Part 1 of 2: ASEAN: A single market and production base<\/p>\n
Romeo A. Reyes, Jakarta<\/p>\n
At their Bali Summit of October 2003, ASEAN Leaders declared
\nthe establishment of an ASEAN Economic Community (AEC) as one of
\nthe three pillars of a broader ASEAN Community. The other two
\npillars are ASEAN Security Community and ASEAN Socio-Cultural
\nCommunity.<\/p>\n
In particular, they declared AEC as the realization of the
\nend-goal of economic integration as outlined in the ASEAN Vision
\n2020. It is characterized as a single market and production base,
\nwith free flow of goods, services, investment and skilled labor,
\nand freer flow of capital by 2020.<\/p>\n
ASEAN Leaders also declared the acceleration of regional
\nintegration in 11 priority sectors as recommended by a High Level
\nTask Force (HLTF) on ASEAN Economic Integration.<\/p>\n
At the ASEAN Economic Ministers (AEM) Retreat on April 21 in
\nSingapore, the Ministers set 2010 as the ultimate deadline for
\neconomic integration in those sectors.<\/p>\n
Towards that end, roadmaps are to be prepared by countries
\ndesignated to coordinate accelerated integration in those
\nsectors, as follows: Indonesia for Wood-Based Products and
\nAutomotives; Malaysia for Rubber-Based Products and Textiles and
\nApparels; Myanmar for Agro-Based Products and Fisheries;
\nPhilippines for Electronics; Singapore for Information and
\nCommunications Technology (e-ASEAN) and Health Care; and Thailand
\nfor Air Travel and Tourism.<\/p>\n
These roadmaps are to be presented to the ASEAN Economic
\nMinisters at their September 2004 meeting.<\/p>\n
One useful way to facilitate understanding of the
\ncharacterization of AEC as a single market and production base is
\nto make a distinction between the product market and the factor
\nmarket, and the nature of goods and services traded in those
\nmarkets between buyers and sellers.<\/p>\n
In the product market, goods and non-factor services, e.g. air
\ntransport service produced by Garuda International or insurance
\nservice produced by Manulife, are traded (sold or bought) between
\nproducers on the one hand and consumers and investors on the
\nother. They are recorded as consumption or investment expenditure
\nin the accounting of economic activities. If the seller and the
\nbuyer are from different countries, they are recorded as exports
\nand imports.<\/p>\n
As a single market, there would be no barrier, tariff or non-
\ntariff, to the flow of these goods and services within the
\ncommunity and across the 10 countries. With full implementation
\nof the Green Lane system for products covered by the ASEAN Free
\nTrade Agreement (AFTA), electronic processing of trade documents,
\nharmonization of standards, implementation of Mutual Recognition
\nAgreements, no visa entry and exit, and removal of all other non-
\ntariff and technical barriers, there would be free movement of
\ngoods and people, e.g. Garuda staff, rendering non-factor
\nservices.<\/p>\n
Take one of the 11 priority sectors as an example. By 2010, a
\ncar produced in the Eastern Seaboard of Thailand can be moved
\nfreely across the border and sold to Malaysian consumers in
\nPenang almost as easy as moving and selling it to Thai consumers
\nin Chiang Mai.<\/p>\n
Likewise, by 2010, tires produced in Penang can be moved and
\nsold to investors (car manufacturers) in the Eastern Seaboard of
\nThailand or to consumers (car owners) in Bangkok almost as easy
\nas moving them to Kuala Lumpur.<\/p>\n
In the factor market, labor and capital rather than goods and
\nnon-factor services are traded between producers (or users) and
\nfactor owners. As a single market, there would be a free flow of
\nthese factors of production within the community and across the
\n10 countries. With no visa entry and exit, a commercial bank in
\nJakarta, for instance, can hire an accountant (owner of skilled
\nlabor) from Manila almost as easily as from Bandung.<\/p>\n
With free entry and exit of capital (often referred to as
\nrelaxation of the capital account) Singaporean owners of capital
\n(capitalists?!) can buy stocks or bonds in Vietnam through their
\nfinancial intermediaries almost as easy as buying them from the
\nlocal stock exchange or bond market.<\/p>\n
Entrepreneurs in search of opportunities for making profit can
\nset up and do their business anywhere in the community where
\nprofit can be made most as if it is just one country.<\/p>\n
ASEAN would thus become a community of 10 countries,
\nfunctioning as a single market for goods, (non-factor) services
\nand factors of production. The AEC can be seen from this
\nperspective, which is from the demand side.<\/p>\n
There is of course another perspective from the supply side.
\nIn order to supply goods and services, producers buy intermediate
\ngoods from others in the product market and primary production
\ninputs from the factor market.<\/p>\n
Taking the automotive sector once again as an example, a car
\nmanufacturing company that has chosen Thailand as a production
\nbase can import the tires produced in Malaysia and batteries
\nproduced in the Philippines, employ skilled labor from Vietnam,
\nand borrow working capital from Singapore, depending on where
\nthose intermediate and primary inputs could be procured at least
\ncost, taking account of transportation, communication and other
\ntransaction costs.<\/p>\n
The latter refers to costs incurred to link and coordinate the
\nsourcing of production inputs from different countries. Devoid of
\ntariff, non-tariff and other technical barriers to the movement
\nof goods and factors of production, those transaction costs would
\nbecome minimal by 2010. By then, ASEAN composed of 10 countries
\nwould become a single production base.<\/p>\n
The writer is an Adviser of The ASEAN-UNDP Partnership
\nFacility. The views expressed herein are personal and do not
\nnecessarily reflect those of ASEAN Secretariat, any of its member
\ncountries, or UNDP.<\/p>",
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