Magazine article International Trade Forum

Towards an Economic Community in Southeast Asia

Magazine article International Trade Forum

Towards an Economic Community in Southeast Asia

Article excerpt

Asia's coming of age has been the development story of the past 40 years. The reasons for this are varied, but some of the more significant factors have been knowledge exchange, technology transfer, and increased economic integration and cooperation between developing economy governments. Asia's success is also in part the result of increased dialogue between regional partners, formalized through institutions such as the Association of Southeast Asian Nations (ASEAN), which expanded from its original five-member core in 1967 to encompass all of Southeast Asia by mid-1999 and aims to establish an ASEAN Economic Community by 2015. In response to the 1997-1998 Asian financial crisis, the People's Republic of China, Japan and the Republic of Korea joined the process, creating ASEAN+3. Further expansion continues through the East Asia Summit process and other initiatives.

Asia's approach to regionalism has been pragmatic and flexible, as it has largely adopted a bottom-up approach of subregional cooperation across myriad economic subsets, thereby creating a platform for open, multi-track regionalism. This approach acknowledges different levels of development and needs across the region, and arrives at a consensus on what must be done, how to finance it and how to make it work.

ASEAN initiatives

Broader dialogue and initiatives have also brought greater regional strength. The creation of ASEAN+3 has represented a degree of cooperation difficult to imagine before the 1997-1998 crisis. It has given authorities in the region an impetus to look beyond existing multilateral remedies for help.

ASEAN+3 has spurred a host of monetary and financial cooperation initiatives: the Chiang Mai Initiative, which is a web of bilateral swap arrangements to supply liquidity during a crisis; the Asian Bond Markets Initiative and Asian Bond Funds to develop local-currency bond markets; a system for strengthening macroeconomic surveillance; and an Economic Review and Policy Dialogue.

A range of bilateral and plurilateral free-trade agreements (FTAs)--sometimes referred to as the Asian 'noodle bowl'--has emerged. The region has now put in place a multilateral foreign exchange reserve pooling arrangement--the Chiang Mai Initiative Multilateralization--and also agreed to establish an ASEAN+3 Macroeconomic Surveillance Office.

While ASEAN+3 has made progress on regional financial cooperation and integration, it is also expanding into other economic sectors.

During the 41st ASEAN Economic Ministers (AEM) meeting in Bangkok in August 2009, the long awaited and much anticipated ASEAN FTA was signed. Here are some of the predictions being made regarding the effects of the ASEAN FTA:

* An initial study showed that, if ratified, the FTA would increase economic growth within the Asean+ 6 countries (including Australia, China, India, Japan, New Zealand and South Korea) by 3.8%. The combined gross domestic product of the Asean+6 countries is US$ 2.75 trillion.

* Under the ASEAN+6 FTA, the member countries will lift import tariffs on more than 80% of traded products between 2013 and 2016.

* The tariffs on 500-600 items on sensitive lists will be reduced to 5% by 2016, while import duties on five 'highly sensitive' items--palm oil, refined palm oil, coffee, tea and pepper--will be brought down from 70% to 45% by 2019.

To strengthen trade growth within ASEAN, the AEM Meeting also considered an ASEAN Customs Union and setting up trade facilities, including developing rules of origin to provide online certification for ASEAN traders. The ASEAN FTA went into effect on 1 January 2010, and has increased trade between ASEAN members dramatically.

The integration of the ASEAN Economic Community by 2015 will enhance ASEAN's attractiveness to foreign investors, giving multinational enterprises in ASEAN even more opportunities to cut costs and increase revenues. …

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