Comment on “Association of Southeast Asian Nations Economic Integration: Developments and Challenges”
Version of Record online: 8 JUN 2011
© 2011 The Author. Asian Economic Policy Review © 2011 Japan Center for Economic Research
Asian Economic Policy Review
Volume 6, Issue 1, pages 64–65, June 2011
How to Cite
HILL, H. (2011), Comment on “Association of Southeast Asian Nations Economic Integration: Developments and Challenges”. Asian Economic Policy Review, 6: 64–65. doi: 10.1111/j.1748-3131.2011.01179.x
- Issue online: 8 JUN 2011
- Version of Record online: 8 JUN 2011
Chia (2011) provides a comprehensive yet succinct overview of the region's economies, emphasizing their diversity and the many challenges they face. She examines regional trade and investment patterns, noting the growth in trade and investment, and also the fact that extraregional sources still dominate. Then sections 3 and 4, the major parts of the paper, investigate the Association of Southeast Asian Nations (ASEAN) economic integration, from the early, halting steps in the 1970s through to the ASEAN Economic Community (AEC) announced in 2003.
I write as an admirer of ASEAN, the most effective, durable, and influential regional association in the developing world. One only has to compare the state of contemporary Southeast Asia with that in the 1960s to appreciate the Association's achievements. It is obvious therefore that, as Chia emphasizes, ASEAN is about much more than economics and that any evaluation of the challenges of economic cooperation needs to be cognizant of this fact.
The major policy reforms in the ASEAN economies have, appropriately, always been unilateral in nature. These include the sweeping liberalizations in Indonesia in the 1980s, in the Philippines in the 1990s, and in the three Mekong economies over the past two decades. As Chia stresses, the AEC is the most important recent initiative. The key issue here is whether it should be regarded as one of the several ASEAN “vision statements” over the decades, or whether it is likely to produce real action. Since it is now several years since the announcement, it would be useful to have more information on the practicalities of implementation, admittedly while recognizing that the global financial crisis has distracted policymakers since late 2008. For example, the conclusion that the “single market and production base” has been 82% achieved needs to be juxtaposed against the fact that trade and investment liberalization in the ASEAN middle-income developing countries has slowed appreciably in recent years. Moreover, are Indonesia, Malaysia, and Thailand on track to meet their ASEAN trade-in-goods agreement (ATIGA) commitments to eliminate their nontariff barriers (NTBs) by 2010, and the Philippines by 2012? In fact, perhaps the author might like to invoke the “reform fatigue” evident in these countries as a justification for ASEAN agreements being helpful in empowering technocrats in difficult political environments at home.
In the discussion of trade and investment patterns, the author shows that intra-ASEAN trade has risen significantly since the implementation of ASEAN Free Trade Area (AFTA) in 1993. AFTA was indeed a landmark achievement, but most of the major regional trade growth has been in electronics parts and components, which now constitute almost 70% of the region's top 10 exports. These are part of East Asia's rapidly growing fragmentation trade, and they are by definition not subject to formal trade barriers (and therefore trade agreements). Most of it is governed by the free trade International Technology Agreement, as well as principally centering on the completely open Singapore economy. Much of the foreign direct investment (FDI) growth to the region has been in these industries, as well as the more recently liberalized services sectors, both of which are in practice largely outside the purview of ASEAN agreements.
In the concluding section, the author argues the case for ASEAN to widen its economic networking through various ASEAN Plus agreements. Will the various Preferential Trading Arrangements (PTAs) signed or under negotiation really provide the key to future growth? That is, are they building blocks or stumbling blocks? There is of course a case for regional agreements. Like-minded countries can move faster than the long-stalled multilateral round. Very open economies like Singapore or New Zealand may sign them as a means of leveraging access to external markets.
But the danger is that these “termites” (to quote Bhagwati, 2008) may undermine unilateral and multilateral reform progress, as policymakers and reformers get distracted by trivial commercial deals. In many PTAs, the sensitive sectors are typically avoided, or shunted off into extended implementation phases. Moreover, it is difficult to see how these myriad PTAs will ever collapse into a plurilateral deal, when the “hubs”– that is, major powers, the USA, the European Union, Japan, and increasingly China – all insist on different types of agreements. To minimize the costs of trade diversion inherent in PTAs, ASEAN might well adopt the framework articulated by Menon (2009), namely “consolidation” into larger blocs of countries; “multilateralization” of the terms in these agreements on a most-favored nation (MFN) basis to nonmembers; “harmonization” by reducing MFN rates to the region's lowest, that is, Singapore in the case of ASEAN; and “dilution” of the restrictiveness of PTAs, for example, in their rules of origin (ROOs). In fact, ASEAN has already been doing much of this: it has already multilateralized much of its regional agreements; MFN rates have been coming down, faster in some countries than others; and its ROOs have always been less restrictive than most other agreements. Providing it maintains this trajectory, implicitly endorsing the concept of “open regionalism,” the optimism about the region's economic integration will surely be realized.
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