Integrating ASEAN economies

Integrating ASEAN economies

It is too early to expect much from the ASEAN Free Trade Area
(AFTA) in terms of trade expansion within the first eight months
of its implementation, as its members are still treading
carefully during the learning process, observing how the
arrangements would affect their domestic industries.

Nevertheless, the current meeting of ASEAN finance ministers,
which opened in Phnom Penh on Tuesday, is a good forum for the
economic policymakers to evaluate and to decide on the next steps
toward the final goal of AFTA -- that is, to develop this region
of more than 500 million people into an integrated market and
investment area.

The Phnom Penh meeting is even more opportune in view of the
upcoming ASEAN summit in Bali on Oct. 7, because the ministers'
recommendations can immediately be brought to the attention of
government leaders.

AFTA itself is an intermediate, yet very important, objective
to the ultimate goal of creating an integrated ASEAN economy
through the establishment of a 500 million-strong market.

The removal of tariff and non-tariff barriers to trade in
goods and services, and to investment, will make the 10-member
ASEAN more competitive to foreign direct investors, who have
increasingly turned to China as a better, alternative
manufacturing base.

In fact, several foreign investors have begun to tap the
benefits of AFTA for production efficiency. Major carmakers such
as Toyota, Isuzu, Honda, Nissan and Ford, and electronics
companies such as Samsung and Sony have established -- or are
preparing -- regional production networks in ASEAN countries,
capitalizing on local comparative advantages and economies of
scale.

Yet, most businesspeople in ASEAN have conceded that the AFTA
process has not run as smoothly and as quickly as expected. At
the current pace of progress in intra-ASEAN trade, an integrated
ASEAN economy with a current market size of US$600 billion might
still be a dream a decade from now.

The core problem is that even though most member countries
have fulfilled the tariff-cutting schedules, traders are still
hesitant about taking advantage of the preferential tariffs, due
to the host of non-tariff barriers they have to grapple with.

Take, for example, the area of trade-support services such as
customs, transportation, telecommunications and product
standards.

Traders often encounter problems in customs verification and
clearance procedures, because customs officials in member
countries are still learning to implement the ASEAN tariff
nomenclatures that were harmonized only a few weeks ago.

The verification of the country of origin -- with regard to
the minimum 40 percent ASEAN content to make products eligible to
the tariff-cut regime -- has yet to be streamlined.

Businesspeople also have to face a complex variety of quality
standards, because the mutual recognition arrangements that were
concluded in 1998 do not cover all widely traded goods within
ASEAN.

In spite of the conclusion of a framework agreement in 1995 to
liberalize intra-ASEAN trade in services such as transportation
and telecommunications, which are vital to facilitate trading
activities, many technical details have yet to be ironed out for
its smooth implementation.

Likewise, intra-ASEAN telecommunications, another vital
support service for trade, needs to be harmonized and
streamlined. As former ASEAN secretary general Rodolfo C.
Severino noted recently, a telephone call from Singapore to the
U.S. was much cheaper than one from Singapore to the Philippines.

ASEAN finance ministers should renew their strong commitment
to implementing all the framework agreements already concluded,
in order to strengthen the legal and policy foundations for
integrating ASEAN economies, and submit bold recommendations to
the coming ASEAN summit.

Too easily succumbing to domestic industrial lobbyists who
demand heavy protection would not only leave ASEAN industries
uncompetitive internationally, but would also make the 36-year
ASEAN grouping less relevant to the economic interests of the
region's peoples.

The challenge for Indonesia, as the largest market in ASEAN
with more than 220 million people, is to show strong leadership
by setting an example in honoring all its commitments to AFTA.

Lack of leadership would only weaken ASEAN's bargaining
position to negotiate free trade agreements (FTAs) with other
regions, and could push more ASEAN members to break rank and
establish FTAs with other countries individually, as Singapore
has done with Japan and the U.S.

The progress of AFTA also will support ASEAN's long-term plans
for FTAs with China, Japan and India, which were made during the
8th ASEAN summit in Phnom Penh last November.