Why an integrated Asia is a cock-and-bull story

Why an integrated Asia is a cock-and-bull story

Ivy Susanti, The Jakarta Post/Jakarta

The signing by China and the Association of Southeast Asian
Nations (ASEAN) of a free trade pact last month has been widely
viewed as the countries' effort to challenge the United States'
influence in Asia over the long haul.

Such perception was grounded in China's widely acclaimed
initiatives in high-profile issues in Asia and elsewhere -- such
as the nuclear proliferation in North Korea and Iran -- and its
fast-growing economy, and also from the relative U.S. passivity
on those issues.

This argument is plausible; but nevertheless, an integrated
Asia could encourage multilateralism, a global concern which is
also shared by ASEAN.

ASEAN and China approved, in the Agreement on Trade in Goods
of the Framework Agreement on Comprehensive Economic Cooperation
between ASEAN and the People's Republic of China, to remove all
tariffs on US$100 billion of goods by 2010 for six older ASEAN
members and by 2015 for the newer ASEAN members (Cambodia, Laos,
Myanmar and Vietnam).

The agreement -- signed during the ASEAN Summit in Vientiane
on Nov. 29 -- also outlines the mechanism to resolve ASEAN-China
trade disputes.

Other countries -- Japan, South Korea, Australia and New
Zealand -- immediately jumped on the bandwagon, lining up to sign
free trade pacts with ASEAN. India has also shown an interest in
forging a regional trade zone, but gave no specific timeline.

An enthusiastic Malaysia suggested the trade cooperation
should evolve into an integrated East Asia, comprising ASEAN and
Northeast Asian countries of China, Japan and South Korea.

Malaysia's Prime Minister Abdullah Ahmad Badawi, in a speech
at the second East Asia Forum in Kuala Lumpur on Dec. 6, proposed
a plan for the formation of the East Asian Community (EAC)
embracing security and cultural affairs.

He said the process should take a building block approach,
beginning with an East Asia Summit -- to which Malaysia has
agreed to host in 2005 -- followed by the signing of a charter
for the East Asia Community and later cooperation in trade,
monetary regulations and finance, as well as security (through
the amity and cooperation treaty), transportation, communications
and human rights. He stated that such process would be similar to
ASEAN community building.

ASEAN agreed to eventually establish itself as a community
during last year's summit on Bali island in Indonesia. The
community is built on three pillars: economics, security and
socio-cultural issues.

The concept was formalized during the ASEAN Ministerial
Meeting here in late June. At the Laos Summit, ASEAN countries
signed a plan of action to realize these goals.

While the participating countries may view the ASEAN-China
free trade agreement as some kind of an achievement,
nevertheless, the realization is a tall order.

It should be made clear that the agreement is aimed
specifically at increasing the trade volume through an expanded
market, by eliminating tariffs and trade barriers.

The ASEAN-China free trade zone is colossal in terms of market
size. ASEAN and China could offer a market of approximately 1.8
billion people, compared to the European Union (EU) trade bloc
comprising 455 million and the North American Free Trade
Agreement (NAFTA/covering the U.S., Canada and Mexico) with
424.97 million.

However, the ASEAN-China free trade agreement does not
indicate complete economic integration that would lead to the
establishment of an intergovernmental organization, or a
supranational like the EU.

If the free trade agreement is part of the building block
toward a single market and later an economic community, then in
the first place it does not mention anything about facilitating
free movement of labor and capital -- the modes of production --
which are essential if ASEAN wishes to develop a single
production base as envisioned by Indonesian President Susilo
Bambang Yudhoyono.

Susilo, who declared himself a "a believer in free trade and
economic integration" -- told an ASEAN Business and Investment
Summit on the occasion of the ASEAN Summit in November that ASEAN
should take the role as a single production base in an integrated
economy, apparently to counterbalance two emerging economic
powers, China and India.

There has also been no mention in the ASEAN-China free trade
agreement about the possibility of establishing a currency zone
to facilitate free trade. In the European Union model, a single
currency zone must meet specific criteria, previously determined
by the member states.

Though ASEAN has established an ASEAN Free Trade Area in
January 1992, it is aimed at building a customs union. But the
ASEAN Economic Community, which was declared last year, does not
mention about the possibility of a single currency zone.

While necessary, a currency zone also could be dilemmatic,
because it entails each national governments' complete
willingness to transfer a large portion of sovereignty to a
supranational.

The different political systems -- and the absence of
democracy in many Asian countries -- pose some major stumbling
blocks to this process.

But perhaps, the most dreadful would be the response from the
common people in each state -- especially those who lost their
jobs due to high competition.

And if the ASEAN-China free trade agreement is solely aimed at
extending the market, it is likely that ASEAN will remain
dependent to a large degree on states with much more powerful
economies.

Even Malaysia, which has rapidly developed, would have to wait
for 10 years to see a partially integrated East Asia as proposed
and perhaps decades further to see it fully integrated.

Then Malaysian prime minister Mahathir Mohamad proposed in
1994, an East Asian Economic Caucus (EAEC) to reduce Asian
dependence on the U.S. However, Washington managed to rally its
Asian allies against the proposal, which got a lukewarm response
from Japan and South Korea.

Mahathir's proposal only gained momentum in the wake of the
1997 economic crisis in Asia.

The concrete measure to determine real economic integration is
the result of what was started as informal gatherings of head of
states/governments in the annual ASEAN Summit, between ASEAN
countries and Northeast Asia.

The informal meeting developed further into a summit -- the
annual ASEAN+3 Summit -- in 1997.

Furthermore, the concern over the 1997 economic crisis and
distrust in International Monetary Fund (IMF) has prompted the
ASEAN+3 to think about what experts have called a self-help
mechanism. Also in 1997, the region, in conjunction with the U.S.
and the IMF, rejected Japan's idea of an Asian Monetary Fund.

In their third meeting in 1998, the ASEAN+3 leaders issued
their first formal statement that identified 10 areas for
regional cooperation, including finance. In their Summit in 1999,
the leaders adopted the "Joint Statement of East Asian
Cooperation" but it was not intended to be the beginning of an
East Asia Community

In a bid to maintain East Asia's financial stability, the
ASEAN+3 finance ministers announced a currency swap agreement,
called the Chiang Mai Initiative, in 2000. The currency swap
agreement is a form of cooperation in financial area along with
monitoring capital flows, regional surveillance and training
personnel.

ASEAN countries have had a currency swap arrangement since
1977 to address short-term liquidity problems. The ASEAN Swap
Arrangement unfortunately could not solve payment problems. The
swap arrangement had not yet been activated at the time of the
1997 crisis.

Also in the 2000 Summit, South Korean President Kim Dae-jung
proposed an East Asia Study Group (EASG), consisting of
government officials, to study the possibility of an East Asian
Community.

At the 2002 Summit in Phnom Penh, the East Asian Study Group
-- formed to examine the possibility of establishing an EAC --
suggested the Northeast and Southeast Asian countries
institutionalize cooperation and economic integration into a
community, including an economic community, through a free trade
agreement.

Also in the same year, ASEAN signed comprehensive economic
cooperation with China and Japan, providing the foundation to
discuss and establish free trade pacts.

Indonesia had previously showed reservations on the idea of an
East Asia Summit or Community, citing ASEAN's many problems that
it will need to overcome in time, in building a community. After
existing for 37 years, ASEAN is still working on a charter.

Indonesia has also questioned the benefit of a Summit for the
regional organization as it has the ASEAN+3 dialog forum with
China, Japan and South Korea. Some ASEAN countries say
Indonesia's reluctance is due to its fear of ASEAN losing the
"driver's seat" if wider regionalism develops.

While an East Asian Community is definitely a distant goal, it
is worth noting that the idea, and the ensuing economic
cooperation, may help increase solidarity and improve regional
peace and stability.

But the ASEAN-style free trade agreement may have nothing to
do with reducing dependency, let alone challenging the hegemony
of superpower states.