1. by Ajanant Juanjai Associate Professor, Faculty of Economics, Chulalongkorn University

        This study by Professor Yamazawa, Professor Kinoshita, Dr. Kwan and Mr. Suetsugu has been revised the last 2 months to incorporate and reflect the comments made by scholars in Thailand, China, and South Korea. In a nutshell, it is a better version than the last one. Nonetheless, I would like to add further comments to the study so that it will become a comprehensive study. My comments will limit to the following points.

(1) Economic Recovery of Thailand

        Despite all rosy pictures painted on the successful economic management by the Thaksin Administration, many monitoring agencies such as Business Monitor International of London are concerned over the sustainability of populist measures. These populist measures aiming at the grass-root economy have a high tendency to favour consumption. The government cannot support the consumption of the low-income population indefinitely. The problematic issue is how to disentangle the indebtedness of large corporations. About 740,000 million baht is the size of large corporations' debts since 1997. These large corporations are supposed to be the major force that drives the economy. Hitherto, they have not invested into their respective sectors. The capacity utilization of the manufacturing sector is below 60 percent reflecting the real state of the economy. The government will continue to pour in government money to keep the growing economy going for few years. It is also not surprising that the government has chosen to adopt the small and medium enterprises as the new champions of the economy. While the external indebtedness has been declining, the size of the government's debts has not. Due to low nominal interest rate and large liquidity in the banking sector, the state banks have been directed to extend loans and credits to populist projects. Even the state bank's bond has been issued to replenish the shortfall of the bank. This situation is risky to the Thai economy. The value of the Thai currency in recent weeks has followed the Japanese yen against the US dollar. The strong currency poses a threat to Thai exporters in the US dollar denominated markets vis-a-vis the exports of the Philippines and China. The values of both the Philippines peso and China's RMB add more competitiveness to their exports. Based on the current strength of the Thai currency, Thai exporters will have battle hard to cover their gross margins from exports.

(2) Japan's economic cooperation to AESAN countries

        Japan has always recognized the importance of ASEAN as a diverse market and growing prospect. In the past, the Japanese businessmen have been subtle in dealing with Thai business partners. They are afraid of the anti-Japanese movement in the early 1970s. Japanese presence is felt across the ASEAN markets with high foreign direct investment into the region for many decades. UNCTAD has reported that Japan's foreign investment in general flows into Thailand. This trend has become more pronounced since the economic and financial crisis of 1997. Toyota has intensified its investment in Thailand in the last few years. But it is about time that Japan takes an initiative to launch the Asia Monetary Fund (AMF). Should that fail, Japan can start the Asian Bond to pool reserves of the region. The final objective is to stave off the currency speculative attack and obtain the sustainable growth of the region.

(3) Strengthening the ASEAN Cooperation

        The ASEAN countries do suffer from weak networking among themselves. This symptom has been realized by the ASEAN Secretariat for a long while. At the maximum, the intra-ASEAN trade will be at one quarter of the overall trade. Due to temporary exclusion list and non-compliance to include these products into the inclusion list at appropriate times, the intra-ASEAN trade will be below that figure. The enlargement of the ASEAN to include CLMV poses a different kind of challenge to ASEAN. The low level of development of CLMV requires special and differential (S&D) treatment from the original members of the grouping. The CLMV is a handicap to the grouping. The economic performance of CLV will be the deciding factor whether they can integrate into the grouping successfully. The case of Myanmar is another category that requires another approach altogether. The military regime is at the cul-de-sac and will not be able to interface with the world community even with the release of Mrs. Ang San Su Kyi. The military regime requires an amnesty to indemnify them of the atrocities against their own people. This is a tough act to follow through in this age. Amnesty International will not be willing to accept the easy route to freedom without prosecution. In addition, Myanmar has been alienated in the ASEAN dialogue with major dialogue partners.

(4) China

        Napoleon Bonaparte used to say that we should not disturb the sleeping China. What was true in the nineteenth century is also true in the twenty-first century. In short, China is an important country anytime and anywhere. Before China became a member of the World Trade Organization her economic performance was very good. After some fifteen years of negotiations, China became a member of the WTO in 2001. Now China is inside the World Trade Organization and her role must take on a new meaning. In recent days, the Secretary General of the WTO urges China to be more influential in leading the multilateral trade negotiations out of the doldrums. Dr. Supachai Panichapakdi wants China to be more active in participating in the Doha Round. Before the entry of China, Brazil and India were regarded to be thorns on the side of the industrial nations at the multilateral trade negotiations. Likewise, India and Brazil were not receptive to the proposals made by the industrial nations in the mid-term review of the round at Cancun, Mexico. Unfortunately, China saw the same interpretation as these two countries. I cannot predict whether the Chinese will take a fresh initiative in this round. Laymen tend to look superficially at the economic performance of China without realizing the enormous problems she is facing.

        Consider the following. China must create some 12-15 million new jobs annually to keep up with population growth. It must deal with an estimated 270 million unemployed or underemployed people. A "floating population" (dispossessed rural workers who have moved to the cities to find work) of between 100-150 million is growing almost 5 percent annually, representing the largest migration in human history. These migrants exist without job security, no long term housing and no health care. About 800 million rural peasants have been largely left out of China's latest boom, creating rising but frustrating expectations.

        Since 1998 the Chinese government has become increasingly reliant on ever larger bond issues for fiscal stimulus, pushing debt on to the next generation. Estimates of the government's growing aggregate liabilities range from 70 percent to 150 percent of GDP. The ability to collect tax revenue remains weak yielding less than the equivalent of 15 percent of GDP. China may have seemed a miracle over the past decade. But good economic times rarely test a political system. The real test is a political system's ability to survive the cyclical economic downturns.

        The threat of Chinese in the trade relationship with other countries is real and cannot be easily mitigated. Take the case of the Sino-Thai trade relation for an example. Up to the year 2001, the bilateral trade account was in favour of Thailand. Upon the signing of the contrived free trade agreement between the two countries, the situation has begun to change in favour of China. The FTA focuses on three HS categories of agricultural products (i.e. HS 06, HS 07, and HS 08). In 2002 alone, statistics indicate that Thailand is having huge trade deficits in other products as well. Thailand is importing frozen shrimps, apples, pears, cosmetics, parts of air-conditioning unit, video machines, and microwave ovens from China. Thai private sector has predicted that many Thai exports will lose out to the Chinese products in the bilateral trade and in the international market. I am not prone to think of the bilateral trade as a critical issue. I would like to stress that the overall trade account is the issue.

(5) Japan-China-Korea

        Many people are dreaming of the participation of Japan, China, and South Korea in the Pacific Region. Let us deal with each country in its approach to ASEAN before we discuss how to deal with each country in the grouping. Japan as one of the largest economies in the world has been ambivalent in dealing with ASEAN as a grouping. Japan as demonstrated by Keidanren in the 1980s and 1990s prefer to deal with each nation of ASEAN. Japan has her own reason to separate each market because she can leverage her position better that way. However, the establishment of AFTA and AIC has changed the structure of ASEAN as a market. Goods produced in Malaysia can be imported in other countries of the region. Vice versa goods produced in Thailand can be exported to other ASEAN countries. Thus far, there is no indication that Japanese companies will invest in all ASEAN countries. She continues to put an emphasis on certain countries as launching spot to the rest of the grouping.

        By comparison, China has felt that her presence is a threat to the well-being of the people of the ASEAN grouping. China has agreed to negotiate with Thailand on the FTA. The next move is to expand the coverage of the products to include substantially all trade. The final move is to pluralize the agreement to include other members of the grouping. I am sure that this is a positive move by the Chinese. Politically it will demonstrate that the Chinese are willing to work with the ASEAN grouping.

        South Korea is a late comer into the region. In the early years, the Korean presence was not felt. The spectacular rise of Korean products came after the Olympic Games in Korea. Since then we are now familiar with Korean electronic appliances and automobiles and they are now jockeying for a high position in many ASEAN markets. In terms of direct investment, Koreans have limited their investment to some countries. She has her investment interests in Myanmar and Indonesia. It was said that Koreans prefer to minimize the labour cost in the production. I believe that in the near future cheap products from cheap unskilled labour will be history. Korea has been forward looking in the FTA negotiations with many countries. Unfortunately she has stopped her FTA talks with Japan and Thailand once she was not certain whether the overall scheme will favour the effort.
        The negotiations between China, Japan, and South Korea can be a daunting task for any country. I like the idea that China's strengths are Japanese weaknesses; and on the contrary China's weaknesses are Japan's strengths. There are rooms to expand into the labour-intensive products in China with Japanese technologies. But shifting sunset industries from Japan into China will not bode well. While China is a developing country, she may or may not accept the sunset industries readily. We will have to listen to Chinese policy makers whether this is a way for them. Japan and Korea is another pair of countries that require delicate touch. Korean manufacturers have been known to accept many Japanese technologies. Of course, Korean corporations have made successful R&D and innovations and begin to challenge the Japanese products in terms of price, quality and product design. I feel that the Korean and Japanese can move forward on the same path.

(6) Regionalism

        If you read Chapter Five of Jagdish Bhagwati's The World Trading System at Risk and read John Jackson's The World Trading System, you should realize that the world is moving away from the idealized situation where the multilateral trading system is the standard of fixed rules. Bhagwati continues to argue that the world trading system must be based on the GATT or WTO rules. The exception to the GATT such as Article XXIV is a special exception. There are two forms of regionalism - customs union and free trade agreement. Bhagwati is fond of the customs union. He argues that the FTA is disturbing the on-going movement of the multilateral trading system. It can be said that the movement of the FTA is likely to diverge from the MTN. The 1994 interpretation of Article XXIV has improved on the 1947 version in the finer points. Acceptable forms of unions must substantially cover all trade; the post union tariffs must not be higher than pre-union tariffs; the duration of the union completion must be within 10 years.

        Among the industrial nations, the GATT rules have been good working system for them for over 50 years. Yet there is a sentiment at the Capitol Hill that the GATT system may favour some large economies such as Japan. Therefore, the United States has adopted many FTAs with many countries under the fast track with the endorsement from the Congress since President Ronald Reagan's time. Furthermore, the United States has established the American Enterprise Initiative to further the bilateral trade agreement with many countries outside the Americas. On the other side of the Atlantic, the European Union has not waited for long to engulf a similar idea. By 2004, ten more Eastern countries will be accepted as new members of the EU. Consider the haste of the induction of these countries into the union, economic objectives have been put aside and political objectives have taken the driving seat. Fortunately, Japan has not adopted the same positioning in the regionalism. But the two largest industrial groups have shown to the rest of the world that they are not idle in their dealing with the lethargic global situation.

        Unfortunately, not all FTAs come under Article XXIV. Many of them come under Enabling Clause of 1976 whereby developing countries can seek FTA among themselves. There are flexible interpretations of this Clause. Unfortunately, when one of the agreement partners is an industrial nation, the benefits of the Enabling Clause cease to function. For example, Thailand can negotiate with the United States under Article XXIV only.
        Before we talk of the spread of the regionalism, we must discuss the WTO as the penultimate body in searching for global fixed rules as well. The ministerial declaration at the Uruguay Round is quite long with 14 negotiating issues on the agenda. The Doha Round has a shorter but difficult agenda. In the Uruguay Round, the number of developing countries was smaller in the forum. The Doha Round has higher number of developing countries in the forum and this has exploded into the North-South dialogue. For sure, many countries can align themselves with the North such as the ACP countries. But they themselves are unhappy with the agricultural policy of the North. Developing countries detest the link issues. It looks, from the viewpoint of the developing countries, as if the North is attempting to horse trading over link issues with trade. The Singapore issues began to emerge as real threats to the developing countries. While the general consensus seemed to work well in the past rounds, it does not ensure that this approach will be successful in the present. Much publicity of the good economic performance of the South after the previous round appears imaginary. My own GCE calculation of the post Uruguay Round for Thailand contradicts the earlier calculation of the GCE calculation of John Whalley and associates. I can presume that other countries have counted the benefits and losses the same way.

        Given the collapse of the mid-term review at Cancun, Mexico, there will be more formation of unions and FTA. This is similar to buying an insurance policy to enable a small country to survive in the tough trading situation ahead. It is likely that a small economy will participate in many bilateral FTA to circumvent the onslaught of the multilateral trading system.

(7) Asian Value

        The Westernized version of the world was actually conceived in the last century after the World War II. Before that we had the British Imperialism spreading across the world. The Asian value has been with us for centuries and has not been analyzed in the scientific fashion as American sociologists. We have our own norms and mores to reflect our own value system. We have our religious beliefs which are similar to the Christian faith and Muslim faith. Perhaps, the most important aspect of our own societies is the family aspect which gives us the inner strength. On top of that, we are not confrontational. We are prone to deal with conflicts with subtle approach. I am sure that these virtues embedded in our societies can be passed forward to the next generation with ease. However, the conduct of business must adhere to the acceptable Western standards if you would like to interface with the Westerners. There are many good aspects of adopting the Western business standards. They are clear cut and introduce transparency to all concerned. Until we can come up with a better standard to comply with, there is no other alternative to the Western standard.

 

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