Remarks by Rodolfo C. Severino, Secretary-General
of the Association of Southeast Asian Nations,
before the Association of Bavarian Industries

Munich, 2 March 2001

We are, of course, in an age of globalization. We are moving toward a globalized economy, fitfully, unevenly, but progressively, for better or for worse.

We in ASEAN think that it is for the better, in spite of globalization’s imbalances and inequities, particularly if we are assiduous in reducing the inequities and injustices of the process and its results. ASEAN’s economies have surged, over the past thirty years, on the basis of their openness to one another and to the rest of the world. Indeed, one can say that the principles of the free market have been at the very foundation of the association.

In any case, globalization is here with us -- the process, if not its full realization. Barriers to trade and capital movements are coming down. Technology is allowing business people and companies to hurdle many of the barriers that remain. Corporations are merging across national boundaries and across continents. Their ownerships are losing their national identities.

This process of economic integration is taking place within regions - at varying paces. It is taking place globally - in fits and starts, but in the clear direction of a global marketplace. Competition is greater than ever before - between companies, between nations, and between regions - although the potential for, if not, in some cases, the actuality of, monopolistic domination is ever-present. For the first time in almost a century, it can be said, with little qualification and with little exaggeration, that the world is becoming one big market.

In such an age, in such a world, Germany and ASEAN should be natural partners - Germany with its industrial might, financial resources, and technological power; ASEAN with its record of high growth, now apparently resuming, its large population, its productive and largely inexpensive labor force, its immense natural resources, its market-oriented policies, its integrating economy.

The United States and Japan, for decades, and, increasingly, China and Korea, have recognized this. Taken together, ASEAN is the United States’ third largest overseas export market; it is also Japan’s third, after only the United States and the European Union. According to the US-ASEAN Business Council, American investment in ASEAN is larger than in Mexico, Brazil or Japan. It is more than twice the U. S. investment in Hong Kong, six times that in Korea, and seven times that in China and Taiwan.

In contrast, Germany accounts for only three percent of all foreign direct investment in ASEAN, as compared to Japan’s 17 percent, the United States’ 13 percent, and the 14 percent from other ASEAN countries. Among members of the European Union, Germany’s share of investments in ASEAN in the period 1995-1999 was smaller than those of The Netherlands, the United Kingdom, and even Switzerland, although in 1999 Germany led the rest of the European Union in investments in the manufacturing sector.

German exports to the ASEAN market have not been doing better. German exports to Indonesia are less than half those of Japan or the United States. To Malaysia, they are less than 20 percent of those from Japan or the United States. They are 13 percent of American exports and 14 percent of Japanese exports to the Philippines. U. S. exports to Singapore are five times those of Germany; Japan’s are only a little less than that. Japanese exports to Thailand are five and a half times those of Germany, and American exports three times. Singapore’s exports to Viet Nam are four times more than Germany’s. However, Germany trades with ASEAN more than any other country in Europe.

The German record clearly reflects less than the potential of ASEAN for German trade and investment. ASEAN has a population of half a billion, almost half that of China or India. It has a gross domestic product about the size of China’s. Its economy is now growing again, at the rate of 3.2 percent in 1999, a rate that is expected to accelerate this year to close to five percent. ASEAN’s exports have been surging. Exports of the six older members of ASEAN alone - Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand - grew by 7.7 percent from US$316.6 billion in 1998 to US$341.1 billion in 1999. Imports increased by the same rate, from US$259.5 billion in 1998 to US$279.5 billion in 1999. Individual ASEAN economies give the investor a wide range of choices - from the high-tech, efficient service economy of Singapore to the low-wage and abundant manpower of Indonesia and Viet Nam to the rich natural resources of most of the ASEAN countries.

Wherever an investment is located in ASEAN, it has all of Southeast Asia as a market because of the increasing integration of that market. This is why it is possible to speak of an ASEAN market, even of an ASEAN economy.

By the beginning of 2002, the goods traded among ASEAN’s six leading trading nations, with some exceptions, will have tariffs of only five percent or none at all. This is less than ten months from today. Even now, more than 90 percent of these six countries’ tariff lines that are covered by AFTA are within the 0-5 percent zone, accounting for more than 90 percent of intra-ASEAN trade. For all practical purposes, the ASEAN Free Trade Area is now in place, just a little over eight years after the tariff-cutting process and other regional trade liberalization measures started in 1993.

The creation of a regional market in Southeast Asia was long anticipated by many important multinational companies. There may not be much promise in setting up a manufacturing plant in a single country, particularly when the plant is cost-effective only with large production volumes. But when tariff barriers are eliminated, economies of scale are created, making large investments economically sensible.

Let me illustrate this point with an example, the car industry. In ASEAN, tariffs on completely built-up and completely knocked-down units have historically been set very high, as many countries in the region sought to develop or encourage a domestic car industry. Under AFTA, ASEAN countries are required to bring down their intra-regional tariffs to within 0-5 percent by 2002/2003. The ASEAN auto market is substantial. Auto sales in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Viet Nam for the year 2000 are estimated to have been more than 735,000 units, with the volume projected to nearly double by the middle of this decade. Although Japanese companies have historically dominated ASEAN markets, the creation of AFTA opens up opportunities for other vehicle manufacturers. This is why AFTA has drawn the interest of the major US and European automotive companies. Ford and GM have already made substantial investments in the Philippines and Thailand.

ASEAN has an industrial cooperation scheme called AICO, in which companies with related operations in two or more ASEAN countries ship their products to one another at the minimal AFTA tariff rate of 0-5 percent. Such companies already enjoy the benefits of an integrated ASEAN market. Right now, they are mostly Japanese companies in the automotive or electronic sectors. The only European firms in the AICO scheme are Volvo and Nestle. None are German.

The ASEAN economy is being integrated not only by the removal of trade barriers but also by infrastructure linkages - transport, energy, telecommunications.

A feasibility study has been completed for the Singapore-Kunming Rail Link, a project that envisions the linking of mainland Southeast Asia’s railways to one another and to Kunming in southern China. That rail network will extend the existing Singapore-to-Thailand railway to Cambodia, and thence through Viet Nam to Kunming, with spurs from Viet Nam into Laos and from Thailand into Myanmar. ASEAN is now identifying priority segments and working out ways of financing their construction.

Southeast Asia has substantial sources of energy of various types - oil, gas, coal and hydro. The ASEAN power grid being developed aims to make the delivery of energy more reliable, ensure a market for ASEAN suppliers of power, and provide energy security to the energy-deficit members. The trans-ASEAN gas pipeline network, parts of which are already in place, supports the same objectives by tapping the great natural gas deposits of Indonesia and Myanmar. Just recently, a major pipeline connecting Indonesia’s Natuna fields to Singapore was inaugurated by President Abdurrahman Wahid and Prime Minister Goh Chok Tong.

Work is being done to ensure telecommunications inter-connectivity in ASEAN and the compatibility of telecommunications equipment. Related to this is the e-ASEAN initiative, which is meant to pull ASEAN into the information age, into cyberspace. Last November, the ASEAN heads of government themselves signed the e-ASEAN framework agreement, which commits ASEAN to this goal. The agreement covers the establishment of the ASEAN Information Infrastructure and the legal and policy environment for electronic commerce. The agreement commits ASEAN to the liberalization of trade in information and communications technology products and services and of investments in the ICT sector. It calls for the development and use of ICT for the delivery of government services and for social purposes. For all this, institutions will have to be developed and the people of ASEAN trained. The e-ASEAN initiative also envisions this.

The infrastructure linkages and the development of ICT will not only make trade easier and encourage investments; they also represent enormous investment opportunities - the railway project, roads and highways, the power grid, the gas pipelines, telecommunications, information and communications technology. Their development requires consultants, financing, materials, equipment and technology.

Information and communications technology has particularly great promise. In 1998, ASEAN had just 8.4 million mobile phone subscribers and 7.4 million personal computers. With a population of half a billion, these figures translate into 16.6 mobile phone subscribers and 14.7 PCs per one thousand people. In contrast, Germany in 1998 had 169.6 mobile phone subscribers and 279 PCs for every thousand people. The point is not so much that ASEAN is far behind Germany in information and communications technology; it is that, with the e-ASEAN initiative, ASEAN has enormous potential for growth, and tremendous opportunities for suppliers of ICT products and technology.

ASEAN economic integration is being strengthened not only by the unification of the ASEAN market but also by intensified cooperation in areas like finance.

ASEAN’s finance ministers have been undertaking frequent consultations in order to keep a collective eye on the economic situation in the region and help avert a recurrence of the financial crisis. In a system of surveillance and peer review, they keep track of financial and economic movements in the region and encourage one another as they take national measures to strengthen their financial systems and other sectors of their economies. ASEAN has expanded the currency swap arrangement under which the ASEAN countries make financial resources available to a member that may find itself in financial trouble. ASEAN has engaged China, Japan and Korea in a network of bilateral currency swap and repurchase agreements meant to strengthen the financial safeguards.

Even as it deepens the integration of its market, ASEAN remains open to the world. We are now working on ways to strengthen our economic linkages with our neighbors to the North - China, Japan and Korea - in what is called the ASEAN Plus Three process, a process that is gathering surprising momentum. We are exploring ways to link the ASEAN economy with those of our neighbors to the South, Australia and New Zealand. As trade barriers go down between ASEAN and its neighbors, German and other European investors in ASEAN will see their markets considerably enlarged.

The message from ASEAN is this. ASEAN and Germany are natural partners. ASEAN with its population that is larger than the European Union’s, its GDP that is equal to China’s, its resurgent growth, its integrating economy, its openness to the world, the strategic importance of foreign trade and foreign investment in its economy, its confidence in market forces, its hard-working people, its rich natural resources, the projected expansion of its infrastructure, its embrace of the information age. And Germany with its economic size, its industrial might, its financial resources, its scientific and technological power, the superb quality of its products and services, its central and leading place in the European Union.

The partnership between Southeast Asia and Germany has long roots in the past. It is time to strengthen and enrich the substance of that partnership for the benefit of both. The opportunities beckon. It is for business enterprises to seize them.