SIZE MATTERS FOR ASEAN
The Association of Southeast Asian Nations (Asean) entered the year 2010 with the launches of multiple FTAs as the first of the five-year countdown to the Asean Economic Community, or the single market, in 2015 started.
Coincidentally, Vietnam took over from Thailand the annual chairmanship of the ten-nation bloc, pledging to “turning Asean into a tighter stronger alliance”, with the theme, “Looking towards an Asean Community: From Vision to Action.”
There are four free trade agreements that Asean launched on the same date – January 1, 2010: Asean Free Trade Agreement (AFTA), in which six early members of the group started to scrap some 8,000 tariff lines; Asean-China Free Trade Agreement (ACFTA), Asean-India Free Trade Agreement (AIFTA) and Asean-Australia-New Zealand Free Trade Agreement (AANZFTA).
The start of the intra-Asean zero-tariff scheme among the six members, part of the drive towards the single market, seems to have taken off without any major setback. (see AFTA KICKOFF, INSIDEOUT, page-)
But Thai Prime Minister Abhisit Vejjajiva sounded wary when he said in Bangkok early January that “most private sector organisations in Thailand and the region are not accounting for this integration in their planning.”
It is vital that there is a higher degree of engagement among the private sector and the public if the ambitious goal of total integration - the Asean Economic Community
(AEC) in 2015 – must be achieved.
However, an average citizen in Asean has yet to realise that it is now a group but not individual countries any longer, as Abhisit noted, which is likely to make it harder to build a true Asean community that will be able to adapt to the changing realities of the world in order to survive and thrive.
Looking back, the late 60s saw the birth of Asean, caused primarily by political and security reasons. Nowadays, the pace and direction of its development is dictated largely by economics, by how countries respond to the fast-changing pattern of world trade and cross-border investment.
Asean economic regionalism has taken on a new urgency over the last 10 years. First, there was the 1997-98 Asian financial crisis, and more recently, the global recession, that forced the economies of Southeast Asia to realise how closely related they were than previously thought.
Asean seems to have understood that it makes good economic sense for them to seek to increase intra-regional trade and rely less on markets in the United States and Europe. Two other factors also helped hasten the drive towards greater Asean economic consciousness.
Asean countries found that they had to compete against regional trading blocs like the North American Free Trade Area and the European Union for foreign direct investment. Besides, they were also in danger of losing out to the emerging economic behemoths of China and India as low-cost producers.
Unless they got their acts together, Asean countries were going to lose out in the battle for investment.
It is imperative for Asean to be a stronger, integrated and more competitive bloc, and to be able to maintain sustain economic growth and raise per capita income to transform itself into an attractive consumer market of half a billion people.
Asean now faces the countdown. Will it be able to build a single market that is equitable, with not too much diversity and gaps in less than five years from now?
It appears inevitable that the 10- member Asean will expand. Asean already has set up separate FTAs with all the countries in ‘plus 6’ (Asean, China, South Korea Japan, India, Australia and New Zealand).
Considering the steadily deepening economic ties between Asean and the six Asian economies, it will be no surprise to see free trade pacts being broadened to Asean plus 3 (Asean, China, South Korea and Japan) and eventually Asean plus 6.
At the Asean Summit in Thailand last August Asean and the six major trading partners in Asia reached a consensus to create the world's largest economic bloc through the “East Asia Free Trade Agreement” and “Comprehensive Economic Partnership in East Asia” within 15 years.
If the plan takes off, it will most likely strengthen their regional trade relations. Besides, it will wean them from imports from outside the region, particularly from the EU and the US.
Perhaps Asean’s integration with East Asian countries will force the European Union to rush to clinch bilateral pacts with individual Asean members for fear of losing benefits after the world's largest free trade agreement in East Asia was established.
According to one study, liberalising trade in the 16 countries will increase their GDP by 1.3 percentage points. For Asean alone, GDP will soar by 3.83 percentage points.
For EAFTA, the GDP of members would increase by 1.2 percentage points.
Apparently, East Asian countries will benefit substantially from the formation of EAFTA, as it would promote economic growth by promoting foreign trade and foreign direct investment (FDI).
LONG AND WINDING ROAD
The proposal for an EAFTA was first brought up in the "East Asia Vision Group" report back in 2001, and it was set forth as one of the three pillars of the East Asia Economic Community in embryo then.
In 2004, leaders of the Asean plus China, Japan and South Korea decided to form a leadership expert team to study feasibilities for the East Asia FTA.
In a report presented in 2006, the expert team deemed it viable for the 10 Asean nations plus three to set up a FTA, and urge them to start negotiation procures as soon as possible.
Clearly, Asean has emerged as the integration hub for FTA activity in East Asia.
There is a view, however, that FTAs—particularly the proliferation of multiple,
overlapping ones—carry the risks of going against the World Trade Organization (WTO) Doha round and creating negative “noodle bowl” effects.