Viceroys long gone, EU grows in Asia

Viceroys long gone, EU grows in Asia
By Thomas Fuller International Herald Tribune

THURSDAY, MARCH 16, 2006


BANGKOK It has been decades since the Dutch left Indonesia, France fled Indochina and the British cleared out of Malaya. And, with the exception of trading posts like Hong Kong and Macao, European power and influence in the region waned dramatically.

But a combination of factors in recent years, including the expansion of the European Union to 25 countries, the introduction of Europe's single currency and worries that Asia is too reliant on the dollar, have today given rise to a quiet but growing European presence in Asia, analysts and government officials say.

This is a different Europe from the one whose viceroys helped colonize large swaths of Asia: more unified, more often represented by technocrats and certainly more peaceful.

European environmental and safety rules conceived in Brussels are increasingly becoming de facto Asian standards on the factory floors that churn out the televisions, clothing and furniture that fill most homes in the West. The weight and size of the European Union's expanded market - about 450 million people, compared with 300 million in the United States - has lifted the profile of EU rules, say experts in these standards.

In Asian trading rooms, bonds are being bought and sold in euros, a currency that just a few years ago was derided in Asia as the "European experiment." For instance, about 20 percent of China's total offshore outstanding bonds are now denominated in euros, according to Marshall Mays, the director of the Asian Bond Market Forum, a research organization based in Hong Kong.

"It's becoming clearer and clearer that Europe is slowly rising to be a counterbalance to U.S. consumer demand and industrial might," Mays said.

While Europe still speaks with a multitude of voices - British, French, German and Italian, among others - Asians are becoming accustomed to greater unity. Recent trade disputes over clothing and shoes have been described as Europe versus China or even Europe versus Asia.

Of course, the cacophony of debate within Europe over the euro and European Union policies is still audible in Asian capitals. Yet, in a key barometer of confidence, Asian central banks are progressively increasing their level of euro reserves, economists say.

Michael Spencer, chief economist in Asia for Deutsche Bank, estimates that about 25 percent of central bank reserves in Asia, excluding Japan, are in euros. This is an increase of about 20 percentage points, he estimates, when compared with the reserves that Asian central banks held in the combined predecessor currencies.

The dollar, of course, remains king in Asia, but central bank officials acknowledge a desire to hedge.

"Over the last three years, there has been concern about U.S. debt and the current-account deficit," said Julia Leung, a director at the Hong Kong Monetary Authority, the territory's central bank. "There have been moves toward diversification."

Judged by the size of the economy, the European Union and the United States are roughly equivalent, with a gross domestic product of $13 trillion. The United States buys a slightly larger share of Asian exports each year, yet for a variety of reasons Europe's presence is sometimes felt more strongly in Asian factories.

In a warehouse on the outskirts of Bangkok, engineers working for SGS, based in Geneva, test more than 1,000 products a day: food, children's toys, clothing - anything that will be exported. Walking through the hallways of the facility in a white lab coat, Pornpana Lirathpong, a manager at the company, pointed to products being checked for European standards.

With European Union directives rolling off her tongue, she sounded like a baseball fan citing batting and pitching averages.

She mentioned Directive 2002/95EC, which prohibits the use of hazardous substances in electronic equipment. Then there is EEC EN71, a set of safety regulations for children's toys.

Yudhana Petchmanee, a senior manager at SGS, said the European Union was more "severe," explicit and precise in its testing than other countries.

"If you comply with Europe, you comply with most other countries," Yudhana said. With the exception of Japan, many countries in Asia base their standards on EU rules, he said.

The use of European standards suggests a growing level of interdependence that could further facilitate trade between the two continents, experts say. And by adopting European standards, Asian countries are also spreading the use of EU standards to other parts of world.

At a General Motors factory south of Bangkok, 400 cars and pickup trucks roll off the assembly line every day and each is tested using a European emissions test. Few of the cars are actually shipped to Europe; most go to customers in Southeast Asia, Australia or the Middle East.

"Europe has one standard that applies to so many countries," explained John Thomson, the director of marketing for General Motors in Southeast Asia. Few countries use U.S. emissions standards, he added, because "you can't follow a country that has different rules for different states." The United States has two sets of standards.

Many of the European standards now being adopted in Asia - for cars, toys or textiles - are legislated unnoticed even by most European consumers. But they can have a profound influence on manufacturing in Asia and beyond.

They can also serve, perhaps inadvertently, to clean up the environment. Three years ago, the European Commission announced a ban on a certain class of azo dyes, once widely used for textiles. The commission said studies had shown the dyes to be toxic to humans and fish.

Hundreds of factories in Asia, if not thousands, needed to retool at significant cost, said Horst Geicke, chairman of the Pacific Alliance Group, which is based in Hong Kong and has garment factories in China and Vietnam.

"Europe is so powerful, but we also sometimes go nuts with them," Geicke said. "I have to admit that I was part of a delegation condemning this. We said, 'This is just a trade barrier.' But frankly, looking back, I think the azo ban was a good thing."

Geicke said that when shipping garments to the United States, the focus is less on government regulations than on the fear of lawsuits. Every garment he ships to the United States is put through an X-ray machine to check for needles, for example.

Yudhana, the manager in the Thai branch of SGS, the certification company, said one main difference between safety and health requirements in the United States and Europe is that the European rules are enshrined in law, whereas companies in the United States are often subject only to voluntary guidelines.

Yudhana recalled a recent meeting with U.S. officials at which he asked which regulations were mandatory.

"It's limited to high-risk products," Yudhana said, "drugs, medical machinery, some electronics."

European rules, he said, are more "systematic" and thus more easily copied by other countries.

BANGKOK It has been decades since the Dutch left Indonesia, France fled Indochina and the British cleared out of Malaya. And, with the exception of trading posts like Hong Kong and Macao, European power and influence in the region waned dramatically.

But a combination of factors in recent years, including the expansion of the European Union to 25 countries, the introduction of Europe's single currency and worries that Asia is too reliant on the dollar, have today given rise to a quiet but growing European presence in Asia, analysts and government officials say.

This is a different Europe from the one whose viceroys helped colonize large swaths of Asia: more unified, more often represented by technocrats and certainly more peaceful.

European environmental and safety rules conceived in Brussels are increasingly becoming de facto Asian standards on the factory floors that churn out the televisions, clothing and furniture that fill most homes in the West. The weight and size of the European Union's expanded market - about 450 million people, compared with 300 million in the United States - has lifted the profile of EU rules, say experts in these standards.

In Asian trading rooms, bonds are being bought and sold in euros, a currency that just a few years ago was derided in Asia as the "European experiment." For instance, about 20 percent of China's total offshore outstanding bonds are now denominated in euros, according to Marshall Mays, the director of the Asian Bond Market Forum, a research organization based in Hong Kong.

"It's becoming clearer and clearer that Europe is slowly rising to be a counterbalance to U.S. consumer demand and industrial might," Mays said.

While Europe still speaks with a multitude of voices - British, French, German and Italian, among others - Asians are becoming accustomed to greater unity. Recent trade disputes over clothing and shoes have been described as Europe versus China or even Europe versus Asia.

Of course, the cacophony of debate within Europe over the euro and European Union policies is still audible in Asian capitals. Yet, in a key barometer of confidence, Asian central banks are progressively increasing their level of euro reserves, economists say.

Michael Spencer, chief economist in Asia for Deutsche Bank, estimates that about 25 percent of central bank reserves in Asia, excluding Japan, are in euros. This is an increase of about 20 percentage points, he estimates, when compared with the reserves that Asian central banks held in the combined predecessor currencies.

The dollar, of course, remains king in Asia, but central bank officials acknowledge a desire to hedge.

"Over the last three years, there has been concern about U.S. debt and the current-account deficit," said Julia Leung, a director at the Hong Kong Monetary Authority, the territory's central bank. "There have been moves toward diversification."

Judged by the size of the economy, the European Union and the United States are roughly equivalent, with a gross domestic product of $13 trillion. The United States buys a slightly larger share of Asian exports each year, yet for a variety of reasons Europe's presence is sometimes felt more strongly in Asian factories.

In a warehouse on the outskirts of Bangkok, engineers working for SGS, based in Geneva, test more than 1,000 products a day: food, children's toys, clothing - anything that will be exported. Walking through the hallways of the facility in a white lab coat, Pornpana Lirathpong, a manager at the company, pointed to products being checked for European standards.

With European Union directives rolling off her tongue, she sounded like a baseball fan citing batting and pitching averages.

She mentioned Directive 2002/95EC, which prohibits the use of hazardous substances in electronic equipment. Then there is EEC EN71, a set of safety regulations for children's toys.

Yudhana Petchmanee, a senior manager at SGS, said the European Union was more "severe," explicit and precise in its testing than other countries.

"If you comply with Europe, you comply with most other countries," Yudhana said. With the exception of Japan, many countries in Asia base their standards on EU rules, he said.

The use of European standards suggests a growing level of interdependence that could further facilitate trade between the two continents, experts say. And by adopting European standards, Asian countries are also spreading the use of EU standards to other parts of world.

At a General Motors factory south of Bangkok, 400 cars and pickup trucks roll off the assembly line every day and each is tested using a European emissions test. Few of the cars are actually shipped to Europe; most go to customers in Southeast Asia, Australia or the Middle East.

"Europe has one standard that applies to so many countries," explained John Thomson, the director of marketing for General Motors in Southeast Asia. Few countries use U.S. emissions standards, he added, because "you can't follow a country that has different rules for different states." The United States has two sets of standards.

Many of the European standards now being adopted in Asia - for cars, toys or textiles - are legislated unnoticed even by most European consumers. But they can have a profound influence on manufacturing in Asia and beyond.

They can also serve, perhaps inadvertently, to clean up the environment. Three years ago, the European Commission announced a ban on a certain class of azo dyes, once widely used for textiles. The commission said studies had shown the dyes to be toxic to humans and fish.

Hundreds of factories in Asia, if not thousands, needed to retool at significant cost, said Horst Geicke, chairman of the Pacific Alliance Group, which is based in Hong Kong and has garment factories in China and Vietnam.

"Europe is so powerful, but we also sometimes go nuts with them," Geicke said. "I have to admit that I was part of a delegation condemning this. We said, 'This is just a trade barrier.' But frankly, looking back, I think the azo ban was a good thing."

Geicke said that when shipping garments to the United States, the focus is less on government regulations than on the fear of lawsuits. Every garment he ships to the United States is put through an X-ray machine to check for needles, for example.

Yudhana, the manager in the Thai branch of SGS, the certification company, said one main difference between safety and health requirements in the United States and Europe is that the European rules are enshrined in law, whereas companies in the United States are often subject only to voluntary guidelines.

Yudhana recalled a recent meeting with U.S. officials at which he asked which regulations were mandatory.

"It's limited to high-risk products," Yudhana said, "drugs, medical machinery, some electronics."

European rules, he said, are more "systematic" and thus more easily copied by other countries.