Unlike poor, defenseless Philippine teenagers, foreign investors have successfully avoided Duterte's Philippines.

Philippine strongman Rodrigo Duterte has elicited international condemnation over his bloody drug war,  whose most visible result are thousands of deaths among poor Filipinos unfortunate enough to live in open areas targeted for anti-drug operations. While primarily a security issue, there are also apparent economic consequences for Duterte's "reign of terror" (as the Catholic Church describes it) being waged on the civilian population as foreign direct investment dries up.

In fact, foreign direct investment [FDI] pledges have fallen for the four consecutive quarters Dutertet has been in power.

Investment pledges made by foreign firms slid 55 percent year-on-year to P18.2 billion in the second quarter, the fourth straight quarter that commitments dropped. In a report Friday, the Philippine Statistics Authority (PSA) said foreign investments approved by seven investment promotion agencies (IPAs) from April to June declined from P40.4 billion in the same three-month period last year.

As of the end of the first six months, IPA-approved foreign investments totaled P41 billion, down 38.4 percent from P66.6 billion a year ago. To recall, foreign investment pledges fell 12.8 percent year-on-year to P22.9 billion in the first quarter. Also, approved foreign investments declined 9.3 percent year-on-year to P125.7 billion in the fourth quarter of last year after commitments dropped by a faster 45 percent to P26.7 billion in the third quarter of 2016. It meant that foreign investors’ pledges decreased in the first four quarters of the Duterte administration.

In brief, what we have here is a political risk issue. Would-be foreign investors fear for their safety in a country where a Korean businessperson has been falsely accused of involvement in the drug trade and killed inside of police headquarters in a kidnap-for-ransom scheme. There's also the problem of possible losses of market access. First, the European Union is evaluating whether to continue preferential trade access to the EU under its Generalized System of Preferences Plus (GSP+). Under GSP+, duty-free rates can be availed if participating countries meet various conventions, of which those concerning human rights are coming under scrutiny:

The Philippines was granted beneficiary country status under the EU-GSP+ in December 2014, allowing the country to export 6,274 eligible products duty-free to the EU market. The alleged cases of extrajudicial killings as part of President Duterte’s drug war, however, has put at risk the country’s GSP+ privileges.

The beneficiary status under the GSP+ necessitates the implementation of the 27 international treaties and conventions on human rights, labor rights, environment and governance. Results of the latest review are expected to come out this year.

Following the EU's lead, others are encouraging fellow democracies to impose economic sanctions on the Philippines to discourage Duterte's violence against his own people. As you would expect, Philippine investment authorities are up in arms:

Trade and Industry Secretary Ramon Lopez on Tuesday hit The New York Times (NYT) for urging the international community, in an editorial, to impose trade sanctions against the Philippines for extrajudicial killings under the Duterte administration's campaign on illegal drugs.

"The editorial by The New York Times last March 24, calling for trade sanctions against the Philippines, is baseless and unfair," Lopez said in a statement. "Any form of trade sanction against the Philippines is uncalled for, unfounded and undeserved," the Trade chief emphasized.

In an editorial, titled "Accountability for Duterte," the American daily urged foreign governments to "hit" President Rodrigo Duterte "where it may hurt the most" – trade – in a bid to hold the Philippine leader accountable over the alleged killings in his "deadly" war on illegal drugs.

It's a cliche to say that businesspersons appreciate the lack of uncertainty, but with Duterte in charge of the Philippines, let's say no one is rushing to make investments in a country that's becoming increasingly isolated due to human rights concerns when there are so many far more predictable places to invest.

Over the weekend, Chinese President Xi Jinping hosted an elaborate event in Beijing concerning the PRC's idea of reviving the historical Silk Road. Spanning much of Asia and the Middle East besides, this trade route epitomized many of the things China wants to be today: (1) at the center of world trade, (2) involved in infrastructure, and (3) a prime mover of international relations. This, of course, stands in contrast to the retrograde "America First" stylings of the racist-protectionist-isolationist American president, Donald Trump.

Some hackles were raised about the invitation being extended to North Korea, of all nations, but certainly we'd rather have it peacefully trading with the rest of us than firing missiles to draw attention to itself?

More to the point, though, how realistic is this plan? A few months ago, an op-ed appeared in the Hong Kong-based South China Morning Post (usually a Communist Party-friendly outlet) placing the "One Belt, One Road" project's viability in question by way of Japan's example from only a few years back of doing something similar: using infrastructural might to extend not only diplomacy but also trade with its neighbors:

Facing a deep slowdown after years of investment-fuelled growth that culminated in a huge property and stock market bubble, the leaders of Asia’s largest economy [China] come up with a cunning plan. By launching an initiative to fund and construct infrastructure projects across Asia, they will kill four birds with one stone.

They will generate enough demand abroad to keep their excess steel mills, cement plants and construction companies in business, so preserving jobs at home. They will tie neighbouring countries more closely into their own economic orbit, so enhancing both their hard and soft power around the region. They will further their long term plan to promote their own currency as an international alternative to the US dollar. And to finance it all, they will set up a new multi-lateral infrastructure bank, which will undermine the influence of the existing Washington-based institutions, with all their tedious insistence on transparency and best practice, by making more “culturally sensitive” soft loans. The result will be the regional hegemony they regard as their right as Asia’s leading economic and political power.

However, the author Tom Holland delivers the punch line that, actually, the Japanese tried all this stuff before and failed:

[I]t’s actually a description of a strikingly similar plan rolled out by Japanese prime minister Keizo Obuchi in the 1990s. That too promised to provide work for Japan’s recession-hit construction sector by building Japanese-funded infrastructure projects around Asia. And it even included a proposal – never realised – to establish an Asian Monetary Fund to lend to regional governments on easier terms than either the IMF or World Bank.
Unfortunately for Beijing, the precedent is hardly encouraging. From the start the scheme was plagued by bickering over conditions and allegations of corruption. A handful of infrastructure projects did get built, but the reality fell woefully short of Tokyo’s grandiose dreams. Far from cementing Japan’s economic ascendancy across Asia, the project left a legacy of bad blood, and marked the beginning of a financial retreat from around the region that Japan has only recently begun to reverse.

The rest of the editorial notes that rampant corruption elsewhere siphoned funds away from projects, and those bits that actually did get built ended up as "white elephant" projects: transport initiatives that cost so much to maintain that they could not be sustained and were eventually shelved. Certainly, the OBOR and New Silk Road tags characterize some grandiose initiative. (See the map pabove.) Whether the Chinese have the actual sense to scale these to reality-based bits is another question since linking the Middle East all the way to the Far East is not a vision based on modesty. 

Scaling it appropriately to meet local needs of the countries involved is key. That is, participating countries will plump for maintaining infrastructure built (with Chinese support) insofar as they can benefit from it going forward. However, if benefits are not evident--or mainly serve the purpose of transit through a country instead of serving the citizens of the countries in question first and foremost--the Japanese example provides ample cautions.

UPDATE: A warning is that investment in OBOR countries has, actually, dropped off in recent times, though there are caveats associated with this as a gauge:

Foreign direct investment from China to countries identified as part of the BRI fell 2 per cent in 2016 year on year and has dropped an additional 18 per cent so far in 2017, according to commerce ministry data. Non-financial FDI to 53 BRI countries totalled $14.5bn last year, comprising only 9 per cent of overall outbound FDI...

Chinese experts counter that published figures do not paint a complete story. Jia Jinjing, chief researcher at the Renmin University’s Chongyang Institute for Financial Studies in Beijing, said much outbound FDI passes from China through an intermediate country before reaching its final destination, making the commerce data an unreliable gauge of total BRI investment.

By leaving the EU, the UK is making itself less--not more--like Singapore.

It strikes me as very odd that the architects of Brexit--which many voters supported to do away with economic integration in the first place--see an opportunity to remake the UK as Singapore. The story of its former colony becoming wealthier than it on a per capita basis is certainly something to admire. That said, Singapore is firmly entrenched in a regional integration of its own in the 1993 ASEAN Free Trade Area or AFTA. That ASEAN itself and AFTA were modeled to an extent on the EU, well...let's say people see what they want to see. It's called "confirmation bias."

Justin Fox shares his bemusement, Maybe part of the point of MNCs locating in the UK or Singapore for that matter was to be in an English-speaking gateway to a wider region--Europe or Southeast Asia? Through point is lost by the Brexiteers who've killed the regional golden goose:

The New Singapore idea seems to be mainly that leaving the EU will allow the U.K. to cut taxes and roll back regulations, positioning itself as a free-market oasis just off the coast of Europe.

Now, the U.K. already has a lower tax burden and a less-regulated labor market than most of the countries across the Channel, and London has been playing a role in Europe similar to that of Singapore in Asia for decades now. Global corporations, especially financial ones, have chosen Singapore and London as operations bases where the language is more familiar and the rules more amenable than in other countries in those regions. So far, most of the attention has been focused on the risk that Brexit, by restricting access to European markets, will harm London's status as a financial hub. But there's enough uncertainty about this that I guess it's impossible to dismiss the opposite argument entirely.

Kiwi economics commentator David Skilling who's written extensively about Singapore's virtues actually thinks smallish Scotland, if it gains independence, would be better placed to replicate Singapore than the biggish UK:

Cutting loose from the European Union could give the U.K. more room to maneuver. But the U.K. is a relatively large country that would be hard-pressed to maneuver like a Singapore -- and it may be shooting itself in the foot by walling itself off from its neighbors. There is a part of the U.K., though, that Skilling thinks shows promise. An independent Scotland, he wrote in his weekly note on Sunday, might just be small and cohesive and agile enough to make a go of it as a cold, windy Singapore on the moors.

In a separate article, Skilling underlines the point that ASEAN and AFTA are the bedrocks of Singapore's success:

But the foundation for Singapore's international economic and political engagement is Asean, and Asia more broadly. This regional engagement is a complement to, not a substitute for, Singapore's global network of trading and investing relationships.

Over 60 per cent of Singapore's exports and outward direct investment is focused on Asian markets. And Singapore's success in attracting inward investment - remarkably Singapore receives more foreign direct investment from the US than China does - is largely because Singapore serves as a hub for companies operating in the region. This regional bias in Singapore's economic engagement is likely to remain, supported by ongoing Asean economic integration.

So, a far more sensible argument is that, by leaving the EU, the UK has dismantled the scaffolding that would have enabled it to be the Singapore of Europe.

Some people need to be disabused of their Brexit senselessness. Economically speaking, it has definitely shot itself in the foot.

It's time to let Proton go, Mahathir Mohamad.

Proton is the archetypal "infant industry" that never grew up. The pet project of former Malaysian Prime Minister Mahathir Mohamad, Proton was intended to be a national champion automaker able to duke it out with foreign competition. The problem is, even behind various protections and subsidies, Proton has never really made the cut. Bouncing around from state to private ownership, one thing has been consistent: it has lots of money over the decades.

It now appears that the end of the road nears for Proton as France's Peugeot Citroen and China's Geely are investigating buying the remaining assets of Proton. The most valuable part of it is the sports car legend Lotus:

France’s PSA Group and China’s Zhejiang Geely Holding Group Co. have submitted bids to buy a stake in money-losing Malaysian automaker Proton Holdings Bhd., according to people with knowledge of the matter. Negotiations are still preliminary, with bids being evaluated and clarified, said one of the people, who asked not to be identified as the talks are private.

The exact size of the stake to be sold in Proton, which also owns British sports car maker Lotus Cars Ltd., will be determined after discussions, the person said. A PSA spokesman said the company is “still in the negotiation process and wish to go further with Proton.” A representative for Geely declined to comment. A Proton spokesman didn’t immediately return a phone call seeking comment.

Proton, which is controlled by Malaysian tycoon Syed Mokhtar Al-Bukhary’s DRB-Hicom Bhd., is struggling from accumulated debts as sales slump. DRB-Hicom said in a Feb. 15 statement that it will conclude and announce its decision on the foreign strategic partner within the first half of this year.

Unsurprisingly, Dr. Mahathir's prescription is not to sell Proton but to impose more protections, as a blogger points out:

Lim said Mahathir had attacked Proton’s plan to bring in a joint-venture partner as this would cause [Malaysian] vendors and suppliers of components to close shop, resulting in “lots of workers losing their jobs”. Lim said, “It appears that the suppliers and vendors to Proton continue to be Mahathir’s main concern. In a previous post in October, Mahathir had complained that his businessmen friends were not given supplier contracts by Proton.

“Does Mahathir continue to insist that the welfare of his supplier friends who have gotten rich over the decades from Proton are more important than the survival of Proton?” He added, “Mahathir insists that Malaysia re-impose heavy protection to Proton. It appears that more than three decades of forcing Malaysia to purchase over-priced and low specifications cars while driving up the loan burden of millions of Malaysians is not enough.”

All I can say is that if Proton hasn't managed to make it to break even after all this time, then there is little point in keeping it afloat through more artificial life support.

Let Proton go gently into the night.

Make it big: Singapore competes for Saudi Aramco's $100B IPO listing.

Us Southeast Asians have been closely following the possibility--however remote--of the Singapore Exchange [SGX] landing the biggest IPO of recent times. Saudi Aramco indicated a few months back that it intends to make a public listing. Aramco being the world's largest state-owned oil company, the sums involved will make your head spin with $$$ signs. Not one to pass up a once-in-a-generation opportunity, Singapore has been courting the Saudis assiduously:

The island nation is studying proposals including inviting one of its state investment companies to become a cornerstone investor in Aramco’s IPO, as well as potential Singapore cooperation with the Saudi government on future investments, the people said. Singapore Exchange Ltd. management including Chief Executive Officer Loh Boon Chye visited Saudi Arabia late last year to pitch a listing on the bourse, according to the people, who asked not to be identified as the information is private.

Singapore, the biggest oil trading center in Asia, is hoping a full package of government incentives will give it a better chance of winning a piece of the listing than a standalone proposal from the stock exchange, the people said. Aramco is yet to make a final decision on the venue for the IPO, and Singapore faces challenges from larger international exchanges, the people said.

That said, many others are also approaching the Saudis like fellow Asian financial powerhouse Hong Kong and Canada (of all places):

The country’s plan shows the extent to which Asian economies are vying for a share of the IPO, which is estimated to be about $100 billion in size. Aramco officials have also received pitches on a potential Hong Kong listing for the company, which could come with anchor investments from Chinese funds, people familiar with the matter said last year. Company executives have also mentioned the possibility of listing in London, New York, Tokyo or Toronto.

TMX Group Ltd., the owner of the Toronto Stock Exchange, sent officials to Saudi Arabia as part of efforts by a Canadian consortium that includes major local banks to seek a slice of the IPO, said TMX spokesman Shane Quinn.

Singapore is hardly a shoo-in. Compared to other exchanges, SGX is small fry trading volume-wise:

Singapore’s average daily stock trading was about $761 million last year, compared with $5.8 billion in Hong Kong and $7.4 billion in London, the data show.

Moreover, the international (read: non-Singapore-domiciled) IPOs Singapore has had in recent years are not uniformly impressive:

The chequered history of foreign listings in Singapore is another factor. While the 2006 float of Chang beer maker Thai Beverage Pcl has outperformed, Hutchison Port Holdings Trust's $5.45 billion debut in 2011 went the other way. Units never closed higher than their $1.01 offer price and are currently at $0.43. Plans to lure English soccer team Manchester United also came to naught, putting another nail in the coffin of Singapore's rather ambitious desire to become a global sporting hub.

My intuition is that the Singaporeans will give it as good a go as possible, but they ultimately will not be disappointed too much if the IPO is not made there since they're decidedly underdogs here. Though I may be wrong, I am fairly confident that the US and UK are out of the running: the latter is too Islamophobic with a President Trump, while the latter is undergoing the transitory pains associated with Brexit.

Stay tuned.

2/21 UPDATE: If news reports are to be believed, Singapore isn't even among the contenders for the Saudi Aramco listing, with authorities favoring the New York Stock Exchange [NYSE] and the London Stock Exchange [LSE]:

Saudi Arabia is favouring New York to list state oil giant Saudi Aramco IPO-ARMO.SE, while also considering London and Toronto for the prospect of floating the firm, the Wall Street Journal reported on Monday.

Saudi officials also talked to exchanges in Singapore, Hong Kong, Tokyo and Shanghai but are unlikely to pursue listing in those places, the newspaper said, citing people familiar with the matter.

I am somewhat at a loss as to why the Saudis would prefer Trump's America. After all, they provide next to no US jobs and would certainly qualify as "stealers" of them from Trump's perspective. Listing stateside would make Aramco more vulnerable to US protectionism. Don't forget Trump's Islamophobia either, which certainly would find a US-listed foreign oil major a big, juicy target to demagogue against. Meanwhile, the UK is about to leave the EU, reducing the pool of potential investors.

Is it really a whole new world? If there's any such thing as a premature call, then it's probably to label Asian export-led development "dead" because of anticipated Trump-led US protectionism. As goes America, so goes the world, some think: When the US shuts its borders to trade, that's all she wrote. However, I would argue that saying that a process that's made any number of Asian countries immeasurably better off is over is way too early. To make a baseball analogy, we're only in the first inning of the Trump horror show.

Consider the following:

• Trump hasn't even hit Asian countries with massive tariffs yet;
• Even if he did, it's unlikely for these to stick once disputed at the WTO;
• Trump will not remain in office forever; 
• There are several other export markets other than the United States; and 
• No alternative Asian development model has been mooted.

At any rate, Bloomberg has some commentary to the effect that the next generation of would-be Asian export-led developers are reconsidering following the path of their predecessors. Consider populous (and largely Muslim) Indonesia:

At stake for less developed but relatively open economies is the ability to sustain economic growth rates that for Indonesia at least have hovered around 5 percent, helping lift more of its people into the middle class and giving a large youth population access to jobs. Trade and investment from the U.S. and China, alongside Japan, has helped propel that.

"In the past, emerging markets could have relatively high growth because they could focus their strategy on industrialization and trade,” said Basri, who was finance minister from 2013-2014 and a former chairman of the country’s Investment Coordinating Board. “Now, with the Trump protectionism, they cannot go with trade again.”

Japan, China, Korea, Taiwan and Singapore were aided in becoming industrialized nations as the global economy was open at the time, Basri added. "The rest of the emerging markets probably cannot repeat the success story.”

Glum they are:

Emerging economies generally will struggle in the face of Trump’s policy shifts, with Russia likely one of the few beneficiaries, according to a report from Nomura Holdings Inc. It warned that U.S. protectionism and possible retaliatory measures could intersect with geopolitical tensions, with “no shortage of potential flash points” including the South China Sea and the Korean peninsula.

To paraphrase Albert Hirschman, I'd probably agree that going with a highly unbalanced growth strategy reliant on exports for the most part for generating growth is increasingly unviable. Perhaps a more balanced strategy giving domestic consumption and market development equal billing makes better sense at the current time. With large populations, Indonesia, the Philippines, India, etc. are better placed to substitute some international with domestic demand.

That said, the rigors of international competition are probably not to be dealt away  with so easily if development is the overarching objective.

No thanks to Galaxy Note 7, it won't be a very merry Christmas in these parts.

The recall of Samsung's Galaxy Note 7 worldwide for its battery catching fire has damaged any number of things including Samsung's sales and profits, Samsung's reputation (though some would say less than you think) and...Samsung's hiring of local workers at its Vietnam assembly plant[s]. Nearly a third of Samsung's assembly operations are now being handled in the lower-cost Southeast Asian destination. Obviously, hopes were high that business would pick up at year end when retail demand is highest for the Christmas season.

However, what we instead have is whiplash from the Galaxy Note 7 being discontinued due to safety concerns. Anecdotes about slowing activity are emerging from areas surrounding Samsung's factory town:

"The factory used to be so busy toward the end of the year, and the workers wouldn't come out until night," Nguyen Van Loi says as evening falls and employees shuffle out. He has been selling fruit here for six years, but his sales this month are down 30% from October.

Just over a month has passed since Samsung halted production of the Galaxy Note 7 after a number of phones' batteries caught fire. Some workers at the Bac Ninh plant, which employs some 110,000 people, have been told to stay home. Others have seen their pay fall by half owing to a loss of overtime. "My pay has gone down by 40-50%," says Nguyen Thi Kieu Anh, a 19-year-old assembly line worker. She and other workers say they have been going home three hours earlier, at 5 p.m., since production of the Note 7 ended in mid-October. 

Worse may be in store:

While the factory appears to have been spared layoffs so far, those consigned to waiting at home have had their pay reduced by 70%, employees say. New hiring to ready for the typical year-end rush also appears to have been halted. Nguyen Van Chien, who runs a nearby boarding house, said he now has 30 roomers compared with 50 last year. With his income down by a third, he is finding it hard to make ends meet, he said.

It's going to be a lonely Christmas near Vietnam's manufacturing operations. For what it's worth, though, less than a tenth of its population is Christian, so Samsung's ill-timed lump of coal may matter less.

The importance of rice production to the Thai economy cannot be overstated. In the past, I have discussed [1, 2] the current ruling junta's efforts to punish the overthrown Yingluck Shinawatra for her abuses in overpaying for rice to buy the favor of those in rural communities. Appallingly, however, the same junta is now planning to implement another rice subsidy program. This while it is busy pursuing the prosecution of Yingluck Sinawatra.

The junta's calculations are aimed at regime survival. With rice prices at multi-year lows and the recent death of longtime figurehead King Bhumipol, it needs to prop up its domestic popularity lest it be forced out of power:

Just weeks after Thailand’s military government imposed an unprecedented $1 billion fine against an ousted prime minister for her handling of an ill-fated rice subsidy program that racked up huge losses, the junta did something else extraordinary: It announced a major assistance plan of its own. The $1.5 billion effort, which helps struggling rice farmers in part by guaranteeing prices well above market rates, is ironic given its similarities to the larger subsidy program for which the junta has castigated ex-premier Yingluck Shinawatra.

But the current government may have had little choice but to act. Global prices for the grain have plummeted to their lowest in nearly a decade, severely weakening an industry crucial to Thailand’s economic well-being. Some analysts say the about-face is also intended to stave off potential unrest during the sensitive, year-long mourning period following the death last month of King Bhumibol Adulyadej, and to win over some of the politically powerful farmers who make up 40 percent of the population. The rice-growing north is a traditional stronghold of Yingluck and her allies.

The junta has begun to realize “they simply cannot ignore the plight of the farmers anymore, especially (if) they wish to be in power for the long term,” said Puangthong R. Pawakapan, an associate professor at Bangkok’s Chulalongkorn University.

That said, the junta's program is said to be less costly and therefore more economically viable:

The junta’s plan is similar to Yingluck’s in that it is offering artificially high prices for rice, dispersing large sums to farmers and encouraging them to keep the grain off market in hopes of stimulating prices. But Jitti Mongkolnchaiarunya, dean of Thammasat University’s School of Development Studies, said the latest plan is less risky because its scope is smaller, its price ceilings lower, and rice farmers — not the government — will be responsible for storage.

What can I say? It's a tragicomedy that never seems to end.

Duterte claims the Philippines is now in the PRC's ideological flow. Take it with a whole heaping of salt.

Friends abroad have asked me how to make sense of the bombastic and oafish Philippine President Rodrigo Duterte. My answer is always the same: Watch what the Philippine government does and not what he says since the latter is a completely unreliable guide to national policy. A case in point is his most ridiculous statements yet during a state visit to China. Apparently overwhelmed by the welcome granted to him that tinpot dictators the world over have also been given, Duterte began rambling incoherently as is his habit:

In a state visit aimed at cozying up to Beijing as he pushes away from Washington, the Philippine President announced his military and economic "separation" from the United States.

"America has lost now. I've realigned myself in your ideological flow," he told business leaders in Beijing on Thursday. "And maybe I will also go to Russia to talk to Putin and tell him that there are three of us against the world: China, Philippines and Russia. It's the only way."

If only that were so. The aftermath of Duterte's quite frankly idiotic statements is that two things nearly always happen. First, he backtracks on them--Trump-style it must be noted--as to lose most of the original force:

Philippine President Rodrigo Duterte said he’s not cutting the nation’s cord with the U.S. and that maintaining ties would be in his country’s best interest, stepping back from his “goodbye” America comments made during a four-day state visit to China.

“It’s not severance of ties,” Duterte said in a televised briefing in Davao city around midnight Friday, after returning from Beijing. “It’s in the best interests of my country that I don’t do that,” he said. On Thursday, he told Filipino and Chinese businessmen and officials in a China forum that “in this venue, I announce my separation from the U.S.”

Back in the Philippines, Duterte said the comments refer to a foreign policy that doesn’t “dovetail” with America. “What I’m really saying was separation of foreign policy, which in the past and until I became president, we always followed” the cue from the U.S., he said.

Second, his cabinet members and other surrogates downplay the gravity of what he's said:

Duterte’s cabinet members, who have often sought to tone down his statements, followed a similar routine this time. Hours after the president’s “separation” remarks, Finance Secretary Carlos Dominguez and Economic Planning Secretary Ernesto Pernia said the Philippines will maintain relations with the West. Duterte is “rebalancing” foreign policy and broadening the country’s alliance and not separating from the U.S., they said in a joint statement.

Bottom line: Duterte's "word" is as good as nothing. Discount it fully. Pay attention to what the Philippine government does rather than what Duterte says is your best guide to what's happening in the "People's Republic of the Philippines."

Is getting your private parts groped part of the deal if you buy a unit at this Trump-branded Manila condo?

In psychology, there is a term "colonial mentality" referring to those living in former colonies adopting an inferiority complex towards their former colonizers. This phenomenon is particularly acute in the Philippines, where American-sourced things are typically regarded as superior to their local equivalents. If it has a whiff of the US, then it must be better by virtue of the association. Yippee, America #1!

Philippine developer Century Properties certainly exudes this thinking by pandering to American celebrities. While Paris Hilton is derided as an airhead heiress in her home country--the archetypal dumb blonde--she actually has a branding arrangement for a beach club in the Philippines with them. Amping the inferiority complex further, Century Properties negotiated branding for a "Trump Tower Manila" with The Donald in 2011 [!] The press blurb claims:

I've always loved the Philippines. I think it's just a special place and Manila is one of Asia's most spectacular cities. I know that this project will be second to none.

Now, this statement would of course be more believable as having come out of the [tic tac-loving] mouth of Trump were it not for his vile racist attacks on the Philippines. Apparently, even Filipino-Americans--all 3.4 million of them--he's suggested deporting due to their association with this terror-infested country:

More recently, he decided to stop using the word "Muslim" as he called for halting immigration from countries with high rates of terrorism, although he has yet to say which countries that would include.

At a rally in Portland, Maine, on Thursday afternoon, Trump provided a lengthy explanation of why he thinks the United States needs to be skeptical of immigrants from many countries, even if they follow the legal process. Reading from notes, Trump listed nearly a dozen examples of immigrants, refugees or students who came to the United States legally -- often applying for and receiving citizenship -- and then plotted to kill Americans, sometimes successfully doing so. The countries that he referenced in these examples: Somalia, Morocco, Uzbekistan (he asked the crowd where it was located), Syria, Afghanistan, the Philippines, Iraq, Pakistan and Yemen (which he pronounced "yay-men"). Trump's staff has yet to confirm if there are countries from which the nominee wants to limit immigration.

To be fair, The Donald is bashing foreign countries in this election cycle to play to fears of a white xenophobic audience Stateside. Way back in 2011, Trump's name was not yet so associated with racism, xenophobia, misogyny, business failure and what else have you. Still, he is a man of no scruples who will say what sells. It's just that sometimes, his messages are contradictory selling to different audiences.

Century Properties ends up with the mother of all bum deals. It's paying good money to Trump to use his name, when lately his name has been associated with so many unsavory things. That he alludes to deporting 3.4 million Filipino-Americans while deriding the Philippines as a terrorist haven makes buyers of "Trump Tower Manila" fit the typical profile of his customer base: chumps.

When the scum of America is regarded as a "luxury" brand in the Philippines, it's colonial mentality at its worst. Aside from that, enjoy your condo.

10/11 UPDATE: To be fair, there are other Trump branding deals with other nationalities he has greatly offended through his racist remarks. See, for instance, the Muslim-basher's licensing arrangements in the Middle East in a recent Newsweek article.

Damage control surpasses the realm of art into science when the person whose offensiveness you're trying to contain is the Philippine President Rodrigo "Digong" Duterte. Despite the woeful history of a zero tolerance approach to narcotics worldwide--nowhere has the "war on drugs" worked as intended--Duterte is intent on learning this the hard way. Being very think-skinned, Duterte takes any perceived slight very badly, hurling insults at any and all critics.

As it so happens, those who have raised concern about human rights abuses as the body count piles up via extrajudicial killings in his "war on drugs" represent the world's most powerful countries.
President Barack Obama refused to meet Duterte at an ASEAN gathering in Laos after being cursed as a "son of a whore" over possibly raising the issue of human rights. More recently, Duterte threw the  middle finger at the European Parliament over mentioning similar human rights concerns, adding an f-bomb to get his point across.

While the shallow and stupid are doubtlessly happy about Duterte sticking it to leaders of wealthy countries--screw the imperialists and so on and so forth--the sensible are left holding the bag in mending relations with increasingly antsy international counterparts. Consider that, for every single day in September so far, foreign investors have reduced their holdings of Philippine equities. This turn of events has prompted Philippine central bank officials to come out en masse to downplay Duterte's offensive outbursts. These include eight-time [!] best central banker in the world awardee Amando Tetangco:

Philippine central bank Governor Amando Tetangco sought to soothe investors spooked by President Rodrigo Duterte’s rhetoric around his anti-drug war, with stocks poised for the longest outflow since 2007.

“If you take out the noise and look at the fundamentals, look at the economic program, look at the quality of the members appointed to the economic team, then these are all solid,” Tetangco told bankers, traders and fund managers late Thursday in Manila.

Tetangco joins a host of economic officials including Finance Secretary Carlos Dominguez, who on Wednesday said economic policies have been clear and consistent since Duterte took office in June. S&P Global Ratings this week warned of “rising uncertainties surrounding the stability, predictability, and accountability” under the new government.

Meanwhile, money is leaving the country continuously:

Money that flowed into the Philippines after the May elections is drying up. Philippine stocks slid 0.7 percent on Friday, and foreign funds have been selling for 21 straight days as of Thursday, the longest outflow since 2007.

The peso slumped to an eight-month low against the U.S. dollar and is the worst-performing Asian currency after the yuan this year. Foreign direct investment shrank 41 percent in June from a year earlier.

The irony remains that, if you make the reasonable assumption that this "war on drugs" will be as futile as every other, he will have given his country significant political and economic handicaps besides by acting this way. Who benefits?

Here is an interesting article concerning how geopolitical concerns affect foreign direct investment (FDI). Despite China being one of if not the largest recipient of Japanese FDI in past years, rising security concerns have made Japan rethink where it places its money. In a non-democratic society, it would be so easy to expropriate Japan-owned businesses if PRC leadership felt like it. This concern has been a recurrent one, especially after the 2012 riots in China against Japanese-owned businesses. Indeed, it's in the aftermath of the 2012 riots when the Japanese have actually begun putting there money where their mouths are at: anywhere but China:

Japanese investment in Southeast Asia continues to grow, owing to the region’s potential and low labor costs, amid simmering tensions that reduce the appeal of China for some Japanese businesses. For a third straight year, in 2015 the amount of foreign direct investment from Japan to the 10-member Association of Southeast Asian Nations exceeded such investment in China and Hong Kong, according to figures compiled by the Japan External Trade Organization.

The pace has been accelerating -- the outstanding amount of Japanese investment to Asean nations almost tripled from five years ago to 20.1 trillion yen ($180.9 billion) at the end of last year, according to Bank of Japan data.

Make no mistake: territorial disputes do factor into the collective decisions of Japanese investors:

Japanese investment growth to China slowed after protests there intensified in 2012 following a territorial dispute over islands in the East China Sea, prompting Japanese companies to diversify investment risks. With Japan’s economic growth anemic and the nation’s population aging and declining, companies have been searching for growth opportunities elsewhere in Asia.

“Asean markets are attractive from the Japanese perspective,”’ said Ma Tieying, an economist at DBS Group Holdings in Singapore. “Many economies have great potential to grow, thanks to relatively low per-capita incomes and a young population profile.” The openness of markets in the region along with labor costs that are lower than in China also is attracting Japanese investment, he said.

Japan is moribund, while China is becoming a gig question mark for continued investment What's left? Southeast Asia, despite its flaws, looks inviting.

Getting rid of Thailand's massive Yingluck-era rice stockpiles.

Although political polarization has been a constant feature of Thai politics, the Shinawatra clan--big brother Thaksin and little sister Yingluck--have used above-market government purchases of rice as a way to gain support from rural voters. Unsurprisingly, spending public monies on a surefire money loser--nobody is expecting rice prices to rise anytime soon as other major rice-exporting countries like Vietnam and India ramped up production--has been a rallying cry for the royalists opposed to Shinawatra rule. Agricultural populism has its costs, they say.

So here we find ourselves a couple of years after the military junta overthrew Yingluck. Instead of letting the government's Yingluck-era hoard spoil, they are now going to unleash more of it much faster on an already-saturated market. This forthcoming action is causing concern in Vietnam:

Thailand's plan to accelerate sales of 11.4 million tonnes of rice in stockpiles within two months sparked concerns that it would hurt prices as well as Viet Nam's rice exports. However, some people were optimistic that the impact would not be significant. Thailand planned to sell the amount of rice in a government stockpile in May and June to generate US$2.8 billion, at an average price of US$245 per tonne, in what could be the biggest rice sale clearance ever of the world’s second largest rice exporter after India.

Actually, the expected fallout from Thailand's impending sale are not expected to be all that great on the world rice market. For one thing, most rice contracts have already been secured well in advance:

According to Le Van Banh, director of the Department of Agro-Fisheries Processing and Salt Production, the biggest stockpiled rice sell-off from Thailand would certainly have an impact on the global rice market following the law on supply and demand, as well as on Viet Nam’s rice market. However, the impact on Viet Nam’s rice exports would not be significant, at least in the short term, Banh said.

Banh also said that Thailand’s plan to sell 11.4 million tonnes of rice within just two months was not feasible. He said that Thailand exported on an average 400,000 tonnes to 500,000 tonnes of rice per month. "To sell 11.4 million tonnes in just two months sounds unrealistic," Banh said as quoted by vietnamplus.vn. The Viet Nam Food Association said that the impact on rice exports would not be huge in the second and third quarters as most contracts had been signed in the last quarter of 2015, and there were estimated to be 1.4 million tonnes of rice remaining to be shipped abroad following existing signed contracts.

Aside from the sheer difficulty of selling rice in such huge quantities immediately, also consider that these incentives were attractive to farmers for a reason: it made selling lower-quality rice at higher prices feasible:

According to Banh, the stockpiled rice for this clearance would mainly be "sub-standard" quality that the government had purchased following the 2012-2013 rice mortgage programme and Thailand would target the not too demanding markets such as in Africa. Since May 2014, Thailand has auctioned off 5.05 million tonnes of rice worth $1.5 billion.

The Thai government had previously said it aimed to clear the stockpile by the end of 2017. Meanwhile, major import markets of Vietnamese rice were China, the Philippines and Indonesia which had standards for rice quality and preferred newly-harvested Vietnamese rice, he said. "Rice exports from Viet Nam would not be significantly affected by Thailand’s sell-off in the coming months," he said. 

Shianwatras and their allies are popular and persistent. They get thrown out of office by coups and other machinations, but not by the Thai electorate. I hardly think this ends the story of "rice-pledging" as a political ploy to gain agricultural votes since the royalists have demonstrated they cannot win an election against the Shinawatras in a straight-up contest. If and when another Shinawatra or their followers gain office, don't be surprised to see this rice giveaway implemented again.

Some things never change.

80,000 protesters and Razak is still there: can the international financial community oust him, though?

A few months ago, I wrote about the goings-on in Malaysia with Prime Minister Najib Razak's controversial 1MDB fund, which styles itself as a "strategic development company"  instead of a sovereign wealth fund. Razak's critics, including former PM Mahathir, would instead classify it as a personal slush fund for Razak. Earlier this year, Malaysian courts cleared 1MDB and, by extension, Razak of wrongdoing in supposedly diverting $681 million into his personal coffers.

If only authorities in other countries would play along. Unfortunately for Razak, Switzerland's authorities have alerted their counterparts in other financial centers about 1MDB. So, while the ruckus may have silenced somewhat at home, it's full throttle abroad still:

Swiss prosecutors widened their criminal probe into allegations of bribery and corruption at 1Malaysia Development Bhd., and have asked Luxembourg and Singapore authorities for help with an investigation into the government fund.

The Swiss Attorney General is investigating two former public officials from the United Arab Emirates on charges of fraud, criminal mismanagement, bribery and money laundering, according to a statement Tuesday from the Bern-based prosecutor’s office. The pair handled Abu Dhabi sovereign wealth funds that guaranteed bonds issued to finance 1MDB’s investment in power plants, Swiss authorities said.

The dragnet has gone global, and there's little Malaysian officialdom can do to, ah, massage the situation abroad like it does at home:

The allegations include that “the amounts paid in connection with this guarantee were not returned to the Abu Dhabi sovereign fund that supported the commercial risk,” the statement reads. “To the contrary, these funds would have benefited others, particularly two public officials concerned as well as a company related to the motion picture industry.”

1MDB is at the heart of a growing number of investigations both at home as well as in Switzerland, the U.S., Singapore, Hong Kong and Luxembourg over allegations the development fund was used to funnel money to individuals including Malaysian Prime Minister Najib Razak, who heads the fund’s advisory board. The Swiss estimate that about $4 billion may have been misappropriated while a Malaysian parliamentary committee identified at least $4.2 billion of irregular transactions, according to a report published last week.

Also see the Bloomberg explainer of what is happening with the global dragnet on 1MDB. The real question is if the rest of the world can force Razak from power given Malaysian leaders' customary insulation--see Mahathir before him, for instance.

PRC "fishing" boat headed for Davy Jones' Locker.

The PRC's fisher militia strikes again, destroying goodwill as it poaches throughout the world.

I have previously written about how the PRC deploys its so-called "fishing" vessels in pursuit of foreign policy objectives in the Philippines. Aside from exacerbating overfishing by exploiting waters they have dubious claims to, Chinese fishing vessels serve a paramilitary purpose. Being ostensibly "civilian" ships instead of military ones, they should raise fewer suspicions when they accomplish national policy.

Lest you think I'm biased, two recent incidents illustrate the global reach of these nefarious vessels and their dubious purposes. A few months ago, the Chinese inked a deal with Argentina to build a new nuclear plant in the near future. Unfortunately, PRC-Argentina relations recently took a turn for the worse when Argentinian forces sunk a PRC "fishing" ship in its waters:

Argentina's coast guard has sunk a Chinese trawler that was fishing illegally within its territorial waters, the coast guard said on Tuesday, marking a first test for relations between recently elected President Mauricio Macri and Beijing.

In a high-seas chase, a coast guard vessel on Monday pursued the fishing vessel Lu Yan Yuan Yu 010 toward international waters, firing warning shots across the Chinese boat's bow as it attempted to raise the crew by radio.

"On several occasions, the offending ship performed manoeuvres designed to force a collision with the coast guard, putting at risk not only its own crew but coast guard personnel, who were then ordered to shoot parts of the vessel," the coast guard said in a statement.

First the grand opening; come March it's live trading.

One good turn deserves another: following discussions of a much-anticipated IPO on Vietnam's stock exchange, we should discuss the imminent opening of Myanmar's as one of Southeast Asia's frontier CLMV (Cambodia, Laos, Mynamar, Vietnam) markets. To say that years of economic isolation--partly self-imposed, partly the result of international economic sanctions--have left Myanmar's economy in a funky shape is an understatement. Consider its foreign exchange regime:

Myanmar has four currency rates, no credit rating, and a shiny new stock exchange that doesn’t yet trade...

Myanmar’s currency, the kyat, was pegged to the IMF’s special drawing rights basket for much of the junta’s reign. The official rate was set at about 6.4 kyat per dollar—which made it more than 100 times overvalued in comparison with rates available on the black market.

After the country started moving toward civilian rule, the central bank in 2012 introduced a managed float, initially setting the daily rate at 818 kyat per dollar. That regime is still in effect. Each morning, after commercial banks put in bids for the currency at an auction, the central bank announces a reference rate. Banks are then allowed to buy and sell kyat in a trading band of 0.8 percent on either side of that rate.

Commercial banks also have more competitive, unofficial currency rates that they use on the quiet. Then there’s the black market rate, which accounts for most transactions.

The central bank aims eventually to unify all four rates. Last year it started a slow depreciation of official rates. “The formal and informal exchange rates are now not much different,” says Win Thaw, the central bank’s deputy director general who heads its currency department. “It is below 1 percent. Some of the local banks and foreign banks that were awarded licenses have started forward and swaps trading.”

Aside from sorting out a single exchange rate, the real excitement swirls around the new stock exchange. It's been built already; it just await its first trading day. The thing is, Cambodia and Laos actually have stock markets already. However, the trading volumes there are so limited that capital raised there is minimal. That's the situation Myanmar is trying to avoid as it strives to create a fully functional exchange conducive to raising capital:

Six companies have been chosen to list, including two banks, according to the country’s Securities and Exchange Commission. First Myanmar Investment, a conglomerate controlled by businessman Serge Pun, aims to be among the first to trade, Pun has said.

Trading on the exchange is expected to begin in March. Foreign investors won’t have access at first. One of the fears is that the bourse ends up like exchanges in Cambodia and Laos, which have failed to take off. Optimists argue that Myanmar’s market has a better chance of success, given that its $66 billion GDP is more than three times that of Cambodia or Laos. “Myanmar’s economy and population are not directly comparable to these nations,” says Melvyn Pun, a son of Serge Pun and a holder of First Myanmar Investment shares. “Myanmar has more than seven times as many people as Laos.” As part of preparation for the exchange, delegates from Myanmar visited Tokyo for “Stocks 101” classes taught by veteran Daiwa traders.

“There are many successful stock exchanges in the region,” says the younger Pun. “Ho Chi Minh City Stock Exchange, Thailand’s SET, and Bursa Malaysia can serve as positive examples.”

Burmese capitalism is coming on by leaps and bounds, it seems--at least relative to where it was during the height of junta rule.

I'll bet you don't get this in Emirates marketing materials: VietJet as a Southeast Asian force in budget carriers.

Here's a rather unexpected love letter to the positives of both market socialism and Southeast Asian economic integration. Although doi moi policies opening Vietnam up to the rest of the world were implemented during the mid-1980s, it's taken some time for the Vietnamese to catch up in terms of market development with the rest of the region. Its total stock market capitalization is around $46.01B according to World Bank figures. However, that may change soon.

Civil aviation has been a noteworthy industry for Vietnamese development. For a long time, folks there obviously couldn't travel so freely--to other Southeast Asian destinations especially. However, various integration initiatives in the region like 'Open Skies' have played a part in expanding the market in newer accession countries Cambodia, Laos, Myanmar, and of course Vietnam:

The Vietnamese airline industry is currently quite small, but it is poised for massive growth with the domestic airlines planning to either double or even triple their fleets as they seek to service the country’s 90 million plus citizens over the next few years. Further, the fast growing tourist industry has been increasing at a 20 percent rate year-on-year.

Industry analyst Brendan Sobie said Vietnam – along with Laos and Burma – are considered “frontier markets” with enormous potential for growth. As a result, international aircraft manufacturers such as Boeing and Airbus are finding Vietnam to be an increasingly attractive market.

An example of this growth can be seen in the case of Vietnam’s first private airline, VietJet Aviation Joint Stock Co, which has just placed an order worth US$9 billion for 92 Airbus jets. The airline is also looking to list itself on either the Hong Kong or Singapore stock exchanges in order to help its expansion.

This of course brings us to VietJet. While budget carriers have proliferated in the region, some as low-cost subsidiaries of existing airlines, others have been established by budding entrepreneurs. To the rest of the world, VietJet is best-known for its gimmick of parading bikini-clad stewardesses in fight cabins. Lest you think this is a "sexist" airline, let it be known that its CEO is actually female, Madam Nguyen Thi Phuong Thao. (Political correctness aside, she probably sees a good marketing gimmick to reel in male customers.)

Perhaps unfortunately, the 'bikini airline' image has obscured the more important point that VietJet is poised to become a regional force--especially in low-cost carriers. The Vietnamese market is booming; of that there is no doubt. With its initial public offering (IPO) or share sale soon, some expect its valuation to surpass even that of longstanding Southeast Asian national carriers like those of Malaysia, Indonesia and Thailand:

VietJet, which featured dancing flight attendants clad in bikinis on an inaugural route and bikini models on its airplanes for a desktop calendar, carried 9.3 million passengers in 2015, an increase of 66 percent from 2014. Revenue soared 205 percent last year to 10.9 trillion dong ($488 million) while net income rose to almost 1 trillion dong, according to the company. The airline expects revenue to double this year and passenger capacity to reach 15 million this year.

The airline is aiming to seek a valuation of at least $1 billion for the initial stock sale, according to two people with knowledge of the plan, who asked not to be named because the information is private. That would make VietJet a more valuable company than Malaysia’s AirAsia Bhd., PT Garuda Indonesia or Thai Airways International Pcl.

VietJet will probably surpass national carrier Vietnam Airlines as the nation’s biggest domestic carrier this year, according to CAPA Centre for Aviation. Vietnam is expected to rank among the world’s 10 fastest-growing aviation markets in the next two decades, according to the International Air Transport Association.

“It’s an ideal market for low-cost carriers,” or LCCs, said Brendan Sobie, Singapore-based chief analyst at CAPA Centre for Aviation. “This makes VietJet an attractive scenario for investors. They don’t have the risks other LCCs have in terms of over-capacity and competition.”

I can still hardly believe it: VietJet only begun operations in 2007, and yet it's now being expected to surpass the market capitalization of several established regional carriers that have been plying their trade for decades. The Bloomberg article goes on to say that VietJet wants to be the Emirates of Southeast Asia. I say: 'perhaps.'  While Emirates is another relative upstart which has garnered a lot of market share, let's just say that Emirates flight attendants are rather more fully attired even if they too are rather attractive.

As i said, it's two cheers for market socialism and Southeast Asian economic integration.

3/24 UPDATE: Bloomberg now has a profile of VietJEt founder Nguyen Thi Phuong Thao, who is posied to become Vietnam;s first female billionaire.

There's an interesting story in Bloomberg about how a largely oil-importing nation, the Philippines, can be negatively affected overall by lower oil prices. Sure, the country benefits from lower oil prices to an extent. However, in the larger scheme of things, matters appear less rosy. As a large labor exporter, the Philippines has, since the first oil shock, sent large numbers of migrant workers to the Middle East. With the country dependent on workers' remittances from abroad to improve its external position--the Philippines runs a sizable trade deficit annually but nevertheless manages a current account surplus due to the aforementioned remittances--current trends are worrying:

The share of remittances coming from the Middle East could be as high as 40 percent, compared with 23 percent in the official [Philippine] data, according to a Jan. 27 research note by Michael Wan, a Credit Suisse Group AG analyst in Singapore. Remittance growth slowed to 3.6 percent in dollar terms last year through November, from 5.8 percent in 2014, central bank data show. Volumes have held up reasonably well so far, said Wan.

That could change as the impact of a 29 percent drop in Brent crude over the past six months forces Saudi Arabia to cut generous subsidies to its citizens, while the United Arab Emirates’ Etihad Rail suspended a major rail project this week after firing almost a third of its workforce. Brent recovered to around $35 on Monday after falling to a 12-year low of $27.10 a barrel on Jan. 20.

“Before, when the trouble would be concentrated in one of the countries in the Middle East and North Africa, the workers could just simply move to a neighboring country and find employment,” central bank Governor Amando Tetangco said Jan. 25. “Now the trouble is more widespread.”

Aside from affecting land-based workers in the Middle East, another possible avenue for low oil prices negatively impacting the Philippines is via reduced crew aboard oil services-related ships.  Somewhere between a fifth to a fourth of all seafarers worldwide are Filipino, so it follows:

As well as declining oil prices, a more general slowdown in global trade is affecting the job prospects of Filipino seamen. Many drillers and oil-service companies have suspended operations and shipping companies are also hurting, said Nelson Ramirez, the president of United Filipino Seafarers. “I have talked to one of the biggest crew suppliers of offshore vessels,” he said in Manila. “They have many laid-up ships. There will be more job losses.”

Indonesia and S Korea apparently seek a seat at this table now.

It appears as though the United States is gaining the upper hand in signing FTAs in the Asia-Pacific after the TPP enlargement. With China's pan-Pacific equivalent not gaining any traction, the undecideds--countries that sat out the TPP negotiations to see how matters progress--appear to be more favorably disposed now to the American effort. Chalk this one up to the "bandwagon" effect: non-participants in the TPP negotiations fear being left out will cause their exports to be less competitive as those within the FTA benefit from lower tariffs. Make no mistake that the US swaying Japan greatly involved the former playing up the latter's fears about China:

[Former US trade negotiatior Ira Shapiro] believes that it was the rise of China that ultimately convinced Japanese Prime Minister Shinzo Abe to pursue TPP. If the TPP becomes reality, "China will have a choice of either making the changes necessary to join TPP or intensify its leadership of competing arrangements, as we've seen with the Asian Infrastructure Investment Bank," he said. "For the U.S. and Japan, it is important to set a model."

Let's begin with South Korea. Like Japan, it has traditionally been very careful about the terms of FTAs given the mandate not to offend domestic agricultural interests. However, with Japan making such concessions already with TPP, the Koreans are now more willing to do the same--at least slightly. In particular, the Japanese seek more automobile exports to Korea. In a manner of speaking, Japan got a head start over Korea and can now help dictate the terms for the latter's entry to its advantage:

South Korea's effort to be welcomed into the Trans-Pacific Partnership trade pact will provide Japan with an opportunity to regain lost ground in that country's automobile market. South Korean President Park Geun-hye expressed hopes that Japan will cooperate on this matter during her meeting with Japanese Prime Minister Shinzo Abe on Monday.

By cooperation, she is presumed to have meant Japan's quick approval, since all 12 TPP members need to agree to the entry of new members. Japan's stance is that it welcomes South Korea, since Abe has said before that he hopes to broaden the TPP's reach in Asia as a high-level trade pact. Japan had to promise that it will open up its market to the U.S. before joining the TPP.

Likewise, "South Korea will need to promise to drop tariffs on Japanese industrial products in exchange for approval of its participation," said a Japanese TPP negotiator. Currently, South Korea levies a tariff of 8% on Japanese autos and around 6.5% on Japanese chemical products.

Meanwhile, Indonesia's new President Joko Widodo is also in a semi-rush to get in after the conclusion of the aforementioned deal:

On his first official visit to Washington, however, Widodo pulled a surprise out of his hat. "Indonesia is an open economy," he was quoted as telling U.S. President Barack Obama. "We are the largest economy in Southeast Asia, and Indonesia intends to join the TPP..."

Indonesia, which has the world's fourth-largest population, has long been wary of free trade. This is largely because natural resources are its only major exports. When it comes to big multilateral deals, Jakarta has favored the Regional Comprehensive Economic Partnership -- a proposed agreement involving the Association of Southeast Asian Nations, China and India -- over the TPP due to its lower degree of trade liberalization.

But Widodo, recognizing the global liberalization momentum, appears concerned that staying out of the TPP would put Indonesia at a disadvantage. When he travels abroad, Widodo urges foreign businesses to invest in Indonesia as an export base. The TPP, though, will increase the appeal of member countries by reducing or eliminating tariffs on goods, provided a certain ratio of parts are made within the zone.

Nuff said: advantage America. China, what's your counter-proposal?

Get ready to see lots more of these sorts of plants in Vietnam (read why below).

Bloomberg has an initial rundown of countries expected to win and lose from the conclusion of the Trans-Pacific Partnership (TPP) enlargement. When I pointed out earlier that there is a potential for very significant carve-outs for important TPP participants, I definitely had Japan in mind. True enough, one of the remarkable bits of agricultural protectionism that remains intact concerns rice. Despite the staple food becoming an ever-smaller part of the Japanese diet, rice farmers remain a core Liberal Democratic Party constituency. How so? Try a 1%--I am not joking--non-tariff import quota. Yippee, 1% tariff-free market access! With concessions like these....Anyway, here is the list together with some of my thoughts about the other countries:

Japan:

*Japanese car and auto-parts makers may be the biggest winners, as they get cheaper access to the U.S., the industry’s biggest export market
* Japan was forced to reduce some of the protections granted to its rice farmers, creating a non-tariff import quota of one percent of its total consumption
* Livestock farmers may be harder hit as tariffs on beef will be cut to 9 percent over 16 years from 38.5 percent, while pork tariffs will also be slashed

Australia:

* The deal will remove about A$9 billion of import taxes from Australian trade, Prime Minister Malcolm Turnbull said
* Australia will gain access to the U.S. sugar market while Japan will also reduce levies on the product and the cut in the beef tariff will help Australian ranchers
* Seafood and most horticulture products will see tariffs dropped, while preferential quota access will be created for grains, cereals and rice
* Australia and New Zealand successfully pressured the U.S. to compromise on the amount of time pharmaceutical companies would get protection for new biotech drugs, granting companies a minimum of five years rather than the 12 years of protection pushed by the U.S. That could lead to cheaper drug prices and more competition
* Reduced tariffs on everything from iron and steel products, to pharmaceuticals, machinery, paper and auto parts will help Australian manufacturers

COMMENT: Biotechnology stocks stateside are being driven down Tuesday as a result of the biotech provisions. 

New Zealand:

* Tariffs due to be eliminated on 93 percent of New Zealand’s trade with its TPP partners representing annual savings of about NZ$259 million ($168 million), Trade Minister Tim Groser said.
* The dairy industry, which accounts for about a quarter of exports, will see savings of about NZ$102 million a year. Some tariffs to remain in key markets such as the U.S., Japan, Canada and Mexico. Though New Zealand will get preferential access to new quotas, Canada only agreed to set foreign quotas for 3.3 percent of it dairy market over five years
* Tariffs on beef exports will be eliminated with the exception of Japan where they will drop to 9 percent from 38.5 percent, he said. Tariffs on all other exports including fruit, seafood, wine and sheep meat will be eliminated
* “While I am very disappointed that the deal falls far short of TPP’s original ambition to eliminate all tariffs, there will be some useful gains for New Zealand dairy exporters in key TPP markets such as the U.S., Canada and Japan,”  John Wilson, chairman of Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, said in a statement.

COMMENT: Canada and Japan's unwillingness to open up their agricultural markets significantly when faced with this agricultural exporter's wishes demonstrates the value the Americans placed on their participation. Remember also that New Zealand was an original TPP member before the United States thought about expanding it. In agricultural terms, however, it is a watered-down agreement on matter how the Yanks claim it is a "high quality" and "comprehensive" agreement.

Vietnam:

* Vietnam to be among the biggest winners, according to the Eurasia Group, with the agreement potentially boosting GDP by 11 percent by 2025, with exports growing 28 percent in the period as companies move factories to the low-wage country, the report said.
* Reduced import duties in the U.S. and Japan will benefit country’s apparel manufacturers, whose low labor costs have enabled them to grab business from China. Still, impact may be limited as Vietnam will still face strict rules-of-origin on materials.
* Fishing industry to benefit from elimination of import tax on shrimp, squid and tuna, now averaging 6.4%-7.2%
* Eliminating import taxes on pharmaceutical products from the current average of about 2.5% will lead to tougher competition between Vietnamese domestic companies and foreign companies. TPP will also increase patent protection, restricting Vietnam companies access to new products as well their ability to produce new drugs.

COMMENT: Low-cost assembly work in Vietnamese factories is set to get a boost since few of the other participants offer the same sort of comparative advantage. Maybe they'll diversify from Samsung phones as a result.

Malaysia:

* Malaysia’s state-owned enterprises may suffer from the deal which calls for equal access to government procurement
* Electronics, chemical products, palm oil and rubber exporters are among beneficiaries. Malaysia is the world’s second-biggest palm oil producer and one of the biggest growers of rubber

China:

* The world’s second-biggest economy may be among the biggest losers as it failed to join the TPP, allowing the U.S. to tighten trade ties across the region and advance the Obama administration’s so-called pivot to Asia. After initially dismissing TPP, Chinese officials have now indicated some interest in possibly joining in the future
* "China has an open attitude towards system building that complies with WTO rules and is conducive to economic integration in the Asia-Pacific region, and hopes the agreement and other free trade arrangements in the region can be mutually beneficial, so that they can make contributions to trade, investment and economic growth in the Asia-Pacific region," China’s Foreign Ministry said in a statement.
* Chinese exporters may lose some market share in the U.S. and Japan to developing countries such as Vietnam, according to Bloomberg economist Fielding Chen
* China will push its "one belt, one road" strategy of resurrecting trade routes from Asia to Europe and its new development bank and try to reach more free-trade deals with other countries, especially in Asia, Chen said. “While opening up its own door, China doesn’t want to see other countries are closing their doors,” Chen said.

COMMENT: Yes, yes, China is not a TPP signatory. To me, the real litmus test of whether TPP matters is if China loses enough business in the medium-term to want in despite the United States having thought up the TPP enlargement in the first place. China has alternative preferential blocs in mind, but it has lost out already in getting them inked.