the six succeeding papers on trade and development aspects of A SEANJapan relations, and the discussions which were held at various forums during the course of the study. The objective is only to assist the interested reader in seeing the six country papers on the same basis. Due to the wealth of information contained in each paper and the depth of analysis, the synthesis can only

2

Narongchai Akrasanee

attempt to be a modest introduction and guideline to the following papers. Following the common outline as agreed among the project participants, the synthesis paper begins with a review of the trade relationship between Japan and ASEAN in terms of actual trade performance and the evolution of trade policies. In Section II, current and future issues are discussed and analysed. Policy recommendations are dealt with in the last section. I. General Review of the Trade Relationship between ASEAN and Japan

The Economies of ASEAN and Japan The economies of ASEAN and Japan are a study in contrast, which is perhaps why many trade opportunities have been found. As shown in Table 1, with the exception of Singapore, all the ASEAN countries are still primary-commodity based while Japan can be considered fully industrialized. In terms of size, Japan is one-tenth of ASEAN's area, just below half its population, but about eight times larger than ASEAN in terms of gross national product (GNP). The per capita income of Japan is 16 times the average per capita income of ASEAN. Compared with the individual ASEAN countries, Japan's per capita income ranges from a little more than twice that of Singapore to more than twenty times that of Indonesia. While the per capita income statistics may be misleading because the average income of ASEAN includes the income of the rural population, which constitutes about three-quarters of the population in ASEAN, they nevertheless show the large difference in the average living standards between the Japanese and the people in ASEAN. The ASEAN and Japanese economies both performed very well in the 1970s. For ASEAN, the average annual GDP (gross domestic product) growth rates ranged from 6.2 per cent for the Philippines to 8.4 per cent in the case of Singapore. GDP growth rates for the other ASEAN countries were close to 8 per cent annually. As for Japan, despite the large size of its economy, the average GDP growth rate was 5.2 per cent, the highest among the advanced (OECD) countries. While economic growth rates have been high, inflation rates have been manageable, except in certain years and for some ASEAN countries ( 1979-80 in Thailand, Philippines, and Indonesia). The A SEAN nations and Japan have, therefore, been regarded as countries which performed relatively better than the world average during the 1970s. The Japanese economy should also be compared with that of the ASEAN countries on a country-by-country basis, for the relationships which exist now are still bilateral in nature. In other words, the relationship between Japan and A SEAN is determined by factor endowments of Japan and each ASEAN country, and the politico-economic policies followed by each of them. Thus Japan's relations with Indonesia, the largest A SEAN country, are significantly different from its relations with Singapore. Indonesia consists of 13,667 islands, less than half of which are inhabited. Most of the population are in the five major islands, that is, Java (63 per cent),

TABLE 1 .Japan and ASEAN Economies: Basic Indicators, 1979

:...

v, t'1

::.:

.Japan Area: In thousand km 2 % of ASEAN total

372

Population: In million % of ASEAN total

115.7

ASEAN 3,172 100 250.6 100

Indonesia

Malaysia

Philippines

2,027 63.9

330 10.4

300 9.5

142.9 57.0

13.1 5.2

46.7 18.6

Singapore 1 -

2.4 1.0

Thailand 514 16.2 45.5 18.2

~

.§_

"" :;-l "~ ""'-"

~

% ~

~

GNP: In billion US$ % of ASEAN total GNP per capita (US$) GDP real growth, 1970-79 (%) Agriculture share of G DP (%) Industry share of GDP (%) Manufacturing share of GDP (%) Services share of GDP (%) Total Imports: In billion US$ % of ASEAN total Imports as % of GNP Total Exports: In billion US$ % of ASEAN total Exports as % of GNP

1,019.3 8,810 5.2 5.0 42.0 30.0 53.0 110.7 10.9 103.0 10.1

134.9 100 538

52.9 39.2 370 7.6 30.0 33.0 9.0 37.0

17.9 13.3 1,370 7.9 24.0 33.0 16.0 43.0

28.0 20.8 600 6.2 24.0 35.0 24.0 41.0

9.2 6.8 3,830 8.4 2.0 36.0 28.0 62.0

26.9 19.9 590 7.7 26.0 28.0 19.0 46.0

46.4 100 34.4

7.2 15.5 13.6

7.8 16.8 43.6

6.6 14.2 23.6

17.6 38.0 191.3

7.2 15.5 26.8

50.8 100 37.7

15.6 30.7 29.5

11.1 21.9 62.0

4.6 9.1 16.4

14.2 27.9 154.3

5.3 10.4 19.7

-

:... ~

;;. " :;: ::;·

V.J

SouRcE: World Bank, World Development Report, 1.981.

4

Narongchai Akrasanee

Sumatra (18 per cent), Kalimantan, Sulawesi, and Irian Jaya. Indonesia is well endowed with natural resources, including oil, natural gas, timber, and fish, and minerals such as bauxite, nickel, coal, and tin. The thrust of Indonesia's economic policy has been to exploit natural resources to support its development programmes designed to improve the people's living standard. The Philippines is also a country of islands, numbering about 7 ,000, with the land suitable for agricultural production. The country does not have much oil and natural gas, but has a large geothermal energy potential. Its forests and fisheries are said to be over-exploited. Its economic development strategy is therefore to become more industrialized. Manufacturing production is strongly promoted to provide employment, income, and the much-needed foreign exchange. Malaysia is a resource-rich country, especially relative to its population of 14 million. The major resou1-ces are tin, timber, and petroleum. A part of the forest lands has been converted to the planting of tree crops, notably rubber and oil palm. Up to the end of the 1960s, the Malaysian economy was based on rubber, tin, palm-oil, and other agricultural products. A labour-intensive manufacturing sector began to be developed in the early 1970s especially for export. Towards the end of the decade, oil and gas were developed for commercial purposes, and Malaysia is now a net exporter of petroleum. Thailand is well endowed with flat land and fertile soil suitable for agriculture, except for certain areas in the Northeast. Agriculture has, therefore, been the mainstay of the Thai economy, but forest and marine resources have been largely depleted. The country has modest deposits of tin, zinc, tungsten, and wolfram. It has discovered natural gas in the Gulf of Thailand, which is being exploited for commercial purposes. Reports have been received that Shell and Esso have, respectively, discovered a potentially large deposit of oil in the North, and natural gas in the Northeast. Before the petroleum resources can be fully developed, the country will continue to depend largely on imported petroleum for its energy needs, a condition which has contributed to the problems of trade and payments, foreign debt, a weakening currency, and inflation. But economic growth has been respectable, with the manufacturing sector growing faster than the overall growth rate. Singapore is a city-state, with a population of 2.4 million. It has no natural resources, but its location amid the other resource-rich ASEAN countries, and on a major sea lane, has given it a considerable advantage as a trading nation; formerly, the economy was based on entrepot activities. With the population living in a small area, it was natural for Singapore to develop the manufacturing sector, which it started to do in the early 1960s. In the meantime, the services sector has continued to expand. When Japan deals with A SEAN, it in fact has to deal with five countries which have different economic structures and different policy priorities. But there are a few features which the ASEAN countries share in common. Firstly, all the ASEAN countries have a high degree of foreign trade orientation. As shown in Table 1, foreign trade as a proportion of GNP ranged from 43 per cent for Indonesia to more than 200 per cent in the case of Singapore. In con-

ASEAN-Japan Trade and Development: A Synthesis

5

trast, foreign trade accounts for only about 20 per cent of Japan's GNP. Secondly, all the ASEAN countries have adopted industrialization as a major development strategy. Local processing of natural resources is being pushed to the maximum. These common factors make it possible to discuss the relationship between Japan and the ASEA:'-J' countries as a group.

ASEANJapan Trade It is well recognized that Japan is the most important trading partner of ASEA:'-J'. Rased on the 1980 statistics for the direction of trade, Japan accounts for 27 per cent of ASEAN's exports and 22 per cent of its imports (Tables 2 and 3). No other single country comes close to Japan in terms of the volume of trade with ASEAN. The second most important trading partner of ASEAN is the United States, accounting for 17.2 and 15.3 per cent of ASEAN's exports and imports respectively, followed by the European Economic Community (EEC). Intra-ASEAN trade itself has averaged about 15 per cent. Trade with Japan is a major economic activity in all the ASEAN countries, but its significance varies. Japan is the most important export market for Indonesia and Malaysia, which also imports proportionately more from Japan than elsewhere. Japan also used to be Thailand's largest market, but since 1979 the EEC has replaced it. Japan, however, continues to be the largest supplier of Thailand's imports. The Philippines trades more with the United States, in part because of the historical relationship, but Japan has rapidly become a major trading partner. Singapore's exports are more diversified, while Japan is the major supplier of its imports. Trends in the direction of ASEAN's trade with Japan have been influenced by Japan's needs for petroleum and raw materials, and ASEAN's needs for capital goods. Thus, Indonesia and Malaysia, which are abundant in natural resources, have found Japan to be the fastest growing market. The other three ASEAN countries depend proportionately more on the export of manufactured goods and food products, which have found more willing buyers elsewhere. But for ASEAN's imports of capital goods, Japan remains the most competitive supplier. The above trend is well reflected in the balance of trade between ASEAN and japan. As shown in Table 4, Malaysia and Indonesia continue to have trade surpluses with Japan, while Thailand and Singapore have large trade deficits and the Philippines a moderate, but persistent deficit. ASEAN as a whole has a large surplus in trade with Japan, particularly.after the second oil shock in 1979. But if oil were excluded from these trade statistics, ASEAN's surplus of almost US$4 billion would turn into a deficit of about US$6 billion in 1980. Tables 5 and 6 show ASEAN's trade with Japan in terms of commodity composition and the changes during the 1970s. Throughout this period, ASEAN's exports continued to be concentrated in primary products, but the proportion declined from 75 per cent in 1972/73 to 70.6 per cent in 1979/80. This proportion would have declined even further had it not been for the export of oil from Indonesia and Malaysia. For example, of the 70.6 per

0'1

TABLE 2 Direction of Exports of ASEAN Countries, 1980 (In million US$) Malaysia

Indonesia

o/o

% Major Trading Countries

Value

o/o

of ASEAN

Value

%

Japan U.S.

II ,036 4,605 24

48.9

20.5 0.1

2,961 2,117 6.3

22.8 16.3

411

1.8

104 133 J77 3,015

0.5 06 13.4

61.1 40.0 7.9 26.7 20.0 5.6 31.7 26.4

76 192 2,708 39 1,444 1,415

0.3 0.9 12.0 0.2 6.4 6.3

Canada Australia New Zealand

Hong Kong Korea A SEAN

Indonesia Malaysia Philippines Singapore Thailand EEC Rest of the World Total

1.7

185 55 243 261 2,895

34

22,564

WO

2.3 28.2 46.9

(l.S

1.4 0.4

1.9 2.0 22.:J 0.3

196

1.5 19.0

12.:1

33.6

13,005

J.4

o/o Value

%

of ASEAN

16.4 18.4 20.7 12.0 10.6 10.2

1,510.9 1,583.3 63.6 97.6 4.1 190.1 202.6 369.6 106.6

26.5 27.7

13.7

22.0 25.4 7.4

1.4 16.9 15.6 100

28.7 42.9 16.6 25.5 17.6

111.6 62.5 971.0 711.8

19.4

5,iW.6

l.l 1.7

0.1 3.3 3.5 6.5

1.9 1.6 2.0

1.1 17.0 12.6 100

'l'hailand

Singapore

of ASEAN

89.5 2,477 188 2,194 2,031

16.8

Philippines

8.4 20.9 6.3 0.8 8.0 17.0 3.2 23.3

2. 7

% Value

%

1,560 2,424 132 780 351 1,496 289

8.1 12.5 0.7 4.0 1.8 7.1

4,025

20.8

2,908 273

15.0 1.4

1.5

of ASEAN 8.6

21.0 43.4

% Value

994.2 795.4

844 2,377 5,943

8.5

19,377

4.4 123 30.1 100

of ASEAN

15.5

5.5 6.9 7.1 4.4 1.1 13.1 5.0 9.6 69:1

279.7 20.9 482.2

74.5 27.6 51.5

1,618.2 I ,432.9

25.3 22.4

28.9

6,409.3

21.7

50.6

68.6

67.5 63.1 24.3 35.:1

5.9

310.6 58.9

1,099.9 317.1

1.9 5.5 11.3 6.2

%

12.4 0.3 1.1 0.1 4.8 0.9 11.2 49 4.4 0.3 7.5

86.7 40.0

ASEAN

100

% Value

%

ofASEAN

18,0b2.1

26.9 17.2 0.5 2.3 0.8 3.5 1.8

100 100 100

11,524.1 3()4.3 I ,542.2 520.0

2.372 7 1.188 5 11,404 5 457 7

17.0

0.7 5.0

100

100 100 100 100 100 10()

8.3

3,353.2

3.1 8.3

6819 5,i78.8 1,133.5

8.6 1.1

18.8 12.4

8,604.2 12,539.7

12.8

100 100 100 100

17.2

100

9.6

67,062.9

1.0

J[)()

lOll

~ ;;

SoURCE:

International Monetary Fund (IMF), Dmclion of Trade Statistics, Yearbook 1981.

~

~ :...

l"

~

::.,.,

~

::..:

~

.:

3:~ ""'

::;l

"

I}

% Increase

Commodity Composition Japan's Total Exports SITC Group

0. Food & Live Animals

1972/73

1979/80

Exports to ASEAN

1972/73

1979/80

ASEAN's Share

from 1972/73 to 1979/80

1972/73

1979/80

Total

A SEAN

735 (2.2)

1,259 (1.1)

87 (2.8)

159 ( 1.4)

11.9 11.9

12.6 12.6

71.3 71.3

83.0 83.0

19 (0.1)

141 (0.1)

1 (0.0)

2 (0.0)

4.4

1.4

658.2

141.5

579 (1.8)

1,341 (1.2)

63 (2' 1)

157 ( 1.4)

11.0

11.7

131.8

147.5

3. Mineral Fuel, etc.

83 (0.3)

446 (0.4)

16 (0.5)

49 (0.4)

19.2

11.0

436.8

208.0

4. Animal & Vegetable Oils & Fats

32 (0.1)

114 (0.1)

3 (0. 1)

17 (0.2)

8.0

14.5

261.8

557.3

5. Chemicals

1,967 (6.0)

6,315 (5.4)

332 (10.8)

1,092 (9.7)

16.9

17.3

221.2

228.8

6. Basic Manufactures

9,465 (28.9)

28,686 (24. 7)

1,092 (35.4)

3,319 (29. 5)

11.5

11.6

203.1

203.9

1. Beverages & Tobacco 2. Crude Materials, excl. Fuels

""" ~ ~ ~

!'. ;,.. ~

" s. ~

..

.,~ :::"

ASEAN-Japan Trade and Development: A Synthesis

19

were not receiving the prices they deserved. The consequence of this interference was market chaos in 1980 and 1981, resulting in a large surplus of goods and falling prices. In 1982 exports of primary products were liberalized. At the same time, the liberalization of manufacturing production was also gaining momentum. It is expected that import-substituting industries will be slowly rationalized, and manufactured exports more systematically promoted. The utilization of natural gas from the Gulf of Thailand has also opened up an opportunity for large-scale import-substituting industries in petrochemicals and chemical fertilizers. Changes in the trade policies of the Philippines were quite similar to those of Thailand. In the 1960s, Philippine industries were basically import substituting, while primary commodities, particularly sugar and coconut products, were promoted for export. Export promotion policies for manufactures were also adopted in the early 1970s, but more vigorously than in Thailand's case. Export promotion zones were set up, and the peso was allowed to depreciate in value. Import-substituting measures were not lifted, however, until 1980 when the government started an industrial restructuring programme which included trade liberalization on a large scale. In addition, modernization programmes are being introduced to inefficient industries, beginning with coconut oil mills, cement, and textiles. Plans are also being drawn up to establish or expand basic industries such as copper smelting, iron and steel, and diesel engines. Malaysia's trade policy changed dramatically during the 1970s. In the 1960s, the Malaysian economy was based on primary commodities, basically rubber, forest products, tin, and palm-oil. In 1970, the New Economic Policy (NEP) was adopted, designed to correct the conditions of racial inequity and economic dissatisfaction which had been the causes of serious racial riots the previous year. A labour-intensive manufacturing sector began to be developed rapidly, especially for export. Industrial and export-processing zones were set up in many places, including Kuala Lumpur, Ma!acca, and Penang. The electronics industry was the fastest growing industry. Towards the second half of the 1970s, oil and natural gas were discovered and developed for commercial purposes, making Malaysia a net exporter of petroleum. New income has brought new ambitions to Malaysia, which is now planning to develop new oil and gas fields in Sarawak and Trengganu and several new basic industries, such as an integrated wood-processing complex, and petrochemical, chemical fertilizer and iron and steel plants. The country also plans to export the products of these industries. In the meantime, rising wages are forcing the country to develop higher technology industries. Indonesia's economic and trade policies took a sharp turn in 1966 when Suharto took control of the country from Sukarno. The country was opened up, and foreign aid and private investment sought for general economic development and resource development for export. At first, rubber, tin, tropical hardwood, and petroleum were promoted for export. Then came the first oil shock of 1973, when oil exports became by far the largest foreign exchange earner of Indonesia. Since then, oil exports have accounted for about 70 per

20

Narongchai Akrasanee

cent of Indonesia's total export earnings. This was further supplemented by exports of liquified natural gas (LNG), which reached US$3 billion in 1981, and the earnings from oil was also boosted by the second oil shock of 1979/80. In practice, Indonesia's trade consisted largely of the export of oil and gas and the import of goods needed for development purposes. But the government realized that oil and gas cannot be expected to produce much employment. So under the third development plan, which covers the period 1978/79 to 1983/84, there is an effort to diversify economic (including export) activities. Small-scale and labour-intensive industries are being promoted, and encouraged to export. On the whole, however, conditions in Indonesia are still not conducive to manufactured exports. Indonesia can therefore be expected to continue to promote exports of primary goods but in more processed forms, and to import capital goods needed for development programmes. Singapore has consistently pursued an export-oriented policy which was reinforced in the 1970s when an earlier emphasis on import substitution was changed. Import tariffs were almost completely eliminated, and a nascent automotive industry had to cease production because of lack of protection. Exports were successfully promoted simply by allowing the industries to obtain supplies at world prices. Recently, the government has stressed the need for labour-saving, higher technology-intensive products, which it also intends to produce basically for export. As a part of this policy, large wage increases have been encouraged. Impact of Trade on Domestic Society While it is relatively straightforward to discuss the development of a society and the development of foreign trade, it is much more complicated to evaluate the impact of trade on domestic society. The theory of international trade tells us that trade should be positively linked to economic growth, for trade improves the efficiency of resource allocation. (This does not mean, of course, that trade alone is responsible for economic success.) However, the relationship of foreign trade with economic opportunity, and income distribution is by no means clear. One can cite more trade-oriented countries with better records of income distribution and welfare improvements than countries with closed economies. At the same time, there are many trade-oriented countries which have poor records of distribution, and observers often argue that foreign trade is a major cause of the problem. The writers of the ASEAN country papers in this volume share much of this tendency. Except for the paper on Singapore, which claims that trade has been the major cause of economic success in every respect, all the other ASEAN country studies have related foreign trade to their excellent record of economic growth, but blame it for having contributed to their income distribution problems. A closer look at the Singapore case reveals that trade has been a necessary factor for its economic success, but it was by no means sufficient. It was the appropriate combination of tax and welfare policies, together with free trade, which has turned Singapore from an ordinary seaport to a modern city-state. Other ASEAN countries have not had as good a record of income distribution

ASEAN-Japan Trade and Development: A Synthesis

21

as Singapore. The paper on Indonesia points out that trade has mostly benefited the people in the modern sector, while the majority of the people in the traditional sector remain in poverty. To a certain extent, a similar situation may be found in Thailand, Malaysia, and the Philippines. These countries have not had as effective policies to improve the distribution of economic benefit. It is believed that the governments of these countries could have done more to better distribute the benefits of trade and economic growth. Political scientists have argued that in the countries where there is inequitable distribution of power, the ones who are powerful tend to collude among themselves to share the fruits of economic growth, preventing the benefits from reaching the less privileged. The argument at times has been extended to include collusion between local and foreign elites, also to exploit the unfortunate. While some people believe that the standard of living of the majority of the people has deteriorated after two decades of solid economic growth in ASEAN, it is difficult to provide evidence to that effect. In fact, statistics show a reduction in the percentage of the people below the poverty line. The only valid argument may be that foreign trade should have contributed more to the overall welfare of the majority. Many people in ASEAN are critical of foreign trade in general, and of trade with Japan in particular, on the basis that trade entails exploitation. The papers on the individual ASEAN countries describe the concern of the ASEAN people about being dependent on Japan for the import of essential manufactured goods, not recognizing that Japan also depends on ASEAN for the import of essential raw materials and as a market for Japanese exports. The perception of dependence often leads to a conclusion that one is being exploited in the process. II. Current and Future Issues THE DOMESTIC SETTING

The Value of Trade The papers on the individual ASEAN countries discuss the value of trade between ASEAN and Japan as perceived by various groups within the region who are believed to have direct or indirect influence on trade policies. Generally, these people are government officials, businessmen, political or ideological groups, and academics.* The idea is that the way these people perceive the value of trade with Japan influences their actions either as policy-makers, business decision-makers, public opinion-makers or simply as consumers, which in turn influence trade policies and ultimately trade patterns. Generalizations about perceptions and their implications are difficult to make accurately. The teams from the various countries involved in the project used different techniques in studying people's perceptions of the value of trade,

• The order does not imply their level of importance.

22

Narongchai Akrasanee

ranging from a questionnaire survey by the Philippine team, a series of interviews by the Thai team, a survey of written materials by the Indonesian team, to observations by the Malaysian and Singaporean teams. Furthermore, while Thailand and Singapore adopted a similar system of grouping the people in terms of government officials, businessmen, and intellectuals, other country teams either did not group the people (Malaysia and the Philippines), or grouped them along ideological lines (Indonesia). Nevertheless, the information contained in the papers is adequate to make some generalizations about Southeast Asian perceptions of the value of trade with Japan. It is safe to say that among the ASEAN peoples, Singaporeans view trade most favourably, regardless of the trading partner. Groups in the Philippines have expressed reservations about trade with Japan. Thais and Malaysians are critical of trade with Japan at times. Finally, in Indonesia, "nationalists" tend to be strongly critical of trade with Japan, while other groups, including the armed forces, favour it. Government officials (including politicians and military officials) and businessmen generally have the strongest influence over trade matters. In general, these officials favour trade and do not discriminate against any particular country. The decision to buy and sell is, therefore, left very much to the businessmen, except in the case of some strategic commodities. One particular fact which should be noted is that ASEAN businessmen are traders first, and manufacturers second, or perhaps even third. Bankers are also closer to traders, for much of their business is derived from trading. Therefore, ASEAN businessmen generally favour trade and do not discriminate against any country. If they can realize more profit from buying and selling with Japan, they will trade with Japan. Businessmen can only sell the products the people want to buy. It is obvious that the people do not mind buying Japanese goods, regardless of their perceptions of the value of trade in general, and of trade with Japan in particular. As producers, ASEAN has surplus goods to sell, and obviously does not object to exporting their surpluses. Most of the country papers have, therefore, concluded, either implicitly or explicitly, that the general attitude towards trade will remain positive rather than negative. Trade Deficits and ASEAN-Japan Relations Consistent throughout all the ASEAN country papers is the finding that the trade deficit with Japan is a major issue in each country's relations with Japan. This is true even for the countries which have trade surpluses with Japan, that is, Indonesia and Malaysia. These countries contend that if oil and gas were excluded they might also suffer a serious trade deficit with Japan. (This is not true for Malaysia, however.) Since the export of oil and gas is viewed as an exception rather than a long-term comparative advantage, Indonesia and Malaysia consider that they have trade deficit problems with Japan as well, at least in the sense that they feel Japan should buy more from them. The problem of trade deficits is regarded as inherent in A SEAN-Japan trade relations. Several factors contributing to this problem are identified in

ASEAN-Japan Trade and Development: A Synthesis

23

the papers in this volume. Some of the factors may be grouped under technological and commercial practices. Japan has been extremely successful in her technological strategy, which may be described as scientifically progressive and commercially appealing. The result has been the continuous growth in demand for Japanese products in one form or another. All things considered, A SEAN, like anyone else, has found most Japanese products to be a ''better buy''. No one can, of course, complain about this aspect of the technological strategy. Rather, the complaint has been that Japanese firms are unwilling to transfer technology to their local counterparts and incorporate restrictive clauses regarding technology in joint-venture contracts, with the result being a continuation of import dependence on Japan. It is difficult to generalize about the "unfair" practices of Japanese firms with regard to technology. In all countries there has been a record of good as well as bad experiences, with bad experiences outnumbering the good ones. It has been reported that hard bargaining can produce an agreement more favourable to the local partners. The frustrating truth is that ASEAN businessmen are often unwilling to drive a hard bargain, for fear that the Japanese side will find a new partner. Worse still, most governments do not want to impose regulations on joint ventures, for fear of damaging the so-called "investment climate''. The complaints from A SEAN about these matters have often generated a familiar response from Japan, which is, "it is up to ASEAN". Another set of issues which is even more controversial in the debate on the trade deficit relates to commercial practices. ASEAN, again not unlike other countries, has found much difficulty in gaining access to the Japanese market. The familiar problems are pointed out in the country studies. Among them are the differential tariff rates for materials in raw form as against the processed form; quota restrictions, especially on tropical products; quality and quarantine restrictions; and price and order disruption. Japan, of course, denies these allegations of unfair practices, saying instead that ASEAN does not know how to sell to the Japanese market and has not tried hard enough. The Philippine paper argues that the Philippines has tried hard enough to export, as can be judged by the rapid growth of its exports of non-traditional products, but has not been able to penetrate much into the Japanese market. Some businessmen in Thailand have also confirmed that it is difficult to sell in the Japanese market. And since the products can be sold in other markets, they do not want to try harder to sell to Japan. An accumulation of such individual decisions can easily lead to an export shortfall and trade deficit. But the trade deficit is only part of the larger trade problem ASEAN feels it has with Japan, which is the perception that it is being taken advantage of by Japan in trade matters. Will this trade problem continue to be a major issue in ASEAN-Japan relations for many years to come? The answer from all the country papers is that it will, at least according to people's perceptions. The reason may be simply that people believe that the Japanese are much better equipped in production and trade, and that they will do anything to get the deal concluded their way. The Japanese participants in the project argue,

24

Narongchai Akrasanee

however, that Japan has changed greatly in recent years, that Japan is becoming more internationalized, and that because of the greater political role Japan is playing in global politics it has modified the nationalistic commercialism of the past. Most agree that an internationalization of Japan is taking place, but the ASEAN side generally feels that the process is unnecessarily long. How will the trade deficit problem affect the pattern of trade? The general answer is "not much". In other words, while ASEAN is complaining, it is likely to continue to buy from and sell mostly to Japan. The issue is really not about the pattern of trade, but rather about the nature and terms of relations between the two peoples who need to trade with each other. Apparently the ASEAN side is generally not happy with what they are getting. And if it is agreed that human relations ''matter'' in a business deal, then something should be done to improve the situation.

Anti-Japanese Movement The ASEAN study teams were asked to assess the anti-] apanese movement in the context of trade and development, presumably for the benefit of Japanese readers. Apparently, the memory of anti-Japanese movements of the early 1970s in some A SEAN countries is still bothering many Japanese. The findings of the country studies have been generally positive on this question. The anti-Japanese sentiment subsided in the late 1970s and early 1980s, and there is no "movement" against Japan. In fact, what has happened is quite the opposite in some ASEAN countries, where there is a "follow-Japan" movement. Singapore is most serious about it, and is trying to inject the "japanese way" into its educational system. The Prime Minister of Malaysia has recently urged his people to look to ] a pan and the Republic of Korea as development models. Indonesia is encouraging its people to be more efficiency-oriented, like the Japanese. Trading firms are being promoted in Thailand and Malaysia, modelled on Japanese trading firms. And companies everywhere have tried to introduce Japanese management methods, especially in the area of quality control, with satisfactory results. The continuous success story of Japan through a series of world economic crises has much to do with the change of attitude. New activities organized by Japan in non-economic and non-political fields have also contributed to a better understanding of Japan. It may be concluded that the major change of attitude towards ] a pan has been from seeing Japan as an economic animal to recognizing Japan as a country which has been very capable of managing its own economy, from which much can be learned. But this does not mean that Japan has become popular in ASEAN, rather that the "Japanese way" has become an object of considerable admiration and imitation. The result of such a change in attitude is the disappearance of the anti-Japanese movement. This change in attitude also implies that the timing is right for ASEAN and Japan to promote programmes of technology transfer and cultural exchange.

ASEAN-]apan Trade and Development: A Synthesis

25

THE EXTERNAL SETTI:'IIG

The country papers discuss external issues in three contexts: intra-ASEAN, intra-Pacific Basin, and global. In discussing these contexts the objective is similar, that is, to study how developments in each country will aflect its bilateral relations with Japan. The findings of each country study have been remarkably similar, with the basic conclusion that ASEAN's trade with Japan will continue to grow. The development of intra-ASEAN trade is discussed in each ASEAN country study. Most are of the opinion that intra-ASEAN trade will grow, but not proportionately larger than its extra-ASEAN trade. Efforts at trade liberalization among the A SEAN countries by means of preferential tariff reductions will contribute towards intra-ASEAN trade, but in the much longer term. Growing ASEAN business contacts, and the establishment of an institutional infrastructure will lead to closer economic co-operation and trade among the ASEAN countries, also in the longer run. In essence, the pattern of ASEAN trade will continue to be determined by its basic comparative advantage in resource-based and labour-intensive goods, which most member countries have in common. Trade by comparative advantage is realized especially because all the ASEAN countries follow trade-oriented policies, with only small concessions being given to the member countries. Even joint projects which are being undertaken are nut aiming only at domestic or ASEAN markets. It may therefore be concluded that the development of ASEAN economic co-operation will have a negligible effect on ASEAN's trade with Japan in the short run. It may even have a positive effect on the volume of trade if more joint ASEAN projects are realized, for it is likely that Japan will be the place from which capital goods for the projects are bought, and a potential market for the projects' output. The country studies also touch on the effect of the Pacific Basin's economic interdependence on ASEAN-Japan trade. As discussed in Section I, ASEAN's trade is mostly with the Pacific Basin countries, amounting to about 70 per cent of ASEAN's exports and 60 per cent of imports. (Oil from the Middle East accounts for much of the imports, especially of Thailand and the Philippines.) The significance of the Pacific trade ranges from 56 per cent for Singapore to 80 per cent for Indonesia. For all the ASEAN countries, it is expected that their Pacific trade will grow, at least at the rate of overall trade expansion. Since Japan is central to the development of the Pacific economy, it can be expected that Japan will benefit rn uch from the development as well as contribute to it. It can also be expected that the bilateral trade will become less relevant as an issue of trade relations. Of growing importance will be the multilateral pattern, involving at times more than three countries. For instance, trade between ASEAN and Japan is linked with trade between South Korea and the United States. While bilateral trade between ASEAN and Japan will continue to be more important than multilateral trade, the multilateral aspects of trade involving other Pacific Basin countries will need more attention from the authorities concerned than it is receiving at present.

26

Narongchai Akrawnee

The global economtc situation has been reviewed by the country studies, both in the short and long run. All recognize the slow-down in the world economy, especially in the United States and the European Economic Community, and the implications of this situation. The problems of most concern to ASEAN are the fall in demand and consequently the prices of primary commodities, and the growing resistance against imports of labour-intensive manufactured goods, in the production of which ASEAN has had a rather impressive record of performance. Results of the world economic recession are now showing in the balance-of-payments statistics of ASEAN. At the same time, competition in world trade is much keener than before. Some European countries have adopted a more aggressive sales drive in ASEAN. South Korea and Taiwan are also offering products at cut-rate prices (for example, petrochemicals and textiles). As far as trade between ASEAN and japan is concerned, the current world economic recession may result in Japan's losing a share of its ASEAN market. ASEAN is at the same time likely to demand greater access to the Japanese market because of the need to sell larger quantities to compensate for falling prices and more restrictions in other markets. As for long-term global issues, the ASEAN country papers discuss the world trade system, and express a view that Japan should have done more to create a better system. Some criticism is directed at results of the MTN (Multilateral Trade Negotiations) especially on issues relating to NTBs (non-tariff barriers), and problems in setting up international commodity agreements. Since Japan does not in principle agree to an internationally managed trading system other than the Tokyo Round, ASEAN will continue to find Japan reluctant in negotiations on these issues. The paper on Japan urges ASEAN and Japan to join hands to support an open world trading system.

III. Policy Recommendations In the decade of the 1980s, the ASEAN-Japan trade relationship is likely to continue along the basic direction that Japan imports essential raw materials from ASEAN in crude as well as semi-processed forms, while ASEAN buys from Japan more machinery and transport equipment. This will be the result of several major changes that are taking place. Firstly, the resource equation is continually changing in favour of ASEAN, a trend reinforced by Japan's policy of moving out of energy-intensive, resource-processing industries. Secondly, Japan will continue to be a wmld leader in technology and innovation, the key factor determining comparative advantage in the production of machinery and transport equipment. In the 1980s, ASEAN expects to follow a trade-oriented policy even more vigorously. This means that in addition to selling raw materials, ASEAN is also interested in exporting processed foods and basic manufactures, although these are areas where ASEAN has had only limited success in developing a J apanesc market. The key trade issues in ASEAN-Japan relations in the 1980s are, therefore, the terms on which raw materials are traded, and market access for agricultural

ASEAN-japan Trade and Development: A Synthes1s

27

products and basic manufactures. To elaborate, Japan is becoming directly involved in the development of ASEAN's raw materials for export - for example, copper smelting in the Philippines, aluminium smelting and wood processing in Indonesia, and LNG (liquefied natural gas) production in Indonesia and Malaysia. The process will involve issues of investment terms, prices, technology, and so forth, all of which are sensitive issues for both sides. As for the issue of market access for agricultural products and basic manufactures, ASEAN considers it crucial to its export-oriented development strategy, while Japan has its own political reasons and institutional factors which continue to make imports of these products into Japan more difficult than ASEAN considers reasonable. It should be noted that ASEAN is demanding better access not only to the Japanese market but also to the markets of other OECD (Organization for Economic Co-operation and Development) countries. While most of the issues described above will be between Japan and individual ASEA01 countries, they may be considered common issues requiring a similar set of solutions. Policy recommendations made in the papers in this volume are focused mostly on these issues.

Public Sector The terms on which ASEAN's raw materials are developed and traded with Japan, which inevitably involve the Japanese Government, should be made fully known to the public in both Japan and the ASEAN countries. The latter expect technical and financial assistance from Japan in their development. Japan should try its best to reduce tariff and non-tariff barriers on agricultural products and basic manufactures. If, for political reasons, barriers cannot be eliminated in the short run, explanations should be given, including, perhaps, a statement regarding Japan's ultimate free-market objectives and when and how these will be achieved. In the case of some institutional barriers such as quarantine requirements, Japan should assist the ASEAN countries on how to technologically overcome these barriers . .Japan's recently announced assistance to Thailand in quality testing for export is a move in that direction . .Japan is also faced with barriers against its exports in several advanced countries. A SEAN, therefore, should assist .Japan in the fight against protectionism in the world economy. ASEAN and Japan should include in their formal dialogue, which has been established, the sharing of information on trade and development policies and programmes. The compilation and exchange of such information should be institutionalized and carried out on a regular basis. A SEAN and .Japan should promote study and exchange programmes on the economic development of both sides. While .Japan is expected to provide more funds for these programmes, the ASEAN countries are also in a position to support visits of .Japanese students and scholars. Government Bilateral and Regional Institutions There is at present no government bilateral institution between .Japan and each A SEAN country. The ASEAN country papers have treated ASEAN as

28

Narongchai Akrasanee

a regional institution, and have made recommendations on that basis. ASEAN is seen to have an important role to play in strengthening the relations between the countries of the Association and Japan. The member countries want to use ASEAN in political and economic negotiations with Japan, believing that it carries more weight. Japan also finds certain merits in dealing with ASEAN as a group, for at least it "saves time for Japanese officials who have had to repeat explanations on the technical intricacies involved in policy changes to five different ASEAN countries". The problem in dealing with ASEAN as an institution is that it has very few facilities for technical input. In preparing for a dialogue with third countries ASEAN has to rely very much on the member countries. Thus, if ASEAN is to be relied upon as an institution, it has to strengthen itself first in terms of technical support. Beyond ASEAN and Japan, the country papers also discuss the Pacific Basin as a region. While there is no formal institution like ASEAN for the Pacific region, the need for one is felt by all the country teams. This is because of the high degree of intra-Pacific Basin trade, and the extent of ASEAN's involvement in it. The changes which are taking place in ASEAN and Japan in connection with the relocation of industries and processing activities would directly affect the pattern of trade in the Pacific Basin, thus involving other countries. But how the Pacific-wide economic negotiations should be carried out is unclear. The membership question is the most difficult one. One possibility is to organize groups of individuals in the form of task forces and a commission. For example, it has been proposed that there be task forces on trade, investment, and so on, which could be linked perhaps by a Pacific Commission. Countries in the Pacific may choose to host the activities of the different task forces, preferably with the government of that country providing financial and other support. Beyond the Pacific region, the country papers discuss the roles of larger regional and global institutions. Most do not seem to expect much from these institutions. The move for a New International Economic Order is attracting much less interest now, partly because of the world economic recession. Perhaps the most promising global trade development in recent years is the conclusion of tariff reductions and several codes on non -tariff barriers in the MTN under the General Agreement on Tariffs and Trade (GATT). While ASEAN has not expressed much enthusiasm, a close study of these achievements will reveal that the ASEAN countries as members of the GATT can derive much benefit from the GATT framework. Negotiations on trade problems through the GATT can also prevent the parties concerned from being too bilateral.

Private Sector Except for certain strategic commodities, trade between the ASEAN countries and Japan is carried out mostly by the private sectors on both sides because of the "free enterprise" economic system followed by these countries. Some of the trade problems could, therefore, be solved by the private sectors. The country studies refer to the distribution system in Japan as being the most

ASEAN-Japan Trade and Development: A Synthesis

29

serious barrier to market access. The recommendation made to the ASEAN traders (by the Japanese) is that they should try harder. It is also argued that distributors in Japan will buy frnrn sources which are more profitable for them. It is, therefore, important for ASEAN traders to know how to sell to Japan. In this connection, it is recommended that the Kcidanrcn in japan, in collaboration with the national chambers of commerce and industry, or other trade associations in ASEAN, organize a programme of training and seminars, including field visits, on how to trade with Japan. Participating companies in the programme can share the costs involved. Some of these activities have been organized by UNCTAD (United Nations Conference on Trade and Development) the ITC (International Tin Council), but much remains to be done. It should be pointed out that collaboration between companies in the ASEAN region and japan in business ventures has often led to exports to japan. But this should not be a prerequisite. Additional Research Bearing in mind that major trade issues between A SEAN and japan in the 1980s will focus on the terms on which raw materials are traded and market access, especially for agricultural products, research on these areas should be of interest to both sides. Some possible topics for additional research are: 1. Resource-based industrialization in ASEAN and implications for ASEANJapan trade. 2. Industrial restructuring in japan and its impact on ASEAN's trade and industrialization (studies can be on a subsector-by-subsector basis). 3. Effect of world economic recession on Japanese demand for ASEAN raw materials. 4. The trading system for agricultural products and basic manufactures m Japan. 5. The political economy of tariff and non-tariff barriers in japan. 6. Export promotion (of manufactures) in ASEAN and the potential Japanese market in manufactures. 7. ASEAN -Japan and the changing multilateral pattern of trade in the Pacific Basin.

APPENDIX 1 ASEAN's Exports to Japan, by ASEAN Countries, 1972/73 and 1979/80 (In million US$)

62 (2.50)

254 ( 1.4)

12 (0.9)

6 (0.1)

5. Chemicals

12 (0.5)

74 (0.4)

I (0.1)

11

6. Basic Manufactures

81 (3.2)

593 (3.2)

30 (2.3)

149 (1.4)

471 (20.3)

7. Machinery & Transport Equipment

19 (0.8)

113 (0.6)

3 (0.2)

6 (0.1)

44 (1.9)

2.0 (0.1)

101 (0.5)

0.2 (0 OJ

4 (0.0)

58 (2.5)

275 (2.5)

(0 2)

22 (0.7)

8 (0.3) 2,373 (95.2) 114 (4.6) 2,494 (100.0)

37 (0.2) 17,836 (95.1) 661 (47) 18,754 (100.0)

I (0.1) 1,270 (97.3) 34 (2.6) I ,305 (100.0)

5 (0.0) 10,806 (98.4) 170 (1.6) 10,981 (100.0)

16 (0.7) 1,702 (73 6) 594 (2.1. 7) 2,313 (100.0)

67 (0.6) 7,996 (722) 3,013 (27 2) 11,076.6 (tOO 0)

I (0.3) 295 (71.6) 116 (28.2) 411.5 (100.0)

8 (0.2) 2,944 (87 .5) 412 (12.3) :J,364 (100.0)

8. Miscellaneous

~fanufactured

9. Goods Nut Cla.sified

(G to 4) Primary (5 to 8) Manufactures (0 to 9) Total

Goods

1,161

SouRcE: United Nations, fOreign Trade Statisttcs of Asia mt.d the Pacific, various issues; OECD, S!atistiD of FOreign Trade by Commodities, 1.979-80

1

1

~

r the 1980s". Mimeographed. Tokyo: Japan Center f(>r International Exchange, May 1982.

Indonesia-Japan Trade Relations

Dorodjatun Kungoro-Jakti Prijono Tjiptoherijanto In its public report of January 1981, the Japanese Embassy in Indonesia stated glowingly that: 1) Indonesia plays a strategic role in the continuation of ASEAN-japan co-operation; and 2) japan is Indonesia's strongest counterpart in its development effort to create national resiliency. More importantly, the report also stated: "Parallel to the growing close co-operation in the economic field between Japan and Indonesia, it is expected that japan will increase its political role, in particular in view of the growing solidarity among ASEAN countries, the changes in the Indochinese peninsula, and the growing role of japan in international relation''. 1 A close look at the economic data of the last decade will reveal, however, that this relationship is increasingly marked by a growing dependency of Indonesia on the economy of Japan and to some extent on economic decisions made in Japan, while japan is becoming less dependent on Indonesia, or on any other ASEAN country for that matter. As was recognized by japanese observers, in the emerging patterns of economic interdependence a vertical division of labour appeared among japan, the NICs (newly industrializing countries of South Korea, Taiwan, Singapore, and Hong Kong'), and the other four ASEAN (Association of Southeast Asian Nations) countries - Indonesia, Thailand, Philippines, and Malaysia. As the most industrialized country in Asia, Japan is occupying the top anchoring role, frequently forcing the economies of the NICs, which occupy the middle positions, and the economies of the ASEAN countries, which occupy the bottom positions, to adjust to its logic of industrialization and trade relationship. 2 Despite the assurances that such a division of labour does not necessarily lead to an irritating situation, in which japan's economy plays an increasingly strategic pace-making role for the rest of Asia, while Japan becomes less and less dependent on the Asian economies, the fact remains that many of the

I Embassy of Japan, "Hubungan lndonesia-Jepang" [Indonesia-Japan Relations] (Pamphlet, Jakarta, January 1981), pp. 1-3. 2 See Toshio Watanabe, "An Analysis of Economic Interdependence among the Asian NICs, the ASEAN Nations, and Japan", The Developing Economies 18, No. 4 (December 1980); and Seiichi Nakajo, "Japanese Direct Investment in Asian Newly Industrializing Countries and Intra-Firm Division of Labour", The Developing Economies 18, No. 4 (December 1980).

38

Dorodjatun Kuntjoro-Jakti and Prij'ono Tjiptoherijanto

Asian countries are deeply sceptical. Hence, the appearance of the recurring waves of economic nationalism in some of the industrializing Asian countries, frequently directed against Japan. Such an assurance needs a demonstrable willingness on the part of Japan to co-ordinate its trade activities with its direct investments and aid programmes in many of the Asian economies. This study will demonstrate, using the case of Indonesia's trade with Japan, that such a co-ordination is very much needed. I. Indonesia-Japan Trade Relations In no other case is the dominating role of Japan in the Indonesian economy more apparent than in Indonesia's foreign trade. During the whole period of 1969-78, Indonesia's exports to Japan never reached a proportion lower than 30.0 per cent, while a high proportion was reached twice during the period that is, 53.2 per cent in 1973 and 53.4 per cent in 1974 (see Table 1). The

TABLE I Exports of Indonesia to Selected Countries of Destination, 1969-78

Year

Japan

USA

ASEAN

EEC

Australia

COMECON

P.o. b. Value (US$ million)

1969 1970 1971 1972 1973

255.9 452.3 550.4 901.8 1,707.4

128.8 144.3 192.4 265.3 465.3

186.3 286.4 208.3 172.8 377.6

137.6 168.4 179.4 241.5 330.9

61.3 36.1 15.9 13.8 16.6

18.8 26.3 13.0 12.5 15.5

1974 1975 1976 1977 1978

3,969.3 3,131.8 3,564.3 4,360.8 4,565.5

1,580.3 1 ,865. 5 2,452.0 3,011.4 2,962.2

641.0 732.1 758.2 1,154.9 1,477.9

390.7 404.7 617.8 919.3 873.9

23.8 20.6 31.2 60.5 106.9

39.7 37.5 49.1 61.1 94.8

Percentage of Total Export

1969 1970 1971 1972 1973

30.0 40.8 44.6 50.7 53.2

15.1 13.0 15.6 14.9 14.5

21.8 25.8 16.7 9.7 11.8

16.1 15.2 14.5 13.6 10.3

7.2 3.3 1.3 0.8 0.5

2.2 2.4 1.1 0.7 0.5

1974 1975 1976 1977 1978

53.4 44.1 41.7 40.2 39.2

21.3 26.3 28.7 27.7 25.4

8.6 10.3 8.9 10.6 12.7

5.3 5.7 7.2 8.5 7.5

0.3 0.3 0.4 0.6 0.9

0.5 0.5 0.6 0.6 0.8

SouRCE: Biro Pusat Statistik (BPS).

39

Indonesia-Japan Trade Relations

United States managed to increase its share of Indonesia's exports during that time, from a level of 15.1 per cent in 1969 to 25.4 per cent in 1978, and reaching a peak of 28.7 per cent in 1976. ASEAN's share moved rather erratically and with a slowly declining trend, while that of the EEC (European Economic Community) showed a clear drop between the levels reached in the period 1969-73 and 1974-78. In comparison with the last three, it is clear that Japan has managed to hold on to its number-one, dominating position throughout the period, and was able to increase its procurements in Indonesia from a low total value of US$255.9 million in 1969 to a high US$4,565.5 million in 1978. A check into the IMF (International Monetary Fund) export figures for Indonesia shows that Japan's position in 1979 remained strong, that is, at a level of 46 per cent of the total export value of that year, while those of the U.S., ASEAN, and the EEC remained trailing behind (see Table 2). The U.S. thus remained as the number-two trade partner of Indonesia, followed by ASEAN and the EEC. As can be seen from Tables 2 and 3, however, it is clear that the ASEANIndonesia trade relationship is dominated by Singapore with its obvious transit role for the region as well as for the wider international market, particularly

TABLE 2 Indonesia: Geographical Distribution of Exports, 1977-79 (In percentages of total value of exports) 1977

1978

1979

Japan

40

39

46

ASEAN countries of which: Singapore

11

13

17

(9)

(11)

( 13)

United States

28

25

20

9

8

8

(1) (2) (3) (1)

(1) (2) (3) (1)

(1) (2) (3) (1)

11

14

11

100

100

100

European Communities of which: France Germany Netherlands United Kingdom Australia Others Total

SouRCE: Based on data from International Monetary Fund (IMF), Direction of Trade Statistics, various issues.

40

Dorodjatun Kuntjoro-}akti and Prijono Tjiptoherijanlo

TABLE 3 Exports of Indonesia to Other ASEAN Member Countries, 1969-78 (In million US$) Year

Malaysia

Philippines

1969 1970 1971 1972 1973

2.1 88.7 21.1 30.6 34.3

25.4 25.6 26.0 8.0 1.2

147.1 171.9 160.8 133.7 341.0

11.7 0.2 0.4 0.5 1.1

186.3 286.4 208.3 172.8 377.6

1974 1975 1976 1977 1978

72.0 64.4 22.5 20.8 21.0

2.4 31.7 90.0 126.0 197.9

558.4 632.7 643.9 1,003.6 1,241.0

8.2 3.3 1.8 4.5 18.0

641.0 732.1 758.2 1,154.9 1,477.9

Singapore

Thailand

Total

SouRCE: BPS.

Japan, the U.S., and the EEC. As such, in terms of exports, Indonesia's trade with ASEAN is in fact rather limited and much overshadowed by Indonesia's trade with Japan, the U.S., and the EEC -the highly industrialized areas of the world. The situation looks strikingly different if seen from the point of view of Japan's economy. As indicated by many observers, the overwhelming role of Japan in Indonesia's export trade is practically unmatched by Indonesia's share in Japan's imports. As acknowledged also by the Embassy of Japan in Jakarta, in 1979 Indonesia's exports represented only around 8 per cent of Japan's total imports of that year. As can be seen from Table 4, this represents only a slight improvement, of no importance in real terms, over the proportion noted in 19 74, when for the first time, due to the drastic rise in OPEC (Organization of Petroleum Exporting Countries) oil prices, the share of Indonesia's exports in Japan's imports rose to 7.6 per cent from the low level of 3-4 per cent in the period 1970-73. The share of Indonesia's oil export (Mineral Fuels & Lubricants) to Japan, as a matter of fact, never went below the high proportion of 79 per cent for the whole period of 1974-79, after the oil crisis of 1973. As can be seen from Table 5, the next item of importance in Indonesia's exports to Japan, that is, "Crude Materials, Inedible" - which includes a sizable proportion of log exports - never reached a higher level than 15 per cent plus. It is clear, therefore, that although Japan's economy grew in importance to Indonesia's exports, Indonesia's role in Japan's imports barely changed and remained at a low level. Worse still, the sensitive position of Indonesia's exports vis-a-vis Japan's economy was made even more critical by the unfortunate structural feature of Indonesia's exports to Japan, that is, it is heavily

41

Indonesia-Japan Trade Relations

TABLE 4 The Role of Indonesia's Exports in Japan's Total Imports, 1969-79 (In million US$ and per cent)

Year

Indonesia's Exports to Japan (1)

Japan's Total Imports (2)

(1)/(2) (%)

1969 1970 1971 1972 1973 1974: 1975 1976 1977 1978 1979

397 637 854 1,301 2,219 4,569 3,430 4,096 5,033 5,284 8,725

15,026 18,881 19,721 38,449 60,109 62,100 57,839 64,895 71,240 79,910 109,815

2.6 3.3 4.3 3.6 3.6 7.6 5.9 6.3 7.1 6.6 7.9

SoURCE: IMF, Direction of Trade Statistics, various issues.

TABLE 5 Indonesia's Exports to Japan, 1975-79 (In million US$)

SITC Group Food & Live Animals Beverages & Tobacco Crude Materials (Inedible) Mineral Fuels & Lubricants Animal & Vegetable Oils Chemicals Manufactured Goods Machinery & Transport Equipment 8. :Miscellaneous Manufactured Articles 9. Commodities & Transaction, n.e.s.

0. 1. 2. 3. 4. 5. 6. 7.

Total Note: n.e.s.

1975

1976

1977

1978

1979

82.34 0.1 387.5 2,599.6 20.5 1.9 28.1

133.6 1.0 549.9 2,845.7 11.4 4.7 14.4

166.3 1.5 594.6 3,505.2 5.9 5.0 77.0

195.7 0.8 589.7 3,672.5 4.9 4.4 94.4

261.6 1.6 1,110.2 5,700.5 3.2 3.8 105.6

0.4

0.2

1.5

1.8

1.1

4.1

2.9

3.4

3.3

4.0

0.1

0.3

0.3

0.8

0.7

3,151.6

3,564.1

4,360.7

4,568.3

7,192.3

not elsewhere specified.

SouRcE: BPS, Export by Commodity, Country of Destination and Port of Export, 1975-79.

42

Dorodjatun Kuntjoro-jakti and Prijono Tjiptoherijanto

concentrated on a limited number of export commodities, in particular "Mineral Fuels & Lubricants''. The prospect for correcting this critical structural defect is quite remote, as can be seen by the insignificant role played by the export of industrial goods, such as ''Manufactured Goods'', ''Machinery and Transport Equipment'', and ''Miscellaneous Manufactured Articles'', which for the whole period of 1975-79 remained at the exceedingly low level of below 2 per cent. A closer look at TableS 5 and 6 reveals another fact of disturbing importance to the Indonesian economy in general, and Indonesia-Japan trade relationship in particular. It is evident from the data on Indonesia's oil exports and

TABLE 6 Indonesia: Export of Petroleum and Its Products, 1969-78

Petroleum Exports Year

Crude

Petroleum Products

Total

Total Exports

Rate of Petroleum (%)

Fo.b. Vt:tlue (US$ mzllion) 1969 1970 1971 1972 1973

333.0 408.5 441.4 833.6 1,332.5

49.9 37.8 36.5 79.5 226.2

382.9 446.3 477.9 913.1 1,608.1

853.7 1,108.1 1,233.6 1,777.7 3,210.8

44.85 40.28 38.74 51.36 50.24

1974 1975 1976 1977 1978

4,680.3 4,933.1 5,652.1 6,826.5 7,014.6

541.1 377.: 352.1 471.4 423.9

5,221.4 5,310.8 6,004.1 7,297.9 7,438.5

7,426.3 7,102.5 8,546.5 10,852.6 11,643.2

70.31 74.77 70.25 67.25 63.39

Gross a Weight (million kgs) 1969 1970 1971 1972 1973

25,504.6 31,038.4 34,022.4 40,706.6 49,438.1

4,098.3 3,163.5 2,664.2 4,349.8 8,126.6

29,602.9 34,201.9 36,686.6 45,056.4 57,564.7

35,268.2 44,094.3 49,701.7 61,186.1 77,762.9

83.94 77.57 73.81 73.64 74.03

1974 1975 1976 1977 1978

54,634.8 52,412.0 59,267.5 68,030.2 69,560.2

5,688.1 4,320.5 4,134.4 5,260.4 4,566.5

60,322.9 56,732.5 63,401.9 73,290.6 74,116.7

80,891.5 73,215.1 83,722.3 95,302.4 101,267.2

74.57 77.49 75.73 76.30 73.19

Note: In net weight from 1975 to 1978.

a

SouRcE: BPS.

43

Indonesia-Japan Trade Relations

Japan's share in it, that while the share of Indonesia's oil exports in its total exports rose from the moderate level of 44.8 per cent in 1969 to a high of 74. 8 per cent in 1975, and then to 63.9 per cent in 1978, Japan's share in it remained stagnant at around 4 7-49 per cent of Indonesia's total oil exports for the period 1975-78. This indicates a well-known fact, that Japan has managed throughout the period to maintain a diversification of its oil import sources among various OPEC and non-OPEC countries, and thus avoid too strong a dependency on a single source. Indonesia's position vis-a-vis Japan, on the other hand, remains as vulnerable as ever, as it is unable to diversify either its export commodities or its buyers, while Indonesia's lifeline is becoming too dependent on Japan's willingness to buy Indonesia's oil. The picture of Indonesia-Japan trade relations is similarly gloomy for the Indonesian side, if seen from its imports. Table 7 shows that about 30.14 per

TABLE 7 Indonesia: Imports by Country/Region of Origin, 1969-78

Country/Region of Origin Year

Japan

USA

A SEAN

EEC

Rest of the World

Other

Value (US$ mlllzon)

1969 1970 1971 1972 1973

225.9 294.5 .)li 1.9 531.8 799.7

154.2 178.5 174.1 242.9 512.6

35.2 75.8 86.8 146.3 237.9

160.8 219.3 236.3 299.4 482.7

184.6 233.4 243.7 341.3 696.2

780.7 1,001.5 1,102.8 1,561.7 2,729.1

1974 1975 1976 1977 1978

1' 131.0 1,477.4 1,485.4 1,1i89 0 2,016.4

609.8 670.0 987.8 777.3 832.2

31i0.0 412.1 791.5 889.2 651.9

743.2 885.2 1,204.1 1,296.0 1,267.5

997.9 1,525.1 1,204.3 1,578.8 1,922.4

3,841.9 4,769.8 5,578.1 6,230.3 6,690.4

Percentage of Total Import

1969 1970 1971 1972 1973

28.93 29.41 32.82 34.05 29.30

19.75 17.82 15.79 15.55 18.78

7.07 7.59 7.87 9.37 8. 72

20.60 21.90 21.43 19.17 17.69

23.65 23.30 22.09 21.86 25.51

100.0 100.0 1000 100.0 100.0

1974 1975 1976 1977 1978

29.44 30.97 26.18 27.11 30.14

15.87 14.05 17.41 12.48 12.44

9.37 8.64 13.95 14.27 9. 74

19.35 18.56 21.22 20.80 18.95

25.97 27.78 21.24 25.34 28.77

100.0 100.0 100.0 100.0 100.0

SouRcE: BPS.

44

Dorodfatun

Kuntioro~Jakti

and Pri)ono 7}z/Jtoherifanto

cent of Indonesia's imports in 1978 came from Japan - a high proportion in comparison with the share of the U.S., the EEC, and ASEAN. Throughout the period 1969-78, Japan's role in Indonesia's imports, as a matter of fact, did not change much, except in 1972 when it rose to a new high of 34.05 per cent. However, the value of japan's exports to Indonesia has rapidly and persistently increased from a low level of US$225.9 million in 1969 to a high of US$2.0 billion, indicating Indonesia's increasing need for imports from japan especially of capital goods and industrial raw materials. The situation in 1976 barely changed from what we have seen for the whole period of 1969-78 (see Table 8). japan remained as the number-one trading partner of Indonesia, as seen from its import side, followed successively by the EEC, the U.S., and ASEAN, with the EEC and the U.S. vying as ever for the second position. As in the case of its exports, in its imports Indonesia was also shown as unable to radically diversify its sources. Indonesia is thus also highly dependent upon Japan, the U.S., and the EEC, for its imports. The trend is, however, justifiable, in view of Indonesia's increasing need for capital goods and industrial raw materials, for which Japan, the U.S. and the EEC together represent one of the most sought after suppliers in the world market. As can be seen TABLE 8 Indonesia: Geographical Distribution of Imports, 1977-79 (In percentages of total value of imports)

1977

1978

1979

Japan

27

30

29

ASEAN countries of which: Singapore Thailand

14

10

12

(9) (5)

(7) (2)

(8) (3)

United States

12

12

14

European Communities of which: France Germany Netherlands U nitcd Kingdom

21

19

15

(3) (8) (4) (4)

(3) (9) (2) (3)

(2) (6) (2) (3)

3

3

3

23

26

27

100

100

100

Australia Others Total

SouRcE: Based on data from IMF, Direction of Trade Statistics, vanous Issues.

45

Indonesia-Japan Trade Relations

from Table 9, Indonesia's imports of both types of goods rose from a low total value of US$559.8 million in 1969 to a high of US$5.5 billion in 1978. As a proportion, Indonesia's import of consumption goods thus declined from 28.30 per cent in 1969 to only 17.88 per cent in 1978, with the lowest noted in 1975 when the level went down to 14.20 per cent. The strong dependency of Indonesia's economy on imports from Japan, in particular the import of capital goods and industrial raw materials, can be gauged from the following facts (see Table 9 and the following Table 10): 3 1. For the whole period of 1974-78 - the period of the Second Five-Year Plan (Repelita II) - an average of about 64 per cent of Indonesia's

TABLE 9 Indonesia: Imports by Commodity Groups, 1969.-78

Year

Consumption Goods

Raw Materials

Capital Goods

Total

1969 1970 1971 1972 1973

220.9 251.1 210.2 251.8 648.7

321.0 376.5 428.0 597.7 973.2

238.8 373.9 464.6 712.2 1,107.2

780.7 1,001.5 1,102.8 1,561.7 1,729.1

1974 1975 1976 1977 1978

707.0 677.5 915.9 1,104.6 1,196.6

1,582.2 1,961.1 2,024.1 2,452.5 2,664.5

1,552.6 2,131.2 2, 738.1 2,673.2 2,829.3

3,841.9 4,769.8 5,678.1 6,230.3 6,690.4

Percentage to Total Import Volume

1969 1970 1971 1972 1973

28.30 25.07 19.06 16.12 23.77

41.12 37.59 38.81 38.27 35.66

30.59 37.33 42.13 45.60 40.57

100.0 100.0 100.0 100.0 100.0

1974 1975 1976 1977 1978

18.40 14.20 16.14 17.73 17.88

44.19 41.11 35.68 39.36 39.83

40.41 44.68 48.18 42.91 42.29

100.0 100.0 100.0 100.0 100.0

SouRcE: BPS.

3 As can be seen from Table 10, Japan's export of capital goods to Indonesia consists primarily of the item "Machinery & Transport Equipment", while industrial raw materials approximate the total of "Crude Materials, Inedible", "Mineral Fuels & Lubricants", and "Chemicals". Indonesia's total import of capital goods and industrial raw materials can be seen in Table 9.

~

TABLE 10 Indonesia's Imports from Japan, 1973-79 (In million US$)

SITC 0. 1. 2. 3. 4. 5. 6. 7. 8. 9.

Food & Live Animals Beverages & Tobacco Crude Materials (Inedible) Mineral Fuels & Lubricants Animal & Vegetable Oils Chemicals Manufactured Goods Machinery & Transport Equipment Miscellaneous Manufactured Articles Commodities & Transaction, n.e.s.

Total

1973

1974

1975

1976

1977

1978

1979

61.1 0.06 16.7 1.9 0.6 91.3 297.2 312.4 18.2 0.0

30.8 0.1 35.9 10.3 1.3 163.5 384.3 476.8 25.6 0.02

11.7 0.2 30.6 6.2 0.3 203.6 433.2 698.1 29.1 0.03

9.8 0.4 33.4 9.0 0.6 200.4 509.1 674.0 46.7 0.04

10.4 0.3 40.4 11.3 0.9 231.5 524.1 811.2 59.4 0.2

37.9 0.4 36.3 10.3 2.1 265.4 553.1 73.9 0.3

31.0 0.2 52.0 9.0 2.9 331.9 616.1 969.7 69.5 0.5

799.46

1,128.62

1,413.03

1,483.44

1 ,689. 7

2,016.3

2,082.8

SoURCE: BPS, Import by Commodity, Country qf Destination and Port qf Export, 1975-79.

1,036.6

b

"

"

~ ~

""

~

" """"c·

"

..

~ "~

?': (j

Q ~

~

Malaysia-Japan Trade: Issues and Prospects for the 1980s

63

of the government in successive Malaysia Plans. 6 On the other hand, the declining significance of processed food (SITC 1) (from 20.5 per cent in 1970 to 12.4 per cent in 1980) and of manufactured goods (SITC 6) (with a reduction in share from 18.0 to 17.5 per cent) is the consequence of successful import substitution over the period. This success is based on the gradual reduction of the cost disadvantage of locally produced goods vis-a-vis imports through economies of scale and high tariff barriers. 7 Of the remaining commodity groups, "Mineral Fuel" took up a fairly constant share of total imports, while "Chemicals" accounted for another 10.5 per cent in 1980. Trade with Japan Looking at the direction of trade, the major part of Malaysia's trade is with four countries or country groups (Table 4). Of these, the European Economic Community (EEC) is the most important both in terms of exports and imports. In 1970, 20 per cent of exports and 24.9 per cent of imports were accounted for by this group. The importance of the United States as a major destination of Malaysian exports increased between 1970 and 1980, and its share of total exports moved up from 13.0 to 18.0 per cent over this period. Exports to Japan were valued at M$5,960 million in 1980, or 21.4 per cent of total exports in that year. As with the United States, this share was higher than that in 1970. These increases in shares were at the expense of Singapore, whose share of exports was eroded from 21.6 per cent in 1970 to 18.0 per cent in 1980. This put Singapore in third position with the United States, and behind the EEC and Japan. Together, these four countries/country groups accounted for some 77 per cent of the total value of the country's exports. In the case of imports, the EEC accounted for 24.9 per cent of the total in 1970, with japan having a share of 17.5 per cent. Imports from both the U.S. and the "rest of ASEAN" (that is, ASEAN without Singapore) represented only 8 per cent of the total, while the share of Singapore was 7. 5 per cent. By 1980, however, this picture had changed, with Japan having overtaken the EEC as the leader. With goods valued at M$4,830 million, its share of 22.0 per cent was considerably above the 16.0 per cent share of the EEC. Both the U.S. and Singapore also increased their shares, so that the four countries/ country groups taken together accounted for 62.5 per cent of total imports in 1980, an increase from the share of 51.5 per cent in 1970. Table 4 is also interesting from the point of view of intra-ASEAN economic co-operation in that it shows the dominance of Singapore. Besides Singapore, however, Malaysia's trade with the rest of ASEAN has, despite much publicity

6 Since the inception of Malaysia, three Five-Year Development Plans have been implemented. They are the First Malaysia Plan, 1966-70; Second Malaysia Plan, 1970-75; and Third Malaysia Plan, 1975-80. Total development expenditures for each plan are M$4,242 million, M$9,821 million, and M$18,555 million, respectively. 7 For a history of the escalation of tariffs, see Young et al., op. cit., pp. 185-94; and L. Hoffman and Tan S. E., industrial Growth, Employment and Foreign Investment in Peninsular Malaysia (Kuala Lumpur: Oxford University Press, 1980).

64

Zakaria Haji Ahmad and K C. Cheong

TABLE 4 Malaysia: Direction of Trade, 1970-80 Value (M$ million)

% Share

Country

1970

1974

1978

1980*

1970

1980*

Exports to: USA EEC Japan Singapore Rest of ASEAN Rest of the World

671 1,035 944 1,113 167 1,233

1,430 2,163 1, 719 2,208 231 2,444

3,183 3,133 3,703 2, 762 410 3,903

5,013 6,406 5,960 5,013 832 4,628

13.0 20.0 18.3 21.6 3.2 25.9

18.0 23.0 21.4 19.0 3.0 19.6

Total

5,163

10,195

17,094

27,094

100.0

100.0

Imports from: USA EEC Japan Singapore Rest of ASEAN Rest of the World

368 1,068 749 320 365 1 '718

983 2,097 2,204 820 627 3,160

1,903 2,400 3,169 1,167 789 4,132

3,075 3,515 4,830 2,306 1,204 7,036

0.6 24.9 17.5 7.5 8.5 40.0

14.0 15.0 22.0 10.5 5.5 32.0

Total

4,288

9,891

13,690

21,966

100.0

100.0

* Estimated. SouRCE: Malaysia, The Treasury, Economic Report, 1974/75 to 1980/81.

about increasing co-operation in trade, shown a decreasing trend over· the last decade. This development is not totally unexpected, and simply reflects structural changes within the economy which tend to direct trade towards the supply of capital and intermediate goods. This matter will be discussed in greater detail when the effects of intra-ASEAN trade on trade with Japan is analysed. A close look at the history of trade between Malaysia and Japan will reveal that several features form the basis of the relationship. The fact that Malaysia is a major producer of primary commodities demanded by industries in Japan, and that in return Japanese manufactured goods have a ready market in Malaysia is the first and most important. The strategic importance of the Straits of Malacca for Japan is the next, while the geographically insular nature of the two countries also encourages trade. 8 Table 5 shows that crude materials accounted for 42.0 per cent of the total exports of Malaysia to Japan in 1970, this share being 50.6 per cent in 1978. Table 6 shows that tin, valued at M$458.1 million, was the most important 8 See, for instance, LeeS. A., "ASEAN-Japan Economic Relations in the World Economy: the ASEAN Perspective", ASEAN Business Quarterly (First quarter, 1979), pp. 20-23.

65

Malaysia-Japan Trade: Issues and Prospects for the 1980s

TABLE 5 Peninsular Malaysia: Composition of Total Trade and Trade with Japan, 1970-78 (In per cent)

1978

1970 Exports/Imports Exports food, Beverages, & Tobacco Crude Materials (Inedible) Mineral Fuels Animal & Vegetable Oils & Fats Chemicals Manufactured Goods Machinery & Transport Equipment Manufactured Articles Miscellaneous Total Imports Food, Beverages, & Tobacco Crude Materials (Inedible) Mineral Fuels Animal & Vegetable Oils & Fats Chemicals Manufactured Goods Machinery & Transport Equipment Manufactured Articles Miscellaneous Total

Japan

Total

Japan

Total

5.5 42.0 0.2

6.9 50.0 1.3 6.9 1.4 28.5 2.1 1.6 1.1

4.4 50.6 14.5 8.8 0.6 11.3 4.7 2.3 0.7

7.0 31.7 4.1 14.1 1.6 21.4 14.9 4.3 0.9

100.0

100.0

100.0

100.0

2.7 0.9 0.1 0.1 8.8 43.5 37.8 5.7 0.4

21.1 9.1 6.5 0.6 8.2 19.9 28.2

1.6 1.2 0.3 0.1 9.8

1.5

52.9 4.4 0.5

15.2 5.6 12.7 0.2 9.3 16.3 34.3 5.3 1.1

100.0

100.0

100.0

100.0

51.6 0.1 0.5

4.9

29.2

SouRcE: Malaysia, The Treasury, Economic Report, 1978179, 1973/74. export item from Peninsular Malaysia in 1978, petroleum was next at M$239.5 million, "Other Fixed Vegetable Oils" (mainly palm-oil) was third at M$148.9 million, and natural rubber and latex fourth at M$132.3 million. Together, these four items accounted for more than 65 per cent of the total value of exports from Peninsular Malaysia to Japan. The increasing importance of mineral fuel (petroleum) is reflected in Table 5, its share having risen from 0.2 per cent in 1970 to 14.5 per cent in 1978. Equally significant is the rise in the export of manufactured goods, particularly electronic components and textiles. These amounted to almost M$100 million in 1978. It may be noted that this growth has been associated with substantial Japanese investments in the Malaysian electronics and textile industries. 9 9 See Cheong K. C et al., Comparative Advantage of Textile and Cement Industries in Malaysia (Tokyo: Institute of Developing Economies, 1980); "Comparative Advantage of Manufacturing

66

Zakaria Haji Ahmad and K. C. Cheong

TABLE 6 Peninsular Malaysia: Major Exports to Japan, 1978

Rank

SITC Group

Description

Value (M$ million)

1 2 3 4 5 6 7 8 9 10 11 12

687 333 424 232 776 036 651 248 287 634 598 058

Tin Petroleum (Crude & Partly Refined) Other Fixed Vegetable Oils (Crude, Refined Purified) Natural Rubber & Latex Thermionic Valves & Tubes; Photocells, etc. Crustaceans & Molluscs (Fresh, Frozen, Salted) Textile Yarn Wood (Simply Worked) & Railway Sleepers Ores & Concentrates of Base Metals Veneer, Plywood, & Reconstituted Wood Miscellaneous Chemical Products Fruit (Preserved) & Fruit Preparations

458.1 239.5 148.9 132.3 56.5 45.9 40.0 31.9 13.5 10.6 9. 7 8.4

All Exports

17 ,094*

• Refer to Table 2. SouRcE: Malaysia, Department of Statistics, Annual Statistics of External Trade, Peninsular Malaysia, 1978.

The major part of Malaysia's imports from Japan has been manufactured goods, and machinery and transport equipment, which in 1970 accounted for 43.5 and 37.8 per cent of the total respectively. These two types of goods continued to dominate in 1978 but, as has already been mentioned, the import of machinery and transport equipment had increased to a share of 52.9 per cent, almost twice that of manufactured goods imports (Table 5). This pattern is in line with the composition of total imports (machinery and transport equipment import share was 34.3 per cent; manufactured goods, 16.3 per cent). As a demonstration of this, six of the top ten imports in Table 7 belong to SITC 7, while another three belong to SITC 6. Taking imports and exports together, the balance of trade with Japan was favourable to Malaysia. This can be attributed to the high prices for its primary exports. It is also clear that there is less concentration of imports from Japan than of exports to that country. The value of the most important export item was about 43 times that of the tenth item (Table 6), whereas the value of the most important import item was only six times that of the tenth most important import item.

Industries in Malaysia: Case Studies of the Electronics and Wood Processing Industries", mimeographed {Faculty of Economics and Administration, University of Malaya, 1981).

67

Malaysia-Japan Trade: Issues and Prospects for the 1980s

TABLE 7 Peninsular Malaysia: Major Imports from Japan, 1978

Rank

SITC Group

1 2 3 4 5 6

781 674 785 764 673 712

7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

723 776 583 653 728 782 641 744 716 778 513 741 772 699 037

22 23 24 25

775 773 749 713

Note: n.e.s.

Description Motor Cars for Passengers & Goods Universal Plates & Sheets (Iron & Steel) Motor-cycles, Scooters, & Other Cycles Telecommunications Equipment & Parts Iron & Steel Bars, Rods, Shapes, & Sections Steam & Other Vapour Power Units, excluding Boilers Civil Engineering Contractors' Plant & Equipment Thermionic Valves & Tubes, Photocells, etc. Polymerization & Copolymerization Products Fabrics, Woven, of Man-made Fibres Other Machinery & Equipment for Special Industries Motor Vehicles fur the Transport of Goods Paper & Paperboard Mechanical Handling Equipment & Parts Rotating Electric Plant & Parts Electrical Machinery & Apparatus, n.e.s. Carboxylic Acids, Anhydrides & Their Derivations Heating & Cooling Equipment & Parts Electrical Apparatus, Resistors, Switchboards Manufactures of Base Metals, n.e.s. Fish, Crustaceans & Molluscs (Prepared or Preserved), n.e.s. Household Electrical & Non-Electrical Equipment Equipment for Distributing Electricity Non-electrical Parts, Accessories of Machinery, n.e.s. Internal Combustion, Piston Engines & Parts

=

Value (M$ million) 349.5 298.9 93.3 87.7 82.2 81.4 79.2 75.8 65.4 57.8 56.1 47.5 44.6 42.9 35.9 35.1 30.4 30.2 29.0 29.0 25.3 25.0 24.8 23.5 23.9

not elsewhere specified.

SouRcE: Malaysia, Department of Statistics, Annual Statistics of External Trade, Peninsular Malaysia, 1978.

The International Setting for Malaysia-Japan Trade and lntra-ASEAN Trade The previous sections have shown that while the role of trade in the Malaysian economy increased in importance during the last decade, the relative position of intra-ASEAN trade, excluding Singapore's entrepot trade, has declined, and correspondingly, trade with the advanced countries has increased. Indeed, the trend seems to indicate that whatever little significance intra-ASEAN trade possessed was, during the last decade, waning, and that by comparison trade with Japan was increasing. A number of reasons have been advanced to explain the insignificance of intra-ASEAN trade. Most important among these are the lack of complementarity in the economic structures of the ASEAN countries,

68

Zakaria Haji Ahmad and K. C. Cheong

the existence of high tariff and non-tariff barriers, the operation of state-owned monopolies, and the tying of loans and aid to imports from (advanced) donor countries. 10 How are these factors related to Malaysia's trade with Japan? To hypothesize, as De Koninck and Courtois did, that "the very limited success at economic integration within ASEAN had been a consequence of its accelerating integration into the world market" 11 is to state a well-known, if uninformative, fact. It is perhaps more appropriate to say that trade between Malaysia and Japan is influenced more by the dynamics of the former's growth than by any consideration related to ASEAN economic co-operation. As the process of industrialization moves the country from complete dependence on imports to import substitution and domestic market expansion, the import of manufactured goods declines relatively. A point was reached at the end of the 1960s when the scope for further import substitution was limited by several factors, among them the limited size of the local market and hence the absence of economies of scale leading to a comparative cost disadvantage of local products relative to imports, limited employment creation potential because of the use of (borrowed) capital-intensive technology, and the failure to reduce the country's dependence on trade. In the early 1970s, therefore, export promotion became a major industrial strategy, and export-oriented industries of the labour-intensive type were established. These, together with development efforts in the public sector, resulted in an increase in the import of machinery and equipment and in the export of manufactured goods. On the other hand, intra-ASEAN trade (excluding that with Singapore) from Malaysia's point of view is made up mainly of primary products (Table 8). Given the overall lack of complementarity and without across-the-board reductions in tariffs among the ASEAN countries, any major shift in the direction of trade is highly unlikely. 12 The picture may change with the inclusion of Singapore in the discussion. However, to the extent that Singapore's automony in its trade relations (vis-a-vis the rest of ASEAN) is increasing (that is, its intraASEAN trade share is decreasing) the above argument is likely to remain valid.

Prospects for the 1980s Just as the pattern of trade in the 1970s was conditioned by the structure of output, the composition and direction of trade in the· 1980s will also be 10 See, for instance, R. Hirono, "Towards Increased Intra-ASEAN Economic Cooperation", Asia Pacific Community, no. 3 (Winter, 1978/79): 92-118; and Narongchai A., "Formation and Current Development of A SEAN Economic Cooperation'', A SEAN Cooperation in Selected Primary Commodities, edited by Narongchai A. and V. V. Vinyu (Bangkok: United Nations Asia and the Pacific Development Institute, 1978). 11 R. De-Koninck and C. Courtois, "ASEAN's Growing Integration into World Trade", ASEAN Business Quarterly (Third quarter, 1980), pp. 27-34.

12 Armando Armas, in "Philippine Intra-ASEAN Trade Liberalization" (Paper presented at the Third Conference of the Federation of ASEAN Economic Associations, Kuala Lumpur, November t 978) found that trade liberalization through selective reduction of tariffs was unlikely to have any signiftcant impact on the pattern of trade.

TABLE 8 Malaysia's Trade with the Other ASEAN Countries: Major Items of Exports and Imports, 1978 (In million M$)

~

.Ei

" ;;;·

TABLE 1 Composition of Singapore's Trade with Japan, 1970-79 (In million US$)

1971

1970

%

1.1 9.2 70.8

1.3

2.1

10.6 81.8

7.8 93.6

1973

1972

Value

Value

1974

1976

1975

%

Value

%

Value

%

Value

Value

%

1.8 6.8 82.2

4.1 10.5 86.6

3.4 8.7 71.6

7.4 15.9 148.:l 47.7

9.9 15.1 522.1 6H ..l 3 ..)

8.6 8.3 295.4

2.2 2.1 74.0

84.4

11.0 0.6

av;

20.1

%

1977

Value

1978

%

Value

%

1.7 1.8

22.6 13.8 512.2 1262

:u

1979

Value

%

Value

%

20.5 175 ti:l5.7 17! 4

2.4 2.0 7:l.1 19.8

.15.0 30.8 1151.5 194.5

2 4 21 78 1 t:l.2

EXPORTS 16

5.4

62

10.4

9.1

19.7

16.3

:u

3.3 7 1 b6.5 21 4 I 7

4.0

1.0

152.6 12.8

12.6

I 8

2:~o

2.fi

61.6

42

86.5

99.9

113.9

99.9

120.9

100.0

223.0

100 0

618.9

100.0

398.9

100.0

646.6

100.0

687.4

100.0

869.1

99.9

1473.4

100 0

Foodstulfs

8.5

2.4 1.6 35.9

12.5 4.0 173.7

5.4

24.8

209.1

2.0 0 6 22 5

20.8 10.2 210.4

1.5 0.7 15.2

31.7 4.9 219.5

2.1 0.3 14.4

26.7 5.4 221.4

1.7 0.4 14.5

29.2

0.5

156.2

12.2 8.1 182.2

18.7

7.6

2.0 1.8 36.9

1.8

Raw materials & fuds

1.7 0.6 14.8

35.3 12.5 311.6

1.5 0.5 13.4

36 2 16.1 :i95.5

06 14.8

249.4

59.0

:103.6

59.7

501.9 (34.7) (t:l.1.5)

71.6

1252.6

82.2

1265.7

82.6

81.8

1913.7 (120.4) (395.7)

82.5

2192.8

81.8

0.3

1128.4 (76.7) (417.5) (634.2) 18.1

81.3

1.3

691.5 (50.!) (197.4) (444.0) 5.2

74.4

(24.5) (112.1) (167.0) 1.9

2.0

(167.2) (511.9) (1513.7) 38.5

423.0

100.0

929.9

100.0

1387.9

100.0

Foodstuffs Raw materials Mineral fuels Manufactured goods Others Total

24

11.3 11.5 45fL4

70.9

:.!3.6 20

2.0 74.5 18.4

IMPORTS

Light mdustria1

produl"{~

Heavy industrial & chemical products Chemical products Metals Machinery & equipment

Others Total

Balance

(21.8) (85.5) (142.1)

-:i36.5

508.0

(331.7) 0.4

9.1

L:l

100.0

701.2

100.0

-:194.1

-580.3

0.5

-706.9

1.3

-769.0

(67.3) (388.2) (797 .1) 15.0 1523.7

1.0 100.0

-1124.8

(85.2) (272.3) (908.1) 12.2

t5:ll.4

10.5 254.7 1405.4 (99.2) (332.3) (973.8)

0.8

19.4

1.1

100.0

1719.2

100.0

-884.8

-1031 8

(1402.6) 46.7 ':2:524.8

9~.9

-1455.7

2679.!

14

t-