Comment on “Association of Southeast Asian Nations Economic Integration: Developments and Challenges”

Authors

  • Shujiro URATA

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    1. Waseda University
      Shujiro Urata, Graduate School of Asia-Pacific Studies, Waseda University, 1-21-1 Nishiwaseda, Shinjuku, Tokyo 169-0051, Japan. Email: surata@waseda.jp
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Shujiro Urata, Graduate School of Asia-Pacific Studies, Waseda University, 1-21-1 Nishiwaseda, Shinjuku, Tokyo 169-0051, Japan. Email: surata@waseda.jp

Chia (2011) analyzes the issue of the Association of Southeast Asian Nations (ASEAN) economic integration with focuses on its developments and challenges by tracing the developments from the pre-ASEAN Free Trade Area (AFTA) period (1977–1992) to the AFTA period (1992–2007), and then to the ASEAN Economic Community (AEC) period (2008–). The paper first gives a brief discussion of the economic characteristics of ASEAN member countries to set the stage for her analysis in the later sections. The diversity among ASEAN member countries in various aspects, especially in terms of the levels of economic development, is emphasized. One interesting observation relates to the wide differences in trade facilitation measures such as the number of documents required for exporting, which is a stumbling block for establishing an integrated market.

Chia then turns to the issue of economic integration in ASEAN. The motivation behind ASEAN economic integration is discussed first. In addition to the benefits such as economies of scale and scope, which may arise from an enlarged market, Chia emphasizes the competitive pressure from an emerging North American Free Trade Area and the European Single Market. Chia presents a comprehensive and detailed account of various programs such as the AFTA, the ASEAN Framework Agreement on Services, and the ASEAN Investment Area, which have been implemented by ASEAN for promoting its economic integration. Most of the discussion is devoted to AFTA whose implementation began slowly but has accelerated over time. Despite such progress, Chia finds the utilization rate of AFTA low. Chia also observes trade barriers still remain in the form of nontariff barriers, including import quotas and antidumping actions.

The next section discusses the programs developed for achieving the AEC, including the AEC Blueprint. Chia presents the results of a computable general equilibrium (CGE) model used to simulate the impacts of the AEC on ASEAN members. The results show sizable increases in the economic welfare of all members. Chia also presents the AEC scorecard for 2008–2009, which assesses the percentage of targets achieved. On the objective of a single market and production base, the achievement record was 82%.

In her conclusion, Chia emphasizes the importance of political will to achieve economic integration. She also takes up the issue of the proliferation of free trade agreements (FTAs) involving ASEAN members both as a group and individually. She sees the situation as being problematic because the proliferation of these FTAs has given rise to concerns over the centrifugal forces weakening ASEAN centrality, the negotiation capability of Cambodia, Lao PDR and Myanmar, and the emergence of the noodle bowl effect.

Chia (2011) provides a good analysis of the developments of ASEAN economic integration in terms of foreign trade and foreign direct investment (FDI). The paper also gives very detailed information on the programs implemented for promoting ASEAN economic integration.

Chia appears to have a low evaluation of the efforts made by ASEAN toward its economic integration. Although there still remain quite a few unfinished programs toward the AEC, I find it amazing that ASEAN has formulated and implemented so many programs, including the completion of intra-ASEAN trade liberalization. Having expressed my rather positive view on ASEAN's progress, I would be interested to know which country and which individuals, government officials, politicians, business people, etc., led the economic integration program. I would also like to know which country and which individuals, if any, are reluctant to promote ASEAN economic integration.

As Chia discusses, one of the challenges in implementing trade liberalization is to overcome the opposition from the potential losers. Chia argues that one of the ways is to compensate losers through the provision of financial and technical assistance. While this policy prescription is correct, the implementation of assistance programs is not easy. One problem relates to program effectiveness. Ideally, assistance enables the recipient to improve his/her technical skills so that he/she can get a high-paying, high-productive job. In reality, however, assistance is given just to compensate for the income loss. Some discussion of the experiences of ASEAN members concerning the implementation of trade liberalization and compensation schemes would have been useful.

The development gap among ASEAN members is a difficult problem, which has to be dealt with, in order for ASEAN to maintain solidarity. In light of this observation, I would like to know the impacts of the AEC on this development gap. In the liberalized policy environment such as the AEC where free trade and FDI prevail, economic activities tend to be concentrated in a particular country, which can provide a good business environment. If this is the case, a business-friendly country achieves high economic growth by attracting FDI and exporting products, while a country that is unattractive to foreign investors remains underdeveloped. Indeed, as a result of AFTA, many Japanese companies consolidated their operations in ASEAN by moving their operation from various countries to one country.

Finally, ongoing negotiations on an enlarged Trans-Pacific Economic Strategic Partnership Agreement may contribute negatively to ASEAN stability, as four ASEAN members, Singapore, Brunei, Vietnam, and Malaysia, have joined the negotiations, while the others have not. It would have been very helpful if Chia could have enlightened us on this issue.

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