Academic journal article Journal of Southeast Asian Economies

Are the Economies of ASEAN and the EU Complementary?

Academic journal article Journal of Southeast Asian Economies

Are the Economies of ASEAN and the EU Complementary?

Article excerpt

I. Introduction

In spite of its being a pioneer in terms of EU external relations, the 1980 EC-ASEAN Trade and Co-operation Agreement, (1) aimed at closer economic relations between the two regions, has somewhat been overshadowed by the recent surge in bilateral free trade agreements (FTAs). Indeed, the proliferation of such agreements with several regions and countries of the world seems to have sidelined the partnership, with ASEAN being today only the EU's fifth major trading partner. One way to revive the old partnership is to design an EU-ASEAN FTA, an objective that has recently been entrusted to the EU-ASEAN Vision Group. (2)

The economic success of an EU-ASEAN FTA depends on the level of production and trade complementarity existing between the two regions. Complementarity must be understood in the sense of the dissimilarity of productive structures and specialization patterns between the two regions. Using a post-Vinerian approach, the greater the complementarity, the higher the scope for trade expansion between the two economies, the lower the costs induced by resource reallocation and the more successful the FTA. Complementarity helps thus identify the risk industries, sensitive sectors and promising areas in the design of the FTA. The aim of this paper is to assess the degree of complementarity existing between ASEAN and the EU. Economic complementarity will involve analysing the productive and trade structures in both regions with due reference to revealed trade comparative advantage and intra-industry trade indices (section III). Beforehand, a brief summary of the trade and investment links within and between the two regions will be proposed, including a survey of the prevailing tariff and non-tariff barriers (section II). A final section will suggest some conclusive avenues.

II. ASEAN and the EU: Intra and Interregional Economic Integration

In spite of comparable population sizes, the two regions differ sharply in terms of economic size, with the EU-25 representing in 2003 some 18.4 per cent and more than a quarter of world trade in goods and services respectively, against 7.7 per cent and 6 per cent for ASEAN respectively (EUROSTAT 2006 and WTO 2006).

II.1 Intra-regional Economic Integration

A major distinguishing feature between the two regions is the intensity of economic integration (intra-regional integration). As can be seen from Table 1, intra-ASEAN trade and investment is low when compared with EU figures. (3) Intra-ASEAN trade has been below 25 per cent of total ASEAN trade for many years, despite renewed efforts such as the entry into force of the ASEAN FTA (AFTA) in January 2002.

Intra-ASEAN foreign direct investment (FDI) flows recovered from the aftermath of the Asian crisis, but have been stagnating at a low 12 per cent of total FDI flows into the region. Two-thirds of these US$28 billion of intra-ASEAN FDI flows have come from Singapore, the gateway to the region. Although the bulk of this intra-ASEAN investment has gone into Indonesia, Malaysia, Singapore, and Thailand, ASEAN firms are relatively more important in Laos and Myanmar than in the rest of the region.

There are several reasons for the relatively low level of economic integration in ASEAN: a low institutional commitment, weak policies, and, more importantly perhaps, a de facto integration of ASEAN with East Asia. Ng and Yeats (2003) show ASEAN countries' growing dependence on East Asia in general (accounting for one-third of the region's exports) and China in particular, over the period 1985-2001. This deepening of trade relations with East Asia mirrors a de facto pan-Asian integration resulting from the development of regional production networks. This is confirmed by data about the "type" of trade, which is increasingly of the vertical intra-industry type. Studies by Ando and Kimura (2003), and Athukorala and Yamashita (2005) reveal that most of the trade is in parts and components from office machinery, telecommunications equipment and electrical machinery, suggesting that the region is indeed an important platform for multinational enterprises (MNEs), and that FDI plays a catalytic role in the region. …

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