Meeting Report
MAIN THEME: “Japanese Investment and East Asia Economy”
~ Report of the Meeting ~
November 23rd 2005: Public Seminar
Theme: A New Pattern of Foreign Investment in Emerging East Asia Economy
1. Opening Session
CHAIRMAN AND CO-CHAIRMAN
CHAIRMAN:
Mr. Staporn Kavitanon, Head of the ASEAN Standing Committee & Thai National Committee (Vice Chairman, Bangkok Bank Public Co., Ltd)
CO-CHAIRMAN:
Mr. Shoei Utsuda, Chairman of Committee on Asia-Japan Relationships, Keizai Doyukai (President and Chief Executive Officer, Mitsui & Co., Ltd)
SPEAKERS
(1)
Welcome Remarks by Mr. Staporn Kavitanon, Head of the ASEAN Standing Committee & Thai National Committee (Vice Chairman, Bangkok Bank Public Co., Ltd)
(2)
Responding Remarks by Mr. Kakutaro Kitashiro, Chairman of Keizai Doyukai (Representative Director & Chairman, IBM Japan)
(3)
A Message from H.E. Prime Minister Junichiro Koizumi, Prime Minister of Japan read by H.E. Mr. Hideaki Kobayashi, Ambassador to Thailand
(4)
A Keynote Speech by H.E. Dr. Thaksin Shinawatra, Prime Minister of Thailand
(1) Welcome Remarks by Mr. Staporn Kavitanon:
The seminar started with the welcoming remarks by Mr. Staporn Kavitanon, Chairman, Head of ASEAN Standing Committee & Thai National Committee. He thanked the Prime Minister for his presence at this event and stressed the importance of the co-operation between Japan and ASEAN, in particular the role of Japanese investment in this region. Japanese companies started to relocate their production to ASEAN in the 1980s, and then to China in later years. Given the changes in global competitive environment such as the proliferation of FTAs and the emergence of China and India, another wave of Japanese investment into ASEAN is expected and it is most timely to examine this issue at this forum.
(2) Responding Remarks by Mr. Kakutaro Kitashiro:
Regarding EPA (Economic Partnership Agreement), Japan reached a basic agreement with The Philippines, Malaysia, and Thailand following Singapore and Mexico, with which agreements are already effective. Japan should make further efforts to complete the EPA agreement with ASEAN as a whole.
Global competition in attracting FDI has been intensifying. Therefore, in order to compete successfully with China and India, ASEAN needs more efforts to improve their environments in such areas as protection of intellectual property rights, transparency of administration, security, and corporate governance. These factors are part of the new investment paradigm. For the part of Japan, Japanese companies should strengthen their corporate governance and CSR (Corporate Social Responsibility) as well as compliance, respecting local culture, localization of managerial staff, technology transfer, and ecology.
(3) A Message from H.E. Prime Minister Junichiro Koizumi:
Greater interdependency among the nations in East Asia is bringing about de facto regional economic integration. The growing regional cooperation will create a momentum for establishing an East Asian Community. The ASEAN – Japan economic relationship is at the core of the dynamism of this integration, given the fact that Japan is ASEAN’s largest source of FDI. Japan intends to support ASEAN’s effort to establish an integrated economic community by 2020, and will continue its efforts for further development of the ASEAN-Japan relationship.
(4) A Keynote Speech by H.E. Prime Minister Dr. Thaksin Shinawatra:
Japan has been crucial to ASEAN, for it is one of the largest sources of FDI and the largest trading partner. For Thailand, Japan is the largest trading partner and the largest source of FDI. The trading volume is expected to significantly increase after the completion of the Japan-Thailand Economic Partnership Agreement (JTEPA). ASEAN countries have pushed strong efforts to foster the freer flow of goods, services, investment, skilled workers, and capital, by committing to establish the ASEAN Economic Community (AEC) by the year 2020. ASEAN countries shall expand the ASEAN Free Trade Area (AFTA) to include China, South Korea and Japan, to be a new trading bloc known as East Asia Free Trade Area (EAFTA). ASEAN itself also provides opportunity for foreign investors. Thailand, for example, will launch mega projects worth around $44 billion during 2005 – 2009. The aspect of economic progress is not the only agenda for ASEAN economic cooperation, but also the attempt to narrow down the development gap between its members on a regional and sub-regional level.
2. Session I
TOPIC
Business Environment Affecting Investment and Trade in ASEAN and East Asia
CHAIRPERSON
H.E. Dr. Cesar E. A. Virata, Board of Directors, Rizal Commercial Banking Corporation (RCBC), Former Prime Minister and Minister of Finance, the Republic of the Philippines
PANELISTS
(1)
Mr. Minoru Murofushi, Senior Corporate Advisor and Former Chairman, Itochu Corporation, Japan
(2)
Mr. Kusumo A. M., Chairman of Indonesia-Japan Economic Committee, Indonesia Chamber of Commerce and Industry, Indonesia
(3)
Mr. Manu Bhaskaran, Partner and Member of the Board, Centennial Group Inc., Singapore
(4)
Mr. Pote Videt, Managing Director, Private Equity (Thailand) Co., Ltd & Affiliate of Lombards Investment, Thailand
(1) The highlights of Mr. Murofushi’s presentation are as follows:
The rise of China and India onto the world stage with the US and Japan has created an unbreakable interdependency with inevitable effects to other economies, through forces such as the struggle for the world’s resources. The growth has been impressive, but there are still problems such as wealth gaps within and between nations. An East Asian Community will be forming with ASEAN as its core. It is strategic geo-economic position for China and India to be incorporated as a part of this process. The GMS (Greater Mekong Sub-region) is a sub-region that needs special attention. For this purpose, the development of the East/West and North/South corridor would help accelerate the development of GMS. It is also a strong base for energy, as well as that of agriculture. ASEAN and East Asia offer highest potential for economic and political stability as there is no unilateralism or hegemony.
(2) The highlights of Mr. Kusumo’s presentation are as follows:
With its first democratically directly elected President, Indonesia is aiming to revitalize its agricultural sector and SMEs, as well as strengthen its national competitiveness and improve its investment climate. The 2004 tsunami demonstrated the success of cooperation, along with the continued growth despite high oil prices and rising interest rates. In this year, there has been a change in nature of economic growth from being consumption-based to investment-based. Ninety two percent of imports consisted of raw materials and capital goods. New investment law is being finalized, and tax regime is being reformed, in addition to tariff reforms and improvement of labor laws. Despite good macro indicators, there are still micro problems of red tape, corruption, as well as macro unemployment, grassroots, and poverty problems. Indonesia is committed to improving the investment climate, increasing budget to health and education, a skilled labor force, and reducing dependence on fossil fuels.
(3) The highlights of Mr. Bhaskaran’s presentation are as follows:
There is much to be optimistic about the ASEAN outlook in terms of politics and cyclical and structural factors. There has been negative media coverage of the political scene, but despite the political instability that must be taken as part of the landscape, the optimism comes from the resilience that nations have shown to this. South East Asia has expanded to meet global demand, with OECD indicators consistent with the outlook of improvement within the region. However, extremes in global imbalances will inevitably be rebalanced, but the question is when and how softly. Despite high oil prices and rising interest rates, South East Asian economies have shown an improvement in resilience since 1997, partly from diversification of economic sectors, as well as strengthening of domestic demand, which has led to an ability to adapt to change. Just as importantly, China’s growth has not been at the expense of South East Asia. China has a trade surplus with the US, but a trade deficit with ASEAN, which is evidence of a complementary relationship between China and ASEAN. However, ASEAN needs to establish its share and niche in the global economy. With the reduction in political risk and a high rate of return, ASEAN presents an optimistic outlook for investment.
(4) The highlights of Mr. Pote’s presentation are as follows:
The Thai government set initiatives after 1997 to create an alternative means of financing in order to decrease the dependency on bank debt. After 1997, domestic demand has been underpinning the recovery, with micro aspects giving great growth support, as demonstrated by double-digit growth rates by some retail businesses despite macro qualms. Thai export companies need to be more careful, however, as there has been a general shift in distribution of export markets. Export growth in Asia has been at 60 -70 %, and Thailand will want to capture that growth. FDI in China is at the 50 – 60 billion dollar range; however, much of this is “roundtripping”, meaning investment from Chinese companies based in Hong Kong and Chinese Taipei. Accordingly, ASEAN has a larger share of Japanese FDI than China. ASEAN will continue to receive FDI from Japan as it offers economic and political diversification. Additionally, there has been good progress in terms of corporate governance, but Thailand still needs to concentrate on its enforcement. This is not from a moral high ground, but rather from the risk of bad governance and potential loss in return.
(5) Discussion
Questions were raised regarding (1) corruption, (2) the automotive industry in ASEAN, (3) financial imbalances in the US and East Asia, and (4) compelling reasons for Japan to invest in ASEAN.
It was acknowledged that corruption is an important issue, which takes time to solve since there are givers and takers, but strong efforts to eliminate corruption are being made.
South East Asia does not have the degree of economies of scale in the automotive industry as China, nor the high growth in India from its past restructuring. However, opportunities seem positive with regard to specialization and rationalization as long as there is due preparation.
The psychology of the market is very important, especially the “first to get out” mentality. Deficits cannot be maintained for long periods of time, and this has led to some countries taking up measures to reduce exposure to the USD, for instance in foreign exchange reserves.
China’s trade surplus with the US and trade deficit with ASEAN is evidence of the complementary relationship between China and ASEAN. Also, it is best to follow some strategy of diversification, not only in terms of stability but also in terms of capital employed. China is also starting to become more expensive, particularly in the coastal areas. Moreover, ASEAN has consistently had a high rate of return on investment. Furthermore, Japan has had over three decades of successful investment in ASEAN, and therefore has a good understanding of each other’s corporate and management culture. This is a unique trait between ASEAN and Japan, which results in smoother and more dynamic operations.
3. Luncheon
At the Luncheon, Dr. Narongchai Akraseranee, Chairman of MFC Asset Management Plc., Former Minister of Commerce, Thailand gave a speech on “Is EAEC a Reality?”, which can be summarized as follows:
The Summit on East Asia Economic Community will be held in 3 weeks, and we need to ask how to help steer the outcome to be favorable to the business and economic development of East Asia. With the leadership of Deng Xiao Ping and the fall of the Berlin Wall, socialist states started to adopt some degree of capitalism. Dr. Mahathir, former Prime Minister of Malaysia, proposed the idea of the EAEC in the early 1990’s. However, it proved to be premature, as it was not endorsed by some East Asian countries. Whilst ASEAN was trying to take the lead on EAEC, other countries, particularly the US, Australia, and Japan, would rather have an Asia-Pacific wide cooperation. This later resulted in APEC. Interestingly, while economic integration among Northeast Asian economies is very strong, the political rivalry is also very strong. The political reality is precluding the realization of economic imperatives. Furthermore, there is no apparent champion of EAEC in the way that the then President Clinton was the Champion of APEC. Thus the regrettable conclusion might be that there may be no real substance coming out of this summit. It is regrettable because this could create economic sense and benefits for all East and South East Asian nations, and would help alleviate the problems of economic imbalances in the Pacific region. We can only hope that this conclusion is wrong.
4. Session II
TOPIC
Factors Enabling Foreign Investment in ASEAN and East Asia
CHAIRPERSON
Thailand:
Mr. Kawee Chonkitthavorn, Executive-Editor, Nation Multimedia Group
PANELISTS
(1)
Mr. Shunsuke Takeda, Vice Chairman and Chief Financial Officer, ORIX Corporation, Japan
(2)
Dato’ Hj Mohd Iqbal, Secretary General of Malaysia Japan Economic Association and Group Executive Director of Farlim Group (M) Bhd, Malaysia
(3)
Mr. Roman Felipe Reyes, Senior Partner, SGV & Company, the Philippines
(4)
Mr. Soo-Chul Lee, Executive Vice President, Samsung Corporation, South Korea
(1) The highlights of Mr. Takeda’s presentation are as follows:
Asia is an important market with global implications, though it may not be as institutionalized as the EU or US. Orix’s strategy has been to do joint ventures with local financial institutions, carrying out lease operations, as well as promoting local SMEs and hiring local management who are best accustomed to the local market. There has been a concentration on developing young local talent through the “Youth Wave Forum”, whose many participants rose to top management. Through past lessons, some conclusions can be made that these financial ventures cannot be successful without proper legal infrastructure and protection of intellectual property rights. In addition to the fragility of the financial system, corporate governance must also be improved in order to be able to handle such pressures. Key factors to improvement include political stability, a strong business environment infrastructure, timing of investment, and unique industrial policies.
(2) The highlights of Dato’ Hj Mohd Iqbal’s presentation are as follows:
Investors do not choose investment destinations based on any emotional factors or geographical affinity, but rather investment is dictated by economic reasons. East Asia has become the geographically concentrated preferential region. Factors that enabled capital flows include rapid and strong economic growth; the improvement of resilience; improved policy environment and liberalization; an increase in strategic commitments to Asian markets by transnational corporations; elections of new governments that brought in new leadership and new dimension and outlook for attracting FDI; regional integration; and intraregional investment incentives. FDI creates access to investments, technology, management expertise, and export markets. Furthermore, the increased resilience has played a large part in attracting stable forms of foreign investments. In earlier years, FDI was induced by incentives and support, but now it is more due to liberalization and a level playing field. Proactive government measures to accelerate economic activities and promotion of a business friendly environment have also played an important role in the attractiveness of the region.
(3) The highlights of Mr. Reyes’ presentation are as follows:
The Philippines has a skilled labor force, competent senior management, good general language skills, and expertise in finance, engineering, and information technology. It has a naturally strategic position in the pacific area, as the gateway to East Asia. There has been significant improvement in infrastructure, especially in telecommunication and information technology. Personal consumption is growing rapidly, and the agricultural sector is continuously strong given the cheap labor, natural resources, and tropical climate. Overseas Filipino Workers (OFW) play a large role in not only other economies, but also in the remittances that are sent back home. There are over one million new OFWs each year, and the remittance volume has reached up to US$9 billion.
(4) The highlights of Mr. Soo-Chul Lee’s presentation are as follows:
Korean investments overseas still largely concentrate on manufacturing and in Asia. Large companies make investments to develop local markets and secure high technology, while SMEs aim to take advantage of low costs and avoid important impediments. The FDI climate in South East Asia has improved greatly, but the region still suffers from unstable exchange rates as well as transparency issues. Other issues include institutional reform in terms of administration and changes and inconsistencies between policies, making financing more difficult; the lack of marketing channels; limited investment opportunities; and the lack of social capital and infrastructure. Inflation and unstable exchange rates also present a hindrance, mainly due to reliance on external markets making the economies susceptible to exogenous shocks. Also, IPR is an important issue as without developed legal protection, it is hard to attract technology transfer. Japanese investment in Korea is still very small as there is no cost advantage in Korea. With their geographic closeness and complementary industrial structures, Japan prefers to export to Korea rather than invest in it. In fact, Japanese technology transfer to Korea may be at the expense of Japanese competitiveness itself. Corporate governance is also an issue in Korea, evidenced by the large number of labor strikes. Possible solutions are labor market and tax policy reforms, improvements of business culture to eliminate corruption and improve transparency, and creation of an environment where SMEs can cooperate with each other.
5. Closing Session
SPEAKER
Mr. Shoei Utsuda, Co-Chairman of The 31st AJBM, President and Chief Executive Officer, Misui & Co., Ltd.
The region plays a role of the “world factory” as well as the “world market”. In order to attract FDI into the region, the countries concerned should make further efforts to improve their investment environments in such areas as transparency of administration, infrastructure, security, intellectual property rights, as well as deregulation especially in the service sector. Also, Japan and ASEAN countries should work harder to reach an EPA on both a bilateral and multilateral basis, with an East Asian Community as a final target.
6. AJBM Welcome Dinner
At the dinner, Mr. Anand Panyarachun, Former Prime Minister of Thailand expressed the following views.
Geo-politics and geo-economics at both the global and regional levels have been changing ever more rapidly. Today, there is only one super power, the US, with the EU and Japan in the second-tier positions, followed by the Brazil, Russia, India, China (BRIC) nations. Everyone is maneuvering themselves in the global configuration, economically and politically. India liberalized and benefited from the software boom. China and India, the two rising powers, have patched up their political adversarial relationships, and moved towards more concrete cooperation in political and economic areas. ASEAN wants more trade and investment with Japan in particular, but it seems that Japanese investments have been focused in China. Japan should not be paranoid, but should respond to sensitive issues in a responsible manner. China has had impressive economic growth, but its lop-sided economic structure must not be overlooked. At the same time, India’s potential should not be underestimated. With the 1997 crisis, investment opportunities in ASEAN have been blunted. However, the situation now is very different. Japanese and ASEAN economies have all recovered, and there is need for new investment in industrial and business expansion and in infrastructure in ASEAN. This new investment cycle provides a window offering a broad range of investment opportunities; a window that should not only be seen in the business context, but also that of geo – politics and geo – economics for the promotion of peace and security. With the strengthening economic and political triangular relations between China, India, and Japan, ASEAN should be deeply involved so that it would produce a quadrangular relationship.
November 24th 2005: AJBM Dialogue
Theme: Preparing for a New Cycle of Japanese Investment in ASEAN
1. Opening Session
CHAIRMAN AND CO-CHAIRMAN
CHAIRMAN:
Mr. Staporn Kavitanon, Head of the ASEAN Standing Committee & Thai National Committee (Vice Chairman, Bangkok Bank Public Co., Ltd)
CO-CHAIRMAN:
Mr. Shoei Utsuda, Chairman of Committee on Asia-Japan Relationships, Keizai Doyukai (President and Chief Executive Officer, Mitsui & Co., Ltd)
(1)
Welcome Remarks by Mr. Staporn Kavitanon:
He welcomed participants to the second day of the AJBM. The first day was the first public seminar of the AJBM, and he hoped that everyone feels that it was productive. The second day is the dialogue between members of the AJBM, and hopefully it will be even more insightful.
(2)
Responding Remarks by Mr. Shoei Utsuda:
A formation of an East Asian Economic Community would improve investment environments for the region. An EPA between ASEAN and Japan is an imperative for this community. Also, it is important for Japan and South Korea as well as Japan and China to make an EPA. For the part of ASEAN, it is an important task to help improve the economies of CLMV (Cambodia, Laos, Myanmar, and Vietnam). Japan may also support ASEAN’s efforts in this endeavor.
2. Session I
TOPIC
Financial Market Environment Affecting Japanese Investment in ASEAN
CHAIRPERSON
Tan Sri Azman Hashim, Chairman, Ambank Group
PANELISTS
(1)
Mr. Hideharu Kadowaki, Chairman, The Japan Research Institute, Ltd.
(2)
Dr. Olarn Chaipravat, Advisor to the Finance Minister & former Chairman of the Thai Bankers’ Association
(3)
Mr. Gregorio Domingo, Former Managing Governor, The Philippines Board of Investment
(1) The highlights of Mr. Kadowaki’s presentation are as follows:
There are 4 possible initiatives in the financial market that would improve the environment for Japanese investment in the region. Firstly, measures must be taken to prevent another financial or currency crisis. Furthermore, Japan is interested in the development of the ASEAN bond market. Secondly, there must be economic restructuring through harmonization of economic systems. Indeed there are income disparities and cultural diversities that make it difficult; nonetheless the region should avoid committing to excessive EPAs without careful consideration that they may later create complications or bottlenecks. Thirdly, financial regulators must monitor more closely the financial industry and enforce regulations, controlling risk (for instance by a committed implementation of the Basel II Capital Accord). Furthermore, it should be recognized that banks are unwilling to lend to the large infrastructural sector, but are concentrating more on consumers. This will lead to an imbalance between economic sectors. Fourthly, there must be efficient access to funds for infrastructural development at low interest rates. The private sector is profit driven, so initiative must come from the government.
In developing a financial environment, there must be smooth recovery of receivables, expansion of financing diversity through debt and equity markets, development of internal financing capacities, as well as a trading market for receivables to promote liquidity.
On Japan’s part, it should promote stabilization of its exchange rate, improve its sensitivity to the Chinese economy, and help encourage balanced development within ASEAN. Japanese banks are re-strengthening and looking abroad and where to go. We should not say that Japan should invest in ASEAN because China is risky, but rather because ASEAN will develop faster and better than China.
(2) The highlights of Dr. Olarn’s presentation are as follows:
Economic growth since 1997 has been fast growing with economic depth and diversity. There has been much reform for stability, in political and economic terms, as well as on the corporate landscape. Recent shocks have also been managed well. ASEAN economic cooperation has also been positive, with the Chiang Mai Initiative (CMI) for short run liquidity and the Asian Bond Initiative (ABI) for long term financing. There has also been progress in governance and risk management of financial institutions and market participants. Furthermore, most ASEAN countries have current account surpluses, so this should not be a concern for at least the next five years. The East Asia economies hold two thirds of the world’s foreign exchange reserves. This, combined with the CMI, shows greater financial stability in the region. In addition to this the ABI could be a means by which infrastructural development in less developed nations could be financed by Asian currencies. ASEAN does not look at China and India as competitors for FDI, but rather as partners in a win-win cooperative effort.
(3) The highlights of Mr. Domingo’s presentation are as follows:
The Philippines has a population of 80 million people and current GDP of about $80 billion. Its growth rate of 4-6% has been fueled by the electronics sector and ICT enabled E-Services. Interest rates rose to about 8%, but have more recently declined back down to about 5.4%. Inflation increased from 3% to about 8% due to the high oil price. The exchange rate system is free floating, with occasional, but non-directional, intervention. There are no restrictions on peso funding for foreign firms, and credit worthy Philippines companies can borrow from foreign markets. Japan is currently the number one source of investment. Concerns, however, are over peace and order, labor, and infrastructure (physical and financial).
(4) Discussion
Questions and concerns raised included (1) a proposition to institutionalize crisis prevention measures, (2) the Japanese financial market and willingness to fund Japanese investors abroad, and (3) a proposition to set up a committee to monitor and push the development of the Asian bond market.
Institutionalization of crisis prevention through an Asian version of the IMF (AMF) was proposed before but opposed by the US. Since then, the Chiang Mai Initiative has replaced its potential role in aiding potential liquidity crunches.
Japanese banks have consolidated and non-performing loans (NPLs) have been significantly reduced, and it is the appropriate time for ASEAN to make proposals to Japanese banks for investments, as they are looking for new sources of revenue.
There have been steps to develop the bond market, but what is also needed are issues from corporate entities and more purchases of the bonds by private investors and funds, especially from surplus countries, and not just by government reserves.
3. Luncheon
At the luncheon, Mr. Haruhiko Kuroda, President, Asian Development Bank (ADB), gave a speech on “New Dynamics, New Opportunities: Towards Deeper Asia Economic Integration” as follows:
ASEAN has a strategic position as a potential “Growth Bridge” between China and India. The ADB has a vision of ridding poverty and developing well integrated economies. Japan has a vital role in this through making major investments in developing Asia and encouraging regional cooperation. Despite the risks that the region faces such as its vulnerability to sustained high oil prices, avian flu, a turnaround in the global interest rate cycle, and a disorderly adjustment of global payment imbalances, the outlook remains positive. Poverty is still a major issue, as well as disparities in income levels, living standards, and socioeconomic situations. Regional cooperation and integration can be a powerful tool, spreading benefits of growth more equitably, for instance through an Asia-wide free trade agreement. The Greater Mekong Sub-Region (GMS) is ideally situated to be the pillars of this growth bridge. The Japanese financial sector’s structural reform is finally bearing fruit, enabling its economy to become the glue that holds the region’s economies together again. With Japanese support, the GMS can develop east-west and north-south and south-south economic corridors. Financial cooperation improved since 1997, evidenced by the Chiang Mai Initiative and its doubling of swaps capacity to $80 billion. Meanwhile, the Asian Bond Market Initiative (ABMI) is trying to supply more new bonds and enhance credit quality and harmonize rules and regulations. The question is how far and how fast should the region integrate. Some say that there is lack of political will, but there are lessons to be learnt from the EU in the effort of deeper economic integration and perhaps a formal monetary union. Given the large volume of intra-regional trade, a single currency would relieve tensions of constant foreign exchange risk. Issues that require urgent attention include cross-boarder infrastructure and coordination of regulation, the combat of communicable diseases, environmental sustainability, and management of natural disasters. Also, it must be ensured that the growing number of overlapping regional trade agreements do not become a stumbling block to regional and global trade integration. One option is to consolidate them into a single Pan-Asian FTA, by firstly adopting an East Asia-wide rules of origin agreement. There is also a need for exchange rate coordination. An Asian Currency Unit (ACU) would be a good monitor of stability and coordination. It is important to ensure that regional integration does not come at the expense of continued engagement with the rest of the world; Asia should increasingly act regionally while continuing to think globally.
4. Session II
TOPIC
Corporate Competitiveness in FTA Era
CHAIRPERSON
Mr. Akihiko Kaji, President & CEO, JALPAK Co., Ltd
PANELISTS
(1)
Mr. Kenichiro Yonezawa, Advisor, Sony Corporation
(2)
Mr. Hj Shazali Bin Dato Sulaiman, Partner KPMG
(3)
Ms. Wong Chain Voen, Deputy Director, Customs & Trade, WCI Consulting Pte Ltd.
(4)
Mr. Nguyen Huu Tho, CEO of Saigon Tourist
(1) The highlights of Mr. Yonezawa’s presentation are as follows:
FTAs are the first step to an East Asian Community. The diversity of the region, in terms of history, language, and culture, must be considered when unifying markets and fundamental differences. In terms of profitability, a freer movement of goods and services, labor, and capital, is good in the long run but will intensify competition. Business management must therefore consider demands from all stakeholders, which includes the market, shareholders, government, and community. Social responsibility will aid local operations with the community. With FTAs, the stakeholders are not just domestic, but international. Human resources will also become more important, partly because it is both part of the market and local community. In terms of soundness of business, corporate identity must be appealing globally. Corporate Social Responsibility and philosophy should be incorporated as a code of conduct to communicate to everyone through “Global-localization”.
(2) The highlights of Mr. Shazali’s presentation are as follows:
Brunei has a population of three hundred and fifty thousand people, and therefore with not much manufacturing capacity. It has 90% of its exports in oil and gas. After the Multi-Fiber Agreement, small textile companies in Brunei will probably have to shut down. With the high oil prices, there is enough trade surplus for the government to fund its entire budget, but there is no pressure to diversify or strengthen other parts of the economy. In FTA negotiations, the private sector must be involved, especially in such a small country. The question that must be asked is, what benefits are there? The government says that ASEAN is a market of 500 million people and this should be taken advantage of, and though incoming competition is theoretically good to consumers, infant and small capacity industries are effectively doomed. Bilateral agreements are easier to negotiate and easier logistically, but often too many get complicated and lose track, especially with smaller countries rushing in and getting themselves into trouble later on.
(3) The highlights of Ms. Wong’s presentation are as follows:
Corporate supply chains must be strategically planned given changes in trade agreements. ASEAN before the FTA era had walls of regulation and tariff and non-tariff barriers, and firms focused on individual domestic markets in their comfort zones with protective walls, overly depending on their captive markets. Transnational companies looked at each ASEAN member as individuals, with no cooperation between branches, which carry out independent operations and often duplicating investments. With free trade, firms should recognize the potentials of AFTA and look at ASEAN as a whole. Growth in intraregional trade has been due to bilateral FTAs, but figures also show growth in intra-regional trade, suggesting that bilateral agreements also have a positive effect on general capacity as well. However, in planning FTAs there must be public and private communication and coordination, and government must also provide plans for the inevitable losers of the FTAs.
(4) The highlights of Mr. Tho’s presentation are as follows:
Vietnam has a population of 82 million, with a GDP growth rate of 8.4% in 2005. More than 70 countries are involved in FDI in Vietnam, with 5,800 projects with registered capital of $49 billion and disbursed capital of $34 billion. Vietnam is South East Asia’s most dynamic country reaching the high development growth and attracting FDI. There is an abundant young labor force with a high education level. Political stability, social economic development, people’s living conditions, infrastructures, and technologies have improved. However, Vietnam does face some challenges, in that the economy is still at a low level, technology and infrastructure poor, and economic structure not adequate. The labor force is mainly concentrated in agriculture, where productivity is still low. There is a shortage of experience and knowledge of global markets, international legislation, management, competitive ability, and technology. Human resources are also mainly not well trained. The legislation system is gradually adjusting, but has not met the demands of social economic development. The SaigonTourist program aspires to “Marketing – Quality – Efficiency – Integration”, and is committed to do the best of what it takes to promote relations between ASEAN and Japan. We’re also calling for foreign investment from Japan and ASEAN.
5. Session III
FREE DISCUSSION
Preparing for Japanese Investment in ASEAN
CHAIRPERSON
Dr. Narongchai Akrasanee, Chairman, MFC Asset Management Plc., Former Minister of Commerce, Thailand
Dr Narongchai Akraseranee invited participants to discuss the issues of financial factors, investment rules and regulations, and new specialization as a result of free trade agreements (FTAs).
On the issue of financial markets, it was concluded that current conditions are favorable to support the new cycle of Japanese investment in ASEAN. Since the Asian financial crisis in the late 1990s, ASEAN has continuously improved relevant conditions such as corporate governance and intellectual property rights protection. At the same time, Japanese financial institutions are recovering and ready to make investments in other markets again, particularly ASEAN.
Concerns were raised regarding the lack of interests of institutional and individual investors in the capital markets in ASEAN due to low liquidity. However, some participants were of the view that more bonds and participation from relevant parties are prerequisite to a deeper bond market and higher liquidity. Extensive discussions were made on the issue of corporate governance. There is convergence of views that there should be a single common formula on corporate governance that can effectively apply to everyone.
Regarding FTAs, the meeting recognized that numerous FTAs are taking place and Japan has concluded or is negotiating such agreements with many countries in ASEAN. The good quality EPAs/FTAs between ASEAN and Japan will lead to efficient allocation of resources.
FTAs have led to liberalization in many sectors. In ASEAN, the manufacturing sector is already open for foreign participation while there are still some restrictions in the services sector. Some participants are of the view that a two-way approach should be the underpinning principle of FTAs, and therefore, developed countries should equally open up their markets in sectors crucial to developing countries such as agriculture and movement of personnel.
With the proliferation of FTAs, we have to move on to more specialization and rationalization. In fact, this has already taken place, particularly in the automotive and electronics industries.
6. Closing Session
SPEAKERS
(1)
Mr. Shoei Utsuda, Co-Chairman of The 31st AJBM, President and Chief Executive Officer, Mitsui & Co., Ltd.
(2)
Mr. Staporn Kavitanon, Head of the ASEAN Standing Committee & Thai National Committee (Vice Chairman, Bangkok Bank Public Co., Ltd)
Mr. Utsuda stressed the importance of achieving good quality EPAs/FTAs. Several issues deserve further discussions such as corporate governance, compliance with rules and regulations, and harmonization of economic systems in the region. The regional economy will continue to grow and each nation should continue to improve its investment environment. It is gratifying that the AJBM has become a more meaningful forum which will contribute to further co-operation in this region.
Mr. Staporn Kavitanon, the Chairman of the meeting, reiterated the fact that East Asia is going through deeper geo-political and economic integration. The role of Japan as the most important investor in ASEAN will continue, and the stronger co-operation between Japan and ASEAN is crucial to the move towards a “better East Asia”.
Both Chairmen thanked all speakers, participants, sponsors, interpreters, secretariat, and all those involved in the organization of this meeting. Mr. Utsuda also thanked the Thai host team for their hard work and hospitality.
The next AJBM is scheduled to convene in Indonesia in November 2006, with a preparation meeting in Singapore.