Free trade and Asean

Free trade and Asean 

SINGAPORE, Dec 24 — Give the Association of Southeast Asian Nations (Asean) credit for big thinking. Leaders last Monday marked the official entry into force of the “Asean Charter” that for the first time gives the grouping a legal identity and sets 2015 as the target date for a full-fledged free trade agreement among its members.

 

Then yesterday, six of Asean’s 10 economics ministers met in Singapore to sign three agreements related to trade and investment, and created a US$120 billion (RM420 billion) stabilisation fund for use by members in case of an emergency.

All these economic steps, and especially the trade and investment deals, are driven by familiar goals. In the case of goods and services, they aim to lower customs and other barriers in Asean, hopefully to increase intra-regional trade.

In the investment field, the goal is to bring about more uniform procedures, both to facilitate more intra-regional investment, and to raise Asean’s profile as a destination for foreign investment, especially in competition with China and Korea.

But Asean is hardly becoming more like the European Union. The impulse here is the goal of greater ‘economic integration” in Asean, though why that European-rooted concept should be Asean’s goal has never been made clear.

In fact, the history of the EU shows that its design was from the outset political: Its aim was to bring an end to Europe’s many centuries of war.

Asean’s situation is quite different, and its attempt to apply to Southeast Asia a Europe-rooted goal of economic integration has always been open to much question.

But putting aside that conceptual problem, the reality is that Asean as a group is hardly ready for any of these economic cooperation steps. The difficulty in doing this is demonstrated by the history of the Asean Free Trade Area, which was created in 1992 but has yet to have a real impact in liberalising trade.

It is very far from a single integrated market; it is instead, as a Heritage Foundation study earlier this year put it, “10 separate markets that are no more economically integrated with each other than they are with economies outside of Asean.”

That reality is reflected in the fact that even in 2007, only 25 per cent of Asean’s total trade of $403 billion was intra-regional, and that 25 per cent figure is inflated by Singapore’s especially high level of intra-regional trade.

In the EU, by contrast, two-thirds of its global trade is within the EU. Moreover, at the Singapore meeting last week, only six members were present. Only three of those — Singapore, Malaysia and Indonesia — are significant economic actors (the other participants were Brunei, Cambodia and Laos).

And of those, only Singapore has both the wit and the will to implement the sorts of trade and investment-smoothing steps to which the assembled Ministers agreed. Singapore was clearly the motivating force behind the meeting, and its many and genuinely world-class skills in trade, finance and administration are never to be doubted.

But those are not Asean attributes, and Singapore’s abilities can never be confused with Asean’s, nor can it ever be forgotten that the city-state represents just 0.6 per cent of Asean’s 500 million people.

At the opposite pole in all these respects, including especially trade policy, is Indonesia, Asean’s largest member. As a recent and persuasive study by Hal Hill and his colleagues in Australia has pointed out, Jakarta is neither conceptually nor administratively ready for any genuine steps toward reducing trade barriers.

Whether in goods or services, the forces of protectionism are clearly on the rise in Indonesia, and they are strongly reinforced by the central government’s structural inability to enforce a single approach to trade.

President Susilo Bambang Yudhoyono may indeed have that desire, but the dispersal of power between competing ministries and levels of government leaves any president too weak to overcome such opposition.

A good glimpse into the real flavour of Indonesian thinking on trade liberalisation was provided earlier this month. It came in the context of the planned “free trade” arrangement between Asean on the one hand, and Australia and New Zealand on the other.

Both Australia and New Zealand are anxious for good trade relations with Indonesia, and New Zealand even offered to train and employ hundreds of Indonesians and to provide full scholarships to several. But that wasn’t good enough for Indonesia.

Speaking for Indonesia’s Trade Ministry, Sondang Anggraini complained that Wellington had offered only “peanuts,” in return for which it wanted Jakarta to allow duty-free imports of beef and dairy products. Guntur Witjaksono in Indonesia’s Ministry of Manpower and Transmigration put it this way: “If these problems are not resolved, I don’t see any good reason for us to have a trade deal with New Zealand.”

A new wrinkle to Asean’s likely inability to liberalize intra-regional investment and goods and services trade has been brought about by the Thai crisis, which has led to frequent and continuing postponements of Asean “summit” meetings.

The most recent delay — until late February — led Singapore Foreign Minister George Yeo to openly complain that “There is a certain urgency. We are in the middle of a crisis, and there are some things that we can do to help each other.”

That may be true, and Singapore’s impatience has long been clear. Foreign Minister Yeo may also be right about the need for urgent action, but it would be best for Asean watchers to conclude that for the time being, Asean as an organisation is a production not yet ready for prime time. — The Wall Street Journal Asia

 

  Free trade and Asean The Malaysian Insider

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