INTRODUCTION

The main part of world trade in manufactures is concentrated within the group of OECD countries. For non-OECD market economies, the markets of high-income countries are the main outlets for their export manufactures. During the more than two and a half decades in the post-war era, up to 1973, the OECD countries experienced high rates of growth in per capita income. Growth, international specialization and international trade were stimulated by successive rounds of trade liberalization measures. Indeed, the share of imports in domestic demand and the share of exports in production increased gradually, especially in the EC member states. During this period, labelled by Herman Kahn ‘La Deuxieme Belle Epoque’, the developing countries too experienced a steady growth in their exports of manufactures to the OECD countries, in spite of the fact that the trade liberalization rounds had favoured intra-OECD trade over imports from developing countries. General Schemes of Preference were not yet in force before the seventies. Although OECD imports from developing countries increased by about 15 per cent a year during the sixties, the share of these countries in total OECD imports decreased during this period.

After 1973, the international economic situation changed drastically and many a trend was reversed. Per capita income growth in developing countries, and especially in middle-income countries, exceeded the growth performance of OECD countries. The export growth rates of especially some so-called ‘Newly Industrializing Countries’ (NICs) far surpassed the average growth of manufactures in world trade, and consequently the share of developing countries in world trade in manufactures increased, and so did their share in OECD imports of manufactures. Governments and economic agents in the OECD countries became increasingly reluctant towards further liberalization attempts, especially with respect to ‘sensitive industries’ that faced strong competition from new competitors.

Notwithstanding the deterioration of the economic situation in the OECD countries since 1973 and the reversal in the trends mentioned above, the OECD markets are still the main outlets for developing countries' exports in the seventies, and will continue to be so throughout the eighties.

INTRODUCTION

The European Community (EC) is one of the largest foreign investors in the Association of Southeast Asian Nations (ASEAN). A significant by-product arising from the EC investment is the transfer of technology to the ASEAN countries. Indeed, the transfer of technology constitutes one of the critical issues in EC-ASEAN relations. This is why there has been so much interest in this subject in recent years. In spite of the interest however, only one study has been done on the topic. This study, entitled “The Transfer of Technology from European to ASEAN Enterprises: Strategies and Practices in the Chemical and Pharmaceutical Sectors” was carried out by Philippe Lasserre and Max Boisot for the Commission of the EC in 1980.

The above study was based on 33 cases concerning 28 European corporations and 15 ASEAN companies in the chemical and allied industries. Three main areas of investigation were explored:

1. the strategies followed by the transferors and the transferees;

2. the characteristics of the technology transferred and the way it was transferred; and

3. the results of the transfer as perceived by transferors and transferees.

From the above it is clear that a lot of ground has already been covered in the investigation. In order not to duplicate the work which has already been done, this study has been confined to certain aspects of the technology tranfer issue. Furthermore, in view of time and budget constraints, the study is restricted to Malaysia, one of the ASEAN countries. Despite the limited scope of the study, it is hoped it will provide a useful supplement to the comprehensive study undertaken by Lasserre and Boisot.

DEFINITION

Simply defined, technology is the knowledge and machinery needed to run an enterprise. It is both software, which includes skill and know-how, and hardware, which includes machinery and equipment. Thus, technology transfer includes not only the transfer of machinery but also the transplant of skill.

The aim of this paper is to provide an overview of EC protection, its problems and possible future evolution, from the point of view of developing countries, particularly the members of ASEAN. The EC is one of ASEAN's chief markets, accounting for 14.1 per cent of ASEAN's exports in 1979, and 13.7 per cent of its imports. In developing countries there is some concern that the markets of developed countries might in future become more protected. Is there a risk of this happening in the EC?

The paper is organized as follows. The first part describes the mechanism of EC decision-making, the EC's control of the instruments of trade policy, and its attempt to meet developing countries' demands for “special and differential treatment”. The second part describes the systems which have evolved for the protection of a number of sectors which are, or may become, important to ASEAN. The last section draws together the conclusions of the analysis.

EC DECISION-MAKING AND THE COMMON COMMERCIAL POLICY

Decision-making in Brussels

As is well known, the European Community is unique among international institutions because of the “supra national” powers with which it was endowed by the treaties which established it. One must however resist the temptation of thinking of the European Community as a more autonomous decision-maker than it really is. The roots of Brussels decisions are very much to be found in the capitals of the member states.

To carry out its mission of organizing the Common Market, the EC issues directives and regulations which are a source of law, and to which national legislations must conform. The Community may carry out international negotiations and conclude agreements and treaties. The Luxembourg Court, which judges disputes between the Community, the member states, and the citizens of those states, has played a major role in consolidating and extending the authority of the Community. A democratically elected parliament has the power to reject the Community budget and to revoke the Commission.

Economic relations between the countries of the Association of Southeast Asian Nations (ASEAN) and the countries of the European Community (EC) have a long history as well as great future potential. Merchant adventurers, colonialists, traders, and foreign investors from Europe have in the last two centuries brought about a continuous exchange of goods, interests and ideas with Southeast Asia. In more recent times, mutual co-operation among the Southeast Asian countries of Indonesia, Malaysia, Philippines, Singapore and Thailand on the one hand and the European countries of Belgium, Denmark, France, Federal Republic of Germany, Ireland, Italy, Luxembourg, Netherlands, and the U.K. on the other have led to the creation of two economic groupings, ASEAN and the EC, dedicated to the idea of mutual benefits through trade. The EC is ASEAN's third most important trading partner, and, although the proportion of ASEAN's trade with the EC is declining slightly, the exchange of goods and services between the two groupings is still increasing rapidly both in terms of volume and value. ASEAN is important for EC investors as the fastest growing area of the Pacific rim. The political stability that has emerged in ASEAN is an important factor contributing to this attraction as well as an important reason why ASEAN as a grouping can expect to achieve more at the economic bargaining table than may be commensurate with the relatively low importance of ASEAN trade for the EC.

Although trade is likely to be beneficial for both sides it does not always develop automatically according to comparative advantage or investment potential. Lack of knowledge about available opportunities, methods of operation and styles of negotiation are frequent causes of missed chances. Dissemination of information, exchange of views and ideas and the analysis of potential opportunities are therefore important factors for trade expansion and consequent welfare increases. It is for this reason that research and academic exchange and co-operation have an important role to play.

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With the exception of Thailand, the ASEAN countries were previously under the control of European or American colonial powers and this, inter alia, led to the rapid opening up of these countries to international trade and investment. In spite of political independence, Thailand underwent similar colonial type economic development. The dominant type of foreign investment in colonial times was in plantations and mineral development for the export market. There were also investments in physical infrastructure, commerce and finance, but little in manufacturing.

During the 1950s and early 1960s the ASEAN countries became committed to transforming their large alien-dominated economies into national entities, with greater national ownership and control of both the traditional and the nascent modern sectors, and to ensuring that the fruits of economic development led to social development and rising standards of living of their people. Although the ASEAN countries (excepting Singapore) were well endowed with natural resources, the emphasis was on industrialization. There was a perceived need for private direct foreign investment for an industrial take-off and to keep foreigners away from the ownership and control of national natural resources. During this import substitution phase, foreign investments, especially from non-traditional sources, flowed into Indonesia, Malaysia, Philippines and Thailand to produce consumer manufactures for the domestic market. In the current export oriented phase, pursued most vigorously by Singapore and least by Indonesia, foreign investors produce labour intensive manufactures for the export market. The resource development motive is more prevalent among foreign investors in Indonesia, while the low-cost export base motive is more dominant among investors in Singapore. The other three ASEAN countries have a mix of all types of investments.

The following section outlines the foreign investment policies of the ASEAN countries, while the next surveys the motives of foreign investors in ASEAN and the overall pattern of foreign investment in the region. EC investments in ASEAN are then examined, while the conclusion highlights some of the issues pertaining to foreign investments in the region.

This essay provides an overview and a framework within which detailed discussion on trade relations between the Association of Southeast Asian Nations (ASEAN) and the European Community (EC) may be carried out. The emphasis will be more on ASEAN's point of view of the trade relations.

The EC is ASEAN's major trading partner after Japan and the United States. The EC accounts for about 14 per cent of the total ASEAN trade on both the export and the import sides. This proportion has remained fairly constant over the last few years, implying that ASEAN's trade with the EC has been increasing in line with total ASEAN trade, which has been growing very rapidly by world standards. Since trade is a very important component of the ASEAN economies, it follows that ASEAN's trade with the EC has significantly contributed to the development of ASEAN.

On the other hand, to a very large economy like the EC, ASEAN appears insignificant. The EC's exports to and imports from ASEAN have never exceeded two per cent of its total exports and imports. However, ASEAN's exports to the EC are highly specialized and the EC relies heavily on ASEAN for such items as rubber, timber, tapioca, tin, palm oil, and cattle feed. The pattern of trade becomes even more specialized when broken down according to country. Thailand and the Philippines are the major sellers of tapioca and copra respectively to the EC. Indonesia and Malaysia are more important to the EC as importers, but they are also major suppliers of rubber, timber, tin and palm oil. Singapore exports manufactured goods and electronics to the EC. More recently ASEAN textiles have made a breakthrough in the European market with such success that the EC has set limits on textile imports from ASEAN. Other ASEAN manufactured goods are also beginning to appear in the European market.

INTRODUCTION

Foreign investment is an important vehicle to development, and Thailand, like most developing countries, has been keen to attract more of it. The virtues supposedly associated with foreign investment are many: foreign investment can help generate new jobs which is important in developing countries where unemployment is often a seemingly intractable problem; foreign investment can serve as a useful medium to help raise the technological levels and the management skills of the host country; foreign investment can make a positive contribution to the balance of payments of the host country because export-oriented investments can help earn much needed foreign exchange while investments for import substitution purposes can help save what little foreign exchange reserves there are in most developing countries. Deficits in the balance of trade have become particularly acute in the case of Thailand. In 1970, the deficit in the balance of trade was close to 10 billion baht and increased more than three times to nearly 38 billion baht in 1979. It is not the purpose of this paper to present all the arguments in favour of or against foreign investments. The point to be made is that most developing countries are convinced that foreign investment is good and every effort is made to attract as much investment as possible. Thailand is no exception. The setting up of the Board of Investment in 1959 and the promulgation of the Investment Promotion Act of 1977 – the latest in a series of laws designed to attract foreign investment to Thailand – all manifest the importance attached to foreign investment by the Thai Government.

EEC INVESTMENT IN ASEAN AND THAILAND

Using share in total registered capital of all promoted firms as an indicator, Japan has led all other countries in investing in Thailand in the two decades from 1960-80. During this period, about 77 per cent of total registered capital were from local sources while close to 8 per cent were held by Japanese investors.

PROBLEM SETTING

Till the end of the sixties ASEAN-EC trade relations exhibited the pattern of a traditional division of labour between primary commodity suppliers from less developed countries (LDCs) and manufactured goods suppliers from developed countries (DCs). The 1973 energy price shock and the ensuing discussion on primary commodity cartels and commodity agreements within a New International Economic Order could theoretically have induced the EC to perpetuate this pattern by institutionalizing its trade relations with ASEAN under the major objective of a safe access to input markets in primary commodities. However, an EC trade policy confined to this sole aspect would have been misleading against the background of a rapid sectoral change in the ASEAN exports flows to the EC during the last decade. Within nine years (1968-77) the ASEAN countries doubled the share of semi-manufactures and manufactures in their exports to the EC from about 25 per cent to more than 50 per cent. To a great extent this may have been the outcome of an export-oriented industrialization policy pursued in most of the ASEAN economies and assisted by other “environmental” export stimulants, such as the elimination of undervaluation of some EC currencies with its positive impact on “footloose” EC investments in ASEAN countries, aggressive wage policies of EC trade unions, as well as a world-wide lowering of tariff barriers due to the multilateral GATT negotiations on tariff rate harmonizations.

Apart from the supply-oriented policies and the “environmental” changes, the obvious trend towards a new intra-manufactures division of labour between the aging EC economies and the newly industrialized ASEAN countries have also been affected by specific EC trade policies in manufactures towards LDCs (ACP and Mediterranean countries) in particular. However, these policies starting from the early seventies, not only encompassed trade-stimulating components (such as non-reciprocal tariff cuts within the scheme of the Generalized System of Preferences (GSP) but also gradually incorporated selective non-tariff barriers (NTBs) in the same measure as some LDCs proved to be highly competitive in various branches.

ASEAN (the Association of Southeast Asian Nations) and the EC (the European Community) are two groups of nations, one in Asia, the other halfway across the world in Europe, with a combined population of more than 500 million people;

- both committed to full, voluntary co-operation;

- constituting areas of relative stability at a deeply troubled time in history;

- together representing a tremendous potential for good in the world.

In this context, the convening of this Conference is timely and most welcome.

I feel greatly honoured to have been invited to participate in this important Conference, together with such a distinguished group of scholars and experts from Europe and Asia. Various aspects of ASEAN-EC economic relations will be discussed in depth during the next three days. It may be useful at this opening session, as part of the context of the ensuing exchanges of views, to recall the brief history of what is commonly described as the ASEAN-EC Dialogue in the light of the distinctive concerns and characteristics of the two co-operating communities.

Structurally, ASEAN and the EC present a study in contrast. The European Economic Community was formally established by the Treaty of Rome in 1957 with centralized community institutions and well defined supra-national objectives. It has since become a model for structuring, as well as a reference point for evaluating the performance of other regional organizations. ASEAN, on the other hand, began life as a loose inter-governmental association under the Bangkok Declaration of 1967, and while its institutions have evolved in response to the needs of its expanding activities they have remained highly decentralized, geographically and sectorally.

With its basic aims expressed in general terms in the Bangkok Declaration, ASEAN co-operation in its initial stages was largely exploratory. Strong centralized institutions were felt to be unnecessary, perhaps even inimical, to the fostering of the substance of co-operation. Organizational flexibility became a hallmark of ASEAN; it followed a cautious approach to institutional change.

The Governments of Indonesia, Malaysia, Philippines, Singapore, and Thailand — Member Countries of the Association of South-East Asian Nations — hereinafter referrred to as ASEAN, of the one part, and

The Council of the European Communities, of the other part,

Having regard to the friendly relations and traditional links between the member countries of ASEAN and the Member States of the Community;

Affirming their common commitment to support mutually the efforts of ASEAN and the Community to create and to strengthen regional organisations committed to economic growth, social progress and cultural development and aiming to provide an element of balance in international relations;

Inspired by their common will to consolidate, deepen and diversify their commercial and economic relations to the full extent of their growing capacity to meet each other's requirements on the basis of comparative advantage and mutual benefit;

Affirming their willingness to contribute to the expansion of international trade in order to achieve greater economic growth and social progress;

Conscious that such co-operation will be between equal partners but will take into account the level of development of the member countries of ASEAN and the emergence of ASEAN as a viable and cohesive grouping, which has contributed to the stability and peace in Southeast Asia;

Persuaded that such co-operation should be realised in an evolutionary and pragmatic fashion as their policies develop;

Affirming their common will to contribute to a new phase of international economic co-operation and to facilitate the development of their respective human and material resources on the basis of freedom, equality and justice;

Have decided to conclude a Co-operation Agreement and to this end have designated as their plenipotentiaries:

The Government of the Republic of Indonesia:

Prof. Dr. Mochtar Kusumaatmadja,

Minister of Foreign Affairs;

The Government of Malaysia:

Tengku Ahmad Rithaudeen,

Minister of Foreign Affairs;

The Government of the Republic of Singapore:

S. Rajaratnam,

Minister for Foreign Affairs;

The Government of the Kingdom of Thailand:

Air Chief Marshal Siddhi Savetsila,

Minister of Foreign Affairs;

ABC ASEAN Brussels Committee

ACP African-Carribean-Pacific (developing countries associated with the European Community

ALC ASEAN-London Committee

APC ASEAN-Paris Committee

BAC Bonn-ASEAN Committee

BKPM Badan Koordinasi Penanaman Modal (Investment Coordinating Board, Indonesia)

CAP Common Agricultural Policy

CCCN Customs Co-operation Council Nomenclature

CCT Common Customs Tariff

CKD Completely knocked down

COREPER Committee of Permanent Representatives of the EEC Council of Ministers

DAC Development Assistance Committee

DC Developed Country

EC European Community

ECU European Currency Unit

ECSC European Coal and Steel Community

EEC European Economic Community

EFTA European Free Trade Area

EUA European Unit of Account

FIDA Federal Industrial Development Authority (Malaysia)

FRG Federal Republic of Germany (West Germany)

FTZ Free Trade Zone

GATT General Agreement on Tariffs and Trade

GDR German Democratic Republic (East Germany)

GNP Gross National Product

GSP Generalised System of preferences

GTC Gross Trade Creation

IMF International Monetary Fund

ISIC International Standard Industrial Classification

JCC Joint Co-operation Committee

JSG Joint Study Group (ASEAN-EEC)

LDC Less Developed Country

LTA Long-term Agreement (for cotton textiles)

MFA Multifibre Arrangement

MFN Most Favoured Nations

MIDA Malaysia Industrial Development Authority

MNC Multinational Corporation

NEP New Economic Policy

NIC Newly Industrialising (Industrialised) Country

NTB Non-Tariff Barrier

ODA Official Development Assistance

OECD Organization for Economic Co-operation and Development

OMA Orderly Marketing Agreement

OPEC Organization of Petroleum Exporting Countries

R & D Research and Development

RCA Revealed Comparative Advantage

SCCAN Special Co-ordinating Committee (ASEAN)

SITC Standard Industrial Trade Classification

STABEX Stabilization of Export Earnings

TD Trade Diversion

TNC Transnational Corporation

U.K. United Kingdom

U.S. United States

UNCTAD United Nations Conference on Trade and Development

VER Voluntary Export Restraint

VESRA Voluntary Export Self-Restraint Agreement