Philippine Daily Inquirer | Dec 17, 2004
Is ASEAN irrelevant?
By Walden Bello *
THE MOST significant thing about the 10th ASEAN Summit held in Vientiane, Laos, at the end of November, was the signing of an agreement to remove all tariffs between ASEAN and China by the year 2010. Perhaps the most positive spin on the China-ASEAN Free Trade Agreement was provided by Philippine President Gloria Macapagal-Arroyo, who hailed the emergence of a “formidable regional grouping” that would rival the United States and the European Union.
Many in the press interpreted the ASEAN decision as a triumph of Mohammad Mahathir, who forcefully articulated the vision of an “East Asia Economic Group” (EAEG) in the early 1990s. The context was, however, different. When Mahathir first proposed the EAEG, the leading ASEAN economies were growing by 6-8 percent a year. The wind was taken out of the sails of the Southeast Asian tiger economies by the Asian financial crisis of 1997, from which some have not yet fully recovered. Today, growth in many Southeast Asian countries is much less dependent on prosperous domestic markets than on the stimulus provided by the red-hot growth of the Chinese economy. With this change in context, I doubt if Mahathir would be as sanguine with his endorsement of EAEG today.
Today, the push for a free trade agreement mainly comes from Thailand and China. But whereas Thailand’s motivation is mainly a short-term search for agricultural markets, China’s approach is part of a grand plan that would have as its other pillars free trade agreements with South Korea and Japan. The aim of the strategy, according to Chinese economist Angang Hu, is to more fully integrate China into the global economy as the “center of the world’s manufacturing industry.” A central part of the plan is to open up ASEAN markets to Chinese manufactured products. In light of growing protectionist sentiment in the US and European Union, Southeast Asia, which absorbs only 8.2 percent of China’s exports at present is seen as an important market with tremendous potential to absorb more Chinese goods. Also key, notes Hu, is the Chinese government’s plan to attracting investment “into the western region of China from ASEAN nations, weaving the western region more thoroughly into the fabric of regional and international trade.”
How Southeast Asia’s leaders expect ASEAN to benefit from the ASEAN-China FTA is much less clear. I doubt very much if China will be able to depart from what Hu has characterized as China’s “half open model,” which is marked by “open or free trade on the export side and protectionism on the import side.” Certainly, the benefits will not come in labor-intensive manufacturing, where China enjoys an unbeatable edge by the constant downward pressure on wages exerted by migrants from a seemingly inexhaustible rural work force that makes an average of $285 a year. Certainly not in high tech, since even the US and Japan are scared of China’s remarkable ability to move very quickly into high tech industries even as it consolidates its edge in labor-intensive production. Certainly not in labor services, since China can produce engineers, nurses, and domestic workers that will perform the same work but at lower wages than their ASEAN counterparts. Agriculture? But China is clearly super-competitive in a vast array of agricultural products from temperate crops to tropical produce, and in agricultural processing. Vietnam and Thailand may be able to hold their own in rice production, Indonesia and Vietnam in coffee, and the Philippines in coconut and coconut products, but there may not be many more products to add to the list. Raw materials? Yes, of course, Indonesia and Malaysia have oil that is in scarce supply in China, and Malaysia does have rubber and tin and the Philippines has palm oil and metals. But look again: is the pattern not reminiscent of the old colonial division of labor, whereby low-value-added natural resources and agricultural products were shipped to the center while our economies absorbed high-value added manufactures from Europe and the United States.
Thus, drastic imbalance is likely to be the result of the China-ASEAN FTA. But the blame for this is not, in my view, largely China’s. China is simply trying to exploit its advantages. The responsibility is largely ASEAN’s. We had 30 years to build an ASEAN house, and we blew it.
ASEAN’s missed opportunities
Let us then look at the ASEAN experience, to gain lessons not on how to successfully build a regional economic bloc but on how not do go about it. Founded in 1967, ASEAN’s original inspiration came from the Robinson Report produced under the auspices of the then Economic Commission for Asia and the Far East (ECAFE), wihich envisioned an integrated trading zone that would serve as a platform for regional import substitution. Cooperative industrialization via coordinated trade policy was the essence of the ASEAN idea.
During its first two decades, however, ASEAN got hijacked by politics. The main function ASEAN played in the seventies and eighties was to serve as the frontline formation against “Vietnamese expansionism,” in alliance with China and the United States. “ASEAN Brotherhood” also got politicized into solidarity against external criticism of human rights abuses by Southeast Asian governments. Dominated by strongmen like Suharto in Indonesia, Lee Kwan Yew in Singapore, and Marcos in the Philippines, ASEAN acquired the reputation of being Dictators Inc. in the 1980’s.
Regional economic integration was not, however, completely forgotten. The ASEAN Industrial Complementation (AICO) program offered regional incentives for enterprises that built complementary transborder facilities. It was, however, mainly Japanese automobile and electronic transnationals that took advantage of these incentives when they split up and relocated different parts of the labor-intensive phases of their operations from Japan to different Southeast Asian countries to offset the rising value of the yen in the late eighties. Thus, some industrial integration took place across borders, but this was integration of ASEAN enterprises dreamt of by the founders of ASEAN but one driven by the logic of profitability of Japanese transnationals.
When the Asia Pacific Economic Cooperation (APEC) threatened to make the ASEAN economic project irrelevant by creating a trans-Pacific free trade area in the early nineties, the ASEAN governments set up the ASEAN Free Trade Area to initiate a process of tariff reduction leading to a single market. Commitment slackened, however, in the mid-1990s, when the APEC project fizzled out. Later in the decade, governments sought to give a new momentum to AFTA by advancing the completion of tariff reductions from 2008 to 2003. Ambition has, however, outstripped intention and today, AFTA is hobbled by kilometer-long lists of goods that countries desire to be excluded from tariff reductions.
At the Vientiane meeting, the ASEAN leaders drew up yet another declaration, this time to abolish tariffs in 11 “priority sectors” by 2007. The end-point of the process is supposed to be 2020, when ASEAN will be a single market and a single, integrated production base. With ASEAN having such a poor record at meeting schedules, this new benchmark has evoked skepticism.
Why has ASEAN regional integration remained so distant after 37 years?
Aside from its having been overpoliticized, the ASEAN project has had three fundamental flaws:
The ASEAN governments have no common vision of the goal of a free trade area. While some, like the Singapore government, see ASEAN free trade as a step towards global free trade, others see the objective as the creation of a platform for accelerating and deepening the industrialization of the region by maintaining barriers to the entry of strategic goods and services from third countries. Needless to say, these are two different visions of the objective of a free trade area that cannot coexist.
ASEAN remains principally a project of government leaders and technocrats, with national industrial elites evincing little interest in industrial integration. Indeed, in 2001, intra-ASEAN exports accounted for only 20 percent of ASEAN’s total exports — the same proportion as in 1970! Japan and the US remain overwhelmingly the main trading partners of ASEAN’s member countries.
ASEAN remains a technocratic project, with little effort to make it a popular democratic enterprise. Not surprisingly, “ASEAN brotherhood” (for ASEAN elites do not speak of “ASEAN sisterhood”) has very little resonance at the grassroots. To build an economic project on a fragile political entity that most Southeast Asians have probably not heard of, much less affectively identify with, is courting failure.
In short, ASEAN remains a very weak economic entity. Moving quickly to a free trade agreement with China would be to court disaster. Even if many exemptions from steep tariff reductions are agreed upon by China, ASEAN would be locked into a process where the only direction that barriers to super-competitive Chinese industrial and agricultural goods is downwards. An ASEAN-China FTA at this juncture can only lead to de-industrialization and agricultural crisis in ASEAN.
The challenge: Integrate ASEAN first
Instead of being seduced by grand dreams about being part of a pan-Asian powerhouse, ASEAN’s governments must first focus on making ASEAN regional integration a reality. ASEAN has squandered a head-start of nearly 40 years, yet it has no choice but to make up for lost time. The enterprise is, of course, going to be much more difficult now, when global trade and financial flows are much less amenable to being redirected to regional advantage. Moreover, what is demanded today is no simple economic integration but a comprehensive process that has indispensable political and social dimensions.
Regional integration must go beyond trade liberalization to include common policies in agriculture, technology transfer, and industrial policy. A decisive break with the free-trade model is needed and a commitment is clearly made to the threefold process of making industries complementary across borders, diversifying the regional industrial base, and deepening it. If there is one overriding principle, it is that trade must be subordinated to regional development.
Second, in addition to coordinating economic policies, ASEAN governments must forge a common social policy. This would not only aim to satisfy the demands of justice and equity but also raise living standards throughout the region in order to increase the purchasing power that is the key to an expanded regional market. Inequality is not only immoral; it is also bad economics. Similarly, a common environmental policy must be forged to prevent the ecological base of the region from deteriorating any further.
Third, a full-scale effort must be made to democratize the ASEAN project, meaning that along with economic integration, efforts must be placed simultaneously on developing regional institutions of participatory economic decision-making, regional institutions of parliamentary representation, and regional institutions of civil society activity. There are many things we can learn from Europe, including some negative lessons, and one of this is that in the first three post-war decades, integration was a largely technocratic process that was not subject to democratic surveillance.. As a result the EU develop its notorious “democratic deficit,” resulting in the well-known disaffection among many electorates in Western Europe that have stymied more comprehensive political integration and monetary unification.
ASEAN does not lie in the past. It is not a project to be set aside in favor of a more ambitious EAEG. ASEAN largely remains a project to be achieved. Decisively pushing on with this project is the key to ensuring that Southeast Asia does not get turned into an appendage of the Chinese economic giant. Indeed, making an ASEAN economic bloc a reality is the only way our region can develop truly equitable and healthy economic relationships with China. Building a strong ASEAN is our primary task. Only when we’ve done that can we engage seriously in creating an East Asia Economic Group.
* Professor of Sociology and Public Administration at the University of the Philippines and executive director of the Bangkok-based Focus on the Global South