Setback for free trade

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originally made so that they could benefit from Afta.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.