Column : Asean vies to beat EU

Written by Biswajit Dhar | Updated: Nov 30 2012, 06:33am hrs
Recently, leaders from the Association of South East Asian Nations (Asean) took one of the most significant steps towards strengthening economic cooperation among them by announcing the launch of the negotiations for the conclusion of the Regional Comprehensive Economic Partnership (RCEP). The RCEP is slated to be the most ambitious economic partnership agreement as it would surpass in size and scale the European single market that came into being in 1992. This is because RCEP is expected to eventually comprise six partner countries of Asean in the East Asian region, which include India, China, Japan, Australia, Korea and New Zealand. What makes RCEP such a formidable economic grouping is the fact that in 2011, these countries together accounted for over 28% of world GDP and over 28% of global trade. Three of the top 10 countries in terms of size of GDP belong to this region. Besides, this group of countries includes those whose growth momentum was punctuated only by the global slowdown.

It must be emphasised here that RCEP is not going to be an agglomeration of the economic partnership agreements that Asean has forged with each of its six potential partner countries. In the past, Asean developed a pattern of integration with countries surrounding it that can best be described as the hub-and-spoke model.

Thus, while Asean as a group could be visualised as the hub, the partner countries were the spokes. The web of production networks that the Asean members had built with their partner countries supported this model. However, Asean could not play an effective hub since it had not emerged as a single entity that could negotiate collectively. In other words, Asean was not a customs union having common external tariffs, but was only a conglomeration of countries whose association was established on the basis of common economic aspirations.

Steps towards the transformation of Asean into a meaningful hub were taken as early as 2007, with members agreeing to establish the Asean Economic Community (AEC) as an integrated economic region by 2015. A recent assessment shows that big strides have already been taken towards trade and investment liberalisation within the region.

By end-2011, the average intra-tariff rate for Asean-6 countries (Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand) under the ATIGA (Asean Trade in Goods Agreement) was down to 0.05%. Thus, with the exception of Vietnam and the three least developed countriesLaos, Cambodia and Myanmarthe Asean members were on the verge of becoming a duty-free zone. Concomitant steps have also been taken to address all other forms of trade barriers. The area of trade facilitation that includes customs-related red tape has come in for greater scrutiny. Simultaneously, attempts are being made to eliminate non-tariff barriers (NTBs) in three tranches. This activity gained momentum after Malaysia and Thailand declared that they had eliminated the third tranche of NTBs in 2011.

Substantial opening-up of the intra-Asean services market is also on the anvil as member countries have agreed to undertake liberalisation of at least 65 services sub-sectors. In order to support greater mobility of qualified professionals in the region, mutual recognition agreements (MRAs) for engineers and architects have been implemented, while progress has been made on MRAs for nursing, medical, dental, accountancy and surveying. The establishment of Asean Free Trade Area (AFTA), announced in 2010, was indeed becoming a reality.

For a long time, investment liberalisation has been on the agenda of the Asean members. They had, in fact, arrived at an agreement in the mid-1990s to establish an Asean Investment Area, an idea that was scuttled by the financial crisis. From all accounts, the region has finally reached the threshold of investment liberalisation.

But it is not mere trade and investment liberalisation that the Asean members are looking at. Their economic cooperation includes elements that are aimed at making the region truly competitive, one which supports the development of small and medium enterprises (SMEs). These SMEs have been at the heart of the development of the region, and have, in particular, supported the production networks that have so successfully developed throughout the region.

Asean has repeatedly emphasised that the current set of activities constitute only the first phase of their work on economic integration and that further activities are on the anvil for the narrowing of development gaps existing in the region, particularly in the four lagging economies. The Initiative for Asean Integration (IAI) thus seeks to adopt new modalities and approaches to ensure the benefits of the AEC trickle down to the smaller Asean economies. It is, therefore, quite apparent that the larger economies are mindful of the unsustainability of the process of regional integration if some members remain substantially less developed.

How would the dynamics in the East Asian region alter after the Asean members have launched the RCEP negotiations A widely accepted view is that Asean would remain committed to the agreements that they have already signed with their partner countries. This view, while being quite acceptable, does not rule out the changing dynamics between the Asean members and their partner countries in future, since the former would now be more coordinated in their dealings than in the past. However, the more important dimension that the RCEP would bring forth is that it would put some of the largest economies onto a common negotiating table, something that no region has witnessed so far.

The author is director general, Research and Information System for Developing Countries