Japan is an economic giant in every sense of the word. In accordance with the size of the Japanese economy and its growing importance in foreign trade and investment, its economic activities and policies have had and will have substantial impact on many national economies the world over — especially the ASEAN countries. Japan is not only ASEAN's most important trading partner but also its largest source of aid and investment.

Economic interaction between Japan and ASEAN is not limited to flows of commodities and finance. Technology has a vital role to play in the economic development of the ASEAN countries. It is often said that the possibility of borrowing technology gives latecomers to the development process an advantage that the pioneers of industrialization did not possess. Furthermore, it is widely recognized that the phenomenal achievements in the economic development of Japan have been made possible by its acquisition of technical knowledge and successful adaptation and utilization of this knowledge selectively borrowed from the West. Japan, therefore, has an accumulated stock of scientific, technical and managerial expertise as well as a stock of rich experiences in borrowing, adapting, diffusing and developing technology which are invaluable to ASEAN.

The ASEAN countries are aware of the importance of technology and related skills required for the processes of industrial development. However, little has been done so far to identify, let alone establish, proper mechanisms for the enhancement of technology and skills at the national level. If this situation is not quickly rectified, it will remain a serious impediment to industrial development.

On the other hand, Japan is naturally concerned that successful industrialization in the ASEAN countries may result in the Japanese market being flooded with cheap imported manufactures. It may also shrink Japanese exports in third markets. Thus, any co-operative effort on the part of Japan in the ASEAN countries may be considered in the short run to be contrary to its own self-interest. This concern is misplaced.