TEXT: COMMERCE'S AARON 9/15 REMARKS TO MANILA AMCHAM
("Globalization is alive and well")

Manila -- Under Secretary of Commerce David Aaron said the current financial crisis is a global problem that affects the United States, but it does not mean the end of globalization.

In remarks to the American Chamber of Commerce in Manila September 15, Aaron said: "I want to emphasize that globalization is not just about global capital flows, it is also about global trade, global transportation, global telecommunications and global exchange of culture. ... Globalization is alive and well, and those countries who seize its opportunities and heed its disciplines will recover the fastest. Why? Because there is no alternative."

Aaron praised the Philippines for doing a good job at a difficult time and stressed the United States will continue to work together in the future. The United States is the Philippines' largest investor, Aaron said. "American companies are committed to being an integral part of the Philippines' future," he said, "and are hoping to be a part of their recovery."

According to Aaron, there are four priority areas of cooperation for the near future:

Aaron also said Japan must be the catalyst for renewed growth in Asia. "Because Japan is the world's second largest economy," he said, "the region cannot regain its economic health without Japan."

Following is the official text of Aaron's remarks, as prepared for delivery:

(begin text)

Prepared Remarks of U.S. Under Secretary for International Trade
Ambassador David L. Aaron
American Chamber of Commerce
Manila, Philippines
September 15th, 1998

A Long Term Partnership

Introduction

Thank you, Carlos, for that kind introduction, and thank you to the American Chamber of Commerce in Manila for hosting this event. It is a pleasure to be here in the Philippines.

I came to Southeast Asia to lead a high tech business trade mission through the region. This morning on TV I was asked why are we here during this time of turmoil and economic difficulties? I answered that this is exactly why we are here -- to show the Philippine people that we are not just fair weather business partners. We are here during El Nino, El Nina and everything in between. Our futures are intertwined and the U.S. is committed to doing business with the Philippines for the long term.

The United States is the Philippines' top export market and second largest trading partner. The Philippines is, in turn, one of our largest export market, ahead of Spain and Argentina. We believe the Philippines has a great future, and we want to be a part of it.

But our relationship is not just about trade. I remember my last visit to the Philippines, twenty years ago. I was traveling with then Vice President Mondale and we spent an afternoon on Corregidor Island where both our countries fought hand in hand in a heroic effort to save the Island and your country. The United States and the Philippines' partnership is engraved in our common history and suffering.

My message was welcomed by President Estrada during our meeting yesterday. I in turn congratulated him on his leadership and on his administration's continued commitment to liberalization, reform and privatization. President Estrada's forth right rejection of exchange controls is especially important during these difficult times. These actions will create a positive business environment which will help your companies in the Philippines, and set an example for the region in its effort to recover from the current crisis.

Boom and Bust

East Asia's economic growth over the last several decades was remarkable. Between 1965 and 1990, East Asia grew faster than any other region of the world. This growth was fueled by several elements: substantial flows of foreign direct investment, high domestic savings rates, an increasingly well trained work force, and a business friendly environment. The Philippines came late to the process but over the last six years it has started making up for lost time with open markets, liberalization and deregulation. In fact, US Philippine bilateral trade tripled between 1992 and 1997.

The United States played an important role in that economic boom. Our companies and investors provided the region with needed foreign investment, technology and know-how. We helped build factories, roads and communication systems. More importantly, we provided South East Asia, including the Philippines, with the largest market in world for its exports. For decades, both sides profited from this mutually beneficial partnership.

But as they say on Wall Street, trees do not grow to the moon. A little over a year ago, Thailand devalued its currency, igniting a financial firestorm across Asia. Today, the region remains far from recovery although the Philippines seems to weathering the crisis better than others. This is due to the reforms it has already undertaken and, in particular, to its well regulated banking system. The most recent IMF estimates show a 1.5% GNP growth for this year and a 3.5% GDP growth for next year. In the first seven months of the year the Philippines exports were up 19.3%.

The crisis has also had an impact on the United States. Our exports, after years of substantial growth, were up only one percent in the first six months of this year. Exports to Asia were down over thirty percent, while exports to the rest of the world were up seven percent. Since roughly one third of our economic growth over the past several years has been fueled by exports, this decline will affect our overall economic performance.

Recovery

There is no doubt that the region will recover. The fundamental sources of growth have not changed. But recovery will not be easy. It will require a serious, sustained, commitment to trade liberalization and structural reform. As we have seen good times can make for bad policy. Conversely, bad times can make for good policy.

But countries must be careful in their actions. At a time when many nations throughout Asia are in need of capital to help in the restructuring of their economies, measures that make countries less attractive to foreign investors are likely to carry a significant cost.

Following Malaysia's imposition of exchange controls which itself followed a sharp fall in global markets, many editorialists and pundits pronounced the death of globalization. Not only is such an analysis wrong but it also exposes a profound misunderstanding of what happened and what is needed for recovery.

In answering the pundits, I want to emphasize that globalization is not just about global capital flows, it is also about global trade, global transportation, global telecommunications and global exchange of culture. Globalization is you, the men and women in this audience. Globalization is alive and well, and those countries who seize its opportunities and heed its disciplines will recover the fastest. Why? Because there is no alternative.

We have already learned that the supposed alternatives -- exchange controls, import substitution and state management -- do not work. Indeed failures of countries to rid themselves of residual aspects of these policies played an important role in the initial collapse of Asian economies. State directed lending, for example, was the principal cause of the crisis. Non-performing loans caught up with Asian economies and precipitated their downfall.

This crisis is a classical case of 'boom and bust.' Capitalism is a system of profit ant loses. And, this is exactly why capitalism works -- it punishes bad decisions.

Unfortunately it also punishes those that are the least responsible and the least able to protect themselves. And it can feed on itself. These are the real issues governments need to address. But failed nostrums of the past arc not the answer. The bottom line is that those who stick with reform programs will come out of the crisis ahead of the competition.

Four Priority Areas

The Philippines is doing a good job at a difficult time. President Estrada assured me that his country will continue down the path of liberalization and market opening. But I believe there are also things we can do together. Let me mention four. First, we cane push for a trade agreement at the November APEC Summit. Second, we can work towards the completion of negotiations on expanding the first Information Technology Agreement or ITA. Third, we need to address the Y2K problem. And finally, we need to develop a favorable environment for e-commerce to flourish throughout Asia.

The Philippines did a tremendous job as APEC chair two years ago and committed itself to increasing trade liberalization within the region. Now, we are looking to build on past APEC accomplishments by developing a new trade agreement that will advance trade liberalization and help counter the pressures of protectionism. This effort is called EVSL -- Early Voluntary Sectoral Liberalization.

The aim of this effort is to eliminate or reduce tariffs, address non-tariff barriers and develop economic and technical cooperation programs. Successful conclusion of APEC's EVSL initiative is essential as a confidence building signal to financial markets and-to sustain APEC's own credibility in this time of crisis. I received encouraging news yesterday from our delegation in Kuatan where an APEC senior officials meeting took place over the weekend. They reported good progress in the negotiations.

As with the original ITA, APEC leadership is necessary to finalize ITA 2 negotiations. This agreement would lower tariffs and increase market access for electrical and information technology equipment in 44 countries. As economies in the region continue to make critical structural adjustments, access to the most advanced, lowest cost IT products and technologies is essential. This is especially true for the Philippines as inexpensive IT products would enable the country to capitalize on its well trained, educated work force.

A significant number of entrepreneurs, especially small and medium sized enterprises, have not begun to address the Y2K problem. It is particularly important that Asian companies become Y2K compliant. It would be devastating if companies and countries just recovering from a financial crisis were to find themselves suddenly hit by unforeseen consequences of the millennium bug. The creation of a Y2K clearing house in the Philippines is a first step in the right direction.

Finally, electronic commerce can play an important role in helping to lift Asia out of this crisis. APEC economies already have 40 percent of the world's Internet users, a percentage that is expected to increase over the next decade. Asian governments need to give the private sector a positive environment to enable electronic commerce to firmly take root.

We believe the underlying principle behind the facilitation of e-commerce is private sector leadership and market driven outcomes. The Philippines must ensure that the pending e-commerce legislation is passed by the Congress in the coming months. These bills would start to address the important issues of electronic signature, electronics documentation and electronic contracts.

Reform, e-commerce and Y2K will all be important factors in this country's and this region's eventual recovery. But the Philippines, or any other nation in Asia, cannot recover by itself. This is why President Clinton announced yesterday a five-part strategy to help struggling economies deal with the world financial crisis.

Presidential Initiative

First, the President committed to intensifying America's effort to speed up economic recovery by helping Asian corporations emerge from massive debt overhang.

Second, he urged assistance for families in afflicted economies by calling on the World Bank and the ADB to double their aid through a Social Compact Initiative.

Third, the President called on leading nations to stand ready to activate $15 billion in the emergency fund of the IMF to respond immediately if the currency crisis continues. Fourth, he urged our Congress to meet, without delay, our own obligation to the IMF.

Finally, President Clinton asked leading economies to face up to their responsibilities for stimulating growth and recovery. The President said that America will maintain the fiscal discipline that has fueled job growth and investment. He called on Europe to keep its markets open and pursue policies that spur growth. But the President focused his appeal particularly on Japan which needs to be the catalyst for renewed growth in Asia.

Because Japan is the world's second largest economy and the largest by far in Asia, -- about 70% of Asian GDP is generated in Japan -- the region cannot regain its economic health without Japan. The Philippines have been especially hard hit by Japan's recession. In the first six months of this year 60% of the Philippines overall deficit was with Japan. This compares with 30% in 1997.

For many months U.S. officials -- including most recently the President -- have been urging Japan to take significant steps to fix its banking system, re-energize its domestic demand, and deregulate and open its markets. Quick action is imperative if the economic fundamentals are to change and the pervasive negative psychology gripping markets in Asia and around the world is to be reversed.

Conclusion

When looking at the Asian crisis, it is very important to step back for a moment and remember that the countries in the region have had decades of strong growth based on great underlying strengths. Over time, by addressing their problems, these countries will once again be able to draw on those strengths and attract increased foreign investment.

The United States is the Philippines largest investor -- over the years, American firms have invested about $3 billion here. As you remember, American investors responded to the opening of the Philippines' power sector during the 1993 power blackout crisis. Today, American firms are still the largest foreign investors in the energy sector. Two other American firms, Texas Instruments and Intel, are, by far, this country's leading exporters. Our companies established in the Philippines represent the best that America has to offer, both in technology and in managerial know-how.

As you can see from the number of impressive business representatives on my mission, American companies are committed to being an integral part of the Philippines' future. Companies large and small, such as those on my delegation -- environmental technology SMEs and telecommunication multinationals -are here to find customers, partners, and opportunities, hoping to be a part of the recovery.

Over a half century ago, in a much more dire time, a famous American said of the Philippines "I shall return". Today, in the midst of the current economic crisis, I am here to tell you that "we shall remain." Thank you.

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