Chennai, India, 23 January 2010
“From Regional Integration to Global Partnerships”
Distinguished Speakers and Participants,
Ladies and Gentlemen,
Let me first congratulate the Confederation of Indian Industry (CII) for the successful holding of this year’s Partnership Summit 2010. I thank the CII for inviting me to address this distinguished gathering.
Globalisation, the Financial Crisis and their Impact
The world today is a vastly different landscape from the time in 2001 when the Doha trade negotiation was first launched. The economic and trading frameworks have since changed quite drastically. The process of globalisation has deepened and become more broad-based by the end of the first decade of the 21st Century. Economies are now more inter-dependent through trade, investment and capital flows. The greater integration of the global economy was never more evident than during the recent crisis that started in the developed countries and affected the world.
The speed of the contagion and impact on global trade and the real economy was shocking and overwhelming. Almost within a span of six month, we saw trade growth turning negative by astonishingly high double digits between regions of the world, and real GDP going into a nose-dive. Now we see almost all countries staging an almost synchronised turn-around due to coordinated global responses through stimulus spending in the affected countries.
The globalisation trends we are witnessing today are irreversible. Global inter-dependence is being driven by technological changes; by innovation in the production methods and processes; greater vertical integration of production networks through the international supply chains; more recourse to off-shoring, out-sourcing and electronic commerce. We are also witnessing the strengthening of emerging economies and their contribution to the global economic growth.
These shifting patterns affect the dynamics of multilateral and regional economic cooperation. They affect the way we are responding to the globalised world and the increasingly more difficult and uncertain economic environment.
ASEAN’s Response to Globalisation and the Financial Crisis
In ASEAN, especially since the previous Asian financial crisis of 1997/8, the responses to these changing trends have been through the path of strengthening regional integration. By strengthening its collective capacity and competitiveness, ASEAN hopes to offer to the world a region of stability, a region of huge economic potential and a region of efficient production processes. We expect that this will make ASEAN more prepared, more ready, and more able, to integrate into the globalised world and be at the forefront of global economic development.
ASEAN has adopted the ASEAN Charter which has conferred legal status on ASEAN. We are forging ahead with the establishment of an ASEAN Economic Community (AEC) by 2015 that will help us achieve our development objectives, both regionally and globally. The AEC is the realisation of the end-goal of our economic integration. It will make ASEAN more dynamic and competitive with new mechanisms and measures. The AEC will also address the development divide through initiatives that accelerate the integration of the newer ASEAN Member States of Cambodia, Lao PDR, Myanmar and Viet Nam. The AEC will have a single market and production base; a highly competitive economic region; a region of equitable economic development; and a region fully integrated into the global economy.
We have been making good progress in our path towards the Economic Community. Under the Common Effective Preferential Tariffs for ASEAN Free Trade Area (CEPT-AFTA), ASEAN has been undertaking gradual reduction in tariffs of these products since 1993. The CEPT-AFTA covers the whole range of products traded by the ASEAN Member States and provides for tariffs to be reduced to zero by 2010 for the more developed ASEAN-6 countries; and by 2015 for the remaining four countries, namely Cambodia, Lao PDR, Myanmar and Viet Nam. In 2010, tariff reductions under the CEPT-AFTA commitments will see the average tariff rate declining from 3% in 2009 to 2.61%.
For the ASEAN 6, as of 1 January this year, 99.65% of tariff lines have been eliminated for intra-ASEAN trade, accounting for 87.2% of ASEAN trade. The average tariff rate for ASEAN-6 has decreased to 0.05% in 2010, from 0.8% in 2009. For the remaining ASEAN Member States, 98.9% of their products are already at the 0-5% tariff range. Among the products that saw additional reductions in 2010 were iron and steel, plastics, machinery and mechanical appliances, chemicals, prepared foodstuff, paper, cement, ceramic and glass sectors. In addition there are final consumer products such as air conditioners; chilli, fish and soya sauces; as well as intermediate materials such as motorcycle components and motor car cylinders. A major goods agreement was concluded in 2008 to cover all the major areas such as standards, trade remedies and customs.
In investment, ASEAN has just concluded an important investment treaty, the ASEAN Comprehensive Investment Agreement (ACIA). The new agreement would facilitate the strengthening of ASEAN as an investment hub that would be able to compete effectively with other emerging economies. The ACIA provides for investment liberalisation, protection, promotion and facilitation. It would benefit investors and their investments based in ASEAN and support the development of a more open and freer investment regime.
ASEAN has also undertaken the liberalisation of its services market. Currently, we are close to concluding our 7th package of services liberalisation. At this stage of the integration process, we are already quite advance in terms of providing market access opportunities for services. ASEAN is targeting 51% foreign equity in the priority integration sectors of tourism, telecommunications, air transport and health. In the other sectors, a target of 49% foreign equity is being set. As we move towards 2015, we expect foreign equity levels to go up progressively to 70%, whilst removing substantially restrictions in the other modes of supply.
While the internal process of integration is on-going, ASEAN continues to reach out beyond its borders to its major trading partners. ASEAN has already concluded five ASEAN-wide free trade agreements with China, Japan, Republic of Korea, Australia and New Zealand, including a Framework Agreement and a Trade in Goods agreement with India. Negotiators from both ASEAN and India are currently in the midst of settling the services and investment agreements which are targeted for conclusion this August.
As the new decade dawns, ASEAN is also increasingly aware that the recent upheavals caused by the global economic crisis, will impact on how we would continue to view the regional and multilateral liberalisation processes. ASEAN may have to look at new strategies in building global partnerships while continuing with its internal integration efforts and constructing a network of relationships with its trading partners through individual trade agreements. To better cope with the new global realities, ASEAN and its partners in the ASEAN Plus Three Process and the East Asia Summit are looking at initiatives to strengthen the regional architecture to serve the region’s needs and stre
ngthen regional resilience to global economic shocks.
A wider network of cooperation is being contemplated that will exploit the region’s current economic strengths with the partner economies in East and South Asia, and Pacific. It would also facilitate the building up of new capacities required in forming new complementarities and in competing regionally and globally.
Nevertheless, at the core of any wider community building is ASEAN centrality. ASEAN must be part of any agenda-setting process in the region and is the catalyst for regional cooperation and community building. A step-by-step, building-block approach could be the best way to proceed for East Asia community building and ASEAN has already taken the first step in looking at an East Asia wide free trade arrangement by commencing discussion on two key studies undertaken on this subject covering rules of origin, tariff nomenclature, customs related-issues and economic cooperation.
ASEAN and WTO
The strengthening of ASEAN outreach efforts through regional community building does not mean that ASEAN is not committed to the multilateral trading system as espoused through WTO rules. The Doha negotiations were launched with active support from the ASEAN Member States, noting the importance of the development dimension of the multilateral trading system. There are a lot of expectations riding on the conclusion of the Doha negotiations including effective market access for both agriculture and non-agriculture goods, services and more efficient trade rules.
In addition, over-riding this is the notion that a strong multilateral system must be able to lead to the eventual integration of all economies, particularly developing countries, into the global trading system. This would suggest that market opening initiatives should be accompanied by capacity building efforts. Such efforts should help developing countries strengthen institutions, the regulatory and implementing mechanisms and the ability to take advantage of new market opportunities. A strong multilateral trading system with its robust multilateral rules must demonstrate its value in preventing any excesses of trade protectionism, especially in times of economic crisis.
The world has been looking forward to such as agreement for the last ten years. It is expected that a multilateral trade agreement will need to meet the demands of the 21st Century global economy, one that responds to new exigencies, one that delivers on making trade grow, and one that would allow developing countries to invigorate its industries, expand employment and incomes.
The expectations of a Doha outcome will also be the enhancement of the durability and stability of the multilateral trading system. A multilateral system that resonates with the demands of the 21st Century remains vital in supporting enhanced global partnerships and regional initiatives, by providing the bulwark against instability and uncertainty. A good outcome would also support the centrality of a global approach to trade relations in an increasingly complex and interdependent world. In its absence, the choice may be to develop further regional relationships as a springboard to creating greater global synergies.
ASEAN-India Partnership in a Globalised World: ASEAN-India FTA
ASEAN and India are part of the global trading network. The recently concluded goods agreement under the ASEAN-India FTA forms part of the whole multilateral trading system that would help ASEAN and India forge greater collaboration in trade and investment. The ASEAN-India goods agreement will see tariff liberalisation of over 90% of products traded between the two dynamic regions, including the so-called “special products,” such as palm oil (crude and refined), coffee, black tea and pepper. Tariffs on over 4,000 product lines will be eliminated by 2016, at the earliest.
In addition, agreements on services and investment are currently being negotiated. The FTA would open up more areas of cooperation in manufacturing, in the provision of services, and will also facilitate investment. We are of the view that this FTA will be a great enabler for strengthened economic ties between ASEAN and India.
ASEAN has much to offer India in terms of high quality products for the Indian consumers, parts and components for the Indian industry and a relatively open services market, including in the information technology sector. ASEAN is interested in investing in Indian industries, in Indian telecommunications and in infrastructure and in the Indian consumer market. Both sides also have a vibrant tourism industry that will benefit from this FTA. Industry players are optimistic as they see more options for sourcing to reduce purchasing costs. India can also be considered as a new supplier base in the region and provide greater flexibility to manufacturers.
The Indian economy is poised to take-off this decade. Your economy will surpass many of the Asian tigers in terms of real GDP, trade and investment growth. ASEAN recognises the value of the FTA, not only in terms of open markets and lower tariffs but also its value in transforming ASEAN-India relations to a higher plane. We need the private sector to energise our economic relationships and to take advantage of the FTA. The private sector should use this as a platform towards global partnerships in the region, towards a wider community of trading nations, and towards integrating into the wider global trading network.
India is doing well in the global rankings. India is the 26th largest exporter of goods, with total trade of US$481 billion. It is ranked 9th in the export of commercial services in 2008, with total trade in commercial services of US$197 billion. FDI inflow into India in 2008 of US$41.6 billion is almost ten times the level in 2004. In 2008, ASEAN, taken as a single entity, has total trade of US$1,710 billion, with total trade in commercial services of US$353 billion and FDI inflows of US$59.7 billion.
The FTA reflects an open market in a region comprising about 1.7 billion people, with a combined gross domestic product of approximately US$2.8 trillion as of 2008. ASEAN-India investments reached US$5 billion in 2008, while ASEAN-India bilateral trade continues to grow at impressive rates. In this decade alone, ASEAN-India trade has increased close to five times the trade in 2000, from US$9.7 billion in 2000 to US$47.5 billion, the second fastest in terms of growth among ASEAN’s trading partners. The share of ASEAN-India trade in relation to total trade of ASEAN and India continues to increase and India is ASEAN’s seventh largest trading partner.
ASEAN and India has entered into a regional trade agreement, binding two big regions of the world. There are immense opportunities to forge regional and international partnerships between both sides and to reap the synergies of the two regions. Together ASEAN and India can work together to tap the potential of the region. Trade although growing at a fast pace, is still about a quarter of ASEAN’s trade with its other major trading partners. Investment levels are still comparatively low.
This situation is expected to change. The FTA is expected to trigger a wave of greater economic cooperation and collaboration between ASEAN and India. The challenge will be the ability to grasp the significance of the complementarities between both sides and to sensitise the business sectors from both regions on the potential impact. In addition, as trade growth in markets in the west declines, ASEAN and India will do well to seek opportunities in e
ach other’s market.
Greater linkages and synergies between both will help to forge global partnerships in the international fora such as the WTO. ASEAN close ties with India will also allow ASEAN to benefit from India’s growing leadership in the world’s forum and world affairs and to work together to promote global growth and economic stability.
I wish the CII Partnership Summit 2010 every success and all participants a good meeting.