I am honored to be one of the speakers of this “AFTA 2002 symposium”. And first of all, I’d like to express my deep respect to the efforts done by related persons to realize the integration of ASEAN economies.

Today I’d like to talk about some of my views from JETRO Jakarta’s main role, that deepening economic ties through promote trade and investment between ASEAN and Japan.

First, I’d like to talk about the current situation of economic ties between ASEAN and Japan. Some private companies have been developing global-wide operation so rapidly that means, they have already had little consciousness of national border.

Cumulative Foreign Direct Investment Value from Japan to East Asia, amounts to 122 billion US$ in the past 50 years, and more than half of them are toward ASEAN 5 countries. As a result, now, for instance, more than 25 hundred Japanese affiliated companies are doing business in Thailand, and here in Indonesia, there are also more than 1thousand companies.

Furthermore, these companies are developing the production network between these countries. They are aiming to procure its parts and materials from where they can be made most efficiently, and to produce their products at the place where they can do it most efficiently. They are now still struggling to form the most efficient production network taking advantage of strong points of respective countries.

Japanese business society is proud of playing some role in the development of ASEAN economies, and at the same time, it shall be grateful for providing Japanese companies with many chances.

On the other hand, Japanese government has offered official development assistance (ODA). And each year, more than half of total ODA is forwarded to ASEAN countries. These ODA have been useful for economic development through improving economic infrastructure, education, easing pollution, and so on. This improvement of economic and social infrastructure led to the increase of investment from Japan. The current deep economic ties between ASEAN and Japan is the result of ASEAN country’s own effort to build their own economy, supported by two driving force, private companies’ investment and government’s ODA.

The second is about how Japanese business appreciates economic integration of ASEAN. Needless to say, Japanese business society welcomes AFTA very much. The reduction and elimination of trade and investment barriers in ASEAN contributes to creating an environment in which companies are freer to choose their cross-border production bases and conduct their economic activities.

It’s said that in general, so far, Japanese affiliated makers have targeted particularly on widening the parts procurement network. Not only about Japanese affiliates, as a whole trend, East Asian trade in the 1990s was characterized by the way in which the trade value of intermediate goods such as parts and materials grew faster than the trade value of finished goods. For instance, as for machinery, East Asia intra-regional trade as a whole shot up 92% in finished goods from 1990 to 1998, but 179% for parts. The share of parts trade in the whole machinery trade rose from 35% to 51%. This share between ASEAN 4 countries and other East Asia countries rose from 47% to 71%, and this share of ASEAN 4 countries intra-trade rose from 67% to 84% in the same period.     

The reduction of trade and investment barriers will accelerate the ratio of intermediate goods in trade. But such rapid growth of the ratio indicates that assembly makers put emphasis on widening parts procurement network rather than shifting the production base of final goods.

But now, we have a prospect that many assembly makers will try to restructure production bases of final goods. This does not necessarily mean that one assembly maker concentrates its final goods production in only one country. Because they have various final goods which may demand their own production structure, or they have to consider social and political factors. But in general, many assembly makers will look for more efficient set of production bases of final goods themselves.

I believe this movement will result in strengthening the competitiveness of ASEAN economy as a whole.

Next, I don’t think I can avoid a little talk about the relation among China, ASEAN, and Japan. China has been growing at rapid speed. This growth in China is expected to continue further and China will increasingly share greater weight in Asia as a whole.

From the view of Japanese business society, China’s competitiveness lies not only in cheap labor cost or potential domestic market, but also in the industrial clusters that are emerging in parts industry. In Japanese affiliated makers, especially in assembly makers, portion of parts and material cost in production cost is so high, more than 70%. So, material and parts procurement with lower cost and shorter period is becoming the main factor of their competitiveness.  Foreign Direct investment value from Japan to China in 1st half (April – September) of year 2001 increased by 87.3 % on year to year basis, while FDI from Japan to ASEAN-5 countries increased only 1.5% in the same period.

Nowadays, in Japan, there are many views concerned with relation of China. Some people tend to stress the threats resulted from the rapid economic growth, and others are skeptical about sustainability of growth pointing out the immaturity of Chinese economic system as a whole. But I think we should recognize that China is a big country of 1.2 billions population and achievements of spectacular economic growth in these 10 years. I believe that economic integration with China will bear a lot of fruits. I think what we should consider is how to build up equal economic partnership between China that we can expect mutual benefits by taking advantage of respective strong points each other. ASEAN will also need more efforts to develop and refine its attractiveness and competitiveness, and so will Japan.

The third, I’d like to talk about two little expectations from Japanese business Society. One is to promote harmonization of business related policy and legal framework, such like product regulations and certifications, competition promoting policy, corporate rehabilitation or restructuring law, and so on. We appreciate ASEAN countries have made every effort to establish such institutions, and we expect to promote their harmonization including law enforcement, quick procedure on certificate to CEPT, AICO Scheme. In addition, there seem to be a little difference among ASEAN countries in law enforcement certainty. I’d like you to realize predictability on law enforcement in ASEAN as a whole is essential for business to develop borderless production network.

Another is to promote supporting industries. As I said, parts and material procurement with lower price and shorter period becomes more important in global competition. China already seems to have good spiral effect- in which, abundance of parts makers attracts new assembly makers, and increase of assembly makers accumulates more parts makers. I think AFTA should also aim to build such effects between assembly makers and parts makers as soon as possible, and economic integration will facilitate to do so.

(The fourth Point was not presented on Symposium)

The fourth is about private opinion about Japan’s direction. First is about the possibility of ASEAN Japan FTA. As you know, agriculture sector has strong political influence in Japan, so, we must deal with it deliberately. But from my personal view , I think that it’s an important first step for both ASEAN and Japan to study on what kind of benefit (and how much benefit) we can expect and how much cost we should pay for that benefit respectively. ASEAN and Japan already have so strong ties that we ought to make rapid progress in our economic partnership for mutual benefit.

And at the same time, I think it’s important to deepen multi-layared economic ties step by step. East Asia has already been establishing complementary manufacturing networks. If this network can be developed further through fair competition and appropriate cooperation, it will lead to more prosperity of East Asia as a whole. We should look for the areas that are really needed for that purpose, and try to deepen ties in those area aggressively. I think IT is one of typical areas of those.

 I hope you understand my presentation. And Hope this meeting will bring positive & Concrete Action to tie up & enforce the ASEAN Economical Integration.

Thank you for your sincere attention.