A S Cambodia draws nearer to the date in 1997 when it hopes to become a member of
the Association of South East Asian Nations (ASEAN) it reaches a pivotal time in
its economic and political growth.
Its full acceptance into ASEAN will mark a tremendous achievement in the rebuilding
of the Kingdom.
The economic repercussions will be significant and likely painful as Cambodia gradually
moves its import tariffs into line with those required by the organization. However,
the long term importance of ASEAN membership should not be underestimated.
Regional groupings based on economics are becoming increasingly important as the
world moves toward the twenty-first century.
There are at least 32 economic groupings of some form now in existence: three in
Europe, four in the Middle East, five in Asia and ten each in Africa and the Americas.
Some of these groupings around the world have the superstructure of nation states
(such as the European Union); some (like the ASEAN Free Trade Area or AFTA), are
multinational agreements that tend to be more political arrangements than cohesive
trading blocs at present. With respect to the three major blocs - the North American,
western European and Asian - intra-bloc trade has grown rapidly, while trading between
the blocs or with outsiders has either declined or grown far more slowly.
The development of a unified trading bloc in Asia has been quite different from that
in Europe and in the Americas.
While European and North American arrangements tend to have been driven by political
will, market forces and more pragmatic considerations are what have been compelling
politicians in Asia to move toward more a formal integration.
First, European and American markets are significant for the Asian producers and
some type of organization or bloc may be needed to maintain leverage and balance
against the two other blocs.
Secondly, given that much of the growth in trade for the nations in the region is
from intra-Asian trade, having a common understanding and policies is becoming more
and more necessary.
A future arrangement will most likely be using the frame of the most established
arrangement in the region, ASEAN.
ASEAN as a regional body has grown up for various purposes.
Defense and a common foreign policy were initially more important reasons for the
formation of the grouping than the goal of economic development. But, with perceived
threats to safety receding, economic development has taken on a more important role
as the general goal of the ASEAN states.
The states now have booming economies and have attracted much attention from foreign
Traditionally, the Asian region has received more foreign investment than any other
part of the developing world.
There has been significant inter-regional investment, with capital from countries
like Singapore, Hong Kong and Taiwan moving to other countries in the region. There
is also a considerable and ever increasing flow of capital from one ASEAN state into
another in the form of foreign investment.
The states of the region have mixed economies and are inclined towards growth that
is led by foreign investment.
Within the ASEAN region, the example provided by Singapore which grew spectacularly
through foreign investment is one factor that makes states of the region more hospitable
to foreign investment than many other areas of the world.
The attraction to foreign investment, however, is balanced by nationalism and understandable
efforts to ensure that investment that is made will further the economic development
of the state and not be detrimental to local business interests.
For this reason, some control over foreign investment has been instituted in varying
degrees in all ASEAN states.
The techniques used by the ASEAN states to attract foreign investment are largely
similar. The use of tax incentives as a means of channeling investment into desired
areas has been widely prevalent and there have in the past been calls for a coordination
of efforts on a regional basis on the granting of such incentives.
Other moves to increase regional economic cooperation have included the ASEAN Industrial
Joint Venture, established in 1983 as a means of encouraging the development of intra-regional
This is also a concept that promotes cooperation.
There have also been efforts to develop areas which have not been traditionally attractive
to investors through the creation of "growth areas" such as the triangle
between Singapore, Johore (a state in Malaysia) and the Riau Islands of Indonesia.
The aim for this particular area is for Malaysia and Indonesia to provide land and
other natural resources and Singapore to provide management and technical expertise
for the development of industries within the triangle. Other "growth areas"
include a triangle linking Medan in Indonesia, Phuket in Thailand and Penang in Malaysia.
Before late 1991, ASEAN had no real structures, and consensus was reached through
In October 1991, ASEAN members announced the formation of a customs union called
ASEAN Free Trade Area (AFTA).
A customs union is a grouping whose members dismantle barriers to trade in goods
and services among themselves and establish a common trade policy with respect to
Typically this takes the form of a common external tariff, whereby imports from non-members
are subject to the same tariff when sold to any member country.
Tariff revenues are then shared among members according to a prespecified formula.
It is through this aspect of ASEAN membership, the adjustment of tariff rates to
conform with AFTA requirement, that Cambodia will likely enjoy the greatest long
term gain and the harshest short term pain.
Trading businesses and those importing raw materials from ASEAN nations will benefit
However, with the bulk of the kingdom's tax revenue presently coming from customs
duties and tariffs, other sources will have be developed to allow the government
to compensate for the resulting loss of income.
- Michael Popkin is a resident partner in the Phnom Penh office of Dirksen
Flipse Doran & Le.