Bridges Weekly Trade News Digest • Volume 12 • Number 43 • 17th December 2008

ASEAN Signs Charter, Trade Deals in Move toward Deeper Integration

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The inaugural ASEAN Coordinating Council convened alongside a meeting of ASEAN Foreign Ministers in Jakarta, Indonesia, on 15 December to witness the official entry into force of the ASEAN Charter.
The Charter gives a legal identity to the regional grouping, which comprises more than 500 million people, and founds a set of common rules on topics such as trade, investment, and the environment. Sanction authority, albeit weak, is also granted.

In his welcoming address, Indonesian President Dr Susilo Bambang Yudhoyono called the Charter a “momentous development” that could be used as the basis for speeding up and strengthening regional integration.

While the goal of a free trade area has been in the 40-year-old ASEAN’s sights since the early 1990s, the Charter adds momentum to its achievement. Indeed, the Charter’s main objective is to establish a single market for the free flow of goods, services, investments and skilled labour by 2015.

“By virtue of its provisions, we can enhance the process by which we are transforming ASEAN from a loose association to an ASEAN Community resting on the pillars politico-security cooperation, economic cooperation and socio-cultural cooperation,” the Indonesian President said.
The Charter also calls for respect for democratic principles and human rights and a nuclear-weapon-free Southeast Asia. But one of its “people-oriented” commitments – a proposed regional human-rights body – is tipped to be a challenge. ASEAN member Myanmar has come under routine criticism from human rights watchdogs.

A number of structural adjustments were also made under the Charter, one of which is the creation of the Asian Economic Community Council. Meeting biannually with the mandate to advance the development of the ASEAN economic community, the council replaces the ASEAN Economic Ministers meetings.

“With a new structure, a new mechanism for settling our differences and new approaches to the way we conduct our business, we have improved our capacity to adapt to a rapidly changing world and all benefits and risks that come with it,” Dr Susilo added.

Congratulatory remarks for ASEAN on the Charter have been made by countries worldwide, including Australia, Canada, China, India, Indonesia, Japan, New Zealand, and Russia.

Three Trade Pacts Penned

A day after ASEAN became a legal entity, six of the 10 ASEAN Member nations – Brunei, Cambodia, Indonesia, Laos, Singapore and Malaysia, signed three agreements on goods trade, services and investment.
Under the goods deal, tariffs on traded goods will be reduced and a clear framework of customs procedures will be established. The services agreement aims to improve the efficiency and competitiveness of the region’s air travel, healthcare and tourism. And the investment agreement hopes to protect investors by levelling the playing field and compensating investors who are negatively affected if a country modifies its commitments.

The six signatories inked the pacts this week at an informal gathering of ministers, ahead of the scheduled event at the next official ASEAN Summit because of civil unrest in the host nation, Thailand. Thai anti-government protestors had forced the country’s former government to both relocate the summit and postpone it from this December until late February of next year.

The global financial crisis was central to the decision to strike the trade deals. Growth in the Southeast Asian economies has slowed with that of the ailing global economy, and officials hope that closer economic ties and a regional commitment to lower trade barriers will send the right market signals to fend off protectionism, boost the economy, and provide an attractive venue for foreign investment. Moreover, a more unified community is also viewed as necessary to maintain global competitiveness vis à vis China and other regional groupings.

“As these agreements are integral to ASEAN’s economic integration, the ASEAN economic ministers agreed to meet in Singapore to sign and have them enter into force as soon as possible,” Malaysian Trade Minister Muhyiddin Yassin said, reported Agence France Presse.

The four remaining ASEAN nations that were not represented at the ministers meeting – Myanmar, the Philippines, Thailand and Vietnam – are due to sign the agreements at a later date. The agreements will come into force six months after all ASEAN Members have signed the deals.

As of 2006, the ASEAN region has a combined gross domestic product of almost US$ 1,100 billion, ASEAN reports. And according to a Malaysian press statement, inter-ASEAN trade in 2007, which accounts for one-quarter of total ASEAN trade, was valued at US$ 404.3 billion.

Ministers Commit to US$ 120 billion ASEAN Fund

Ministers at the summit also reportedly agreed to create a fund worth US$ 120 billion to help the region weather the economic crisis. The ASEAN fund, like the International Monetary Fund, would dole out loans to member nations in need.

“The matter is being discussed through the ASEAN Finance Ministers meeting in Singapore at present and we should receive news soon,” Malaysian Foreign Minister Datuk Seri Dr Rais Yatim told journalists on Tuesday, the New Straits Times reported.

“But we have been informed that the fund would be a reality by the time the ASEAN Summit is held in February,” he said.

ASEAN objectives include accelerating economic growth, social progress and cultural development in the region, and promoting regional peace and stability. The regional group comprises Brunei Darussalam, Cambodia, Indonesia, Lao, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.

ICTSD reporting; “ASEAN Members forge legal bloc,” THE WALL STREET JOURNAL, 15 December 2008; “ASEAN moves closer to economic integration with signing of 3 trade pacts,” AHN, 16 December 2008; “ASEAN nations press on with trade pacts,” AGENCE FRANCE PRESSE, 16 December 2008; “ASEAN inks intra-regional trade agreements to boost grouping’s economy,” BERNAMA, 16 December 2008; “ASEAN signs trade agreements to ward off slowdown,” REUTERS, 16 December 2008; “Six ASEAN nations sign three trade deals in Singapore,” XINHUA, 16 December 2008; “ASEAN to establish US$120 bil fund to help members,” THE NEW STRAITS TIMES, 16 December 2008.