Essential Trading Post

October 27, 2008 by  
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"Anyone who would change the essential freedoms of temporary permits should be neither" Ben Franklin

Not showing the founding fathers (at least Franklin) would have been contrary to policy Bush and our willingness to give up freedom security in the post 9 / 11 America?

"Ben Franklin could have imagined 9 / 11? I do not disagree, but we must admit that the world is much more complex in its place the day of Ben.

International Trade and Finance

The explosive growth of international financial institutions transactions and capital flows is one of the most economic developments in depth of the late 20th century. Net flows of private capital to countries developing tripled - More than $ 150 U.S. dollars per year between 1995 and 1997 of approximately U.S. $ 50 billion per year between 1987 and 1989. At the same time, the proportion of private capital flows to domestic investment in developing countries has increased by 20% in 1996 to only 3% in 1990. Therefore, This change was made to the national economy into the global economy in which production is internationalized and consumption and capital flow freely and instantly moving through the borders.

Powerful forces have driven the rapid growth international capital flows, including the trend in the industry and developing countries towards economic liberalization and globalization of trade. Changes revolutionaries in the information technology and communications have transformed the world of financial services industry. computer links enable investors to access information on prices of assets at a minimal cost under real time, while increasing computing power allows it move quickly between the correlations between asset prices and asset prices and other variables. At the same time, new technologies make more increasingly difficult for governments to control either active or passive international capital flows when they wish.

In this context, perhaps the Financial markets are better understood as networks and global markets as networks of various related markets by hubs or financial centers.

All this means that the liberalization of capital markets and thus increases the probability of volume and volatility in international capital flows is a constant, and to some extent, an irreversible process.

Contributed to increased investment, faster growth and higher standard of living. But it can also lead to clashes and tensions arising from the financial crisis that we have all witnessed in 1997 and 1998.

Evidence of the risks of open capital markets are the waves of instability in financial markets in early 1998 and again in the wake of the crisis Russia in August / September 1998. To illustrate this, a net outflow of private capital from the five countries most affected by the crisis, namely Indonesia, Korea, Malaysia, Thailand and the Philippines rose to 28.3 billion U.S. dollars in 1998, mainly due to the decline in the banking system, and non-bank loans. Meanwhile, investment FDI, which had been an important source of growth during the period prior to the crisis in these countries was low in 1998, amounting to 8.5 million U.S. dollars, compared to an average of 17.8 billion U.S. dollars during the period between 1995 and 1995.

World trade has experienced a slowdown over the last two years due to the contraction of trade economies of East Asia. Overall, world GDP and trade growth slowed in 1997/1998 as the recent Asian crisis and its profound impact felt increasingly outside the region. Asia registered the largest decline in imports and exports in volume and value of all regions of world. The dollar value of imports from Asia have experienced unprecedented decline 17.5%. The five Asian countries most affected by the crisis financial erupted in mid-1997, namely Malaysia, Indonesia, Philippines, South Korea and Thailand, the contraction of imports experienced in third countries.

In the context of these powerful trends, I like to address some important issues concerning, in particular from the perspective of the regulator of capital market. Given the breadth of the topic at hand, and in the interest maintain time let me focus in particular on current trends and challenges in the capital markets.

FACTS Electronic Commerce and Regulation of Financial Markets
Advances in computer and information technology have made drastic changes in how the industry operates financial services. These changes are affecting and will affect all aspects of the financial services industry and offer the opportunity to reduce costs for obtaining capital, greater efficiency in the mobilization of domestic savings and international and supply of investment products more cheaply and more responsive to needs in various segments of investors. The convergence of computing and communications technologies to promote the development of computer networks, allowing users to communicate and transmit data and other information regardless of borders and distance. As communication costs continue to fall, the potential of outsourcing grows.

These changes are affected -

  • Investment products offered way, distributed and marketed and how information products investors access and agencies concerned;
  • The activities of financial services intermediaries, especially counselors and how they deal with investors;
  • The confusion continued product and institutional boundaries, and even the area of sector financial services themselves to non-traditional on some of the functions of financial intermediaries;
  • The methods of distribution and marketing of investment products, which are increasingly based on the techniques of marketing consumer products and
  • Form secondary market for investment products is performed as greater flexibility for the operations of direct investors and competitors at low cost for established values and the futures market becomes a reality.

As electronic commerce on investors and providers and financial services will affect the role of business and regulatory agencies of the capital market. And facilitate trade activities electronic cross-border jurisdictional issues raised in clear terms about the practical applicability of national laws. Trade and the practical aspects of implementation, whether electronic also raises questions about the role that capital market regulators should play and effectiveness of most traditional approaches and regulatory mechanisms that have been occupied by them. An example might be an offer securities without a prospectus or registration statement on the Internet by a person in a jurisdiction with which the regulator of market capital did not have regular contact or implementing arrangements. There are also concerns about illegal and fraudulent activities Internet.

In this regard, Malaysia's position is that he is engaged in a structured development of electronic commerce. To this end, Malaysia has proposed to introduce a national blueprint for electronic commerce. This master plan should focus on key initiatives create a new impetus to trade e-commerce. In addition to examining the development of technological infrastructure, such as telecommunications infrastructure and systems for providing electronic payment products and the government is also aware that there are legal and regulatory issues that arise in electronic commerce. Malaysia has introduced several games law is a proper regulation of commerce known as "cyber-. The cyberlaws have been introduced include, among others:

(I) 1997 Computer Crimes Act

This law establishes a framework to fight against cyber crime such as unauthorized access to computer material, crimes of fraud and dishonesty in the computer, unauthorized modification of the contents of a computer and hence. The law does not limit the jurisdiction. In effect both in and outside Malaysia. When a crime committed outside of the computer is in Malaysia against computers or Malaysia or data that may be connected or used in Malaysia, the crime may be considered a crime in Malaysia and the author can be processed in accordance with the provisions of this law and

(Ii) Digital Signature Act 1997

This law deals with issues of security and authenticity electronic transactions and allows for greater confidentiality and message integrity. It allows businesses to use electronic signatures instead of their handwritten counterparts on matters legal and commercial transactions. The law provides for the processing of the document signed with a digital signature created pursuant to this Act shall be regarded as legally binding as if the document has been signed with a handwritten signature.

The development of an effective regulatory framework is essential to attract and maintain the confidence of world trade with their counterparts in Malaysia by electronic means. The regulatory framework in its current form is incomplete, and many other areas such as electronic banking and brokerage are still in the process of development.

To build confidence, Malaysia should be able to provide legal certainty and consistency and to avoid whim of regulation. Regarding financial services, an important consideration is transboundary. The SEC, for example, is studying issues the Internet offers of securities and fund management and brokerage services through the Internet. A review of existing laws are necessary to ensure that there have been overtaken by technology and the restructuring of the laws of technological neutrality.

Regarding market capital is involved, the SEC recognizes that electronic commerce is an area where it is important that the regulatory infrastructure responds positive and timely manner to facilitate market development and not hinder innovation in the marketing of products and processes. We believe are significant benefits to be gained in the provision of the Commission on market developments in this field for competitive markets Malaysian capital, efficiency in the functioning of our capital markets and the best investors at a lower cost. At the same time, the Securities Commission considers it important for the success of e-commerce investors to maintain confidence in the integrity investment products on the market.

VS liberalization. Protectionism

On the issue of liberalization vis-à-vis protectionism, there has been a proliferation of multilateral trade agreements since the mid-century. These agreements establish a framework rules which nations are "forced" to ensure other nations have signed the agreement of a sovereign approach to international trade. For example, Malaysia is a member, among others, the World Trade Organization, through which one of the signatories of the GATS (General Agreement on Trade services) and GATT (General Agreement on Tariffs on Trade), APEC and ASEAN, all of which aim to achieve a liberalization Trade in goods and services in some, but not immediate deadlines. Through these trade blocs, Malaysia is committed to liberalization Progressive, which essentially involves the gradual transition from opening the economy to foreign participants.

The globalization of economies is inextricably linked to the internationalization services sector. It plays a key role in the growing interdependence of markets and production in the country. Information technology has increased the scope of the negotiability of the industry. Access to services which is effective not only because it creates a new potential for export but will also be a factor increasingly important economic productivity and competitiveness. The main objectives of the revolution "services are rapidly expanding service based knowledge, such as professional and technical services, banking and insurance, health and education. In response to this phenomenon, the regulatory hurdles the entry into service industries are in decline worldwide, either through unilateral reforms, negotiating mutual or multilateral agreements. Developing countries like Malaysia are increasingly looking at foreign direct investment in services as particularly effective transfer of technology and management skills and attract capital and foreign investment in the country.

Malaysia is committed under the GATS legal services covering advisory services in relation to laws of the country of origin, international law and company law offshore Malaysia. According to the commitments the GATS, commercial presence of foreign legal firms is not available, except for Federal Territory of Labuan and if Yes, their services are limited to legal services provided to offshore corporations established in Labuan. However, there are no limitations on the provision legal services across borders, namely the provision of such services of an alien without lawful presence in Malaysia. This can be done fax, telephone or Internet. As mentioned earlier, most aspects of legal services do not require the physical presence of the provider services, except perhaps in a court appearance is necessary. On the other hand, one of Malaysia can obtain legal services abroad without restriction by anyone.

Malaysia has also signed the ASEAN Framework Agreement on Trade in Services (AFAS). AFA is a contract concluded under the auspices of the GATS. In general terms, commitments under GATS, AFAS is which means that the liberalization Trade is accelerated in the ASEAN region under the AFAS, cons with the world under the GATS. Their ultimate goal is to achieve regional integration and free movement of services in the region. To achieve integration and free movement of services in the area, many issues that must be corrected. Issues such as the harmonization of professional standards, acceptable levels of accreditation between member countries, the labor movement in the provision of these services, licensing and certification service providers are discussed intense among member countries. Taking into account the different levels of economic maturity and regulations of member countries within ASEAN, it is understandable it would be a long process of consultation before a consensus can be reached.


A most obvious impact of globalization of trade is the pressure on developing countries to liberalize their financial markets and capital accounts. However, it is important to recognize that national and international financial liberalization increases the risk of crisis if it does not follow the rules prudential and sound macroeconomic policies. internal liberalization, by intensifying competition in the financial sector, removing the interim protection a cushion the impact of bad debts and management practices. It may allow domestic financial institutions to develop activities risk at rates that far exceed their capacity to manage them. By providing financial access to institutions of complex derivatives can make the assessment of banks' balance sheets more difficult and stretching the ability of regulators to monitor risks. Liberalization external funding to allow entry into foreign markets National Financial can provide access to a plentiful supply of venture capital high seas and foreign investment. Devaluation of a currency crisis or unexpected (for example, the Asian crisis) can undermine the solvency banks and corporations that may have accumulated large liabilities denominated in foreign currencies and are not protected against exchange rate.

The ideal free market is that everyone should be free to enter, participate and leave. However, events in the recent financial crisis have led many of us believe that, in the freest of markets, it is necessary to ensure the free movement of capital not destabilize the market.

In fact, the calls for reform have received growing support and credibility of the community International Development with the devastating crisis since mid-1997. The work of the SC in the Emerging Markets Committee of IOSCO is the attention the fundamental weaknesses of the existing global financial infrastructure that caused and exacerbated these effects. These limitations include the excessive power of institutions high leverage to move the markets, the destabilizing force volatility of capital flows in the short term and inadequate systems current credit rating to properly inform the market players to increase risk of default.

An example of this consensus Crescent was the explicit recognition of the G7 countries at their recent meeting in Cologne on the need to strengthen the financial architecture International.

Currently, there are increasing calls for greater transparency and regulation of hedge funds and more awareness of the dangers of the volatility of capital flows in the short term. To rebuild the East Asia and the world economy, now an urgent need to initiate an honest debate about what constitutes good governance in the contemporary world.

Domestically, we must ask ourselves: our financial markets followed the pace of change? As markets become more global, the rules and regulations remain largely parochial or local law. From a view of regulation The challenge for us in a global marketplace is to design and structural policy framework that will allow the market to operate effectively, the competition in a fair and equal conditions for the environment while the market is not subject to forces of destabilization or highly concentrated which could disrupt its operation.

The recent crisis demonstrates the need for a disciplined approach and timing of liberalization capital account of a country. Experience Thailand, Korea and Indonesia clearly tells us that there is no formula prescribed in the sequencing. However, it is important to recognize that countries vary considerably in their level of economic and financial development in their institutional structures, in their legal and commercial practices, and their ability to manage exchange for a series of corresponding areas of financial liberalization. This is in recognition of this committee that the policy of the IMF and finance ministers and central bank governors of the G-7 industrialized countries to fall 1998, stressed that a country opening its capital account must do so in an orderly, gradual and well sequenced.

Problems liberalization or protectionism should be considered at length to ensure that a country is competitive in a global trading environment. In developing countries like Malaysia, a protectionist policy to local industry and financial services companies have been taken to help industry local development of international standards. In the field of financial services, for example, the government's position is that the consolidation of local service providers financial need for the development of a core of strong and stable Financial institutions face international competition when the International financial services markets are open to participants.

In fact, Malaysia's experience clearly shows that premature disclosure capital account, which was made in 1988, without requiring reforms and institutional arrangements in order to resist shock, can cause debilitating effects that given the financial services industry in Malaysia.

Experience Malaysia

Perhaps The most important lesson I learned from the Asian financial crisis was the interdependence of financial markets. Even economies most developed not escaped the effects of the financial crisis that began following the failure of Thailand on his show bond in February 1997. In May 1997, the ringgit, Malaysia has been under strong pressure from currency speculators and interest rates had increased 7% to 9%. It was reported that Bank Negara Malaysia spent about RM1.2 billion of its foreign reserves to try to prevent attacks by speculators. However, this was the first of many repeated attacks on the currency.

The effects of the currency crisis began to be felt in the country in 1998. Interest rates have increased by over 11% and had fallen ringgit to a record high of RM4.71 in January 1998. All sectors of the economy experienced a sharp contraction of liquidity and access to credit has become weaker. Bank Negara had made many attempts to suppress the effects of the financial crisis by imposing tighter monetary policies and attempts to facilitate credit to certain sectors economy has been in vain. But the attack did not stop.

Note Malaysia sovereign credit has been reduced by international rating agencies to just above the rank of "junk bonds called. Malaysia is facing a severe credit crunch. The increase in international capital cost prohibitive. Capital flight has led to a sharp fall in stock levels dropped to 250 before the hollow the second half of 1998.

As many of you know the answer to the crisis in Malaysia has been one that was totally unexpected by the international community. The government decided it was necessary to protect the economy to increase global pressures on the economy of Malaysia. On September 1, 1998, the government introduced selective exchange controls to stop and prevent manipulation and speculation over the ringgit. The ringgit is related to 3.80. The government has taken new measures to discourage short-term flows of money, by requiring that the flow of funds must remain in the country for at least a year. On February 15, 1999, he was replaced by an exit rate for the repatriation of capital. Change control selective measures imposed by the central bank on September 1, 1998 have been directed towards reducing the internationalization the ringgit, eliminating access to ringgit by speculators and reduced offshore trading of ringgit. It is the introduction of rules on Transactions of the external accounts by non-residents and foreign exchange settlement of commercial transactions. However, payments in general, including movements funds linked to long-term investments and repatriation of profits, interest and dividends are not affected. Payment for imports of goods and services must be in foreign currency. All export earnings must be repatriated Malaysia within six months from the date of export and export goods must be received in foreign currency.

The control scheme is designed to provide selective of time and opportunity for the government financial reforms needed in financial markets in Malaysia. It is, in fact, being in Danamodal work (the equivalent of the Resolution Trust Corporation in the United States) to relieve the gloom of bank balance sheets and recapitalize is Danamodal banks. The Government is also committed to strengthening the national financial industry, financial service providers of some services, but strong and viable to prepare financial liberalization.

Provide certainty to financial transactions and investment protection foreign

International trade and finance, because of its global nature, necessarily involves many areas that can lead to uncertainties of the applicability of the contract, they are certain trade and financial agreements. These areas ranging from policy issues and stability Sovereign political intervention in the economy, security of applicable laws, including the independence of the judiciary.

Counsel for Asia will be fascinated by the rapid changes occurring in the law of foreign investment, both in this region and elsewhere in the world. In less than a half-century Asian states have moved in a wide range of positions that could be adopted for investment abroad. The period of the immediate post-colonial period has been characterized for a period of hostility towards foreign investment motivated by the belief that the end of economic imperialism alone bring true independence. The period was marked Next a debate on the regulation of multinational enterprises and the fear that a threat to state sovereignty. During this period, laws were designed to control the entry of foreign investment and how foreign investment operating in the host country after entry. The third period is a period of pragmatism in the prevailing opinion is that foreign investment if harnessed, can be an instrument that generates the rapid economic development. Competition for investments which are limited resources available that all countries in which the state insists on foreign investment led growth strategy must make its laws as investor-friendly Aliens and other State which is also complied with a similar strategy.

As much as the competition between countries to attract foreign investment, there is competition between multinational enterprises to enter the host country. While the market has been dominated by by large multinationals, now, there are small and medium enterprises that can transfer appropriate technologies and provide sufficient assets to investment.

This "open door" policy towards foreign investment in developing countries is usually obtained by analyzing Beware of the entry of the administrative bodies that have been established for this purpose and process control of foreign investment after the post was made. After the entrance, there is continuous monitoring of foreign investments to ensure that foreign investment is consistent with the conditions that have been authorized. In this respect, attitudes toward foreign investment protection and dispute settlement will be affected by the new strategies adopted to foreign investment.

Under New strategies have been developed by controlling the entry and subsequent monitoring of foreign investment operations, foreign investment is no longer a problem on the basis of the contract and became a process initiated by a contract without a doubt, but controlled any point through the mechanisms of public law of the State. Old notions of protection of foreign investments are concentrated on the completion the contract and the underlying contract of all rights of foreign investors will inevitably become obsolete. This transformation has taken place is fundamental to the development effective methods of protection of foreign investment. The object of protection has also changed in that not only the physical assets of investors foreigners, but their intangible assets including intellectual property rights and the rights and privileges of public right of licensing were protected.

The proposition that a contractual agreement with a little protection from the host country to foreign investment should be classified as a situation in which a bilateral investment treaty was concluded between the State of the foreign investor and the host country. The result will be different for the contract is truly internationalized as a consequence of the existence of such a treaty. This a basic proposition of international law that any matter which is essentially within the domestic jurisdiction of any State could be internationalized if it is the subject of an international treaty. The existence of a bilateral investment treaty covering foreign investment, then the whole process of internationalization of foreign investment that would otherwise have been a process that takes place entirely within the competence Sovereign of the host State. But if this result will depend on the terms of the bilateral investment treaty.

As a matter of general international law, the position seems to be a contract between a party and the host country should always be subject to national legislation. Those trying to show what an otherwise difficult task of demonstrating that their proposal accepted has undergone a change. There are usually several awards uncontested supporting the idea that foreign investment contract is subject to international law or any other supranational system.

bilateral investment treaties are obviously of paramount importance to both capital exporting and importing States. But these treaties are not uniform and lack the ability to create a uniform law on the protection of foreign investment. But their presence adds to the investor confidence and creates an expectation of investor protection. The importance of these treaties is found in the results of many to achieve. First signal is a function of national policy towards foreign investment.

Another advantage is that foreign investment contract under of bilateral investment treaties could have the effect of building assets protected by bilateral investment treaties. also includes the licensing and other benefits from the government in foreign investment. Considering that the Treaty Bilateral placement of these licenses and the rewards are not protected under general international law, the new coverage of the receipt Following the broad definition of property in the bilateral investment treaty. If the host country for their administrative decisions are subject international control as a result of the Treaty, remain a subject of controversy. But it remains a possible outcome if the Treaty.

In Malaysia, efforts were made by the government to ensure a level of security among international trading partners trade with their counterparts in Malaysia. Government expressly granted to foreign companies acquiring shares in local companies would not be forced to restructure its capital at any time [1]. In addition, the government has taken numerous steps to increase the confidence of foreign investors in Malaysia.

Contracts Guarantee of Investments (IGA)

The investment guarantee agreement protects the parties involved in an international transaction noncommercial risks such as nationalization and expropriation. The AMI will provide a foreign investor as follows:

  • protection against nationalization and expropriation;
  • prompt and adequate compensation in case of nationalization or expropriation under a legal or public;
  • free forgiveness exchange gains or capital costs;
  • dispute Investment through a process of consultation through diplomatic, or if this process does not work for submission to the International Court of Justice. Disputes on investment, income generating activities initially be settled through the facilities court. If not addressed, will be referred to the Convention on the Settlement of Investment Disputes D'or International ad hoc Arbitral Tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law.

Malaysia has entered into income-generating activities with about 64 trading nations including trade blocs such as ASEAN and key trading partners as the United States, United Kingdom, Germany, Taiwan, etc.

Trade disputes CLEARANCE

Another International trade is the availability of acceptable form of dispute resolution. The globalization of trade implies, of course, the more potential to generate international trade disputes. The international business community sees the mechanisms of the system, settlement of disputes economic and equitable. Negotiation, conciliation and arbitration mechanisms to resolve conflicts well known. Negotiations direct and conciliation to resolve a conflict. However, when the parties do not resolve the dispute through direct negotiations have two options: a dispute or Arbitration.

Under the GATS, there is no provision expressed for the resolution of commercial disputes in the country have disputes in relation to commitments under the Agreement. The WTO has established procedures through a process of dispute resolution. The dispute settlement procedure is considered more as a contribution to the stability of individual WTO global economy. procedure WTO stresses the rule of law, and makes the trading system more secure and predictable. It is clearly structured with soft schedules to finalize procedure. rulings are made by a group, appeals based on points of law are possible and all final judgments and decisions are taken by members of the WTO. No country can block a decision.

Malaysia is a signatory to the Convention on the Settlement of Disputes Investment established under the auspices of the International Bank for Reconstruction and Development, which provides mechanisms for conciliation or arbitration International. Following this, the Kuala Lumpur Regional Arbitration Centre was established in 1978 to provide a system for resolving disputes in the interest of the parties involved in trade, commerce and investment with and in the Asia-Pacific.

In conclusion, approach the new millennium is certainly a challenge for us all to meet some of the questions above and take appropriate action.

About the Author

MBA/NET qualified


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