AFTA and WTO: Liberalization and Development for Whom?

Wigberto E. Tanada, Lead Convenor


The topic given me – ‘Impact of WTO on Southeast Asia’ — is fairly broad and exciting.

In fact, proponents of economic globalization and trade liberalization love to cite Southeast Asia as one of its models.  Accordingly, it is one of the fastest-growing regions in the world.  It is also surrounded by economic dynamos.  In the north is China, the new economic dragon of Asia, which seems to be overtaking everyone in the world.  In the east are Japan, the original Asian dragon, and the tigerish economies of South Korea and Taiwan.  In the west is the emerging dragon economy of India, whose IT industry is changing the complexion of the global economy.

Within Southeast Asia itself, you have the tiger economy of Singapore and the rapidly growing economies of Malaysia, Thailand and, yes, Vietnam.

So who can not be gung-ho about Southeast Asia?

As you all know, Southeast Asia is home to over 500 million people belonging to ten countries.  These countries have formed what is known as the Association of Southeast Asian Nations (ASEAN) that was originally composed of the non-communist six countries – Brunei, Indonesia, Malaysia, Philippines, Thailand and Singapore.   Later, the four other Southeast Asian countries – Kampuchea, Laos, Myanmar and Vietnam – joined the ASEAN when they became market oriented, following the collapse of the old Soviet bloc and the rise of Reaganite/Thatcherite economic thinking everywhere.

Today, Southeast Asia is better known in some circles as the ASEAN region.  Its economic integration project – the ASEAN Free Trade Agreement (AFTA) – is also hailed as a major liberalization project similar to that of the European Customs Union and the North American Free Trade Agreement (NAFTA) of Canada, Mexico and the United States.   This AFTA was launched in 1992, while WTO was formed two years after.
Through the AFTA’s CEPT or the Common Effective Preferential Tariff system, the ASEAN is trying to deepen the economic integration of the ten ASEAN economies.  In fact, in Bali 2003, the ASEAN Leaders declared that like the European Community, the ASEAN will be an ASEAN Community by 2020.   This borderless ASEAN Community shall consist of three communities – the ASEAN Security Community, the ASEAN Socio-Cultural Community and the ASEAN Economic Community or AEC.   In other words, the formation of AFTA is a precondition for the eventual development of an ASEAN Economic Community, which, in turn, is a precondition for the evolution of an ASEAN Community.

So what has been the impact of the 13-year old AFTA, a regional integration project, on the ASEAN region?  And yes, what has been the impact on the ASEAN of the 11-year old WTO, which is a global economic integration project?

These are fairly difficult for me to answer exhaustively given the time limitations and the complexity of the topics themselves.

Instead, let me focus on what I think are the key development challenges facing the ASEAN region in the light of the operations of AFTA and WTO.

But first, let me clarify where I am coming from.  Unlike many neo-liberal economists, I do not worship on the altar of free trade.   Thus, I do not look at the liberalization and globalization goals of AFTA and WTO with misty eyes.   However, I also do not subscribe to an out-and-out protectionist policy which leads to an autarkic economy closed to the outside world.   I believe in calibrating liberalization and protection measures based on the actual needs of the economy and its people.

To me, the AFTA and WTO projects matter only if they are able to serve the basic needs of the Filipino and other ASEAN peoples, meaning they are able to create conditions for the realization of full employment and higher prosperity for every country in the region.

So what are the development issues facing the region under AFTA and WTO?

Liberalization and uneven development

First, let me point out that the region is developing in a very uneven manner under economic liberalization and globalization.

Development has also been very uneven in the individual ASEAN countries, with some benefiting from economic integration and many others, not.  In some countries, the number of the excluded constitutes the large majority.  Our NGO friends and progressive social scientists in Indonesia, Philippines and Thailand have extensive documentations on how liberalization and globalization tend to benefit a few, mainly the economic partners of transnational corporations and some skilled professionals like IT programmers.

At the same time, these processes  of globalization and liberalization do marginalize many others — the excluded such as the small farmers, communal fisherfolk, small and micro enterprises with no global linkages, domestic industries producing for the home market, indigenous peoples who do not comprehend the meaning of tradeables and exportables, workers displaced by privatization and corporate restructuring,  and many others who have no sustainable jobs or business niches under globalization and economic liberalization.   Even in tiny Singapore, you have a growing segment of old redundant workers who can not find meaningful and secure jobs in a liberalized and globalized economy.

Such a situation is not sustainable, politically and economically.  Terrorist threat, insurgency and social unrest breed in the fertile ground of social inequality and the exclusion of large sectors of the population from the benefits of growth.

Intermeshing liberalization programs
And AFTA’s limited impact

Of course, it is also difficult to isolate the specific impact of WTO and AFTA on the different ASEAN countries.

First, there are many liberalization processes taking place at the same time.  In the case of the Philippines, we have been implementing a unilateral liberalization program – reducing our tariffs, opening up one economic sector after another and privatizing virtually everything, from government assets like military camps to government services like support services to farmers – since l980.  This unilateral liberalization program is not a product of a development program debated upon by the Filipino people or even by their legislators.  It was an imposition of the IMF-World Bank and the neo-liberal economic technocrats in government.  It was imposed without any consultation with the basic sectors, including the business community; nor was it preceded with any information sharing.

As a result of the unilateral liberalization, our actual tariffs are way below those of our binding rates under the WTO and way below those of our neighbors, except those of Singapore.  Because of unilateral liberalization, our tariffs are virtually the same as our AFTA tariffs.  In short, both the WTO and AFTA have only limited impact on our actual tariff rates.

As to the region in general, you will note that intra-ASEAN trade has not grown as fast as extra-ASEAN trade.  In fact, growth of intra-ASEAN imports and exports have been flat since l993.   For example, intra-ASEAN trade constituted 21.1 per cent of total trade of the ASEAN countries with the world in l993; in 2003, this shared has increased by one per cent, to 22.8 per cent.  In the EC, I understand intra-EC trade constitutes nearly 70 per cent of total trade.  This is what economic regional integration is all about, to hasten growth through increased trade among member countries.

So what has been happening is that the ASEAN member countries are integrating globally, but not necessarily regionally with one another.   If you need further proof of this, look at how fast trade of the ASEAN countries with China has been growing despite the absence of any formal agreement with this country in the l990s.  It was only in 2002 that the ASEAN concluded an early harvest program with China.  Another proof of the limited impact of AFTA is the limited use by importers and exporters of the ASEAN’s Form D, the document needed to avail of lower intra-ASEAN tariff treatment.   A Form D certificate indicates that the product being imported is an ASEAN product, with 40 per cent ASEAN content.  Hardly anybody in the region is using Form D.

Still another proof of the limited impact of AFTA is the fact that between 40-50 per cent of the intra-ASEAN trade is trade with Singapore, which has concluded numerous bilateral free trade agreements with other countries such as the United States, Australia, Chile and so on.   How can a tiny country such as Singapore account for half of the region’s trade, if it is not used as a mere transshipment center?  And how come the ASEAN has allowed Singapore — and now Thailand, Malaysia and the Philippines — to conclude bilateral free trade agreements with other countries, if the idea is to have regional economic integration?   In the EC, it is unthinkable for a member country to conclude a bilateral agreement.  It is EC in the name of EC doing the negotiation.  Here, it is free for all.

WTO’s overall impact

As to the WTO, some ASEAN countries such as Vietnam and Laos have not yet acquired full membership in this body, although Vietnam’s application for membership was filed as early as l995.  Kampuchea was admitted only recently.

On the other hand, the original six ASEAN countries have pursued their liberalization programs unilaterally, some selectively like Malaysia and Thailand and others in a wholesale manner like Indonesia and the Philippines.   In addition, the individual ASEAN countries have their own liberalization commitments under AFTA, to the IMF-World Bank if they are heavily indebted (like Indonesia and the Philippines), and to bilateral free trade agreements they have concluded with selective countries.

Thus, it is really difficult to isolate the specific impact of WTO — and even AFTA – on the ASEAN.

However, it can not be denied that WTO has contributed to the general elevation of economic liberalization policy as the principal thrust in economic governance in practically all the ASEAN countries.   The WTO in a way helps ‘lock in’ the different ASEAN countries in the global regime of liberalization, in all areas – industry, agriculture and services.

Even the ASEAN is trying to mimic the agreements under WTO by having the regional equivalents of these agreements.   The only difference — the liberalization targets are much deeper.

Every country going export-oriented
But based on its national interests

And yet, it appears that all the ASEAN countries are trying to be outward-looking and export-oriented, like almost every country in Asia today.

Of course, countries try to be export-oriented in different ways.

At this point, let me clarify one beef I have against the neo-liberal economists.  They have been saying that for countries to become export-oriented, they have to liberalize their economies and bring down their tariffs and commit to various types of liberalization programs. This is not what Japan did.  This is not what the Asian NICs did. And this is not what China and even Malaysia and Thailand are doing.  These countries have succeeded in the export market or  in the global market  by targeting certain industries, by giving protection to these targeted industries, and by calibrating liberalization and protection at the same time.  They did not commit and have not committed to any program of wholesale liberalization, which, unfortunately is what the Philippines did and what Indonesia has done, after it submitted itself to the IMF discipline in l998, at the height of the Asian financial crisis.

Obviously, the difficulty of committing to wholesale liberalization is what is delaying the grant of full membership to Vietnam under the WTO.

One major challenge facing each ASEAN country, therefore, is how to attain success in exports while being able to maintain a balanced and broad-based development pattern amid all these liberalization initiatives and these grand projects called AFTA and WTO.

In this regard, the Philippines is a bad model, for reasons I have already mentioned.  Malaysia and Thailand are emerging to be good models, only because these countries have been very careful in defining their development priorities and have been very militant in asserting their national interests under globalization.

In the end, it is clear that every country should take care of its national interests in a strategic and balanced way, if it has to succeed under globalization.

The need to focus on capacity building

Thus, the present preoccupation of WTO and the ASEAN on more and more liberalization – in agriculture, industry, services and other areas – does not address the development needs of countries which are lagging in the growth and development process.

Countries are not created equally. Equal liberalization rules for all is akin to pitting heavyweight against lightweight boxers under the equal rules of boxing.

What the WTO and the ASEAN must focus on, therefore, is on the issue of how developing countries can catch up in the growth process, on the challenge of raising the capacity of these countries.   This, ironically, is what the Preamble of the WTO says.  The Preamble says that the goal of global trade is the promotion of full employment through trade and development based on the needs and capacities of member countries, developing countries in particular.  This is what the special and differential treatment or SDT clause of the WTO means.  This SDT is what the Doha declaration in 2001 proclaimed is the main task of the new trade negotiation round dubbed as the Doha Development Round (DDR).

And yet, this is not what the WTO is doing, when it is overly focusing on market access issues in agriculture, industry and services.  This is not what the ASEAN is doing when it tries to clone or ape what the WTO is doing.

May I conclude, therefore, by challenging you, the emerging leaders of the region and the world, to use your talents in designing and pushing for new rules of globalization and regional integration aimed at bringing about a just, equal and humane economic order where everyone is included.

Speech delivered at the 3rd Regional Seminar for Young Progressives Southeast Asia (YPSEA) – Young People Shaping Globalization held on 25 October 2005 at Discovery Suites, 25 ADB Ave., Ortigas Center, Pasig City


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