The 8th Asia Economic Forum
ASEAN After 45 Years: A Review of
Achievements & Challenges
Hang Chuon Naron
17th March 2012
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I- Achievements
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Successful regional organization in the
developing world
• ASEAN represents a market of almost 600 million people
uniting 10 Southeast Asian nations.
• Transformed from a light, anti-communist organization in
1967 to a more or less institutionalized body under the
ASEAN Charter;
• After the end of the cold war, ASEAN was able to fill the
void left by the confrontation between the East and the
West to promote open regionalism: Defense Ministers’
Meeting Plus Plus, ARF (27 members).
• Since 1992 the Leaders’ Meeting took place every 3
years, annual meeting since 1995 and bi-annual meeting
since 2009 (before that only AMM).
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From gradual institutionalization to
proliferation of organs
• In 1976, the AEM has started to meet and the ASEAN
Secretariat was established;
• In 1985 there were more than 25 commissions, 70
committees and groups of experts. Now there are
hundreds of commissions and committees;
• The problem of ASEAN now is to coordinate between
different committees.
• The 3 pillars: political-security, economic and sociocultural are designed to address the coordination
problem, yet this remain an issue.
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ASEAN is at the center of the region
• From a hot spot, ASEAN has been transformed into a
center of sustained economic growth at a faster pace;
• The Asian financial crisis has been the watershed for
ASEAN.
• The Plus Three Countries: China, Japan and Korea
understand that if ASEAN in economic trouble, they will
also be in trouble.
• At the initiative of ROK President Kim Dae-jung an East
Asian Vision Group was formed in 1999 to propose
measures to foster regional integration.
• ASEAN+3 cooperation has moved forward very quickly.
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ASEAN is at the center of the region
• Trade between ASEAN countries and the Plus 3 countries
increased exponentially.
• The Chiang Mai initiative has been promoted in
ASEAN+3 financial cooperation and has become a
model for the world in the area of Regional Financial
Arrangements.
• During the GFC in 2010 the agreement to establish
Chiang Mai Initiative Multilateralization (CMIM) has
been finalized (from $76 billion to $120 billion).
• The ASEAN+3 Macroeconomic and Research Office
(AMRO) established early 2011 replaced the ASEAN+3
Economic Review and Policy Dialogue.
• ASEAN attends G20 meeting as observer.
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II. The Challenges
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Issues facing ASEAN
• Strategies and action plans are always ahead of
institutions;
• Lack of prioritization: there are many initiatives
unfunded;
• Remain a elitist organization for the Leaders and
Officials: the Charter strives to promote ASEAN as a
people-centered organization;
• Private sector: institutional weakness, the private sector
is less involved in ASEAN integration, which has been
pushed forward by the ASEAN governments.
• Financing : The main problem is to finance ASEAN
projects: dependence on dialogue partners, the Plus 3.
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The lack of a dispute settlement
mechanism
• Dispute related to specific instruments, the settlement
should be made in conformity to the instruments.
• Economic dispute will be settled according to the 2004
Protocol on Enhanced Mechanism of Dispute Settlement
(borrowed from WTO): consultation (good offices,
conciliation and mediation); panel of experts (3
members); an Appellate Body (7 members) – permanent;
SEOM will approve the reports; sanctions: compensation
and suspension of concession. Arbitrage.
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The lack of a dispute settlement
mechanism
• Dispute not related to interpretation and
implementation of the Charter: 1976 Treaty of Amity
and Cooperation: High Council (Representatives of
Parties at Ministerial level); consensus decision; the
ASEAN Secretariat is in charge of implementation of
recommendations.
• Dispute related to the implementation of the Charter:
The 2010 Protocol to the ASEAN Charter on Dispute
Settlement Mechanism: consultation, good offices,
mediation, conciliation and arbitrage.
• Derogatory regime: recourse to Article 33 of the UN
Charter.
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III. What does it means by
Achieving the AEC by
2015?
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AEC’s objectives by 2015
• It will establish ASEAN as a single market and
production base, specifically by strengthening and
developing the ASEAN Free Trade Area.
• Realizing a single market and production base;
• Creation of a highly competitive economic
region;
• Ensuring equitable economic development
process; and
• Promoting ASEAN integration to the rest of the
world.
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Contradiction: Free Flow vs. AFTA
• The AEC Blueprint: Single market and Production base viz.
free flow of goods, services and investment, and freer flow of
capital and skilled labor within the AEC.
• a) Free flow of goods: Free flow of goods is central to the
establishment of a single market and production base. The
achievement of this condition will eliminate trade and non
trade barriers in intra-ASEAN transactions i.e there will be no
restrictions on imports and exports within the region.
• b) Free flow of services: Free flow of trade in services will
require that there will be no restriction on ASEAN services
suppliers in providing services and in establishing service
providing companies across national borders within the
region, subject to domestic regulations.
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Contradiction: Free Flow vs. AFTA
• c) Free flow of investment: This condition will ensure that
all industrial activities shall be open for cross border
investment by ASEAN investors within the region and non
discriminatory (i.e. equal national and MFN) treatment will be
granted to all ASEAN investors both at the pre- and postestablishment stages of the industry. Consequently there will
be free flow of investment within the ASEAN Investment
Area and IGA. This implies that a natural or a legal person of
a member country can freely establish a company in another
member country within ASEAN.
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Contradiction: Free Flow vs. AFTA
• d) Freer flow of Capital: This condition requires free
transfer of capital across borders within the ASEAN (open
capital account or capital account liberalization). This will
have implications for the exchange rates of Member countries,
particularly for Cambodia which has a dollarized economy.
• e) Freer flow of skilled labor: This condition requires
allowing managed mobility or facilitated entry by Member
countries of natural persons engaged in trade in goods,
services, and investments within the region, according to the
prevailing regulations of the receiving country. It is more
relevant to regulate the flow of unskilled labor.
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Liberalization: Trade in Goods
 Tariff barriers: AFTA has been achieved: 0% for
older members; 5%-0% for newer members;
 Tariffs on all products on the inclusion list will be
eliminated by 2015 (except for 7% of tariff lines
for which tariff elimination is scheduled by 2018,
some petroleum products that are sensitive to
revenue, that are extended until 2024).
• The challenge is Non-tariff barriers: Technical
Barriers to Trade are rising for ASEAN countries:
for instance Vietnam and Thailand are requesting
SPS certificates for agricultural products (more
restricted than before).
ASEAN’s preparedness for AEC
• Trade in Service: Remain a big challenge and ASEAN is
in the process of reviewing it; some problems in all
countries;
• Investment liberalization: no problem;
• Trade facilitation: ASEAN Single Window in 2012, but
there are many challenges;
• Cross-border transportation remains an issue;
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Constraints and policies
• 1) – Single market and production base: the ASEAN
way, borders still exist, cross-border inspection and
rules of origin: it will be a Single Union of 10
ASEAN countries and Facilitated Flows of
production factors (goods, services…);
• 2) – Highly competitive economic region – reforms
will be required to address high production (except
labor) and infrastructure costs, legal infrastructure is
under-developed and different from some members:
consumer protection, intellectual property rights and
competition policies.
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Constraints and policies
• 3) Equitable Economic Development: Promotion of Small
and Medium Enterprises (SMEs): the Action Plan for 20042014 focuses on HRD, capacity building in marketing, access
to credit and streamlining legal and regulatory framework;
• Initiative for ASEAN Integration (IAI) - 4 priority sectors:
infrastructure (transport and energy), HRD, ITC and regional
economic integration. The Singapore – Kunming raillink;
• ASEAN Development Fund (US$4 million financed by
ASEAN-6 and US$2 financed by the Plus Three Countries
(China, Japan and the Republic of Korea);
• Lack of funds to finance IAI projects.
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Integrating ASEAN with the rest of
the world
• Integrating ASEAN with the rest of the world by
promoting ASEAN+1 FTAs
• Cambodia attaches importance to the preferential
trading arrangements with ASEAN dialogue partners.
• Cambodia has ratified 6 ASEAN+1 free trade
agreements: (i) for goods with China, Republic of
Korea, Japan (except investment and services),
Australia and New Zealand, and India (except
investment and services); (ii) for services with China,
Republic of Korea, and Australia and New Zealand;
and (iii) for investment with China, Republic of Korea,
and Australia and New Zealand.
Integrating ASEAN with the world
• Integrating ASEAN with the rest of the world
by promoting ASEAN+1 FTAs
• The agreements are broad in scope, covering trade
in goods and services, as well as investment, and
the agreement with Australia/New Zealand also
contains provisions in other areas such as
intellectual property, SPS and TBT, and
competition.
• These agreements, together with ASEAN's AFTA,
are expected to help Cambodia to expand exports
to the dynamic economies of Asia, both by
securing access for Cambodia's current products
and by attracting investment to create production
targeted to those markets.
Integrating ASEAN with the rest of the
world
• Integrating ASEAN with the rest of the world by
promoting ASEAN + + FTAs
• There are now 6 ASEAN+1 FTAs.
• China proposes to establish ASEAN+3 FTAs, but
Japan proposes ASEAN++ FTAs, meaning that the
ASEAN+3 FTAs should keep the door open for
Australia, New Zealand and India to join;
• ASEAN to develop templates to negotiate the
ASEAN++ FTAs to ensure ASEAN’s centrality.
Integrating ASEAN with the rest of the world
Integrating ASEAN with the rest of the
world by promoting ASEAN + + FTAs
The approach can be: (i) a single undertaking
negotiation: trade in goods and services,
investment, intellectual property, competition,
consumer protection will be reached at the
same time; or (ii) sequential negotiation in
these areas;
ASEAN ++ FTA is a compromise between
ASEAN Plus 3 FTA favored by China and
Comprehensive Economic Partnership favored
by Japan.
ASEAN’s Response to TPP
 Trans-Pacific Partnership (TPP) - 9 countries:
Australia, Brunei, Japan, New Zealand, Malaysia,
Singapore, US and Vietnam are in the process of
negotiating firm commitments (with 20 Working
Groups), in response to the stalled APEC voluntary
liberalization.
 Now half of ASEAN members: Brunei, Malaysia,
Singapore, and Vietnam are involved in
negotiating firm commitments under the TPP;
 China, in response, announced a USD10 billion
million contribution to the ASEAN Infrastructure
Fund, including USD 4 billion in soft loan;
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ASEAN Framework for Regional
Comprehensive Economic Partnership
 At the 19th ASEAN Summit in Bali, the ASEAN
Leaders endorsed the ASEAN Framework for
Regional Comprehensive Economic Partnership;
 An ASEAN-led process by setting out principles
under which ASEAN will engage interested
ASEAN FTA partners in establishing a regional
comprehensive economic partnership agreement
and, subsequently, with other external economic
partners;
 The objective is to maintain the so-called ASEAN
centrality.
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ASEAN’s Response to TPP
 Broader and deeper engagement with significant
improvements over existing ASEAN FTAs/CEP
with Dialogue Partners, consistent with the WTO
Agreement.
 The agreement shall facilitate trade and
investment, including reduction of transaction
costs for businesses, improving regulatory and
administrative barriers to trade and investment.
 The agreement shall provide for special and
differential treatment to ASEAN Member States,
especially Cambodia, Lao PDR, Myanmar and
Viet Nam.
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IV. Issues for newer ASEAN
Member States
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Constraints in meeting AEC
• Human and financial resources to meet the requirements
of the AEC;
• High costs of investing in physical infrastructure;
• Variable commitment in developing soft infrastructure;
• The inadequacy of physical infrastructure, in particular
transportation infrastructure, is at the heart of the
difficulties faced by Cambodian producers in competing
with other ASEAN members.
• A lowering of transport and electricity costs is central to
any effort to improve the competitiveness of the
Cambodian economy.
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Factors constrain exports
• High production and infrastructure costs, low
competitiveness and productivity;
• Limited value added in many sectors, due to high
import dependency for raw materials and
intermediate inputs;
• Poor quality and limited differentiation of products,
limited access to technology, and small design and
R&D capacity;
• Enterprises have difficulties meeting exacting quality
standards of various foreign markets as well as
meeting time delivery requirements of foreign buyers;
• Underdeveloped, albeit improving, legal and
institutional framework for business export
development.
Challenges
 Promotion of inclusive growth.
 The quality of education and vocational training.
 Competitiveness and the ability to compete with
other countries for Foreign Direct Investment.
 Export development through the expansion of supplyside capacity will remain the central element of trade
policy.
 The ability to diversify the economy and move up
the ladder of international specialization.
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Thank You
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