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

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.