A Mixed bag for ASEAN FTAs and Community-building

Updated On: May 19, 2006

Concluding two days of talks at the ASEAN Economic Ministers’ Meeting in Manila earlier this week, Southeast Asian trade ministers signed an agreement to liberalise merchandise trade with South Korea and discussed the possibility of free trade talks with the European Union.

ASEAN ministers, while agreeing on the need to accelerate plans to turn the region into a single economic entity, failed to push forward the deadline for the creation of the ASEAN Economic Community (AEC) to 2015.  The AEC, currently still slated for 2020, will allow the free flow of goods, services and skilled labour across the region.  Analysts say the AEC, which comes amid concerns the region may be dwarfed by giants China and India, will be difficult unless the region shelves its protectionism and speeds up the liberalisation of trade in services.

Under the agreement signed yesterday, nine ASEAN members and South Korea will liberalise merchandise trade; cutting trade barriers by 2010 as part of plans for a wider free trade pact; including services and investments - which both sides aim to conclude negotiations on by the end of this year.  However, Thailand, the world's top rice exporter, did not sign the agreement, partly over its dispute with South Korea regarding barriers on certain agricultural products under its sensitive items list, including rice. 

ASEAN Secretary-General Ong Keng Yong said Thailand decided to step aside rather than hold the rest of ASEAN back.  Negotiations have also been stalled byThailand's political crisis, with Thai officials saying the current government has no mandate to make decisions after the April 2 snap polls were annulled.  “They will have to discuss further”, Ong said, stressing that Thailand would sign the FTA as well as soon as its domestic situation merits. 

The new deal will create a market of 550 million people with a combined economy of more than US$1.4 trillion (S$2.2 trillion).  Both Ong and Kim Hyun Chong,South Korea's Trade Minister, noted at a press conference that trade and investments are expected to rise with the signing of the agreement.

This is the second such pact that ASEAN has signed as a single entity.  ASEAN has already negotiated a free trade deal with China, aiming to create the world's biggest free trade zone, with a combined population of nearly two billion people, by 2010.

ASEAN ministers also held talks with EU trade chief Peter Mandelson and agreed on plans to pursue a free trade agreement between the two groupings.  The proposed trade pact, which would be the EU’s first in Asia, is seen as a response to a widening web of bilateral deals being negotiated in the region by the US, China, Japan and Korea that threaten to sideline European economic interests. 

Earlier, Mandelson had said that Myanmar's poor human rights records might be a problem, but sidestepped the issue during talks, saying the EU could reach a free trade pact with ASEAN that would exclude Myanmar.  However, he also noted that the differences in economic development gaps within ASEAN would mean that negotiations in reaching a comprehensive trade agreement would be complex.

Mandelson said he would seek approval from the 25-member EU to launch free trade talks with ASEAN.  Senior officials will flesh out technical details on the FTA, which will be presented to ASEAN trade ministers at their next meeting in August in Malaysia

Prospects for an ASEAN-India FTA however, are looking bleak.  As India’s Prime Minister Manmohan Singh's government comes under pressure from industry lobbies and key party politicians to go slow on import liberalisation, its commitment to sign a meaningful free-trade agreement (FTA) with ASEAN may be waning.  ASEAN's discussions with India on a free-trade agreement have been bogged down by a long list of items New Delhi considers too sensitive to its interests to lift import restrictions on too rapidly.

Meanwhile on the energy front, an important step towards optimising resource development in ASEAN was announced in Kuala Lumpur earlier this week - a memorandum of understanding (MoU) on the development of an ASEAN power grid is expected to be signed at the ASEAN Ministers of Energy Meeting inVientiane in July.  The MoU would involve the establishment of an ASEAN framework for power exchange among interconnecting countries, and is considered particularly vital amid escalating oil prices and surging demand for energy in the region. 

Malaysia’s Energy, Water and Communications Minister Lim Keng Yaik said there will be interconnections to enable power exchange and assist member countries in developing and maintaining demand-supply balance.  This can be done through bilateral arrangements between utilities, he added, citing Malaysia’s power sharing programmes with Singapore and Thailand as examples.  He added that member countries could participate in cross-border investment by investing and realising strategic interconnection projects.

Malaysia’s Tenaga Nasional chief executive officer Che Khalib told reporters the plan is to have all the ASEAN countries to be linked and interconnected likeEurope, adding that funding would be provided by the Asian Development Bank and Japan Bank of International Cooperation.

EC-style Asean a long way off (Business Times, 18 May 2006)
Asean signs FTA with S Korea, without Thailand (Straits Times, 16 May 2006)
RoK, ASEAN sign bilateral FTA on goods (Viet Nam News Agency, 16 May 2006)
Asean and S. Korea sign deal to set up FTA (Straits Times, 17 May 2006)
ASEAN boosts economic clout with South Korea (AP, 17 May 2006)
AseanSouth Korea sign free-trade deal (AFP, 17 May 2006)
Myanmar an obstacle as EU pushes for FTA with Southeast Asia (AFP, 15 May 2006)
EU-Asia trade pact in prospect (Financial Times, 17 May 2006)
EU may begin FTA talks with Asean by year-end (Business Times, 18 May 2006)
India's zest for FTA with Asean wanes (Straits Times, 15 May 2006)
Ministers to sign Asean power grid pact in July (The Star, 16 May 2006)
ASEAN targets to sign pact on power grid in July (ANTARA, 15 May 2006)
Asean to sign pact to develop energy grid (Straits Times, 17 May 2006)


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