Speeches

Reinvention and the US-Singapore FTA: Remarks of Ambassador Franklin L. Lavin at the IBM Forum

July 22, 2003

Thank you Janet. I'd like to thank everyone for coming. I typically get invited to these sort of gatherings because people want to understand better the big picture. Where is the economy going? Where is the U.S. going? Where is Singapore going? and most importantly, where are my stock options going?

Let me use the brief time I have with you today to try to tackle these questions, but to cut through the suspense I should tell you up front that I am guardedly bullish about things - though I don't know the strike price of all of your options. I’d like to offer some thoughts about the U.S. and the Singapore economy, the Free Trade Agreement, the IT implications of the FTA, and then try to wrap up with some general conclusions.

First, let’s look at the U.S. economy. The economy has been through a rough patch, but things are looking up. In the last two years we have been through an Internet bubble, a telecommunications bubble, and a sharp down turn in the IT sector. But those have now been wrung out of the economy, and over the past year or so we have seen 13 interest rate cuts by the U.S. Federal Reserve and we will also be seeing the impact of the fiscal stimulus brought by President Bush’s tax cuts. The U.S. economy seems increasingly to be on path toward sustained recovery. As Alan Greenspan said last week, financial conditions have turned decidedly more accommodative. There is also good news regarding corporate earnings and, increasingly, in the leading economic indicators. So there is a growing basis for optimism about the U.S. economy.

Now where does that leave Singapore? The cyclical recovery in Singapore will be soon enough, but the structural recovery will take more time. After thirty plus years of generally high growth rates, Singapore's economy over the past few years has faced much rougher sailing. Many of the reasons for this are from factors beyond Singapore's control - the Asian Financial Crisis, the downturn in IT demand, weak conditions in Singapore's key markets, etc. But some of the reasons are structural - Singapore's transition to developed-country status has meant it is decreasingly competitive in a range of manufacturing, while key service sectors - such as logistics – also feel competitive pressures from lower-cost rivals abroad.

Singapore's challenge is to transform itself. In a sense, Singapore needs to reinvent itself just like IBM did. IBM was once a hardware company - selling big computers and office machinery. IBM was good at what it did - it had perhaps the finest marketing team in the world. The IBM Selectric typewriter, mainframe, and PCs all set standards. IBM could have stuck to being only a hardware company, but IBM's corporate leadership was smart enough to understand that the company’s competitive advantage lay elsewhere. So IBM transformed itself into a services company, or, if you will, an IT solutions company. Sure, IBM still sells hardware, but the hardware is the means to the end, and not the end in itself.

I look at Singapore and I see lessons from IBM. Like the old IBM, Singapore's base was in hardware, in manufacturing. Like the old IBM, Singapore has been great at engineering. And, like the old IBM, Singapore has concluded it must reinvent itself. Singapore's leadership understands that the future lies in creating value, not necessarily in making things.

Policy changes are unfolding to support the vision of a global, entrepreneurial, knowledge-based center. Singapore is augmenting its traditional status as a hub city by also making itself a virtual hub city, in which IT connectivity makes Singapore a natural base for regional management. Singapore leadership knows what we in this room know: nowadays, every business is an IT business. Regardless of what product or service your business offers, IT is integral to your operations, your finances, and your customer services.

So part of the structural change in Singapore is to redefine itself as an IT Solutions hub, just as IBM redefined itself as an IT solutions company.

The US-Singapore FTA will help this transition. It is an important building block for a knowledge-based economy. In many areas, including services, e-commerce, and intellectual property, it breaks new ground and creates exciting precedents. Indeed, no previous FTA contains such cutting-edge provisions on digital trade as this FTA. Let me mention a few examples.

First, it extends free trade in services to the electronic delivery of such services over the Internet. This will benefit vendors of travel-related solutions, such as Abacus International, or vendors of insurance services, such as Great Eastern Life, or other financial service providers like Visa International.

Second, the FTA ensures that products delivered in digital form over the Internet will be treated no differently from products delivered by conventional means. Thus, a digital version of a Singapore film sold on-line by a Singapore vendor and delivered via the Internet to a customer in the US, will be treated the same as a DVD version mailed from Singapore to the U.S., i.e., tariff-free.

Beyond these commitments, the US and Singapore also signed a Joint Statement on E-Commerce, which states that the private sector should take a lead in developing E-commerce and electronic business practices, and that governments should avoid imposing unnecessary regulations and restrictions on E-commerce. While Singapore already subscribes to this philosophy, we hope this will set a positive precedent for possible future trade agreements with other countries in the region.

The US-Singapore FTA also provides 21st century protection of intellectual property, the fuel on which a knowledge-based economy depends. With the FTA, Singapore will offer protection comparable to that in the US, and probably the best in Asia. This is a tremendous selling point for Singapore.

Singapore will provide extended terms for copyright protection, consistent with US standards. This will protect copyrighted works longer - important for Singapore software developers, with in global firms like IBM, or local ones like CrimsonLogic.

Copyright owners will retain rights to temporary copies of their works stored on computers. This will protect music, films, software and text from unauthorized sharing via the Internet. Thus, companies like Singapore Press Holdings can be more confident that on-line content will be protected from copying.

So let me sum up. In economic terms, there is good news and bad news. The good news is that the bad news is largely behind us. The bad news is that the good news is not yet here, though it seems more promising as we get toward the end of the year.

In restructuring terms, there is also good news. Singapore is in the process of reinventing itself, stripping out inefficiencies and continuing to build on its success. At least part of the answer is an IT-friendly system that helps Singapore retain its regional, and even global attractiveness.

The US-Singapore FTA is an important building block in that regard. With this single initiative, Singapore makes a strong statement that it is the most IT-friendly and IPR-friendly locale in Asia. This is good news for all of us here today.

That concludes my remarks. Oh, and for your stock options, one final prediction: some of you will be doing so well in the market one year from now, you won’t be able to attend next year’s IBM conference. You’ll be at the beach enjoying life.

But as for the rest of you—I hope you will join me here again next year at the 2004 conference.

Thank you very much.