Unlocking ASEAN's economic competitiveness

Alan Cassels, Jakarta

With a population of about 500 million, a combined gross domestic product of US$737 billion, and a total trade of $720 billion, ASEAN today is very much an economic force in the global arena.

Against the backdrop of economic growth, there has been a strong positive shift in the drive towards economic integration within ASEAN. This is reflected in the rapid growth of intra- ASEAN trade supported by enhanced cooperation at the governmental level.

However, with the rapid economic renaissance of China in recent times, foreign direct investment (FDI) flows into ASEAN has slowed in comparison to China, which is being viewed as increasingly attractive as a FDI destination. Today, China is attracting more FDI than all the other Asian countries combined, not least ASEAN.

The world's fastest growing economy registered FDI of $53.51 billion in 2003, according to China's Ministry of Commerce. This compares with $20.3 billion in ASEAN FDI flows over the same period.

The economic emergence of China and India can be seen both as a challenge that poses formidable competition to ASEAN member countries as well as an opportunity for ASEAN.

To address the economic competition posed by China and India, ASEAN needs to understand - on a macro level -- the contributing factors to their success. These include a large market, low cost labor, cheap land and a large concentration of supporting industries.

By contrast, while ASEAN also possesses many of these core attributes, its strengths lie in pockets of strong competencies in, for example, electronics, petrochemicals and automotive industries.

In light of this, perhaps the vision for ASEAN would be to move towards a boundary-less manufacturing and production platform in an integrated market.

As ASEAN works towards this, the logistics industry can play an important role as a crucial link in moving raw materials and finished goods between these pockets of competence within the region. Moreover, the effective application of supply chain management, companies can harness collectively the specific competencies of the different areas in ASEAN; for example, by streamlining supply chains that span across borders in ASEAN and providing distribution services to markets in all ASEAN countries seamlessly.

There must also be close collaboration between the private sector and ASEAN regulators to facilitate the seamless movement of goods across borders.

For example, ASEAN must continue to liberalize its market. Air transport is both the most regulated and the highest value-added form of transportation, and, as such, it should be part of any trade liberalization regime.

The Common Effective Preferential Tariff (CEPT) rules of origin will enable more companies to qualify for the lower CEPT compared with the higher Most Favored Nation (MFN) tariff rates. This will in turn promote greater trade flows between ASEAN.

The agreements signed by China and ASEAN in Laos at the recent ASEAN Summit will take the two sides further towards the goal of setting up the world's largest free trade area by the end of the decade.

For ASEAN to reach its full potential as a trade and investment hub in Asia, the development of efficient, secure and "world class" customs across industry supply chains is an important challenge and opportunity. A streamlined and uniform set of customs guidelines and procedures across ASEAN would benefit companies through greater transparency and efficiency as well as facilitating the flow of goods across national borders.

In addition to the 'single window' approach which includes the electronic processing of trade documents at national and regional level, perhaps an e-customs platform could be implemented across ASEAN in time, thus expediting a more efficient process in going paperless.

A key to achieving this -- and hence unlocking ASEAN's competitiveness is for ASEAN to move towards a boundary-less manufacturing and production platform in an integrated market.

To this end, the logistics industry can play an important role by harnessing the specific competencies of the different areas in ASEAN effectively, designing and managing supply chains that span across borders in ASEAN, enabling the distribution of parts and finished goods across markets in all ASEAN countries seamlessly and in particular, to capitalize on the tremendous opportunities emerging from the development of China and India.

The writer is Senior Technical Advisor, PT Birotika Semesta/DHL Express.