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Economic Integration: A Lesson from ASEAN

October 15, 2008

Discussed at the U.S.-Islamic World Forum this week, in Kuala Lumpur, were lessons that could be learned by the Islamic world – particularly the Middle East – from the experience in economic integration of the Association of Southeast Asian Nations (ASEAN).  The discussion immediately made it apparent that ASEAN’s performance in economic integration may be assessed as “good” or “not so good” ” depending on the specific aspect(s) being measured, and the metric being applied.

Usually, we think of economic integration in terms of measures of trade and financial flows ” and by these relatively narrow measures, ASEAN has been successful.  Intra-regional trade has risen from 35% in 1980 to 60% in 2007, resulting from expansion of regional supply networks for manufactured goods centered on China. Furthermore, East Asia’s trade with the rest of the world ” while accounting for a smaller proportion of total trade ” has increased from 14% in 1980 to 29% in 2007.

Since the Asian financial crisis in 1997, there have been considerable developments in the size and sophistication of ASEAN’s financial market, having grown at least three-fold in the last decade.  Efforts are being pursued to further link and deepen the ASEAN financial market through the liberalization of capital accounts and financial services, and the Chiang Mai and ASEAN Bond Markets Initiatives.

In terms of the progress of the ASEAN Free Trade Area, tariffs in the region have been reduced to the current levels of 0-5% for the ASEAN-6 countries of Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand. These rates are expected to further decline to zero by 2010, and by 2015 for Cambodia, Laos, Myanmar and Vietnam.

It is clearly limiting to think of ASEAN economic integration solely in terms of trade and finance.  The leaders and opinion-makers of ASEAN have always thought of economic integration in broad terms that encompass much more than trade and finance.  This broad understanding of integration is clearly seen in examination of key ASEAN documents.  For example, the ASEAN Charter calls for the ” centrality of ASEAN in external political, economic, social and cultural relations while remaining actively engaged, outward looking, inclusive and non-discriminatory”.  In 2003, the ASEAN Leaders resolved that an ASEAN Community would be established comprising three pillars, namely, the ASEAN Security Community, ASEAN Economic Community and ASEAN Socio-Cultural Community. The ASEAN Leaders proposed to establish the AEC (ASEAN Economic Community) as a single market and production base by 2020.  In 2007, the Leaders accelerated the timetable for the AEC to 2015.

Another clear indicator that the ASEAN envisions integration broadly is its ever-widening circle of engagements beyond its core members and geographical scope beyond the original ASEAN 6, to the current ASEAN 10 (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam).

The first set of “beyond-ASEAN engagements” is the “ASEAN + 1″ relations with its “dialogue partners,” in one-on-one relations with countries such as China, Japan, Korea, India, Australia, New Zealand and the United States. A broader circle of relationships is the “ASEAN + 3″ (China, Japan and South Korea) structure which was formed in the wake of the Asian Financial Crisis of the late 1990s. In 2005, the East Asian Summit which includes ASEAN + 3 plus India, Australia and New Zealand was established.

Finally, at the outer extreme of these concentric circles is Asia-Pacific Economic Cooperation, which prides itself on the cooperative, voluntary and informal nature of interaction between 21 economies.

Clearly, the concentric and overlapping regional institutions and initiatives enumerated above have had impacts far beyond trade and finance, including:  (a) shared commitments to openness, (b) reduction and abolition of barriers to trade and financial flows; and (c) increased political momentum toward integration, allowing for the collective appreciation and management of risks through shared surveillance and coordinated action.

A major result of the complex and overlapping superstructure of the ASEAN and Asian regional architecture is the huge number of shared activities. In the 1990s there were some 350 ASEAN meetings per year, involving officials from many levels – technical to senior to leaders; and from a variety of sectors, ministries and offices across ASEAN.  The number of meetings has grown and multiplied – in 2007, the ASEAN Eminent Persons Group reported that there are now about 700 ASEAN meetings per year.

A significant impact of these shared events is that many personal links have been forged.  These personal relationships have facilitated dialogue, understanding and shared values across the region in more ways and at greater depths than ever anticipated or envisioned.

Indeed, ASEAN’s experience shows that shared goals cannot be limited to narrow economic concerns.  Inevitably, integration must encompass the political, as well as socio-cultural, aspects of governance. The shared processes of ASEAN have built relationships that promoted collaboration and information-sharing, which have helped to deflect and moderate conflicts and helped strengthen the foundations for sustained peace and shared development.

Bruce Tolentino is The Asia Foundation’s Director for Economic Reform and Development Programs. On Tuesday, he spoke at the 2008 U.S.-Islamic World Regional Forum in Malaysia, co-sponsored by The Asia Foundation, the Saban Center at the Brookings Institution, and ISIS. Above is an excerpt of his remarks delivered on a panel about Trade and Investment Dialogue. He can be reached at btolentino@asiafound.org.

View all posts by V. Bruce J. Tolentino

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