ASEAN way of integration

Given past experiences with ASEAN's wayward approach to the process of economic integration, we tend to welcome with qualifications the bold decision of the 36th ASEAN Economic Ministers meeting here last week to speed up the move towards a single economic community.

First of all, the 10 economic sectors where the process of economic integration will be accelerated from 2010 to 2007, as an intermediate goal towards an ASEAN economic community in 2020, fell short of the original target of 11 priority sectors the ASEAN heads of government set in their Bali summit last October. Air travel was dropped at the last minute from the acceleration plan.

The significance of the ministers' agreement may also be diluted if member countries put too many goods into the lists of sensitive products that will be excluded from the liberalization process.

The economic ministers did decide to limit the number of sensitive goods to a maximum 15 percent of the total products in each sector but the real positive impact of the move could still be rendered rather meaningless if the products selected for the 15 percent ceiling represent the most-traded items in intra-ASEAN trade. Hence, as the saying goes, "the devil is in the details".

Technical details for the accelerated integration in the 10 economic sectors -- agriculture, automotive, information technology, electronics, fisheries, health care, textiles and garments, tourism, rubber and wood-based products -- have yet to be finalized into road maps for approval by the ASEAN leaders in their forthcoming summit in Vientiane, Laos, in November.

The road maps for accelerated integration in each of the 10 sectors should have been completed at last week's meeting but no further information was immediately available. However the road maps will be designed, they should at least address the basic problems encountered in intra-ASEAN trade and investment.

Intra-ASEAN trade was estimated at only about 23 percent of its total external trade last year although import tariffs on most traded items have been cut to a range of between 0 and 5 percent. Worse still, in 2002 only 5 percent of intra-ASEAN trade made use of the preferential tariffs due to the great difficulties for meeting the rules of origin and numerous other non-tariff and technical barriers such as red tape in customs procedures and different quality standards.

Encouraging therefore is the other agreement concluded by the economic ministers last week to revise the rules of origin for goods to qualify for ASEAN preferential tariffs from a minimum 40 percent local (ASEAN) content to 20 percent. Theoretically, this measure will increase the number of goods that qualify for the tariffs. The caveat though is that this measure will be effective only if ASEAN members also set up a credible mechanism to issue certificates of origin.

Free flows of goods, services and investment within ASEAN countries and the 500 million people in the region will make the group a more dynamic and stronger part of the global supply chain, thereby making its member countries more attractive as regional production bases for foreign investors who want to tap local comparative advantages and economies of scale.

Efficient supply chains were one of the intermediate objectives the ministers wanted to achieve through the new set of measures they adopted last week. However, an efficient supply chain requires a minimum set of conditions; notably efficient transport, expedient customs services, common production standards, to ensure free flows of goods, services (including labor) and investments.

The modern production system requires an efficient supply- chain management to allow for lower warehousing costs, lean manufacturing and just-in-time delivery. Without such advances in logistics and supply capability, regional market integration through subdivision and dispersion of production processes will not be cost-effective.

Reduction in transport and telecommunications costs and improvements in supply-chain management will help make ASEAN countries a viable place for regional production bases. Therefore, if ASEAN is really serious about speeding up its economic integration it should also take concerted efforts to open up air-cargo services, facilitate inter-modal and multi- modal transport services, and develop an ASEAN-wide telecommunications system.

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