Minister Lim Hng Kiang at the 2nd ASEAN Services Forum

OPENING ADDRESS BY MR LIM HNG KIANG, MINISTER FOR TRADE AND INDUSTRY, AT THE SECOND ASEAN SERVICES FORUM “RAISING THE COMPETITIVENESS OF ASEAN SERVICES INDUSTRY”, WEDNESDAY, 9 MAY 2007, 9.00 AM, CARLTON HOTEL “Integration for Competitiveness” 

ASEAN Secretary-General Mr Ong Keng Yong

Distinguished guests

Ladies and Gentlemen

I am delighted to be here this morning to address all of you. It is heartening to see so many of you here today. To our friends from ASEAN and from beyond the region, let me welcome you to Singapore.

Introduction

Services is a vital part of the world economy today, and will increasingly continue to be so. Already by the mid-1990s, services accounted for almost two-thirds of the world GDP, up from about half in the 1980s.Today, the services economy generates the majority of the world’s economic output; it accounts for 50 to 60 per cent of the economic activity in most developing countries; and for some industrialized countries, this figure goes up to over 70%.

Within ASEAN, the situation is no different. Services is a key pillar and it contributes towards a significant proportion of the GDP in ASEAN countries. Current figures show that in general, an ASEAN country generates about 40 to 50 per cent of its GDP from its services sectors. And it is undeniable that this will grow.

Liberalization is important for competitiveness and growth

Given this, it is natural and even obvious that we should place a priority on services in ASEAN, after having accomplished much on goods liberalisation. To-date, tariffs on more than 99 per cent of products under the ASEAN Free Trade Area are already at 0 to 5 per cent for the ASEAN-6 countries. This will become zero in 2010.

The biggest challenge now is services. In order for ASEAN to increase the competitiveness of its services industries, we must give a major push to liberalize our markets. A key milestone we have is the ASEAN Framework Agreement on Services (or AFAS), which was signed in December 1995.AFAS signals a significant commitment by ASEAN Member Countries to substantially eliminate restrictions to trade in services. And under the AFAS, the ASEAN Economic Ministers recently agreed on the roadmap to full services liberalization by 2015, whereby every ASEAN Member Country is committed to liberalize their services sectors in significant but doable tranches every two years until 2015.The Ministers also agreed that there should not be any back loading but a building up of the momentum to services liberalization.

Commitment to the liberalization roadmap for services is fundamental in increasing the efficiency and competitiveness of the ASEAN services industry. A sound, competitive service economy is a key contributing factor to a country’s economic growth. Clearly, no country today can prosper without an efficient services infrastructure that is free from barriers and burdensome restrictions. Our economic performance depends on it. Producers and exporters of goods from edibles to electronics will not be competitive without access to efficient banking, accountancy, telecommunications, or transport. Well-developed systems in such sectors are essential for the smooth functioning of all businesses and industries.

The telecommunications services sector for instance plays a vital role in today’s knowledge-based economy. All cross-border trade in services in fact depends on sound telecommunications infrastructure. In Singapore, we liberalized this sector in April 2000, and since then, we found that it stimulated greater market efficiencies and increased consumer welfare. Consumers now have a greater range of service providers, a wider array of services to choose from, and significantly cheaper services. In fact, the cost of international calls in Singapore has fallen by up to 80% since liberalization in 2000.

A sound services sector that is free from restrictions is also critical for attracting FDI. Foreign businesses would be encouraged to invest and re-invest in an environment where they are able to establish themselves as if they are a local firm in a free market. Liberalising ownership requirements, guaranteeing access to local markets, and easing business operations are therefore important for businesses to flourish. At the same time, domestic industries would be connected to more business partners, markets, and competitive business practices.

For instance, in November last year, Thomson Medical, a Singapore-based healthcare group signed an agreement with the Hanh Phuc International Women and Children Hospital Joint Stock Company to manage one of Vietnam’s first purpose-designed hospitals for women and children. The Thomson group, known for their focus on women and children healthcare in Singapore, will provide management services such as operation management, financial management, and administration and management of policies and procedures for the new Hanh Phuc Hospital. With this collaboration, consumers in Vietnam will have a greater choice of quality healthcare services. The hospital, which is due to be completed in 2009, will be one of Vietnam’s most advanced specialty hospitals for women and children healthcare.

Integration for Competitiveness in ASEAN

Asia today is a region of growth. China is growing at the rate of 8 to 10 per cent every year. India aspires to grow at 7 to 9 per cent per year. ASEAN is growing at 5 to 6 per cent annually – fairly modest and still below our potential. The growth of China and India will spur a hive of economic activity in the region and shift the economic center of gravity to Asia. Asia will therefore be a large and important market this century.

Unless we move decisively, we in ASEAN will be left behind. We must capitalize on our strategic position as a key node in Asia, to link and influence our economic hinterland of China, Northeast Asia and the Pacific. But we cannot do this if we are fragmented. ASEAN economic integration is hence key.

Market forces and increased competition in the region and wider global community also necessitate regional economic integration in a more decisive manner. A typical MNC intending to serve the regional market will look for the ideal location for its production base based on cost efficient measures and economies of scale. A country like China or India for example, would have a competitive edge, as they offer a huge domestic market, free movement of goods and services from one province to the other, and lower production cost. But ASEAN too can become such a choice location. For this, economic integration is imperative, and not an option.

This is not difficult, neither is it new. We have had many years of regional cooperation and have established strong bonds and a common understanding. Even so, services is a different animal – there may be concerns on the increased competition to domestic businesses and the lack of regulatory capacity to manage the presence of foreign industries. Good policy making in services is therefore critical. Yes, there will be necessary changes in our regulatory frameworks and differing levels of licensing and supervision required. With these challenges before us, should we give up?

Certainly not. It is important to remain committed to integration and the liberalization of services. They go hand in hand. Whether we like it or not, the fact remains that our economies do not work in isolation. We are all interlinked in the globalized economy today, and even more so within Southeast Asia. Our Leaders, in the Bali Concord II declaration envisioned an ASEAN Economic Community (or AEC), in which ASEAN would be a single market and production base with the free flow of goods, services, investment and skilled labor, and a freer flow of capital.

In our work towards the AEC, we must remember that economic integration is not an end in itself. It is an instrument for enhancing competitiveness, and this is necessary for sustained economic growth. Our common goal should therefore be to have an ambitious outcome to an AEC that is robust and competitive, with rules that are strong and fair, offering a win-win deal for every ASEAN country.

Conclusion

Let me conclude. It is clear that ASEAN offers opportunities for strong growth, especially in terms of services. And we need to win a competitive edge to stay in the game of global competition and integrated markets. With economic integration, businesses would be able to view ASEAN as a single market and production base, in which the flow of goods and services would be smooth and unfettered. That way, ASEAN can develop an efficient, competitive services economy that can stand against global competitors.

We have had a long history of regional cooperation, and I am confident that we can rise to the challenge. In this respect, Singapore is honored to host this services forum. We hope the sessions over the next two days will contribute towards fostering a closer link between government, businesses, and stakeholders in the ASEAN services industry. I wish you a very pleasant and fruitful forum ahead. Thank you.