Setback for free trade

At a time when the currencies of several core members of the Association of Southeast Nations are falling close to crisis level, their stock markets plummeting and economic recovery remaining fragile, one naturally would have expected that the 2000 ASEAN informal summit in Singapore last week would focus on new measures to confront the problems.

Unfortunately though, their first major agreement virtually formalized a procedure for allowing members to backtrack on their trade liberalization commitments. By giving Malaysia a two-year reprieve before it has to cut car import tariffs, the door is now open to other members to take advantage of the exemption clause to delay opening up their sensitive industrial sectors, thereby diluting the ASEAN Free Trade Area (AFTA), which is scheduled to start for ASEAN founding members in 2002.

The deal with Malaysia did solve a row, but it is a big setback for the eight-year-old AFTA plan, so far seen as the most important area of cooperation that can enhance economic linkages between the 10 ASEAN countries and create a major regional common market.

Given members' different stages of economic development, different resource endowments that cause different economic interests and in view of the group's insistence on consensus and lack of a strong decision-making mechanism, trade ties have been considered the most feasible and relevant area of cooperation to start with in order to allow members to optimize their respective competitive advantages.

By developing founding members -- Brunei, Indonesia, Malaysia, Singapore, the Philippines and Thailand -- into a free trade area in 2002 and expanding it in 2010 to include the newer members -- Vietnam, Myanmar, Cambodia and Laos -- the ASEAN region will become more attractive to investors.

But the backtracking will make that goal more uncertain at a time when many members are badly in need of foreign investors to help fuel their recovery from the 1997 economic crisis.

We fully share the concerns raised by Singapore's Senior Minister Lee Kuan Yew that unless ASEAN gets its act together to forge a common market, foreign investors which flew out of the region after the 1997 crisis might not be encouraged to reconsider returning to this part of the world.

Many multinational companies as well as Japanese investors may even reconsider or shelve their plans to consolidate their manufacturing facilities in the region. Their plans were originally made so that they could benefit from Afta.

Southeast Asia indeed needs new investments to restore the precrisis robust growth and a free trade area is now the most effective means of wooing back investors to the region. Even potential investors from neighboring countries in Northeast Asia -- Japan, China, Taiwan and South Korea --, let alone those from the United States and Europe, see a common market (meaning a bigger market) as the most influential factor to decisions on investment location.

A common market in the ASEAN region would also serve as a confidence-building exercise to prepare market players in the 10 member countries for an East Asia free trade area or East Asian economic community, two broad ideas that were also mulled over at the meeting between ASEAN leaders and their counterparts from Japan, China and South Korea in Singapore over the weekend. Further down the road, they will become more confident in facing the Pacific free trade area in 2020.

Yet a more worrisome impact of a delay in the launching of a common market is the danger of the 33-year regional grouping becoming less relevant to the interests of the people. Because trade, which is usually followed by investment, is the most effective way of enhancing economic linkages between the ASEAN countries, and deep and broad economic ties can be the strongest fortress against potential disputes.