ASEAN's China Fear Factor, Again

♠ Posted by Emmanuel in ,, at 11/19/2007 02:04:00 AM
I've noted that the Association of Southeast Asian Nations (ASEAN) is pursuing bilateral and regional FTAs with anyone and everyone. What's driving this frenzy? Fear of China, naturally. It's a love-hate relationship between ASEAN and the Middle Kingdom. Actually, ASEAN is also keen on a trade deal with China that should come into force in 2010. The political-economic biggie as far as ASEAN is concerned is the creation of an "ASEAN Economic Community" presumably emulating the European Economic Community to some extent. The Economic Community is high on the agenda of next week's 13th ASEAN Summit in Singapore. Columnist S. Pushpanathan makes a four-wheel drive analogy that strikes me as somewhat odd though it's informative on the directions ASEAN wants to take:
Another key document to be concluded at the summit will be the Asean Economic Community Blueprint, a coherent and do-able master plan to establish the economic community by 2015.

The Economic Community can be envisioned as a "four-wheel drive" vehicle, with each tyre representing a crucial foundation moving the community forward at constant and consistent speed on a metal road and sometimes dirt track filled with challenges towards 2015.

The 10 member countries and the Asean secretariat are the passengers in the Asean jeep, with each member country taking its turn to steer the jeep with the support of the secretariat.

The front right tyre represents the Asean single market and production base, where there will be free flow of goods, services, investments and skilled labour, and freer flow of capital, and where focus will be given to vertically integrating the 12 priority economic integration sectors identified by Asean leaders, including electronics, automotive, tourism, and logistics.

Trade facilitation will be emphasised to reduce business-related transaction costs and to support the building of a competitive Asean. It is estimated that with more efficient facilitation measures, transaction costs could be reduced by 20 to 30 per cent.

Trade in services, which contributes about 60 per cent to Asean's gross domestic product, will be boosted with efforts to remove impediments to such trade by 2015 and promote the flow of skilled labour and professional talent through mutual recognition arrangements of qualifications in certain professional and technical fields.

A new comprehensive investment agreement will be concluded possibly by next year, which will provide more incentives and protection to all Asean-based investors.

The front left tyre represents the development of a competitive economic region where competition policy and intellectual property will become important elements so that a level playing field for all businesses and investors can be established. This will attract value-added industries with cutting-edge technologies to the region. E-commerce and infrastructure development will also be promoted to ensure efficient flow of economic activities.

The rear right tyre of the car represents equitable economic development, which will focus on bringing the less-developed Asean countries to speed up with Asean's integration so that they will reap benefits from economic integration.

Another area will be the development of the small and medium-sized enterprises, which account for about 90 per cent of all Asean businesses. They will need to be strengthened if they are to operate in a competitive environment and pursue value-added activities such as research and development and innovation to move up the value chain.

The rear left tyre symbolises the efforts towards full integration of Asean into the global economy and supply chain. This is in recognition of the fact that Asean depends more on external trade and investment, unlike the European Union.
Reuters also reports on ASEAN being set to sign a charter at the upcoming summit putting it on track for an "ASEAN Economic Community":
Southeast Asian countries are pushing ahead with regional free trade as they are scared of being left behind by Asia's economic powerhouses, China and India, government ministers told a conference on Sunday.

The Association of South East Asian Nations (ASEAN), set to sign a charter next week in a step towards economic integration by 2015, face challenges such as opening up strategic sectors to foreign competition, developing consumer-led economies and the regulation of their financial markets.

"This ASEAN blueprint is going to be our wedding certificate -- the cost of not integrating is like signing the death of Cambodia," said Cham Prasidh, Cambodia's commerce minister, at an ASEAN business and investment summit in Singapore.

The 10 ASEAN countries have a combined economy of $1 trillion, slightly bigger than India's, but delegates said production was often driven by multinational firms, many of which were moving manufacturing operations to China.

ASEAN aims to create a single market and production base with free flow of goods, services and investment, and freer movement of labor and capital, starting by eliminating trade barriers within a few years.

"We have a window of opportunity in the next three to five years to do this ... to compete with China and India," said Lim Hng Kiang, Singapore's trade minister.

The biggest worry was how to face up to overseas competition in protected sectors from agriculture to automobiles.

"How prepared are we to open up our economies?" said Mari Elka Pangestu, Indonesia's trade minister. "It all looks good on paper but there will be difficulties in implementation."

Business executives said these difficulties included the need for better governance, reducing corruption and more flexible labor laws.

Piyush Gupta, head of ASEAN markets and banking for Citigroup in Singapore, said leaders needed to start by focusing on the nuts and bolts of financial market integration, such as reducing the complexity of trading across markets, promoting cross-border equity issuance and a transparent rating system.

But a common currency like that in the European Union was unlikely.

"Given divergent economies, it's not on the cards in the 2015 timeframe," Gupta said, adding that other possibilities included currencies pegged to a currency basket or co-ordination between central banks.

Haruhiko Kuroda, president of the Asian Development Bank, said he expected ASEAN's high-tech goods exports and high-value services to increase in five to 10 years, but that developing a free ASEAN market and better higher education was crucial to making the region competitive.

"We are running behind but running fast," said Cambodia's Cham Prasidh.