Bridges Weekly Trade News Digest • Volume 7 • Number 34 • 15th October 2003

ASEAN Members Agree To Deepen Integration

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The ten members of the Association of Southeast Asian Nations (ASEAN) signed an ambitious accord on 7 October to establish an economic community similar to that of the EU. The agreement, called the "Bali Concord II," was signed during the ninth ASEAN Ministerial Summit held from 7-8 October in Bali, Indonesia. It aims to create a community in Southeast Asia based on three pillars: economic cooperation, political and security cooperation and socio-cultural cooperation. The ultimate goal of the agreement is to create a competitive region with a free flow of investment, goods, services, and skilled labour combined with a freer flow of capital, stable and equitable economic development, and reduced poverty and socio-economic disparities by the year 2020.This push for further economic integration comes in the wake of the failed WTO ministerial meeting in Cancun, Mexico in September, when a number of countries are looking to strengthen their trading positions through bilateral and regional deals. The ASEAN nations identified 11 sectors for integration in their action plan for the ASEAN Economic Community: textiles, apparel, agro-based products, wood-based products, automotive, rubber-based products, fisheries, electronics, health-care, air travel and tourism. They agreed to establish a plan for the removal of trade barriers by 2005 and to develop implementation guidelines by the end of 2004. Noting that not all ASEAN countries would be able to meet the recommended deadlines, they agreed that implementation should be flexible, allowing countries that are ready to proceed to do so.

Some observers pointed to the diversity of ASEAN members as a challenge to their plan to merge into a single economic community. In terms of governance, the ASEAN countries vary from democracies to a military dictatorship.

The ministers of the ASEAN countries — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam — also met with representatives from China, India, Japan and South Korea to establish or continue negotiations on deepening trade ties.

Deepening ties with key regional partners

At the Bali summit, China joined a non-aggression pact among ASEAN members, the 1976 Treaty of Amity and Cooperation (TAC), aimed at promoting regional stability. The Chinese and SEAN delegations also endorsed a three-year programme under the ASEAN-China Free Trade Area (ACFTA) negotiations. Under the programme, China would provide initial tariff reductions to ASEAN countries on a range of agricultural and manufactured goods. ASEAN Secretary-General Ong Keng Yong said the programme "allows ASEAN products to be exported to China at a very concessionary rate so that ASEAN countries can actually get benefits of a free trade arrangement even before the agreement is finalised". ASEAN reciprocated by giving China tariff concessions under a tariff- harmonised system for agricultural products. The actual implementation of the ACFTA would begin on 1 January 2005 with the goal of a joint free trade area between China and the ASEAN by 2010. This would create a market of 1.7 billion consumers with a combined GDP of US$2 trillion, the biggest free trade zone to date in terms of population.

Indian Prime Minister Atal Bihari Vajpayee also signed the TAC and an agreement to negotiate a free trade agreement by 2016 with all ASEAN countries (see BRIDGES Weekly, Vol. 7, No. 33, http://www.ictsd.org/weekly/03-10-08/inbrief.htm#1). As an early harvest scheme, the parties agreed to eliminate tariffs on at least 105 items in three years. Less developed ASEAN countries, namely Cambodia, Laos, Myanmar and Vietnam, would be given extra time to prepare, with India starting to reduce duties unilaterally. The Philippines was also granted more time to prepare its industries to compete with India before liberalisation is prepared to occur.

Japan signed a Common Economic Partnership agreement with the ASEAN members, with the objectives of strengthening economic integration, enhancing competitiveness, and progressing trade liberalisation in goods and services. The agreement also focussed on the creation of a transparent and liberal investment regime. Japan has been Southeast Asia’s largest trading partner and investor, with trade equalling US$99.2 billion in 2001, or 14.4 per cent of ASEAN’s total trade. However, in contrast to China increasing trade with ASEAN, Japan-ASEAN trade has dropped from its peak of US$121.2 billion in 1995.

South Korea and ASEAN agreed to form of a group of experts to analyse the possibilities of a free trade agreement. South Korean President Roh Moo-hyun said his administration would regularise a South Korea-ASEAN economic ministers meeting and senior economic officials meeting starting next year, following 15 years of formal ASEAN-Korea relations. He added that "if we join forces, Korea and ASEAN members, and by extension all of East Asia, will become the engine of growth for the world economy, and the 21st century will be the age of East Asia". Korea is the fifth largest trading partner of ASEAN, with trade reaching $35.2 billion last year. Five percent of the total foreign direct investment in the ASEAN region comes from South Korea.

ICTSD reporting; "ASEAN signs security, trade pacts with China, Japan, India," VIET NAM NEWS, 9 October 2003; "ASEAN and China launch first stage of free trade plan," AGENCE FRANCE PRESSE, 6 October 2003; "Noodle Soup," THE ECONOMIST, 8 October 2003; "ASEAN leaders agree trade plan," BBC NEWS, 7 October 2003; "Atal seals ASEAN free trade deal," THE TELEGRAPH, 8 October 2003; "ASEAN forges ties with China, India, Japan," THE STRAITS TIMES, 8 October 2003; "ASEAN, China kick-start FTA by trimming tariffs," THE STRAITS TIMES, 7 October 2003; "S.E. Asian leaders sign landmark accord," ASSOCIATED PRESS, 7 October 2003; Historic accord signed to create ASEAN Community, THE BUSINESS TIMES, 8 October 2003.