Chiang Mai, Thailand, 23 September 2010

“GMS and ASEAN Economic Community”

Honourable Mr. Amonrapun Nimanandh, Governor of Chiang Mai,

Honourable Dr. Arkhom Termpittayapaisith, Deputy Secretary General, Office of National Economic and Social Development and Representative of the Deputy Prime Minister for Economic Affairs of Thailand,

Distinguished Speakers, Guests and Participants,

Ladies and Gentlemen,

Good afternoon.

I would, first, like to convey the best wishes of H.E. Dr. Surin Pitsuwan, Secretary-General of ASEAN to the organisers, and all participants for a successful Seminar. Second, the sincere regrets of Dr. Surin that he could not be here today as he has to be in New York to attend the informal ASEAN Foreign Ministers Meeting and the 2nd ASEAN-US Summit. Let me also take this opportunity to express my appreciation to the organisers for giving me an opportunity to address this important forum.

I am pleased to see that there is great interest in this event from business and industry leaders of the GMS. To me, this Seminar underscores the importance of sub-regional activities as it will contribute to efforts of improving living standards, increasing economic prosperity, narrowing the development divide within the region, and realising ASEAN integration by the year 2015.

Last year, the whole region, including the GMS, experienced the worst global economic downturn since the Great Depression. Several GMS countries recorded declines in their economic growth rates and governments had to undertake both macroeconomic and stabilisation measures to counter the worst effects of the crisis. However, the region has rebounded more quickly than many had anticipated. It is expected that ASEAN economies will grow by more than 5% this year, from a meagre 1.5% in 2009. To sustain recovery, Member States must work steadfastly towards establishing the ASEAN Economic Community (AEC) by 2015 to create a highly competitive single market and production base that promotes equitable economic development and facilitates integration with the global economy.

As almost all GMS countries (Cambodia, Lao PDR, Myanmar, Thailand and Viet Nam) are members of ASEAN, we need to examine how existing GMS strategies could be better aligned with that of the AEC. We also need to look at the medium to longer term economic prospects of the GMS in the context of the coming into effect of several ASEAN free trade agreements in January 2010 as well as the ASEAN Trade in Goods Agreement (ATIGA) that came into force in May 2010. The ATIGA and FTAs will act as catalyst for trade integration and support the overall regional economic integration process.

Furthermore, ASEAN is currently developing a Master Plan on ASEAN Connectivity to enhance regional linkages and its operation in an efficient and seamless manner. The enhanced ASEAN Connectivity will assist Member States to achieve competitive growth; facilitate economies of agglomeration and integrated production networks; enhance intra-regional trade; attract investments; promote deeper ties among ASEAN people; and foster cultural and historical bonds. In this connection, the GMS Programme has for many years, been enhancing physical connectivity in the sub-region that will provide valuable lessons to ASEAN and support the AEC goals. This may also include identifying sub-regional projects that could match some of the “missing links” in ASEAN’s transport infrastructure such as the ASEAN Highway Network and the Singapore-Kunming Rail Link.

It is in this context that I would like to focus my remarks today on the role of GMS in AEC, not only in terms of facilitating connectivity, but also as a holistic strategy for development. Finally, in keeping with the Seminar’s theme on GMS, I will talk about recent developments on Mekong economic cooperation and integration in ASEAN.

The Greater Mekong Sub-region Economic Cooperation Programme

The GMS Economic Cooperation Programme started in 1992 when the five ASEAN countries and China entered into a programme of sub-regional economic cooperation with the ADB. The Programme was designed to enhance economic relations among the countries with a vision towards a more integrated, prosperous and harmonious sub-region.

Consistent with the vision, the Mekong countries are gradually shifting from subsistence farming to become more diversified economies with more open and market-based systems. In parallel with this trend are the growing commercial relations among the six Mekong countries, particularly in terms of cross-border trade, investment, and labour mobility. The Programme has contributed significantly to infrastructure building in the GMS to enable the development and sharing of the resource base, and promote the free flow of goods, services and people in the sub-region. It has also led to the international recognition of the sub-region as a dynamic growth area.

Over the years, development partners have provided substantial financial support to the GMS Programme. Referring to ADB figures, official donor assistance since the Programme’s inception in 1992 and until the end of 2009 has reached almost US$3.5 billion. The Programme has been quite successful in mobilising international resources in the area of transport, telecommunications and energy infrastructure cooperation.

At the 16th Ministerial Meeting of the Greater Mekong Sub-region that was held in August 2010 in Ha Noi, Viet Nam, the Ministers approved a plan for improved transport and trade facilitation in the sub-region, which is expected to be operational by 2020. The rail link will build on existing lines or those under construction. The route would stretch from Bangkok to Phnom Penh, then Ho Chi Minh and Ha Noi and finally up to Nanning and Kunming. This deliverable again signifies the importance and priority of establishing physical connectivity in the sub-region.

As many of us may be aware, the GMS is strategically located. In effect, completing construction of the transportation networks would form a land bridge between China and India as well as linking China and India to Southeast Asia. This means a confluence of the three economic giants serving as the engine of prosperity and progress for the region and the world. Collectively, ASEAN, China and India will represent a market of 3.09 billion people, a GDP of US$7.644 trillion, and estimated foreign reserves of around US$3.18 trillion.

Progress towards the ASEAN Economic Community 2015

Substantive progress is being achieved under the AEC, despite the financial crisis, ranging from the trade liberalisation to facilitation; investment liberalisation, promotion and protection; finance integration; agriculture and food security; and infrastructure development.

Tariff liberalisation is very close to the full realisation of establishing ASEAN Free Trade Area (AFTA). Average tariff is down to 0.9% in 2009, from 4.4% in 2000 with the ASEAN-6 countries achieving almost zero tariffs. The new economic agreements concluded in the post ASEAN Charter era, namely the ASEAN Trade in Goods Agreement and the ASEAN Comprehensive Investment Agreement, are relevant to today’s regional business practices. Services liberalisation in ASEAN is also achieving good progress and attracting substantial foreign direct inves

tment.

Focus is now towards trade facilitation such as customs, standards and conformance, to further enhance intra-ASEAN trade and external trade as well removing non-tariff barriers to trade. These developments allow for a streamlined, consolidated, predictable and transparent set of rules for ASEAN to achieve the AEC by 2015. To promote and strengthen intra-ASEAN transport services and further support a harmonised, integrated and efficient transport logistics and facilitation environment in ASEAN, three key agreements have been concluded. These are the ASEAN Multilateral Agreement on the Full Liberalisation of Air Freight Services, the ASEAN Multilateral Agreement on Air Services, and the ASEAN Framework Agreement on the Facilitation of Inter-State Transport.

In the finance sector, substantive progress has been achieved on the US$ 120 billion Chiang Mai Initiative Multilateralisation (CMIM), which has come into effect on 24 March 2010. This is a framework of mutual assistance with two core objectives of addressing short-term liquidity difficulties in the region and supplementing existing international financial arrangements. As part of the Asian Bond Markets Initiative, the US$700 Credit Guarantee and Investment Facility (CGIF) to support the issuance of local currency-denominated corporate bond in the region, is also expected to be operational by end-2010.

ASEAN will also need to look at further enhancing intra-ASEAN trade, which now stands at US$ 376 billion as well as stimulate domestic demand for more trade to occur within the region. East Asia trade and economic integration will be another aspect to develop as more than half of ASEAN’s total trade of US$ 1.5 trillion is within East Asia. The ASEAN’s free trade arrangement strategy is starting to bear fruits in this regard with the conclusion of free trade agreements with China, Japan, South Korea, Australia and New Zealand, and India. More needs to be done to encourage businesses to better utilise these agreements.

Regarding ASEAN’s initiative on connectivity, the draft Master Plan on ASEAN Connectivity is expected to be adopted at the upcoming 17th ASEAN Summit in October 2010 in Ha Noi, Viet Nam. Connectivity here refers to the physical, institutional and people-to-people linkages that comprise the foundational support and facilitative means to achieve the vision of an integrated ASEAN Community. The deepening and widening of connectivity in the region would reinforce ASEAN’s position as the hub of the East Asian region and preserve the centrality of ASEAN, which could further be strengthened through realising the potentials of a broader connectivity in the longer term with its partners in the wider region.

There are two flagship land transport infrastructure projects within ASEAN that would be covered by the Master Plan, namely the ASEAN Highway Network (AHN) and the Singapore-Kunming Rail Link (SKRL). The SKRL flagship project was proposed at the Fifth ASEAN Summit in December 1995 targeted for completion by 2015. It covers several routes through Singapore–Malaysia–Thailand–Cambodia–Viet Nam–China (Kunming) and spur lines in Thailand–Myanmar and Thailand–Lao PDR. Currently there are 4,069 kilometers of missing links or links which needs to be rehabilitated in 6 Member States including Cambodia, Lao PDR, Malaysia, Myanmar, Thailand and Vietnam.

On the other hand, the AHN is an expansion of the ‘Trans-Asian Highway’ network within ASEAN. It is ongoing with significant progress made by ASEAN Member States in terms of increasing the length and upgrading the road quality of the highway. There are still missing links and below standard roads in some Member States.

In maritime transport, the ASEAN Port Network consisting of 47 designated ports in 9 ASEAN countries form the backbone of the trans-ASEAN port network. In air transport infrastructure, the airports in ASEAN capital cities are considered sufficient in terms of runway lengths to accommodate the existing operation of aircrafts.

All these physical linkages will be rendered sub-optimal if the goal of seamless transport does not progress in parallel through the software of regional agreements and institutional arrangements for cross border transport. To complement the developments and efforts in building physical connectivity through hard infrastructure, ASEAN is pursuing three land-based transport facilitation agreements and their protocols and three roadmaps for the integration of air and maritime transport and logistics services. Through these agreements and plans, ASEAN Member States are committed to ensuring that the region is well connected by air, land, and sea.

Establishing Strategic Linkage between GMS and the AEC

Although recovery in the region has been swift, the immediate challenge now is to ensure continued economic growth and promote sustainable development. Over the longer period, existing growth strategies will need to be assessed with a view to promoting strong, sustainable and balanced growth with diversified growth drivers, not only focused on traditional exports but also opportunities within the region i.e. sub-regions. Increased intra-regional trade along a widening spectrum of commodities and services would be an important objective for strengthening regional growth.

Improved transport and trade facilitation will be a prerequisite to successfully addressing these objectives, along with multi-sector approaches to development of economic corridors through investment in urban development in corridor towns, developing complementarities and alignment with corridors for tourism and bio-diversity initiatives, and development of logistics systems.

I must emphasize here that Economic corridors are not just about infrastructure development and improvement. It must be enhanced by a combination of cross-border software (i.e. harmonisation of regulations, procedures, and standards, open market and globalised perspectives, efficient transport logistics, and global transport networks). Thus, regional collective action is needed to develop Asia-wide physical connectivity, which requires regional and sub-regional cooperation for both cross-border hard infrastructure and related software.

In this context, the Cross Border Transport Agreement (CBTA) to facilitate cross border transport for both goods and people was signed by the GMS countries prompting several ASEAN Member States to enter into bilateral agreements to cater for greater cross-border mobility of passenger vehicles. This Agreement helped pave the way for ASEAN to develop it further into an ASEAN-wide agreement to facilitate inter-state passenger land transportation in the region. The programs of action under development should address the various impediments to the effective implementation of CBTA measures by developing the supporting infrastructure.

At the same time, ASEAN will need to continue efforts to develop links and interface with the GMS to broaden and deepen these partnerships, given the larger geographical coverage and synergy that can be generated among the sub-regions. ASEAN makes available a broader regional framework in which the sub-regional cooperation programmes can carry out its work since many ASEAN and GMS activities share the same purposes and pursue cooperative development as a fundamental objective. Many ASEAN programmes, especially those in infrastructure, human resources and the environment, could be implemented with greater focus and at a more rapid pace when carried out in the context of the sub-regions.

Since most of the GMS countries are members of ASEAN, there could pro

bably be overlapping country participation and geographical coverage in the sub-regional programmes. Developing links and improving coordination will be crucial for facilitating the access of sub-regional areas to wider markets and their integration into the regional economy.

Key Challenges for Mekong Region

The Mekong continues to be confronted with major challenges. But the two more pressing challenges that I would like to highlight, which are relevant to this forum, are the lack of private sector involvement, and insufficient infrastructure and financing.

We are well aware that small and medium-sized enterprises (SMEs) dominate the business sector in the Mekong and impediments to the growth of SMEs are varied and plentiful. These include rising costs of production and inputs, inadequate framework of policy and program support, and competition from foreign imports. Moreover, SMEs often lack access to credit and finance for working capital and investment, appropriate technology, markets, and market information. The private sector has been designated as the sub-region’s engine of growth, but support has not been sufficient to spur investments and growth. There is therefore a need for increased emphasis on SME development if growth in the sub-region is to be private sector-led.

On the second challenge, inadequate infrastructure has become a major bottleneck to private sector investments. While public sector investment in infrastructure development continues, infrastructure investment for most parts of the sub-region has seriously lagged behind. Given the widely dispersed population and centres of production, infrastructure, transport and logistics development are vital to the marketing and distribution of production inputs and outputs.

In response to these challenges, I would like to mention here that Ministers at their Second Mekong-Japan Economic Ministers’ Meeting recently held in Da Nang, Viet Nam on 26 August, 2010, welcomed the “Business Recommendations on the Mekong-Japan Economic and Industrial Cooperation Initiative (MJ-CI) Action Plan”. The Plan indicates actual measures for development of hard infrastructure, trade facilitation, enhancement of SMEs, and enhancement of the service and new industrial sectors.

Both industry representatives from the Mekong countries and Japan recognise the huge growth potential of the Mekong region and the development of the Action Plan confirms the continued strong interest of firms in the region. The Action Plan would also serve as a platform to engaging in a positive dialogue between the government and the businesses and to working jointly on its implementation. The Plan will be submitted to the Leaders at the forthcoming Mekong-Japan Summit to be held in Hanoi, Vietnam on 29 October 2010 for adoption.

It is also important to acknowledge the U.S. – Mekong Cooperation that was launched at the first-ever U.S.-Lower Mekong Ministerial Meeting on 23 July 2010 in Phuket, Thailand. The Meeting has paved the way for building closer relations between the U.S. and the ASEAN countries of Cambodia, Lao PDR, Thailand and Viet Nam to achieve sustainable development and prosperity in the Mekong region. The specific plans of action for cooperation would be developed by senior officials and experts.

While mindful of the tasks ahead, priorities will need to be set to determine the direction, focus and pace of the development of the GMS. I would like reiterate the three priorities that were highlighted at the 15th GMS Ministerial Meeting held in June 2009 in Cha-am, Thailand.

One is the acceleration of the implementation of the CBTA and related initiatives. Without significant progress in the bilateral agreements, transaction costs of border trade and investment in the region will remain high and not attract businesses to the region. Two is the transformation of the transport corridors into economic corridors. Physical infrastructure will need to build before businesses can take up the task of making the economic corridors work. Three is the reduction of environmental risks to the region. Sustainable development can only happen if measures that are environmentally-friendly and economically-efficient are applied. These specifically refer to transport systems and networks.

Conclusion

In closing, I would like to reflect on three important issues facing the Mekong Countries towards economic integration, particularly from the perspective of business.

First, as government-led initiatives, the GMS Programme and the AEC must be business-oriented. There must be efforts to set the regulatory environment for business cooperation, promote business partnership, and support over sub-regional economic cooperation. As the economies of ASEAN and the Dialogue Partners become increasingly inter-linked, businesses in the Mekong will have more opportunities and wider choices to set up operations.

In the context of business networking, private sector led organisations should be involved in building contacts. For example, the GMS Business Council that held its inaugural Meeting on 8 June 2010 in Kunming, China, can serve as a platform to further promote commercial and industrial exchange and cooperation among the GMS countries.

As GMS cooperation strengthens, the need for greater cooperation in the industrial and commercial fields in the GMS countries will grow too. Presently, however, there is no non-governmental mechanism within the ASEAN-China Free Trade Area or the GMS Economic Cooperation Framework to promote the participation of industry and commerce, or to represent their interests. The GMS Business Council can help fill this void.

Second, the GMS and the AEC should not only initiate policy measures and expand business opportunities but it must bind the countries together through infrastructure facilities, principally in transport and telecommunication. Physical connectivity is the bedrock of many economic cooperation and integration efforts. Connectivity therefore should be a central element in the sub-regional cooperation programmes.

Finally, the GMS must be mindful of transnational issues. The rapidly increasing problems of the environment, cross-border crime, and food safety have heightened the need for intensified cooperation in controlling and managing the borders. The GMS should address how countries could cooperate with one another in these areas. Customs and quarantine services are areas where the Mekong countries could align their procedures to internationally accepted customs standards, conventions, and practices. This would advance efforts toward regional uniformity and help to integrate the companies with the rest of the world. For businesses, it would contribute to efficiency and significantly reduced costs.

I wish the Seminar great success. I hope all the participants will have a pleasant stay in “Charming” Chiang Mai.

Thank you.