Southeast Asian countries' quest for single market on the rocks

Southeast Asian countries' quest for single market on the rocks

P. Parameswaran, Agence France-Presse, Phnom Penh

When Southeast Asian nations began tearing down tariff
barriers for manufactured products a decade ago, little did they
expect a near shakeout of the region's bustling traditional
liquor market.

Today, the relatively cheaper Philippine whisky is threatening
to break the virtual monopoly of Thailand's traditional liquor
manufacturers while also stirring other liquor markets in the
region.

Few people, manufacturers among them, are complaining -- in
the true spirit of free trade.

Officials from the Association of Southeast Asian Nations
(ASEAN) cite the intense competition in the region's traditional
whisky market to underline the success of a tariff reduction
scheme for manufactured items under the ASEAN Free Trade Area
(AFTA).

"This is just one quick example of how free trade is offering
competition, dismantling virtual monopolies and lowering prices
of manufactured products in the region," ASEAN Secretary-General
Ong Keng Yong told AFP at the conclusion of the grouping's
meetings in the Cambodian capital this weekend.

Ninety-nine percent of tariffs for manufactured products of
the senior ASEAN members Brunei, Indonesia, Malaysia, the
Philippines, Singapore and Thailand have been knocked down to
between zero and five percent since AFTA was launched in 1992.
Developing member states Cambodia, Laos, Myanmar and Vietnam have
been given more time to join their co-members at the bar.

Success in draining the booze market of tariffs belies the
problems facing the region in its quest to achieve a single ASEAN
market, similar to the European Community, by the year 2020.

Barriers are coming down too slowly in the key services sector
of banking, legal, engineering, tourism and telecommunication
fields, while little headway has been made in devising uniform
investment, commercial and even visa laws.

Further, ASEAN has had difficulty prodding governments to give
member nation investors comparable treatment, Ong said, citing as
an example the hazy status of legal recourse from one member
country to another for businessmen operating across the regional
grouping.

"The reason for lack of progress in this field is because our
mindset is that rules and regulations are national sovereignty
issues," Ong said.

"But in the coming years, ASEAN countries will have to find a
way to deal with this."

Despite the difficulties, Ong maintains the region is united
behind achieving the single market -- dubbed the "ASEAN economic
community" of 530 million people in 17 years.

"The positive thing is we have all agreed to stay on the ASEAN
bus. We may argue among ourselves, raise our voices from time to
time but we don't press the bell and get off the bus," he said.

But analysts say national pride is stifling ASEAN's economic
integration efforts.

International consultants McKinsey and Co., appointed by ASEAN
to do a study on the region's economic competitiveness, warned
the grouping's foreign ministers at a meeting here last week that
"market fragmentation" was a serious problem in the region,
informed sources said.

"It lies at the heart of ASEAN's competitiveness challenge,"
said a source, quoting a report from McKinsey.

McKinsey is recommending that ASEAN fast-track economic
integration in priority areas such as consumer goods, the largest
traded sector, and electronics, the most important export sector
in the region.

Ong declined to divulge details of the McKinsey report, which
he said was still being considered by the ASEAN economic
ministers.

He said a high-level task force had been set up to assess the
McKinsey report together with other studies from regional think
tanks as well as academic and business groups to help formulate
ASEAN's economic agenda for the next decade in the run-up to a
single market.

"We hope that through this process of getting professional,
business and academic inputs, the high-level task force can come
out with a practical and viable set of recommendations," he said.

The recommendations will be further studied by ASEAN economic
ministers before they are submitted to the grouping's leaders at
their annual summit set for October in Bali.

Ong said the recommendations could include "timeliness but not
deadlines" for homogenizing investment policies and tearing down
barriers in the services sector.

"Also there may be specific measures outlined to facilitate
movement of professionals around the region or streamlining visa
regulations or aviation policies," he added.

Faced with competition from other regions for investments, Ong
said ASEAN economic integration had to move deliberately to
regain the momentum to achieve a single market.

"Only with economic clout can we continue to draw the big
powers and our key trading partners, like the United States,
China, Japan and the European Union, to engage with us in the
equally important political and security areas."