ASEAN economic integration

The photocopying machines at the secretariats of the ASEAN government and business summit meetings in Bali must have been operating at full speed, given the large number of documents, agreements and speeches on free trade, economic integration and investment liberalization produced over the past four days.

Most notable was the new pact adopted on Tuesday to develop a full-fledged ASEAN Economic Community in 2020. But whether all this flurry of activities will really lead to much freer trade and more economic integration in ASEAN and Asia in general, as the government and business leaders from the 10 ASEAN countries, China, Japan, India and South Korea currently meeting in Bali, have wanted, remains to be seen.

After all, 36-year-old ASEAN has, notoriously, been known for its "NATO" record (no action, talk only). Just witness how, more than 11 years after the gradual phasing-in of the ASEAN Free Trade Area (AFTA) in 1992, intra-ASEAN trade remains very small, at only around 25 percent of its total foreign trade, due to numerous nontariff barriers, different product standards and procedural red tape.

Past experience has taught us to welcome with qualifications the outcomes of the Bali summit meetings, and several more progressive members might still be disappointed at the results, impatient at the long timetable (2020 deadline).

It is nevertheless encouraging to observe several conditions and factors that would likely make the new agreements on free trade and economic integration, which the ASEAN leaders signed in Bali on Tuesday, more promising and politically more feasible.

First of all, the new set of measures adopted in Bali is based on the right priority. It will directly attack the main problems affecting AFTA and investment in the region -- nontariff barriers, customs procedures, licensing red tape, different product standards. Yet more encouraging are the clear timetables set for each measure.

The renewed commitments and their timetables also seem to be more politically acceptable and feasible. ASEAN countries have just recovered from the 1997 economic crisis and terrorist attacks, and especially Indonesia, the current chair of ASEAN, has emerged from its political and economic crisis to regain stronger self-confidence to compete regionally and globally. Most important, though, is the increasing realization among ASEAN leaders that their regional grouping would be rendered irrelevant in the current process of economic globalization if the organization did not contribute to accelerating the development of a single market and finally the integration of ASEAN economies.

Fragmented markets in ASEAN countries are simply not attractive to foreign investors, as evidenced by the steep decline of foreign direct investment flow to ASEAN last year to as low as only one-third of the total sum gained in 1997. The leaders' commitment to accelerate integration in 11 key economic sectors 10 years ahead of the final goal of the economic community will help regain foreign investor confidence in the region.

Moreover, ASEAN leaders are certainly afraid that without any significant progress in Bali their regional grouping may lose its relevance. In fact, several members, so fed up with the disappointing pace of the economic integration process in the region, have broken ranks with ASEAN and pursue separate free trade arrangements with other countries.

Free trade in goods alone will never be able to enhance economic integration. Even free trade in both goods and services is not sufficient. It should still be supported by a liberalized investment climate because trade and investment are inseparable. It is these principles that are integrated into the ASEAN Economic Community concept.

Free trade in goods and services and a liberalized investment climate will enhance specialization and economies of scale based on local competitive advantages and this in turn will make ASEAN countries more attractive for investors to establish regional production networks.

ASEAN leaders have also been increasingly aware that an integrated ASEAN economy will have a much stronger bargaining position vis-a-vis other major trading partners in Asia and the United States, Europe and China. Fragmented ASEAN markets will instead render ASEAN free trade area agreements with China, Japan, India and South Korea rather meaningless.

All these conditions, in addition to the ASEAN leaders' decisions to establish a legal unit in charge of monitoring and enforcing all the framework agreements and to set up an independent dispute-settlement mechanism, will hopefully provide enough fuel to push forward the ASEAN economic integration process.