Embassy of the United States

IT HAS been an eventful two and a half years for Frank Lavin, America's Ambassador to Singapore. His was a baptism by fire into the world of professional diplomacy: Days after he took over in August 2001 came the shock 9/11 terrorist strikes on New York and Washington, which marked a major turning point in America's foreign policy priorities.

'There are times when you have to stand up in your job,' he says. And he had to do it almost right away. For the US Embassy in Singapore, the immediate aftermath of 9/11 involved having to send American frigates to sea as a precaution ('At that time, we didn't know the exact magnitude of the threats; recall that the USS Cole had been attacked') and dealing with Singapore's Home Ministry on security for US establishments - a process that started on the very night of the attacks.

Fast-talking Mr Lavin, whose educational background includes degrees in Chinese language and history (which has made him fluent in Mandarin), as well as economics and finance, is a former venture capitalist and banker - a career he embarked on after serving in the administrations of US presidents Ronald Reagan and George Bush Sr.

He had expected to deal with largely economic and financial matters prior to taking up his post in Singapore. But he found himself having to devote much of his first few months on the job to security and safety issues, like holding town-hall meetings and roundtables to reassure the American community and business groups that Singapore was safe to live and work - or at least as safe as safe can be in a world where security risks are part of life.

Other jolts followed 9/11: bomb threats to the US Embassy by the terrorist group Jemaah Islamiyah, terrorist strikes in Bali and Jakarta, followed by medical evacuations of Americans to Singapore, and then the Severe Acute Respiratory Syndrome outbreak. In addition, Mr Lavin had to oversee logistical support from Singapore for US military operations in Afghanistan in 2002, and participate in high-level visits from Singapore to Washington by Singapore leaders - plus coordinate President George W Bush's visit to Singapore in October 2003.

Right now, things are relatively tranquil for Mr Lavin, who seems in a relaxed frame of mind ('No jolts at least,' he says). Sitting in one of the offices in the cavernous, fortress-like US Embassy in Singapore, he reflects on some of the high points during his tenure as ambassador.

One of them was the launch this year of the US-Singapore Free Trade Agreement (USSFTA) - the first comprehensive trade agreement between America and an Asian country.

While it's still early days, what has the response from the business community in the US to the deal been so far?

'The short answer is 'positive, but',' says Mr Lavin. 'Positive in that anybody who's interested in South-east Asia and Singapore is aware of this agreement. There are also half a dozen concrete examples of expansions under way that have been driven substantially by the FTA - in financial services, like branch ATM networks and fund management, and in intellectual property-related areas, like IT (information technology) and pharmaceuticals.

'The 'but' is this: there are so many factors which determine business decision making that you're not going to have dramatic results from one agreement, regardless of how important it may be. We can't say for all US business in Singapore that this segment of the pie is because of the FTA and that segment of the pie is just normal economic expansion taking place. Intuition tells us it's both. But there are some areas where we can be pretty certain that it's FTA-driven, like the financial services sector and IPR (intellectual property rights) related industries.'

While one effect of the USSFTA relates to US business activity in Singapore, what about its likely effect on Singapore business activity in the US? One of Mr Lavin's predecessors, ambassador Steven Green, noted in an interview with BT four years ago that Singapore Inc had, with a few exceptions, failed to cash in on the one of the biggest and longest economic booms in America's history from 1992 to 2000 in terms of doing business in the US.

To some extent, Mr Lavin finds the hesitation on the part of Singapore companies - particularly small and medium enterprises (SMEs) - understandable.

'It doesn't surprise me, because the US is a market that's far away. And it's a daunting market. If I were a Singapore SME, I'd have some strong scale arguments against entering the US as my next stepping stone. I'd think first about South-east Asia expansion, or the Australia market and get to a certain scale before I look at the US market.

'I think it would also depend on your competitive map, on how niche your product or service is. Do you have something distinctive that you can go to the US market and say, I can hold my own, or are you just going to be another firm in the phone book? If you say, I make pizza here in Singapore, I'd say, think about it before you enter the US market, because, well, there are already pizza joints in the US and you may not be adding anything distinctive. So you might want to expand a bit locally first.'

That said, there are cases of Singapore companies - one-time SMEs, and still SMEs by US standards - that have managed to crack the American market. One of them is Singapore-listed consumer electronics company Creative Technology.

'That's a great example of a niche player,' says Mr Lavin. 'These guys make arguably the best sound-related software and IT products in the world. They've got something distinctive. My son got an Apple ipod, but I got a Creative Nomad because I thought the technical specs of the Nomad were better than Apple - though maybe I shouldn't be saying this.'

As to the prospect of American SMEs entering Singapore, USSFTA or not, Mr Lavin's advice is basically to be patient and keep expectations modest, for now.

'This isn't US-Canada: geography works against us,' he says, 'If you're a California SME and feel you're ready to look at a foreign market, you're more likely to look at Canada or Mexico before you look at Singapore.'

That's why most of the American SMEs in Singapore tend to be suppliers or subcontractors to multinational corporations rather than stand-alone operations, he explains. Over time, this may change - and the USSFTA will help, by removing formal barriers to doing business such as regulatory and legal barriers. But meanwhile, we must respect whatever the market throws up.

A key aspect of the USSFTA is its provisions on privatisation and governance of Singapore government-linked companies (GLCs): essentially, it requires that GLCs be 'substantially' privatised and more transparent about the make-up of their boards and senior management.

Mr Lavin explains that the US insistence on including these clauses in the agreement stemmed from competitive, rather than philosophical, concerns. 'From the US corporate perspective, we want to make sure that there is market discipline in the system. Whether the Singapore government wants a larger or smaller stake in a particular company is a Singapore sovereign decision. But it can be asked: does a Singapore government stake in a company wittingly or unwittingly tilt the balance in corporate decision-making so that US companies cannot compete fairly. That's a fair question.'

Mr Lavin notes that when the USSFTA was being negotiated, there were some complaints on this issue from US companies. 'People would hedge their complaints. They'd say, 'We don't know how bad or pervasive this is, but there are instances where we feel we're being discriminated against because we're the foreign supplier'.

'So from the US side, we don't pre-judge it, we're not making an accusation. What we're saying is, in the interests of fairness, we want to make sure there's transparency, that US companies have the ability to compete against GLCs for business.'

'And by the way,' he adds, 'the first people who agree with that is the Singapore government leadership. They say, the reason we have stakes in companies, to the extent we have them, is not to direct these companies against market preferences, but for a long-term investment or for reasons of national development - not because we want to make sure that one hand scratches the other and there's this kind of incestuous relationship. So they agree very much with our philosophy.'

Another trade-related issue - which isn't explicitly dealt with in the USSFTA, but could result from it and which features strongly in the pre-election debate in the US - is the outsourcing of service industry jobs.

Tens of thousands of such jobs, ranging from simple help-desking to a range of financial, technical and even medical services, are being outsourced from the US to India, the Philippines and China, among other countries. The trend - which industry experts say is set to accelerate in the years to come - has fuelled a noisy debate in the US on the merits of 'exporting jobs' at a time of rising unemployment, with some politicians recommending legislation against outsourcing.

It's not just an election issue, says Mr Lavin; despite the improving US economy, there's also genuine economic anxiety, which gets magnified and played up during an election year.

But how is the US likely to deal with outsourcing? 'The short answer is, you deal with outsourcing and job migration outward by making sure you're very well positioned for inward job flows as well,' he says, adding that this might turn out to be as much an issue for Singapore as it is for the US.

'If your economy loses a certain number of jobs, that's less of a concern if more jobs come in, or are created. So don't focus all your attention on how much water is draining out of the bucket. Make sure you also look at how much water is coming into the bucket.'

Citing a study by US think-tank, the Cato Institute, he notes that from 1992 to 2003 the US created a total of about 320 million jobs, but over the same period lost some 300 million jobs - so the challenge ahead is to ensure that more jobs are created than destroyed. He adds that outsourcing is not the only reason for job destruction, which can also result from technological change, bad management and competitive pressures, among other causes.

Mr Lavin is confident that at least under a Bush administration, protectionism will not be invoked as a response to outsourcing.

'This administration is committed to free trade. It got trade promotion authority renewed, signed trade agreements with Chile and Singapore, got trade negotiations underway with Australia, Thailand, Central America, South Africa. And it's committed to getting the Doha Round (of multilateral trade talks, which are currently stalled) moving again. Protectionism won't get any support from this administration.'

But no matter what administration comes in, the US will be acutely sensitive to its interests in the Asia-Pacific, he says - particularly its trade interests.

'We have more trade across the Pacific than across the Atlantic. So in that respect, we're more of a Pacific nation than an Atlantic nation, even though much of our heritage and our culture comes from the Atlantic side - but increasingly from the Pacific side. The United States is a Pacific nation, and always will be.'