20th Confederation of Asia-Pacific Chambers of Commerce and Industry (CACCI) Conference, Plenary Session One: Facilitating Foreign Investment and Trade in Asia Pacific Plenary Session Speech by H.E. Ong Keng Yong, New Delhi, India, 18 February 2005

1. Trade and Investment has always been part and parcel of ASEAN’s economic development. The fact is, ASEAN is one of the most open trading regions in the world today. Look at the ratio of exports to GDP: 157% for Singapore, 96% for Malaysia, 68% for Brunei Darussalam and 56% for Thailand. With a combined GDP of US$686 billion[1] in 2003, the region’s constitutes about 10% of the GDP of the entire developing world. Likewise, in 2001-2003, the region accounted for 10% of FDI inflows to the developing world and, with an inward cumulative FDI stock of US$345 billion in 2003, it is the 2^nd largest host to Multinational Corporations (MNCs) in developing countries after China & Hong Kong-SAR area. Given the importance of both FDI and Trade to our economies, ASEAN devised a multi-dimensional approach to facilitate their increase, including major initiatives in the areas of trade in goods, trade in services and investment. In summary, 10 steps drive ASEAN’s approach for more trade and investment, i.e.:

2. ASEAN has vigorously safeguarded its ‘open door policy’ on trade and investment both regionally and unilaterally. Regionally, we have virtually established a common effective preferential tariff among ourselves with more than 99% of products within a band of 0-5% tariff range under the ASEAN Free Trade Agreement (AFTA). Unilaterally, ASEAN Member Countries have made significant progress towards a unified customs approach such as the establishment of a Client Service Charter and ASEAN Single Window. The implementation of a Harmonised Tariff Nomenclature Protocol would create uniformity of application in the classification of goods while enhancing transparency and conformity to international standards. ASEAN has also achieved progress in adopting best practices and provisions as set out in the Revised Kyoto Convention with a view to simplify and harmonise customs procedures and practices.

3. Yet another indicator of ASEAN’s seriousness in remaining open is its efforts on “NTBs”. Elimination of non-tariff barriers, such as different technical regulations and standards and conformity assessment, remains an important area of work in ASEAN trade cooperation. Harmonisation of standards for 20 priority products has been accomplished covering 59 international standards. These products represent the most widely traded products in the region, such as electrical and electronic equipment. A further 82 products on safety and electromagnetic compatibility (EMC) have been completed in 2004.

4. The next step towards increasing trade and investment is to make things easier to operationalise. There is nothing more frustrating than a complicated bureaucracy. Acknowledging the importance for common rules, ASEAN has revised and streamlined its Rules of Origin to include a standardized method of calculation and principles for cost determination as well as treatment for locally procured materials.

5. Furthermore, we are assertively promoting Mutual Recognition Agreements (MRAs) as an avenue towards enhancing trade cooperation. MRAs allow for harmonisation to be embraced in stages, initially incorporating a mutual recognition of conformity assessment results, followed by the introduction of industry specific requirements and finally actual harmonisation of regimes. The MRA for Electrical and Electronics Equipment, for example, will see harmonisation of its regulatory regimes by 2010.

6. Creating confidence of ASEAN’s ability to deliver to investors is vitally important. Economic progress alone is not sufficient to ensure confidence, as a stable conducive environment means much more than just rapid GDP growth. During the ASEAN Summit in Bali in October 2003, the Leaders established the foundation of a sustainable growth strategy. They recognised that peace, prosperity, and the protection of property could not be separated from each other. Thus, the ASEAN Leaders agreed to establish the three pillars: ASEAN Economic Community, ASEAN Security Community and ASEAN Socio-Cultural Community by 2020. Together, these pillars will further enhance the attractiveness and competitiveness of the region for doing business and investment.

7. Creating confidence for the business community also translates to the protection of intellectual property (IP) and IP rights (IPRs). Continuous efforts in these areas have provided ASEAN with a significant source of comparative advantage in the area of high-tech manufacturing when compared to other countries in Asia-Pacific. However more needs to be done with regard to software protection and copyrights and ASEAN is committed to developing a long-term policy to transform the region into a knowledge-based economy. This can only be achieved through sustained life-long learning and the mutual respect for technological innovation. With assistance from our Dialogue Partners, ASEAN Member Countries are accelerating the pace and scope of IP asset creation, commercialisation and protection and improving the regional framework relating to IP and IPRs.

8. Thus having a friendly, easily accessible and conducive investment regime that projects confidence is fundamental towards generating more trade and investment. However, the growing competition for investment from the increasing number of regional trading blocks suggest that an equal amount of time and expense must also be applied to developing the interest towards ASEAN. Promotion and facilitation are equally important to liberalisation. These components are thus equally emphasised in the existing mechanisms and initiatives. More needs to be done in this area and a well coordinated and effective mechanism of information exchange and dissemination is required in order to effectively promote the abundance of opportunities in ASEAN.

9. In addition, we need to go beyond just marketing ASEAN. We should validate the interest shown by investors, justify why investing in ASEAN is the right thing to do. Promise a “Samba Dance” and many will come. But make sure to deliver. Make sure your dancers are young, vibrant and full of life – just like the performances we saw last night at the welcoming reception. Hence, ASEAN must showcase the technological progress that is taking hold across the region and that innovation and productivity are flourishing. Investment promotion road-shows by ASEAN Ministers and Leaders and creating networking opportunities for the market place are essential elements. So are conferences such as this.

10. More opportunities are emerging as ASEAN establishes itself as a single market and production base, especially in the area for business complementation where ASEAN can become a segment of a global supply chain. For example, when it becomes more expensive to produce umbrellas, t-shirts and shoes in one ASEAN Member Country, other less pricey Member Countries step in to provide competitive locations for the manufacturing activities.

11. Partly because of regional integration and schemes such as the ASEAN Industrial Cooperation (AICO), regional production networks have been increasing. In 2003, AICO arrangements generated annual business transactions of more than US$1.2 billion. MNCs adopt regional production networks to maximize corporate competitiveness and gain advantage from agglomeration benefits. Corporate strategies in such industries as automotive and electronics have also contributed to the growing importance of regional production networks. Such firms are adopting network strategies whereby different production functions and processes or of products are conducted in particular locations within the same region.

12. Which functions or processes are based where depends on the locational advantages of host countries and corporate investment strategies. A crucial factor that is consistently ranked as a major determinant in investors’ preference for a location is predictability. ASEAN Member Countries have taken great pains to ensure that the “ASEAN Process” includes transparency and above all predictability. This can be seen by the language enshrined in many of our legally binding texts that disallow rollback of earlier agreements and commitments, clear and unambiguous timelines and deadlines and consistency in the treatment of Member Countries and their external relations. Predictability across ASEAN is being pursued through efforts in regional economic integration, harmonisation or cooperation in areas such as tourism, air travel, small and medium enterprises, transportation, ICT, energy, minerals, food, agriculture, forestry and science and technology.

13. An important component of ASEAN’s strategy towards increasing trade is of course to increase the market for ASEAN’s exports. ASEAN has completed an agreement with China to establish an FTA by 2010 and will begin FTA negotiations with Japan, the Republic of Korea as well with Australia and New Zealand this year. FTA talks with India are ongoing. The opportunities that FTAs may avail are indeed tantalising. Consider the proposed ASEAN-Australia/New Zealand FTA. From a commercial perspective, the combined regions will have more than 550 million consumers, with a total GDP of over US$2,124 bn.[2] A bold and comprehensive FTA will create over US$40 billion in additional national outputs for the 12 nations concerned.

14. Integral in this strategy is our desire to attract the necessary investment of foreign capital to facilitate both the production and export of intermediate as well as home-grown goods and services to the rest of the world. Thus in all these FTA arrangements, investment provisions feature prominently and cover substantive issues such as liberalization and facilitation. These FTAs promise an attractive market and a competitive production base with investment opportunities for all sizes of commercial companies.

15. Another very important step towards securing more trade and investment is of course greater public-private sector dialogue. ASEAN officials are presently actively engaged with organisations like the ASEAN Business Advisory Council and the ASEAN Chambers of Commerce and Industry with a view towards fostering greater cooperation. Business organisations provide valuable feedback and industry clubs could act as ‘focal points’ for private sector participation, especially in the eleven priority integration sectors. Furthermore, ASEAN business entities can also play an important role through their links with sister organisations in other countries.

16. Enhancing the private sector – public sector linkage will also allow for greater feedback that will in turn allow the governments to keep abreast with global business trends and developments. For example, FDI flows to services sector accounted for about 50% of the total FDI flows into the region in 2000—2003. This underscores the importance of the services sector as the new wave for business opportunities and development. Greater attention is now being given to attracting FDI in the services industries in many ASEAN Member Countries and the region as a whole. Of the 11 priority integration sectors, four (health care, tourism, air travel and e-ASEAN) are in the services sectors.

17. The inclusion of e-ASEAN as a priority sector shows another undeniable trend, that technological advancements are becoming central in harmonization efforts. ASEAN has adopted an action plan to establish the regional e-customs whose activities include the implementation of an ASEAN Single Window to expedite customs clearance. Going forward, efforts need to be taken now to bridge the digital divide. Indeed, the ASEAN Telecommunications and IT Ministers have adopted an action plan to harness technological advances in ICT to create digital opportunities for ASEAN and to enhance ASEAN overall competitiveness.

18. Another key feature of FDI trends is the significant and growing importance of reinvestment earnings, which in some Member Countries accounted for 60% of their respective FDI in recent years. These patterns and types of investment and trade flows have implications for policy development. For instance, there is now a greater need to focus on investment targeting at existing investors, although not at the expense of attracting new investments.

19. In recent years ASEAN has witnessed a sustained recovery in all areas of economic activity including an overall expansion of intra-regional trade, external trade through robust exports and in the area of investments. In 2003 GDP expanded by nearly 5% and preliminary data suggests a further expansion in 2004 by over 5% due to, among others, buoyant intra-regional exports and continued strength in domestic remand. Likewise, after a number of years of consecutive decline in FDI flows, mainly because of the impact of the 1997-1998 financial crisis and global downturn, the region witnessed a significant 43% rise in FDI inflows (to US$20 billion) in 2003 – the largest rate of increase since the financial crisis. Despite international competition and the many challenges ASEAN faced in the intervening years since the crisis, ASEAN remains a major destination for FDI.

20. These improvements are partly a direct result of deliberate measures to improve the policy environment. All ASEAN Member Countries made policy changes to accommodate the various initiatives at the regional level or on their own accord, introduced measures that were favourable for investment and trade.

21. These measures were designed with a view to keep ASEAN competitive as a region. The reality is that as individual countries, we are not significant both in GDP terms or market size compared with the juggernauts that define our common boundaries. Hence, we must be constantly on our toes to remain competitive.

[1] Source: ASEAN Statistical Yearbook 2004

[2] Source: January 2005 Edition IMF Yearbook, Australia GDP at US$1,202bn and New Zealand at US$236bn (ASEAN GDP at US$686bn)