Part 2 of 2: Can ASEAN integration help the poor?

Romeo A. Reyes, Jakarta

With regard to the second question as to whether economic integration would benefit the poor and reduce inequities within and across ASEAN, much will depend on the ability of the less developed AMCs, especially the CLMV countries (Cambodia, Laos, Myanmar and Viet Nam), to effectively manage their economic integration process.

In this regard, formulation and implementation of a comprehensive economic integration strategy would be necessary to guide them in managing the process. CLMV countries could cooperate with each other and learn from the experience of the more successful countries among ASEAN 6 in formulating their respective integration strategies.

Economic integration essentially involves removal of barriers to trade and investment flows. As barriers are removed and producers adjust to changes in market conditions, there will invariably be short-term adjustment costs, particularly to workers who may lose their jobs if and when their employers in a sunset industry decide to downsize to remain competitive or to leave the market altogether.

If there are appropriate social safety nets to mitigate these adjustment costs as part of a comprehensive economic integration strategy, the public's apprehension could be assuaged. The integration strategy could also provide a mechanism that compels the employer to share their worker's burden of adjustment. For instance, provision of gratuity pay to terminated workers could be made mandatory.

Even in the short-term, there could be benefits to workers if trade and investment liberalization achieves the purpose of making ASEAN a more attractive production base. Firms that are already based in ASEAN would be encouraged to stay rather than relocate to China, thereby enabling workers to keep their jobs. In addition, greater investment inflow into sectors where ASEAN has a comparative advantage would create new job opportunities.

In the longer-term, the real benefits from economic integration derive from enhanced competitiveness arising from economies of scale that a single market allows and lower production costs as tariff, non-tariff and technical barriers to the flow of goods, services and factors of production are dismantled. If these benefits were fully translated into higher profits, they would obviously accrue only to the investors/producers.

But if the market were functioning in a fairly competitive way, it would tend to encourage producers to share the benefits of increased productivity to their workers -- who often comprise a good part of the poorer segment of society -- through higher wages, and to consumers through lower prices. Apart from lower prices, consumers would be better off as they are given a wider range of choice.

If the market should fail to equitably distribute economic integration benefits among producers, workers and consumers, it would be incumbent upon the state to ensure that the market function as it should and is not distorted by monopolists, rent seekers, and cartels, which often have strong political connections.

More broadly, it would be incumbent upon the state to ensure through appropriate policies that the benefits of economic integration are maximized, the adjustment costs are minimized and mitigated, and both benefits and costs are equitably shared among different sectors and income classes. The will and ability of governments to design and implement pro-poor trade and investment liberalization policies is particularly important in view of increasing evidence that such policies rather than community level interventions here and there that meaningfully reduce poverty.

These are the key issues that an economic integration strategy should address so that the vision of ASEAN Leaders expressed in Bali Concord II of a "stable, prosperous and highly competitive region in which there is equitable economic development and reduced poverty and socio-economic disparities" could be realized.

Indeed, pro-poor trade and investment liberalization policies can be deliberately designed to enhance and accelerate the "trickle down" of benefits from enhanced competitiveness to poor workers and consumers.

If properly and effectively managed, economic integration can benefit the poor, thereby reducing inequities and the development divide within and across ASEAN Member Countries. With strong advocacy, public support and political commitment to implement bold integration measures, there is a fair chance that it will.

The writer is a Senior Adviser, ASEAN-UNDP Partnership Facility. The views expressed herein are personal and do not necessarily reflect those of ASEAN, any of the Member Countries, or UNDP.