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ASEAN at the crossroads

ASEAN at the crossroads

ASEAN's leaders hope that fresh trade liberalization and further economic integration

will eventually return Southeast Asia to its vaunted pre-1997 "economic miracle"

status, and also help build unity among the ten member states. But first the grouping

will have to overcome its internal squabbles.

ASEAN - which groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines,

Thailand, Singapore and Vietnam - suffered a blow to its relevance after the 1997

financial crisis. The body was widely criticized for having no real response to the

economic meltdown. It is still trying to recover.

Tensions over the admission of new countries, including Cambodia, followed the economic

collapse. Then Indonesian forest fires in 1997 and 1998 blanketed the region with a

haze of pollution and provided a further bone of contention.

More recently the Philippines and Malaysia have been at loggerheads over Malaysia's

decision to forcibly deport Filipino workers. And most recently both Singapore and

Malaysia publicly criticized Indonesia for its failure to rein in suspected terrorist


In short, mistrust still abounds. When Malaysia offered to host a new secretariat

for ASEAN+3 earlier this year, it was rebuffed and widely seen to be hijacking the

grouping for Prime Minister Mahathir Mohamad's own ends.

But some ASEAN leaders are still hopeful that through the creation of a free trade

area, to come into effect in January 2003, and mooted trade pacts with Japan and

China, the body will coalesce into a more effective group.

Rodolfo Severino, ASEAN's secretary-general, told a Harvard University audience on

October 3 that in the "third age" of ASEAN, economic integration was an

urgent priority.

ASEAN is growing ever larger.

It was established in 1967 with what was essentially a Cold War aim: to contain

the spread of communism from China and Vietnam.

Thirty-five years on those geo-political aims have given way to economic ones. The

grouping is slowly evolving into a trading bloc with ambitions to rival the European

Union and the North American Free Trade Agreement.

The summit in Phnom Penh will be followed by meetings with China, Korea and Japan,

as well as by the first ASEAN/India meeting. India's trade with ASEAN doubled between

1995-2000, reaching US$9.2 billion.

But demands for "faster action", "stronger cooperation" and "more

coordination" are still heard each time the group meets. While ASEAN has the

potential to form a huge single market, its members typically move slowly when trying

to reach consensus. A single currency, for instance, has been suggested but never

seriously considered.

An analysis of ASEAN integration since 1996 is due to be presented during the Phnom

Penh meeting. If Severino's words are anything to go by, the report card will be


"Pressures for regional economic integration come mainly from Japanese and American

business rather than from ASEAN enterprises, much less from the ASEAN public,"

he lamented.

But upcoming deals with China and Japan may provide the external pressure that forces

ASEAN to develop a more unified economy in Southeast Asia. Both ASEAN and Asia's

economic supremo Japan are worried about China.

Japan has historically been reluctant to engage ASEAN, but in recent times Tokyo

has moved toward bilateral free trade agreements with member states. China has been

hot on its heels, and both hope eventually to dominate an Asian trading bloc.

Within months of Japan and Singapore beginning discussions on a free trade agreement

(FTA) the Chinese went one step further and proposed an FTA that would encompass

all of ASEAN.

The signing of that framework agreement during the ASEAN+1 meeting should be the

centerpiece of the November 4-5 summit in Phnom Penh. Japan has responded by proposing

discussions on an ASEAN-wide FTA for 2003.

The logic of partnering with China is clear: while ASEAN countries have around 520

million citizens, China has a population more than twice that. It also comes with

a huge, and growing, economy: last year's Gross Domestic Product (GDP) reached US$

1,180 billion.

China's fast-paced economic growth has ASEAN leaders deeply worried: since China

joined the World Trade Organization it has received the lion's share of foreign direct

investment (FDI) in the region. Many in ASEAN believe that that has been at the expense

of their own economies.

Severino says that integrating ASEAN's economies is vital if the bloc is to compete

with China.

"ASEAN has publicly expressed alarm over the trend, in East Asia, of new foreign

direct investment flowing in increasing volumes to China instead of to ASEAN as in

the past," he told the Harvard audience. "The fact is that ASEAN is perceived

to be far from the level of integration of China's national economy, with its huge

population and rapid growth."

Severino argued that members must voluntarily cede sovereignty and grant the Indonesian-based

ASEAN secretariat real power.

He also called for "more-binding economic agreements, the standardization of

products and of safety and environmental requirements, the coordination of national

policies, the authority to ensure compliance with such agreements and measures, [and]

the power to adjudicate disputes".

Prior to the Asian financial crisis in 1997 the countries of ASEAN were thrown together

by mutual success. However after the crisis ASEAN's critics charged that the body

was bewildered and divided.

"In the period 1988 to 1996, the average real GDP expansion of Indonesia, Malaysia,

the Philippines, Singapore and Thailand hit between 6.3 and 9.2 percent, probably

the highest of any region in the world," Severino said.

And if reform is embraced, Severino thinks that the region could return to growth

of around 3.5 percent, "a respectable rate in a sluggish global economy".

But some members believe that it will require more than reform to return to the days

of the Asian Tigers. Singapore's Prime Minister Goh Chok Tong says the answer lies

in integrating more deeply with China and Japan.

He told an audience in Malaysia in October that when an ASEAN/China FTA is eventually

realized, "it will be the largest FTA in the world, with a regional GDP of around

US$2 trillion".

He cited studies of the ASEAN/China FTA project that found ASEAN exports to China

could grow by almost 50 percent. Another study of the proposed Comprehensive Economic

Partnership between ASEAN and Japan showed that ASEAN exports to Japan could shoot

up by more than 44 percent, which would boost ASEAN's GDP by an additional 2 percent.

But where does this leave a small ASEAN nation like Cambodia? The Kingdom takes a

large slice of its imports from China but exports very little there in return. Benefits

of ASEAN membership to Cambodia are more political than economic.

When the leaders of the nine visiting ASEAN countries touch down on Cambodian soil,

it will signal a remarkable turnaround for Cambodia in the region.

For years the staunchly anti-communist Cold War bloc treated Hun Sen's government

as a pariah state. ASEAN countries attacked the government in Phnom Penh in international

fora and offered succor to its bitter enemies, including the Khmer Rouge, on the

Thai border.

"ASEAN was part of a major political reconciliation [during the late 1990s],"

says the Kingdom's pre-eminent ASEAN scholar Dr Kao Kim Hourn. Vietnam entered in

1995, Laos and Myanmar in 1997 and Cambodia in 1999.

"This is the first time for Cambodia to host such a high level meeting. It is

much more than symbolic," says Kim Hourn. "The leaders will see Cambodia,

some for the first time. They will see the changes - it will be very good for the

image of Cambodia."

While Prime Minister Hun Sen is wont to remind the United Nations of its one time

support of the Khmer Rouge, Kim Hourn argues there is little ill-will toward ASEAN

for once taking the same stand.

"History is history," he says. "We don't gain anything if we emphasize

that. Both sides have looked beyond the period of the 1980s."

That is just as well, since right up until Cambodia's entry in 1999 some members

were lobbying against its inclusion. In his book on Cambodia's foreign policy Kim

Hourn notes that both Singapore and Thailand sought a delay.

Kim Hourn says the benefits of entry to Cambodia have been significant, although

hard to quantify.

"It's difficult to put it in dollars and cents. Joining ASEAN ended Cambodia's

isolation once-and-for-all," he says. "ASEAN has given Cambodia international

legitimacy. Diplomatically Cambodia can engage the major world powers in a way that

would be difficult to do bilaterally."

ASEAN has offered political support for both UN involvement in a proposed Khmer Rouge

tribunal and Cambodia's speedy entry to the WTO. But the country remains a fledgling

member that struggles to meet its commitments to attend the more than 300 annual

meetings. Furthermore it has minimal influence - for instance there are no Cambodians

employed at the secretariat in Jakarta.

And while there has been plenty of rhetoric of "closing the gap" between

the old members and the newer, more impoverished countries, the grouping is still

divided into two tiers.

Malaysian PM Dr Mahathir admitted as much when he spoke at the inaugural ASEAN-India

Business Summit held in India in mid-October. He said that new ASEAN members were

"not so chummy among themselves or with older members".

When Cambodia signed up to ASEAN it also signed on to 27 ASEAN agreements. Cambodia

was given until 2009 to cut tariffs to between zero and 5 percent on most of its

goods, a potentially costly process since it relies heavily on import duty revenues.

Nonetheless Cambodia remains an enthusiastic promoter of economic integration. In

July the Minister of Foreign Affairs Hor Namhong called it "the most important

issue" facing ASEAN.

Also high on Cambodia's agenda is "closing the gaps" through the Initiative

for ASEAN Integration, ASEAN's aid and development program.

"That's a top priority," says Kim Hourn. "ASEAN needs to be more integrated.

Only then can it speak with one voice."


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