ASEAN was formed in August 1967 in Bangkok where Foreign Ministers of the five countries of Indonesia, Malaysia, the Philippines, Singapore, and Thailand met to sign the ASEAN Declaration, also commonly known as the Bangkok Declaration. In the economic field, the ASEAN Declaration proposed joint endeavors and collaboration to accelerate economic development in the region, particularly in the field of Agriculture, industry and trade. The ASEAN countries, like most developing countries, have been actively promoting industrialization to solve their problems of unemployment, diversify their economics and raise their standards of living. Most ASEAN countries export raw materials and primary products to developed countries to earn foreign exchange, which can finance their industrialization programs. In order to attract production and management know-how to speed up the industrialization process, the ASEAN countries offer attractive terms to foreign investors, who are mainly from developed countries. Substantial foreign investment in ASEAN countries implies that they need to import capital goods from developed countries on the one hand and to export manufactured goods on the other. At the same time, developed countries have provided economic assistance to the ASEAN countries for political and economic reasons. ASEAN is thus dependent on developed countries for trade, foreign investment and economic assistance.
Since Japan is an economic power situated so closed to ASEAN, it is of interest to review the economic relation between ASEAN and Japan 197. Japan has been an important trade partner for the countries of ASEAN for decades. The volume of trade between Japan and each ASEAN country has been growing steadily, but the trade pattern remains the same, with Japan importing raw material from ASEAN and exporting manufactured products to ASEAN. Beside trade, Japan also has heavy investment in each on the ASEAN countries. To protect Japanese interest in the ASEAN region, Japan has been providing extensive economic assistance to the ASEAN countries in the form of grants, loans and manpower training.
TRADE BETWEEN ASEAN AND JAPAN
ASEANs economic relations with Japan are exemplified by the large amount of commodities between them. The Japanese economy contribute to the ASEAN by about 31.37% because ASEANs total exports go to Japan and 19.55% of ASEAN total imports come from Japan. On the other hand, Japans reliance on ASEAN as a market for exports and source of imports is only 9.37% and 14.75% respectively. Among the ASEAN countries, Indonesia is the most dependent on Japan, for she sends and receives from Japan 51.86% of her exports and 26.99% of her imports. As for Malaysia, the Philippines and Thailand, their reliance of Japan for both their exports and imports is at least 20%. Although Singapore is least dependent on Japan, she still ships 9.48% of her exports to Japan and get 13.81% of her imports from Japan. One of the reasons why Japan and ASEAN do not see eye to eye on all issues lies in the fact that while Japan is almost indispensable to ASEAN the reverse is not true. Among the ASEAN countries, only Indonesia and Malaysia are oil-producing countries, actually enjoyed trade surpluses with Japan.
In the case of Malaysia trade with Japan, wood and paper is the most important category in exports to Japan. In the case of Thailand, her main export categories to Japan are animal and vegetable product and plastic and leather. In the case of Philippines, mineral products exports to Japan and also animal and vegetable products, and wood and paper. Also Philippines substantial imports from Japan in base metal, machinery and vehicle including product of chemicals and allied industries and textiles also important categories. In the case of Singapore, mineral products, revealing the importance of the petroleum refining industry in Singapores trade with Japan and Singapore exports vehicle, base metals and other manufactured product, also Singapore is the largest market for Japanese textiles in the SAEAN region. In the case of Indonesia, on the hand, being rich in natural resources relies on mineral and timber resources for her trade with Japan. Mineral products and wood and paper export to Japan. As for import goods, base metals, machinery and vehicles are from Japan.
THE TRADE PROMOTION CENTER JAPAN AND ASEAN
The ASEAN Promotion Center on Trade, Investment and Tourism, which Japan and the ASEAN countries established in 1981, is conducting a variety of activities in order to promote trade, investment and tourism between Japan and the ASEAN countries. The center is planning to hold an ASEAN Fair under the title of "Japan-ASEAN Cooperation toward the 21st Century" in September 1995..
JAPANESE SUBSIDIARIES AND REVERSE EXPORT
The distribution networks of Japanese companies have been demonstrated to be a barrier to the exports of non-affiliated companies (Lawrence, 1991). As intra-company trade has historically dominated Japanese imports from other parts of Asia, especially in the electronics sector, access to these production networks is often critical for penetrating the Japanese market. The share of intra-firm trade in the exports of Japanese subsidiaries in East Asia to Japan has actually increased in the last decade (Table One).
Table One: Share of Intra-Firm Trade in Exports to Japan of Japanese Subsidiaries in East Asia (%)
1986 1989 1992
General Machinery 94.7 98.5 96.7
Electrical Machinery 73.0 60.3 90.0
Transport Machinery 46.0 35.7 73.9
Precision Machinery 86.1 50.8 96.5
A final development is the increasing source of consumer appliances from subsidiaries in Southeast Asia. For the most part, these products are new imports into Japan: this is not an instance where Southeast Asian exports are displacing production from Korea and Taiwan. An early example was refrigerators where imports from Japanese subsidiaries in Malaysia and Thailand quickly captured over half of the import market. Air conditioners provide another example.
Even though the aggregate data do not show an increase in the share of reverse exports in Japanese manufacturing production in East Asian subsidiaries, aggregation obscures significant developments in the most dynamic sector of manufacturing, consumer electronics, in Southeast Asia. The data in Table Two reflect the increasing importance of sales to Japan in the overall output of Japanese electronics subsidiaries in ASEAN countries. This trend can be expected to continue for reasons detailed in the conclusion. The benefits of hosting Japanese subsidiaries--with the access that they provide to the latest technologies, brand names, and Japanese domestic distribution networks--will become ever more important if reverse exports continue to increase.
Table Two: Geographical Distribution of Sales for Japanese Affiliates in ASEAN in the Electronics Industry
Local Exports Japan Asia America Europe
1986 43.0 57.0 7.4 33.6 8.5 6.9
1989 34.9 65.1 17.5 29.3 14.6 3.5
1992 38.4 61.6 27.7 22.4 8.6 2.2
JAPANESE DIRECT INVESTMENT IN ASEAN
Although the ASEAN countries welcome Japanese investment, the effect of this investment on their local economics has been controversial, and not always visible. In Thailand, Japanese investment is concentrated in textiles. It is therefore not surprising that Thailand is the largest ASEAN exporter of textiles to Japan. However, it has been pointed out Japanese investment has made an insignificant contribution to the Thai economy in terms of employment, linkage effect and foreign exchange earnings. The latter point may seem counterintuitive- one might expect Japanese investment to have made a strong impact on Thai foreign exchange earnings since it has made Thai textiles an export industry. The explanation probably lies in the fact that the Thai textiles industry relies on Japan for capital goods and moreover has keen competitors inside as well as outside ASEAN. Besides, textiles are not a high value-added industry.
Although the cumulative total of Japanese investment in Singapore is small compared to most countries, Singapore ranks among the tope 5 (five) of the thirty-seven countries in which Japan had overseas investment in 1979. Japanese investment in Singapore is concentrated mainly in electronics and textiles. There is also substantial Japanese investment in the Philippines, concentrated mainly in metals, textiles and wood pulp.
Indonesia has captured the large share of Japanese investment in ASEAN. Japanese investment in Indonesia is concentrated in basic metals and textiles. However, it has been found that the contribution of Japanese investment to the Indonesia economy in terms of employment and linkage effects has not been impressive. Moreover, Japanese investment is concentrated in the Jakarta metropolitan region and West Java and thus has not helped to narrow regional inequalities in the country. On the other hand, Japanese firms are reported to have contributed to increases in Indonesias national output and to have provided good training programs for Indonesian workers.
Japan also has substantial investment in Malaysia. According to a recent study, Japanese investment in Malaysia is meanly concentrated in electronics and textiles. The study finds that Japanese direct investment in Malaysia has not helped to narrow her regional inequalities either, as most Japanese firms are located in the developed states.
Trade between Japan and the ASEAN countries has been in an expansion trend since 1986 owing to high economic growth in ASEAN countries and the progress of parallel industry specialization; this trade amount last year was 2.9 times as much as that in 1986, 83.5 billion US dollars. Japan's trade balance with the ASEAN countries are in a period of high economic growth owing to strong domestic demand; import of capital and half-finished products of the ASEAN countries has increased owing to the rapid increase of direct investment mainly from manufacturing sectors in Japan. I expect that this will definitely increase the import of finished products from the ASEAN countries, coupled with technical transfer accompanied with direct investment.
Direct investment of Japan to the ASEAN countries has been decreasing since 1990 mainly because of Japan's economic slowdown. However, the ration of direct investment of the ASEAN countries to the total direct investment of Japan is on the increase. Given the fact that Japan's direct investment has remarkably contributed to the promotion of exports and technical transfer and the development of the industrial structure in the ASEAN countries, I would also expect the ASEAN countries to promote a greater relaxation of restrictions on foreign investment and to prepare better circumstances for investment in terms of industrial infrastructures by your own efforts.
JAPANESE GOVERNMENT ECONOMIC ASSISTANCE
Japan has extensive economic assistance programs on a worldwide base. Since Japan is an Asian country, a high percentage of Japanese economic assistance goes to Asia. Most ASEAN countries have been receiving substantial official assistance from Japan. Indonesia is the largest recipient, but gratuitous cooperation only accounts for 12% of Japanese economic assistance, to Indonesia. The Philippines is the second largest recipient of Japanese economic assistance, and most of her share is in the form of gratuitous cooperation.51%. Singapore has received the smallest among of assistance from Japan. Almost all-financial cooperation is geared towards economic activity. Example, Japan has committed herself to helping finance the following joint ASEAN projects: urea fertilizer in Malaysia and Indonesia; lime super phosphate in the Philippines; diesel engines in Singapore; and soda ash in Thailand. Japan has also provided technical cooperation. Japanese technical cooperation with ASEAN includes accepting local students and employees for training in Japan and dispatching experts to ASEAN. Technical cooperation is generally directed towards agriculture, manufacturing and administration. The Japan international Cooperation Agency and the Association for Overseas Technical Scholarship are the two most important organizations in extending technical cooperation to ASEAN. As might be expected, Indonesia is again the largest recipient of Japanese technical assistance in the region and Singapore the smallest.
Japanese economic has been well received by the ASEAN countries. The Japanese economic cooperation with the ASEAN countries has generally been carried out on an ad hoc basis. In other to make most effective use of domestic resources, foreign investment and economic assistance, it has been suggested that Japan should make a concerted effort to ensure sufficient food, jobs and energy For AEAN.
ISSUES CONCERNING ATTRACTING FOREIGN INVESTMENT IN SAIA
It is clear that ASEAN attract many investment from the develop countries, especially Japan. As it has often been pointed out, an integrated ASEAN market is an arrangement in which each ASEAN country is allocated a different set of industries, the product which are given preferential tariff treatment in the region. With such an integrated market, firms would have access to a large market, thereby enjoying economies of scale and becoming competitive in the world market.
PROBLEMS OF THE JAPAN-ASEAN RELATIONSHIP INTO THE FUTURE
It is necessary to take appropriate measures against growth-restrictive factors in order to keep the Asia-Pacific region on the track of well-balanced high growth. For sustainable economic growth, it is indispensable to strengthen the industry basis, to foster supporting industries, and to develop the industrial structure. The ASEAN countries are expected to take measures to prepare better circumstances suitable for direct investment and technical transfer and to improve technical standards. Japan is willing to cooperate with them in the fields of technology and financing.
The constant supply of funds in the long run is very important for further development of the Asia-Pacific region. Japan intends to contribute to the development of the region through recognized means such as official development assistance. I hope the ASEAN countries will promote the accumulation of capital and a constant supply of development funds by establishing a sound financial system. Since lack in human resources is a crucial impediment to economic development, the ASEAN countries are expected to build up the education system to foster and supply necessary skills to their economies to the best of their own efforts. Japan intends to help develop human resources by accepting trainees and students.
Japan-ASEAN Relationship in Various Fields Japan would emphasize the build-up of firm relationships in cultural and personnel exchange as well as focus on economic issues and economic cooperation for the purpose of creating an even stronger and steadier friendship and mutual trust with the ASEAN countries. In this field, several programs realized by initiatives of Japanese Prime ministers, such as the ASEAN Cultural Fund, the Japan Scholarship for ASEAN Youth and the ASEAN-Japan Friendship Program for the 21st Century, have been conducted with fruitful results. Especially, over six thousand promising young people from the region have participated in exchange activities with their counterparts from other nations thanks to the Japan Scholarship for ASEAN Youth. As for the ASEAN-Japan Friendship Program for the 21st Century, every year eight hundred young people from the ASEAN countries have been invited to forge mutual understanding and mutual trust through various activities with Japanese youth since 1984.
Japan intends to establish even firmer friendship and mutual trust between Japan and the ASEAN countries through the cooperative and effective management of these programs.
This industrial revolution takes a new specific form, namely a combination of capital and
Technology of developed economies with people and governments of developing economies, though high rate of saving and investment in these economies themselves play a significant role.
As we observe, a major shift of industrial capacity was starting from old "developed" economies to new "developing" ones. This is the result of bargaining between host governments and foreign firms.
In East Asia, the inflow of foreign capital has caused exports to expand, increasing domestic income which then brought about a rise in domestic demand, and through further deregulation, more foreign capital is induced to the region (5).
Using the comparative advantage of their stages of development, East Asian economies are continuously changing its suppliers and receivers of capital as well as buyers of its products inside the region.
Any unilateral withdrawal of incentives might damage a countrys foreign investment pattern. Such as science and technology.
The withdrawal of foreign investors from ASEAN countries unilaterally could also damage the economic system.
If the industries are not properly located, in the future, there could be a health problem to the ASEAN countries.
There might be more critical analysis of Japanese trade and investment, which were obviously linked. This aspect of bilateral relations with Japan would be important if ASEAN looked to Japan as a potential market for its resources-based industries. Taking up the issue of independence, despite the asymmetrical pattern of trade between Japan and ASEAN the relationship could be seen as one of interdependence rather than dependence by one side on the other. Just as ASEAN needed Japanese capital and technology-intensive goods, so also Japan needed ASEANs resource exports. Trade shares as such did not reflect the qualitative dependence of each side on the others specific export products. But in quantitative terms ASEA exports to Japan were much greater than Japans to ASEAN. ASEAN exports of raw materials to Japan constituted a large proportion of these countries total exports, so ASEAN on the other hand, constituted only a small proportion of Japanese total imports. Similarly, the ASEAN countries' imports of Japanese manufactures and capital goods constituted a large proportion of their total imports whereas Japans exports of such goods to ASEAN were not predominant in Japanese total exports. Since in this way, the ASEAN countries depended upon ASEAN. Nor should it be overlooked that Japan was a big country who traded with the rest of the world and had a high capacity to switch markets and souring. She also had substantial investment in the ASEAN countries. Therefore, Japan could not easily be ignored.
This paper has reviewed economic relation between ASEAN and Japan in the areas of trade, investment and economic assistance. It is obvious that both ASEAN and Japan benefit from having such a close economic relationship. However, there are two impediments to the growth of this relationship. First, ASEAN exports primary products to Japan. However, the level of business activity in Japan influences Japanese demand for primary products. Thus earnings from the export of primary products of Japan are agree to discuss an income compensatory system with ASEAN. Secondly, ASEAN want to export more manufactured products to Japan but is constrained by the fact her manufacturing industries are not competitive in term of quality, price can reliability of supply. AEASN therefore seek Japanese economic assistance and investment to increase the competitiveness of her industries.
ASEAN stands a good chance of getting suitable Japanese investment and substantial economic assistance. In view of the discussion in the paper, it can be safely concluded that future economic relation between ASEAN and Japan will be very healthy and beneficial not only to ASEAN and Japan but also to other countries.
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