ASEAN leaders endorse integration blueprint

By Felipe Salvosa, II
Published in the November 21, 2007 issue of Business World

SINGAPORE — A detailed timetable seeking to establish an ASEAN Economic Community in eight years has hit the ground running, with leaders of 10 Southeast Asian countries affixing their signatures yesterday to a declaration adopting a so-called blueprint for economic integration and an attached “strategic schedule.”

But the approval of the heavily negotiated ASEAN document has also started a serious rethinking of the ambitious integration project, with individual members of the $1-trillion trading bloc continuing to seek bilateral free trade deals that could run counter to agreements that ASEAN has entered into as a group.

The ASEAN Economic Community Blueprint wants all members to bring the focus back “towards maintaining ’ASEAN Centrality’,” and states that when it comes to seeking market access elsewhere, there should be a “coherent approach.”

The blueprint ordered a review of all free trade and comprehensive economic partnership deals vis-a-vis ASEAN’s internal integration commitments, and the establishment of a system for enhanced coordination, “possibly arriving at common approaches and/or positions in ASEAN’s external economic relations and in regional and multilateral fora.”

ASEAN countries are on the record as supporting a goal of becoming a single market of 570 million people and a unified production base by 2015, with regional tariffs on around 70% of goods already scrapped. On the side, however, they are racing against each other to ink deals to penetrate more lucrative markets such as the United States, Japan, and Europe.

For example, Malaysia, Indonesia, Thailand, and the Philippines have secured individual free trade agreements or FTAs with Japan. Singapore has a free trade deal with the United States while Thailand is expected to snag one soon, leaving Filipino tuna and garments exporters worried.

As a group, ASEAN is also talking trade with China, Japan, South Korea, India, and the European Union, resulting in a “noodle bowl” of overlapping free trade deals. Throughout Asia, 36 FTAs have been concluded, 41 are being negotiated, and 25 new ones have been proposed, according to the Manila-based Asian Development Bank (ADB).

The review covers complex rules of origin, which determine whether products qualify for duty-free benefits. It will also look at whether individual countries have given better concessions to others outside ASEAN.

The preference for trading with the US, Japan, and Europe is reflected in official data, which shows that for the past few years, intra-ASEAN trade has been stuck at only around a fourth of total trade, although the volume has grown. ASEAN has $1.2 trillion in total trade, smaller than China but larger than Japan.

The economic blueprint, which was vetted by trade ministers in a meeting in Manila last August, wants all non-tariff barriers eliminated to increase intra-regional merchandise trade, and a gradual liberalization of service industries wherein as much as 70% foreign equity would eventually be allowed. It recommended that agreements be ratified in six months.

Tariff cuts began in 1993 with the establishment of the ASEAN Free Trade Area, through the Common Effective Preferential Tariff scheme. Under the blueprint, tariffs should be scrapped by 2010 for the original five ASEAN members, Brunei, Indonesia, Malaysia, the Philippines, and Thailand, and by 2015 for newer members Cambodia, Laos, Myanmar, and Vietnam.

In Cebu last December, ASEAN agreed to accelerate tariff elimination for “priority integration sectors” such as to 2007 for older members and 2012 for newer ones. The priorities include agro-based products, automotives, electronics, fisheries, rubber-based products, textiles and apparel, and wood-based products.

The prioritization scheme was patterned after the European Steel and Coal Community (the predecessor of the European Union) wherein countries created a common market for the basic resources to begin their economic integration, 56 years ago.

The problem in ASEAN is that some countries produce similar goods, making them competitors.

ASEAN, however, is not going to be an exact copy of the EU, which has a common currency and carries out a single trade policy. “We are trying to achieve something like the EU but without the supranational [elements],” said Ramon Vicente T. Kabigting, Trade assistant secretary.

“It is still a concert of national policies,” he said, adding that the landmark ASEAN Charter, also signed by the 10 leaders yesterday at the Shangri-la Hotel here, will “try to make that concert more harmonious.”

But the official said talking trade with others outside ASEAN — China, Japan, South Korea, India, and Europe — would be inevitable, extending to them the benefits of ASEAN’s own integration effort.

“Things like that will eventually happen no matter how strong your catechism on ’ASEAN first’,” Mr. Kabigting said.

In Manila, Fair Trade Alliance executive director Rene E. Ofreneo said ASEAN was mistaking integration for liberalization. “This is a policy of open regionalism,” he said in an interview.

Unlike ASEAN, the EU, he pointed out, has a single trade policy prohibiting individual members from carving out bilateral free trade deals with outsiders. “It’s fortress Europe, where integration is for the members, and outsiders are not welcome.”

Jose S. Concepcion, Jr., Philippine head of the ASEAN Business Advisory Council, said the 10-nation trading bloc should get its act together when it comes to free trade negotiations.

“We have to multilateralize,” he said in an interview.

As a group, ASEAN has a working free trade pact with China and South Korea, and is close to having one with Japan. A free trade deal with India has hit a snag over “sensitive” Indian products palm oil, black pepper, coffee, and tea. Talks, meanwhile, have begun for an ASEAN-EU free trade agreement.

This “pipeline” will have to be cleared first before ASEAN proceeds with wider free trade areas being proposed such as “ASEAN Plus 3” which includes China, Japan, and South Korea; and “ASEAN Plus 6” which adds Australia, New Zealand, and India, Mr. Kabigting said.

A September ADB Institute paper said the global economy would be better of with an ASEAN Plus 6 deal, to the tune of $260 billion in annual income gains. For an ASEAN Plus 3 deal, the gain is $214 billion, and for a deal with China alone, $82 billion.

ASEAN celebrated 10 years of the annual ASEAN Plus 3 dialogue yesterday, complete with a cake-cutting ceremony. The dialogue has been marked by Japan’s apprehension toward China’s dominance in the forum, leading it to propose the ASEAN Plus 6 free trade deal called the “Comprehensive Economic Partnership for East Asia.”

ASEAN is cool to the 16-country trade pact but has agreed to study it.

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