Association of Southeast Asian Nations (ASEAN)
- Political Cooperation
- Economic Cooperation
- Economic Cooperation in Trade
- Economic Cooperation in Industry
- Economic Cooperation in Agriculture
- ASEAN Free Trade Area
- ASEAN Economic Community
- Prospects for ASEAN Economic Cooperation
The formation of ASEAN was officially opened at the signing of the Bangkok Declaration on August 8, 1967, by five countries: Indonesia,Malaysia, the Philippines, Singapore, and Thailand. Brunei in 1984, Vietnam in 1995, the Lao PDR and Myanmar in 1997, and Cambodia in 1999 joined the grouping. Political and economic considerations have influenced these countries to form a regional cooperation. The original five signatory countries saw the need to foster their economic development and promote regional security in the face of a growing communist threat in Southeast Asia, precipitated by the fall of Indochina to communism and the declared intention of the West to withdraw its military forces from the region. Their common objectives could be best achieved through mutual cooperation in the economic, social, and cultural areas.
During its early stages of development, ASEAN was mainly concerned with political cooperation to promote political stability and harmony in the region. Since 1976, however, the economic objective has grown in importance as economic development has become itsmain priority in view of, among other things, the increasing need to maintain economic competitiveness in the midst of growing international competition and sustain member countries’ pace of economic development in light of rising expectations.
There have been two types of economic cooperation in ASEAN: market sharing and resource pooling. These types of economic cooperation have developed since the Bali Summit of 1976. At this summit, theASEANleaders signed a Declaration of ASEAN Concord that laid out a program of action for regional cooperation in political, economic, social, cultural, and security matters. But ASEAN economic cooperation of a market-sharing type has generally been unsuccessful mainly due to the significant differences inmembers’ economic development levels and different economic priorities.
Economic Cooperation in Trade
The most important form of market-sharing cooperation envisaged in the Bali Summit was the establishment of preferential trading arrangements to promote intra- ASEAN trade. The agreement on ASEAN Preferential Trading Arrangement, signed in February 1977, was the first attempt by ASEAN member countries to promote a higher level of intra-ASEAN trade. Five measures have been identified to achieve the objective of greater intra-ASEANtrade: exchange of tariff preferences, purchase of finance support at preferential rates for selected products of ASEAN domestic origin, long-term(three to five years) quantity contracts for basic commodities such as fuels and agricultural products, preference in procurement by government agencies, and liberalization of nontariff barriers on a preferential basis.
Economic Cooperation in Industry
ASEAN countries have resolved that industrialization and economic development of their members can be largely facilitated through industrial cooperation. There is also a common realization that a significant increase in intra-ASEAN trade can occur only if the supply side of the market is also increased. Thus since 1976 fivemajor schemes ofASEANindustrial cooperation (ASEAN Industrial Projects Scheme, ASEAN IndustrialComplementation Scheme,Brand-to-Brand Complementation Scheme, ASEANIndustrial Joint Venture Scheme, and ASEAN Industrial Cooperation Scheme) have been established to create new industrial capacity jointly owned by member countries serving the regional market. Unlike trade liberalization, which raises apprehensions of uncontrolled trade flows and market disruption, industrial cooperation is linked to the creation of specific new production facilities, giving rise to much more predictable trade flows. Except for the ASEAN Industrial Cooperation Scheme, the success of these initiatives was quite limited.
Economic Cooperation in Agriculture
Given the importance of the agricultural sector in ASEAN, cooperation in this area has been one of the priority issues. All the cooperative undertakings in agriculture have so far been technical and developmental in nature, however. The Committee on Food, Agriculture, and Forestry (COFAF) is responsible for the identification and implementation of cooperative undertakings in the agricultural sector. Formed in March 1977, it (a) coordinates, reviews, and prepares studies on the prospects of the agricultural sector; (b) develops efficient methods for the exchange of information on agriculture; (c) identifies areas for cooperation; (d) maintains close ties with related committees in ASEAN and with other related organizations inside and outside the region; and (e) reports its progress to the ASEAN Economic Ministers.
Between 1978 and 1988, COFAF had identified 46 cooperativeprojects 7 in food, 10 in agriculture, 15 in forestry, 8 in livestock, and 6 in fisheries. By 1985, 13 of themwere ongoing, 4 completed, and 29 not yet implemented. The largest number of projects was located in the Philippines, followed byMalaysia, Thailand, and Indonesia in descending order. Most of the funding for these projects came from sources outside the region and only a few projects were pursued on a long-term basis. One of them was the ASEAN Food Security Project, which established in 1979 an ASEAN Emergency Rice Reserve to be contributed to by each of themember countries.The objective was to create a stockpile of 50,000 metric tons of rice to meet shortfalls in domestic supply. Thisprogramis periodically reviewed for the purpose of creating a more dynamic food security arrangement to enhance intra-ASEAN trade and promote food production under the principle of comparative advantage. Others included the Food Handling and the Seed Technology projects. ASEAN cooperation in agriculture has also been fostered in the association’s dealings with developed countries on matters of market access for member countries’ primary exports, better terms of trade, stabilization of export earnings, and other nonsensitive areas of cooperation.
ASEAN Free Trade Area
The 1992 ASEAN Free Trade Agreement (AFTA) was a watershed in the history of ASEAN economic cooperation, as it represents a significant step in the economic policy orientation of the ASEAN countries. The main objective of AFTA is to increase the international competitiveness of ASEAN industries and the ASEAN region as an investment location. Specifically, the objectives are to increase intra-ASEAN trade by abolishing intraregional trade barrierswhile allowing member countries to keep their respective trade policies toward the rest of the world, attract local and foreign investors to invest in the region, and make their manufacturing sector more efficient and internationally competitive within a liberalizing global market. An integrated regionalmarket is expected to produce economic benefits from greater consumer welfare, exploitation of economies of scale, competition- induced efficiency, industrial rationalization, interindustry linkages, and intraindustry trade.
To realize these benefits, AFTA seeks to reduce tariffs on all commodities traded within the member countries to no more than 5 percent ad valorem and remove all other trade restrictions by the year 2002 under the Common Effective Preferential tariff, the main instrument of AFTA. The agreement also lays down the rules for fair competition and identifies a number of measures to enhance economic cooperation such as harmonization of standards, macroeconomic consultations, improved reciprocal recognition of product testing and certification, coordination of foreign investment policies to enhance more investment flows, joint investment promotion strategies, and cooperation in transportation systems. Further, it containsmeasures of contingent protection and allows the reintroduction of trade barriers in case of balance of payments difficulties.
ASEAN Economic Community
The Asian financial crisis of 1997 and 1998, the terrorist attacks of September 11, 2001, the Iraq war, and the SARS outbreak all dampened the outlook for greater trade liberalization and economic integration as envisioned under AFTA. Despite these unfavorable external events, the ASEAN countries have remained politically committed to the vision of transforming ASEAN into an economically integrated grouping within the framework of an ASEAN Economic Community (AEC). This AEC concept, which was first agreed on at the November 2002 ASEAN summit held in PhnomPenh, Cambodia, is based on the ASEAN Vision 2020, which foresees a more economically integrated ASEAN. The ASEAN Vision 2020 envisioned ‘‘a stable, prosperous and highly competitiveASEANeconomic region inwhich there is a free flow of goods, services and investments, a freer flow of capital, equitable economic development and reduced poverty and socio-economic disparities’’ (ASEAN Vision 2020).
The AEC is built on the current initiatives under the ASEAN Free Trade Agreement, the ASEAN Framework Agreement on Services, and the ASEAN Investment Area, with clear timelines specified for removal of nontariff barriers, harmonization of product standards and technical regulations, and conclusion of mutual recognition arrangements for priority sectors.
Prospects for ASEAN Economic Cooperation
ASEAN faces a number of challenges in its journey toward greater economic integration. One major challenge is the widening economic gap within the grouping as ASEAN membership increased to 10 countries with significantly diverse economies and political regimes, and as the grouping is establishing more extra-ASEAN free trade agreements. The widening gap and the proliferation of extra-ASEAN free trade agreements, if not managed correctly, could lead to theweakening ormarginalization of the ASEAN integration and, worse, to the irrelevance of ASEAN to the individual member countries’ economic development. See also Asia Pacific Economic Cooperation (APEC); free trade area; regionalism