2011 Nov 21
November 21, 2011

Asean’s growing integration

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Freedom of travel, open skies, removing non-tariff barriers in the cards

If all goes as planned, by 2015 the 10 countries of the Association of Southeast Asian Nations will dramatically expand the freedom of their 600 million citizens to travel freely within each other’s borders, particularly skilled workers.

It is a process that has taken place largely out of the public eye as Asean bureaucrats, based in Jakarta, have slogged through endless bureaucratic and other problems in relations between countries whose economic disparities are striking – say Singapore, which is ranked in the top 20 in the world by nominal gross domestic product per capita, and Burma, one of the lowest.

Some of the integration is already taking place as Asean seeks to fnd its place in an increasingly interlocked world. The mechanism for standardized clearing of customs documents will be completed in 2013. Asean officials are also working on harmonizing standards for various products as well as the removal of certain non-tariff barriers to trade including licensing and quotas, according to S. Pushpanathan, the deputy secretary general for Asean economic integration in Jakarta. Open skies agreements are expected to be put in place as well for the region’s airlines.

“We are now developing what we term one seamless regional economic entity, we are working on the Asean economic committee where we are not just 10 separate countries but one regional entity,” Pushpanathan said in an interview. “We are now working on this Asean economic community where you will see free flow of goods, services, investment, free flow of capital, free flow of skilled labor and so on.”

Hopefully, if the barriers can be overcome, those are dramatic changes for a regional grouping that has long been regarded as little more than a talking-shop, and where vested interests are not particularly interested in freeing up trade.

But, Pushpanathan said, “We feel the scope of trade can increase if we focus on measures to bring down non-tariff barriers, customs integration and using a digital platform for clearance of customs documents.”

It is a slow-going process between countries whose decades-old ambition is to sell goods to far richer countries or regions such as the United States and the European Union – and now China – rather than to each other. Integration has been taking place across a fairly wide spectrum, economists say, but there are a few key areas that are highly sensitive and that remain stumbling blocks, including agricultural products such as rice and sugar, and industrial products such as steel.

Accordingly, said Jayant Menon, the Asian Development Bank’s lead economist for trade and regional cooperation in Manila, Asean has fallen back on its decades-old philosophy of staying away from sensitive areas but moving ahead where planners feel they can. As they have with other thorny issues such as human rights, if the issue is too hard, Asean bypasses it.

Just how little economic integration has been accomplished is shown by a 2010 study for the World Economic Forum by Margareta Drzeniek Hanouz and Thierry Geiger, titled Enabling Trade in the Greater Asean Region, which states that “Despite the potential for intraregional trade and continuing efforts to liberalize trade flows between the countries, integration remained incomplete, even though their participation in the global economy accelerated. Over the past two decades, overall trade of the Asean members has grown annually by 11 percent on average, while the share of intra-regional trade stagnated.”

Most of these impediments and barriers won’t be overcome by2015, Menon said. “But, having said that, I think that they are making progress on a number of fronts. We have to recognize that 2015 is an almost unmanageable target, but never mind. We are trying to get as far as we can.”

One of the biggest handicaps, Menon says, is the free movement of skilled workers such as doctors, lawyers, corporate executives. “The movement of labor is very sensitive,” he said. When Filipino nurses can move easily to Singapore, where the wage differential is considerable, vested interests are likely to come into play.

Probably the biggest challenge facing especially Asean’s newer members – Laos, Cambodia, Burma and Vietnam – is the plethora of non-tariff barriers restricting trade, which he said “is probably a bigger disincentive than any other currently in place.”

There is also the bigger problem of the movement of unskilled workers, Menon said. It is a problem that is unlikely to be addressed anytime soon although there are believed to be at least a million undocumented workers in Malaysia from Indonesia, Sri Lanka and Burma. Some analysts say the figure is far more than that. In addition, workers from impoverished countries in the Mekong Basin — Cambodia, Burma and Laos – have been flooding into areas where there is likely to be more work, such as Thailand and increasingly Vietnam.

“It is all happening, but it is happening informally, even more so in the Mekong region where so much migration that isn’t recorded,” Menon said. The host countries aren’t keeping count of foreign workers. Workers have no protection, they are subject to abuse. Neither party gains, but the reality is that these governments should bite the bullet and try to deal with it. “

There is also the issue of the so-called “noodle bowl, the growing plethora of competing bilateral free trade agreements that basically are designed to give signatory countries preferential treatment over those outside the agreements, Menon said. “My view is that these countries should be looking at ‘multilateralizing’ their agreements, whether it’s Asean, Asean plus 10 or whatever. These countries should be convinced that (multilateral agreements) is in their self-interest.”

But for now, a widespread regional agreement is probably all that is doable. The World Trade Organization’s Doha Round of negotiations over the free flow of agricultural goods has been basically dormant since 2003 despite sporadic efforts to restart them.

So Asean will fry its own fish, Pushpanathan said. “Asean has to come together because of the global economic crisis. We see the movement of intermediate goods – not just raw materials – between Asean and China, we want to further enhance production-based capabilities. We need to make contacts with other markets, emerging markets in Central Asia and Latin American as well as strengthen our own markets.”