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Asia’s and ASEAN’s challenge – trade and financial cooperation

Updated On: May 08, 2007

ASEAN looks set to be involved in yet more free trade agreements (FTA).

After encountering some difficulties, ASEAN and Japan look set to sign the FTA at the ASEAN summit in November. The ASEAN Secretary-General, Ong Keng Yong, however, cautioned that both sides still have to settle certain “modalities” in the agreement, including which products would covered and which items will be put on the so-called sensitive and exclusion lists.

The European Union has finally overcome its hang-up over Myanmar and agreed to negotiate a FTA with ASEAN. The FTA is estimated to increase EU exports to ASEAN by 24.2% and ASEAN exports to the EU by 18.5%. A joint committee of senior officers from the 27-nation EU and 10-nation ASEAN will be set up to work out the details and time-frame of the talks.

A Senior Fellow at the S Rajaratnam School of International Studies in Singapore, Yang Razali Kassim even called for ASEAN to negotiate either bilateral FTAs or a regional one with the Middle Eastern states. He explained that a FTA would enable ASEAN to tap into the intensified economic integration within the Middle East which is likely to result in the Greater Arab FTA (GAFTA).

While ASEAN is involved in a myriad of trade initiatives that are likely to result in little gains and long delays, it is more focused in its monetary cooperation. The Chiang Mai Initiative (CMI), which primarily comprises of a series of bilateral swaps, is likely to be multilateralised. The CMI was originally devised to prevent the reoccurrence of the Asian Financial Crisis when several of the Asian economies suffered from severe liquidity squeeze. The total value of the bilateral swaps is currently US$79 million.

However, the Chief economist of the Asian Development Bank, Ifzal Ali pointed out, “The situation today is completely different (to 1997). The challenge facing Asia is in fact too much reserves and the long-term negative effects of this.” Asia is estimated to have about $2.7 trillion worth of foreign reserves.

The South China Morning Post criticised the agreement as “a lot less impressive” and “lame.” It pointed out that there did not seem to be much details on how the multilateralised Chiang Mai Initiative would look like. There also did not seem to be much agreement on important issues such as “surveillance, reserve eligibility, size of commitment, borrowing quota, and activation mechanism.”

The regional representative of the Centre for Humanitarian Dialogue in Singapore, Michael Vatikiotispointed out that ASEAN’s involvement in the wider regional initiatives has revealed its weakness- its proclivity for bilateral dealings rather than a ASEAN wide one. In his words, ASEAN is “suffering from a lack of firm commitment to multilateral cooperation”.  ASEAN is also being hijacked by ‘more powerful geopolitical forces.’ Since 2003, China has been harnessing ASEAN to China’s own regional framework. He expressed hope that the forthcoming ASEAN Charter would help reinvigorate ASEAN. 

ASEAN is not the only organisation that is seeking to change to remain relevant. The Asian Development Bank (ADB) is also planning for a major overhaul. The president of the ADB Haruhiko Kuroda said that the ADB ought to play a greater role in regional integration, making better use of Asia's huge savings, and fostering knowledge creation. This is due to the change in Asia from a region suffering from pervasive poverty to one that has to tackle issues due to its economic success.

However, some of the Asian states are concerned about this shift of focus from development and poverty reduction to regional integration and “foreign reserves management” would hurt the poor as several parts of the region have yet to benefit from the region’s economic growth.  The United States, which is one of ADB’s top shareholders, has suggested that the ADB should close down once its job is done rather than trying to create a new mission in managing the region’s vast foreign exchange rate. Other shareholders, such as Britain is pushing for the bank to play a bigger role in reducing greenhouse gases.

The disagreement over what the new mission of the ADB should be is unlikely to be settled soon. Intense politicking is also expected as China is keen to increase its shareholding, and correspondingly its influence within the Bank.   (7 May 2007)

Sources:

ASEAN Spirit Just Fades Away (Bangkok Post, 7 May 2007)

Asia Trains Financial Guns on Battle Long-Since Fought (South China Morning Post, 7 May 2007)

Chiang Mai Initiative To Be Discussed (The Nation, 6 May 2007)

Asia’s Development Bank Wins Support for Overhaul (Agence France Presse, 6 May 2007)

Chiang Mai Initiative Reform Expected Today (Business Times Singapore, 5 May 2007)

Asian Financial Ministers to Seek Deeper Fin’l Ties (Manila Bulletin, 5 May 2007)

ASEAN and EU To Start Free Trade Talks (Straits Times, 5 May 2007)

ASEAN, Japan Aim to Sign Free Trade Pact in November (Agence France Presse, 4 May 2007)

What after India, China? Time for Free Trade with the Middle East? (Today, 3 May 2007)

No New Operating Principles Yet, ADB (Business Times Singapore, 3 May 2007)

EU Plans to Start FTA Talks in Asia (Bangkok Post, 2 May 2007)