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The Connector:How Mrs Tohwon over the

Singapore palate– and an OAM

– Toh Guek Hong

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23rd Year of PublicationPublished in Australia since 1983. Published by Asia Today International Pty Limited (ABN 34 109 69 874). Office address: Level 29 Chifley Tower, 2 Chifley Square, SydneyNSW, Australia. Production Office: Suite 2a, 18-20 Waterloo Street, Narrabeen NSW 2101,Australia. Telephone (612) 9970-6477. Fax (61 2) 9913-2003. Mailing address (all correspondence): Box N7, Grosvenor Place Post Office, Sydney NSW 1220, Australia. E-mail <[email protected]>. Website <www.asiatoday.com.au>.

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Volume 24 | No.6 | August 2006

ContentsCOVER REPORT8-12 CHECKMATE IN

WORLD TRADEIN THE MAY issue of ATI Magazine,we reported that prospects of preservingand enhancing the global multilateraltrading system were diminishing asWTO negotiators missed self-imposeddeadlines. On July 24, WTO Director-General Pascal Lamy called ‘time-out’following a face-off between India andthe United States over agricultural tariffs.As this issue went to press, some werelooking to Australia to broker a dealwhich could re-open further talks. Lamy,meanwhile, has warned that the Dohafailure will send out a ‘strong negativesignal’ for the future of the world econo-my. On page 10, we detail the world of subsi-dies offered especially by developing coun-tries; on page 11, how China adopted a back-seat role; on page 12, back to the law of thejungle?

OPINION5-7 NORTH KOREA – Fizzer, but beware the

next angry shot; ECONOMIC OUTLOOK – Global buoyancy built on straw?

THE REGION13-14 THE CONNECTOR – how Toh Guek Hong won over Singapore consumers to Australian

food. Toh has been awarded an honorary Order of Australia for services to the Australianexport community.

14 VIETNAM NEARS WTO MEMBERSHIP – The US is co-operating to fast-trackVietnam to membership of the WTO before November’s APEC forum in Hanoi.

15 JAPAN, KOREA LIFT ROYALTIES EARNINGS – Payment of royalties and licensingfees globally grew 11 per cent between 2000 and 2004, to represent six per cent of com-mercial services trade.

16 THAILAND LOSING ITS EDGE – Thai officials admit that unattractive investmentprivileges, lack of human resources and poor logistics are behind the loss of a majorinvestor to Malaysia.

LOGISTICS23 PRESSURE ON MARGINS – Asia remains a key growth market for logistics providers,

but margins are slack or declining across both air and sea cargo.

24 SHENZHEN CHALLENGES HK AS LEADING PORT – Opening of the YanpaiHighway has cut transportation costs from the factory heartland of Dongguan to Yantian,giving Shenzhen port a further boost

25-26 POSITIONING FOR GROWTH – Fedex opts for major hub in Guangzhou; DHL ChinaHQ will be Beijing; UPS building new cargo hub in Shanghai; Road transport key for TNTstrategy.

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Key players at the WTO (l to r)Japan’s Minister for Agriculture,

Shoichi Nakagawa; WTO Director-General, Pascal Lamy; Brazil’s

Foreign Minister, Celso Amorim;Australia’s Trade Minister,

Mark Vaile; US TradeRepresentative Susan Schwab;EU Trade Commissioner, PeterMandelson; and India’s Trade

Minister, Kamal Nath.

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SEOUL – In early July, the world wastreated to the latest sequel of the perennialNorth Korean Missile/Nuclear Crisis – whichfirst debuted in 1994. The all-too-familiar plotand characters were there (except that Kim Il-Sung has since been replaced by his under-study, Kim Jong-il): the threatening NorthKorean weapons programme (nuclear and/ormissile); initial US and strident (even belli-cose) Japanese verbal and diplomatic reac-tions; South Korean consternation; andChinese and Russian calls for restraint. Theending also followed the usual script: thecommotion soon faded as diplomats went towork and the global audience departed with asense of “déjà vu”.

The latest drama began to unfold in June,with satellite intelligence reporting prepara-tions under way in North Korea for missiletests. North Korea’s nuclear weapons pro-gramme that gave it charter membership inthe Axis of Evil, and oft-cited concerns thatthe latest booster upgrade, Taepo Dong II(with an assumed range of 3,500-6,000 kmand payload of 1,000 kg), could reach the westcoast of the United States, added drama tothese pre-release trailers.

In reponse, South Korea and China urgedNorth Korea to exercise restraint (with SouthKorea trying to downplay the affair by opti-mistically interpreting the preparations aspart of a peaceful North Korean space pro-gramme). As usual, the US and Japan (whichwitnessed Taepo Dong I overshoot Japan inAugust 1998 to land in the Pacific Ocean)uttered ominous warnings of sanctions (at aminimum), with voices in both countriesadvocating a pre-emptive strike against thelaunch sites.

To the dismay of all, North Korea fired asalvo of missiles, including the Taepo Dong II,on July 4, American Independence Day andthe day of the Discovery space shuttle launch.


FIZZER, BUTBEWARE THE NEXTANGRY SHOT

Clearly, this display of North Korean technicalprowess and military might was designed toimpress. At least half a dozen missiles landedin the East Sea (Sea of Japan). To the proba-ble consternation of North Korean officialsand delight of American political cartoonists,the Taepo Dong II did as well, apparently mal-functioning within two minutes of launch.

The missile launches produced an initialflurry of international condemnation, postur-ing and embarrassment. Japan responded byhalting ferry services between the two coun-tries and, supported by the United States,called for Security Council sanctions againstthe DPRK. North Korea responded with itsusual rhetoric that such actions would be tan-tamount to a declaration of war. South Koreaannounced that it would suspend further aidto its northern brethren – but continued withcurrent aid projects. China and Russiaannounced their verbal displeasure over thelaunches. Kim Jong-il once again hit the frontpages of the world’s newspapers.

The question remains: What was Kim Jong-il trying to prove? Was he deliberately snub-bing his nose at the US by launching onAmerica’s Independence Day or was he seek-ing to impress the world with North Korea’stechnological advances by upstagingDiscovery? The more benign interpretation isthat he was seeking to deter US movesagainst him by demonstrating that he nowpossesses a “poison pill”. The prevailing viewis that the objective of this brinkmanship is towin concessions in terms of aid and recogni-tion from the US, especially for the upcomingtalks in Geneva, scheduled for August.

Whatever he was trying to do or prove, hismoment of glory (or infamy) lasted but a week.The news that Taepo Dong II came nowhereclose to the US diffused tension almost imme-diately. Instead of alarm, news of the missilefizzle induced more snickering than alarmamong the American population. China andRussia indicated that they would not supportSecurity Council action against North Korea.Ultimately, the US, distracted by Iraq,responded with far less bellicosity than usual.

Indeed, it soon lent its support to a Chineseproposal to re-open negotiations, and evenagreed to meet North Korea face-to-face with-in the context of the on-off “four plus two” SixParty talks. As this issue went to press, opti-mism was rising that the latest round of theSix Party talks would open on July 28 in KualaLumpur. North Korea's Foreign Minister, PaekNam-Sun, was scheduled to attend the 26-nation ASEAN Regional Forum securitymeeting scheduled at that time.

In South Korea, the country most directly atrisk (apart from the DPRK itself, of course),calm largely prevailed throughout the crisis.Equity and currency markets remained stableand the populace largely went about its busi-ness. The common attitude was, indeed, thatthe latest drama was merely a rehash of pre-vious crisis that also failed to materialise. Thedrama, as elsewhere, dominated the news fora few days and then disappeared from view.The show passed on.

The long-term view is less sanguine,because the crisis largely passed quickly dueto the obvious failure of Taepo Dong II. Hadthe missile overshot Japan (and one unsub-stantiated report in a Japanese newspaper

A SENSE OF DÉJÀ-VUOOPPIINNIIOONN

THE problem is that themissile actually flew forabout two minutes.According to rocket scien-tists, this indicates thatNorth Korea’s rocket tech-nology is basically sound . . .

GLOBALBUOYANCYBUILT ON STRAW?

SOUTHEAST ASIAshould continue to attractinvestment, both as anexport platform and as amarket with rising produc-tivity — and mostly veryattractive demographics . . .

Ô CONTINUED PAGE 6

} The more benign inter-pretation is that KimJong-Il was seeking todeter moves against himby demonstrating that henow possesses a ‘poisonpill’. The prevailing viewis that the objective ofthis brinksmanship is towin concessions in termsof aid and recognitionfrom the US ~

cited intelligence reports that the missile wasaimed in the direction of Hawaii), the USreaction would not have been so (relatively)benign. The problem for long-term peace ofmind is that the missile actually flew for abouttwo minutes. According to rocket scientists,such a flight indicates that North Korea’srocket technology is basically sound and that,eventually (a few years or so from now), themissile will work. Prospects for a more dra-matic sequel are excellent. Stay tuned.

* Peter Sylvestre is Seoul correspondent for ATI Magazine.

HONG KONG – Asian economieshave been having a remarkably successfulyear so far in 2006, confounding expectationsthat a combination of still rising oil prices andinterest rates would see a significant slow-down. However, the global buoyancy from

Peter Sylvestre*ANALYSIS

Philip Bowring*ANALYSIS

OOPPIINNIIOONN

6 | ASIA TODAY INTERNATIONAL AUGUST 2006

Ô FROM PAGE 5

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which Asia has again been the principle ben-eficiary looks increasingly built on unstablefoundations. Just how unstable threatens tobecome clear in the closing months of theyear, but despite its external dependence,most of the region looks well-placed to absorbglobal shocks better than most.

The Asian Development Bank now putsfull-year GDP growth for developing Asia at7.5 per cent, with China again the lead play-er at 10 per cent and others mostly clusteredaround the respectable 4.5-6.0 per cent level.

Export growth has again been the maindriver for almost all economies, with demandwithin and outside Asia strong, despite theimpact of oil. The ASEAN-5 have even suc-ceeded in increasing their already large cur-rent account surpluses, despite the impact ofoil prices. The newly-industrialised countries(Korea, Taiwan, Hong Kong) have seen theirsurpluses fall, but these remain significant.Currencies have also mostly appreciated,dramatically in the case of the Korean wonand more moderately for Thailand, thePhilippines, Taiwan and Malaysia.

Most countries have, in fact, been pursu-ing conservative policies. Although inflationhas, despite oil, remained low in the NIEs,interest rates and currencies have mostlybeen allowed to rise and to slow the accumu-lation of household debt.

In Southeast Asia, domestic demand hasbeen slowed and headline inflation pushedsharply higher by government decisions topass on energy price increases, in the casesof Indonesia and Malaysia quite dramatically.In turn, these high inflation rates haveencouraged central banks to push up interestrates, although from mostly low levels. Fuelprice adjustments have caused short-termpain, but reduced the danger to fiscal healththat price subsidies had created.

However, there remains one giant excep-tion to the above caution: China. On the faceof it, China’s double-digit growth is a greatsuccess which is carrying much of Asiaalong with it. However it is quite clearlyunsustainable. And it is at least in part theresult of government failure to use the tools ofa market economy to moderate growth tosustainable levels. Miniscule and timid cur-rency and interest rate adjustments have pre-dictably had almost no impact on reining incredit growth, and money supply hasexpanded over-rapidly because of a risingcurrent account surplus and capital inflow,some of it speculative.

Headline inflation in China remains lowdespite this. However, the headlines may nottell the story of the impact of commodityprice inflation and of wages rising in someareas at rates well in excess of productivitygrowth. Apart from exports, growth is drivenmainly by fixed asset investment, much of itlikely to yield modest returns, rather than byconsumption. In contrast, ASEAN countries,particularly Indonesia and the Philippines,are in need of higher investment, and, insome cases, of consumption too.

The danger for the rest of Asia, and indeedthe world, is that the failure of both Chinaand the US to address the imbalances whichunite them will at some point end in a sud-den disruption such as occurred in Asia in1997. Just as China declines to take toughinterest rate and currency measures toreduce credit growth and the trade surplus,so the US remains reluctant, despite severalrate increases, to bring the cost of moneyback to a level which would encourage sav-ing, discourage consumption and reduce thetrade deficit which has enabled global moneysupply to surge – and provided a cushionagainst the contractionary impact of oilprices.

The good fortune that the world hasenjoyed during 2006 may well prove to beborrowing against the future, even assumingthat oil stabilises or falls over coming months.Forecasts for China now are especially diffi-cult. But assuming that both China and the

From the pages of ASIA TODAY INTERNATIONAL

AUGUST 1986 – A shortage of electricity causingserious problems for manufacturers in China, especiallyin Guangdong Province; Malaysia’s new Promotions ofInvestment Bill provides tax breaks for business activi-ties the Government seeks to promote, and sets somenew ground rules; South Korea to establish US$30 mil-lion investment trust unit in Europe and to allow limiteddirect foreign investment for the first time in its domes-tic securities market.

AUGUST 1991 – A decision by China to support con-struction of a second airport in Hong Kong brings reali-sation in Hong Kong that the relationship with China hasbeen salvaged; India’s new Prime Minister, NarashimaRao, and new Finance Minister, Dr Manmohan Singh,stress the importance of foreign investment in rejuvenat-ing a sagging economy; Indonesia removes or lowersimport duties on a wide range of products.

AUGUST 1996 – The Hong Kong Trade DevelopmentCouncil adopts a 10-point programme to promote HongKong as a services hub for Asia; Rule-of-origin emergesas an invisible trade barrier that will become a criticalissue as the world moves towards freer trade; HongKong passes new laws to protect intellectual property.

AUGUST 2001 – The speed of the downward econom-ic spiral in East Asia has been faster than anticipated,and the bounce-back will take time, says HSBC CEOAman Mehta; Cost of medicines could rise by 10-50 percent in some developing countries over the next fiveyears because of a WTO intellectual property rightsagreement which critics say was written by the AmericanPharmaceutical Assocation to protect drug profits.

} The danger for Asia,and indeed the world, isthat the failure of bothChina and the US toaddress the imbalanceswhich unite them will atsome point end in a sud-den disruption such asoccurred in Asia in 1997 ~

Ô CONTINUED PAGE 6

SINGAPORE – In an update on theimpact of record oil prices on Asianeconomies, ABN AMRO suggests that Koreaand India are most vulnerable, with India in aworse position given its weaker external bal-ance and high proportion of oil for domesticconsumption (versus exports for Korea).

Ranking next most vulnerable are Taiwan,Thailand and the Philippines, but withTaiwan to some extent cushioned by its tradesurplus. “Indonesia stands to lose as a net oil

ECONOMIES AT RISK


HOW THE OIL PRICE BURDEN IS IMPACTING ASIAUS slow very markedly as we move into 2007,what will be the fate of the rest of Asia?

Modestly encouraging, long-ignored Japancontinues to provide stimulus to the rest ofthe region, importing more from its neigh-bours at the same time as continuing toinvest in and transfer technology to them. Thereturn of Japan to more normal interest rateswill have some knock-on upward effect onAsian interest rates and currency values, butis generally welcome.

Depending on oil price behaviour, the NIEsmay see further falls in their current accountsurpluses if demand in the West and Chinaweakens. But their external positions are sostrong that they have scant need to restraindomestic demand in consequence. Indeed,for them interest rates may have alreadypeaked. Only in the Philippines and Indonesiais foreign debt a constraint – and in both,investment is being held back by factorsother than access to capital.

Longer term, there must be worries aboutthe impact of a prolonged US re-balancing ontrade and on the flow of multinational invest-ment into Southeast Asia. However, given thecontinuing gains being by East Asian compa-nies in global product markets, SoutheastAsia should continue to attract investment,both as an export platform and as a marketwith rising productivity – and mostly veryattractive demographics.

* Philip Bowring is Chief Correspondent of ATI Magazine

Ô FROM PAGE 6

importer. China, Singapore and Hong Kongare the least vulnerable, while Malaysia is inthe best given its net oil exporter status,” thereport says.

It adds: “We are bearish on currencies ofAsia’s import oil-dependent economies, andsee upside risk in policy interest rates forthose with heavy government oil subsidies(as high oil costs are progressively passed onto the consumer).”

www.abnamroresearch.com

Source: ABN AMRO

table is simply wrong. The failure is in intangi-ble gains we have painstakingly assembled forthe developing world.

"The EU is not giving up on this road. Wehave stuck to it because it is right and fair, aswell as in our interest. We stand ready to pickup where we left off."

Given the depth of anger and frustrationamong the key protagonists, just when thenegotiations, known as the Doha DevelopmentAgenda (DDA),can be revived – if at all – is hardto tell. Brazilian minister Celso Amorin says itmay not be a question of weeks, but months –and perhaps many months.

Some now believe that talks may not re-startuntil 2009, when a new President is installed inthe White House after next year's US election.Strictly speaking, negotiations can resume atany time, and continue even if the US Presidentno longer has fast-track negotiating authority(which expires in July next year). The DohaAgenda was launched when the then-USPresident did not have fast-track authority.Similarly, part of the Uruguay Round was nego-tiated when this authority was not in place.

The problem in implementing an agreement

WTO should not be seen in isolation, because itreflects a wider geopolitical development. Wehave missed an opportunity to prove that multi-lateralism works – by working together, wecould have shown the world that we can solvethe problems that confront us."

Peter Mandelson, the European Union'sTrade Commissioner, believes there will be “ahuge political cost" for the failure, which comesat a time when countries urgently need to topup international confidence and not to create(new) tensions and uncertainties.

Mandelson said: "We are close to a package(that is) greater in value than ever achieved. Tosay that there is no new (market) access on the

GENEVA – With the dramatic suspensionof global trade negotiations here in July, theworld risks losing a trade liberalistion packageoffering potentially bigger benefits than thehard-fought Uruguay Round. The bottom line isthat the world’s trading system has been heldhostage by the farmers of rich countries.

At a time when economic nationalismappears to be on the rise – in a rearguard reac-tion against globalisation and the perceivederosion of individual country's sovereign pow-ers – the Doha Round failure could have deepimplications for the whole multilateral system.

Pascal Lamy, World Trade OrganisationDirector-General, said that it will not be inst-antly obvious, the failure could affect geopoliti-cal stability. Geopolitical uncertainties are onthe rise, he said, and the (Doha) failure willsend out "a strong negative signal" for thefuture of the world economy.

Speaking after the talks failed, Lamy said:"The danger of a resurgence of protectionismwill come at a time when the pace of globalisa-tion is weighing heavily on the social and eco-nomic fabrics of many countries – and whengeopolitical instability is on the rise."

"The failure to reach an agreement within the

INDIA, US FACE OFF AT DOHA CCOOVVEERR RREEPPOORRTT


CHECKMATE!CHECKMATE!Subsidised

farmerswin this

Round

CONTINUED PAGE 10 Ô

by Florence ChongEditor, ASIA TODAY INTERNATIONAL

} Geopolitical uncertain-ties are on the rise, andthe Doha failure will sentout a strong negative sig-nal for the future of theworld economy ~

IN THE MAY issue of ATI Magazine, we reported that prospects of preserving andenhancing the global multilateral trading system were diminishing as WTO negotiatorsmissed self-imposed deadlines. On July 24, WTO Director-General Pascal Lamy called‘time-out’ following a face-off between India and the United States over agricultural tar-iffs. As this issue went to press, some were looking to Australia to broker a deal whichcould re-open further talks. Lamy, meanwhile, has warned that the Doha failure willsend out a ‘strong negative signal’ for the future of the world economy . . .

Trade Watch

Subsidisedfarmerswin this

Round

without Presidential authority to sign off, is thatit will have to be submitted to Congress, addinganother layer of complications.

Lamy said that failing to reach an agreementby the end July meant that, technically, it wouldbe impossible to get drafting and documenta-tion of an agreement completed in time forPresident George Bush to sign off before theexpiry of his fast-track authority. Other areasunder negotiation have also not been complet-ed – held up by disagreement over agriculture.

Lamy warned: "We are at risk of seeing whatis on the table – such as elimination of exportsubsidies, duty free/quota free access for theleast-developed countries, and cotton subsidies– disappear.”

Australia's Deputy Prime Minister andMinister for Trade, Mark Vaile, said: "Thisdenies us not just the benefits of agriculturalreform but also the important trade gains thatthe Round promises for industrial tariffs cuts,services liberalisation and strengthening of therules." Vaile said almost a decade had beeninvested. "It took years to see this Roundlaunched. And we have been seeking to makeprogress for five years. It has been a difficult androcky road to where we are now. Clearly, thereis some way ahead of us to bring the Round toconclusion."

WTO sources say Australia is basically a one-

issue player. Its interest is in agriculture. But itis prepared to move on NAMA (non-agricultur-al market access) and services. Unfortunately,the talks did not get to the revised offer stage forservices. The process has now been put intodeep freeze.

The talks broke down among six key players– the US, the EU, Australia, Japan, Brazil andIndia – when it became obvious to Lamy thatthere was such a gap that, even if they hadanother day or a little more compromise, itwould not have made a difference.

The straw that broke the camel's back wasimpasse basically between India and the US.

Sources in Geneva told ATI that the US andIndia "really clashed heads over ‘special’ prod-ucts". They said India was pushing to have upto 20 per cent of its products designated as‘special’ and that this could prevent somethinglike 95 to 98 per cent of all trade from gettinginto the Indian market.

The US says only five per cent of productsshould be considered ‘special’. ATI’s sourcessuggested it was quite possible an agreementcould have been clinched if India had been pre-


CCOOVVEERR RREEPPOORRTT

Ô FROM PAGE 8


Trade Watch

A world of subsidiesGENEVA – While it was agricultural sub-sidies that triggered collapse of the WTO tradetalks, governments around the world use sub-sidies to support a wide range of industries.

In a review of subsidies in its most recentWorld Trade Report, the World TradeOrganisation says countries have understatedthe level of spending in their economies. Theyare required to notify the WTO on subsidiessupport, but the review found that many,including the US, Japan, the EU and Australia,understate the real level of expenditure.

The review says governments around theworld, and especially from developed nations,spend US$300 billion a year on subsidies tosupport trade and industries.

It estimates that 21 developed countriesalone spent almost US$230 billion of the globaltotal of US$300 billion. A sample of 22 devel-oped countries showed that they spend 1.4 percent of GDP on subsidies, while the average ofdeveloping countries was 0.6 per cent.

Agriculture subsidies in OECD countries –both domestic and export subsidies – show adownward trend. The available evidence sug-gests industrial subsidies are most pervasivein the mining, coal, steel, forestry, fishing, ship-building and automotive industries.

Comparable data on the incidence of subsi-dies in services sectors does not exist, says thereport. Incomplete evidence suggests supportmeasures are concentrated in the transport,tourism, banking, telecommunications andaudiovisual sectors.

The WTO said the US reported the annualaverage value of its subsidies over a four-yearperiod at US$16.3 billion, less than half the

value reported in national accounts (US$411.5billion, federal subsidies only).

In Japan, the notifications report $US4.2 bil-lion, while the national account shows US$34.3billion. Australia notifies to the WTO subsidiesof US$300 million, while in its national accountthe figure rose to US$4.7 billion. For the EU, thenotifications amount to USD$96.3 billion andthe national account to US$109 billion.

Pascal Lamy, WTO Director-General, saysWTO economists carefully scrutinise the useand impact of government support in a varietyof sectors. While some subsidies could benefitsociety and offset negative external factors,there were subsidies which were "clearly morecontroversial and can be damaging".

"One significant part of our Doha negotia-tions involved reducing subsidies – which dis-tort trade – while encouraging governments touse other forms of support that can facilitatedevelopment and environmental protection, hesaid. "Shifting support in this way is politicallydifficult and requires determination andcourage, but the evidence is clear that suchreforms can level the playing field and providereal rewards across the board.”

} The report estimatesthat 21 developed countries alone spentalmost US$230 billion of the global total ofUS$300 billion ~

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expected that a last-minute EU offer to accept800,000 additional tonnes of beef into the EUwould stay on the table.

As WTO membership becomes bigger, withmore developing countries joining, a consen-sus will be harder to achieve. Where once dia-logue was dominated by the Quads, the devel-oping countries now clamour to have theirvoices heard. India and Brazil have establishedthe G-20, a formidable negotiator in the talks.India has also set up G-33, chaired byIndonesia, which has to be reckoned with.

One possible, but slim, hope of unfreezingthe process is to hive off some components –such as the trade facilitation agreement andthe aid-for-trade packages or the cotton pack-ages. But some of these are deeply embeddedinto the heart of the negotiations.

With this failure, clearly, the rules in globaltrade have now changed. The greatest pityabout the stonewalling of members over agri-culture access and market support is that it hasstopped the liberalisation of the bulk of worldtrade from moving forward.

Agriculture remains the most emotive tradeissue. But agriculture is a small component ofglobal trade. In 2005, it accounted for onlyUS$783 billion of the total, compared withUS$6,570 billion for manufacturers, US$1,281billion for fuel and mining products andUS$2,125 billion for commercial services.

n Back to the law of the jungle, page 12

from recrimination and vitriole, saying thiswould make it even harder to get back to thenegotiating table.

The EU has sympathy for the position ofdeveloping countries, with Mandelson saying itis an issue of principle. He accused the US ofwanting to force the rest of the world, includingthe poor developing countries, to pay for thecost of its agricultural reforms, pointing out thatthe EU had taken the pain and had begunreforming its agricultural trade.

India has played a very hard game in thisRound, because it still carries the scars of theUruguay Round, when it felt it was forced intoaccepting what was agreed between the"Quads" – the US, the EU, Canada and Japan –whose decisions carried the day.

Twice before, the Doha global negotiationshave been hauled back from the brink – firstafter the collapse of the talks in Seattle in 2000and again in Cancun in 2003.

Celso Amorim, Brazil's Foreign Minister,commented: "Sadly, unlike Seattle or Cancun,we were close to an agreement. The differenceis not conceptual. We are all the same withinthe ball park. We are all discussing the samethings. There are gaps, but bridgeable gaps toany analyst who looks at these figures. So thismakes us especially sad.” The risk, he said, wasthe temptation to withdraw agreements thathas been flagged because they had not been"written down". If that happened, it wouldmake it harder to resume negotiations.

Lamy has appealed to all countries to leavetheir offers on the table and not to make a badsituation worse by withdrawing them. The USand the EU had warned when they first madeoffers that they would be withdrawn if therewas no agreement. For example, it could not be

pared to drop its ‘special’ product demand from20 to "seven or eight" per cent, but otherobservers saw this as unlikely.

They accept that India has a big problem.The BJP Party was defeated by rural voters, andSonia Gandhi came out outspokenly againsttrade agreement. In some quarters, it has beenclaimed that 100,000 farmers have committedsuicide since the end of the Uruguay Round.The truth, a WTO source says, is that, on onehand, India’s agricultural market is "heavily pro-tected" and, on the other, India is becoming abig exporter. "The US runs a deficit with Indiaon agricultural trade, for example," the sourcesaid. But on a wider scale, observers say that ifIndia prevails on ‘special’ products, the conces-sion will apply to all developing countries – andthis includes China, the largest exporter to theUS (see China perfects art of back-seat driving)."This would cause the US considerable dis-tress," says a source close to the negotiations.

Malaysia's Minister for International Tradeand Industry, Rafidah Aziz, said what Indiaasked for in terms of ‘special’ products wouldsee 850 goods – accounting for 30 per cent ofSoutheast Asia's total exports to India – beingleft out of the agreement..

For its part, the US is insisting on keeping thelevel of domestic support for US farmers atUS$22 billion – more than its current expendi-ture of around US$19 million – and showed noroom for flexibility. US Trade RepresentativeSusan Schwab said the US did not sweeten itsoffer to scale back spending on its farmersbecause trade partners were more concernedwith protecting sensitive commodities, such asbeef, with exemptions from tariff cuts. She said:"There was no package on the table that wecould have recommended to the President orCongress." India's Trade Minister, Kamal Nath,retorted: "We can't accept the opening of ourmarkets for subsidised agricultural products."He said developing countries could not let theirsubsistence farmers lose their livelihoods andfood security by providing market access tosubsidised agricultural products from devel-oped countries.

Nath said the developed countries shouldbreak the deadlock, and he blamed the break-down of the talks on the US for refusing to makecuts in farm subsidies. "It is not about gaps, it isreally about mindset,” he said. “Unless the play-ers, and, in particular, the US, change theirmindset, this Round will not progress to a suc-cessful conclusion.”

Faced with this impasse, Lamy called for a"time out" period of reflection for countries toreview their positions and to consider thepotential losses. He urged countries to refrain

CHECKMATE – THE DOHA IMPASSE


CCOOVVEERR RREEPPOORRTT

Ô FROM PAGE 10

GENEVA – The world's fastest-growingglobal trader, China, kept a conspicuousabsence during the current heated Round oftrade talks. The Chinese were content to letothers do the work. As leaders of the Group of20, Brazil and India did what a WTO sourceterms the "heavy lifting" on market access andsubsidies in agriculture.

A source in Geneva said: "China has a clevernegotiating position. It has been drafting inbehind others. They haven't been up there.They don't want to be the ones getting a lot ofbad attention, and if someone else is going todo the hard work for you, so much the better."

The source said China had adopted theJapanese approach. For years, he said, Japanhad left others do the heavy lifting – usually theUnited States and Europe.

"The Indians and Brazilians – and collective-ly the Group of 20 (G-20) – did a lot of heavy lift-ing on the question of farm subsidies and mar-ket access," he said. "China was not obstruc-tionist at all.” The Group of 33 (G-33), headedby Indonesia – but set up by India – was vocalon the issue of industrial tariffs. "They, too,

were doing China's work."The battle to improve access for industrial

goods was left to Japan and the US. "If the USachieved its market access goals, Brazil andChina would be huge beneficiaries in agricul-ture and manufacture respectively," the sourcesaid. China is now the third-largest tradingnation in the world (in exports and imports) –ahead of Japan in total exports and ahead ofFrance in imports. In 2004, China's total tradewas US$1,157.5 billion.

Sources said China, which acceded to theWTO in 2000, has just submitted to a big seriesof tariff cuts, so it feels it does not need to gothrough another tariff crunch. It has played therole of leader for recently-acceded countries."There was some sympathy for that."

While China is a new member, other export-oriented economies in East Asia have beenmembers for a long time. But they, too, chose tokeep a low profile. At the end of the day, theyare the ones that have much more to lose,because their major interest in expandingtrade in manufactured goods will nowbe stillborn.

} What India asked for interms of ‘special’ productswould see 850 goods –accounting for 30 per centof Southeast Asia’s totalexports to India – left outof the agreement ~

– Rafidah Aziz, Malaysia

Trade Watch

China perfects artof back-seat driving

that "we'll try to continue to engage". Hebelieves that bilateral or regional arrangementswill not compensate for the multilateral system.

"There is no substitute for the WTO and forthe multilateral system when it comes to disci-plines, such as subsidies and anti-dumping."The WTO was irreplaceable for these issues."We hope we will be able to recover to putthings back to where they were, not to see themunravel,” he said.

"I am the 150th person," said Pascal Lamy,WTO Director-General, "to say that the DSP(dispute settlement panel) is a jewel in thecrown of WTO." Lamy said the WTO had twobasic roles – to legislate when it came to globaltrading rules and to handle litigation amongtrading partners. When the legislating functionstalled, he said litigation would increase. "Morelitigation is likely, and we have to be prepared(for that) if the Round were to fail indefinitely.No doubt about that."

GENEVA – Trade dispute and trade fric-tion among countries is poised to rise followingbreakdown of the current Round.

For fringe groups, which gleefully hoped thatthe collapse of the talks would mean an end tothe World Trade Organisation, Ministerswarned that, without the WTO, world tradecould revert to the law of the jungle.

Brazil's Foreign Minister, Celso Amorim, saidthe WTO was about reform and having a legalsystem for trade disputes. "If you don't like thelaws (or) if you dismantle them, you will rely onthe law of the jungle," he said, adding that with-out the WTO, there would either be no rules – orcountries could set their own laws unilaterally.Either way, it would be bad for the global trad-ing community. While there were grievanceswhen it came to reform, Brazil would try toreform and stick to the rules.

In fact, said Amorim, both Brazil and he him-self had bet so much on the multilateral system

BI-LATERALS NO PANACEA CCOOVVEERR RREEPPOORRTT


BACK TO THE LAW OF THE JUNGLE?

India's Kamal Nath said he did not have anydisputes in mind at this stage, but this did notmean that "my colleagues and advisers maynot submit cases”. ”Surely, if we are not able toprogress – trade disputes will continue andrecourse to settlement will be more frequent."

So far this year, 18 cases have been filed withthe WTO's DSP, compared to 18 cases for thewhole of 2005. A number of cases this yearwere filed by the United States, China and theEuropean Union. They range from measuresaffecting the imports of car parts to counter-vailing duties on dynamic random accessmemories (DRAM) chips. Since the systemwas set up in 1995, a total of 336 cases hasbeen submitted. Australia submitted sevencases, and was a respondent in nine. The EUfiled 72 cases and was respondent in 55, whilethe US filed 84 cases and appeared asrespondent in 94.

Trade Watch

AC26

68-B

IT IS NOW up the world's largest tradingnations to pick up the pieces of the collapsedDoha negotiations. It will require considerablegoodwill, leadership and political will to revivethe talks, which deadlocked on July 24.

The fingers are pointed at Washington. Withits mid-term elections due in November, it ispolitically hard for Washington to cut its trade-distorting subsidies for the farming sector. Butthe blame must go much wider.

Since the collapse, Britain's Tony Blair hassaid that, in his talks with US President GeorgeBush at the White House, they agreed one finalattempt must be made to re-energise the talks.

They will have to do much more than talk. Itis expected that USTR Susan Schwab will

reach out to other countries in comingweeks, to try to convince them to reconvenethe talks. Peter Mandelson, the EU's TradeCommissioner, has said that a deal may stillbe salvaged if Bush can convince the USCongress to renew his fast-track negotiat-ing mandate.

Australia, which has, in recent years,played a key role in breaking impasses atthe WTO – as with the appointment of asuccessor to the first WTO President,Renato Ruggerio – will host a Cairns Groupmeeting in Australia in September. It hasbeen suggested that the meeting couldattempt to develop a strategy to save theDoha Round. Australia has invited leadingWTO members to participate.

Business groups which have been mostsupportive of the Doha Round should nowlobby their governments, because they willbe the ones who eventually bear the costs ofthe failure of Doha. As Pascal Lamy haspointed out, the economic costs will not beimmediately noticeable, and, indeed, much ofworld trade could carry on as usual.

It is almost unconscionable to think thatUS$12.4-trillion in global trade should fallhostage to rich farmers. A quick glance at glob-al trade figures shows that manufactures andservices are far more important. If the talks areto succeed, there will be lower tariffs andgreater access for industrial goods, enablingdeveloping countries to enter rich markets.

Without access to the lucrative US and

Europe markets, East Asian countries will behard-pressed to maintain the level of their eco-nomic development today. Export markets arecrucial in helping developing countries gain acertain level of economic independence. Thetemptation to look to bilateral agreements orregional agreements as substitutes to the mul-tilateral system will increase – butthese are not a panacea to the currentproblems.

* Florence Chong is Editor of ATI Magazine.

CAN AUSTRALIABREAKDEADLOCK?

Florence Chong*ANALYSIS

Source: WTO International trade statistics 2005.

Agriculture is a relatively small potato interms of total global trade.

BACK TO THE LAW OF THE JUNGLE?

Volume growh of world merchandisetrade and output by sector in 2004

(Percentage change)

ing credit to the Department of PrimaryIndustries, Victoria, the Australian QuarantineInspection Services (AQIS) and the AustralianVeterinary Association) and their Singaporecounterparts to develop an import protocol.

Singapore importers did not want to know. Atthe time, they were importing live pigs fromMalaysia and Indonesia, and had no incentiveto import Australian pork.

Toh learned that then-Australian TradeMinister Tim Fischer was visiting Singapore,and arranged for one tonne of pork to arrive tocoincide with his visit. Using her contacts, shenegotiated with a retail outlet (a NTUCFairprice supermarket) to carry the product –and for Fischer to "launch" it. Fortuitously (forAustralia), just one month later the first out-break of nipah virus was reported. "There was amad scramble for Australian chilled pork,"recalls Toh, who immediately went to WesternAustralia to organise more shipments.

But it was not just a question of availability.The product had to match the taste of a finickySingapore pork-consuming population. Havingdone her research, Toh knew that, to succeed,Australian producers had to weed out non-cas-trated boars. "We have Singaporeans who say,'why is it when we go to Australia and eat pork,it tastes terrible?' The reason is that someAustralian pork is from non-castrated boars,which carry a distinct smell. The Singaporemarket prefers gilts (young female pigs).

The pork break-through gave credence toToh's nickname – 'the connector' – a font ofinformation on Australian food and beverages."I have heard Singapore business people say

things like 'talk to Mrs Toh - what she doesn'tknow about the Australian F&B industry isn'tworth knowing'," says David Twine, Austrade'sRegional Director/Executive General Manager,Southeast Asia, South Asia and Pacific.

Following on from pork, Toh's challenge hasbeen to place chilled Australian meat into theSingapore market. Having worked on the proj-ect for two years with Victoria's StateGovernment and other Australian authorities,Toh expects the first commercial shipment ofchilled poultry to land in Singapore soon.

She has been credited with launching sever-al new Australian products, including wine.Working with the Australian Wine and BrandyCorporation, Toh says two of Australia's best-known wine experts – Jeremy Oliver and JamesHalliday – will shortly visit Singapore to runwine appreciation programmes in hotel trainingschools. "This is the first time that we are doingthe programme," she told ATI. It will involveleading hotels like Ritz Carlton.

Toh has recently been promoted to a regionalrole based in Singapore, to work with a team of25 trade officials located across an area cover-ing the Indian sub-continent, Southeast Asiaand the South Pacific. It is 22 years since shejoined Austrade in Singapore. "I remember itwas St Valentine's Day," she says. "They want-ed me to start on 13th, but I didn't think it wasgood idea." Unabashedly, she says she has hada long-abiding love affair with her job. "The pas-sion is still there," she says. Next month she willbe presented with an Honorary Order ofAustralia, specifically for her services to theAustralian export community. Toh will becomethe second Singaporean – after formerSingapore Prime Minister Goh Chok Tong – toreceive an Honorary OAM.

Long before she started worrying about get-ting Australian fruit, pork, wine and cheeses toSingapore, Toh was an export market develop-ment executive for a Dutch trading company inSingapore, sourcing instant noodles, valves andempty bottles for markets in the Middle East.

"The common denominator in all my jobs hasnot changed. I am what they call a 'connector',a networker," she says. Those who observe herhave marvelled at her ability to work a room of200 people. Her approach? Stay focussed andbreak the room into segments. Austrade creditsher with clinching "multi-million-dollar" exportdeals. One of her greatest prides is theAustralian Pavilion, a section within selectedsupermarkets in Singapore. This has become aplatform for new Australian products, beyondfood and beverages, in Singapore. Australian

SINGAPORE – It was by sheer chancethat a market for pork from Australia opened upin Singapore – a market now worth aroundAUD100 million a year.

The outbreak of nipah virus in Malaysia in1999 paved the way for Australian exporters toenter the market. But the breakthrough stillwould not have happened had it not been forToh Guek Hong, a food and beverage specialistwith the Austrade team in Singapore.

Toh's persistence saw the first shipment ofchilled pork land in Singapore in February 1999.She acted as go-between for Australian agricul-tural and quarantine officials (she insists on giv-

CAPTURING A MARKET


TTHHEE RREEGGIIOONN

THE ‘CONNECTOR’

} Talk to Mrs Toh – whatshe doesn’t know aboutthe Australian F&B indus-try isn’t worth knowing ~

AUSTRADE’s Senior Bus-iness Development Managerin Singapore, Toh Guek Hong,will next month accept anhonorary Order of Australiafor services to the Australianexport community. Nick-named ‘the connector’, Tohhas clinched several multi-mil-lion-dollar export deals inSingapore, and a modified ver-sion of her approach is to betried in Malaysia, Thailandand Taiwan . . .


How Toh Guek Hong wonover Singapore’s palate

< Toh Guek Hong with an Aust-ralian Market Place display atthe Cold Storage Tanglin super-market in Singapore.

Managing in Asia

THE ‘CONNECTOR’

How Toh Guek Hong wonover Singapore’s palate

manufacturers of toiletries and household cos-metics are among those launching into themini-store within a store.

The first Australian Pavilion appeared fouryears ago. Today, it is found in 10 stores inSingapore's largest supermarket chain, NTUCFairprice. On average, these mini stores display1,500 units of Australian products.

Toh has studiously cultivated the senior man-agement of NTUC Fairprice to gain access toprecious shelf-space in the supermarket chain,which has outlets strategically located in theso-called heartland of Singapore - the numerousHousing Development Board estates. There iseven a special "Amazing Australia" corner inone outlet, operated by another supermarketchain, Cold Storage, owned by the Hong Kong-based Dairy Farm group.

Toh says her strategy is being reviewed forapplication to other markets in the region. Butany approach into individual markets must becognisant of the local environment, she says.On a small scale, the approach is being modi-fied for the Thai, Taiwanese and Malaysianmarkets, working with local supermarketchains in these countries.

The Singapore market has moved on fromapples and dairy products. Today, the growthsectors are organic foods, low-salt products, low-fat, and low-gluten foods. Last year, Singaporeimported almost AUD440 million worth of food,beverages and meat from Australia.

Opportunities for Australian exporters differfrom market to market. Thailand, for example, isa good market for food ingredients because it isa manufacturing base for processed food (ridingon the back of Australia's agricultural/horticul-tural produce). The Thai market also likes con-venient ready-to-cook meals. Australianexporters have an advantage of lower tariffs, fol-lowing implementation of a free trade agree-ment between Thailand and Australia.

But Toh warns that Australian exports intothe region are not growing "by leaps andbounds". "We have to reinvent ourselves toretain our market share," she says, adding thatlow-cost countries, like China, have becomecompetitors. "We have to position ourselves inthe market, making the most of our unique sell-ing features. Other countries are exportingproducts at much lower cost. Mandarins andoranges are coming to Singapore from Pakistanand China, apples and grapes from the US,apples from France and the US, and mangosfrom Indonesia, Thailand and Malaysia. In veg-etables, broccoli was once supplied fromAustralia – now China is a new source.

"If we look at our strength - it is country of ori-gin. Australia has a good name across theregion. We've got credibility, in spite of threatsfrom low-cost countries," she says.

Toh urges exporters to be ambitious and notbe happy with one-time, one-market success."They should look to another market and thenanother. We are here to give them the benefit ofour insight into those markets."

Of new horizons for Australian food and bev-erages, she says India is definitely the flavour ofthe month. Some of the lessons and successesof Singapore and other more-established mar-kets can be duplicated in India, she says.

TTHHEE RREEGGIIOONN


Ô FROM PAGE 13

Managing in Asia

FAST-TRACKING TO THE WTO


TTHHEE RREEGGIIOONN

GENEVA – Payment of royalties andlicensing fees has become a significant compo-nent of global commercial services trade. In2004 (the latest figures available), the total paidin such fees was US$130 billion. According tothe World Trade Organisation in its latest reporton global trade, payment of royalties and licens-ing fees grew 11 per cent between 2000 and2004, representing six per cent of commercialservices trade, which totalled US$2.4 trillion in2004 – up 11 per cent on 2003.

Predictably, developed countries which owntechnologies are the recipients of the bulk ofpayments, made through their subsidiariesoperating around the world. Singapore, forexample, makes the largest payments due tothe fact that it is the base for many of theworld's largest multinationals, particularly inhigh-tech electronics and pharmaceuticals.Globally, the flow of funds is largely betweenaffiliates and their multinational parents, locat-ed mostly in the United States.

Japan, on the other hand, has turned deficitsin royalties and licensing fee payments in 2000-2002 into a surplus from 2003 onwards. It sup-plies technology to several industries, especial-ly automotive and high-tech electronics, fordeveloping countries. Japan was the world'sthird-largest source and receiver of royaltiesand licensing fee payments through the 2000-

punch by benefitting first from Vietnam's mar-ket-opening commitments." Baucus assertedthat President Bush must exert political pres-sure in Congress to get Vietnam PNTR passedquickly, especially in dissuading senators fromattempting to amend the Bill. Only Bills withfew time-consuming debates over amendmentsare considered likely to pass in the Senate in thefew days before Congress' August recess.

Waiting until September poses a politicalproblem for members of Congress, who seek toavoid votes on trade issues so close toNovember elections, Baucus said.

Two-way trade between the United Statesand Vietnam amounted to US$7.8 billion in2005. Bhatia said that level is expected to climbas Vietnam, one of Asia's fastest-growing mar-kets, continues to expand its economy – aneight per cent rate is forecast for 2006.

US manufacturers already view Vietnam as aplatform for production in Asia, a promisingalternative to China, he said. Many US businesssectors support PNTR for Vietnam, although thetextile industry opposes it.

Bhatia and Eric John, Deputy AssistantSecretary of State, acknowledged in their testi-mony legitimate concerns about Vietnam'srecord on human rights, human trafficking andreligious freedom, as well as weak protection ofcopyrights and patents. Both officials testifiedthat Vietnam was making progress dealingwith these problems, and asserted that WTOaccession would encourage even furtherprogress by enhancing the rule of law.

"These changes alone will not cure the prob-lem associated with human rights and religiousliberty," Bhatia said. "But they will allow newideas and information to flow into Vietnam –that will encourage further freedom and open-ness." The WTO Working Party on Vietnamconvened its first meeting in January 1995.Vietnam has held accession negotiations withkey trading partners, including the US,the EU, Japan, China and Australia.

Ô CONTINUED PAGE 16

PAYMENT of royalties andlicensing fees grew 11 percent between 2000 and 2004,to represent six per cent ofcommercial services trade . . .

GENEVA – Vietnam has completed allbilateral market access negotiations with itstrading partners, paving the way for entry tothe World Trade Organisation.

Vietnam's desire is to be a member by thetime it hosts the Asia Pacific Economic Co-operation (APEC) summit in November.Currently, it is working on completing a multi-lateral report that includes Vietnam's commit-ment to make its laws, rules and regulationscomply with WTO agreements.

Eirik Glenne, Norway's Ambassador to theWTO, who chairs the Vietnam AccessionWorking Party, says his target is still to con-clude the mandate of the working party in timefor the General Council to consider Vietnam’saccession when it meets in October. But hewarns that a lot of work remains.

Vietnam's Trade Minister, Truong DinhTuyen, says his country regards membership ofthe WTO as of "crucial importance". He saysmembership is necessary for Vietnam’s eco-nomic growth and reform. Vietnam has takencommitments to draw up 24 laws and numer-ous regulations, including commercial, enter-prise and intellectual property laws, and haspledged to implement the WTO’s sanitary andphytosanitary and technical barriers to tradeagreements.

Vietnam has agreed to scrap agriculturalexport subsidies immediately (see ATIFebruary 2006). Meanwhile, the United Statesis expected to grant Vietnam permanent nor-mal trade relations (PNTR) after its Augustrecess, according to US trade officials. The USgrants normal trade relations, otherwise knownas most-favored-nation status, to Vietnamannually. However, when Vietnam joins theWTO, the US has to convert this to PNTR.

Vietnam concluded its accession negotia-tions with the US in May. However, to ratify theaccession agreement, Vietnam has to be grant-ed PNTR by the US. "WTO accession forVietnam will benefit the United States econom-ically," Karan Bhatia, the US Deputy TradeRepresentative, told a recent session of the USSenate Finance Committee. "It will promotereform in Vietnam, and it will support broaderAmerican interests in Southeast Asia."

Bhatia said Administration officials would

work with leaders in the Senate and House ofRepresentatives for quick passage of legislationrelated to Vietnam's pending accession.

To become law, the Bill granting PNTR toVietnam must pass both the House and Senateand then get the President's signature. The USagency Washington File reports that someRepublican leaders have expressed reluctanceto push a Vietnam PNTR vote ahead of votes onfree trade agreements (FTAs) with Oman andPeru, both of which were submitted earlier.

The Oman and Peru FTAs have dividedCongress, especially the House, over labourissues. In contrast, the Vietnam PNTR hasbroader support, says Senator Max Baucus, aDemocratic leader on trade issues. "The time todo this is now, before the President travels toHanoi in November," he said.

Baucus told the hearing: "The time is nowbefore other countries like China beat us to the

Trade Watch

US set to normalisetrade with Vietnam

Japan, Korea liftingroyalties earnings

THE US is co-operating in efforts to fast-track Vietnam to mem-bership of the World Trade Organisation before November’s AsiaPacific Economic Co-operation (APEC) forum, to be hosted byVietnam in Hanoi in November . . .

(mainly Europe) in such fees. However, the USsurplus is being eroded as its payments rosetwice as fast as its receipts (45 per cent versus22 per cent). Its share of global paymentreceipts has been decreasing since 2000, but itstill accounted for more than half of all globalreceipts in the review period.

The report says Asian economies accountedfor the largest part of developing countries pay-ments, in particular Singapore, China, Korea,Taiwan, Thailand, Hong Kong and Malaysia.This reflects the presence of multinationals inthese countries. Among this group, only SouthKorea recorded a substantial increase in itsreceipt of fees between 2000 and 2004. TheWTO notes that this trend could relate toKorean electronic companies investing over-seas. In 2004, Korea recorded receipts of US$1.8billion – by far the largest of any developingcountry – and three times more than in 2000.

Throughout the 2000-2004 period, Singaporereported the second largest payments in Asia,with US$5.6 billion in 2004 – more than Canadafor the first time. The WTO says China's pay-ments have tripled since 2000, with the totalreaching US$4.5 billion in 2004. India's pay-ments increased markedly between 2000 and2003, but to only US$42 million,

While remaining the leading recipient, theUS is less dominant than it was a few years ago.Its payments exceed those of the Europeancountries to third countries, indicating that theUS is at the same time an important source ofreceipts to other countries. East Asian

economies markedly increased their share ofdebit payments during the 2000-2004 period.

The payment of royalties and licensing feesto Japan and South Korea shown in the reviewcould be the beginning of a trend, as these twocountries have developed considerable techno-logical strength. This is manifested in the num-ber of patents now being received by theGeneva-based World Intellectual PropertyOrganisation (WIPO) (see ATI, 12/05).Applications from Korea, China and Japan havegreatly increased in the last two years. The eco-nomic growth of Northeast Asia in the last twodecades has translated itself into technology,and, recently, into higher technology.

Francis Gurry, WIPO's legal counsel andassistant director, told ATI: "It reflects the shiftin the nature of the economies. Korea, for exam-ple, has gone from an economy where heavyindustry was predominant to one in whichinformation technology is extremely important.More Korean companies are seeking protectionfor their information technology and telecom-munication technologies.”

The WTO says some developing countrieshave expressed concern about on increase inthese kinds of payments that would arise fromthe WTO Agreement on Trade-RelatedIntellectual Property Rights (TRIPs). "It appears,however, that developing countries outsideEast Asia account for a very small part of globalR&LF payments, which are largely madeamong developed countries," the WTOsays.

2004 period. In 2004-5, Japan's total receiptsrose 28 per cent to US$15.7 billion.

The bulk of the payments went to advancedcountries in East Asia, North America andEurope, which accounted for 90 per cent of thetotal. In its review, the WTO says royalties andlicensing fee transactions show that the US wasthe largest recipient in 2004, followed byEurope. Japan, the UK, France and Sweden.Each report an excess of credits over debts ofbetween US$1 billion and US$2.2 billion.

In 2004, the US received US$52.6 billion forlicensing of its technologies and royalties. Inturn, it paid US$29 billion to other countries

CRACKS SHOWING IN THAILAND TTHHEE RREEGGIIOONN


Is Thailand losingcompetitive edge?

BANGKOK – It is a troubling loss forThailand. In late July, Seagate Technologies,the California-based disk drive manufacturer,announced that it had decided againstexpanding operations in Thailand. While theKingdom is already the site of the company’slargest manufacturing enterprise, Seagateinstead decided to invest nearly US$1 billion ina new plant in neighbouring Malaysia.

The decision came just a week afterThailand’s Commerce Minister, SomkidJatusripitak, led a road show in the UnitedStates aimed at drumming up investment.Thailand has always been a prime destinationfor investment in Southeast Asia, and Seagatehas been a major player in the Kingdom since

1988. The loss raised the question of whetherThailand may be losing its competitive edge.

Seagate issued no statement explainingwhat motivated the move to Malaysia. Thaiofficials, however, said several factors causedthe loss, including unattractive investmentprivileges from the Board of Investment, lack ofhuman resources and poor logistics. The risingvalue of Thailand’s currency, increasing infla-tion and political and economic uncertaintiesmay have also played their parts.

With the fate of caretaker Prime MinisterThaksin Shinawatra still in limbo following theannulment of January’s national elections byThailand’s courts, and renewed threats of mas-sive street protests by the Prime Minister’sopponents, Thailand’s government is anythingbut at the top of its game.

“Southeast Asia is highly competitive in thefight for foreign direct investment. We need toimprove our comparative advantage in allaspects, including investment privileges,’’ saidChakramon Phasukvanich, the PermanentSecretary at the Ministry of Industry.

But Thanin Pa-Em, Director of theCompetitive Development Office at theNational Economic and Social DevelopmentBoard, said a shortage of skilled labour and lackof advanced logistics also underminedThailand’s position. Efforts by the Ministry ofEducation to produce more skilled labourerswere too slow. And an absence of clearCustoms procedures and one-stop service forelectronic producers is a big minus for anindustry that relies on just-in-time logistics tomanage its supply chain.

Little has changed since last year, when, inthe World Bank’s measurement of port effi-ciency, Thailand trailed Singapore, Hong Kong,Taiwan, Japan, Malaysia and Korea. Thailandis sorely lacking when it comes to multimodallogistics, relying too heavily on road transportto move goods.

Nonetheless, Board of Investment SecretaryGeneral, Sathit Charnchaokul, insists thatinvestment sentiment remains positive."Foreign companies are planning to invest inThailand, but the investment figures may turnout to be lower than last year," he said. The BoIhas forecast that it will approve US$40 billionworth of projects this year, about half of its orig-inal target of US$80 billion.

However, Commerce Minister Somkid, oneof Thaksin’s closest allies and staunchest sup-porters, said after returning from the US thatinvestors there were seriously concerned aboutThailand's political mess. “US investors haveshown more interest in investing in Vietnam

THAI officials are admitting that unattractive investment privi-leges, lack of human resources and poor logistics are behind theloss of a major investor to Malaysia . . .

Trade Watch

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Robert HornATI Correspondent

Receipts and payments of royalties and licencefees by country and region, 2004

(Percentage share)

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