Sat, 22 Jan 2000

Asia must strive to compete with integrated EU

By Ronald Nangoi

JAKARTA (JP): The failure of the World Trade Organization's (WTO) Ministerial Conference in Seattle at the end of 1999 could accommodate initiatives for economic integration at regional levels. The European Union (EU) in particular could intensify its economic integration efforts in service to the competitiveness of its member countries. Should this happen, one may view more fierce competition at the regional level and question the end of protectionism. This could be dangerous for developing countries, especially Asian countries, which have developed some economic interests in Europe.

The fear of EU protectionism is to be justified if the EU is taking advantage of the WTO's shortcomings by protecting itself under the guise of economic integration.

Europe is the only region that is progressing with economic integration. It is forming a single European economy with the introduction of a single currency, the euro, to function within a single European market.

Third world countries have suspected that the objective is to form a trading bloc, in view of the EU's trade diversion and discrimination effects. However, EU officials and economists have strongly argued that the integration contravenes protectionism and complies with economic liberalization.

Wayne Sandholtz and John Zysman wrote in 1989 that the "demolition of market barriers within the EU will be the most comprehensive liberalization program of this century, but intra- EU liberalization will by no means automatically lead to unrestricted market access for outside suppliers." Admittedly the EU member countries are more prepared than the developing countries for free trade.

The motive behind the European economic integration may be reflective of a European goal of developing a high level of competitiveness in the global economy. In the 1980s, the European economy was in a declining state being surpassed by the Asians. They are now assured to regain their competitive edge with the economies of scale gained through economic integration.

According to the 1985 European Community Commission report, the benefits of the single market would accrue to industries that achieve greater economies of scale in a unified European market. Their motivation must surely increase as they face a global economy which includes the newly emerging Asian economies.

The rapid growth of the Asian economy has been the envy of less-dynamic regions. But the 1997 economic crisis should have shown the West not to fear Asian growth.

European economic boundaries have not been impenetrable for Asian firms. Munich-based researchers Helmut Laumer and Heidemarie C. Sherman pointed out in 1992 that some Japanese companies have established subsidiaries in Europe before any EU trade restrictions have been imposed.

The revitalization of East Asian economies should put Asians in a better economic position. The crisis has been a great lesson for Asian nations about the dangers of a bubble economy. Asian industries and businesses should have learned about the pitfalls of crony capitalism, identified as the major source of the regional crisis. Last November, the Far Eastern Economic Review reported that the crisis has forced businesses to be more focused, i.e., Asian conglomerates are selling off unprofitable businesses; management changes have generally resulted in more efficient operations, and mergers and consolidations are reducing excess capacity and encouraging distribution synergy.

Some Asian countries have begun showing their willingness to comply with WTO principles. Japan is seemingly no longer interested in monopolistic practices but is opening its economy to foreign interests. As of February 1998, it introduced new laws that removed restrictions on foreign ownership of telecom companies in line with the WTO's telecom pact calling for open markets by 2005.

Yet East Asia is still considered the third largest economic region that the EU should take into account. The socio-economic and political changes in Asia could uplift the economic strength of the region. In 1992, Klaus Zeller of German's Ministry of Foreign Affairs believed that freedom and democracy would spread in the region, as the standard of education rises, communication technologies and usages upgrade, and modern industries established themselves internationally.

China is emerging as a formidable Asian exporter intensifying the regional competition. It has access to the European market with exports of manufactured products from low-valued goods such as toys and shoes to electronic goods such as refrigerators and air conditioners. However, its recent entry in the WTO could provide reciprocal market opportunities for the West, as China must open its market and reduce its trade barriers. The more China exports, the more it must import.

The Europeans have a stake in their own economic integration. That is why they have tried to convince the world that the single market has been part of its efforts to establish free world trade. They rely on the EU as a vehicle to enhance their own economic efficiency and competitiveness in the face of economic globalization.

Asia, as it recovers economically, and China, with its access to world trade, may intensify their regional integration and ultimately undermine the WTO. Their monetary and economic integration would enable internal market liberalization in which trade, mergers, foreign investment, and technological cooperation, including with EU companies, thus assuring regional efficiency and competitiveness in a global market.

All this may indicate the heightening of global challenges to Asian economies. Rather than worrying about any protective measures by the EU, Asians should strive for competitiveness. In borderless economies, global consumers seek competitive products regardless of their country of origin. The Europeans surely fully understand the disadvantages of being protectionists. Asians should be aware that not being competitive would make them ineffective against a Europe which strives for a high level of competitiveness.

The writer is a lecturer at Tarumanegara University, Jakarta.