OLD WINE IN NEW BOTTLES?

10:46 AM Feb 28, 1997

OLD WINE IN NEW BOTTLES?
Geneva 27 Feb (Chakravarthi Raghavan) -- The European Union members should promote and assist inward investment from the Newly Industrializing Economies of Asia, says UNCTAD in a report, released with much fanfare and press briefings Thursday from different centres in Asia and Europe.

UNCTAD officials, with some prominent academics like Prof. Sanjay Lall, lending their names to the event, held briefings in Bangkok, Bonn, Brussels, London and Tokyo.

And an UNCTAD press release announced other briefings in Australia, the Czech Republic, Denmark, France, Hong Kong, India, Indonesia, Malaysia, New Zealand, the Philippines, Poland, Singapore and Spain.

The publication, "Sharing Asia's Dynamism: Asian Direct Investment in the European Union", is by the UNCTAD Division on Investment, Technology and Enterprise Development.

With a preface from the UNCTAD Secretary-General Rubens Ricupero, the report is the outcome of a study, financed by the government of Thailand, for a meeting in Bangkok in July 1996 for a private sector working group meeting of EU and ASEM (the six-member ASEAN, China, Japan, South Korea, and Vietnam).

The investment flows from Europe to Asia, and from Asia to Europe, had also been in a report brought out jointly by UNCTAD and the EU Commission last year, which the EC Commission used to promote negotiations on investment at the WTO.

An improved understanding of Asian FDI in Europe and exploring ways in which it could be encouraged is of mutual interest to both the EU and Asia, says Ricupero.

At a briefing in Geneva, and separately, the UNCTAD press office was queried about the July 1996 material, issued as a UN publication in December 1996, and promoted in February with press embargoes, and several UNCTAD officials and others holding briefings at various capitals.

In response, an answer was relayed (from the substantive division officials), that this was the first publication of a 'hard cover' edition, and contained "updated" material, but without being able to point out the 'update'.

A study of the data in the report suggests that it an eco-friendly 'green' publication -- mostly a case of "recycling" and "repackaging" of data, as a priced publication.

The publication, in 1997, carries, as in the documents for the 1996 meetings, data of outward stocks of FDI of Asian economies, for the year 1995, as "estimates". And some data of investments is on the basis of actuals, others on basis of pledges.

Investment data are difficult to come by on a reliable basis, and until there is agreement on how data on services transactions can be collected under the UN data base system, and correlated and published, most data will be on best 'guestimates' with some double counting. The data in the study in some cases have had to be compiled from data in recipients (like the US where they are published) and then 'globalized'. Given the methodologies used, comparisons and analytical conclusions from them are difficult -- as the publication itself cautions.

For e.g. how much of the Hong Kong outward investments in the US is driven by economic and efficiency considerations, and how much induced by the imminence of the reversion of the territory to Beijing, and what conclusions can be drawn based on the differing assumptions? And how much of the 'capital' from overseas Chinese goes to the US because, with all its problems, it is still less racist for non-whites than Europe and has more overseas Chinese communities? And what is its effect as a pull and push factor?

The report asks Asian countries to join hands in setting up "Europe-Invest Programme" as an umbrella for their investment activities in Europe.

The report does draw attention to the particularities of each country, and the competition among the Asian countries both to attract FDI, and the competition with each other, in export trade.

More recently available material elsewhere, bring out sharply the 'rivalry' in the region between Korea, Japan, Taiwan and Hong Kong (with some round-tripping Chinese funds) and between Malaysia and Singapore to become the foci of Information Technology centre for the region, and efforts of Malaysia and Indonesia to undertake their own processing activities (in the petrochemical area -- which was one of the first disputes at the WTO raised by Singapore, but settled without going to a panel process.)

Whether a, umbrella approach, be it to promote inward investments or outward investments under the 'contestability of markets' approach, is possible is not at all clear, and the publication doesn't answer it.

Percy Mistry, a former World Bank economist and senior official, now a London-based consultant, in a just published study by FONDAD on regional integration arrangements for economic development, notes about the ASEAN and its 'success' that it was set up not for achieving free trade or economic union objectives, but as a regional political platform, with some common security aims.

[In fact this was what enabled the grouping to hold together in the cold war era - and the perceived threat to the region from China and the Soviet Union, and the security reliance on the United States]

Mistry notes that the ASEAN took a very slow and cautious approach in terms of economic cooperation, and the dramatic growth of intra-ASEAN trade, faster than that of any other developing region, was largely "the result of close inter-linkages between businesses owned in member states by the overseas Chinese community, without ASEAN doing all that much to accelerate or encourage it."

ASEAN members have experienced high rates of economic growth, with their intra-trade about 30% of their total trade. But this intra-Asean trade growth, the FONDAD publication brings out, is "somewhat distorted" by the unusually large amount of trans-shipment, entrepot trade that occurs through Singapore for various reasons."

[Malaysia as part of its efforts to cut down on service outflows, and prevent future payments crises, is busy setting up its own major container port, and it is difficult to say what its effect would be on Singapore.]

Mistry notes ASEAN has established a preferential trading agreement, but that its practical scope has been deliberately limited. Under a Thailand initiative, ASEAN is setting a free trade area (AFTA) within the next 15 years, but it is still at an early stage.

But the main lesson of the ASEAN, according to the Mistry study, is that it is possible for fruitful transnational production links to develop among countries of a sub-region, even without formal institutional support for regional integration, provided there exist:

* a favourable economic policy climate for business enterprise - private and public, involving foreign and domestic capital - to flourish,

* a regional reservoir of entrepreneurial talent which is ethnically linked through the region,

* administratively capable - if not necessarily always incorrupt - domestic government,

* a will to encourage pragmatic regional cooperation on a step by step basis, building on small successes and eschewing grand designs, and

* above all, the existence of healthy and sizeable economies in which private enterprise is permitted to play the dominant economic role, but with governments intervening intelligently in "governing the market".

But whatever the sources of the "dynamism" in Asia and of the ASEAN strength, or for that matter of the Far East Economies (other UNCTAD studies have thrown much greater light on this), it does not seem to support the neo-liberal theories or some of the OECD concepts of trade-investment substitutability and contestability of markets or of this becoming a "win-win" situation for all participants.