ASEAN-US Economic Relations: An Overview 9789814377171

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ASEAN-U.S. ECONOMIC RELATIONS

An Overview

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 multi-faceted 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-U.S. ECONOMIC RELATIONS An Overview

Edited by Agustin Kintanar, Jr. and Tan Loong-Hoe

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.

© 1986 Institute of Southeast Asian Studies The responsibility for facts and opinions expressed in this publication rests exclusively with the individual authors and editors, and their interpretations do not necessarily reflect the views or the policy of the Institute or its supporters.

Cataloguing in Publication Data ASEAN-U.S. economic relations: an overview/editors, Agustin Kintanar, Jr. and Tan Loong-Hoe. Papers presented at the Workshop on ASEAN-U.S. Economic Relations organized by the Institute of Southeast Asian Studies, Singapore, 22-24 Apr. 1985. 1. ASEAN - Foreign economic relations- U.S. - Congresses. 2. U.S. - Foreign economic relations - ASEAN - Congresses. I. Kintanar, Agustin, Jr. II. Tan, Loong-Hoe. Ill. Workshop on ASEAN-U.S. Economic Relations (1985: Singapore). IV. Institute of Southeast Asian Studies. HF1586.5 Z4U6A84 1986 ISBN 9971-988-42-9 Typeset by WORDMAKER Design & Typesetting Services, Singapore. Printed by Kim Hup Lee Printing Co. Pte Ltd -Singapore

Contents

List of Tables

vii

IX Foreword Kernial S. Sandhu

Introduction Agustin Kintanar, Jr. and Tan Loong-Hoe ASEAN-U .S. Trade Relations Dean A. DeRosa II

9

The Pattern of Direct Foreign Investment in A SEAN: United States vs Japan 17 Mari Pangestu

III

U.S. Contractual Arrangements in Some ASEAN Countries 23 Mingsarn Santikarn Kaosa-ard

IV

The Impact of U.S. Policy Mix on ASEAN Economies Wing Thye Woo

V

Transfer of Technology to the ASEAN Region by 33 U.S. Transnational Corporations Charles W. Lindsey

VI

The Role of U.S. Foreign Investment in ASEAN Industrial Co-operation 39 Marjorie Suriyamongkol

VII VIII

ASEAN Manufactured Exports to the United States Chia Siow Yue The Competitiveness of U.S. Exports to ASEAN: A Business Economist's View 49 Eric Rasmussen Workshop Participants

53

27

45

List of Tables

TABLE

Page External Trade Relations of ASEAN, 1975-84

3

2

ASEAN-U.S. Merchandise Trade, 1970-83

II

3

Regional and Sectoral Breakdown of U.S. Direct Foreign Investment Abroad, 1966-83

19

Some Characteristics of U.S. Technology Agreements in Thailand

25

5

ASEAN Primary Commodity Exports, 1980-83

28

6

ASEAN Exports to the United States under the GSP, 1982

46

Market Shares for Selected Exports to ASEAN Countries, 1970 and 1980

51

4

7

vii

Foreword

The ASEAN Economic Research Unit (AERU) of the Institute was formed in 1979 to promote research and critical thinking, and debate on the economics and related political issues of ASEAN. Priority areas identified for research and discussion include investment, industry, and trade; finance and monetary aspects; food, energy, and commodities; transportation/shipping; and political factors in ASEAN economic co-operation. Within these, work relating to ASEAN economic relations with its main trading partners and sources of investment has been most prominent, including the project on "ASEAN-U.S. Economic Relations". This project has been designed as a three-year undertaking with each year focusing on a distinct but related aspect of the economic links between ASEAN and the United States. The theme for the first year was "The current state of ASEAN-U.S. economic relations". For this, eight papers were commissioned and presented at a workshop on 22-24 April 1985 in Singapore. They covered patterns of trade between ASEAN and the United States; U.S. investment in ASEAN; transfer of technology by U.S. transnational corporations and contractual arrangements; ASEAN manufactured exports to the United States; U.S. exports of goods and services to ASEAN; and the impact of U.S. policy mix on the ASEAN economies. Following revisions these papers will be prepared for publication. As this process will take some time, it was felt that summaries of the main conclusions of the papers should be circulated forthwith, so as not to lose the currency of the investigations and findings. Accordingly, the booklet that follows comprises these summaries. For the workshop and preparation of this booklet, the Institute received assistance from several institutions and it would like to acknowledge its appreciation of such help. It is grateful in particular ix

X

to the Asia Foundation for the financial support for the project on ASEAN-U.S. Economic Relations as a whole, as well as to the researchers and the editors for their contributions and promptness in meeting seemingly unreasonable demands and deadlines. While wishing them all the best, it is clearly understood that the responsibility for the accuracy of statements made rests exclusively with the editors and the individual authors.

July 1986

Kernial S. Sandhu Director Institute of Southeast Asian Studies

Introduction Agustin Kintanar, Jr. and Tan Loong-Hoe

The importance of ASEAN-U .S. relations was recently highlighted by President Reagan on the eve of his meeting with ASEAN foreign ministers in Bali, April 1986. President Reagan stated that "support for and co-operation with ASEAN remains the foundation of United States policy in Southeast-Asia" . 1 More substantively and broadly, as one observer cogently pointed out: 2 The ASEAN countries are of great political and strategic importance in themselves because they straddle crucial sea-lanes and are neighbours of troubled Indochina. The United States stations military forces in the Philippines under treaty, has an explicit security commitment to Thailand under the Manila Pact, and implicitly depends on the others from hostile external threats. Thus U.S. economic policy for A SEAN has an important political and strategic dimension. (Emphasis added)

In a similar vein, the importance of the United States from the ASEAN perspective can be conveyed, for instance: (a) The Malaysian New Straits Times reported thaP Singapore's Prime Minister Lee Kuan Yew said ASEAN still needed America to balance the strength of Soviet ships and aircraft in this region. The renewal of self-confidence in America has assured ASEAN that America will help maintain the peace and stability of the region .... it was the balance of power that had enabled free market economies to thrive. (Emphasis added)

(b) In his opening statement on behalf of ASEAN, (Singapore was the country-coordinator for the Seventh ASEAN-U.S. Dialogue, 9-10 May 1986) Mr Yeo Cheow Tong, Singapore's Minister of State (Foreign Affairs), stated: 4 As a grouping of developing countries which shares important strategic interests with the U.S. in peace and security, ASEAN's interests should be taken into consideration by the U.S. ... Both ASEAN and the U.S. should consult each other closely on international and bilateral economic issues.

2 Indeed, although the concern here is on economic relationships between ASEAN and the United States the associated political and strategic factors cannot be overemphasized. 5 Economic relations between ASEAN and the United States have progressed rapidly, if not impressively, over the years. The bilateral trade accounted for merely US$945 million in 1967, at the time of the formation of this regional grouping. However, by 1985, ASEANU.S. trade had grown about 25 times to US$23.5 billion. It is also noteworthy that the trade balance is in ASEAN's favour amounting to US$7.7 billion, which is over three times the amount (US$2.3 billion) in 1982. As an economic group, ASEAN is the United States' fifth largest trading partner - after the EEC, Canada, Japan, and Mexico. The United States on the other hand, is ASEAN's second largest tradi11g partner after Japan. For instance;-in 1983, ASEAN's exports to the United States accounted for aoout 21 per cent of its total exports while its imports from the United States amounted to about 13 per cent of its total imports. In addition, ASEAN presently accounts for nearly 20 per cent of total U.S. direct investments in developing countries. American investment in ASEAN currently exceeds US$10 billion. 6 Despite its own recession, the United States alone provided the major stimulus to ASEAN and the world economy during the first half of the 1980s. As the imports of other developed countries were expanding much more slowly, if at all, the ASEAN countries became more dependent on the U.S. market. The U.S. market has been important to ASEAN for some time and in recent years it is notable that this dependence has increased even more (see Table 1). However, there is certainty that the United States will no longer in the foreseeable future be the locomotive of world economic growth, a factor of considerahlei~rt;~~~-;~--As£-M\l-.7 ------------ -- ----- ----- -Formal ties between ASEAN and the United States were first established in September 1977 when the United States joined Japan, the EEC, Australia, and New Zealand in a dialogue relationship with ASEAN. This emerged in the wake of the first ASEAN Summit convened in Bali in 1976 and the American withdrawal from Indochina in 1975. The United States' recognition of the dialogue

TABLE I External Trade Relations of ASEAN: Exports as a Percentage of Total Exports ------------

-----------

USA ------

1975 -------~

1980 --

-----------

JAPAN

ENTIRE PACIFIC BASIN'

----------

1984

1975

1980

1984

1975

1980

1984

44.10 14.35 37.76 8.68 27.60

49.26 22.82 26.61 8.05 15.10

47.31 22.89 19.36 9.37 13.01

83.83 60.85 b 75.16 61.76' 67.93

86.79 67.78 b 72.44 58.91' 52.75

87.59 71.94 h 79.22 65.59' 54.62

PACIFIC

BASIN'

--------

ASEAN" Indonesia Malaysia Philippines Singapore Thailand

26.27 16.09 29.17 13.87 11.05

19.64 16.35 27.53 12.51 12.66

20.59 13.53 38.03 20.04 17.24

Imports as a Percentage of Total Imports USA

JAPAN

ENTIRE

1975

1980

1984

1975

1980

1984

1975

1980

1984

14.05 10.68 22.05 15.73 14.78

13.00 15.08 23.52 14.11 14.46

18.44 16.06 27.36 14.58 13.44

30.97 20.06 27.19 16.89 32.44

31.49 22.83 19.91 17.95 21.19

23.83 25.98 13.59 18.35 26.92

64.07 58.13 b 64.39 55.79' 57.45

69.19 65.09 b 61.05 56.85' 54.02

66.50 71.94h 65.72 60.66' 64.04

ASEAN' Indonesia Malaysia Philippines Singapore Thailand

SoURCE: IMF, Direction of Trade Statistics tape and 1984 year book; Taiwan Statistical Data Book, 1985, Council for Planning and Development, Republic of China (Adapted from: Lawrence B. Krause, "Key International Economic Issues Facing Southeast Asia", mimeographed, February 18, 1986). (a) Pacific Basin refers to: Australia, Canada, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, Papua New Guinea, Philippines, Singapore, Taiwan, Thailand, United States. (b) Does not include Taiwan. (c) Does not include Indonesia. (d) The countries of ASEAN are: Indonesia, Malaysia, the Philippines, Singapore and Thailand; Brunei joined the Association upon its independence in 1984. Brunei is not included in the above table owing to insufficiency of data.

4

system with ASEAN's major trading partners initiated by ASEAN clearly demonstrated a renewed American interest in Southeast Asia. The United States has accorded increasing attention to and notable support of ASEAN. For instance, in August 1978 Secretary of State, Cyrus Vance, convened the Second U.S.-ASEAN Dialogue in Washington, D.C. with significant participation by members of President Carter's cabinet. Also, U.S. Secretaries of State have been attending the Annual ASEAN Post-Ministerial Conference since 1979; and at the July 1985 meeting in Kuala Lumpur, Mr George Shultz, like his predecessors, reaffirmed U.S. interest in and commitment to ASEAN by declaring: 8 The United States is proud to be a partner of ASEAN in the pursuit of economic development and the quest for peace. ... Our relationship with you is a rich one. The United States is tied to individual countries by history, by treaty commitments and by shared interests.

The U.S. commitment to ASEAN's dialogue system with developed countries is important also to promote the assistance and co-operation of these developed countries for ASEAN's economic development through access to their markets, capital, technology transfer, and technical assistance, especially during times of economic difficulties. 9 In the 1970s and until recently, the ASEAN countries were capable of sustaining consistently high annual rates of growth. 10 However, countries in ASEAN are currently confronted with the most difficult (conomic challenges, the major ones being: 11 1.

2. 3. 4. 5.

the rising tide of protectionism in developed market economies; sharp declines in oil and commodity prices; failure of international commodity arrangements; the increasing burden of foreign debt; unemployment.

These major economic challenges, which are in no small measure induced externally, are substantive economic problems faced by ASEAN countries in their interaction with the United States; for instance: 12

5

(a) Growing protectionist policies emanating from U.S. attempts to reduce its burgeoning trade deficit with Japan have potentially damaging fall-out effects on ASEAN countries. Deputy U.S. Trade Representative, Alan Woods stated that " ... over 300 bills were introduced in U.S. Congress in 1985 proposing various measures intended to restrict U.S. imports". 13 (b) Lack of U.S. support for international commodity agreements and price stabilization schemes. Indonesia, Malaysia, and Brunei are not encouraged by U.S. participation in international efforts to stabilize oil prices which continued to experience a sharp decline. Thailand, Malaysia, and the Philippines, in particular, are concerned over the disruptive effects on their economies of specific U.S. interventions in the rice, sugar, and tin markets. The U.S. Farm Bill, which provided American farmers with subsidies when it became effective in April 1986, "threatens .the livelihood of 30 million poor Thai farmers"Y (c) Uneven distribution of U.S. investment in the region; particularly, the excessive concentration of U.S. capital in oil exploration in Indonesia and Malaysia; (d) When compared with Japanese investment in ASEAN, the low level of U.S. investment outside the petroleum sector is significant; (e) The performance record of American MNCs in the transfer of technology to the ASEAN host countries leaves much to be desired. From the perspective of the United States, however, there are various outstanding economic problems with ASEAN which U.S. officials in government and business can raise, some of the major ones being: 15 1. Countries in ASEAN need to strengthen their national enforcement

of patents and intellectual property rights; copyright and trade mark violations are common in some countries while patent laws are inadequately administered in others. 2. ASEAN countries should open up their service industries to greater international competition. Some ASEAN countries should (a) scale down their domestic protectionism to create conditions more conducive for foreign capital to operate; (b) lengthen the period of permissible foreign equity participation and expedite the

6 administrative, regulatory and other approvals necessary for foreign business to be established. 3. ASEAN should promote greater freedom across borders for traderelated investments; 4. ASEAN countries as U.S. trading partners should open their markets much more and introduce measures which would promote a greater volume of U.S. imports. The importance of studying the economic relations between the ASEAN countries and the United States can be attributed to the following fourfold rationale: 16 (1) The countries in ASEAN were among the fastest growing countries

in the world in the last two decades before 1984; perhaps their growth experience may offer some useful guidelines to other developing countries. (2) Since the creation of the European Community, the institution of ASEAN seems to be the most important economic and political effort at regional integration. It has most probably the greatest chance of success of all such efforts among developing countries. (3) Japan has increasingly become the dominant economic partner of the ASEAN countries. The U.S. ability to compete in the ASEAN region has serious implications for meeting the Japanese challenge globally. (4) An examination of U.S. economic policy in the ASEAN context provides insight into the usefulness and appropriateness of U.S. policy more generally; likewise, similar insight can be derived from the study of the foreign economic policies of ASEAN countries. Some of these problems, together with the challenges and opportunities present in the economic interactions between the ASEAN countries and the United States, 17 are discussed in the eight papers commissioned by the Institute's project on "ASEAN-U.S. Economic Relations". These papers are presently being revised prior to publication. In the meantime, summaries of them are presented here to allow for earlier circulation of findings and conclusions.

7

Notes "Visit will show importance of ASEAN to U.S." Straits Times, 29 April 1986. 2. Lawrence B. Krause, U.S. Economic Policy towards the Association of Southeast Asian Nations (Washington, D.C. The Brookings Institution, 1982), p. 68. 3. "Lee reminds ASEAN: We need America", New Straits Times (NST), 24 April 1986. See also Keith Stafford, "Soviet Union woos ASEAN with new trade markets", NST, 22 May 1986. 4. "Singapore expresses the region's concern", Straits Times, 9 May 1986. 5. Robert C. Horn, "U.S. ASEAN Relations in the 1980s", Contemporary Southeast Asia 6, no. 2 (September 1984): 119-34; and Richard Nations, "Symbols not substance: ASEAN gains little from Reagan's visit to Bali", Far Eastern Economic Review, 15 May 1980, p. 46: 'Unless economic growth can be nurtured and developed,' said a confidential memorandum to Reagan outlining the dangers of political instability and social dislocation if the regional economy continues to stagnate, 'ASEAN support for democratic ideals and institutions may be undermined and can cause [it] to be vulnerable to external and internal threats.' 6. "7th ASEAN-U.S. Dialogue: Economic ties 'being eroded' ", Straits Times, 9 May 1986. "Address to Council on Foreign Relations: ASEAN growing more important - B.G. Lee", Straits Times, I July, 1986. 7. Lawrence B. Krause, "Key International Economic Issues Facing Southeast Asia", mimeographed (18 February 1986), pp. 2-3. 8. Statement by H.E. Mr George Shultz, Secretary of State of the United States of America, at the ASEAN-United States Discussions in 18th 1.

ASEAN Ministerial Meeting and Post-Ministerial Conferences with the Dialogue Countries, Kuala Lumpur, 7-13 July 1985 (Jakarta: ASEAN Secretariat), p. 116. 9. For a recent discussion on the scope of ASEAN-U.S. economic cooperation to maximize the chance of the "high-growth scenerio" in the context of global economic development in the future, see Ow Chin Hock, "ASEAN-U.S. Economic Relations: Problems and Prospects", Paper presented at the Conference on U.S-ASEAN Relations: Prospects for the 1990s, sponsored by the Center for Strategic and International Studies, Georgetown University, Washington, D.C. and Institute of Strategic and International Studies, Malaysia 31 March-2 April 1986, Kuala Lumpur, Malaysia. See also Melvin W. Searls, Jr. "The U.S. Role in ASEAN's Future Economic Growth" and Gastion Sigur, "U.S.ASEAN Relations", papers presented at same conference.

8 10.

11.

12.

13. 14.

15.

16. 17.

"ASEAN: Economic Situation and Prospects", by Seiji Naya, Chief Economist, Asian Development Bank, Economic Office Report Series No. 12, March 1983 and "ASEAN-Scandinavian Economic Relations: An Overview", Paper presented at the symposium on Economic Relations of Scandinavia and ASEAN, 21-25 October 1985, Centre for Pacific Asia Studies, University of Stockholm, pp. 3-8. See Hans Christoph Rieger, "The Market Economies of Southeast Asia in 1985: ASEAN Pays the Prices", Southeast Asian Affairs 1986 (Singapore: Institute of Southeast Asian Studies, 1986). Ed Chesky, "Commodities in U.S.-ASEAN Relations", Paper presented at same conference as in fn. 9. "Interview with Reagan: U.S. Stake in a Stable Asia", New Straits Times (Kuala Lumpur), 28 April 1986. President Reagan answered questions put to him by five publications in ASEAN countries before leaving Washington for the 19th ASEAN Ministerial Meeting in Bali, 29 April-1 May 1986. The publications are: Kompas (Jakarta), Business Day (Manila), Straits Times (Singapore), News Straits Times (Kuala Lumpur), and Bangkok Post (Bangkok). Richard Nations, "Uncle Sam is asked for help: ASEAN Foreign Ministers press Reagan on trade constraints", Far Eastern Economic Review (8 May 1986), pp. 14-15. U.S.-Asia Trade Conference Speech, 19 February 1986 in USIS (Singapore) Wireless File, 21 February 1986, p. 19. "Rice Rumbles", (Editorial Review and Outlook) Asian Wall Street Journal, 28 April 1986. Also, feature article in Business in Thailand (March 1986). Richard Nations, "Symbols, not Substance: ASEAN gains little from Reagan's visit to Bali", Far Eastern Economic Review (15 May 1986), pp. 46-47. "Schultz seeks in battle against protectionism: U.S. trading partners urged to buy more", Business Times (Singapore), 27 June 1986; "ASEAN seeks reaffirmation of commitment", Straits Times, 29 April 1986. This fourfold rationale is essentially drawn from Krause (1982), op. cit., p. 3. See Singapore Economic Bulletin (June 1986); pp. 11-12. "Wide range of issues covered at ASEAN-U.S. Dialogue", extracts from the joint press statement issued at the conclusion of the 7th ASEAN-U.S. Dialogue meeting in Singapore, 9-10 May 1986. This is the first such meeting to be hosted by Singapore since it took over from the Philippines last July as country-coordinator of the dialogue series.

I ASEAN-U.S. Trade Relations Dean DeRosa

This brief overview touches on: 1. the patterns and direction of trade between the United States and the original five member-countries of the Association of Southeast Asian Nations (ASEAN), namely: Indonesia, Malaysia, the Philippines, Singapore, and Thailand. (The sixth member of the Association, Brunei, could not be included in the analysis, not only because of the unavailability of comparable data, but also because Brunei joined ASEAN only in 1984.) 2. the general dimensions of the rapid growth in trade between the ASEAN countries and the United States over the past decade or more; 3. the economic and political factors believed to motivate and shape those relationships; and 4. the basic differences in economic resources between ASEAN countries and the United States and how these differences relate to trends in growth and commodity composition of ASEAN-U .S. trade and the trade policies and practices governing the global and mutual trade relations of these countries. Empirical analyses reveal the following: 1.

ASEAN-U .S. trade outpaced the growth in the real value of world trade over the 1970-82 period. The 10 per cent average annual rate of growth of ASEAN-U.S. trade for this period is nearly twice as fast as that of world trade (Figure 1).

2.

It is difficult to discern common patterns of growth in bilateral trade between the ASEAN countries and the United States; hence the process of expanded trade between ASEAN countries and the United States cannot be simply characterized (Table 2).

3.

The United States has almost consistently run a deficit with ASEAN countries as a group over the 1970-82 period. But 9

FIGURE 1 ASEAN AND U.S. EXPORTS IN REAL TERMS, 1970-83

Mn US$ at 1980 prices

500 400 300 200

100 80

r-·--r--·

//

______ -

'-U.S. TO WORLD

60

~

40 30 20

~

y-

4

3

---- --

/

_....., /

6

/ "..... ---

./" .,.

.,.

-- --------- --

-----

....._ ASEAN TO WORLD

-- ---

ASEAN TO U.S. 10 8

__..,.,..

""/

-------

/

--- ----

,. .... ,;

.... "' ,;

-

,. ........ "'-U.S. TO ASEAN

2

1970

I

I

I

I

71

72

73

74

SoURCES:

I

75

I

I

76

77

I

78

I

I

l

I

79

80

81

82

International Monetary Fund, Direction of Trade Statistics. International Monetary Fund, International Financial Statistics.

83

TABLE 2 ASEAN-U.S. Merchandise Trade, 1970-83

(US$ Millions) ASEAN Exports to the United States

United States Exports to ASEAN

Year

TOTAL

IN

MA

PH

SI

TH

TOTAL

IN

MA

PH

SI

TH

1970 1972 1974 1976 1978 1980 1982 1983

1064 1411 4365 5467 7576 11263 10026 12830

144 265 1580 2451 2962 4303 3546 4266

219 237 595 825 1378 2118 1399 1863

433 434 1133 926 1159 1593 1588 1792

172 337 862 965 1625 2424 2611 3954

95 136 193 299 450 823 880 953

1094 1360 3012 3703 4610 9177 9743 9779

264 308 531 1036 751 1545 2025 1466

67 128 377 536 728 1337 1736 1684

373 366 747 819 1040 1999 1853 1807

240 385 988 965 1462 3033 3214 3759

150 173 369 347 629 1262 915 1063

Memorandum Items: Nominal Export Growth (Percentages at Annual Rates) 37.2 62.6 36.0 20.7 1973-1977 30.6 20.1 4.9 7.9 3.3 15.3 20.9 7.4 1978-1982 20.3 33.2 12.8 51.4 1983 28.0 8.3

23.3 20.2 0.4

19.9 21.5 -27.6

34.4 25.3 -3.0

19.1 16.2 -2.5

24.9 22.4 17.0

24.1 12.4 16.2

Real Export Growth (Percentages at Annual Rates) 23.6 1973-1977 15.9 12.8 8.4 10.9 1978-1982 -10.4 -3.3 4.1 7.0 -2.2 35.6 1983 38.4 7.6 33.6 59.0

9.9 10.5 -1.2

6.9 11.7 -28.7

19.8 15.2 -4.5

6.1 6.8 -3.9

11.4 12.5 15.2

10.6 3.3 14.5

4.3 16.3 5.8

SouRCES: International Monetary Fund, Direction of Trade Statistics, and International Financial Statistics. NOTES:

IN = Indonesia; MA = Malaysia; PH = the Philippines; SI = Singapore; TH = Thailand. Real export growth rates are based on trade volume statistics computed by deflating nominal bilateral export values by price indices for each country's total exports.

12 in recent years, it has enjoyed a trade surplus with nearly all the ASEAN countries except Indonesia, the major ASEAN oil exporter. 4.

Over the last decade or more, countries in ASEAN have effectively exploited their comparative advantage in relatively labour-intensive manufactures, while the United States has done the same in more skill- and capital-intensive manufactures. Vis-a-vis the United States, ASEAN countries have increased their comparative advantage in exports of Electronics, Machinery and Related Manufactures, and Apparel and Clothing, whereas the United States has increased its comparative advantage vis-a-vis ASEAN countries in exports of mainly Plastics and Other Chemicals but also Power Generating and Specialized Industrial Machinery and other transport equipment. When ASEAN countries are considered individually, very similar changes of revealed comparative advantage may be noted.

In 1970, exports of individual ASEAN countries to the United States were concentrated mainly in crude materials and agricultural commodities. However, by 1982, concentration of exports to the United States of each ASEAN country (except Indonesia) had shifted notably to Machinery and Miscellaneous Manufactures, leaving "pockets" of export concentration in agriculture and mineral commodities. These changes appear to follow the strongest relative resource endowments of individual ASEAN countries - petroleum and natural rubber in the case of Indonesia and Malaysia, and tropical . agriculture for the Philippines and Thailand. \"

In contrast, U.S. exports to ASEAN countries in 1970 were chiefly manufactures distributed fairly evenly across several manufacturing categories. In 1982, however, U.S. exports to each of the ASEAN countries had become predominantly concentrated in chemicals and transport equipment. There are differences in the bilateral relationships between the United States and each of the ASEAN member countries. For instance, Indonesia most often occupies one extreme in an array of differing

13

trade relationships with the United States while Singapore occupies the opposite extreme. Malaysia, the Philippines, and Thailand are ranged somewhere between these extremes depending upon which specific characteristic is being examined. However, complementarity between ASEAN and the United States does exist. Some of the emerging trends can be understood through using theoretical formulations to examine in some detail the trade relationships among countries which differ in natural resource endowments, availability of skilled and unskilled labour, and physical and human capital. Also, econometric tools can be applied to reveal the underlying forces which determine the patterns and directions of trade between the U.S. and ASEAN as a regional grouping. To provide a more rigorous account of the fundamental economic determinants of ASEAN-U .S. trade, an exploratory econometric analysis was conducted. The major findings are as follows: 1.

In broad terms, the factors identified from several modern trade theories contribute significantly to determining the commodity composition of ASEAN-U.S. trade.

2.

Only factors identified from the Heckscher-Ohlin-Samuelsontype trade models (e.g., physical capital and basic labour services) and those from technology-product cycle trade models (e.g., technical skills, product differentiation, and scale economies) contribute to the recent changes in revealed comparative advantage between the United States and the countries in A SEAN.

3.

The economic factors suggested by modern trade theories though significant appear to explain only a small proportion of the variations of ASEAN-U .S. bilateral comparative advantage. It is recognized that other important factors, such as third country-effects, and protection structures and trade control policies in ASEAN and the United States should also be included in the analysis.

A second exploratory econometric analysis was attempted to account for variables of import protection structures in ASEAN and the United States based on the results of this analysis; the

14

following "highly speculative" but notable observations were made: 1.

Significant political pressures exist for import protection for a wide range of factor services in ASEAN countries conceivably interest groups representing farmers and capital stock owners.

2.

Import protection for labour groups can also be rationalized. Inappropriate industrial policies or other domestic distortions have produced over-priced labour especially in the "modern sectors" of some ASEAN countries which tend to cause labour-intensive industries to fear import competition from other relatively labour-abundant LDCs or even industriallyadvanced countries like the United States.

3.

ASEAN protection is inversely related to human capital input requirements, plausibly reflecting tariff preference accorded to essential capital or intermediate goods imports receiving development priorities in ASEAN countries.

As for the United States, there was only weak evidence that U.S. tariff concessions at the Tokyo Round .of Multilateral Trade Negotiations were responsive to domestic pressure to protect primarily the interests of basic labour-intensive industries; and secondarily, the interests of those industries whose input requirements and other characteristics reflected to a greater extent the static sources of U.S. comparative advantage in physical and human capital. The analysis of new protectionism in the United States suggests that the ASEAN countries have not encountered extensive threat_Qf-~ non-tariff trade protection. However, administered forms of U.S. trade protection have affect~d-sugar as well as textiles and apparel which together amounted to almost 10 per cent of ASEAN exports to the United States in 1982. Also, the recent increase in administered U.S. trade investigations and actions might possibly have adverse effects on the investment climate and thereby might have affected the trade prospects in ASEAN. " Policies and practices pertaining to export controls and subsidies also affect the ASEAN-U.S. trade relations. It is found that export

-------

15

controls and subsidies are more serious and pervasive in the ASEAI'{ __ countries than the United States. It is likely that the concentration of U.S. trade investigations against LDC imports in countervailing duty cases, stemming from U.S. concern for reducing subsidy elements in U.S. imports, might significantly affect future ASEAN-U.S. trade relations. Finally, with regard to the U.S. Generalized System of Preferences, countries thus far obtained only marginal, albeit possibly important, benefits not unlike many other developing countries. In conclusion, the analysis of ASEAN and U.S. trade policies and practices seems to suggest two sets of recommendations for trade liberalization initiatives to stimulate greater gains from trade between the ASEAN countries and the United States. Firstly, countries in ASEAN could negotiate: 1. to remove or reduce Multi-Fibre Arrangement (MFA) restrictions on U.S. textile and apparel impor.ts; 2. to safeguard measures protecting the U.S. sugar industry and U.S. tariff protection favouring basic labour-intensive industries. Secondly, United States policy initiatives, however, could include the calling for the removal or reduction of ASEAN tariff and other import controls restricting U.S. exports of capital-intensive products in il!lQ!emented, particular. If these trad~ liberalization initiatives ~an_Q_~ . ----·----- -gainsJrom trade expansion and the strengthening of ASEAN-U .S. ------ ---- -trade relations can be anticipated.

-

II

The Pattern of Direct Foreign Investment in ASEAN: United States vs Japan Mari Pangestu

This study examines the economic relationship between the United States and the ASEAN region with respect to foreign direct investment (FDI). However, although some comparisons with Japanese foreign direct investment are made, they are intended only to highlight differences or similarities in the pattern of foreign investment between the United States and ASEAN and that between Japan and ASEAN. Investment indexes* which measure intensity of investment, are used to make a systematic analysis of the factors affecting the pattern of foreign direct investment by the two major investor-countries in ASEAN. The analysis of the pattern of foreign investment in ASEAN provides the following major findings: 1.

In 1978-80, the share of foreign investment out of total financial resources (including domestic investment) was 73.6 per cent for Singapore, 20.3 per cent for Malaysia, 18.9 per cent for the Philippines, 11 per cent for Thailand, and 9.2 per cent for Indonesia.

2.

Between 1967170 and 1982/83, the United States and Japan were the giants in the investment scene in ASEAN; but their relative importance varied from one ASEAN country to

* The use of investment indices to analyse bilateral investment flows will be most useful to other researchers who would like to apply similar techniques to examine the pattern and structure of investment intensities, not only in ASEAN but also between any two countries/regions. This can be considered as an innovative adaptation and elaboration of the techniques of Drysdale (1967) and Garnaut (1972) developed earlier to study bilateral trade flows rather than investment flows. For details, see references. 17

18 another. For the 1977-83 period, the United States remained important for Indonesia and Singapore, with foreign investments amounting to around 50 per cent and 30 per cent of total foreign investment, respectively. However, the importance of U.S. investment in Malaysia and Thailand appears to be declining; on the other hand, Japanese investment in Malaysia is increasing, and is remaining fairly constant for Thailand. 3.

More narrowly confined to foreign direct investment, the ASEAN share in terms of total U.S. FDI in LDCs increased notably from 5.3 per cent to 15.7 per cent (or 1.4 per cent to 3.5 per cent out of total U.S. FDI globally). Indonesia alone has about half the total U.S. FDI in ASEAN. (See Table 3.)

4.

Japanese FDI in the ASEAN region is relatively more important than that of United States accounting for 20 per cent of total FDI stock in 1982 compared with 3.5 per cent in 1983 for U.S. FDI.

What are the economic determinants of the above pattern of foreign investment in ASEAN? Broadly, there are two sets of determinants affecting the intensity of bilateral investment flows between any two regions. The first set of determinants contributes to complementarity in the industry structure of foreign direct investment and influences the expected flow of investment between any two countries. The industry structure of a country's investment flows is determined by (a) "natural" factors like relative resource endowments (including firm-specific advantage); (b) "policy" factors encompassing the industrialization and other economic policies of host and investor countries. The second set of determinants are factors which can influence the attractiveness of the host country as a location for investment to a particular investor country. Country bias factors include (a) "natural" ones like geographic proximity and (b) "policy" factors such as historical, political and institutional ties. These flows can exist between any two countries. The above analysis of available data demonstrates that, in general, the country bias factors appear to be more important than the complementarity factors in determining the industry structure of

TABLE 3 Regional and Sectoral Breakdown of U.S. Direct Foreign Investment Abroad, 1966-83 (in percentages) 1966

1977

1983

100.0

100.0

100.0

Developed countries Developing countries share out of developing countries: Latin America Brazil Mexico Other Asia & Pacific

68.1 26.8

72.6 22.6

75.0 22.5

70.3 6.4 9.6 9.4

82.2 17.8 9.5 18.7

57.9 17.7 20.3 26.1

ASEAN Indonesia Malaysia Philippines Singapore Thailand

5.3 0.8 0.4 3.5 0.2 0.4

9.5 3.1 1.5 2.6 1.6 1.7

15.7 6.0 2.2 2.2 3.9 1.4

Hong Kong

0.9

4.2

6.4

All areas: Petroleum Manufacturing Other

26.8 40.0 33.2

19.2 42.5 38.3

26.5 40.0 33.5

Developed Countries: Petroleum Manufacturing Other

21.7 48.8 29.5

21.5 45.9 32.6

22.9 42.3 34.8

Developing Countries: Petroleum Manufacturing Other

36.4 25.4 38.2

4.8 36.3 58.9

32.5 36.1 31.4

All areas

SOURCE:

U.S. Dept. of Commerce, U.S. Direct Investment Abroad, 1966 & 1977; Survey of Current Business, August 1984.

20

investment, the intensity of investment and the changes in intensity. Hence, despite the high levels of complementarity in the petroleum and electronics products sector and average levels of overall complementarity, the intensity of investment between the United States and the ASEAN countries is low even in the Philippines which has historical ties with the States. The substantial share of U.S. investment in ASEAN is mostly a reflection of its dominance in global investment and not because of close bilateral relationships. Geographic distance and preferences for majority-ownership in the face of most ASEAN countries' insistence on restricted ownership are more important determinants for this lack of close ties in the area of bilateral economic relations. An additional contribution to the low levels of country bias comes from the ebbing U.S. interest in the wake of the fall of Vietnam as well as the lowering of second order resistances to investment between Japan and the ASEAN countries. In marked contrast, the notably high intensity of investment flows from Japan to the ASEAN countries is a consequence of both country bias and complementarity factors, with the former being more important. Country bias factors, in general, have facilitated and continue to facilitate investments flowing into the ASEAN region. Geographic contiguity and active government support, closer economic and political relations, greater flow of information and the relative ease of co-ordinating investment arrangements appear to have augmented the flow of investment from Japan to ASEAN. However, it is recognized that complementarity in the industry structure of investment flows (in the petroleum and textile sectors, especially) has also influenced the flow of investment. However, it should be noted that the intensity of investment between the United States and ASEAN may be significantly raised by two major trends: 1.

Improvement in country bias can be expected as the United States improves bilateral relations with the ASEAN countries as already increasingly evident in Indonesia and the Philippines. However, this might be off-set by gains in country bias between Japan and Malaysia and Singapore.

2.

The economic development policies, particularly the

21

industrialization policies of the ASEAN countries, point to the potential of increasing complementarity, notably with Singapore. Indeed, American investment could play a greater role in complementing the efforts of ASEAN countries (except Singapore) in promoting the development of heavy industries which are capital-intensive and often technology-intensive, and also help Singapore's attempts to upgrade its productive capacity in the skill-intensive and the services industries. However, possible countervailing trends which could check the increase in the intensity in investment could arise from three directions: 1. 2. 3.

the pressure for local participation by host countries, most notably in Indonesia; the increased enforcement of local content policies; and the decline in petroleum investment precipitated by the fall in oil prices.

Nevertheless, on balance it is not clear whether there will be an increase in the intensity of investment. However, it is clear that there is still great potential for increasing ASEAN-U .S. bilateral economic relations, especially with greater support from the U.S. Government to reduce the "distance" between them. The ASEAN region is one of the most dynamic regions. Without a more vigorous policy the United States will lose out to Japan in availing itself of the economic opportunities in the region. This could become increasingly important with the realization of ASEAN economic co-operation schemes.

References 1.

2.

3.

Drysdale, Peter D. "Japanese Australian Trade: An Approach to the Study of Bilateral Trade Flows". Ph.D. dissertation, Australian National University, Canberra, 1967. Garnaut, Ross. "Australian Trade with Southeast Asia: A Study of Resistances to Bilateral Trade Flows". Ph.D. dissertation, Australian National University, Canberra, 1972. Pangestu, Mari. "Direct Foreign Investment in the ASEAN Countries". Masters thesis, Australian National University, Canberra, 1980.

III

U.S. Contractual Arrangements in Some ASEAN Countries Mingsarn Kaosa-ard

This paper explores U.S. involvement in the ASEAN region, with special reference to a case-study of U.S. contractual arrangements for technology transfer in Thailand. The relatively rapid growth of ASEAN economies in the 1970s leading to expanding markets attracted transnational corporations (TNCs) into the region. OECD statistics also indicated the trend of increasing foreign direct investments (FDI) in ASEAN. However, when using statistics on the stock of foreign investment, one should bear in mind that an underestimate of the extent of U.S. transnational corporations (TNC) involvement in these economies is possible. This arises because TNCs have been increasingly involved in numerous forms of non-equity contractual arrangements, for example, production sharing agreements, compensatory trade agreements, and various modes of contractual arrangements for technology transfer. American TNCs have taken the world lead in contractual arrangements for technology transfer. For instance, in 1981 the United States received US$7.1 billion from technology exports whereas Japan only exported US$537 million. Despite the dearth of data it is possible to show in a convincing manner that the U.S. was clearly a leading supplier of technology and investments in the Philippines. Out of 150 technology agreements concluded in the Philippines in 1978179, American TNCs were responsible for almost half and the Japanese rivals for a fifth of these contracts. On the other hand, in both Malaysia and Thailand, Japan was the most important source of technology followed by the U.S. Over the 1970/80 period, Malaysia negotiated 635 technology agreements, the lion's share of which (32 per cent) was taken by Japan; the U.S. share was only 14 per cent. In the case of Thailand, between 1973 and 1983, the amount of

23

24

outward fee remittances for management, copyrights and patent royalties going to Japan averaged 39 per cent of the total whereas United States averaged 32 per cent. These differences in performance between the United States and Japan are not surprising given Malaysia's experience that the cheapest source of technology was Japan whereas the United States was the most expensive source. For instance, only 2.6 per cent of Japanese contracts in contrast to 16.2 per cent of U.S. contracts stipulated fees of 5 per cent or higher in terms of net sales. An empirical analysis of the contractual arrangements for technology transfer from the United States to Thailand is summarized in Table 4. Firstly, comparable to the Philippines, about 56 per cent of the agreements with U.S. firms was negotiated by U.S. subsidiaries and joint ventures in Thailand in 1981. Secondly, the involvement of U.S. firms was pre-eminently significant in the chemical industry, followed by the wearing apparel industry. Thirdly, in the food, industrial chemicals and pharmaceutical industries, U.S. technology transfer arrangements usually involved some equity relation with the technology recipient. But in the garments industry, the licensing contracts were made with local firms. Fourthly, technology imports from the United States appeared not to be in the high-tech categories. Lastly, the U.S. firms generally charged a relatively narrow range of fees except for the chemicals industry. However, the costs of technology transfer in the pharmaceutical industry seemed to be relatively high, with contract fees of at least 5 per cent of net sales. In addition, it should be noted that like Malaysia, Thailand usually had to pay higher technology acquisition fees to American suppliers than they did to Japanese suppliers. When trade restrictions are considered, however, American-Thai contracts faced significantly fewer restrictions compared with other suppliers. Less than 20 per cent of U.S. contracts stipulated some form of export restriction; besides, a mere two out of seventy-three contracts required tied purchases of machinery and raw materials from the American suppliers. With regard to training and local takeover provisions, American contracts usually contained notably fewer of these than Japanese contracts. The more important and substantive contributions of this study

TABLE 4 Some Characteristics of U.S. Technology Agreements in Thailand

Industrial Code 311-2 313 321 322 341 342

Food Beverages Textiles Wearing apparel Paper and paper products Printing and publishing

351 352

Industrial chemicals Other chemical products

353 355 361 381 382 383 384 385

Total number Number of of contracts contracts

U.S. Equity Fees

5 2 1

5 1

1.5- 511Jo gross sales Lump-sum

11

2

.02-2% net sales

2 1 3 23

3 15

Petroleum refineries and products Rubber products Pottery, China and earthware Metal products Machinery except electrical Electrical machinery and appliances Transport equipment

1 2 1 1 3 2

2 1 1 2 1

Other machinery Non manufacturing Total

7

5

66 (100.0)

38 (56.0)

2-5% gross sales 1.5-10% of net sales 3-3.5% net sales 1% net sales 1-4% net sales 2.5-5% net sales 10% gross sales

Non-equity relation Duration Number of (years) contracts !-open 10 open

4-open 5-open

10 5 open 10-open open

1 Various types

5-open

SOURCE: Compiled from a 1981 sample of 388 contracts held by the Bank of Thailand.

Fees

Duration (years)

1 1 11

fixed fee per unit fixed fee per unit 2-8% net sales

open 10 5-7

1

14.5% of net price

5

8

3-open

1

3.5-10% of net sales fixed fee per unit

1 1

4-5% net sales 5% net sales

1

fixed sum

2

various types

10 missing data missing data 2

28 (44.0)

26 lie in two types of in-depth case studies: (Type I) non-equity contractual arrangements for technical assistance; (Type II) equity joint-venture arrangement. The Type I case-study examines two distinct experiences in technology contractual arrangements with both American and Japanese suppliers involving one of Thailand's largest industrial conglomerates employing 10,000 workers. The first experience concerns the acquisition of refractory technology for the production of refractory bricks for cement kiln lining, heating furnace walls, runner bricks for steel ingot casting, etc; while the second pertains to a turnkey contract for Thailand's largest paper manufacturing enterprise. The Type II case-study involved a contractual arrangement in the form of a U.S.-Thai joint-venture (with the American partner holding a minority 49 per cent equity share) in the tobacco business. The findings that emanate from analyses of these two case-studies are as follows: 1. the eventual success or otherwise of technology transfer is determined largely by the management capability of the recipient firm rather than the source of technology, whether American or Japanese or some other; 2. the fruitfulness and/ or effectiveness of the technology transfer are a function of the type of product, the level of technology required in comparison to the transferers' technology level, and the nature of the product market; 3. ultimately, the local management must be capable of selecting the most appropriate transferer as well as playing an active role during the prolonged process of technology adaptation and transfer. Hence, it seems that "the 'U .S.-factor' is but one factor which determines the benefits from TNC involvement. There are more significant factors such as the absorptive and managerial capacity of the local collaborators, the industrial and market structure which highly influence the success of the collaborations." The difficulties of applying the results of a few case studies to contractual arrangements elsewhere are legion; therefore, the findings here would only be of limited significance to similar arrangements in the Philippines and Malaysia. Many more case studies have to be undertaken not only in the other countries of ASEAN, but in Thailand as well. The contribution of this research effort is in showing that it can be done and not so much how it should be done.

IV

The Impact of U.S. Policy Mix on ASEAN Economies Wing Thye Woo

, Two basic questions guide the discussion in this study: Are the various __ proposals before the U.S. Congress ()n redyci!}g bu_d__geUl.eficits a threat to ~ewed::bSEi\~-~~_Q!i-cnni£__gro_w_th? Would the removal of the economic stimulus arising from this growing U.S. deficit reduce the world demand for ASEAN exports, thereby undermining ASEAN prosperity? It is argued thatASE~_jp._!~_!:_~~tuu:_~_b.est__served by ending the__ _ projected U.S. budget deficit~. The logic of this argument rests on the"that currerif fight: monetary and loose fiscal policies of the United States have caused the other major OECD countries to impede their economic expansions. The contractionary policies of these OECD countries in turn have rendered ASEAN economic growth to be slower than if U.S. growth had been sustained by a looser monetary but tighter fiscal policy. It is not that these other OECD countries would not hav~_EU_!~l:l_ed __fQ!ltractionary_!iof1cli£_in_ihe~aliS_eru;e__-:QTJ,I::S:budgetary deficits, but that they have implemented more contractio!la.fY p-ofiC!es~ecause of the U.S. budget deficits. On the basis of a fairly substantive and subtle analysis of tlie performance of the seven largest industrial (or G7) countries: the United States, Japan, West Germany, France, Britain, Italy and Canada which "are the seven locomotives of the world economy" an optimistic, if not persuasive conclusion is that "a sustained recovery by all seven will doubtless speed up the recovery of ASEAN". The strength of the recovery of one locomotive alone (that is, the U.S. economy) is not sufficient to pull the rest of the world along.

facT

The pre-eminent importance of the U.S. locomotive cannot be overemphasized. Although the seven countries together produced 27

TABLE 5 ASEAN Primary Commodity Exports (Figures in brackets are percentage change from preceding year) Destination

Petroleum, S/TC-33, billions of US$ Industrial countries United States Japan

I980 I7.3 5.4 I0.8

I98I (50) (52) (46)

I8.9 6.0 Il.9

I982 (10) (II) (10)

Rubber, S/TC-23, billions of US$ Industrial countries United States Japan

2.63 0.80 0.64

{7) (-10) (37)

2.23 0.77 0.53

{-I5) (-4)

Tin, SITC-687, billions of US$ Industrial countries United States Japan

1.73 0.60 0.52

(12) (0) (I7)

1.36 0.47 0.42

I5.6 3.8 I0.5

I983 (-I8) (-36) (-I2)

13.3 4.8 8.4

(-I5) (25) (-20)

(-17)

1.57 0.56 0.35

{-29) (-27) (-35)

1.88 0.67 0.49

{20) (20) (42)

(-22) (-2I) {-I9)

0.94 0.24 0.34

(-3I) (-50) {-20)

0.94 0.25 0.38

(0) (6) (II)

Vegetable oil (e.g., palm oil, coconut oil), S/TC-42, billions of US$ (-7) Industrial countries (-23) 1.08 1.16 (-II) United States (-34) 0.39 0.34 (-II) Japan (-I6) O.I2 O.II

0.90 0.29 0.10

(-I6) {-I6) (-II)

1.02 0.34 O.II

(13) (2I) (9)

TABLE 5 (cont'd.) ASEAN Primary Commodity Exports (Figures in brackets are percentage change from preceding year) Destination

Wood, S/TC-24, billions of US$ Industrial countries United States Japan

1981

1980 4.00 0.054 2.94

(-11) (-41) (-13)

2.64 0.052 1.89

Oil seeds (e.g., copra, palm nuts), S/TC-22, millions of US$ (-12) 102 57 Industrial countries (44) 2.5 United States 0.3 (-12) Japan 24.5 31.8

1982 (-34) (-4) (-36)

(-44) (723) (30)

2.72 0.030 2.05

82 0.3 20.4

1983 (3) (-42) (8)

(43) (-89) (-36)

Noncotton, nonjute fibres (e.g, manila hemp, coconut fibre), S/TC-265, millions of US$ (16) (-22) (4) 32 Industrial countries 39 30 (50) (-34) (-5) United States 19 13 12 (-2) (-15) (13) Japan 10 8 9 Memorandum item: 1984 imports from ASEAN, Rubber 1906 6 Industrial countries 831 United States Japan 537

millions of US$ Tin (17) 870 (24) 259 (10) 379

2.38 0.046 1.62

(-12) (52) (-21)

25 0.5 12.6

(-70) (97) (-38)

27 9 9

(-14) (-30) (-6)

Wood (1) (2) (1)

2113 63 1725

(1)

(37) (4)

All data are from OECD Trade Series C. Industrial countries consist of United States, Japan, Germany, France, the United Kingdom, Italy, Canada, Spain, Australia, the Netherlands, Sweden, Switzerland, Belgium and Luxembourg. Memorandum item is constructed from monthly data. Six industrial countries are United States, Japan, Germany, France, the United Kingdom and Canada. Since only 11 months of data were available for Japan, Germany, the United Kingdom and Canada, the 12th month was constructed to be the average of the preceding eleven.

30

63 per cent of world output in 1984, the United States alone accounted for 26 per cent of it. Vis-a-vis ASEAN, the United States in 1983

proved itself to be a major independent source of growth by importing nearly the whole range of commodities at a faster rate than the other developed countries (Table 5). U.S. imports of petroleum products increased by 25 per cent while total petroleum imports of other industrialized countries declined by 15 per cent. Also, the percentage increase of U.S. imports of every category (except for non-jute and non-cotton fibres) is notably greater than that of the total imports of the industrial countries. The same scenerio was somewhat repeated in 1984. In marked contrast, Japan, with the second fastest growth rate in 1984 among the G7 countries, did not demonstrate a strong propensity to import ASEAN primary commodities. It appears that the economies of Japan and Western Europe are drawing their growth impulses from exports to the United States. Hence, U.S. policy changes which can result in Europe and Japan being independent growth poles will undoubtedly raise economic welfare within ASEAN and universally, as well. A policy option which would bring about a happier state of global economic affairs can be as follows. "The U.S. can change its policy mix without compromising its objectives of reducing the size of the government and of keeping the lid on inflation. The U.S. structural budget deficit should be ended by reducing expenditure more than by increasing taxes. This would allow the Federal Reserve to lower U.S. interest rates without overheating the economy. As long as the Reagan tax reduction is now accompanied by expenditure reduction, aggregate demand can be maintained through less restrictive monetary policy. Full employment and price stability with more capital formation [are] surely a superior outcome to the present situation." The depreciation of the dollar arising from lower interest rates would probably induce the European and Japanese governments to relax their monetary controls thereby leading to an increase in investment and a reduction in unemployment without sacrificing their inflation objectives. The higher level of economic activity in the indumia.l countries will mea"n-therecover:y::ut:cOilliiiQdiiYJ;rices their export~v_,Qlumes, bringing benefits to ASEAN. Countri~s=In ASEAN, particularly those with serious debt problems, w1ll further

an(r

-----

31 benefit from the lower interest payments because of lower interest rates. Therear.e-~lty even greater-c-ost;if the budget impasse continues. In the United States Congress, there are mounting pressures for protection against increased foreign competition brought about by the high dollar. A bill was introduced in early 1985 to impose a 20 per cent surcharge on all imports. The surcharge will lower the prices of raw materials and reduce the growth of manufacturing industries in ASEAN. Only with the ending of the structural deficits will protectionism be overcome. In short, "the policy mix that is propelling the U.S. economy forward involves higher costs to ASEAN than is generally realized. The resolution of the deadlock over the U.S. budget will allow the release of the North American, European, and Japanese monetary brakes, enabling the locomotives of the world to pull ASEAN to their former growth paths." Policy analyses, such as those embodied in this study, are necessary to focus attention on U.S., European, and Japanese economic polices which have a very important impact on their trading partners. Often, policies which are primarily directed to domestic problems such as the huge deficits in the Federal Budget of the United States affect the prospects for trade with the ASEAN region and elsewhere. In many instances, more efficient solutions can be found which would lead to higher levels of trade without necessarily sacrificing domestic objectives.

V Transfer of Technology to the ASEAN Region by U.S. Transnational Corporations Charles W. Lindsey

The success of sustained economic growth of ASEAN can be attributed to several factors including the relatively open economies and pragmatic government policies which have encouraged foreign direct investment, the major investors being the United States and Japan. This paper addresses the transfer of manufacturing (production) technology to ASEAN by U.S. transnational corporations, inquiring as to whether transnational corporations (TNCs) have made significant contributions to ASEAN economic development in this area. At the outset it is useful to highlight the following observations: I.

technology and technological change are central to the theories of growth and change associated with Marx, Veblen, and Schumpeter;

2.

insufficient attention was accorded to the role of science and technology in the economic development of the Third World until the mid-1960s;

3.

initially, technology transfer was viewed as a question of the choice of technique, a technocratic one of achieving the highest benefit-cost ratio; and

4.

The transporting of technology across countries is not the same as it being transferred; the latter connotes not only movement but also control. It should not simply be assumed that technology is transferred when TNC investment occurs; the subject should first be investigated.

The main conclusion of this study is that technology is being transported to ASEAN. Specific skills and knowledge are also being transferred as are management capabilities - particularly in 33

34

the area of finance and marketing. The data, however, suggest that the degree and quality of technology transfer of industrial processes by transnational firms is not large. Manufacturing by TNC-affiliated firms, with conspicuous exceptions, remains last stage assembling and highly import dependent. /

r

\The problem of appraising the extent of technology transfer is

! twofold: firstly, most of the ASEAN countries do not attempt to control

' I

/ the qualitative nature of the technology being actually transferred. Only Malaysia and the Philippines regulate the terms and conditions of technology imports; secondly, the general paucity of data renders the assessment of the volume of technology transfer to ASEAN countries \ difficult. Four specific aspects of technology transfer process are \ discussed: 1. appropriateness and cost; 2. skill development; 3. diffusion and completeness; and 4. non-mastery of technology. On the issue of appropriateness and cost, the following observations can be made: Firstly, available evidence suggests that the extent of technology adaptation in ASEAN countries is rather small or limited. Often the technologies chosen by TNC-affiliates are similar to those used by TNC home-country plants. Hence, in terms of adaptation to accommodate host countries' factor endowments and market size, appropriateness of technology has been found wanting; Secondly, domestic production of inappropriate goods creates imbalances in the economy, for instance, displacement of rural families to make way for agribusiness and a steel processing plant in the Philippines; Thirdly, in the case of Thailand, technology contracts between Thai and American firms involved the licensing of monopoly goodwill, which contribute little to accumulation of industrial and technical skills. Similarly, in the Philippines, most licensing agreements in the early 1970s (mainly U.S. firms) pertained to trademarks and trade names rather than substantive technical know-how. Besides, many of these agreements included export-restrictions and tied-in purchases of raw materials.

35 Concerning the issue of skill development at least three aspects require consideration: (a) (b) (c)

raising competency of workers and technicians; broadening the pool of available skills; and developing skills that are technologically or economically mobile among firms and industries.

In the ASEAN region, efforts of TNC affiliates appear to be directed primarily to (a), but even in this area activities are limited. There is some training of skilled workers, but rather little of the larger mass of unskilled labour in productive activities. The absence of a broader and more substantial impact can be attributed to three possible reasons: the predominance of last-stage, assembly-line type operations and the lack of complex production processes and local R&D; the concentration of R&D activities at the headquarters of TNCs; limited commercial contact with domestic firms because of the outward orientation of TNC-affiliated firms. ASEAN countries could have achieved more from these TNCs with proper government inducements and regulations as demonstrated by Singapore's ability to encourage TNCs to enhance its skilled labour pool. Although TNCs have received recognition of their significant contribution to help ASEAN countries develop professional and managerial skills, it needs to be pointed out that the beneficiaries still accounted for rather a small proportion of the work-force in each ASEAN country. In addition, more attention appears to be directed to the areas of finance and marketing than to the developmentally important area of production management. Additionally, it should be noted that indigenous technical and professional skills for use in R&D activities in the ASEAN region are still und~rutilized and not being developed to any significant extent by the TNCs. Studies have shown that there are few and insignificant R&D activities in TNC subsidiaries in the Philippines, Malaysia, and Singapore. Pertaining to the issue on diffusion and completeness, technology can be diffused through several ways, including: (a) movement of trained staff from TNC affiliates to locally owned firms in ASEAN countries, and (b) sub-contracting and (c) other types of inter-firm

36

linkages. Available evidence indicates that, generally, the extent of technology transfer through (a) is not substantial; and through (b), "shallow and weak" as in the case of TNCs in Philippines preferring in-house sourcing. Lindsey's 1981 study,* however, revealed that TNC affiliates in the Philippines had been domestic sourcing of only one fourth to one third of total production cost. The major domestically-sourced material was packaging. These TNC affiliates continued to rely on imported inputs largely from their parent or affiliated firms. In Singapore, American TNCs had been found to purchase more from local suppliers though compared to other TNCs, they tend to buy a lesser amount of inputs locally. The inter-firm linkages between American TNCs and local firms, though increasing, are still minimal. Pertaining to the issue of non-mastery of technology, the point can be made that the usefulness of technology transfer to a recipient, Third World society is to increase its capacity to assimilate technology into the larger economy, adapt it to its particular needs, and create new, appropriate technology. It is this mastery of technology that links technology transfer to economic development. It also provides knowledge and appreciation of potential pollution hazards and industrial health problems, and the ability to control them. Studies of technology transfer in the ASEAN region have not directly addressed the issue of mastery, but information available suggests that TNC contributions have been limited. It was noted that Singapore appears to have utilized TNC investment without attempting to achieve technological mastery. This is the result of Singapore being small and urban; TNC activity accounts for a significant portion of total economic activity. Its size, along with a strong government, also allows the formulation and implementation of policies quickly and continually to ensure that the country's economic environment meets the needs of TNCs. Lastly, the local economic elite appears to be willing to play a secondary role in the economy. For all these reasons Singapore is unique; it is unlikely that its approach has generalized * Lindsey, Charles W. "The Development Contribution of Multinational Firms in the Philippines". Discussion Paper 81-06. Quezon City: School of Economics, University of the Philippines, 1981.

37

applicability in the region. The other ASEAN economies will need to be concerned with acquiring technological mastery. In sum, this study confirms what economic theory predicts. "TNCs operate in imperfect markets; their control of technology is a major source of their power and ability to extract rents. Over time, ... the benefits of monopoly control should lessen. Product cycle theory predicts that a TNC should then find it profitable to transfer more of the technology to a Third World country." However, a sceptic of this view has pointed out "that a monopoly in a particular technology is often supported by other forms of monopolistic advantage: brand names, trade marks, and firms specific skills in management and marketing .... Consequently the overall advantage of maintaining mastery of the technology within the firm may not erode except over a very long period of time." Therefore, to conclude, investment may be desired for other reasons, but not to enhance the ASEAN countries' technological capacities. That will have to be done in other ways.

VI

The Role of U.S. Foreign Investment in ASEAN Industrial Co-operation Marjorie Suriyamongkol

This study attempts to cut through the maze of questions without sacrificing the political-economic link. Insights can emerge that are perhaps useful to U.S. investors. ASEAN policy-makers learning from past experience, can consider the balance between the show and the substance of regional economic co-operation, and send clearer signals to each other as well as outsiders about future co-operative intentions. Foreign investment has contributed to the ASEAN region's economic dynamism as well as altered trade patterns, capital movements, and general economic relations among ASEAN members vis-a-vis outside powers. U.S. investment has had a significant role in national industrialization of the five ASEAN-member countries. This paper focuses on the interaction process at the regional level and seeks to examine the nature and extent to which U.S. investment is complementary to ASEAN industrial co-operation. More specifically, discussion is focused on two aspects: how ASEAN members co-operate among themselves, and how ASEAN as a group interacts with extra-regional economic powers such as the United States. There are various definitions of "complementarity" but for the purpose of this study the definition adopted is: "complementarity materializes when each country accords with the world by offering goods other countries need and buying from them goods it needs itself'. However, drawing on K. Kojima it needs to be added that such a relationship is one of dynamic comparative advantage whereby developing nations transform their economies through deliberate shifts in industrial specialization. Hence, the type of goods they produce for the world market attempts to develop complementarity with the 39

40 inflow of foreign direct investment, transfer of technology and skills, import of inputs, non-concessional commercial borrowings and aid. Any complementarity between U.S. investment and ASEAN industrial co-operation raises two issues: 1. the nature of the existing complementarity and 2. how it could be changed as a result of activities and policies. The second issue is the main focus of this paper. Regarding the current international context of which U .S.-ASEAN relations are a part, five general observations, can be made: 1. By the late 1960s and the 1970s export-oriented industrialization strategies were adopted by all five ASEAN member countries; 2. In the early 1970s, the export-oriented strategies of the ASEAN countries complemented the changes in foreign investment policies of Japan and the United States; 3. The United States is the world's largest foreign investor and concentrates investment activities in Europe, Latin America, and Canada. However, the United States is important to the ASEAN countries both as a source of foreign investment and as a trade partner - but the relationship is asymmetrical as ASEAN is not as important for U.S. foreign investment; 4. In view of barriers to the Japanese market and the concern over the growing strength and pervasiveness of Japanese economic presence in the region, the ASEAN grouping looks to the United States as an alternate trade partner and investment source, and 5. When viewed in terms of U.S.Japan-ASEAN triangular relations, ASEAN could be significantly less important to U.S. and Japanese investors. The five preceding observations help clarify the assumptions and provide the foundations on which to build the argument that essentially U.S. investment does not seem to complement the industry structures of ASEAN countries. Rather, U.S. investment appears to complement the strategies of American transnational firms. These American TNC strategies have generally promoted investment in raw material (in particular oil and gas) extraction for export as in the case of Indonesia; in off-shore industries producing electronic and electrical products as in Singapore; and in import-substituting activities in Thailand and the Philippines. As for Malaysia, import-substituting and exportoriented affiliates of American TNCs tend to be more evenly represented. Overall, U.S. foreign investments in ASEAN arise because of such favourable factors as those generally associated with host

41

country policies: factor and transport costs; size of market and firmspecific advantages. They tend to be found in industries with oligopolistic market structures and high capital-cum-technologyintensity. It should be pointed out that import-substitution strategies that

protect certain industries and encourage certain kinds of FDI can orientate ASEAN countries more strongly to the rest of the world than to the region, possibly resulting in ASEAN countries becoming economically unrelated rather than competitive with, or complementary to one another. Also, the complementarity associated with export-oriented strategies could direct ASEAN countries away from the region and toward the rest of the world by creating competition among the countries in manufactured exports. This has stimulated an international division of labour for ASEAN that produces differences and inequalities among its members. For instance, U.S. investment in Singapore's petroleum processing and refining together with trade activities have been instrumental in linking Singapore to the region (especially Malaysia and Indonesia) and have in turn linked ASEAN to the United States and world markets. Other ASEAN members, notably Indonesia and Malaysia, and to some extent Thailand, want to change these economic linkages as part of industrial development at the national levels as well as at the ASEAN level. It would appear that such attempts to restructure investment and trade relations would have adverse effects on Singapore. These changes of government policies pertaining to trade and investment linkages in terms of ASEAN realities and aspirations of ASEAN co-operation should be of critical concern to U.S. investors. Four techniques for industrial co-operation in ASEAN that have been implemented are: preferential trade arrangements (PTA); ASEAN industrial projects (AlP); ASEAN industrial complementation (AIC); and ASEAN industrial joint ventures (AIJV). This study provides examples of ASEAN attempts at industrial co-operation (concentrating mainly on the three types of industrial projects) to show whether or not they are successful. Also provided are valuable insights into existing barriers to co-operative endeavours in ASEAN and the role that the United States private sector has played, which might be conducive

42

to complementarity. The analyses undertaken revealed the following: 1.

Two projects which had attracted United States investors were withdrawn as ASEAN Industrial Projects (AlP); one of these was the diesel engine project in which American investors appeared willing to risk entry into the regional market without ASEAN incentives, guarantees, or protection.

2.

Pertaining to ASEAN Industrial Complementation (AIC), American investors did not appear to play a direct or active role except for one American TNC, the Ford Motor Company, which presented a "visionary" and potentially viable proposal that was not accepted. Ford proposed a regional complementation project to establish automotive/motor vehicle assembly. Ford already had three subsidaries in ASEAN and spurred by self-interest, envisioned ASEAN market opportunities in the 1970s and beyond in terms of providing a "modern-day Asian Model T" for the rapidly growing middle-income groups.

3.

ASEAN Industrial Joint-Venture (AIJV) projects offer great potential for a number of industrial products to ASEAN, American and other foreign investors. However, as the AIJV schemes still involve governments and therefore require political decisions, the benefits to investors, whether American or ASEAN, must be weighed with circumspection. Non-economic factors could influence the ultimate location of a project, and this might cause serious set-backs to optimum utilization of factor endowments as well as to profitability.

4.

On the whole, American investors have not fared well considering their past experiences with the three techniques (AlP, AIC, and AIJV) of ASEAN industrial co-operation. In part this could be due to ASEAN's differing or conflicting national interests and its downplaying and omitting whenever possible the contributions of foreign investors. Also, American investors must guard against the syndrome of waiting for opportunities that are perpetually in the future while their Japanese and other rivals are more willing to

43

take the risks and be more accommodating of ASEAN terms and conditions of investment. 5.

ASEAN economic co-operation, generally, has been presented to the United States investors as offering longterm potential which affords opportunities for creative corporate strategies and may require redefining the nature and form of investment commitments. Corporate rivals, particularly investors from Japan, Taiwan, Hong Kong, and South Korea, have accepted conditions and risks that led to their more successful long-term strategies. One possibility would be for some American TNCs to collaborate with these Asian corporate competitors in supplying technology, equipment, and know-how for large industrial projects which might directly or indirectly help complement large-scale industrial development efforts as guided by national governments in ASEAN.

The conclusion raises the warning that "trade frictions threaten to overshadow ASEAN-U.S. efforts in investment and industrial promotion/complementation. If pessimism prevails, then it is likely that the crises will create a longer-term storm in U .S.-ASEAN relations. Given the importance of U.S. capital and markets, such conditions cannot be expected to promote predictable or favourable investment climates nor stable co-operation among ASEAN members. Members' vulnerability to U.S. trade and investment policies may make ASEAN co-operation even more vulnerable. As ASEAN members see the threatening conditions develop into a storm, we may ask whether foreign investment in smaller-scale regional projects will be able to survive the storm. And we have yet to see whether ASEAN will move together to face the impending economic storm or whether each member country will go its own way to seek shelter.

VII

ASEAN Manufactured Exports to the United States Chia Siow Yue

This contribution is concerned with the trend and structure of ASEAN manufactured exports to the United States within the context of ASEAN's overall manufactured exports, and with the major issues in the ASEAN-U.S. bilateral trade in manufactures. ASEAN manufactured exports to the United States have grown rapidly since the early 1970s, and particularly in 1983-84 with the rapid recovery of the U.S. economy. The major characteristics of ASEAN's manufactured exports to the United States may be demonstrated by examining the trade data of 1982. First, the major manufactured exports are all in the non-resource-based product groups, with the leading SITC 3-digit items being electrical machinery, clothing, telecommunications equipment, and switchgear and electrical power machinery; in other words, the major exports were the products of the electronics industry established in the late 1960s and the 1970s in a number of ASEAN countries. Second, using the Krause classification of factor intensity, it was found that about half of ASEAN's manufactured exports to the United States were in the technology-intensive category, primarily due to the concentration in electronic products exports. It is debatable whether much of the exports of electronic products can really be classified as technology-intensive, as many of the processes performed in ASEAN countries are highly labour-intensive, and much of the technology is imported. The second largest group of exports comprises textiles and garments, and these are labour-intensive. Third, computation of the Grubel-Lloyd index shows that ASEAN-U .S. intraindustry trade in manufactures is significant. With the dominance of electronics in ASEAN manufactured exports to the United States, 45

TABLE 6 ASEAN Exports to the United States under the GSP, 1982 Indonesia US$000 -

Total exports Total GSP items Dutiable A Dutiable B Duty-free

07o

Malaysia US$000

%

Philippines US$000

%

Singapore US$000

%

Thailand US$000

%

ASEAN US$000

%

-·-·------·

4508518 100.00

1958981 100.00

1955514 100.00

2273816 100.00

956248 100.00

11653077 100.00

16466 1257

0.37 0.03

15208

0.34

257293 13.13 172074 8.78 14900 0.76 70318 3.59

285895 14.62 62340 3.19 86101 4.40 137455 7.03

794677 34.95 254318 11.18 110980 4.88 429379 18.88

202713 21.20 23244 2.43 17628 1.84 161841 16.92

1557044 13.36 513234 4.40 229609 1.97 814201 6.99

16.81

16.78

19.51

8.21

100.00

16.52 33.53 6.49 8.64

18.36 12.15 37.50 16.88

51.04 49.55 48.33 52.74

13.02 4.53 7.68 19.88

100.00 100.00 100.00 100.00

Country share in ASEAN: Total exports 38.69 Total GSP items 1.06 Dutiable A 0.24 Dutiable B Duty-free 1.87 SOURCE: Office of USTR.

47 the high degree of intra-industry trade most probably reflects a high degree of intra-firm trade between American TNCs and subsidiaries. Fourth, a significant proportion of ASEAN exports to the United States was covered by the Generalized System of Preferences (GSP). In 1976, ASEAN GSP duty-free exports to the United States amounted to only US$167 million; by 1982 (see Table 6) they had grown to US$814 million, to account for 7.0 per cent of ASEAN's total exports and 9.6 per cent of United States' total GSP imports. The importance of the U.S. GSP varies greatly among the five ASEAN countries. For Indonesia, GSP exports amounted to only 0.3 per cent of its total exports to the United States. For Malaysia and the Philippines, the shares were 3.6 per cent and 7.6 per cent respectively. But for Thailand and Singapore, the shares rose to 16.9 per cent and 18.9 per cent respectively. In fact, Singapore alone accounted for about half of the ASEAN exports to the United States under the GSP. However, the size of the Singapore's GSP exports to the United States was still very small when compared with the GSP exports of the East Asian NICs of Hong Kong, Taiwan, and South Korea. Issues arising from ASEAN manufactured exports to the United States must be seen in the context of overall issues in ASEAN-U.S. economic relations. As evidenced from the ASEAN-U .S. Dialogues, ASEAN's economic relations with the United States have been generally amicable. Nonetheless, some of the ASEAN concerns are: 1. the need for greater ASEAN access to the U.S. market for tropical and agricultural goods; 2. the trend towards increased protectionism in the United States and other advanced industrial countries, as manifested in the restrictions introduced into the Generalized System of Preferences; and 3. U.S. policies with respect to primary commodities of key interest to ASEAN countries, including tin, sugar, and rubber. In turn, the U.S. concerns include: (a) the one-sided nature of ASEAN-U.S. trade; and (b) the need for ASEAN governments to implement effectively the protection of intellectual property rights. ASEAN countries, being highly dependent on international trade, have been particularly concerned with the issue of market access, not only for their traditional exports of primary commodities, but increasingly for their non-traditional exports of manufactures and

48 services. The concern of market access extends to bilateral economic relations with all advanced industrial countries, including the United States. Specifically on ASEAN exports to the United States, ASEAN has been concerned over American imposition of non-tariff barriers in food and in textiles. Quantitative restrictions and Food and Drug Administration (FDA) regulations have impeded the exports of canned tuna fish, Thai canned shrimp and crabmeat, and Malaysian canned pineapples. With regard to textiles, the second Multi-Fibre Agreement has been much more restrictive than the first. And the American imposition of countervailing duties (CVD) on ASEAN exports of textiles and garments, as well as a number of other products had created trade frictions; although in many cases ASEAN countries had successfully defended themselves against the CVD petitions, time and resources had been wasted. Another area of ASEAN concern has been the growing restrictions placed on the U.S. GSP. The implementation of product graduation in recent years gave rise to uncertainty, since the graduation criteria were general and vague. More recently, the 1984 U.S. Trade and Tariff Act contained a number of highly restrictive provisions concerning the U.S. GSP which could adversely affect ASEAN manufactured exports to the United States.

VIII

The Competitiveness of U.S. Exports to ASEAN: A Business Economist's View Eric Rasmussen

This study examines the competitivenesss of U.S. exports to Japan from a business economist's viewpoint and is based on the assumption that it is not nations that compete in international trade, but companies. The bureau of customs and the statistics department collect data that are presented at a level of aggregation which often vitiates the value of the data for discussing issues of competitiveness. The businessman will protest that comparisons of U.S. and Japanese total export levels in specific foreign markets may be of relevance to policymakers and labour leaders but probably have little to say about his specific product. It can be argued that macro-economic trends and changes in the supply of productive factors are much less important than the specific features of a product and the skill of a particular market team. A distinction can be made between a "major player" who might have only a 10 per cent share and a "dominant player" who has about half of the market or more and is thereby capable of determining product design standard for the industry. Also, a distinction needs to be made for a firm which is not a major player but may still be large enough to be a factor. Two or three "breakouts" - product innovation or a marketing ploy which could add 3 to 5 percentage points to market share with each "breakout" - would turn a firm from being merely a factor into a major player. These terms can then be applied to identify the relative positions of corporations to the relative shares of countries in specific markets. In attempting to understand the competitiveness of U.S. exports to ASEAN vis-a-vis other countries, computation is required for export shares for 1970 and 1980 for total exports, and exports of key 49

50 manufactured goods. At the macro level statistics show that ASEAN was virtually a "Japanese lake" with about 40 per cent of total exports from major industrial countries (Table 6), but this "lion's share" remained at this level despite the rapid growth of Japan's GNP during this period. The U.S. which began the 1970s as a major player in the ASEAN market was able to register a significant increase in its share during the decade because of a substantial rise in chemical exports which more than doubled during the period. The increase in U.S. share in the industrial country exports of machinery and transport equipment was much less notable. While European countries generally lost ground to the United States in terms of total share of exports during the period, major competitors in chemicals (including Japan) were especially hard hit. However, in medicines Switzerland held its own as a major player and Britain and Italy strengthened their positions in the market. The United States and Japan began the decade as "major players" in machinery exports, and Germany and Britain as "important factors". But by 1980 Japan had moved up to gain a lion's share; the United States maintained 25 per cent of the market; West Germany was struggling to maintain its share; and Britain had been reduced to a minor 6.6 per cent share. Investigation of the underlying factors determining trade shares was undertaken by analysing trade flows. First, the literature on this subject was reviewed to account for the varying importance of supply and demand factors and distance and preference variables in different approaches. Data was collected for the eleven industrial countries and the ASEAN nations for 1970 and 1980 and regression analysis was conducted. The following tentative conclusions emerged: I.

The importance of being a "major player" appears to have increased over time. However, it should also be noted that although the United States and Japan have large GNPs, Japan actually lost part of its market share especially in chemicals over the 1970-80 period.

2.

The effect of distance as a barrier to trade appears varied over the 1970-80 period depending upon the product. For chemicals the importance of distance appears to show a

TABLE 7 Market Shares for Selected Exports to ASEAN Countries, 1970 and 1980 (Percentage Shares for 11 Major Industrial Countries) Total Exports

Chemicals

Medicines

Machinery

Civil Eng. Equip.

1970

1980

1970

1980

1970

1980

1970

1980

1970

1980

42.2

40.4

37.7

24.4

11.1

7.9

36.4

44.2

28.0

38.9

1.8

2.0

0.5

1.2

0.4

1.3

2.0

0.8

0.8

1.2

26.5

28.3

18.0

48.3

16.9

19.7

24.6

25.6

52.3

46.7

Australia

0.5

5.1

2.9

1.7

5.0

4.4

2.4

1.2

3.5

1.5

France

2.2

2.9

3.0

2.9

4.4

4.3

1.6

3.0

1.0

1.7

West Germany

8.9

7.5

12.3

8.5

21.3

16.7

11.7

9.6

2.0

2.2

Italy

2.3

2.0

1.7

1.3

5.4

8.0

3.1

2.1

1.5

0.8

Netherlands

3.0

2.7

4.6

2.6

4.1

3.4

3.0

3.7

0.4

0.5

Sweden

1.0

1.9

0.4

0.3

0.0

1.7

1.5

2.2

0.7

1.4

Switzerland

1.4

1.1

4.0

1.9

14.2

14.0

0.5

0.8

0.0

0.0

10.3

6.0

12.3

7.0

17.2

18.6

13.1

6.6

9.7

5.0

Japan Canada United States

United Kingdom

SouRcE: Calculated from United Nations, World Trade Annual, 1970 and 1980.

52

decline; but for machinery exports, it appears to have increased over the period, confirming the expectation that the nearest country, Japan, gained a substantial market share. 3.

There appears to be some evidence that the advantages of preferential relations declined during the period, indicating a measure of consistency with conventional observation concerning a fading of traditional colonial relationships over time.

With regard to trade in services it appears that U.S. exports of services to ASEAN have shown a favourable trend since the 1970s; and it is an even stronger competitor than the trade data show. A cursory look at movie theatres, first class hotels, and fast food franchises suggests that the United States is surely a major player in these markets also - and may have a lion's share. Although the United States may not survive on items in the services trade alone, it is noteworthy that it earns as much as 35 per cent of its current account from "unseen trade", a magnitude which has hardly changed in twenty years. An additional observation is that the United States has been able to maintain its global market share by taking a major stake early in new industries and inventing new products and services to be marketed in ASEAN and elsewhere.

Workshop Participants

1. Dr Narongchai Akrasanee The Industrial Management Co. Ltd Bangkok Thailand

7. Mr George Gowen American Embassy Singapore 8. Dr Ibrahim Hasan P.T. Hasfarm Dian Konsultant Jakarta Indonesia

2. Prof Amado A. Castro School of Economics University of the Philippines Diliman, Quezon City Philippines

9. Dr Mingsarn Santikarn Kaosa-ard Department of Economics Chiangmai University Chiangmai Thailand

3. Assoc Prof Chia Siow Yue Department of Economics and Statistics National University of Singapore Singapore

10. Dr Agustin Kintanar, Jr. ASEAN Economic Research Unit Institute of Southeast Asian Studies Singapore

4. Dr Chng Meng Kng Department of Economics and Statistics National University of Singapore Singapore

II. Dr Hank Lim Department of Economics and Statistics National University of Singapore Singapore

5. Dr Peter Davis U.S. Agency for International Development Manila Philippines 6. Dr Dean A. DeRosa Economics Office Asian Development Bank Manila Philippines

12. Assoc Prof Charles W. Lindsey Department of Economics Trinity College Hartford, Connecticut USA

53

54 13. Dr Seiji Naya Resource Systems Institute East-West Centre Honolulu, Hawaii USA

20. Dr Richard Staubitz Morgan Guaranty Trust Company Tokyo Japan

14. Mr Somkiat Nipatakusol Royal Thai Embassy Singapore

21. Dr Jon L. Summers The Asia Foundation Kuala Lumpur Malaysia

15. Ms Mari Pangestu Department of Economics University of California Davis, California USA 16. Dr Eric Rasmussen Chemical Bank Tokyo Japan 17. Dr Hans Christoph Rieger ASEAN Economic Research Unit Institute of Southeast As~ Studies / Singapore 18. Dr Bienvenido Rola ESCAP/UNCTC Joint Unit on TNCs Economic and Social Commission for Asia and the Pacific Bangkok Thailand 19. Prof K. S. Sandhu Institute of Southeast Asian Studies Singapore

22. Dr Marjorie L. Suriyamongkol ESCAP/UNCTC Joint Unit on TNCs Economic and Social Commission for Asia and the Pacific Bangkok Thailand 23. Mr Tan Keng Jin ASEAN National Secretariat Ministry of Foreign Affairs Singapore 24. Dr Tan Loong-Hoe ASEAN Economic Research Unit Institute of Southeast Asian Studies Singapore 25. Dr Wing Thye Woo Economic Studies Program Brookings Institution Washington, D.C. USA