The Slow Road to Southeast Asian Integration

♠ Posted by Emmanuel in at 3/24/2011 12:08:00 AM
Here is an update on something I follow quite closely from my home region: Southeast Asian economic integration. Unlike the European Union (liberal democracies) or the Gulf Cooperation Council (Islamic monarchies), Southeast Asia possesses countries with a range of political and economic systems. You also observe sizeable economic disparities between countries that span from Myanmar to the virtually first world Singapore.

What's more, differences in institutional capacity mean that economic integration will be bound to occur in fits and starts since the respective starting points and learning curves of these countries are vastly different. As we approach 2015, the stated target date for completing processes of economic integration in the region save for a currency union, let's just say much work remains to be done.

Notably, speakers at a recent Euromoney conference voiced more optimism that the newer CLMV (Cambodia, Laos, Myanmar & Vietnam) member states were better poised to achieve integration target dates more readily, probably since they have not become as accustomed to shielding certain products via sensitive lists that allow for the retention of intraregional tariffs for designated goods. There too remains confusion among exporting firms about the benefits of integration. On this point Christopher Dent notes that the paperwork involved in availing of tariff-free trade often exceeds the cost of just paying the duties--not a good sign--as is the still-low percentage of tariff-exempt trade. Still, it's early days and better cross-border facilitation can go a long way towards making the ASEAN Economic Community something which offers benefits to member countries come 2015. From Xinhua:
ASEAN economic integration will expand trade and investment opportunities among the regional grouping's members, but a full-fledged integration is not seen in the next few years, speakers at a regional conference said on Monday. The grouping is seen most likely to achieve import tariffs cut by its own version of integration while more complicated issues such as customs procedures or investment will be more difficult to be integrated due to the diversity among its members, the speakers said.

The so-called ASEAN Economic Community (AEC) is set to be launched in 2015, integrating a market of over 600 million population in Southeast Asia, or the same size of all European nations, and a combined gross domestic product of over $1.77 trillion.

"2015 is probably a very aggressive target," said Sopon Asawanuchit, executive vice president for corporate finance at Siam Commercial Bank, at a Euromoney conference. Sopon said cooperation in trade was easier to achieve while unifying the members' financial system would need to create a major organizational structure comparable to that of the European Union.

Pornsil Patcharintanakul, deputy secretary general of the Thai Chamber of Commerce, said tariff cut could be expected though the rate would not go down to zero percent for all items as many members keep their "sensitive" products out of the target list.

Others believed Myanmar, Laos and Cambodia, the lesser developed among the grouping's 10 members, could be seen to better integrate into the ASEAN, or the Association of South East Asian Nations, in the next few years. "Our problem is our diversity," said Kobsak Pootrakul, executive vice president for international banking at Bangkok Bank, at the conference titled "The 5th Annual Euromoney Thailand Investment Forum: Continued Growth in Uncertain Times." Kobsak did not foresee the possibility of launching a single currency system in the ASEAN in the near future.

But he and others agreed that members in the ASEAN needed to integrate their economies to make them more competitive globally as each member alone is a small economy. Speakers also saw the need of ASEAN members to learn more about each other in the grouping's integration attempt. Kobsak said 70 percent of Thai companies still did not understand the AEC and how they would benefit from the scheme. He said the integration would provide opportunity for Thai businesses to invest overseas at a time when the country was facing labor shortage and the local currency's value was rising.

Sopon agreed that as currently many Thai businesses needed to employ people from Myanmar due to lack of Thai labor, they should move their operation to the country to enjoy the cheaper wage and the abundance of resources there. He believed that Myanmar would provide a great opportunity for foreign companies to invest for manufacturing there and, then, export products to other ASEAN members.