Ibm term paper

DEPARTMENT OF BUSINESS ADMINISTRATION
UnIVERSITY OF LUCKNOW
YEAR 2016-17
INTERNATRIONAL BUSINESS MANAGEMENT
TERM PAPER ON
REGIONAL ECONOMIC INTEGRATION OF ASEAN
SUBMITTED TO- SUBMITTED BY -
Asst. prof. Ambrish Singh Shiv Sagar Verma
MBA (IB) 3RD
SEM.
ROLL NO. 16001115043

Acknowledgement
On the very outset of this report, I would like to extend my sincere & heartfelt
obligation towards all the personages who have helped me in this endeavor.
Without their active guidance, help, cooperation & encouragement, I would not
have made headway in the project.
I have taken efforts in this project. I would like to take this opportunity to express
my sincere thanks to my teacher Ambrish Singh for all the guidance & support & it
would not have been possible without the kind support and help of my friends &
family. I would like to extend my sincere thanks to all of them.
Any omission in this brief acknowledgement does not mean lack of gratitude.
Thanking You
Shiv Sagar Verma
MBA (IB)

REGIONAL ECONOMIC INTEGRATION OF “ASEAN”
The Association of Southeast Asian Nations is a regional organization
comprising ten Southeast Asian states which promotes intergovernmental
cooperation and facilitates economic integration amongst its members. Since its
formation on August 8, 1967 by Indonesia, Malaysia, the Philippines, Singapore,
and Thailand, the organization’s membership has expanded to
include Brunei, Cambodia, Laos, Myanmar (Burma), and Vietnam. Its principal
aims include accelerating economic growth, social progress, and sociocultural
evolution among its members, alongside the protection of regional stability and
the provision of a mechanism for member countries to resolve differences
peacefully.
ASEAN covers a land area of 4.4 million square kilometers, 3% of the
total land area of Earth. ASEAN territorial waters cover an area about three times
larger than its land counterpart. Member countries have a combined population
of approximately 625 million people, 8.8% of the world's population. In 2015, the
organization’s combined nominal GDP had grown to more than US$2.8 trillion. If
ASEAN were a single entity, it would rank as the sixth largest economy in the
world, behind the USA, China, Japan, Germany and the UK. ASEAN shares land
borders with India, China, Bangladesh, East Timor, and Papua New Guinea, and
maritime borders with India, China, and Australia. Both East Timor and Papua
New Guinea are backed by certain ASEAN members for their membership in the
organization.

Foundation
ASEAN was preceded by an organization formed in 1961 called the Association
of Southeast Asia (ASA), a group consisting of the Philippines, Malaysia, and
Thailand. ASEAN itself was created on 8 August 1967, when the foreign
ministers of five countries: Indonesia, Malaysia, the Philippines, Singapore, and
Thailand, signed the ASEAN Declaration, more commonly known as
the Bangkok Declaration.
The creation of ASEAN was motivated by a common fear of communism, and a
thirst for economic development.
ASEAN grew when Brunei Darussalam became its sixth member on 7 January
1984, barely a week after gaining independence.
“The Association of Southeast Asian Nations (ASEAN) was formed in 1967 by
Indonesia, Malaysia, the Philippines, Singapore, and Thailand to promote political
and economic cooperation and regional stability. Brunei joined in 1984, shortly
after its independence from the United Kingdom, and Vietnam joined ASEAN as
its seventh member in 1995. Laos and Burma were admitted into full membership
in July 1997 as ASEAN celebrated its 30th
anniversary. Cambodia became
ASEAN’s tenth member in 1999.
The ASEAN Declaration in 1967, considered ASEAN’s founding document,
formalized the principles of peace and cooperation to which ASEAN is dedicated.
The ASEAN Charter entered into force on 15 December 2008. With the entry into
force of the ASEAN Charter, ASEAN established its legal identity as an
international organization and took a major step in its community-building process.
The ASEAN Community is comprised of three pillars, the Political-Security
Community, Economic Community and Socio-Cultural Community. Each pillar has
its own Blueprint approved at the summit level, and, together with the Initiative for
ASEAN Integration (IAI) Strategic Framework and IAI Work Plan Phase II (2009-
2015), they form the Roadmap for and ASEAN Community 2009-2015.
ASEAN commands far greater influence on Asia-Pacific trade, political, and
security issues than its members could achieve individually. This has driven
ASEAN’s community building efforts. This work is based largely on consultation,
consensus, and cooperation.
U.S. relations with ASEAN have been excellent since its inception. The United
States became a Dialogue Partner country of ASEAN in 1977. Dialogue partners
meet regularly with ASEAN at the working and senior levels to guide the
development of our regional relations. In July 2009, Secretary Clinton signed the

Treaty of Amity and Cooperation in Southeast Asia (TAC) which has greatly
enhanced U.S. political relations with ASEAN.
Every year following the ASEAN Ministerial Meeting, ASEAN holds its Post-
Ministerial Conference (PMC) to which the Secretary of State is invited. In 1994,
ASEAN took the lead in establishing the ASEAN Regional Forum (ARF), which
now has 27 members and meets each year at the ministerial level just after the
PMC.
On November 15, 2009, President Obama met with ASEAN leaders in Singapore.
This was the first meeting ever between a U.S. President and all ten ASEAN
leaders. The President’s meeting has greatly advanced U.S. relations with ASEAN
and the East Asia region. Nina Hachigian is the U.S. Ambassador to ASEAN.”
PURPOSE OF ASEAN
As set out in the ASEAN Declaration, the aims and purposes of ASEAN are:
1. To accelerate the economic growth, social progress and cultural
development in the region through joint endeavors in the spirit of equality
and partnership in order to strengthen the foundation for a prosperous and
peaceful community of Southeast Asian Nations;
2. To promote regional peace and stability through abiding respect for justice
and the rule of law in the relationship among countries of the region and
adherence to the principles of the United Nations Charter;
3. To promote active collaboration and mutual assistance on matters of
common interest in the economic, social, cultural, technical, scientific and
administrative fields;
4. To provide assistance to each other in the form of training and research
facilities in the educational, professional, technical and administrative
spheres;
5. To collaborate more effectively for the greater utilization of their agriculture
and industries, the expansion of their trade, including the study of the
problems of international commodity trade, the improvement of their
transportation and communications facilities and the raising of the living
standards of their peoples;
6. To promote Southeast Asian studies; and
7. To maintain close and beneficial cooperation with existing international and
regional organizations with similar aims and purposes, and explore all
avenues for even closer cooperation among themselves.

FUNDAMENTAL PRINCIPLES
In their relations with one another, the ASEAN Member States have adopted the
following fundamental principles, as contained in the Treaty of Amity and
Cooperation in Southeast Asia (TAC) of 1976:
1. Mutual respect for the independence, sovereignty, equality, territorial
integrity, and national identity of all nations;
2. The right of every State to lead its national existence free from external
interference, subversion or coercion;
3. Non-interference in the internal affairs of one another;
4. Settlement of differences or disputes by peaceful manner;
5. Renunciation of the threat or use of force; and
6. Effective cooperation among themselves.
ASEAN COMMUNITY
The ASEAN Vision 2020, adopted by the ASEAN Leaders on the 30th Anniversary
of ASEAN, agreed on a shared vision of ASEAN as a concert of Southeast Asian
nations, outward looking, living in peace, stability and prosperity, bonded together
in partnership in dynamic development and in a community of caring societies.
At the 9th ASEAN Summit in 2003, the ASEAN Leaders resolved that an ASEAN
Community shall be established.
At the 12th ASEAN Summit in January 2007, the Leaders affirmed their strong
commitment to accelerate the establishment of an ASEAN Community by 2015
and signed the Cebu Declaration on the Acceleration of the Establishment of an
ASEAN Community by 2015.
The ASEAN Community is comprised of three pillars, namely the ASEAN Political-
Security Community, ASEAN Economic Community and ASEAN Socio-Cultural
Community. Each pillar has its own Blueprint, and, together with the Initiative for
ASEAN Integration (IAI) Strategic Framework and IAI Work Plan Phase II (2009-
2015), they form the Roadmap for an ASEAN Community 2009-2015.
ASEAN CHARTER
The ASEAN Charter serves as a firm foundation in achieving the ASEAN
Community by providing legal status and institutional framework for ASEAN. It also
codifies ASEAN norms, rules and values; sets clear targets for ASEAN; and
presents accountability and compliance.

The ASEAN Charter entered into force on 15 December 2008. A gathering of the
ASEAN Foreign Ministers was held at the ASEAN Secretariat in Jakarta to mark
this very historic occasion for ASEAN.
With the entry into force of the ASEAN Charter, ASEAN will henceforth operate
under a new legal framework and establish a number of new organs to boost its
community-building process.
In effect, the ASEAN Charter has become a legally binding agreement among the
10 ASEAN Member States.
The importance of the ASEAN Charter can be seen in the following contexts:
 New political commitment at the top level
 New and enhanced commitments
 New legal framework, legal personality
 New ASEAN bodies
 Two new openly-recruited DSGs
 More ASEAN meetings
 More roles of ASEAN Foreign Ministers
 New and enhanced role of the Secretary-General of ASEAN
 Other new initiatives and changes

ASEAN Economic Integration: Opportunities and Challenges
that Lie Ahead
The Association of Southeast Asian (ASEAN) leaders adopted the ASEAN Vision
2020 hoping to strengthen the foundation for a prosperous and peaceful
community of Southeast Asian nations while creating a community that lived in
shared stability and prosperity. The purpose of establishing an integrated
economic community is to accelerate economic growth, enhance trade
development in the region, and allow the freer movement of goods, services,
skilled labor, and capital.
There are approximately 600 million people across the ten ASEAN member
countries (Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar,
Philippines, Singapore, Thailand, and Vietnam) that will be affected by this regional
partnership. Thus, it is critical to highlight some high level opportunities as well as
challenges surrounding the impending economic integration.
Background
The 1997 Asian financial crisis generated substantial macroeconomic fundamental
effects, including a collapse of Asian stock markets, devaluations of domestic
currencies, and a reduction in asset prices throughout Asian countries. Many
businesses collapsed which in turn condensed per capita income for millions of
people in the region.
Some experts argue that the Asian financial crisis exposed many issues such as
banks’ structural inefficiencies, weak financial infrastructures, lack of transparency
and weak governance and regulation involving the banking sector.
Others argue that moral hazard, asymmetric information, short-sighted
government policies, weak institutions, and ineffective regulation also made the
region vulnerable to the crisis.
In the years that followed the Asian Financial crisis, ASEAN leaders discussed
creating economic policies that would both support economic growth and protect
the region from any potential future economic shocks. Consequently, the ASEAN
Economic Community emerged as an apparatus for meeting these needs.
Opportunities
As a region, ASEAN has dramatically outpaced the rest of the world in growth of
GDP per capita since the late 1970s. Income growth has remained strong since
2000, with average annual real gains of more than 5 percent. According to a study
by McKinsey, in the year 2000, 14 percent of the region’s population was living
below the international poverty line of $1.25 a day (calculated in purchasing-power-
parity terms), but by 2013, that share had fallen to just 3 percent.

Already several million households in ASEAN countries have incomes that allow
them to make significant discretionary purchases. That number could reach 125
million households by 2025, making ASEAN an important consumer market.
There is a substantial list of opportunities associated with AEC integration. For
instance, economic integration provides opportunities to boost economic stability
in the region. Another benefit is that integration would turn ASEAN into a more
competitive region within the world economy. A stronger regional economy will
help to improve the living standards of the ASEAN population by reducing poverty
through economic development.
ASEAN member countries expect to achieve greater economic cooperation in the
areas of financial policies, trade, and human capital. AEC integration will also serve
to promote goods and services, investment, labor mobilization, and mobilization of
capital. The ASEAN region could potentially become a highly competitive
economic union operating as a single market. ASEAN also intends to improve
regional agricultural and industrial utilization, as well as expand trade, and improve
transportation and infrastructure.
Labor-force expansion and productivity improvements have driven GDP growth in
the ASEAN region. ASEAN has the third-largest labor force in the globe, behind
China and India. The ASEAN region is projected to rank as the fourth-largest
economy in the world by the year 2050.
Economic growth and expansion in trade have yielded tangible benefits to
Southeast Asia’s people. In 2012, ASEAN’s GDP per capita reached $3,748, more
than double the year 2000 figure of $1,172. Over the last ten years, poverty levels
across the region have decreased. The Nation reported that in Cambodia, Laos,
Myanmar, and Vietnam, the proportion of the population living on less than $1.25
a day fell to 16 percent in 2010, from 45 percent in 2000. However, it is important
to highlight that there are structural and institutional differences across the 10
member ASEAN countries, and consequently, these countries can be expected to
have different levels of economic growth and subsequent economic development.
Challenges
Economic integration could potentially combine to produce opportunities to
ASEAN countries; however, it could also generate challenges, namely higher costs
related to implementing economic integration across such economically and
culturally diverse countries.
ASEAN is an economic region which has diverse patterns of economic
development. The majority of ASEAN countries are categorized as low middle
income countries, whereas a few are positioned better economically. The existing

income inequality gap among some of the ASEAN countries could become even
wider post AEC integration.
There is the possibility of witnessing highly disparate levels of economic
development, interest rates, and exchange rates across member countries. As a
result, governments could face some challenges in stabilizing macroeconomic
and financial conditions under an integrated economic system.
In order to take full advantage of economic growth, the region must develop its
human capital and workforce skills, while addressing income inequality and
gender inequality. In order for ASEAN to become more globally competitive in a
wide range of sectors and industries, it must invest in institutions, infrastructure,
education, on the-job-training, and in allowing women to participate more in the
regional economy.
The ASEAN region sits at the intersection of global flows. Intraregional trade in
goods is likely to increase with the implementation of AEC as is overall economic
growth. To realize the full potential of the AEC, better management of structural
and institutional change is needed, in addition to ensuring that economic gains
lead to shared prosperity among the population. The success of ASEAN
economic integration will depend on how it influences the labor market – and
consequently on how it improves the quality of life of women and men in the
region.
Some ASEAN countries have high inflation rates. This could result in dissimilar
price levels and unequal purchasing power across ASEAN member countries,
giving some countries the ability to purchase more goods of another member
country. Also, different levels of inflation could result in different levels of
investment. Many of the ASEAN economies are currently in vastly different
stages of development, with large differences between high-saving economies,
such as Brunei, Malaysia, and Singapore, and low-saving economies, such as
Cambodia, Laos, and the Philippines.
There are opportunities and challenges that surround AEC, including managing
labor migration, boosting productivity and wages, and improving job quality.
These items in turn will produce effects on job skills development, wages and
productivity, and labor migration. However, it is important to emphasize that
unless managed properly, the AEC may not be able to capitalize on all of the
foreseeable economic opportunities, and instead it could witness an increase in
income inequality across the region which would certainly affect the poorest.

The politics of the Asean economic integration
The inevitable coming of the Asean economic integration will do more harm than
good to our local economy. Many are hopelessly optimistic, thinking of a possible
boom for the local economy in terms of an expanded or extended market without
any basis, relying on mere perception of progress and development as though
this economic integration would be “manna” from heaven.
Although the local labor force may be a beneficiary of this trade treaty, it is a
figment of the imagination that the entire labor force will benefit. For instance,
professional jobs are listed as the priority and not the blue-collar workers of
which the country has an oversupply. We always brag about the multitude of
people we have locally, expecting to augment our domestic income by way of
sending workers overseas, but how many of these people have the skills and
technological know-how to qualify for overseas employment? The economic
integration will be a melting pot of Asean development and technological
advancement, not a dumping ground for unskilled individuals.
Though the intention of this modern day treaty is to promote progressive
economies among the Asean members, the economic well-being of each country
will determine how it will fare in the competitive world. Despite the many
accolades the Philippines has received in terms of investment rating upgrades,
all of which were earned on the basis only of perception (e.g., the significant
elimination of graft and corruption), as far as industrial competitiveness is
concerned, we have yet to see the Philippines join the elite group of leading
economies.
In more concrete terms, like products and services that can compete with our
Asean counterparts, a lot more need to be done and improved upon. Our
agricultural sector, for instance, which we have always been proud of because of
our rich natural resources, has remained stagnant thanks to the failed agrarian
reform program in the country. Unless the land owners as well as the
government submit themselves to the real intentions a genuine land reform
program, our country and our agricultural workers, who comprise about 60
percent of our labor force, will forever be mired in poverty and hunger.
The failure and insincerity of our land reform program is a testament to why
poverty and hunger will linger and will be here to stay. It should have been an
opportunity for the government to equip our people to become self-sufficient and
not rely on the government for their subsistence. It could have been an armor to
escape the wrath of hunger and abject poverty. It could have saved the
government more than P50 billion in conditional cash transfer (CCT) funds or

dole-outs, but the government lost the opportunity to improve the living standards
of its people not because it could not afford to fully implement the Agrarian
Reform Law, but because of some political and personal concerns.
Varying economic and political interests
Though Asean economic cooperation has been in existence since the decade of
the 60s, as started by Maphilindo (Malaysia, Philippines and Indonesia), the
regional bloc has failed to make its mark in terms of worldwide significance.
Despite the regional cooperation that was initiated by the group, it failed to
establish its regional identity among the community of nations. A study
conducted by the Centre for Public Policy Studies (CPPS) notes that “The issue
of regional identity or the lack of which has been linked to states making
decisions out of national interest rather than considering the implications on the
community as a whole. No clear Southeast Asian identity exists, with people
sharing little by way of culture, common history or language.”
Implicitly, common interests still prevail among the Asean members but not full
economic benefit. And this forthcoming integration will in no way be different from
the existing Asean accord. Although a more comprehensive trade barrier is
bound to be removed, product competition and identity will still prevail.
While the Asean economic integration is a positive step towards full regional and
global cooperation, apprehensions about technological transfer and common
interests will always be there. Political and economic protectionism will still tacitly
prevail. This is natural for any political or geographical unit and reflected by any
governmental organization; just like the failure of our Agrarian Reform Law,
which is a microcosm of the protection of personal and political interests.
CURRENT LEADERS OF ASEAN
Brunei Cambodia Indonesia
Sultan Hassanal Bolkiah Prime Minister Hun Sen President Joko Widodo

Laos Malaysia Myanmar
President Bounnhang Vorachith Prime Minister Najib Razak State Counselor Aung San suu kyi
Philippines Singapore Thailand
President Rodrigo Duterte Prime Minister Lee Hsien Loong Prime Minister Prayuth chan- ocha
Vietnam
Prime Minister Nguyễn Xuân Phúc

ECONOMY: ASEAN
ASEAN is built on three pillars: the ASEAN Political-Security Community
(APSC), the ASEAN Economic Community (AEC), and the ASEAN Socio-
Cultural Community (ASCC).
ASEAN sought economic integration by creating the AEC by the end of 2015.
This established a common market. The average economic growth of ASEAN's
member nations during 1989–2009 was between 3.8% and 7%. This economic
growth was greater than the average growth of the Asia-Pacific Economic
Cooperation (APEC), which was 2.8%.
The ASEAN Free Trade Area (AFTA), which was established on 28 January
1992, includes a Common Effective Preferential Tariff (CEPT) to promote the
free flow of goods between member states. When the AFTA agreement was
originally signed, ASEAN had only six members: Brunei, Indonesia, Malaysia, the
Philippines, Singapore, and Thailand. Vietnam joined in 1995, Laos and Burma in
1997, and Cambodia in 1999. The newcomers have not fully met AFTA's
obligations, but they are officially considered part of the AFTA as they were
required to sign the agreement upon entry into ASEAN, and were given longer
time frames in which to meet AFTA's tariff reduction obligations.
The next steps are to create a: single market and production base, a competitive
economic region, a region of equitable economic development, and a region that
is fully integrated into the global economy.
Since 2007, ASEAN countries have gradually lowered their import duties to
member nations. The target is zero import duties by 2016.

In February 2016, President Obama initiated the inaugural US-ASEAN Summit
at Sunny lands for closer engagement with ASEAN, as China's economic and
trade growth have dimmed. The territorial disputes in the South China Sea were
also discussed. However, in a final joint statement, the Sunny lands Declaration
did not allude to the South China Sea by name, instead calling for: "respect for
each nation's sovereignty and for international law". Analysts believe the wording
indicated divides within the group on how to respond to China's maritime
strategy.
Internal market
By the end of 2015, ASEAN plans to establish a common market based upon
the four freedoms. The single market will ensure the free flow of goods, services,
skilled labour, and capital.
Until the end of 2010, intra-ASEAN trade was still low. Trade involved mainly
exports to countries outside the region, with the exception of Laos and Myanmar,
whose foreign trade was ASEAN-oriented, with 80% and 50% respectively of
their exports going to other ASEAN countries.
In 2009, realised foreign direct investment (FDI) was US$37.9 billion and
increased two-fold in 2010 to US$75.8 billion. 22% of FDI came from
the European Union, followed by ASEAN countries (16%), and by Japan and the
USA.
The ASEAN Framework Agreement on Trade in Services (AFAS) was adopted at
the ASEAN Summit in Bangkok in December 1995. Under AFAS, ASEAN
member states enter into successive rounds of negotiations to liberalise trade in
services with the aim of submitting increasingly higher levels of commitment. At
present, ASEAN has concluded seven packages of commitments under AFAS.
Free flow of skilled labour
Mutual Recognition Agreements (MRAs) have been agreed upon by ASEAN for
eight professions: physicians, dentists, nurses, architects, engineers,
accountants, surveyors, and tourism professionals. Individuals in these
professions will be free to work in any ASEAN nation after the AEC goes into
effect on 31 December 2015. Applicants must be licensed and recognised
professionals in these fields in their home countries. They can move to other
ASEAN countries to practice, but they must pass that country's licensing test. In
Thailand, licensing tests will be in the Thai language. In addition, one cannot be
an independent practitioner. Any foreign professional intending to work must
collaborate with a local business. Given these hurdles, it is unlikely that there will
be significant migrations of professionals in the near-term. A Chulalongkorn
University study predicts that more developed countries stand to benefit the most
from the free flow of professionals.

Free trade
Free trade initiatives in ASEAN are spearheaded by the implementation of the
ASEAN Trade in Goods Agreement (ATIGA) and the Agreement on Customs.
These agreements are supported by work done by several sector bodies to plan
and to execute free trade measures, guided by the provisions and the
requirements of ATIGA and the Agreement on Customs. The progress being
made by these sector bodies forms a backbone for achieving the targets of the
AEC Blueprint and establishing the ASEAN Economic Community by the end of
2015.
The year 2007 was the 40th anniversary of ASEAN's formation. It also marked
30 years of diplomatic relations with the USA. On 26 August 2007, ASEAN stated
that it aims to complete all of its free trade agreements with China, Japan, South
Korea, India, Australia, and New Zealand by 2013. This is in line with the start of
the ASEAN Economic Community by 2015. In November 2007, ASEAN
members signed the ASEAN Charter, a constitution governing relations among
ASEAN members and establishing ASEAN itself as an international legal
entity. During the same year, the Cebu Declaration on East Asian Energy
Security was signed (15 January 2007) by ASEAN and the other members of
the EAS (Australia, The People's Republic of China, India, Japan, New Zealand,
South Korea), which pursues energy security by finding energy
alternatives to conventional fuels.
On 27 February 2009, a free trade agreement (FTA) with the ASEAN regional
bloc of ten countries and Australia, and its close partner New Zealand was
signed. It is believed that this FTA would boost combined GDP across the twelve
countries by more than US$48 billion over the period between 2000 and
2020. ASEAN members, together with the group's six major trading partners
(Australia, China, India, Japan, New Zealand, South Korea), began the first
round of negotiations on 26–28 February 2013, in Bali, Indonesia on the
establishment of the Regional Comprehensive Economic Partnership

ASEAN six majors
Six majors refers to the six largest economies in the area that are many times
larger than the remaining four ASEAN countries:
Country
Population
(in
millions)
GDP
(Nominal
2016)
(billions of
US
dollars)[61]
GDP
(Nominal
Per Capita)
(US
dollars)
GDP (PPP
2016)
(billions of
US
dollars) [62]
GDP
(PPP Per
Capita)
(US
dollars)
Indonesia 260.6 $940,953 $3,610 $3,027,827 $11,618
Thailand 68.1 $390,592 $5,777 $1,152,421 $16,922
Philippines 103.3 $311,687 $3,017 $793,193 $7,678
Malaysia 30.8 $302,748 $9,890 $859,881 $27,918
Singapore 5.6 $292,642 $53,209 $484,951 $86,598
Vietnam 95.3 $200,493 $2,103 $592,848 $6,220
ASEAN Capital Markets Forum (ACMF)
The ACMF is a collaboration among the seven stock exchanges
of Malaysia, Vietnam (2 exchanges), Indonesia, Philippines, Thailand,
and Singapore. It includes 70% of the transaction values of the seven ASEAN
stock exchanges. Its objective is the integration of ASEAN stock exchanges so
as to compete with international exchanges.
Development gap
When Vietnam, Laos, Myanmar, and Cambodia joined ASEAN in the late 1990s,
concerns were raised about a gap in average per capita GDP between older and
newer members. In response, the Initiative for ASEAN Integration (IAI) was
formed by ASEAN as a regional integration policy with the goal of bridging this
developmental divide, which, in addition to disparities in per capita GDP, is
manifested by disparities in dimensions of human development such as life
expectancy and literacy rates. Other than the IAI, other programmers for the
development of the Mekong Basin—where all four newer ASEAN members are
located—that tend to focus on infrastructure development were enacted. In
general, ASEAN (with the notable exception of Singapore) does not have the
financial resources to extend substantial grants or loans to the new members.
Therefore, it usually leaves the financing of these infrastructure projects
to international financial institutions and to developed countries. Nevertheless, it
mobilized funding from these institutions and countries, and from the ASEAN-6
(Indonesia, Malaysia, Philippines, Brunei Darussalam, Singapore, and Thailand)
themselves, for areas where the development gap needs to be bridged through
the IAI programmer. Other programmers intended for the development of the

ASEAN-4 take advantage of the geographical proximity of the CLMV (Cambodia-
Laos-Myanmar-Vietnam) countries and tend to focus on infrastructure
development in areas like transport, tourism, and power transmission.
ASEAN members by
Human Development Index[64]:160–162
CountryHDI (2014 ) Singapore0.912very high
Brunei0.856very high Malaysia0.779high Thailand0.726high
Indonesia0.684medium ASEAN0.673medium Philippines0.668medium
Vietnam0.666medium Laos0.575medium Cambodia0.555medium
Myanmar0.536low
Monetary union
The concept of an Asian Currency Unit (ACU) started in the middle of the
nineties, prior to the 1997 Asian financial crisis. It is a proposed basket of Asian
currencies, similar to the European Currency Unit, which was the precursor of
the Euro. The Asian Development Bank is responsible for exploring the feasibility
and construction of the basket.
Since the ACU is being considered to be a precursor to a common currency in
the future, it has a dynamic outlook of the region. The overall goal of a common
currency is to contribute to the financial stability of a regional economy, including
price stability. It means lower cost of cross-border business through the
elimination of currency risk for the members of the monetary union. Greater flows
of intra-regional trade would put pressure on prices, resulting in cheaper goods
and services. Individuals benefit not only from the lowering of prices, they save
by not having to change money when travelling within the union, by being able to
compare prices more readily, and by the reduced cost of transferring money
across borders. However, there are conditions for a common currency: the
intensity of intra-regional trade and the convergence
of macroeconomic conditions. Substantial intra-ASEAN trade and economic
integration is an incentive for a monetary union. Intra-ASEAN trade is growing,
partly as a result of the ASEAN Free Trade Area (AFTA) and the ASEAN
Economic Community.
Free-trade agreements
ASEAN has concluded free trade agreements with China (expecting bilateral
trade of $500 billion by 2015), Korea, Japan, Australia, New Zealand, and India.
ASEAN-India bilateral trade crossed the US$70 billion target in 2012 (target was
to reach the level only by 2015). The agreement with People's Republic of China
created the ASEAN–China Free Trade Area (ACFTA), which went into full effect
on 1 January 2010. In addition, ASEAN is currently negotiating a free trade
agreement with the European Union. The Republic of China (Taiwan) has also
expressed interest in an agreement with ASEAN but needs to overcome
diplomatic objections from China.

ASEAN–India Free Trade Area
The ASEAN–India Free Trade Area (AIFTA) is a free trade area among the ten
member states of the Association of Southeast Asian Nations (ASEAN)
and India. The initial framework agreement was signed on 8 October 2003
in Bali, Indonesia. And the final agreement was on 13th August 2009. The free
trade area came into effect on 1 January 2010. India hosted the latest ASEAN-
India Commemorative Summit in New Delhi on 20–21 December 2012. As of
2011-12, two-way trade between India & ASEAN stood at US$79.86 billion
surpassing the US$70 billion target.
TARIFFS
he signing of the ASEAN-India Trade in Goods Agreement paves the way for the
creation of one of the world’s largest FTAs – a market of almost 1.8 billion people
with a combined GDP of US$2.8 trillion. The ASEAN-India FTA will see tariff
liberalization of over 90 percent of products traded between the two dynamic
regions, including the so-called “special products,” such as palm oil (crude and
refined), coffee, black tea and pepper. Tariffs on over 4,000 product lines will be
eliminated by 2016, at the earliest.
CRITICISM
While there are many benefits to the ASEAN-India FTA, there is concern in India
that the agreement will have several negative impacts on the economy. As
previously stated, the two regions aim to reduce their tariffs on a majority of their
traded goods. This will allow them to increase the market access of their
products. It is criticized, however, that India will not experience as great an
increase in market access to ASEAN countries as ASEAN will in India. The
economies of the ASEAN countries are largely export-driven, maintaining high
export-to-GDP ratios (in 2007, Malaysia had a ratio of over 100%)
Considering
this, as well as the global financial crisis and India's expansive domestic market,
the ASEAN countries will look eagerly towards India as a home for its exports.
Since the early 2000s, India has had an increasing trade deficit with ASEAN, with
imports exceeding exports by more than US$6 billion in 2007-2008. It is feared
that a gradual liberalization of tariffs and a rise in imported goods into India will
threaten several sectors of the economy, specifically the plantation sector, some
manufacturing industries, and the marine products industry. As a dominant
exporter of light manufacturing products, ASEAN has competitive tariff rates that
make it difficult for India to gain access to the industry market in ASEAN
countries.
Before the agreement was signed, the Chief Minister of Kerala, V.S.
Achuthanandan, led a delegation to the Indian Prime Minister protesting against
the FTA. The state of Kerala is an important exporter in the national export of

plantation products. It fears that cheap imports of rubber, coffee, and fish would
lower domestic production, adversely affecting farmers and ultimately its
economy. Kerala has already experienced a flooding of its market with
inexpensive imports under the South Asia Free Trade Agreement of 2006. Cheap
coconuts from Sri Lanka and palm oil from Malaysia has since hindered Kerala's
coconut cultivation.
To alleviate the losses that arise from the initial stages of trade, the Government
of India must be able to effectively redistribute some of the wealth to those
industries who suffer from the increased competition with ASEAN markets. This
way, total welfare gains in India would increase and India would ultimately benefit
from trade with ASEAN.

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