Review of Regional and International
Economic Developments: Regional Economic Integration


Almost from the beginning of the financial crisis, apprehensions have arisen over ASEAN’s commitment to regional economic integration and its openness to the global economy. These doubts have been expressed by governments, business people and media.

Contrary to such expectations, ASEAN has repeatedly re-affirmed its commitment to regional economic integration, specifically to the ASEAN Free Trade Area, and to continued economic liberalization. At their second informal summit in Kuala Lumpur last December, ASEAN’s leaders not only categorically affirmed this commitment; they called for the acceleration of AFTA’s implementation. Ministers have reiterated this position. The target dates for AFTA’s completion remain as before. The only question is how and at what pace the acceleration of AFTA’s implementation is to be carried out before the completion dates.

Almost 46,000 tariff lines are now in the Common Effective Preferential Tariff scheme, almost 83 percent of the total. The member- states are considering adding more products too make these numbers even higher. Average CEPT tariff rates today are just slightly over five percent, way down from 12.76 percent in 1993, when CEPT started. Technical barriers to trade are progressively being removed. ASEAN member-states are harmonizing their tariff nomenclatures and customs rules and procedures. They are adopting the GATT valuation agreement. They are drafting a framework agreement on the mutual recognition of standards and conformance. In 1996, they adopted a WTO-type dispute-settlement mechanism covering all ASEAN economic agreements. All this should make trade within ASEAN more rules-based and much easier, much easier, too, for those foreign and multinational corporations operating in ASEAN or selling to ASEAN.

Meanwhile, ASEAN has adopted the ASEAN Industrial Cooperation scheme, or AICO, under which full AFTA treatment is extended to products of companies manufacturing in two or more ASEAN countries if approved for AICO by the countries in which they are located. Japanese and U.S. companies have indicated keen interest in this scheme. I am sure that European and other companies have a similar interest. A number of applications have already been approved.

To stimulate intra-ASEAN trade further, ASEAN has endorsed the use of ASEAN currencies for intra-ASEAN trade. The Philippines and Malaysia reached agreement earlier this month on a bilateral payments arrangement to bring this about. Malaysia and Thailand are expected to conclude a similar agreement anytime now. Malaysia and Indonesia are working on one. Indonesia and Thailand may soon initiate consultations on such an arrangement.

Beyond trade in goods, ASEAN member-states are liberalizing trade in services among themselves through GATS(General Agreement on Trade in Services)-plus commitments. Negotiations started at the beginning of 1996 and arrived at an initial package of commitments at the end of June 1997. They are trying to complete the final package by the end of this year.

ASEAN’s continuing commitment to regional economic integration and economic openness arises not only from international obligations undertaken but, above all, from self-interest recognized.

AFTA and freer trade in services create a market of 450 million people. They make production more efficient. They thus attract investments in ASEAN both from within and from outside. ASEAN recognizes that investments of the long-term kind are what the region needs for economic recovery and the resumption of growth.

At the same time, ASEAN economic integration means more than removing obstacles to trade. It also means binding economies closer together through infrastructure linkages, like road networks, railway networks, power grids, gas pipelines. These present investment opportunities, as do projects associated with the development of the Mekong. River Basin.

ASEAN has been asking the governments of Dialogue Partners to encourage such investments from their corporations. A few weeks ago, the heads of ASEAN investment agencies and I met in Tokyo with some 300 Japanese SMEs and with the top leadership of Keidariren to brief them on developments in ASEAN and urge them to invest in our region. We ought to be doing the same thing in North America and Europe.

At this time of crisis, however, it is not enough to leave cooperation with ASEAN to the private sector. Governments need to act. ASEAN needs wider access to the markets of its trading partners, soft loans for certain infrastructure projects, and technical assistance to SMEs. In addition, those ASEAN countries most badly hit by the crisis need trade financing, technical assistance to strengthen their financial and economic institutions, debt relief, and grant aid for emergency assistance to the unemployed and other vulnerable groups.

In the ASEAN Regional Forum, during the discussion of the regional financial situation two nights ago, we heard words of appreciation from ASEAN countries for the generous assistance extended by some of the Dialogue Partners to member-countries which require it. More is needed.

Confronted by a crisis arising from an unprecedented global financial and economic phenomenon, we have heard talk of the need to manage the international movement of capital. There are proposals for a new architecture of international finance. There are calls for a thorough examination of globalization in all its aspects.

We would urge that, in fashioning the new architecture and in undertaking such an examination, the needs and interests of Southeast Asia and its peoples be seriously taken into account.