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Challenges for ASEAN Integration

Updated On: Aug 22, 2006

ASEAN’s rush for integration internally and FTAs with external parties will be the key issue of the ASEAN Economic Ministers Meeting this week.

Although ASEAN has previously agreed to form an ASEAN Economic Community by 2020, some members are keen to accelerate the deadline for implementation to 2015. The South China Morning Post warns that ASEAN risks “being irrelevant” due to the competitive threat from China and India unless it integrates faster. In his National Day Rally on Sunday (20 August), Singapore’s Prime Minister Lee Hsien Loong has a similar message- if ASEAN cannot get its act together, then instead of taking off with China and India, the grouping will be left behind.

ASEAN Secretary-General Ong Keng Yong said that this 2015 deadline for the implementation of the ASEAN Economic Community is applicable to all the ASEAN members and should not exclude the less developed members. Ong argued that the richer members must help the less developed ones. On the other hand, Malaysia Trade Minister Rafidah Aziz said that the six developed members of ASEAN- Brunei, IndonesiaMalaysia, The Philippines, Singapore and Thailand should integrate earlier. She said, “The year 2015 should be our target. Of course if we can do it faster, it is better still.” However, Rafidah also qualified her statement and said that, “Let us not pressure ourselves… it takes time for harmonisation to come about. We have to recognise this.”

The different stages of economic development within ASEAN have not only complicated integration within ASEAN but also ASEAN’s FTA negotiations with external partners. Differences among the ASEAN members have slowed down negotiations. Vietnam’s Vice Minister of Planning and Investment, Nguyen Ngoc Phuc reminded that, “ASEAN has to take into account everyone’s interests and not individually.”

ASEAN’s FTA with India has not been smooth with Malaysia citing the high number of exclusion items on the Indian’s side. India has offered to further reduce its list of sensitive items from 850 to 560 items. India’s Ministry of Commerce and Industry special secretary G.K. Pillai has also said that India would offer 94% concession on ASEAN’s exports. He told reporters on Friday (18 August), “This is what we are offering ASEAN and in return we expect to receive some interesting offers from them. So far, none of the ASEAN members have come to us with their offers.”

ASEAN’s closer links to the US have been complicated by the issue of Myanmar. According to the ASEAN Secretary-General Ong Keng Kong, the Trade and Investment Facilitation Agreement with the US has been amended to an arrangement to allow Washington to sign it without congressional approval due to sensitivities over Myanmar. He said, “It’s basically a tactical move to expedite the process. The loaf may not be as big as we wanted it but it’s still a loaf of bread…. it is a good step forward.” Ong pointed out that Washington is unlikely to ease pressure on ASEAN over Myanmar. He said, “Myanmar is still a big issue to America and its Congress….. it doesn’t mean we are going to be easier off. Now they can put this (TIFA) in front of us and ask us to do more.”

The FTA with Australia and New Zealand has met with some hiccups with Australia and New Zealand insisting on issues such as the inclusion of government procurement and labour protection. New Zealand’s lead negotiator, Martin Harvey insisted, “It is a New Zealand position (to include the three issues).” (The three issues are labour, environment and intellectual property rights). Malaysia has openly said that it disfavoured the inclusion of government procurement. However, bothAustralia and New Zealand has said that they hope to have an agreement on the trade in goods and services with ASEAN by March 2007.

Even ASEAN’s negotiations with Japan which was one of the earliest to commence have yet to be completed. A Japanese official said that Japan hopes to conclude a FTA with ASEAN by March 2007. A Japanese official, Nobuhiko Sasaki from the Ministry of Economy, Trade and Industry said that Japan was continuing to discuss the modalities of the ASEAN-Japan economic partnership agreement.

ASEAN is likely to sign an agreement with South Korea on the trade in goods chapter of the ASEAN-Korea FTA but without ThailandThailand has opted out of the agreement because rice was not covered in the agreement. South Korea’s Bilateral Trade Bureau Deputy Director-General Hong Ji-in said, “Even without Thailand, the agreement will go on but we hope Thailand will join the agreement as soon as possible… we understand that Thailand is not ready to join this time and it needs some more time.”

The European Union (EU) with a much longer history of integration and creation of a common market has cautioned ASEAN about the challenges faced in accommodating the poorer economies of the grouping.  The EU is keen to share its experiences with ASEAN and is also keen to expand its links with ASEAN via a proposed free trade agreement. Negotiations for an ASEAN-EU free trade agreement would begin next year.

In the midst of all these scrambles for FTAs with all its potential pitfalls and benefits, the news that foreign direct investment into ASEAN has increased by 48% in 2005 to US$38 billion, surpassing the levels last seen prior to the 1997 Asian Financial Crisis was a welcome signal of investors return to the region.  

Sources:

Investment in ASEAN Surges 48 Percent But China Remains Favourite (Agence France Presse, 21 August 2006)

ADB’s Aid Buoys Sentiment Ahead of ASEAN Meeting (Asia Pulse, 21 August 2006)

ASEAN Risks Irrelevancy Unless It Takes Bold Steps (South China Morning Post, 21 August 2006)

ASEAN Ministers to Push For Integration (The Straits Times, 21 August 2006)

ASEAN Expects Foreign Investment to Keep Growing After Surging to Record Last Year (The Associated Press, 21 August 2006)

ASEAN Will Be Left Behind If It Can’t Get Its Act Together (The Straits Times, 21 August 2006)

ASEAN Rushes to Create European-Style Single Market to Boost Economic Clout (The Associated Press, 20 August 2006)

Focus- ASEAN Ministers Meet this Week Amid Pressure for Economic Integration (AFX-Asia, 20 August 2006)

Poorer states pose biggest challenges for ASEAN common market (The Straits Times, 21 August 2006)