Topic Category: World

After World War II and throughout the Cold War period, the United States was unquestionably the world leader in terms of political and economic policy. In fact, the Cold War provided much of the glue that held the American-Western European alliance together. Since the end of the Cold War, and in light of European Union (EU) expansion, as well as contentious trade disputes, it appears that the United States is no longer in a position of dominance. This will affect the United States’ ability to forge new political and economic policies that involve Europe and the rest of the world. This also will affect U.S. investment decisions.

Anti-globalists protesting American commercial investment in developing nations have a notably heavy investment of their own in misinformation.

They would have you believe, for instance, that U.S. foreign direct investment (FDI) in developing countries is harmful to host country workers and the local environment. But a careful look at the record reveals that nothing could be further from the truth.

China is rapidly changing. It is emerging as a global economic powerhouse, and with the new generation of leadership who recently took office, China’s geopolitical position in the world is likely to become more dynamic. Is China part of your 2003 strategic plan?

Chinese Leadership in Transition

In November 2002, during the 16th Chinese Party Congress, Chinese leaders announced the country’s most historic transition of power. Hu Jintao, 59, has officially succeeded Jiang Zemin to become the new Chinese Communist party chief. Jiang Zemin, however, will retain the position of Chairman of the Military Commission, a position now considered symbolic, since the military is no longer a major power broker.

In a relatively short time, South Korea has transformed itself from a rural agricultural society to an industrial powerhouse. Its export-led growth strategy, primarily involving iron, steel, cars, ships, petrochemicals, and electronics, has proven to be extremely successful.

According to the International Monetary Fund, South Korean gross domestic product (GDP) per capita in 1970 was just $275. However, this year, only three decades later, GDP is estimated to reach $9,127, a number almost 10 times greater than China’s.

The Economy Is Back On Track

In 2001, U.S. merchandise imports worth $35.2 billion from South Korea represented a drop of almost 13% from 2000. This, combined with the global economic slowdown and weak world demand, especially in semiconductors, dampened Korean GDP growth. Almost topping 11% in 1999, GDP dropped from 8.8% in 2000 to 2% last year, according to the Organisation for Co-operation and Development (OECD).

In turn, South Korean consumption and imports decreased. For example, from 2000 to 2001, U.S. merchandise exports to Korea, the U.S.’ second largest Asian market, fell by 20% to $22.2 billion. As a result of the steep decline, since 1993, U.S. export gains to the Asian country increased only 50%.

But, as U.S. and world market demand resume, the Korean export sector is expected to heat up. According to the OECD, Korean world exports of goods and services are forecast to rise 3.2% this year and 10.8% in 2003. This will boost Korean GDP growth, which is anticipated to rise 3.2% this year and 6.2% in 2003, making it one of the highest rates worldwide.

Korean Imports Are Expected To Rise

South Korea ranks 7th worldwide in the number of mobile telecom service subscribers, even ahead of the U.S. and the U.K. It also is one of the world’s fastest growing markets for information technology. Korean world imports of goods and services, projected to rise 2.5% this year and 10% next year, will help drive U.S. exports of technology products.

The best prospects for U.S. trade and investment in South Korea include:

• Digital TV broadcasting equipment
• Retail services
• Geographic information systems
• Pollution control equipment
• Safety and security equipment
• Computer software
• Aircraft and parts
• Education and training services
• Medical equipment
• Drugs and pharmaceuticals
• Architectural/engineering services
• Semiconductors (non-memory)
• Electrical power systems.

A Growth Market To Consider

South Korea has implemented substantial structural reform, which is designed to promote greater stability and make the country less vulnerable to financial crisis. Although the upcoming December presidential elections could temporarily slow this process, South Korea’s future appears bright. If you are not already doing business there, now is a good time to investigate opportunities and risks.

On January 1, 2002, 21 days after China officially joined the World Trade Organization (WTO), Taiwan formally became the WTO’s 144th member. According to the U.S. Trade Representative, as part of its accession commitment made to the U.S., Taiwan agreed to substantially increase access for U.S. goods, services, and agricultural exports. How will this impact your business?

Taiwan’s Global Position Is Rapidly Expanding

The WTO indicates that from 1993 through 2000, Taiwan’s global exports and imports rose by 74% and 82%, respectively. Its large import demand reflects a lack of resources. Thus, the island — recognized by the WTO as Chinese Taipei — imports nearly all of its energy, most raw materials, and a diversity of manufactured and agricultural goods. Overall, Taiwan’s increases in multilateral trade have significantly contributed to the island’s per capita gross national product increase of 30% since 1993.

Its well-educated population of 23 million people, advanced infrastructure, strategic location, and generally pro-business attitudes have positioned Taiwan as an attractive investment destination. In turn, this has created an economic powerhouse that, as of mid-2000, maintained the world’s third largest exchange reserves, according to the U.S. State Department.

As Taiwan has prospered, the formerly authoritarian system has evolved into a democracy. On May 20, 2000 the inauguration of President Chen Shui-bian marked the first democratic transfer of power between political parties in Chinese history. Although China’s opposition to Taiwanese recognition as a separate political entity has limited the island’s official diplomatic activity, its broad unofficial relationships with most of the world’s major economies have not inhibited its economic development.

U.S.-Taiwan Trade and Investment Sound

In 2000, U.S. exports to and imports from Taiwan reached $24.4 billion and $40.5 billion, respectively. This represented increases of 50% and 61% since 1993. On a historical-cost basis, U.S. foreign direct investment in Taiwan totaled $6.5 billion in 1999, an increase of 46% since 1996.

Taiwan’s WTO Commitments

Prior to Taiwan’s WTO accession, its simple nominal duty rate averages for industrial and agricultural products were 6.03% and 20.02%, respectively. In January 2002, these were scheduled to drop to 5.78 % and 14.01%.

When Taiwan’s tariff reductions on 3,470 industrial and 1,021 agricultural items are completely phased in over the next several years, these averages will further decline to 4.15% and 12.86%, according to the WTO. As a result, Taiwan imports are predicted to increase by approximately $1 billion.

Sector-Specifc Commitments

Investment in Taiwanese telecommunications services is limited to 20% per person but can rise to 60% if a joint-venture exists with a Taiwanese person. There are no restrictions on the provision of value-added telecommunication services.

Taiwan also will allow the establishment of commercial banks, branches of foreign banks, offshore banking branches of banks, foreign exchange brokerage firms, and credit card institutions. Additionally, there are some regulatory measures in place for some financial service activities.

Foreign insurers with offices in Taiwan may provide life, accident, and health insurance. Yet, certain organizations establishing branches must have a specific minimum net worth.

Need Information on Your Sector?

To obtain Taiwanese or other country tariffs on your products, visit www.worldtariff.com, a fee-based information service, or contact the U.S. Department of Commerce’s Trade Information Center website at www.trade.gov/td/tic/ or call 1-800-USA-TRADE.

As we enter the 21st century, globalization is affecting nearly every aspect of our lives. Ushered in with this new era are dynamic global trends that are impacting every nation, every level of industry, and virtually every business. Consequently, many economic assumptions no longer seem to apply, yet new realities still need to be defined. Basing decisions on old assumptions may lead to undesirable outcomes.

Entering the 19th Century... Again

Entering the 21st century is in many ways similar to entering the 19th century. The shift from an agrarian society to an industrial economy compelled workers to leave farms in search of factory jobs. Industrialization created anxiety and fear, and demanded that workers learn new skills.

Today, with the advent of globalization and the information economy, new skills again are demanded — but they are much more sophisticated. The internet, which in some sense is eliminating distance, has become what the railroads and electricity were for earlier ages. And these changes are having a profound effect on nations, companies and their employees.

The New Competitive Advantage

In the past, an abundance of natural resources secured a nation’s competitive advantage. Today, intelligence and technology are the new resources. As such, for companies to prosper in the 21st century, they need to harness these new resources and manage their global supply chain better than their competitors.

Education and Unemployment

Since the late 1970s, the wages of less skilled American workers have decreased relative to those of more skilled workers. Similar patterns are occurring in the United Kingdom. In contrast, countries with relatively rigid wages, such as France, Germany, and Italy, have experienced higher unemployment rates.

In the United States, unemployment bears some correlation to the level of education and skills. For example, in May 2000, the annual U.S. unemployment rate for the civilian labor force averaged 4.1%. However, of the civilian labor force age 25 years and older, the rate of unemployment was 6.1% for workers without a high school diploma. It declined to 3.7% for high school graduates, 2.9% for those with some college education, and 1.8% for college graduates.

The occupational groups projected to decline or be among the slowest growing are more likely to be dominated by workers who do not obtain education beyond high school. Conversely, occupations having the highest rates of growth are more likely to have workers with higher educational attainment.

Life-Long Learning Is Required

According to the U.S. Department of Labor’s report, Futurework, we are living in a new economy powered by technology, fueled by information, and driven by opportunity.

As the new economy emerges, it is essential that America’s young population develop the skills needed for tomorrow. It is very clear: as globalization creates opportunity, it generates more for those workers who are better educated. Because the uneducated could be left behind, life-long learning policies are essential in today’s economy and more so in tomorrow’s economy.

The Impact on Manufacturing Jobs

According to the International Monetary Fund, “nearly all research finds only a modest effect of international trade on wages and income inequality.” Thus, technology, not trade, is the real displacer of jobs. Productivity gains generated by new technologies in manufacturing have consistently outpaced productivity gains in other sectors of the economy. As a result, the United States can produce more goods with fewer workers, contends the CATO Institute, a Washington, D.C.-based think tank.

Contrary to claims made by anti-trade organizations, the vast majority of U.S. manufacturers who invest abroad are not seeking low-wage production in developing countries. In fact, in 1999, high-wage countries captured almost 90% of U.S. manufacturing foreign direct investment. This reflects greater importance of non-wage factors in overseas investment decisions.

Services Industries Are Flourishing

Every year for almost three decades, the U.S. service sector has enjoyed a trade surplus that has consistently reduced the U.S. trade deficit. In 1999 alone, U.S. exports of services decreased the overall trade deficit by more than $80 billion — that’s a 25% reduction.

Since 1980, U.S. exports of services have grown 130% faster than exports of goods. This reflects a growing importance of services both domestically and internationally. The U.S. service sector is extremely advanced and internationally competitive. With the recent introduction and availability of new, inexpensive technology — led by telecommunications, computers, and the internet — millions of people and companies worldwide now have the ability to purchase services from anywhere.

It is anticipated that the export of business, professional and technical services (accounting, advertising, engineering, franchising, consulting, public relations, testing and training, etc.) will increase rapidly. As a result, nations, companies and their employees who support trade in services are developing an edge in this era of rapid change.

The New Role of Government

Globalization has put a premium on good government and increased the costs of poor government. Consequently, governments must redefine their role in light of heightened competition among countries and companies. This is forcing governments to adopt policies that support international trade, privatization, economic stability, deregulation of capital markets, investment attraction, a fair and enforceable legal system, etc. And since economic activity is now mobile, governments must provide the technological infrastructure that supports a cluster of related industries.

Business Survival 2001

Of the 500 companies originally comprising the S&P 500 in 1957, few currently remain on the list. Why? According to Arie de Geus, author of The Living Company, “The average life expectancy of a multinational corporation — Fortune 500 or its equivalent — is between 40 and 50 years.” Long-lived companies, he contends, are sensitive to their environment, cohesive with a strong sense of identity, tolerant, and conservative in their financing.

With the fast-paced changes brought on by globalization, greater pressure is put on companies to adapt or perish. Lester Thurow, author and MIT professor, states that “businesses must be willing to destroy the old while it is still successful if they wish to build the new that will become successful.” He points out that four of the five makers of vacuum tubes never successfully made transistors after transistors replaced vacuum tubes, and even the fifth is today not a player.

High Risks With High Rewards

Successfully navigating in unfamiliar territory without a map is not easy. But there is a big upside. Globalization is presenting tremendous opportunities never seen before. Those who welcome its changes and carefully adapt will be well positioned to seize the opportunities that arise, while minimizing the risks that follow.

In the late 1990s, Asia suffered a devastating financial crisis that not only squashed its economic growth, but also impacted the world’s economy. Today, however, Asia’s economic outlook appears bright — and even though Asian growth rates will slow in the short-term, U.S. exporters may wish to reconsider pursuing Asian markets.

World Demand Severely Affects Asian Growth

Many Asian economies, including Hong Kong, China, and South Korea, experienced exponential growth in the 1990s, much of which can be attributed to IT (information technology) output. In mid 2000, this changed when U.S., European, and other economies began to slow.

For example, the U.S., which consumes nearly half of the world’s IT products, decreased its demand. As a result, Asian output and economic growth were adversely impacted. Consequently, Asian gross domestic product (GDP) growth is expected to decline from 7% in 2000 to approximately 5% this year. Yet, this rate is still among the world’s fastest.

U.S. FDI in Asia Is Up

U.S. foreign direct investment (FDI) in Asia continues to grow. In 1999, on a historical-cost basis, it reached $146 billion, up from $118 billion in 1998. Japan was the largest recipient of U.S. FDI, receiving $48 billion in 1999. Following were Singapore, Hong Kong, Indonesia, South Korea, China, Thailand, and Taiwan.

Exports to Japan Are Up; Growth Is Slow

Japan is the world’s second largest economy and third largest U.S. export market. In 2000, the U.S. exported $65.3 billion to Japan. This represented an increase of 13.6% since 1999. However, Japan’s GDP growth rate registered 1.7% in 2000, and is forecasted to grow by 1% in 2001 and 1.1% in 2002.

China’s Economy Continues To Blossom

After years of declining growth, China’s GDP rate rose 8% in 2000, and is anticipated to reach 7.5% and 7.8% in 2001 and 2002. The U.S. exported $16.2 billion to China in 2000 — an increase of 24% over 1999. U.S. FDI in China, on a historical-cost basis, is considered small at $6.5 billion. However, China is likely to join the World Trade Organization this year, and as part of its accession agreement, China has committed to significantly reduce trade barriers, which is likely to accelerate Chinese imports and attract greater investment.

Hong Kong Experienced a Growth Spurt

U.S. exports to Hong Kong were $14.6 billion in 2000, up 15.6% over 1999. Hong Kong’s GDP growth rate rose significantly from 3.1% in 1999 to 10.5% in 2000, and is projected at 4% and 5.5% in 2001 and 2002. The absence of trade barriers has fueled Hong Kong’s economy. Plus, it has made good progress in addressing copyright piracy.

South Korea Is on the Right Path

South Korea’s GDP slowed to 8.8% in 2000, and is anticipated to reach 4.2% and 5.5% in 2001 and 2002. The South Korean economy bounced back from the Asian financial crisis rather quickly, and its economy is undergoing solid reform, especially in the financial and corporate sectors. U.S. exports to South Korea reached $27.9 billion in 2000, a 21.5% increase over 1999.

Taiwan’s Diagnosis Is Favorable

Taiwan’s economy is expanding. In 2000, its GDP growth increased 6%, up from 5.4% in 1999. Projections for 2001 and 2002 are 5.1% and 5.8%. The U.S. exported $21.4 billion to Taiwan in 2000, up 27.4% from 1999.

Time to Reassess Your Target Markets

Leading U.S. exports to Asia include computers, peripherals and software, aircraft and parts, electronics, telecommunications, scientific and medical equipment, and pharmaceuticals. As the region improves economically, you may wish to pursue in-depth research and reassess your target markets since Asian trade and investment opportunities are likely to rise.

The European Union (EU) is currently negotiating with 13 countries to have them become full members of the European trade bloc. As this process continues and additional countries are admitted, the EU’s level of global influence will increase. What does all this mean for your business?

The Big Kid on the Block Has Company

Since World War II and throughout the Cold War period, the United States has been unquestionably the world leader in terms of trade and economic policy. In fact, the Cold War provided much of the glue that held the American-Western European alliance together. However, since the end of the Cold War, and in light of the EU’s expansion plans, the U.S.’s position of dominance is being challenged.

Leaders of the Asia-Pacific Economic Cooperation (APEC) forum met in Brunei on November 12 and 13 for “APEC 2000,” the twelfth ministerial meeting.

Established in 1989, the 21-member organization includes: Australia, Brunei Darussalam, Canada, Chile, China, Hong Kong, Indonesia, Japan, North Korea, Malaysia, Mexico, New Zealand, Papau New Guinea, Peru, the Philippines, Russia, Singapore, Chinese Taipei, Thailand, the United States, and Vietnam.

Purpose of the Meeting

According to the APEC Secretariat, the forum’s main theme, entitled Delivering to the Community, “signified the need for sustaining economic growth to raise incomes and reduce poverty in the region.” The agenda was organized in accordance with three themes: Building Stronger Foundations, Creating New Opportunities, and Making APEC Matter More.

Building Stronger Foundations

The ministers reaffirmed their commitments to the goal of free and open trade and investment. With the understanding that achieving this goal will be difficult, the APEC Secretariat expressed the need to explore more creative and efficient ways to prepare its members for success.

Creating New Opportunities and Making APEC Matter More

APEC said the revolution in information and communication technology has transformed the ways of doing business. It believes the new economy presents both developed and developing members with new opportunities, and sees itself as a catalyst to help its members seize these opportunities.

APEC also welcomed efforts that provide focus on the tangible benefits that have accrued in the region, and said it has ensured that its programs are more relevant and meaningful.

Meeting Outcome

No major agreement resulted from the meeting. This is not unusual considering many participating national leaders are “lame ducks” and therefore not well positioned to implement any far reaching legislation. But more importantly, differences of opinion between developing and developed country members over the ability to participate in the globalization process, the information technology revolution, and the planning of the APEC agenda made any major consensus unlikely.

The U.S., Japan, and Australia pushed to obtain an agreement to establish a new round of talks under the auspices of the World Trade Organization. But with globalization under scrutiny, APEC pledged to address the disparities in wealth and knowledge in hopes of bringing the benefits of globalization to all its members.

Keep Your Eye on Relationships

Issues such as globalization and the “digital divide” will continue to affect the relationship between the wealthier and poorer countries.