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compete in other markets, notably in Asia and Latin America. What has been lacking is a policy framework to encourage business to look beyond the US. Canada is lagging in taking advantage of the new openness that globalization has brought to Asia. Our focus, both at a government and industry level, has been on developing trade rather than seeking out investment. While Canadian business has seized the significant investment opportunities offered by removal of barriers under NAFTA, it shows little interest in taking a stake in the transborder manufacturing network that has developed rapidly in Asia in the past decade. After the surge in interest in the late 1980s, our investment in Asia slowed drastically several years before the Asian crisis hit. 14 One obstacle to diversification has been the relative difficulty faced by Canadian business in raising capital in Canada for investment outside the familiar environment of North America. Most of Canada’s chartered banks, for all their assertions about seeking international stature, have been hesitant about expansion in Asia. In fact, the Asian crisis saw the Royal Bank close half of its offices in Asia (although the much smaller Bank of Nova Scotia increased its commitment to Asia with new ventures in Japan and Sri Lanka). Of course, all the world’s leading banks have operations in Asia and are able to fund investments there by Canadian companies. However, the Canadian banks’ thin network means they are not building up the level of expertise that would enable them to fully support the growth of Canadian investment in Asia. Lack of information breeds caution, already a hallmark of Canadian business. The banks risk missing out on the rapid growth in financial services that will come with the deregulation of markets in most Asian countries. based on the ability to move funds rapidly. Daily foreign exchange transactions in 1973 ranged between US $10-20 billion, mostly related to trade transactions. 3 By April 1998 they had reached US $1.5 trillion a day, 4 with only a tiny fraction of this volume related to trade. One of the most significant impacts of the globalization of capital markets is on private investment. In the 1990s nearly US $1.3 trillion in private capital flowed to the emerging market economies, compared with US $170 billion in the previous decade. 5 However, in the wake of the Asian currency contagion of 1997, many observers point to the risks inherent in such an inflow of foreign capital — it became apparent that the capital can be withdrawn with just as much speed as it can be invested. While the processes of funds transfer were improving so rapidly, there was no corresponding “globalization” of capital markets’ regulatory framework — something the Canadian-led Group of 20 is now reviewing. The technological advances supporting globalization came during a period when the ideology underpinning international commerce was also undergoing fundamental change. The world that emerged from the Great Depression and World War II accepted the need for cooperative action to maintain the health of the global economy and to undo the legacy of protectionist measures which remained in place from pre-war years. The “provisional” General Agreement on Tariffs and Trade (GATT), launched in January 1948, set some initial rules for international trade. Since then, there have been 12 negotiating rounds of the GATT, culminating in the Uruguay Round in 1986-94 and the formation of the World Trade Organization (WTO). These rounds have led to progressively deeper tariff cuts and the introduction of a variety of rules and agreements covering everything from anti-dumping measures to the protection of intellectual property. Since the formation of GATT, world trade has experienced an unprecedented growth. GATT, then the WTO, provided a framework in which technological advances could be harnessed to trade. Underlying this was the ideology of the market economy, which is the
The largest pool of investable Canadian funds, the more than $1.3 trillion held in various retirement savings schemes for Canadian workers, are mostly unavailable to support Canadian investment in Asia. 3 Under the foreign property rule of the Income Tax Act, no more than 25% (rising to 30% in 2001) of funds held in tax-deferred pension savings vehicles can be invested in foreign assets, and few institutions look beyond the US in placing funds offshore. One small, though notable, exception to this is the investment by Quebec’s Caisse de dépôt et placement du Québec of $200 million, jointly with the Asian Development Bank, in an Asian Infrastructure Fund to take advantage of the estimated US $10 trillion 4 of very long-term funding needed to support infrastructure development in Asia over the next 30 years. However, this is far from a typical strategy for a Canadian institution. Economists Joel Fried and Ron Wirick have argued in a recent C.D. Howe Institute study 5 that the restriction on foreign investment has depressed the return to Canadians on their retirement savings by up to $4 billion a year. It has also deprived Canadian companies of access to funds that could support greater investment in Asia. Canada’s restriction on pension fund investment bucks a trend elsewhere in the world where foreign holdings by pension funds are rising rapidly. Figures quoted by Fried and Wirick show that foreign assets as a proportion of world pension assets rose from 8.2% in 1992 to 13.2% in 1997 and are projected to climb to 16.7% by 2002. 15 Policies involving such things as the pension savings of Canadians may appear to be entirely domestic in their focus. However, the globalization of financial markets means that in an open economy such as ours, all major financial policies will have an impact on our international position. In this case, relaxation or removal of the restriction on pension fund investment would likely boost Canadian corporate investment offshore. The increased force driving trade liberalization. This movement gained an added boost at the end of the 1980s with the collapse of the communist bloc and the adoption of “market-driven” economies by its former members. China’s pending membership of WTO will mark the end of any significant international trade outside the rules of this body. With China a member, 136 countries out of the 188 that are members of the United Nations will be parties to WTO. A further development driving globalization, especially in Asia, was the doubling in the value of the yen as a result of the 1985 Plaza Accord reached between major trading nations. To maintain its export competitiveness, Japanese industry invested massively in Southeast Asia, building offshore plants to supply not only third-country markets, but its domestic market as well. This huge inflow of Japanese capital encouraged the development of a network of industries straddling borders, and producing Japanese products bearing “Made in Thailand” or “Made in Malaysia” labels, and assembled from parts made in two or three neighbouring countries. While globalization has had a marked impact on economic efficiency worldwide, many people charge that this comes at the price of a weakening of national sovereignty, and that countries have to yield effective control over some areas of domestic policy if they wish to remain competitive in the global economy. In some areas this is clearly true, and it is explicit. For example, governments that opt to join the WTO have an obligation to adhere to its restrictions on supporting certain industries. However, the loss of freedom of action tends to be in areas that impinge on economic efficiency. Governments that join WTO believe there is a net gain to them and their people if they accept a greater market discipline. China, a country jealous of its sovereignty and powerful enough to set its own rules, faced up to this choice. It decided that the benefits of WTO membership justified the loss of sovereignty
Page 1 and 2: asia pacific foundation of canada 1
Page 3 and 4: ○ ○ ○ ○ ○ ○ ○ ○ ○
Page 5 and 6: October 2000, we will hold the firs
Page 7 and 8: OVERVIEW 1 asia in convalescence 7
Page 9 and 10: ○ ○ ○ ○ ○ ○ ○ ○ ○
Page 11 and 12: GRADE ‘98 Inward Investment C- In
Page 13: THE CHALLENGE OF GLOBALIZATION Unde
Page 17 and 18: enabled Canada to take a stronger r
Page 19 and 20: emoval. However, most of the change
Page 21 and 22: MAJOR EVENTS 2 a year in review 21
Page 23 and 24: stock markets were climbing. As the
Page 25 and 26: six-fold in Thailand. With the exce
Page 27 and 28: the past played a very small role i
Page 29 and 30: it had allowed in recent years. A m
Page 31 and 32: SECURITY BACKTRACK While economic c
Page 33 and 34: Outbreaks of violence in other part
Page 35 and 36: ECONOMIC RELATIONS 3 looking for a
Page 37 and 38: TODAY’S DELAY IS TOMORROW’S LOS
Page 39 and 40: ○ ○ ○ ○ ○ ○ ○ ○ ○
Page 41 and 42: to achieve operating efficiencies t
Page 43 and 44: Finally, foreign investment by Cana
Page 45 and 46: NORTH AMERICAN INTEGRATION 4 too mu
Page 47 and 48: similar to that with the US with on
Page 49 and 50: British Columbia provides a recent
Page 51 and 52: part of US-assembled goods bound fo
Page 53 and 54: ASIAN EXPERTISE 5 hidden advantage
Page 55 and 56: cautioned that “not every Asian C
Page 57 and 58: usiness skills to enhance Canada-As
Page 59 and 60: 6 DEVELOPMENT ASSISTANCE ODA for a
Page 61 and 62: the term “development assistance
Page 63 and 64: The report emphasizes the need to
Page 65 and 66:
ASIA PACIFIC FOUNDATION OF CANADA 7
Page 67 and 68:
CANADIAN EDUCATION CENTRE NETWORK T
Page 69 and 70:
NOTES CHAPTER 1 1. Based on markets
Page 71 and 72:
NOTES 5. Research by Tamim Bayoumi
Page 73 and 74:
REFERENCES —. Statistics Canada.
Page 75 and 76:
REFERENCES United Nations Conferenc
Page 77 and 78:
STATISTICAL APPENDIX ASIAN MOTHER T
Page 79:
STATISTICAL APPENDIX CANADA’S TRA
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