One of the key issues that ASEAN has been dealing with following expansion of its membership to ten is the development divide within and across member countries. This divide is clearly manifested by the huge disparity in per capita GDP (income) and in other dimensions of human development, such as life expectancy, literacy rate and poverty incidence.
Let us look at some indicators of this development anomaly. Based on UNDP’s 2004 Human Development Report, the per capita GDP (measured at purchasing power parity) of Singapore in 2002 was around 23 times more than Myanmar’s. If compared at current exchange rate, the disparity will be many times more. Adult literacy rate ranged from 94 percent in Brunei Darussalam to 66 percent in the Lao PDR and life expectancy from 78 years in Singapore to 54 years in the Lao PDR. For member countries with available data and using USD 1 per day as the poverty threshold, the percentage of population living in poverty ranged from less than 2 percent in Malaysia and Thailand to 34 percent in Cambodia.
This gap must be narrowed as an end in itself if the peoples of ASEAN accept the notion that development is a fundamental human right and that it should be pursued in an equitable and inclusive way. It must also be narrowed, if not removed, as a necessary condition for realising the end goal of economic integration: one community of 10 nations functioning as a single market and production base. Otherwise, it would be next to impossible for the ten countries to move forward towards integration in a unified manner. Indeed, efforts to narrow the development gap would be self-reinforcing. They would help remove the biggest constraint to economic integration, which in turn would help narrow the development gap.
On 29 and 30 November 2004, ASEAN Leaders will gather in Vientiane for their Annual Summit. This time they will consider and most likely adopt regional integration measures that their Senior Officials will have negotiated and their Ministers agreed to endorse in order to realise an ASEAN Economic Community (AEC). The Leaders had earlier expressed their collective political will to deepen and broaden ASEAN economic integration when they declared in Bali last year the formation of the AEC by 2020, along with ASEAN Security Community and ASEAN Socio-Cultural Community. More importantly, they decided to accelerate the economic integration process in 11 priority sectors to enable the AEC to function as a single market and production base in those sectors by 2010.
The forthcoming summit in Vientiane offers a rare opportunity for ASEAN Leaders to strongly and collectively convey to the international community and, more importantly, to their constituencies, their resolve to do whatever it takes to realise the AEC. It is seen as a rare opportunity as the Summit will be held at a time when 4 out of the ASEAN 6 Leaders would by then be on or just over the initial year of stewardship of their respective countries (Singapore, Malaysia and Indonesia) or have just secured a fresh mandate (Philippines). These leaders should therefore be relatively more willing and ready to take concrete and bolder measures in opening and liberalising their markets.
Even with strong reaffirmation of commitment to realise the AEC at the forthcoming Summit, will economic integration of 10 ASEAN Member Countries (AMCs) into one community functioning as a single market and production base actually happen by 2020, and even earlier by 2007 in some of the 11 priority sectors? And if it does happen, will it benefit the poor and reduce inequities within and across AMCs?
With regard to the first question, a great deal will depend not so much on the ability as the political will of the Leaders to actually implement necessary but often painful, unpopular and politically sensitive measures to make AEC a reality. For instance, removal of tariff and other protection to domestic producers will put a lot of pressure for them to be more efficient to stay competitive. Otherwise, they will have to eventually leave the market, whose implication in terms of workers losing their job makes trade liberalization terribly unpopular. National treatment of foreign investment from within and outside ASEAN is another politically sensitive measure that would often require amendment of a national law and, for at least one country, perhaps even the constitution. Quite obviously, political support from domestic investors in a heavily protected sector can easily be lost if these proposed measures are forcefully implemented.
The political will of ASEAN Leaders to implement economic integration measures will depend mainly on how their constituents – investors and consumers, producers and traders, exporters and importers, employers and workers, etc. – perceive the likely outcome of those measures: in particular, whether they will be winners or losers. Such perception will in turn depend on their awareness, understanding and appreciation of the real benefits and costs of economic integration and the incidence of those benefits and costs across various sectors of society. In this regard, an innovative and creative public information and communication strategy will be required, which can be a formidable challenge to ASEAN and its Member Countries.
The information and communication strategy should be anchored on the premise that economic integration is a necessity rather than a choice in view of the forces of globalisation sweeping the region and the world. It should highlight the short- and longer-term benefits of economic integration to the peoples of ASEAN mainly as consumers and workers, rather than as investors, producers and employers, and explain the measures that are in place or to be put in place to mitigate the short-term adjustment costs. With enhanced public support to the AEC, stronger political will to implement the integration measures to be adopted in Vientiane can be mustered, thereby improving the chances of its realisation.
With regard to the second question, much will depend, unlike the first, on the ability of the less developed AMCs, especially the CLMV countries (Cambodia, Laos, Myanmar and Viet Nam), to effectively manage their economic integration process. In this regard, formulation and implementation of a comprehensive economic integration strategy would be necessary to guide them in managing the process. CLMV countries could cooperate with each other and learn from the experience of the more successful countries among ASEAN 6 in formulating their respective integration strategies.
Economic integration essentially involves removal of barriers to trade and investment flows. As barriers are removed and producers adjust to changes in market conditions, there will invariably be short-term adjustment costs, particularly to workers who may lose their jobs if and when their employers in a sunset industry decide to downsize to remain competitive or to leave the market altogether. If there are appropriate social safety nets to mitigate these adjustment costs as part of a comprehensive economic integration strategy, the public’s apprehension could be assuaged. The integration strategy could also provide a mechanism that compels the employer to share their worker’s burden of adjustment. For instance, provision of gratuity pay to terminated workers could be made mandatory.
Even in the short-term, there could be benefits to workers if trade and investment liberalization achieves the purpose of making ASEAN a more attractive production base. Firms that are already based in ASEAN would be encouraged to stay rather than relocate to China, thereby enabling workers to keep their jobs. In addition, greater investment inflow in
to sectors where ASEAN has a comparative advantage would create new job opportunities.
In the longer-term, the real benefits from economic integration derive from enhanced competitiveness arising from economies of scale that a single market allows and lower production costs as tariff, non-tariff and technical barriers to the flow of goods, services and factors of production are dismantled. If these benefits were fully translated into higher profits, they would obviously accrue only to the investors/producers. But if the market were functioning in a fairly competitive way, it would tend to encourage producers to share the benefits of increased productivity to their workers – who often comprise a good part of the poorer segment of society – through higher wages, and to consumers through lower prices. Apart from lower prices, consumers would be better off as they are given a wider range of choice.
If the market should fail to equitably distribute economic integration benefits among producers, workers and consumers, it would be incumbent upon the state to ensure that the market function as it should and is not distorted by monopolists, rent seekers, and cartels, which often have strong political connections. More broadly, it would be incumbent upon the state to ensure through appropriate policies that the benefits of economic integration are maximised, the adjustment costs are minimised and mitigated, and both benefits and costs are equitably shared among different sectors and income classes. The will and ability of governments to design and implement pro-poor trade and investment liberalisation policies is particularly important in view of increasing evidence that such policies rather than community level interventions here and there that meaningfully reduce poverty. These are the key issues that an economic integration strategy should address so that the vision of ASEAN Leaders expressed in Bali Concord II of a “stable, prosperous and highly competitive region in which there is equitable economic development and reduced poverty and socio-economic disparities” could be realised.
Indeed, pro-poor trade and investment liberalisation policies can be deliberately designed to enhance and accelerate the “trickle down” of economic integration benefits to poor workers and consumers. If properly and effectively managed, economic integration can benefit the poor, thereby reducing inequities and the development divide within and across ASEAN Member Countries. With strong advocacy, public support and political commitment to implement bold integration measures, there is a fair chance that it will.