ASEAN economic integration

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.