Overview

Trade expansion has been an integral constituent in almost all of the regional groupings. The SAARC on the other hand has so far identified 12 sectors for mutual co-operation which excludes trade co-operation. A total of 270 activities relating to seminars, workshops, technical committee meetings, training, etc. have not incorporated any trade related issues. The apprehension that co-operation in trade may be difficult to achieve under divergent political and economic systems adopted by the regional countries has so far precluded this vital aspect from its framework. However, there have been interactions among academics and businessmen focusing on trade related issues. In September 1988, an SAARC group of experts in its meeting held in Islamabad initiated a move to prepare the groundwork on SAARC co-operation in trade, manufacturing, and services.

Trade co-operation in the SAARC region by no means is a smooth process. Economic and trade co-operation in trade expansion in the SAARC region is largely dependent upon political situations. The ethnic problem in Sri Lanka and the India-Pakistan dispute over Kashmir are some of the burning political problems in the process of regionalism in South Asia.

South Asian trade is marginal in relation to world trade. That it has not been increasing over the years indicates that prevailing arrangements are not effective enough to trigger the process of development through trade co-operation in the region. The countries in the region are operating highly protected trade regimes. Tariffs and NTBs are considered quite high in India, Pakistan and Bangladesh while they are relatively low in Nepal and Sri Lanka.

Even in the absence of the SAARC multilateral framework, most SAARC countries can exchange tariff preferences among them under the Bangkok Agreement within the framewrok of ESCAP. The Bangkok Agreement initially had three South Asian countries, viz., India, Bangladesh, and Sri Lanka apart from other non-SAARC nations.

The energy economy of Singapore is unique. The country possesses no conventional energy resources and its primary energy needs are met entirely by imports, almost exclusively petroleum-based. Yet, Singapore has deservedly been called the “Houston of Asia” as its petroleum industry has placed the nation at the heart of the Pacific Basin's energy markets (Fesharaki 1984, 1986; Doshi 1989a). Singapore ranks as the world's largest fuel oil bunkering centre. Its refineries collectively constitute the world's third largest refining centre, and its spot market is the focal point of oil trade in the Asian-Pacific time zone. In February 1989, the Singapore International Monetary Exchange (SIMEX) launched a High Sulphur Fuel Oil contract, the first petroleum futures instrument east of Suez.

The first section of this chapter attempts an interpretative look at economic growth and structural change in Singapore with a view to setting the wider context of the country's distinctive energy economy. Section two, directed towards the domestic aspects of the energy economy, summarizes salient attributes of the growth and configuration of domestic energy demand. The third section surveys the Singapore petroleum industry which provides a wide range of petroleum-related products and services largely for export markets. The impact of the oil price shifts on the Singapore economy is examined in the fourth section. The fifth section provides a discussion of energy policy in Singapore. The chapter concludes with some remarks on the linkages between public policy, economic development, and the energy sector.

ECONOMIC GROWTH AND STRUCTURAL CHANGE

Classified by the World Bank as a high-income developing economy with a GNP per capita of US$7,940 in 1987 (IBRD 1989), Singapore's standard of living (as measured by this basic indicator) is next only to Japan's in all of Asia. Since the late 1960s, Singapore has on the average achieved one of the world's best overall economic performance. It boasts one of the highest average growth rates among all countries of the world.

The empirical evidence presented for ASEAN's trade in services with West Germany, France, and the Netherlands, badly needs a yardstick, either a theoretical one or an empirical companion piece. Both are not yet available. Theory does not go beyond broad Heckscher-Ohlin type of explanations, and empirical analyses have been widely discouraged by conceptual confusion and lack of data. The paper has revealed earnings from exporting services to be important income sources for some ASEAN countries compared to merchandise trade. Payments to European residents for their services were shown to concentrate increasingly on skill-intensive business services. Singapore and Thailand are leading ASEAN suppliers of merchandise-related services as well as travel services but Indonesia and very recently, also Malaysia, made strong efforts to divert some flows of service payments directly to their accounts instead of participating in service packages offered mainly by Singapore.

Policy interventions implemented by ASEAN countries were not the subject of this study but they are very relevant aspects to be analysed later, for example, compulsory health standards to be met by foreign tourists, or cargo sharing principles in liner conferences. So are structural changes in the EC countries, mainly in the context of income elasticities in consumer services rising with growing personal income, particularly as far as deregulation in EC service industries is concerned. Thus, empirical evidence presented above is not only skimpy but is bound to become outdated with rapid technological innovations spurring new internationally tradable services, a more liberal trading environment and rising income levels of consumers.

Indonesia proclaimed its independence in 1945, and after several armed clashes with the Dutch obtained international recognition in 1950. But it was only after the 1965 attempted coup d’état and a political and economic stabilization programme that Indonesia in 1969 embarked on planned economic development. Energy was already an important part of the first five-year development plan, or the first REPELITA, covering the period 1969-73.

THE FOUR REPELITAS

During the early 1960s Indonesia had already prepared to consolidate the fledgling domestic oil industry, set up in the aftermath of a series of acts of nationalization on assets of several foreign oil companies during the latter part of the 1950s. Following the turmoil of 1965-66, the Indonesian economy was opened to foreign investors, and one of the first groups of investors consisted of a few small, independent oil companies. When these companies succeeded in finding oil, the large oil companies followed suit. Oil production then steadily increased.

In the meantime, the government launched a stabilization and rehabilitation programme to improve the economy. Inflation was greatly reduced from 500-600 per cent per year during 1965-66 to less than 30 per cent within three years, and the currency was thus stabilized. Concurrently the physical infrastructure was restored and upgraded. The government gave the highest priority to agriculture, especially to food production. The textile industry was also accorded top priority. The most important policy change was on the government's own role of assuming only indirect control of the economy in contrast to the previous “Old Order” practice of direct control: the prices of only a few basic necessities remained under control. The private sector responded in a positive manner.

Investment increased and the economy grew rapidly. The basic needs of the people for food and clothing were met. Trade and industrial activity picked up. The increased oil exploration activity brought results: oil production expanded rapidly, and large reserves of gas were discovered in 1972.

Assuming that the 1992 programme proceeds broadly as scheduled, what are the implications for the external trade of the European Community (EC)? The official documents which launched the programme (Commission of the European Communities 1985; Cecchini 1988; Emerson et al. 1988) were rather unforthcoming on this question. In the recent past, however, efforts have been made to repair this omission (Sapir 1989; Henderson 1989; Langhammer 1990; Davenport 1989; Matthews and McAleese 1990; Pelkmans 1989). A growing literature has appeared on the effects of 1992 on trade in general (including services), on trade with developing countries, and on foreign investment.

This chapter addresses the impact of 1992 on EC external trade and direct foreign investment (DF1). It presents an overview of the situation with an ASEAN perspective in mind. Detailed analyses of the effects on particular aspects of ASEAN trade are presented in other chapters in this volume.

Identifying the external effects of 1992 is, of course, a complex task. One reason is that the 1992 programme happens to coincide with a series of other changes in the trade policy environment: the enlargement of the Community to include Spain and Portugal; reform in the Common Agricultural Policy (CAP); the Uruguay Round negotiations; Lomé IV; renewal of the Multi-Fiber Arrangement (MFA); and the development of new relations with the socialist bloc. Another source of complexity concerns the nature of change in the post-1992 internal market environment — a wide range of non-tariff barriers and regulatory practices are being scrapped, the trade impact of which is notoriously difficult to quantify.

The plan of this chapter is as follows. First, the effects of 1992 on EC trade policy is considered. Next we look into the trade effects of 1992 in a schematic way. Third, the main issues affecting trade in primary and manufactured goods are examined. Fourth, this analysis is extended to include DFI and terms of trade.

World exports of agricultural commodities have been growing at a slow pace while such exports by all developing countries have been rather stagnant. According to FAO estimates, world exports of agricultural commodities, excluding fisheries and forestry products, had risen from US$233 billion in 1980 to US$251 billion in 1987 while such exports from developing countries had increased only marginally from US$72 billion to US$73 billion during this period though dropping to as low as US$64 billion in 1982. Economic upheavals in developed markets, availability of substitutes, protectionism, and fluctuations in the supply of primary commodities are the main factors contributing to this situation. Developing countries of the region could strive to use their combined market power and the resultant bargaining power for the dual objectives of obtaining better prices for primary commodities and increasing their export volumes. The strategy should be to co-operate with developed countries within the international institutional framework as they are the more powerful and financially dominant group today.

Barriers

The biggest obstacle to efforts to enhance export earnings from primary commodities today is the protectionism practised in the major markets. Protectionist measures practised by the European Community (EC) are the most disruptive. High tariff barriers for agricultural commodities make those originating from ASEAN-South Asia region less competitive. This is especially true of commodities that compete with EC produce such as sugar, vegetable oils, and wheat. The heavily-protected, high-cost agricultural commodities of the EC countries are sold in world markets at subsidized prices, thus adversely affecting the more efficient producers of the developing world. Similar tariff barriers exist in the United States, Japan and other developed countries.

Of late, the developed countries have been concentrating on non-tariff barriers (NTBs). The General Agreement on Trade and Tariff (GATT) has identified more than 30 of the most commonly used of those NTBs among which are import quotas, minimum import prices, countervailing duties, customs valuation systems, sanitary requirements, licensing schemes and voluntary export restraints (VERs).

In terms of the economic impact of the withdrawal of GSP benefits by the United States, Tables 21 and 22 show that domestic exports of items which were the top GSP exports in 1988 increased in 1989 despite the loss of GSP privileges. By this score, the economic impact seems inconsequential.

As for trade diversion to Japan and the EC, there seems to be evidence of more domestic exports of items which previously went to the United States under the GSP now going to Japan but not to the EC. With respect to Japan, an increase in Singapore's domestic exports of data-processing machines, other radio receivers, parts of TVs, radios, and plastic articles in particular, was observed for 1989. It must be cautioned, however, that the exact quantum of trade diversion cannot be conclusively determined as other factors such as the exchange rate, trade policies, and relative international competitiveness may have encouraged more of such exports into Japan.

Since one major objective of this study is also to draw implications for the target countries, it may be useful first to briefly review the GSP utilization of the target countries. This is shown in Table 25 as well as in Appendix 3. Two observations may be provided. One is that while the three ASEAN countries, namely, Indonesia, Malaysia, and Thailand, still rely on GSP benefits and would like to resist graduation, they are aware of the sentiments of preference-giving countries and realize that graduation is only a matter of time. Second, in the short run, while the benefits are available, they are trying their best to improve administrative rules and regulations to ensure better GSP performance as measured by the utilization rates.

In the case of Malaysia, specific reference was made of Singapore's loss of its GSP affecting Malaysian industries. This is in respect of certain products, particularly in electrical and electronic sectors, where Singapore inputs are crucial for Malaysia to attain the 35 per cent value-added requirement for the U.S. GSP scheme.

Introduction

Liberalizing trade in services is a key target both in the Uruguay Round and the integration process of the European Community (EC). The importance of this issue contrasts sharply with the woeful state of information and knowledge on the sectoral and regional structure of extra- and intra-EC trade in services, not to speak of conceptual and theoretical blanks.

For the purpose of understanding the political nature of protection in the service sector, it is essential to bear in mind this lack of background information. Ignorance leads to uncertainty and may give rise to the risk-averting and defensive behaviour of politicians to shift parts of the adjustment burden which arises from unavoidable internal liberalization to non-member suppliers of services.

Section 2 briefly addresses some of the “empty boxes” of knowledge and information as far as they are relevant to EC internal and external trade policies in services.

Section 3 summarizes the main findings of a background study on trade in services between the ASEAN countries and three EC Member States, West Germany, France, and the Netherlands (Langhammer 1991).

Section 4 assesses the effects of internal market-induced acceleration of economic growth on EC demand for some services supplied by the ASEAN countries with reference to the example of West Germany and its import demand pattern in the past.

Sections 5-9 focus on possible changes in conditions of market access for services which have a significant bearing on ASEAN: tourism in section 5, aviation in section 6, maritime transport in section 7, financial services in section 8, and some miscellaneous sectors (construction, copyright, health services) in section 9. The conclusion is given in section 10.

Internal Market-Induced Trade in Services with Non-EC Members: Assessment of Effects without Knowledge of Facts

There is hardly any other topic in connection with “operation 1992” which requires the same amount of imaginative foresight as the one which aims at assessing the effects of the internal market on EC Member States' trade in services with third countries.

Introduction

By the end of 1992, the twelve-nation European Community (EC) should have completed the creation of a single European market. While all tariffs among EC members have already been eliminated since the 1960s, non-tariff barriers remain, creating obstacles that prevent the EC from becoming a single entity. Therefore, the EC Commission has developed a White Paper designed to accomplish the goals set forth by the Treaty of Rome.

However, the EC's decision to implement the internal market by 1992 can also be viewed as a direct consequence of trade competition not only with the United States and Japan, but also increasingly with the newly industrializing economies (NIEs) in East Asia.

It is no longer believed that the purpose of the single European market is to establish a “fortress” or to intensify protectionism. Instead, EC 1992 is aimed at increasing internal competitiveness; lowering costs of production; and making use of free-trade advantages such as division of labour, optimal use of resources, and economies of scale. Thus, Europe after 1992 will become the world's biggest market with the world's third-highest purchasing power.

In 1985 the European Commission issued a White Paper containing about 285 measures (later reduced to 279 measures) to abolish all physical, fiscal, and technical barriers towards becoming a single market. The 279 directives specified in the White Paper are designed to create a single trading entity via harmonization and standardization in tax and customs tariffs and all necessary decisions on freedom of movement for the self-employed, workers' rights, the complete liberalization of capital movements, the service sector and transport, and an approximation of laws and administrative rules.

The Single European Act of 1987 also represented a major step towards greater economic integration. The Act laid down the guidelines to improve and ease decision-making procedures.

Although the EC's goal is to achieve a unified market by 1992, the EC is already moving towards implementing its plans.

Introduction

The Treaty of Rome in 1957 set the goal of the common market. Internal tariff barriers were removed in 1968. Efforts to dismantle non-tariff barriers to achieve free trade were hampered by the recession of the 1970s. Faced with the prospect of continuing slow growth and threatened by competition from the dynamic Pacific Rim countries, especially the United States, Japan, and the Asian newly industrializing economies (NIEs), the European countries took the decision to accelerate the completion of the common market. In 1985 the European Commission issued a White Paper spelling out a programme and timetable for the abolition of existing trade barriers, harmonization of regulations and tax structures to achieve by the end of 1992 a fully integrated single market, an economic bloc without internal barriers, that is, with free movement of goods, services, people, and capital. Some 300 directives were put forward by the Commission. In 1986 the Single European Act was passed, coming into force in July 1987 and providing the legal basis for the complete dismantling of barriers by the end of 1992.

Countries outside the European Community (EC) are concerned about the emergence of a “fortress Europe”, notwithstanding the repeated assurances by Commission officials and governments of EC Member States. The fear of an emergent fortress Europe stems from the following: Article 115 of the EC Treaty allows national quotas vis-à-vis third countries in exceptional cases; a fully integrated market means that this exemption clause has to be removed. The concern is that this removal can only be achieved at the expense of higher-than-before protection against third countries. The European Commission is in favour of reciprocity to resolve this problem. It may be counter-argued that, as EC exports to non-member countries still account for some 40 per cent of its total exports, a fortress Europe is not in the EC's own interest either.

This chapter focuses only on the implications of the single market on private investment flows for countries of the Association of Southeast Asian Nations (ASEAN). Other aspects of capital flows, albeit important, are not covered.

Energy is a vital factor which determines the well-being of a society. This is so because the use of energy such as electricity, along with appropriate devices, for example, electric washing machines, permits a person to be many times more productive than when he does not use such energy. Consequently, it is generally presumed that, everything else being the same, the wealth of a society correlates positively with its per capita energy consumption, the higher the consumption the wealthier the society.

Owing to the critical role that energy plays in a country's economy, it is necessary to have a steady, reliable, and reasonably priced energy supply. Any disruption in supply or sharp increase in energy prices causes serious economic dislocations with attendant sufferings of the people, as experiences during the 1970s and early 1980s have shown. For this reason many governments have evolved energy policies designed to protect their societies against the ills engendered by disruption in energy supply or by unpredictable price spirals. Such policies include the management of energy demand, supply, and prices.

When a sharp increase in energy prices occurs, massive wealth transfer takes place, aggravating the country's balance of payment problem and poverty, particularly in a developing country such as the Philippines.

This chapter sketches the energy supply and demand situation in the Philippines during the 1970-88 period with the objective of identifying important problem areas along with the policies that evolved. In particular the problems implied by the aspiration of national leadership to transform the country into a newly industrializing economy (NIE) by the year 2000 are also examined.

ENERGY DEMAND

Under this heading are presented the aggregate energy consumption in the Philippines during the study period, the energy forms that comprised such aggregate, as well as the sectoral or industry source. The breakdown of consumption by economic sector and industry is also addressed. The interaction between energy consumption and the economy is also presented, together with conservation.

The 1980s ushered in what many analysts refer to as the “Pacific Century”. The region is seen as the emerging centre of gravity for the world economy, and even if economic growth slows during the 1990s, there is wide acceptance of the idea that the region will continue to be one of the fastest-growing in the world. The 1980s witnessed spectacular growth rates in the Asian-Pacific region, the rising economic power of Japan, an unprecedented opening of China's economy, the emergence of the “Four Tigers” or the “Little Dragons” (Singapore, South Korea, Taiwan, and Hong Kong), a rapid growth of exports from the region — in short, remarkable economic success and an increase in entrepreneurialism and the free-market philosophy. Even the United States, which historically has been Atlantic-oriented, sat up and took notice.

While the relationship between economic growth and energy consumption is not necessarily absolute, energy is a required input for economic activity and trade. Energy demand growth in the Asian-Pacific region, accordingly, has been rapid. At this point in history, oil and economic growth are so interrelated that changes in one invariably have major repercussions on the other. During the coming decade, continued economic growth is foreseen for the Asian-Pacific region, coupled with the fastest rate of oil-demand growth of any region on earth. Pressure will come to bear on the regional oil and gas markets, since demand growth will take place concurrently with a decline in the availability of local, low-sulphur crudes. The region will become even more dependent on imports of Middle Eastern crude, which will result in a higher-sulphur crude slate. Moreover, we anticipate that the existing and planned refinery complex will lack the capacity and the flexibility to satisfy fully product demand. The consequence will be a higher level of refined product imports.

The problem facing the regional market is one of both quantity and quality. Petroleum product specifications are tightening significantly, due in part to a rising environmental consciousness.

Singapore's industrial development has witnessed a shift from that of an importoriented strategy in the early 1960s to an export-oriented one since it left Malaysia and the possibility of an enlarged common market in 1965. It was eligible for GSP benefits from sixteen countries in 1985, namely, Australia, Austria, Bulgaria, Canada, Czechoslovakia, the EC, Poland, Hungary, Japan, New Zealand, Norway, Finland, the Soviet Union, Sweden, Switzerland, and the United States (see UNCTAD, Handbooks on the schemes of various countries). In 1985, when Singapore's per capita income reached 70 per cent of New Zealand's, the latter removed Singapore from its GSP list. Australia revised its entire GSP scheme and reduced preferential margins to only 5 per cent for all products. Under the EC GSP scheme, only a total of thirty-seven items were of interest to Singapore in 1986.

Table 1 shows the value of total GSP exports to all donor countries since 1972. While it appears to have grown significantly by some forty-six-fold, from S$70.8 million in 1972 to S$3,269.9 million in 1986, as a percentage of total exports from Singapore, GSP exports over the period averaged only 4.6 per cent, ranging from 1.2 per cent in 1972 to 7.2 per cent in 1984. The negative growth rates of GSP exports in 1985 and 1986 reflect the severe depression of 1985.

Table 2 shows GSP exports from Singapore to the United States over the period 1984–88. Exports which are GSP-free formed less than one-third of total exports (GSP-free plus dutiable items) to the United States in 1984 and 1985. This increased to 50.5 per cent in 1986 and over two-thirds (64.1 per cent) in 1988. The average growth rate of GSP exports over the period was 30.4 per cent compared with 18.5 per cent for total exports over the period 1984–88.

On the average, GSP exports accounted for 4.6 per cent of total exports over the period 1972–86 (the average of the last column in Table 1).