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."