ASEAN way of integration

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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