Statement of Ernest Z. Bower--free trade, unilateral and economic trade sanctions

Statement of Ernest Z. Bower
President of the U.S.-ASEAN Business Council

before the
Subcommittee on U.S. Senate Foreign Relations Committee
Subcommittee on East Asian And Pacific Affairs
February 26, 1998

Mr. Chairman, thank you for the opportunity to testify before your Subcommittee. My name is Ernest Bower, and I am President of the U.S.-ASEAN Business Council, a private, non-profit organization which works to expand trade and investment between the U.S. and the member countries of the Association of South East Asian Nations (ASEAN). On behalf of the more than 350 companies and state governments the Council represents, I would like to commend you for taking this opportunity, when so much attention is focused on our relationship with the world beyond our border, to take a closer look at the real impact of unilateral sanctions. This hearing could not be more timely.
Over the last few years, several members of ASEAN -- Burma, Indonesia, Thailand, and Malaysia -- have faced punitive unilateral measures designed to exact domestic policy changes within their countries. The US business community, as you know, has fought the imposition of sanctions against these countries vigorously. But as hard as we have worked in the past to opposes sanctions, the financial crisis in Asia requires us to redouble our efforts. The crisis requires us to embrace engagement all the more energetically. This means refraining from additional sanctions, and intensifying our involvement in efforts not directly related to the bottom-line, but perhaps most importantly, it means approving the $18 billion US obligation to the IMF.
The level of economic dislocation, instability, and uncertainty today in Southeast Asia is unprecedented in its modern history. Since July 2 last year, when the Bank of Thailand announced a managed float of the Baht, much of the region has fallen on very difficult times. Indonesia, the worst hit of the Southeast Asian economies, first appealed for international assistance when its national currency, the Rupiah, reached a level around 4000 to the dollar. The Rupiah has since plummeted to as low a level as 17,000 to the dollar. After three decades of 7% economic growth, Indonesia's GDP this year is widely expected to shrink, and next year it is expected to grow as little as 2%. This in a country that must maintain 6% growth just to keep pace with an estimated 2.3 million people entering its work force every year. Inflation this year in Indonesia is expected to soar 20% and in some places, prices have already exceeded these expectations.
In isolated instances, staples have become scarce. After an epic climb out of poverty, Indonesia is again faced with the fundamental task feeding its people. The rest of the region also faces a difficult couple of years.
Thailand's currency has lost more than 40% of its value. Like Indonesia, its economy is forecast to shrink next year. Even the Philippines and Malaysia, which have fared better than most, have seen their currencies lose more than 30% of their value. Neither nation, I am very sorry to say, is beyond the reach of the economic "contagion."
Compounding the challenges this situation poses for American policy makers, the region remains bitter over what it perceives as initial U.S. indifference to its plight. Leaders in the Administration have made a very plausible argument for why the U.S. was not able to offer more vigorous support earlier. I have no reason to doubt them, and I commend them for the steps they have taken since to make up for lost time. However, having just returned from Southeast Asia, I will tell you that I heard complaints about American indifference at every turn.
The crisis in Asia underscores like no other development since the Persian Gulf War, the need for engagement. And sanctions, despite all of the high-flown moral rhetoric -- and I what I am sure are good intentions -- is a strategy of disengagement. They result in "collateral damage" to American national interests with no prospect of hitting their political targets. A reliance on them, in the end, amounts to policy makers washing their hands of difficult problems and removing the unrivaled positive influence of U.S. corporate culture.
For their part, American businesses are doing everything in their power to remain engaged in Southeast Asia. My recent visit to the region was at the head of a 12 member business delegation. I want to report that American business is facing a great challenge, for while Southeast Asia is looking to the United States for leadership and support, they have been receiving mixed signals.
We have an historic opportunity to increase our presence in the region, Asian officials and chief executives were very straightforward in telling me that they need American companies to participate in the microeconomic (or transactional) aspects of their recovery by injecting management expertise, capital, and technology to enhance productivity into their economies. Parochially speaking, this is an outstanding opportunity for us to reestablish ourselves as long term, consistent partners in the region and to build our marketshare. To do so, we must provide leadership in helping the ASEAN countries return to economic health.
We will fail to realize this opportunity if we do not act, and communicate our commitment to the region. We are facing a real threat to our long term interests in the form of a political sentiment that blames the United States for not doing enough to help the region (e.g. sitting out the Thai IMF package), and rightly or wrongly identifying the U.S. as the hand in the glove of the austerity measures being prescribed by the IMF.
Everytime I visit Southeast Asia -- and this time was no exception -- colleagues there extoll the virtues of American business. In Indonesia, I was told directly by the Vice Chairman of the Human Rights Commission that American companies are by far the most positive foreign influence on worker rights in his country. The US is also renowned in Southeast Asia for its training and technology transfer -- an honor our biggest competitor in the region -- Japan -- most assuredly does not share.
I have made the case to this Subcommittee before that American companies do more for human rights in Southeast Asia through their very presence than any foreign government or organization might achieve through coercion or overt pressure. We are decidedly constructive members of these national societies. When we invest there, we help promote our values by setting a positive example and providing fair, safe working conditions and health and education benefits. Sanctions undercut the best of these influences.
Last year, the US-ASEAN Business Council conducted a survey of its members to better understand the constructive role US companies play in one of the ASEAN nations -- Indonesia. We found American companies extraordinarily progressive in areas from human resource development and employee welfare to small and medium sized enterprise development.
Our companies in Indonesia offer training programs for staff at all levels, and often provide even their lowest paid Indonesian workers more than the Indonesian minimum wage. An example of American corporate culture at its best, Lucent Technologies provides its Indonesian workers with the following benefits package: Full medical leave, including hospitalization; a pension plan; transportation serve and allowance; housing and car allowances for higher level manages, and daily lunch. We are in the process of undertaking similar surveys of the other ASEAN countries, and I have no doubt that we will find more of the same exemplary business practices.
I ask that the Council's report on business practices in Indonesia be entered as a part of today's record. I would also ask that a paper done by the Commission for Justice and Peace on the Yadana Project in Burma be included in the record. It makes a similar case for the positive influence of U.S. corporate presence.
The financial crisis has made the ASEAN countries more eager than ever for American engagement. It is important we not respond to their pleas with sanctions. American companies are themselves stepping up to the plate to intensify their involvement. The Council is working with a number of other private, non-profit institutions to develop programs in the areas of medical care, human resources development and assistance for the best and brightest of ASEAN to stay in US schools.
There are more direct US interests in engaging the nations of ASEAN. As much as American companies do to promote better lives for their hosts, they are in these countries principally to make money.
Engagement positions American companies for the long-term. The economies of Southeast Asia are down, but they are not out. In the next two to three years, they will be coming back on-line. When prosperity and opportunity returns, their people, both private sector and government, will remember who was with them during the most trying times of their careers. They will remember the nations that sought to cushion their falls and rallied support for their recovery. And they will remember those who stood by and watched as the dreams of generations balanced on the edge of collapse.
Even during normal times, the best efforts of American businesses to remain engaged are undermined by proposals for unilateral sanctions. They are not only undermined when the law prevents them from commercial transactions with the proscribed country. I know of numerous instances where American companies have been expressly denied opportunities because a sanction bill that passes Congress -- or is simply proposed -- is taken as an insult.
Think carefully about this for a second. An American company spends invaluable time cultivating relationships. It spends its hard-earned resources pursuing a business opportunity that will generate jobs here at home. And because a group of special interests are determined to grind an axe without proper consideration to the effect of their rhetoric or policy prescriptions, the opportunity is lost.... Well, it is not completely lost. The project still generates profits and jobs, but they go to the our pragmatic competitors in Europe, Japan and increasingly, those from China. I can think of no sector where the United States is the sole international supplier of goods and services, or where its edge is so great that a sovereign nation will bow to the political dictates of the U.S. government in order to acquire it.
As I implied at the outset of my testimony, refraining from sanctions and intensifying US corporate involvement is only part of an effective engagement strategy. The U.S. government must itself make a commitment to positive engagement. There is no better way that Congress can demonstrate the U.S. commitment than by providing the resources needed by the IMF. I encourage Congress to unconditionally approve the President's request for $3.5 billion for the New Arrangements to Borrow and $14.5 billion for IMF replenishment.
If we fail to provide the IMF with the resources it needs to deter future crises, we could win the battle against sanctions, but lose the war. Opposition to sanctions amounts to taking a stand against disengagement and isolationism. But if we do not step into the breach by supporting the IMF at this crucial time, other policy fights may be wasted energy. An economic collapse in Southeast Asia, or elsewhere for that matter, will greatly reduce our policy options.
I would also like to comment on three common misperceptions the correction of which should help make approval for the IMF easier. First, it is not right to oppose the IMF programs for Asia as "bail-outs." The IMF is providing loans to these countries to allow time for their economic reforms to take effect. In time, it is these reforms that will restore market confidence and encourage a return to robust prosperity. It is also wrong in that it suggests an act of charity, when in fact, the IMF is acting in the interest of international economic stability. It thereby acts in the US interest.
Second, no U.S. taxpayer money will used. The budgetary impact of funding for the IMF is zero. And yet, our contribution is leveraged six-to-one by other contributors. For a total cost of zero, meeting our commitments to the IMF puts the US in a position to open markets to unprecedented degrees.
American businesses and the workers they employ have too much at stake in Southeast Asian prosperity to risk its recovery. I have talked about US investment in ASEAN. I would be remiss not to also point out that last year, US exports to ASEAN supported almost 700,000 U.S. jobs. Of those, 170,000 are dependent on the countries -- Thailand and Indonesia -- where the IMF is most active. Although exports are certain to slow considerably this year, in 1997, ASEAN was the fastest growing of US export markets in Asia, expanding at a rate of 11 percent over the previous year.
I would like to conclude my statement by pointing out that despite the current situation in Southeast Asia, the long-term prospects of region have not much changed. Soon after the year 2010, the member states of the Association of Southeast Asian Nations will have a population of 560 million, a trillion dollar GDP and two-way trade with the U.S. of more than $300 billion per year.
We have a choice between two basic policies. Engagement will position American companies and workers to realize these benefits even as it exposes these nations to the best our own nation has to offer. Disengagement -- a policy built around sanctions -- will guarantee that these future benefits go to others. And while doing nothing to promote the socio-political changes it seeks, such a policy will remove the most positive socio-political force available to us -- the dynamic and positive influence of American corporate culture.

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