Accelerating ASEAN Integration

Malaysia

Economic News

22 Jul 2010
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This week, trade ministers from the Association of Southeast Asian Nations (ASEAN) announced that they would accelerate plans to create a single market within the region. The ministers' aim to create mechanisms that will allow the free of flow goods, services, and investment within the 10-member community.



The plans recommend 2015 as the target year for the creation of the ASEAN Economic Community (AEC), an advance of five years from the previous target. This move is one of the most significant announcements to come from the association's ministers meeting, held in Kuala Lumpur this week.



The plan would need to be approved by heads of state, who will meet later this year.



According to a joint statement, the ministers agreed to enhance trade facilitation - building on the region's increased cooperation in customs, transport, and communications. In the services sectors, the ministers reaffirmed their "commitment to progressively eliminate all forms of restrictions that affect national treatment and market access limitations by 2015."



Among the methods for facilitating liberalisation are Mutual Recognition Arrangements (MRAs), which allow free movement of professionals and skilled labour. An MRA exists in engineering services in the region, and one is expected concerning nursing later this year.



Malaysia's Minister of International Trade and Industry, Rafidah Aziz, told reporters that ASEAN ministers hoped to sign an agreement in early 2007 to liberalise logistics services. According to a ministry statement, Malaysia will also eliminate duties on almost 2000 products in 11 priority integration sectors (PIs) effective January 1. The priority sectors are electronics, e-ASEAN, healthcare, wood-based products, automotives, rubber-based products, textiles and apparels, agro-based products, fisheries, air travel and tourism.



The ASEAN ministers also agreed to extend the waiver of the 30% national equity requirement until the end of 2009. It is hoped that the waiver will attract more foreign direct investment (FDI) to counter the rising competition from India and China.



Challenges abound in efforts to create a EU-style common market within ASEAN, particularly non-tariff barriers such as hiring preferences or standardisation measures, as well as the economic disparity among ASEAN nations. Nationally sensitive trade items could also be stumbling blocks. For example, Thailand's tariffs on Malaysian-built cars - in response to what it calls Malaysia's non-tariff barriers to imports - and Indonesia's ban on rice imports are two of many examples.



Rafidah said that there were sensitive areas in any partnership. This was as true in ASEAN as it was in the EU or the World Trade Organisation - an organisation that often had to bend to domestic concerns. However, as she noted, "The important thing is that, as we progress further towards the AEC, more and more items are being struck off each member country's sensitive exclusion list to be placed in the inclusion list for tariff cuts."



ASEAN Secretary General Ong Keng Yong added that such issues are perhaps occasional irritants to progress, but do not stand in the way of integration. The emphasis when undertaking trade negotiations was not on such sensitive areas, but rather on the areas in which liberalisation was easier or less controversial.



The 10 members of ASEAN are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.



As economic disparity between the 10-nations poses a challenge to the group, Minister Rafidah does not think it is so severe. She highlighted the 'parallel' development of all the countries of ASEAN, with less-developed members offering a number of concessions and greater flexibility in meeting targets. The group consists of well-developed countries such as Malaysia and Singapore, and less developed members, Cambodia, Vietnam, and Myanmar.



The Secretary General concurred, and highlighted the "capacity building programmes" in place to help newer members narrow the development gap.



Meanwhile, cross-border deals are growing in ASEAN. For example, actors from neighbouring countries have been investing in Indonesian banks and the Philippines' power sector, but it is hardly open season for mergers and acquisitions within the association.



However, free movement of labour - one of the most important aspects of EU integration - is a long way off for an ASEAN of such economic disparity.



Still, progress has been made towards returning the region to its former prominence as an Asian investment destination. Lowering the internal barriers to trade, labour and investment, however fraught with difficulties, is a step in the right direction toward establishing a market that is competitive with India and China.



There are signs that past measures are yielding benefits. ASEAN's FDI flow was $38bn in 2005, an increase of 48% from 2004. For the first quarter of 2006, FDI had already registered a 90% increase on same period in 2005. ASEAN's total exports increased almost 14% in 2005, totalling $646bn.

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