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.