Asean Economic Integration
- 1. ASEAN and Economic Integration in the Wider Asia-Pacific Region Emmanuel Yujuico LSE IDEAS Southeast Asia International Affairs Programme
- 2. Does ASEAN Matter in Terms of Regional Economic Integration? I argue the answer is a resounding “yes”! ASEAN is a mildly dysfunctional “family” whose attention is sought by regional powerhouses (US, Japan, China) Not aspiring to regional hegemony itself, ASEAN is a non-threatening entity that is becoming an unlikely hub of regional activity—including in the economic realm All the same, there are many challenges that ASEAN must address to consolidate its place in Asia-Pacific economic affairs
- 3. Presentation Roadmap An overview of regional integration in Southeast Asia as well as in the broader Asia-Pacific The ASEAN Economic Community (AEC) ASEAN’s Free Trade Agreements 2010: An Important Year for FTAs Related ASEAN+3 initiatives
- 4. AEC Blueprint: The Four Stated Objectives A single market and production base with a free flow of goods, services, investment, capital, and skilled labour Note emphasis on “skilled” labour A highly competitive economic region A region of equitable economic development A region fully integrated into the global economy ------------------------- As we shall see, ASEAN has a long way to go in fulfilling many of these objectives
- 5. NOTE: 13 January 2007 Cebu Declaration accelerated timetable to 2015 We consider AFTA, AFAS, and AIA in turn SOURCE: ASEAN SECRETARIAT
- 6. ASEAN Free Trade Area for Free Flow of Goods Common Effective Preferential Tariff (CEPT-AFTA) for tariff-free intraregional market access ASEAN-6 of Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand implemented CEPT on 1 January 2010 7,881 more tariff lines came down for a total of 54,457 tariff lines at zero 99.11% of tariff lines now at zero; the rest are on sensitive list, HSL, or General Exclusion List—mostly agricultural products Later accession states Cambodia, Laos, Myanmar, and Vietnam (CLMV) scheduled to reduce normal tariffs to zero in 2015
- 7. ASEAN Framework Agreement on Services (AFAS) for Free Flow of Services AFAS aims to be consistent with WTO GATS; the four forms of services trade are Mode 1 Cross border trade (or outsourcing) Mode 2 Consumption abroad (ex: travel, overseas education, medical tourism) Mode 3 Commercial presence (ex: bank branch, foreign subsidiary) Mode 4 Movement of natural persons (ex: an engineer or medical worker works abroad) Seven priority sectors are air transport, business services, construction, financial services, maritime services, telecommunication, and tourism 7 Mutual Recognition Agreements (MRAs) have been concluded designed to facilitate labour mobility for accountants, architects, dentists, doctors, engineers, nurses, surveyors
- 8. ASEAN Investment Agreement (AIA) for Free Flow of Investment Designed to facilitate foreign direct investment from other ASEAN member countries NOTE: Does not cover portfolio investment All industries will be open for investment except for those on the Temporary Exclusion List or Sensitive List Alike for services, “national treatment” or non-discrimination against foreign investors means subjecting them to the same conditions which apply to nationals
- 9. Sounds Good…But Does ASEAN Reality Match with Rhetoric? Answer: “Not quite yet” Shortcomings of ASEAN are in 4 areas: Speed of integration (2015 is approaching) Quality of integration (ex: ASEAN members seldom invoke CEPT-AFTA since completing the required paperwork often exceeds potential tariff reductions) Political will (how serious are ASEAN countries about devoting attention to the nitty-gritty details to facilitate regional integration?) Institutional capacity (ex: EU has 21,000 Eurocrats in Brussels while the ASEAN Secretariat in Jakarta has 200 personnel)
- 10. A Case in Point: The Seven Labour Mutual Recognition Agreements MRAs meant to facilitate skilled labour movement by extending mutual recognition of educational and professional qualifications require consideration of: comparability of licensing and qualification requirements understanding a common language domestic legislation granting qualified professionals of other member states reciprocal rights to practice changes to immigration laws that accommodate mobile professionals’ entry, stay, and exit patterns dispute handling for individuals, firms, and countries To date, these issues remain largely unresolved Malaysia’s “fire foreigners first” policies, Singapore indicating a move to limit migration at a time when integration is supposed to speed up
- 11. From ASEAN to the Asia Pacific: The “Lord Mandelson” Effect Despite its never-ending internal conflicts, ASEAN has managed to make itself the most significant and lasting regional cooperation body ASEAN’s comparatively limited economic and military clout facilitate rather than detract from improving its political clout Not aspiring to hegemony, almost all regional economic cooperation initiatives pass through it It makes an attractive, “low-maintenance” partner via the principle of non-interference Emerging as hub of a hub-and-spoke trading system Suitors follow a general pattern: ASEAN Regional Forum -> Treaty of Amity and Cooperation -> FTA
- 12. Noodle Bowl of Trade Deals: Trade Diversion or Trade Creation? Are these FTAs a stepping stone or stumbling block to multilateral deals alike WTO-Doha? SOURCE: Bhagwati (2009)
- 13. Why Do Economists Dislike “Trade Diversion”? Preferential trade agreements like CEPT-AFTA can divert trade from the most efficient producer or that which provides the lowest price Determining rules of origin (ROO) can become an administrative nightmare for customs officials Example: A Singaporean firm determining where to buy a widget from before and after a PTA in Southeast Asia
- 14. A Lot of FTAs, But Few Increases in Regional Trade Many FTAs, yet little intra-regional trade created With ASEAN alone, there is an alphabet soup of deals with regionally important trade partners: CAFTA, AANZFTA, IAFTA, AKFTA; perhaps JAFTA and USAFTA These are gradually being phased in depending on particular ASEAN member SOURCE: ECONOMIST (2009)
- 15. China-ASEAN Free Trade Agreement (CAFTA) Also came into effect on 1 January 2010 Largest trading bloc in terms of population at 1.9B persons; third largest in trading volume ASEAN+6 now, CLMV in 2015 ASEAN is China’s 3 rd largest partner at $231B for 2008 Some Indonesian textile manufacturers have pushed for a “time out” on CAFTA, citing adjustment difficulties from Chinese competition However, CAFTA was concluded in 2004, leaving plenty of time for preparation Note how Taiwan is largely frozen out
- 16. Will CAFTA Harm ASEAN Economies? Contrary to conventional wisdom, China and ASEAN do not have high export similarities, and these are falling over time SOURCE: LOKE (2009) This measure ranges from 0 (entirely dissimilar) to 100% (entirely similar) exports These are net ESI figures considering supply chains
- 17. ASEAN, Australia, New Zealand FTA (AANZFTA) Concluded on 27 February 2009, came into effect 1 January 2010 Single undertaking in goods, services, and investment 600 million persons, $2.7 trillion total GDP Together, ASEAN is Australia’s largest trading partner at 16% of volume However, Southeast Asia only attracts 5% of Australian foreign direct investment First time Australia and New Zealand have jointly negotiated an FTA with a third party
- 18. India ASEAN FTA (IAFTA) Signed 13 August 2009, came into effect on 1 January 2010 as well Goal is to raise India-ASEAN trade from $40 to $100 billion in five years India’s “Look East” policy seeks diversification from Western consumer markets In particular, India looks forward to services provisions coming into effect: information technology, business process outsourcing (BPO), and space sciences
- 19. ASEAN Korea FTA Services agreement came into effect 1 May 2009; goods agreement 1 January 2010 Goal of raising trade volume from $90 billion at present to $150B by 2015
- 20. The United States Re-Engages US started Asia-Pacific Economic Cooperation in 1993 to preempt Mahathir’s 1991 East Asia Economic Community proposal, counter its exclusion, and limit Chinese influence (Baldwin 2007) Bush-era wariness of Myanmar limited engagement with ASEAN, which insisted on the former’s presence Investment prohibited in 1997, imports prohibited in 2003 Current administration signed TAC on 23 July 2009 Richard Lugar (R-Indiana), Ranking Member of Foreign Relations Committee and longtime Asia-Pacific hand, urges completion of an FTA to keep up with China and others who have signed deals with ASEAN
- 21. Asian Bond Market Initiative (ABMI) In the wake of Asian Financial Crisis, affected firms’ use of dollar-denominated loans posed severe repayment difficulties after local currencies devalued ABMI’s goal is to deepen capital markets in the region and help avoid a Crisis rehash: Promoting the Issuance of Local Currency-Denominated Bonds Facilitating the Demand for Local Currency-Denominated Bonds Improving the Regulatory Framework Improving the Related Infrastructure for the Bond Markets Implementation is still largely in progress
- 22. Chiang Mai Initiative (CMI) US strongly discouraged Japan’s initiative to establish an Asian Monetary Fund in 1998 so that it could retain regional influence First stated concern was moral hazard or that affected countries would delay adjustment Second stated concern was duplication of efforts or superfluity of AMF in light of IMF Nevertheless, ASEAN+3 (China, Japan, and South Korea) established Chiang Mai Initiative of bilateral swaps in Thailand in May 2000
- 23. Chiang Mai Initiative Multilateralization (CMIM) Agreed to on 3 May 2009 Instead of a series of bilateral swaps, CMIM involves pooled funds totaling $120 billion Countries view avoidance of harsh IMF conditionalities as an objective However, countries availing of more than 20% of their allocation must reach an IMF agreement first Countries are unwilling to perform surveillance on each other and prefer to outsource these functions at the current time Demonstrating China’s recent contestation of regional influence, it vied with Japan to provide largest contribution to the pool ($38.4B each, South Korea $19.2B)
- 24. Conclusion: ASEAN Matters ASEAN is in demand: America has kept its objections to Myanmar in check while trying to establish better relations with ASEAN Japan is trying to combine its bilateral Comprehensive Economic Partnership Agreements with various ASEAN states into another FTA Trade settlement services in Chinese RMB are being offered by Bank of China, HSBC and may set stage for PRC currency becoming readily converted ASEAN is more than the sum of its parts as the emerging gatekeeper to the wider region
- 25. Some Suggested Resources LSE IDEAS Special Report on Economic Integration from a workshop held in Kuala Lumpur in April 2009 featuring, among others, ASEAN Secretary-General Surin Pitsuwan: http://www2.lse.ac.uk/IDEAS/publications/reports/pdf/SR002Asean.pdf ADB’s Asia Regional Integration Centre is the most comprehensive site for information: http://aric.adb.org/ I attribute differences between EU and ASEAN integration to cultural factors on Monday, 26 April 2009 (first day of Summer term) at 6:30 PM, venue TBA (please check IDEAS Events); presentation chaired by Sir Colin Budd