SE11010E Lecture 11 18 October 2002

The ASEAN Experience: Delusions of Regional Integration Eduardo C. Tadem, Ph.D. Professor of Asian Studies University of the Philippines DilimanOutline of presentation

1. Is there a basis for Southeast Asian regionalism? 2. ASEAN beginnings 3. What has ASEAN achieved? 4. Shortcomings and setbacks 5. The AFTA Experience 6. Other ASEAN weaknesses 7. Addressing poverty and inequality in ASEAN 8. Trends in SEA regionalization 9. The ASEAN Charter10. Conclusions

1. Is there a basis for Southeast Asian regionalism?1. similarities and differences across the region - cultural practices, languages, religious mixes; colonial experiences; structures and systems of government

2. interaction among countries and peoples in the region - historic trade ties; active transnational business networks; interaction through family ties, migration and tourism

3. cooperation among governments in the region, but also conflicts

4. whether there is a regional identity defined by political and economic elites2. Association Of Southeast Asian Nations (ASEAN) - BeginningsIn 1967, ASEAN was established with the Philippines, Indonesia, Malaysia, Thailand and Singapore as founding membersContext: change of regime in Indonesia ended the latters confrontation with Malaysia; cold war era a group of anti-communist countries with governments that faced significant threats (ongoing or in recent past) from domestic left-wing movementsConcern with the ongoing Indochina conflict gave ASEAN an implicit political dimension. From the start, ASEAN was a political project of Southeast Asias elites which highlighted the concerns of their social class orientations.

Original member states led in late 60s by groups and leaders with conservative, anti-Communist, pro-Western orientations. Political elites of the era were still products of the colonial period.

April 1975 (marking the end of the Indochina Wars) changed the context of ASEANs activities dramatically. Member states recognized need for security cooperation from 1976 on. Also began to discuss more extensive economic cooperation: trade liberalization, attention to prices of the regions key commodities.

Brunei joined in 1984, Vietnam in 1995, Laos and Burma in 1997, & Cambodia in 1999. Admission of Indochinese states reflected a change in context since the 1960s, change in these countries themselves, and end to fears of aggressive Communism.

First 20 years, in terms of concrete projects, generally low level of activity The 1978/1979 Vietnamese invasion of Cambodia became a key ASEAN issue. United the group as never before. ASEAN efforts led to Paris Accords in 1991 Vietnamese withdrawal, to elections in Cambodia under UN supervision in 1993. The Cambodian success came at a time when SE Asian economies were starting to attract attention for their high growth rates. 3. What has ASEAN achieved?

In 1990s, activity increased with major initiatives1992, creation of ASEAN Free Trade Area (AFTA), to bring down tariffs among the ASEAN countries to zero originally by the year 2003; and create a market of some 400 million that could serve as the basis of regional industrialization. 1994, the ASEAN Regional Forum (ARF) was formed to foster dialogue and consultation on political and security issues (included US, Japan, Australia, Russia and China)1995 signing of the SEAsian Nuclear Weapons-Free Zone Treatyaccelerating range of contacts in many other areas, on official and semi-official bases: universities, think-tanks, chambers of commerce, government bureaus; seen as elite socializationThe Chiang Mai InitiativeKnown as the CMIM Chiang Mai Initiative MultilateralizedA regional financial safety net; a common liquidity pool in case of BOP or liquidity crisisAs a response to both the 1997-1998 Asian financial crisis and the 2008 global financial shockIncludes ASEAN (20%), China (32%), Japan (32%), and Korea (16%)Total capitalization = US$240 billion; but is not a common or central fundHas never been used, thoughSums are still very low only 1.5% of ASEAN+3 GDPStill tied to an IMF program and its conditionalitiesLacks a rapid response capacityEquity issues, especially for poor countries4. Shortcomings and setbacksFailed Projects: ASEAN Industrial Projects (AIP) - assigning capital-intensive projects to different countries to develop;ASEAN Industrial Complementation Scheme (AIC) - dividing different production phases of auto and other industries among member countries; Currency swap only US$2 billion committed out of US$20 billion needed; the US wanted IMF to be part of the process; ASEAN gave inThe U.S. and Chinas undermining of the SEAsian Nuclear Weapons Free Zone initiative by refusing to be signatoriesASEAN did not act collectively over the East Timor crisis (due to principle of non-interference) the UN had to take the lead in dealing with violence that erupted after Timorese voted for independence in 1999

ASEAN turned a blind eye to the brutal crackdown in Burma (1988) and the militarys refusal to recognize results of 1990 election won convincingly by Aung San Suu Kyis National League for Democracy

East Timor Founding President Xanana Gusmao

Aung San Suu Kyi5. The Asean Free Trade Area (AFTA) experienceThe AFTA program was initiated in 1992 to create an integrated market among ASEANs close to half a billion people, make the ASEAN economies more efficient and competitive, and attract investments into the region.

Involves the removal of obstacles to freer trade among member states. This includes the abolition of high tariffs or taxes on traded goods and the scrapping of quantitative restrictions (QRs) and other non-tariff barriers (NTBs) that limit the entry of imports.

The ultimate target of AFTA was to eliminate all import duties by 2010 for the six older members of ASEAN and by 2015 for the four new members.Strengths

1. By January 2010, 99% of tariff lines have been reduced to zero among the six long-standing members of Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Brunei.2. The plan is to deepen AFTA by integrating the four newer members (Cambodia, Laos, Myanmar and Vietnam), tackling non-tariff barriers and expanding its scope to new areas such as investment. Have concluded collective free-trade agreements with China and Japan. 3. Agreement (2007) to establish an ASEAN Economic Community (AEC) by 2015 as a single production base and market.4. According to the ASEAN Secretariat, trade among its members increased five-fold from 1993 to 2009.5. High growth rates for ASEAN (ave, of 5.7% from 2010-2013)6. Large inflows of foreign direct investment. From 2012-2013 7 times more than India and almost same amount as China

Weaknesses

1. ASEAN leaders promise to build an economic community is weakened by a strong aversion to diminish national sovereignty for the sake of deeper economic integration. This reflects the absence of a distinct and unifying regional identity.National strategies clash with ASEANs internal goals. Relatively open economies, e.g., Singapore and Thailand, see ASEAN as a means to increase their exports, attract more foreign investments and are concentrating on their own market-opening measures depriving the grouping of its best integrators in the process. Investments still come from outside ASEAN, and most exports end up overseas.

Several members refused to lower tariffs on certain critical products. Malaysia, insists on protecting its state-owned car industry, fearing competition from Thailand. Caps on foreign ownership are still in place in the Philippines and Indonesia. At the April and October 2013 ASEAN Summits in Brunei, the goal of forming an ASEAN Economic Community (AEC) by 2015 was downplayed, merely stating that the leaders are pleased with its progress. This was due to slow progress on eliminating non-tariff barriers (NTBs)Impediments to the free flow of labor sour relations between Malaysia and Indonesia and the Philippines over the treatment of migrant workers. 80 percent of AEC have been implemented but the remaining 20 percent are the toughest ones. A 2013 survey by the Economist of 147 big companies operating in the ASEAN region shows that only 6.3 percent expect that the AEC can be put in place by 2015.A 2013 study by the Asian Development Bank and Institute of Southeast Asian Studies concludes that ASEAN has no prospect of coming close to (a) single market by the AECs 2015 deadline or even by 2020 or 2025.A 2011 dispute pitted the Philippines against Thailand on the issue of discriminatory taxes, duties, and health measures against Phil.-made cigarettes exported to Thailand. In June 2011, WTO ruled against Thailand. Whatever shape the AEC ultimately takes, it is becoming increasingly obvious that the group will belong to big business leaders with the right political connections who can take advantage of removing tariffs and laws that impede cross-border traffic. The Diplomat.

2. ASEAN's trade with the rest of the world has grown just as fast as trade among its members. Trade with China has actually grown much faster and more consistently. Intra-ASEAN trade growth, by contrast, has been patchy and virtually stagnant for 18 years (1995-2013).INTRA-ASEAN TRADEYEARPERCENT198520.3199018.9199524.1200024.7200224.4200524.9200725.0200924.5201125.0201224.3201324.2Intra-ASEAN Foreign InvestmentsYear 2008200920112013Percent21.311.223.017.0Regional Trade Blocs (2010)Regional BlocsMerchandise exports w/in bloc (% of total bloc exports)Merchandise exports by bloc (% of world exports)APEC67.547.3EU67.332.7NAFTA48.712.9ASEAN25.0 6.9Mercosur15.7 1.9Exports of ASEAN CountriesProductsBruneiBurmaCambIndonLaosMalayPhilSingThaiVietOil/oil prodsXXXXXXXChemicalsXXXXXXXXMetal & metal prodXXXXXXXXMachinery/equipmentXXXXXXXXXTextiles / ClothingXXXXXXXXXXTravel goods, bags, XXXXXXXXWood/wood productsXXXXXXXXXXFruits/vegetablesXXXXXXXXRiceXXXFish/fish productsXXXXXXXXXFood/Live animalsXXXXXXRubber/rubber prodXXXXXXXPalm & coconut oilsXXXXBeveragesXXXXXXXXXCoffeeXXX3. ASEAN economic cooperation has been tough going; ASEAN economies are not complementary and in many ways compete with each other.The Common Effective Preferential Tariff (CEPT) scheme - main instrument for turning ASEAN into a free trade area.

It is a cooperative arrangement to reduce intra-regional tariffs and remove non-tariff barriers. But only 5% of intra-ASEAN trade makes use of CEPT due to:

1. High costs of applying for preferential rates2. Bureaucratic red tape procedures 3. Reluctance to liberalize (Malaysia motor vehicles & parts, Indonesia agricultural products, Philippines petrochemical products)4. Minimal differences between CEPT and MFN & ordinary tariff rates 5. Countries with high tariffs, e.g., Burma, are reluctant to cut into their own revenue by promoting the exploitation of the CEPT. 6. Existence of non-tariff barriers esp. on agricultural products7. Lack of information on existence of CEPTIntra-ASEAN Trade, 2013(Value US$ million)CountryValue% shareSingapore206,672.333.95Malaysia119,106.319.57Thailand103,668.617.03Indonesia 94,661.815.55Vietnam 39,531.9 6.49Philippines 22,786.2 3.74Burma 9,869.0 1.62Cambodia 4,119.10.67Brunei 4,488.00.74Laos 3,729.3 0.61Total608,632.4 1005. Trade inequalities abound. In 2013, Singapore, Malaysia, Thailand & Indonesia dominated ASEAN trade with a 86.1% share. Singapore alone has 34%. The bottom 6 countries have only a 13.9% share. Historically, Malaysia & Singapore have dominated regional trade - two-thirds of total intra-ASEAN trade in previous years.Investment Inequalities in ASEAN ASEAN Six Majors Foreign Direct Investment (2012)

Singapore US$56.7 billion53.3%Indonesia US$19.9 billion18.7%Malaysia US$10.0 billion 9.4%Thailand US$ 8.6 billion 8.1%Vietnam US$ 8.3 billion 7.8%Philippines US$ 2.8 billion 2.6%7. Other ASEAN weaknesses

ASEAN seems to be running out of steam in trade and investment liberalization. Average growth rates of 5% (2000-04) and 4.84% (2005-2009) were below 1990-95 level of 7.3%. In 2009, growth rate was only 1.5%. China and India have quickly eclipsed ASEAN as the toast of bankers and investors.Continued vulnerabilty to challenges posed by globalization of financial markets. Risks associated with volatile capital moving across borders creating instabilities and crises. The 2008-2009 global economic meltdown resulted in lower export earnings, job losses and declines in GDP growth rates.Difficulty of integrating new members: different stages of development and different systems of government.The ASEAN Secretariat is weak, with only 1% of the staff complement of the European Commission. Staffed mainly by bureaucrats on short-term secondment from their national governments in a building full of empty corridors and echoing atriums. Perceived ASEAN weakness on the matter of the South China Sea. ASEAN members have competing claims in this area.A toothless 2002 Declaration on the Conduct of Parties in the South China Sea (bet ASEAN and China). Formal talks on a Code of Conduct still to commence.For the first time in its 45-year existence, an ASEAN foreign ministers meeting in Phnom Penh in July 2012 failed to issue a joint communique due to a disagreement on whether to mention the South China Sea territorial disputes.Inability to deal with the regions financial crisis of 1997-98; necessitated IMF intervention, with large role for US and Japan. Malaysia took an independent approach.

ASEANs claim to fame appears to rest more on its longevity and frequency of meetings (average 700+ per year).Asean had made little headway in persuading the Burmese military junta to end its human rights abuses. This illustrates the failure of the consensual, non-confrontational approach that ASEAN diplomats call "the Asean way". There are no minimum standards for members and only the vaguest principles to which they must adhere. When action is needed, ASEAN governments resort to excuses about not wanting to interfere in the internal affairs of member governments.In the 2011 Summit in Jakarta, ASEAN leaders failed to make progress in resolving the deadly border dispute between Thailand and Cambodia.At the November 2012 summit meeting, ASEAN heads of state, could not agree to set up a crisis hotline. Even bitter enemies like North and South Korea have a cross-border hot line three, in fact.ASEAN has also been silent on the issue of the Muslim Rohingyas in the Arakan state of Burma who have, since 2012, been victims of ethnic cleansing instigated by the Burmese government. Negotiations on joint action between Indonesia, Singapore, and Malaysia on the haze problem hit a snag in August 2013 when Indonesia refused to grant access to official land concession maps which could have pinpointed the culprits.

8. Addressing problems of poverty and inequality in ASEAN - both between countries and within countriesASEAN POVERTYCOUNTRYBELOW POVERTYSINGAPORE------BRUNEI------MALAYSIA3.8THAILAND7.2INDONESIA13.3PHILIPPINES24.0VIETNAM13.1LAOS24.0CAMBODIA 26.1BURMA23.6Greater economic openness in SEA coincided with a fall in poverty incidence on the one hand and deterioration in income distribution on the other hand.ASEAN Indicators of Inequality 2007/2008CountryGini IndexShare of income or consumption Poorest 10%Richest 10%Malaysia49.21.738.4Philippines44.52.234.2Thailand42.02.733.4Singapore42.51.932.8Cambodia41.72.934.8Vietnam34.44.228.8Laos 34.63.428.5Indonesia34.33.628.5No data for Burma and BruneiASEAN Poverty & Inequality RatesCountryGDP per capita% Below poverty lineGini indexShare of income or consumption(in US$) 2011Poorest 10%Richest 10%Singapore51,162NA42.51.932.8Brunei41,703NANANANAMalaysia10,3043.849.21.738.4Thailand5,6787.242.02.733.4Indonesia3,59213.334.33.628.5Philippines2,61424.044.52.234.2Vietnam1,52813.134.44.228.8Laos1,44624.034.63.428.5Cambodia93426.134.82.934.8Burma83523.6NANANANote: Poverty for 2011, Gini index & income share as of 2007-2008Sources: International Monetary Fund, Association of Southeast Asian Nations, Asian Development Bank, & Economic Intelligence UnitCielito Habito, Narrowing the gaps in Asean, Phil Daily Inquirer, 27 Sept 2011

In 1970, of the five founders, average income of the richest member country, Singapore, was 11 times that of the poorest, Indonesia.In 1990, this ratio was now 19 times; 2000, 29 timesIn 2010, gap narrowed to 14 times. This time, Philippines was now the poorest.In 1990, of the ten members, the richest, Brunei was 201 times richer than the poorest, Burma. By 2000, Singapore, the richest, had 129 times Burmas average income. The gap narrowed to 62 times in 2010, but still worse than in 1970. Habito, cont.

In Cambodia and Laos, more than 25% of population live on less than US$1.25 a day.In contrast, Malaysia, Singapore, Thailand, and Brunei, poverty is either non-existent or very slightDespite the Philippines higher average income than Vietnam, the latter has a lower poverty incidence, indicating a worse Philippine income distributionIndonesia has better record than the Philippines in average income, poverty incidence, and income distributionASEAN can be divided into three groups accdg to infra dev1. Singapore, Malaysia, & Brunei2. Thailand, Indonesia, & Philippines3. Cambodia, Laos, Vietnam, & BurmaBut the richest countries, Singapore, Malaysia & Thailand, have the worst income distribution while poorer ones, Laos, Vietnam & Indonesia, have better income distribution. Economic growth has benefitted only a few

Poverty and Inequality Factors Weak linkages between developed areas and the rest of the country.Most jobs created were among unskilled and semiskilled workers who are subjected to greater levels of exploitationSocial protection, especially of women labor, has weakened due to part-time, piece work, and informalized subcontracting (incl home-based) workJob losses also take place due to loss of competitiveness or relocation of industries to other countries.

Emphasis on international competitiveness and export promotion often replaced policy measures against poverty and social inequality. Regional trades impact on poverty is hampered by dominance of vertically integrated TNCs with little or no backward and forward linkages with the economy and whose production is for US and Japan market. Phenomenon of jobless growth - the tendency for productivity to grow without concurrent growth of jobs impedes the positive effects of AFTAAgriculture only accounts for 10% of intra-ASEAN trade despite the importance of this sector to most member countries. There is little complementation in agricultural products.9. Trends in SEAsian regionalizationASEAN seems to be moving away from integration

It is developing organizational ties with other countries: ASEAN+3 (Japan, China and South Korea), 2004 ASEAN-China Free Trade Area, Nov 2004 agreement to lower tariffs on goods by 2010, but excludes services, non-tariff barriers, and thousands of sensitive products; also excludes Laos, Vietnam, Cambodia, and Burma2005 East Asia Summit, ASEAN, China, India, Australia, Japan, South Korea, New Zealand; excluded the U.S.; focused on trade; progress could be very slow given the great range of political systems; conflicts between China and Japan over WWII issues, between China and India2005 ASEAN-Korea Free Trade Area, 2008 ASEAN-Japan Comprehensive Economic Partnership, covers only trade in goods 2009 ASEAN-India Free Trade Area, and 2009 ASEAN-Australia-New Zealand Free Trade Area. Currently being negotiated is an ASEAN-Hong Kong free trade agreement. Some members have been establishing bilateral trade ties with outsiders. Many more under negotiation. This undermines ASEANs integration process. Chinas Influence

Chinas involvement in Greater Mekong Sub-region is dividing Asean between mainland and maritime states.Heavy investments in dams, transportation routes, energy grids, trade bases and other infrastructureWeakens Asean and diminishes its influence as a unified bloc(Geoff Wade, Yale Global Online, 2-25-2011)

The Asean CharterNew York Times (Nov 20, 2007)Reaffirms Asean's longstanding policy of non-interference in members' internal affairs and declares that "decision-making in Asean shall be based on consultation and consensus;Omits mechanisms to enforce compliance that were in the earlier versions; Economic blueprint falls short of establishing the customs union many businesses in the region have been hoping for. Nor does it appear to outline any consequences for failing to meet the timelines;Asean human rights body has no provisions for enforcing compliance with any human rights standard; Includes an "Asean Minus X" provision that allows members to opt out of economic commitments if they can win consensual agreement from other members; and,The charter looks less like a newly unified Asean than the Asean of old. ASEAN Declaration on Human Rights, Nov 2012Declaration could "weaken and erode" the UN Universal Declaration of Human Rights, "undermines, rather than affirms, international human rights law and standards implies (ASEAN peoples) are less deserving of human rights than the people of Europe, Africa or the Americas". Allows Asean governments to exclude serious abuses because of "national particularities" or "cultural background as well as restrictions on a wide array of grounds, including "national security" and "public morality", The Guardian, 23 Nov 2011Eight out of ten ASEAN governments are authoritarian11. ConclusionsThe New York Times May 2011; 20 Nov 2012Riven by factionalism, the group seems to have no clear way forward, despite increasing tensions over several implacable territorial disputes.Asean has never been very efficient at making policy, nor has it been very good at policing its own members, in part because of the so-called Asean Way, which prohibits members from interfering in each others domestic affairs.An Indonesian Professor of International Relations: The problem is that Asean has a limitation in solving the problems that its members have because of the principle of non-interference. If Asean continues to keep this so-called sacred principle of noninterference, then I have some pessimism that Asean will be able to solve problems in the future. Aljazeera, Nov 22, 2012

ASEAN as a toothless mouse ineffective, irrelevant and a trifle uselessAll pomp and ceremony at the best of times with very little substance. Its been termed a "loose grouping" with nothing legally binding it together. Agreement of non-interference meant that , there were no condemnations of, or sanctions against, or even reactions to human rights violations amongst them It was the ASEAN way to be non-confrontational, put on a united front and pretty much sweep things under the carpet. Which is why most thought the group a "lame" body.For many years, the only underlying consensus (was) making sure everyone played nice, and kept the house clean and presentable at all times. There was to be no rocking the boat.

After more than four decades of conscious efforts for greater integration of their economies, the five original members of the ASEAN, Indonesia, Philippines, Malaysia and Thailand, find their economies no closer to each other than they were when they first formally got together in 1967. Cielito Habito, September 2011.

Despite similarities in historical experiences; e.g., historical trade ties, colonialism, and interactions among peoples, ASEAN is hobbled by:Non-complementary economiesDissimilarities in structures and systems of governmentLow levels of cooperation among governments in the regionNational sovereignty undermines regional integrationLack of a common idea of a regional identityAbsence of an enforcing mechanismEND -