ASEAN Economic Community: An old wine in new skin?

ASEAN Economic Community: An old wine in new skin?

Ivy Susanti, Journalist, The Jakarta Post, Jakarta

ivy@thejakartapost.com

During the ASEAN Summit in November of last year, Singapore
Prime Minister Goh Chok Tong suggested that the Association of
Southeast Asian Nations move toward the realization of an ASEAN
Economic Community (AEC) by 2020.

In less than one year, this proposal will be formalized in the
9th ASEAN Summit, when leaders of the 10 Southeast Asian
countries are expected to sign the second Bali Concord next week.
Together, the AEC and Indonesia's proposed ASEAN Security
Community (ASC) are expected to complement each other.

The details of the economic -- and also the security --
arrangements are still sketchy. However, while risking
oversimplification, we are now faced with some interesting
questions: How does AEC correlate with the ASEAN Free Trade
Agreement (AFTA)? Does AEC suit the present economic and security
situation?

Among Southeast Asian countries, Singapore has been an ardent
supporter of free trade. It first proposed the creation of a free
trade zone in 1975, or eight years after ASEAN was set up.

In January 1992, following Thailand's initiative, ASEAN
leaders signed the Singapore Declaration agreeing upon the
establishment of a free trade area in 2003. But, this move seems
hasty in comparison with the European Union's, who took 35 years
to establish a common market.

However, ASEAN faced some problems in the implementation of
AFTA, particularly stemming from the wide gap in economic growth
and development between the first members of ASEAN (Indonesia,
Malaysia, Philippines, Singapore, Thailand and Brunei Darussalam)
and Indochina (Cambodia, Myanmar, Laos and Vietnam).

At this moment, ASEAN also wishes to go beyond simply freeing
trade and service to other issues of liberalization such as
investment policies, non-tariff barriers and macroeconomic
coordination in the "AFTA-Plus" arrangement.

Though AFTA formally commenced early this year, the goal for
zero tariff in intra-ASEAN trade has not been realized. Countries
have instead resorted to bilateral trade agreements in a bid to
gain tariff reduction up to zero percent.

Amid rapid developments in the world economy -- and probably
impatience at the snail paced development of trade liberalization
in Southeast Asia -- Singapore has signed a series of bilateral
free-trade pacts with the United States, Japan and Australia in
the past two years.

As one of the members of ASEAN who has declared readiness for
freer trade (besides Thailand), Singapore also hoped that other
members would follow its initiative.

This move has sown criticism, though some criticisms may sound
out of context. The AFTA agreement actually encourages economic
cooperation with non-ASEAN members, so as to enhance and
complement economic cooperation within ASEAN and to avoid being
left behind in the changing face of global politics and economy.

Singapore's maneuver to sign bilateral agreement outside ASEAN
can be understood as a rational choice in a domestic context. In
this sort of decision making, an "ASEAN way" of settling matters
through consensus seems out of place and usually results only in
piles of proposals.

While the choice will surely benefit Singapore, its neighbors
are starting to wonder whether they can still expect Singapore --
which may become even richer after the bilateral free-trade pacts
-- to help the economic development of less developed countries.

The answer may not lie far outside the trade liberalization
framework. Singapore's initiative -- to propose a form of
regional economic cooperation -- is also a sign of good will.

Singapore envisaged AEC as the tie binding ASEAN into a more
integrated economic community. This concept, Singapore claimed,
is in accordance with the ASEAN Vision 2020 unveiled in Kuala
Lumpur in 1997. The AEC would be further made possible because of
the increasing intra-ASEAN trade.

The AEC was inspired by the economic integration of the
European Economic Community (EEC), now the European Union (EU).
Robert A. Baldwin and David A Kay wrote in International
Organization (Winter, 1975) that the general trading arrangement
of EEC is a free-trade zone within the EEC and the uniform
treatment of all nonmembers.

Within the community itself, the freedom of trade did not only
mean a zero tariff for all members, but also efforts to eliminate
or harmonize the many non-tariff barriers that hamper trade.

Armed with this spirit, EEC established uniform policies, such
as a common agricultural policy or a common currency within a
common market. EEC's key founders also expected that an economic
union would lead to a political union.

However, as agreed in the ASEAN Joint Commission Meeting here
last week, the AEC would stop at the "Common Market Minus" point.

Thus the AEC may set to reinstate the trade liberalization
agreement previously made under the ineffective AFTA. However, we
must wait for the details of the AEC to observe any significant
distinction from the previous economic arrangement.

How would AEC suit the present economic and security situation
in this region?

First, the proposal for alternative trade arrangements should
not only take into account the growth of intra-regional trade or
investment. It should also consider economic measures such as
efficiency and income distribution or quality of life; criteria
which must be carefully evaluated.

But the most difficult task ahead is to predict the domestic
political factor that is likely to affect the implementation of
AEC. Its success does not only depend on the "political will" of
all the leaders of the member states.

Another actor with a major role is the private sector. For
Singapore -- which has already opened its market for a freer
trade -- a conflict of interest with businesspeople can be
reduced to a minimum.

But the other member states may need to pay adjustment costs
when trade liberalization forces domestic industries to become
competitive. Also, in some Southeast Asian countries, politicians
still depend on businesspeople as well as farmers for their votes
in order to be elected as presidents or members of parliaments.

After all, we have yet to observe the public's response when
AEC is disclosed next week.

The writer acquired her Master's degree in Southeast Asian
Studies from the National University of Singapore.