ASEAN Economic Community - Reality Check

Updated On: Aug 25, 2006

This week, the usual celebratory declarations of deepening integration at the series of meetings related to the economics issues of ASEAN have been overshadowed by disagreement among some of the ASEAN members as well as between ASEAN and its FTA partner, Japan.

Although the ASEAN members agreed to accelerate the implementation of the ASEAN Economic Community (AEC) by 5 years from 2020 to 2015, they did not tackle many difficult issues that might threaten the realisation of the AEC. For instance, there is still a list of sensitive items (which includes sugar, rice and auto parts) that have been excluded from the integration process. Nevertheless, Malaysia Trade Minister Rafidah dismissed the suggestion that this list of sensitive items would derail the ASEAN integration by saying, “The sensitive list is so small compared to the positive, that it’s not even worth deliberating. We have never deliberated on this to the extent that it impedes our work.”

Furthermore, the dispute between Malaysia and Thailand over the tariffs applicable for auto imports into Thailand has also not been tackled at the ASEAN level as Rafidah insisted that this was a bilateral matter. The issue arose after Thailand refused to slash import duties on Malaysian car imports. The Thai Finance Minister Thanong Bidaya argued that under the Common Effective Preferential Tariff (CEPT), parties “should enjoy CEPT only upon getting rid of all quantitative restrictions.” He pointed to the existence of the Malaysia’s import permits scheme as an example of a quantitative restriction. Rafidah countered that, “Now if each of us starts invoking non-tariff barriers, then no trade would be done in ASEAN.”

This is not the first time that both Malaysia and Thailand had disagreed over the applicable tariffs. In 2001, both sides have also shown their unhappiness at each other publicly over Malaysia’s postponement of the tariff reduction in completely knocked-down and completely built-up automotives. Both sides then also resorted to bilateral means rather than use ASEAN mechanisms. That they have not used ASEAN- level institutions such as the ASEAN dispute settlement mechanism to resolve their differences is perhaps an indication of the lack of trust in ASEAN institutions among the ASEAN members.

The lack of confidence in ASEAN institutions is not the only possible hindrance to an effective implementation of the AEC. The businesses in ASEAN have yet to make ASEAN their region. The Philippines Chamber of Commerce and Industry President Donald Dee possibly spoke for many other businessmen in the region when he remarked, “We agreed, for the original ASEAN 6 (Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand),… [to] be completely synchronised by 2010. The problem now is how do we change our mindset in the private sector… while we are trying very hard to think ASEAN, but at the end of the day, we still think ‘I’m still Filipino, I’m going to stick to my economy.’”

The difficulties in the road towards the AEC are equally matched by the difficulties in ASEAN’s FTA negotiations with its external partners.  For example, both Japan and ASEAN have difficulty on agreeing how to wrap up negotiations on the ASEAN-Japan CEP. The difficulty revolves around two issues. First, the Japanese preferred to “string together” the bilateral FTAs that it has with the individual ASEAN members and call it the ASEAN-Japan CEP. The ASEAN members however preferred a comprehensive region wide ASEAN-Japan CEP. Second, the ASEAN members wanted Japan to include clauses to encourage Japanese investment in ASEAN’s forestry and fisheries sectors. However, the Japanese’s position was that “it just wants trade.”

There are further disagreements between ASEAN and Japan on the vision of a greater Asian regional integration. Japan is pushing head for a 16-nation pan-Asian FTA involving 16 nations.  However, ASEAN is lukewarm to this pan-Asian bloc, and urged a step-by-step approach, preferring to first focus on ASEAN plus one, and then the creation of an East Asian community grouping ASEAN with China, Japan and South Korea.  Rafidah said that, “The ASEAN ministers agreed to the proposal to do the study but however we reiterated that Japan and ASEAN should focus on the expeditious conclusion of the ASEAN-Japan [deal] that is to us very important. It can be the basis for a wider regional integration.” Indonesian Trade Minister Mari Pangestu agreed, “If the Japanese want to do a study, which they are proposing, that’s fine. We can review the results of the study by next year to see what the costs and benefits are but right now our priority should be on ASEAN Plus One.”  Korean Trade minister also agreed that ASEAN plus one should be the starting point, followed by ASEAN plus three.


Private Sector not Ready for ASEAN Economic Union (BusinessWorld [The Philippines], 24 August 2006)

Japan, ASEAN Agree to Study Proposed East Asia Trade Bloc (BusinessWorld [The Philippines], 24 August 2006)

Japan to Give CEP With ASEAN “Highest Priority” , Says Minister (The Business Times Singapore, 24 August 2006)

Sugar, Rice, Auto Parts Touchy Areas But Will Not Derail ASEAN Talks- Officials (AFX-Asia, 23 August 2006)

ASEAN Cool to Japan’s 16-way FTA, But Willing to Study Idea (Japan Economic Newswire, 23 August 2006)

ASEAN Aims to Set up Single Market by 2015 (The Straits Times, 23 August 2006)

Thailand, Malaysia Defend Opposing Positions on Auto Tariffs (AFX-Asia, 22 August 2006)    

Thailand: Malaysia Violating ASEAN Pact by Its Quantitative Restrictions on Auto Imports (The Associated Press, 22 August 2006)