ASEAN’s Market Dreams Face Tough Reality

CEBU, Philippines ~ Needing to forge a regional single market to fight off competition from China, ASEAN nations were supposed to sign a deal this week moving up the target date five years to 2015.

While the deal was delayed because of the cancellation of the ASEAN summit, the bloc is still aiming for that goal – but there is growing doubt about whether 10 such different nations can integrate in so short a time.

From convincing the private sector it can work, to establishing the institutions necessary to oversee a true European-style single market, the dream of integration needs a reality check, experts and political leaders say.

“Institutions are central to the whole process of setting up the economic community,” said Charles Goddard with the Economist Intelligence Unit (EIU), a think-tank.

He said the “spaghetti-like” proliferation of bilateral free-trade agreements within the bloc only complicated the “very daunting task” of establishing the mechanisms needed to make a single market work successfully.

The Association of Southeast Asian Nations (ASEAN) has already embarked on an ambitious program to slash import tariffs on most products moving through the politically and ethnically disparate region of nearly 600 million people.

The stakes are high for the group’s members, many of which have rebuilt their mainly plantation economies in just over a generation to become global trading players and key production bases for the world’s largest firms.

Exports now account for more than 70 percent of ASEAN’s economic output, but that transformation means that much of the bloc has become reliant on exports at a time when China is grabbing an ever-larger share of international trade.

“China would significantly crowd out ASEAN exports in most western and other non-East Asian economies by 2020 if China unilaterally liberalizes and ASEAN does not,” said Ponciano Intal, a Manila-based economist.

An EIU report released this week said that Chinese exports have already overtaken those of ASEAN’s top seven economies combined – Indonesia, Thailand, Malaysia, Singapore, the Philippines, Vietnam and Myanmar.

Intal said one of the main challenges would be to improve the institutional and infrastructure capacities in the poorer countries of ASEAN – a must if the bloc is to move to an integrated region with uniform rules and standards.

For Scott Price, Asia-Pacific chief executive of global express carrier DHL, the pace of integration would depend on “how quickly you can give up all the emotional issues of control.”

Experts say that developing a full-fledged single market means moving to rule-by-law, a major step for a region that – both politically and economically – is accustomed to doing things by informal consensus.

The EIU’s Goddard said the reduction of tariffs already undertaken by the bloc, for example, had been difficult.

“I can’t think of any reason for us to think, at this point in time, for the projected ASEAN economic community to do any better,” he said.

Ong Keng Yong, the secretary general of ASEAN, admits that the dream of integration is still far away.

“Many of the ASEAN economies – in fact all the ASEAN economies – are not ready,” Ong said, adding this meant the bloc needed to save space for dealing by consensus and not just the strict laws of a single market mechanism.

“There are problems here and there. So we take flexibility,” he said.

But experts agree that time is running out.

The EIU study said that with both China and India becoming stronger forces in international trade, forging a true single market was essential to keeping ASEAN competitive.

“Setting up proper, empowered pan-regional institutions will require a strong political effort, particularly given ASEAN’s traditional stance of non-interference in the domestic dealings of fellow members,” it said.

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