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.