Thursday, March 29, 2012

ASEAN Single-Market Plan in Limbo

March 28, 2012

Leaders of (from L) Burma, Vietnam, Cambodia and Laos, and ASEAN Secretary-General Surin Pitsuwan (R) link arms at a summit in Phnom Penh, Nov. 16, 2010.
A plan to forge regional economic integration in Southeast Asia faces various problems.
Fresh doubts are being raised whether Southeast Asian nations can get their act together and launch a regional common market in three years as scheduled.

The 10 member states of the Association of Southeast Asian Nations (ASEAN), ranging from impoverished Laos to financial powerhouse Singapore, had set an ambitious goal of transforming the region of 600 million people into a single market and production base by 2015.

But new questions have risen whether ASEAN—whose other members are Brunei, Burma, Cambodia, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam—can rise to the occasion and establish the “ASEAN Economic Community” within the fast-approaching deadline, officials and diplomats in the region told RFA.

They cited an array of reasons, including leadership, or the lack of it.

The rotating ASEAN chairmanship, beginning this year, will be held by relatively smaller or less-developed states with fewer resources or less capacity to manage the critical run up to 2015.

Cambodia is chairing ASEAN this year, followed by Brunei next year and Burma in 2014.

There is also speculation that Vietnamese deputy foreign minister Le Luong Minh will take over from Surin Pitsuwan as ASEAN Secretary-General at the end of his five-year term this year.

A veteran Thai diplomat, Surin was the first ASEAN head with a significant political background.

"For many of the smaller and less-developed states like Cambodia, Laos [which takes over the ASEAN helm in 2016] and Myanmar [Burma] as well as Vietnam, their main focus is addressing the developmental gap [between the bigger and more developed states]," one ASEAN official said, speaking on condition of anonymity.

"They don't have adequate capacity to drive ASEAN integration and forge a regional architecture, such as those displayed by senior member states like Indonesia, for example, which held the chairmanship in 2011."


The latest official assessment of the common market plan was made last month when Southeast Asian economic ministers “resolved to further intensify efforts in facilitating trade, services, and investment within ASEAN, and to seriously address the impediments to market access of goods and services to ensure that ASEAN moves toward one integrated market.”

ASEAN officials who spoke to RFA spewed out statistics to demonstrate that member countries have been lagging behind in attaining key targets for achieving the plan.

While the ASEAN group boasts that member countries have attained 74 percent of their commitments, one ASEAN official pointed out that the unmet targets, although making up only 26 percent, were in critical areas.

They include areas such as attracting investments, opening up trade in services, integrating the region's transport network, harmonizing standards, and integrating customs procedures.

"This is the heavy-lifting part," a diplomat from a Southeast Asian country said. "And this determines whether we succeed or not."

Bigger states such as Indonesia and Thailand have also not lived up to their billing and in fact, according to some officials, have even "backtracked" on some of the programs for fear businesses will fold up on the back of rising competition.

In an unprecedented move in 2007, ASEAN leaders devised a blueprint with action plans, timelines, and targets to implement the ASEAN Economic Community project to compete with rising Asian powerhouses China and India.

If ASEAN with a combined Gross Domestic Product of U.S $2 trillion were a single entity, it would rank as the ninth-largest economy in the world.

No enforcement ability

Even with such lofty ambitions, ASEAN has little enforcement ability.  Decisions are made by governments based on consensus.  ASEAN members who flout provisions in the common market blueprint cannot be hauled up or penalized.

Some member countries, according to the ASEAN officials, have refused to give more resources to strengthen the ASEAN secretariat or grant greater powers to the group’s secretary-general for fear that they may come under close scrutiny.

When asked what keeps him awake at night, ASEAN Secretary-General Surin told the Myanmar Times last month, “I want ASEAN integration to go faster.”

“[I’m] worried about how much member states contribute to the regional agenda and how much they want to keep to themselves. That is what holds us back,” he said.

Although the ASEAN Economic Community blueprint has become a binding document for member countries, “there is a serious lack of capacity in ASEAN to enforce its decisions either at the regional or at the national level," the Institute of Southeast Asian Studies (ISEAS), a regional research center, said in a recent report.

In many places, ISEAS said, the blueprint is "vaguely defined" with missing "milestones".

"Some details of the plan have been left out, perhaps in recognition of the fact that an agreement on several aspects of 'community building' cannot be reached until there is greater confidence in the process and the existence of a development gap amongst member countries," ISEAS said.

Nevertheless, it said, ASEAN leaders will "gloriously" announce the realization of the single market in 2015.

A failure to do so will add to more competitive pressures from China and India and will send the wrong signal to the international community, ISEAS said.


The Institute's ASEAN Studies Centre and the Manila-based Asian Development Bank (ADB) are collaborating on a study that would assess the impediments and actions required for achieving an ASEAN Economic Community by 2015.

"The study is still underway and, therefore, a work in progress. In this light, I hesitate to comment on something the conclusions of which remain highly uncertain," Rodolfo Severino, head of the ASEAN Studies Centre, told RFA.

One of the key objectives of the study is to incorporate views of the business community on the single-market plan.

Until now there is very little awareness about ASEAN economic integration among the private sector in the region, ISEAS says.

"I think, for us, it is important that when things are rolled out, that they work and that they're fully developed," U.S.-ASEAN Business Council spokesman Anthony Nelson told RFA.

ASEAN is currently the fourth largest export market for the United States after the North America Free Trade Area (NAFTA), the European Union, and Japan.

Nelson said that while investment protection is improving and the ability to have a predictable investment environment is getting better across Southeast Asia, "we want to make sure that the degree of consultations will improve."

This is especially so in areas where there is a big stakeholder community of foreign businesses, he said.

"We want to make sure that we are able to participate in the drafting and development of different regulations just to prevent unintended consequences on a lot of things."

Nelson pointed out that services trade was one weak spot in the implementation of the ASEAN common market plan.

"Overall, we need to make sure that those national programs that make up the parts of the very important aspect of the ASEAN Economic Community, like the ASEAN Single Window, are in place and that they have support they need to roll them out."


ASEAN states, which are forging a free trade area among themselves and have struck free trade agreements with China among other economies, have been slow in devising a solitary window to expedite customs procedures for goods as envisioned under the plans for a single market.

The goods trade has been hampered further by nontariff barriers erected by countries to ward off competition.

For example, Indonesia, the largest and most populated ASEAN state, is showing greater reluctance to open up its economy as its vast market boosts domestic consumption, one ASEAN official said.

Infrastructure bottlenecks are also hampering regional economic integration as some of the less-developed states such as Cambodia and Laos are hard pressed for funds to build roads and bridges critical for opening up their economies.

Over the next decade, ASEAN economies will require about U.S. $60 billion a year to fully address the region’s infrastructure needs, but they face funding constraints.

On a per-capita basis, they have only a fraction of the roads and railways found in the rich Organisation for Economic Co-operation and Development (OECD) countries, and dramatically lower electricity and clean water coverage.

“ASEAN nations possess substantial foreign reserves, but these funds have largely been invested outside of ASEAN and outside Asia," Asian Development Bank (ADB) President Haruhiko Kuroda said recently.

ADB is administering an ASEAN infrastructure fund set up last year with an initial contribution of U.S. $335.2 million from nine ASEAN members and U.S. $150 million provided by the bank.


A survey by the U.S. Chamber of Commerce last year showed that 60 percent of firms polled felt ASEAN's common market goals were important to them, but, interestingly, only six percent said they had based their business strategy on a fully integrated ASEAN. 

Only by putting the money where the mouth is can ASEAN states display to foreign investors their seriousness in wanting to forge a common market.

With China and India and other Asian neighbors battling to woo foreign investments amid a slowdown in Europe and the U.S., ASEAN may have to act swiftly if it wants to become, in its own words, "a highly competitive economic region, a region of equitable economic development, and a region fully integrated into the global economy."

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