Topic Category: World

A nation in constant change, South Korea has experienced a wide spectrum of political and financial turbulence during the last 50 years. Amidst cold-war hostilities from its northern neighbor, South Korea has achieved international prominence as an economic powerhouse. This is a growing market you might wish to consider pursuing.

It’s Back on Track

Since its plunge into financial crisis in 1997, South Korea has worked hard to repay large portions of its foreign debt. Today, it remains a formidable contender in a strategic region. Many of the reforms implemented by President Kim Dae Jung, in response to the 1997 currency collapse, have succeeded in creating a more open market-oriented economy.

The Market Is Expanding

Analysts predict that with its strong private consumption and increasing stock market, South Korea will continue to be an important U.S. export and investment destination. For example, in 1999, it ranked as the United States’ sixth largest export destination, with almost $23 billion in goods. This represented an increase of 40% over 1998. And, in 1998, U.S. foreign direct investment in South Korea, on a historical-cost basis, reached 7.4 billion, an increase of 70% since 1994.

High-Tech Goods Are in Demand

Demand for many imports is rising, especially for high-tech computer and semiconductor equipment. Opportunities also exist in the energy and telecommunications sectors following the privatization of South Korea’s state-owned facilities.

Asia-Pacific nations and the European Union, especially Britain, recognize this growing market potential and are actively pursuing South Korea. Consequently, U.S. firms could expect greater competition in the future.

The Challenges Ahead

Recent increases in South Korea’s monthly current account deficit and short-term debt indicate more improvements are necessary to prevent another economic emergency. Analysts believe South Korea must continue to ease its restrictions in trade, especially in the steel and automotive industries. South Korea’s future is also inextricably linked to its relationship with North Korea.

The Two Koreas

South Korea is on the verge of a period of unprecedented and fundamental change, following its President’s recent historic summit meeting with North Korea’s Kim Jong Il. This was the first-ever meeting between the two nations, which are still technically at war.

Sharing a common history and language, both Koreas have much to gain from increased dialogue and economic cooperation. Greater stability, a likely outcome of the summit, will promote more investment in the South. A unified Korean peninsula would foster many more foreign investment opportunities in the North and South.

The combination of South Korea’s capital and management experience, coupled with North Korea’s educated workforce and competitive wages, would jumpstart the South’s stagnant textile, clothing, and accessories industries. Timely investment ventures in construction and transportation could capitalize on the North’s proximity to China, Russia, and Europe.

Recovery from the recent economic and financial crisis that threatened the countries of the Association of Southeast Asian Nations (ASEAN) is underway. As a result, this market of approximately 500 million people, again, is offering tremendous opportunities to U.S. exporters and investors.

Association Promises Regional Stability

ASEAN was formed in 1967 by Indonesia, Malaysia, the Philippines, Singapore, and Thailand to promote political and economic cooperation and regional stability.

Brunei joined in 1984, and Vietnam in 1995. Laos and Burma were admitted into full membership in July 1997. Cambodia became the tenth member in 1999.

ASEAN commands far greater influence on Asia-Pacific trade, political, and security issues than its members could achieve individually. Its success has been largely based on its use of consultation, consensus, and cooperation. U.S. relations with ASEAN have been excellent since its inception.

ASEAN Offers Sound Export Destinations

In 1999, the United States exported about $38 billion in goods and services to ASEAN, which has a gross domestic product of $600 billion. Within the larger ASEAN markets, U.S. exports to the Philippines were up by 6.5% since 1998, while those to Singapore and Indonesia edged up slightly, expanding by 2.8% and 1.7%, respectively. Exports to Malaysia were down by 3.9%, and those to Thailand fell 6.3%.

Foreign Investment Needed for Recovery

While ASEAN nations recognize that further liberalization of trade is required, they independently pursue support, cooperation, and investment from the private sectors of the major countries. And they understand the need to retrain and retool their work forces.

With nearly two decades of building strategic alliances and working relationships, the U.S.-ASEAN Business Council has become the premier private organization in the United States representing the ASEAN private sector. The Council is committed to promoting U.S. competitiveness in this dynamic global growth market.

Singapore Is Important

Of the ASEAN nations, Singapore imports the most from the United States. This is largely due to its status as a transshipment point for the rest of Southeast Asia. Additionally, it is one of the most highly developed and sophisticated industrial, commercial, financial, and consumer economies in the world.

The United States remains Singapore’s largest investor, accounting for 44% of total foreign investment commitments in 1998.

An Important Gateway

Singapore is also an excellent market (and test market) for U.S. products. Its role as one of the principal gateways to Southeast Asia typically offers American manufacturers distribution through interested local buyers or regional buyers in other Southeast Asian countries.

Shipments from the U.S. to Singapore were about $16.5 billion in 1999. This primarily included electronic equipment, electrical machinery, aircraft and parts, optical, photographic and measuring devices, and plastics.

Singapore levies minimal import duties and presents no significant non-tariff barriers to trade. Analysts of the Singapore economy are unanimous in their prognosis that the economic outlook has brightened considerably since the beginning of the year, notwithstanding the significant challenges that remain.

Malaysia Struck Hard by Crisis

After nearly a decade of strong economic growth averaging 8.7% annually, Malaysia was hit hard by the regional financial and economic crisis of 1997-98. But signs of recovery are appearing. Its economy is expected to have generated positive growth in 1999 after having contracted by 7.3% in 1998.

Despite the regional economic downturn, Malaysia remains an important trading partner for the United States. In 1999, U.S. exports to Malaysia totaled about $9.1 billion. Malaysia remains attractive for foreign investment in the petrochemical industry and for electronics export manufacturing. Most sectors of the economy are widely open to trade.

U.S. Investment in Malaysia Considerable

U.S. direct investment in Malaysia is concentrated in oil and gas, followed by manufacturing, primarily semiconductors and other electronic products. According to Department of Commerce statistics, U.S. investment was $6.2 billion in 1998.

Trade and investment prospects remain strong in infrastructure, information technologies, industrial automation and process control equipment, medical and health products and services, education, human resource development, and furniture and environmental engineering.

With the return of stability and growing optimism, Malaysia’s highly trade-oriented economy has started to reverse its course.

Philippine Economy Shows Modest Growth

The Philippine economy has now turned the corner on the Asian financial crisis and is experiencing modest growth. U.S. exports to the Philippines, which represented nearly 23% of total Philippine imports in 1998, are projected to increase this year. For U.S. exporters, this is a good time to pursue business opportunities in this market.

Despite an overall 16% decline in foreign direct investment in the Philippines in 1998, the U.S. is the largest foreign investor in the country with a cumulative equity investment of $2.72 billion in 1998. This accounted for nearly one-third of the country’s total foreign direct investment.

Exports Increased in 1999

Compared to other Southeast Asian nations, trade with the Philippines recovered quickly in 1999. U.S. exports to the Philippines were about $7.2 billion in 1999, up from approximately $6.8 billion in 1998.

Leading U.S. export sectors to the Philippines include telecommunication equipment, information technology, power plant equipment and services, food processing equipment, building products, and hotel and restaurant equipment.

Sectors offering the greatest investment potential for U.S. firms are electronics/semi conductor assembly, energy (including the power generation industries), franchising, and information technology.

ASEAN’s Future Is Bright

As 1999 began, there was concern that the Asian crisis which started in 1997 would spread and produce instability. It was widely believed that this would undermine trade between ASEAN countries and the United States.

As 2000 advances, it is apparent that the countries of Southeast Asia have learned from the mistakes that contributed to their economic slump. And, as they strive to grow in security and strength, this will bring greater opportunities to U.S. exporters in the near future.

The financial crisis that crippled much of Asia in 1997 destabilized financial markets in both developed and developing countries. As a result, Latin American growth, measured in real gross domestic product (GDP), fell from 5.4% in 1997 to 2.3% in 1998. The region’s difficulties were compounded by natural disasters that struck with unprecedented strength. However, given Latin America’s macroeconomic stability and commitment to free market policies, economic projections for the year 2000 are favorable — generating new opportunity for U.S. exporters and investors.

The founding countries of the Mercado Comun del Cono Sur (MERCOSUR) — Argentina, Brazil, Paraguay, and Uruguay — have suffered from the economic slowdown in Latin America that began last year.

Nevertheless, U.S. exports to the trade bloc have increased 245%, from $6.5 billion in 1990 to $22.5 billion in 1998. And as we enter the new millennium, Mercosur imports are expected to continue to rise.

A History of Economic Liberalization

Formed in 1991, Mercosur was designed to stimulate members’ economies. To achieve this, the trade bloc proceeded to emulate the Chilean growth model, which was based on unilateral tariff reductions, privatization of publicly owned industries and services, and openness to foreign investment.

On January 1, 1995, Mercosur established a customs union, introducing a system of common external tariffs. As members opened their markets to greater competition and reduced inflation, production levels and demand for imports, especially capital goods, rose. By 1996, imports from member countries increased by 314%, compared with 185% from non-member countries.

Strained Internal Relations

Primarily because of Asian economic problems, recent economic growth in Brazil and Argentina decreased from 1997 levels. And the surprise 30% devaluation of Brazil’s real and abandonment of the fixed exchange rate in January 1999 boosted its exports. This, combined with poor regional growth, strained Brazil’s relations with the other Mercosur countries, especially Argentina.

During periods of economic decline, countries sometimes erect trade barriers to protect their industries from imports. Brazil and Argentina took that step. Consequently, trade between the two Mercosur members dropped 20% during the first six months of 1999.

Enter the European Union

During this time of fragile recovery, the leaders of the 15-nation European Union (EU) and Mercosur met in August to discuss a possible free-trade agreement. A significant impediment, however, is the highly subsidized EU farm sector, which effectively limits South American agricultural exports to the EU.

Nevertheless, EU-Mercosur negotiations may prompt the U.S. to renew talks to create a Free Trade Area of the Americas, creating a hemispheric free trade zone. Thus, a budding relationship between the EU and Mercosur sends a clear message that Europe could pose real competition for the U.S. in South America.

Franchising in Brazil

Brazil’s economy, the largest in South America, is rapidly expanding its presence in world markets. And franchising is becoming big business. With strong annual sales, the Brazilian franchise industry reached about $11.5 billion in 1997. Currently, two-thirds of the foreign franchises (66 companies) are headquartered in the United States.

The best franchising prospects include training courses, construction, and personal fitness. Other major non-franchise imports include crude oil, capital goods, chemical products, foodstuffs, and coal.

Argentine Privatization under Way

Argentina recently completed one of the world’s most ambitious airport privatization programs. And between 1999 and 2004, investment in airport infrastructure is expected to exceed $1.7 billion. Consequently, airport ground support equipment is anticipated to become a prime U.S. export to Argentina over the next decade. Other major projected imports from the U.S. include vehicles and parts, chemicals, telecommunications equipment, and plastics.

Calling Paraguay

Paraguay’s economy is largely service oriented. The need for improved communications has resulted in a significant demand for telephone and computer equipment. And the need for better transportation has brought about investment in road construction.

The country also has a large underground market, which involves thousands of micro-enterprises and urban street vendors, as well as the re-export of imported consumer goods and office equipment to Brazil and Argentina.

Geriatric Equipment for Uruguay

Uruguay’s proportionally large elderly population should be an attractive market for geriatric equipment and services in the near future.

Other favorable prospects for U.S. exporters include chemicals, manufactured goods, machinery, transport equipment, food processing equipment, and computer hardware and software.

Positive Economic Growth Ahead

With a population of more than 200 million people, a growing middle class, and positive economic growth predicted in 2000, trade among members of Mercosur and with the United States is anticipated to increase, offering U.S. exporters greater opportunities.

China offers U.S. companies an expanding export market for high value-added goods, such as aircraft and computers. In turn, China typically provides U.S. importers with inexpensive, lower technology goods that often displace other Asian exports to the United States.

As bilateral trade expands, the annual review process of whether or not to grant China Normal Trade Relations (NTR), formerly called Most Favored Nation (MFN) trade status, has made planning difficult for U.S. companies. And whether or not China is admitted into the World Trade Organization (WTO) could significantly impact your business.

The Impact of Normal Trade Relations

On July 27, Congress, again, voted to extend NTR to China. When a country has this status, its products enter the United States at a normal duty rate. Without NTR, goods are assessed duty rates exceeding 50%, making them noncompetitive here.

Under the U.S.’ Jackson-Vanik amendment to the Trade Act of 1974, a measure originally directed against the former Soviet Union, NTR may not be granted to any non-market economy determined by the President to restrict free emigration. Today, the U.S. does not grant NTR to Afghanistan, Cuba, Laos, North Korea, Serbia/Montenegro, and Vietnam.

The Annual NTR Debate

The denial of NTR for China would result in the U.S. imposing such high tariffs on Chinese goods that trade likely would be severed. In retaliation, China would probably curtail imports of U.S. goods.

Trade analysts believe this would not curb the U.S. trade deficit. Instead, the import gap quickly would be filled by other Asian suppliers. Additionally, denying China NTR could lead to deteriorated U.S.-Chinese relations, fostering an environment of alienation and suspicion. Any future U.S.-Chinese cooperation on sensitive issues, such as human rights, environmental and intellectual property protection, nuclear proliferation, China’s currency stability, and India-Pakistan tensions, would be unlikely.

What China’s WTO Membership May Mean

If China is admitted to the WTO, it will receive permanent NTR status from the U.S. Consequently, the annual review process will cease. But the real benefits of China’s WTO membership include greatly improved access to Chinese markets for U.S. and other WTO member goods, services and investment. Plus, China must also adhere to WTO rules.

China Will Reduce Trade Barriers

With regard to industrial products, if accepted into the WTO, China agrees to allow U.S. firms to import, export and distribute their goods within its borders. China also agrees to significantly reduce tariff levels to rates comparable with major trading partners and to below those of most developing countries, to bind all tariff concessions, and to phase-out all quantitative restrictions on imports.

According to the U.S. Trade Representative, China will reduce average industrial product tariffs from 24.6% in 1997 to 9.44%, and further down to 7.1% on what the U.S. considers “priority” products. Importantly, Chinese duties will gradually decline from 100% to 0% on autos, and from 13.3% to 0% on semiconductors, computers, telecommunications equipment, and other information technology.

China’s agricultural imports will be subject to new measures that address trading rights, distribution, high tariffs, quotas, the application of unscientific standards, reliance on state trading companies, and export subsidies.

China will reduce its average agricultural product tariff to 17%, and down to 14.5% for “priority” products. Thus, duties will drop from 45% to 12% on beef, and from 40% to 12% on citrus goods.

China is among the most closed markets to service imports. For WTO membership, China has agreed to improve access to certain service sectors, including telecommunications and financial services.

U.S. Exports to China Continue to Rise

In 1990, U.S. exports to the People’s Republic of China and Hong Kong were $11.6 billion. Last year, U.S. exports to China, which included Hong Kong, exceeded $27 billion. This represented an increase of 134%.

This emerging powerhouse of almost 1.3 billion consumers is one of the world’s largest economies, and represents one of the United States’ fastest growing export markets. As China’s economy continues to expand, U.S. exporters will benefit — and to an even greater extent if China is admitted to the WTO.

Be Informed and Prepared

U.S.-China policy is delicate. Therefore, as events unwind, your access to China’s market may improve, remain the same, or possibly decrease should unforeseen events occur. Consequently, it’s essential to have a flexible plan that allows you to seize opportunities and mitigate risks.

With more than $50 billion in trade with the United States, Taiwan is both America’s seventh-largest trading partner and seventh-largest foreign market. The small island nation buys half as much from the United States as all of Latin America, less Mexico. Its annual U.S. purchases are twice as much as all of Africa, five to seven times those of Russia or India, almost double China’s, and more than France, Korea, or Italy.

From 1996 to 1997, Taiwan’s gross domestic product (GDP) grew 6.8%, and 4.6% in 1998. It is projected to increase 5.3% in 1999, and forecast to grow 5.6% in 2000. The island’s 21 million people have an average income of $12,500.

Asian Flu Had Little Effect

U.S. exports to Taiwan – and via Taiwan to China and Southeast Asia – are growing. Taiwan is among the largest investors in China and most countries in Southeast Asia. The Asian financial crisis little affected the country’s economy, and Taiwan is now assisting other countries in that region to recover.

Taiwan’s Imports Are Vast

With few natural resources, Taiwan imports nearly all of its energy needs and agricultural goods (it is the fifth-largest importer of U.S. agricultural products), and most of its raw materials used by its industrial and manufacturing sectors. Its government is pro-business and strongly encourages foreign investment and technology. The country’s workforce is well educated, and the island’s proximity to mainland China offers unusual opportunity.

The top U.S. exports to Taiwan include machinery, transportation equipment, chemicals and related products, food and live animals, and crude materials, except fuels. Through September 1999, Taiwan had imported U.S. goods and services worth $13.7 billion and had exports to the U.S. of $25.8 billion.

Daley Asks Taiwan to Increase U.S. Imports

U. S. Commerce Secretary William M. Daley spoke before the 23rd Republic of China (Taiwan) and U.S. annual Joint Business Conference in San Antonio, Texas, in November. He said that trade relations with Taiwan haven taken off, and “we are looking forward to Taiwan’s entry into the World Trade Organization.

“We take in about one-fourth of all the goods Taiwan exports,” Daley added, “and we need Taiwan to take in more of our goods. That includes high-tech areas, such as biotech, and services, like banking and finance. I know many American companies also have their eye on the $150 billion in infrastructure projects anticipated over the next decade.”

Commenting on the earthquake that struck Taiwan in September, he congratulated the business community on how quickly its semi-conductor factories were back on line.

According to Taiwanese government figures, losses caused by the earthquake reached $4.1 billion. Stated earlier, authorities predict the island’s 1999 GDP growth to reach 5.3%. This is below their stronger forecasts of 5.7% and 5.5% announced in August and September, respectively, after a more accurate assessment of the earthquake damage had been concluded.

Competition Is Fierce, but Rewards Are High

The competition in the Taiwanese market is fierce. Japanese firms are well entrenched and European companies are moving rapidly to capture market share. Nonetheless, Taiwanese consumers typically have strong feelings of goodwill toward the U.S. and tend to favor American goods and services. As a result, U.S. firms with quality products and services at competitive prices have found and will continue to find Taiwan a rewarding market.

On July 27, 1999, the U.S. House of Representatives voted to extend Normal Trade Relations (NTR) status to China for another year. This signaled good will to China.

But, next on the agenda are two more issues that could further improve or harm U.S.-China relations. These include: granting China permanent NTR status, and allowing it to join the World Trade Organization (WTO). Both issues could have a major impact on the United States and your business.

Permanent NTR Status

By granting China NTR (formerly known as Most Favored Nation trade status), Chinese products will enter the U.S. at the same normal duty rates offered to most other trade partners, except for Afghanistan, Cuba, Laos, North Korea, Serbia/Montenegro, and Vietnam. In turn, U.S. products will continue to be allowed access to the Chinese market.

However, Congress soon will decide whether or not to grant China permanent NTR status. If approved, this will eliminate the current annual vote for NTR which has made planning difficult for U.S. companies.

China and the WTO

In order to be admitted to the WTO, China must agree to abide by a broad set of WTO rules. As of July, the office of the U.S. Trade Representative (USTR) indicated that China agreed to reduce its average tariff from 35% to 10%. In addition, the USTR said China appears to be willing to improve transparency, eliminate discriminatory taxes and regulations, and abolish export subsidies, as well as phase out protectionist quotas and import substitution requirements.

According to the USTR, China also agreed to eliminate unscientific food safety barriers, plus adopt judicial review procedures for administrative decisions. If accepted into the WTO, China will be subject to trade sanctions under the WTO’s dispute settlement procedures if these commitments are not carried out.

Chinese Agricultural Markets to Open

China’s commitments regarding agricultural market access address trading rights, distribution, high tariffs, quotas, the application of unscientific standards, reliance on state trading companies, and export subsidies.

As a result, China will move toward a system based almost entirely on tariffs. And on most bulk commodities, tariffs will fall to 1%-3%, reducing China’s duties to levels below most American trading partners.

Industrial Product Commitments

Under the WTO, China has agreed to allow U.S. firms to import, export and distribute industrial products within its borders. Additionally, China will reduce tariffs on industrial products to levels comparable with major U.S. trading partners and below those of most developing countries. And, China will bind all tariff concessions and phase out all quantitative restrictions on imports.

Chinese tariffs on high technology products, including semiconductors, computers and equipment, telecommunications equipment, and other information technology, will drop from present levels averaging 13.3% to 0% over a period of several years.

Tariffs on U.S. automobiles will decrease from 80% and 100% to 25% in 2005. Auto parts tariffs will fall to an average of 10%. Furthermore, China’s commitments in the chemical sectors will result in duty reductions to levels similar to other WTO members.

Service Sector Commitments

Chinese commitments on services are comparable to those of most WTO members. Nevertheless, according to the USTR, further negotiations are required. Services included in the agreement cover distribution, telecommunications, insurance, banking, securities, professional services, audiovisual, and travel and tourism.

In China today, foreign firms have no rights to distribute products other than those made in China, or to own or manage distribution networks. China also frequently issues business licenses which limit the ability of American firms to conduct marketing, after-sales service, maintenance and repair, and transportation. China’s commitment significantly liberalizes these restrictions.

Telecommunications and Banking Services

China severely restricts sales of telecommunications services and bars foreign investment. Under the WTO agreement, China will, to a large extent, lift these restrictions. In the insurance sector, China limits foreign participation to Shanghai and Guangzhou. This, too, will be lifted.

In the banking sector, China imposes severe geographical restrictions. For example, only nine foreign banks can conduct business in local currency and are limited to the Shanghai Pudong area. WTO negotiations seek full rights for foreign banks to handle both local and foreign currency business transactions, to serve Chinese as well as foreign customers, and to liberalize investment.

However, as of this writing, no WTO agreement has been signed. And with additional negotiations ahead, China’s commitments to reduce its trade barriers may change.

Importance of U.S.-China Trade

The United States, which accounts for only 4 percent of the world’s population, needs to sell to the other 96 percent. Passing permanent NTR legislation and admitting China to the WTO will help to achieve this. And since the United States is already a WTO member, with a few exceptions, China must make all the concessions. This is good for U.S. exporters, importers and investors.

In 1998, U.S. exports to China, which now include Hong Kong, were $27 billion. If China is admitted to the WTO and anticipated trade concessions are implemented, U.S. exports likely will rise at a faster rate than in the past.

However, if the United States denies China permanent NTR status and prevents it from becoming a WTO member, this could lead to deteriorated U.S.-Chinese relations. In turn, trade relations could be weakened.

Follow U.S.-China Negotiations

In July 1999, China concluded favorable bilateral WTO negotiations with Japan and Australia. During the upcoming Asia-Pacific Economic Cooperation meeting in September, President Clinton and Chinese President Jiang Zemin are expected to meet. What will come of their meeting is speculative. As a result, it’s important to incorporate a great deal of flexibility in your China strategy.

Many analysts believe the current events shaping Asia are the most significant developments in the world today. John Naisbitt, a leading trend forecaster and author of Megatrends Asia, wholeheartedly agrees.

As we move toward the year 2000, “Asia will become the dominant region of the world: economically, politically and culturally,” he writes. This trend presents exciting and profitable opportunities for you.

The Brazilian economy entered the 1990s with declining growth, runaway inflation, and an unserviceable debt of $122 billion. As the largest Latin American economy with 162 million consumers, it had one of the most highly regulated economies in the world.

In 1990, Brazil’s first democratically elected government in nearly three decades initiated broad reforms designed to open the economy, curb inflation and attract investment. Additional measures promoting economic stability and the establishment of a new currency, the “Real,” in July 1994 were successful.

President Fernando Henrique Cardoso (former Finance Minister) took office on January 1, 1995. His reforms continue to build on previous ones.