The Association of Southeast Asian Nations (Asean) is celebrating its 50th year, with the Philippines serving as chairman of the organization this year.
The Asean was formed by the original Asean 5—Indonesia, Malaysia, the Philippines, Singapore and Thailand—in 1967, or at the height of the Vietnam War. The organization was widely seen then as an anti-Communist coalition given the timing of its establishment and the well-known anti-Communist position of the Asean 5 countries.
Ironically, two-and-a-half decades after, the “socialist” states in the region —Cambodia, Lao PDR, Myanmar and Vietnam—became members of the Asean. By then, the Indochinese wars were over and all the four countries had embraced “market opening” reforms. Earlier, in 1984, the tiny but wealthy oil state of Brunei Darussalam joined the Asean.
Not surprisingly, the overwhelming focus of the Asean 10 since the 1990s has been the promotion of regional economic cooperation and integration. A series of economic complementation projects in select industries were adopted in the decade. Then, in 2007, the Asean raised its economic integration ambition by adopting a blueprint or road map for the formation of the Asean Economic Community (AEC) by 2015. Under the AEC 2015 blueprint, the Southeast Asian region would become one single market and one production base characterized by the following:
■ free flow of goods
■ free flow of services
■ free flow of investment
■ free flow of capital
■ free flow of skilled labor
On the free flow of goods, the primary integration instrument is the Asean Free Trade Agreement (Afta), which has been in place since the mid-1990s. The liberalization of intra-Asean trade under the Afta program was accelerated with the adoption in 2007 of the trade-facilitating Asean Trade in Goods Agreement, the completion of the Asean tariff harmonization program and the introduction of other trade-boosting measures, such as the Asean “single window system” (to smoothen the entry of Asean goods in each country’s customs doors). Thus, as of 2010, the Asean proudly claims that import duties for 99.65 percent of the total tariff lines of the original Asean 6 (Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand) had been abolished or reduced to zero. The figure for the CLMV 4 (Cambodia, Laos, Myanmar and Vietnam) was 98.86 percent of all tariff lines, or zero percent to 5 percent as originally conceived for the whole of Asean.
On services, investment, capital and skilled labor, the Asean has instituted key liberalization programs, such as the Asean Framework Agreement on Services, the Asean Investment Agreement, Asean capital market development and the issuance of employment passes for professionals and skilled labor.
Had the Asean then become one seamless regional economy in 2015 in accordance with the original AEC blueprint?
The answer is a clear no. The year 2015 passed by without any formal Asean announcement that the region is now fully integrated. What happened instead is the replacement of AEC 2015 by a new AEC blueprint, the AEC 2025, which seeks to consolidate the various liberalization programs initiated under AEC 2015. Also, the Asean member-states balked at the speed by which the most important segment of the economy, financial services, would be opened up. Thus, the financial-integration target was postponed to 2020 and the Asean member-states were given elbow room to calibrate the adoption and implementation of banking liberalization measures based on their respective national development priorities. Obviously, the Asean member-states have learned a painful lesson on the danger of unregulated financial deregulation from the devastating 1997-1998 Asian financial crisis and the 2008-2010 global financial crisis.
But a more important explanation for the nonrealization of fuller economic integration is the gap between regional policy agreement and its interpretation and implementation at the national level. What the Asean has instituted are measures to help open up or liberalize the Asean economy through the freer trading of goods and services and the freer flow of capital within the region. Such measures do not automatically transform the Asean into one integrated Asean economy.
This is easily seen in the stagnant growth of intra-Asean trade, which has remained at roughly 25 percent since the mid-1990s (See Table 1) compared to over 60 percent for the intra-European Union trade (now covering 25 European countries) or 50 percent for the intra-North American Free Trade Agreement (Nafta) involving the United States, Canada and Mexico. The individual Asean member-countries do more trade with the non-Asean trade partners such as China, Japan, South Korea, the European Union and the United States.
Another reality: Asean is composed of 10 countries at 10 different levels of development, whose economies are not exactly complementary to one another. Singapore has a per-capita GDP income of over $52,743 compared to Cambodia’s $1,198 per capita and the Philippines’s $2,850 (statistics of asean.org). Spread in between Singapore and Cambodia are the eight other Asean countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Thailand and Vietnam. One solution to this uneven development is to help the laggards close the gap by giving them resources to catch up. The problem is that the Asean has no resources to close these development gaps. Worse, some of the Asean countries are competing with one another, for example, in the production of export garments or in the assembly of electronic, auto and other industrial products. What is worrisome is that sustained growth in the more developed Asean countries, like Singapore and Malaysia, may mean sustained and widening inequality within the Asean bloc.
What further complicates the situation is that the Asean, in contrast to the program of the EU to build “Fortress Europe” (an economic bloc open within but protected against outsiders), has pursued regional integration through a system of open economic regionalism and unrestricted economic liberalization, with each member-country allowed to conclude free-trade agreements (FTAs) with other non-Asean countries. Thus, while the Asean has been concluding regional FTAs with the different non-Asean countries, the individual Asean countries are also forging bilateral FTAs with these non-Asean countries.
As a result, the Asean has generated a confusing number’s game—Asean+3 (China, Japan and South Korea), Asean+3+2 (Australia, New Zealand), etc. Because of the foregoing, the Asean, according to the UNDP, has generated a “noodle bowl” of over 100 bilateral and regional FTAs.
Member-countries have also pursued “unilateral” trade liberalization way above their trade liberalization commitments to the World Trade Organization (WTO, set up in 1995). For example, Indonesia, the Philippines and Thailand have lowered their tariffs largely in compliance with their commitments to the “structural adjustment programs” concluded with the International Monetary Fund (IMF) and the World Bank. Hence, the most-favored-nation (MFN) or actual tariffs imposed by a number of Asean countries on a whole range of industrial and agricultural products are just slightly higher than the Afta tariffs and way below their bound commitments to the WTO. This partly explains why intra-Asean trade associated with “Form D” (which importers/exporters availing of the lower Asean tariffs fill up) constitutes a miniscule 5 percent of the total. In short, there is no incentive to use fully the Afta and its facilitating program called the Common Effective Preferential Tariff (CEPT) scheme.
At the same time, the free flow of goods under the foregoing trade liberalization programs (Afta-CEPT, unilateral and bilateral/regional FTAs) is somehow impeded in some Asean countries because of the so-called nontariff barriers (NTBs). The most common NTBs come in the form of product standards (the more standards imposed, the more difficult for products to enter a market) and technical/government regulations (for example, customs rules). It appears that the most open Asean economies in terms of tariffs and regulations are also the most vulnerable to trade dumping and smuggling. On the other hand, Malaysia and Singapore have also low tariffs and yet are able to weed out unwanted imports through numerous product standards and strict technical regulations.
Overall, it is abundantly clear that the Asean still has a long way to go as an integrated and seamless regional economy. Nonetheless, however, it cannot be denied that the various integration and liberalization programs and measures have indeed opened up the Asean economy, both at the regional and national levels. These liberalization programs and measures have contributed to the substantial increase in trade from the 1980s to the 1990s. A bewildering array and diversity of products coming from the different Asean countries, the major Asean “dialogue partners” like Australia, China, Japan and South Korea and the traditional western trade partners (North America and Western Europe) now line up the supermarket shelves and shopping malls across the Asean region. Asean consumers have virtually unlimited product choices.
There has also been increasing intra-Asean travel among government officials, businessmen and tourists of the different Asean countries, not to mention the ever-increasing flow of migrant workers circulating within the Asean. This is facilitated by the non-visa requirement for Asean travelers (usually good for 21 days) and the cheaper air travel due to increased competition in the aviation industry.
Overall, however, the Asean economic integration program is still very much a work in progress.