FOCUS ON THE PHILIPPINES

an electronic newsletter(focusing mainly on Philippine news and issues) of

FOCUS ON THE GLOBAL SOUTH

a Program of Development Policy Research, Analysis and Action

 Issue #20 Series 2000    

   ASEAN: A Preliminary Autopsy

By Walden Bello*

 Four years ago, the Association of Southeast Asian Nations (ASEAN) seemed well on the way to becoming a real economic bloc. Today, it is in danger of joining such august predecessors as Maphilindo (Malaysia-Philippines-Indonesia) and the Southeast Asia Treaty Organization (SEATO) in the proverbial dustbin of history.

 The speeches at the organization's 33rd Annual Meeting in Bangkok late July had a distinct "I-have-come-to-bury-ASEAN, not-to-praise-it" note to them. Thai Prime Minister Chuan Leek-Pai warned of the association's rapidly falling behind other regional economic blocs in global trade. But it was Singapore Foreign Minister S. Jayakumar who best captured ASEAN's near-terminal state when he described it as being stuck with the image of a "sunset organization" in international circles.

 Many observers agreed with Jayakumar's characterization, although some questioned whether it was appropriate for Singapore to lay out this assessment in its usual self-righteous fashion since the city-state has contributed to ASEAN's disarray by profiting from the financial plight of its neighbors, in particular Indonesia and Malaysia.

 Currency Crisis Again

 Accentuating the funereal mood at the meeting was the backdrop of renewed economic crisis in the region, which saw foreign investors and currency speculators savage the region's currencies. The baht fell to a nine month low at the opening of the meeting on July 24. A week earlier, the Indonesian rupiah hit a 21 month low and the Philippine peso registered a 20 month low, prompting Philippine President Joseph Estrada to warn of a repeat of the 1997 financial crisis during his State of the Nation address in Manila last Monday.  

A sign of ASEAN's all-talk-and-no-act show is that at no point in the current currency crisis has there been any serious effort to activate the regional currency swap arrangements that the ASEAN countries agreed to set up with Japan, South Korea, and China during the Asian Development Bank annual meeting in Chiang Mai, Thailand, last May. The scheme essentially pooled reserves that could be drawn on to support a country's currency if it was subjected to speculative attack. If ever there was a time to test this so-called "firewall" against financial crisis, it was in the last two weeks.  

AFTA Unravels  

Like currency stabilization scheme, ASEAN's blueprint for regional integration, the ASEAN Free Trade Area (AFTA), is falling apart. For the six founding members of ASEAN, free trade was intended to be fully effective by 2002, with Vietnam achieving the same status by 2006, Laos and Myanmar in 2008,and Cambodia by 2010. Now there are doubts that the six founding members will be able to meet their schedule.

 Even before the financial crisis, governments had earmarked sensitive farm products for exemption from the implementation schedule, resulting in what observers jokingly described as "mile-long" exclusion lists. But, to many, the nail in the coffin of the 30-year-old dream to build a regional bloc was Malaysia's strong opposition to liberalizing its auto industry, which forced other AFTA members to allow it last May to keep its high tariffs on car imports until 2005.

 Following Malaysia's move, other countries have pushed to extend their deadlines-a fact reflected in the joint statement issued at the end of this year's ministerial meeting that rules were being worked out to allow countries "experiencing real difficulties" to temporarily withdraw "sensitive" products from the AFTA schedule. Some founding governments are reportedly opting for pushing the advent of regional free trade to 2010.  

The desire to push back the free-trade deadline seems to stem from a desire to protect domestic economies that are still reeling from the 1997crisis. It is, however, unlikely that this is the only or even the main reason. There are clearly other factors at play.

 One is that the spur towards preferential regional trade that was provided by the competition from APEC (Asia-Pacific Economic Cooperation) has disappeared with the demise of that grouping as a serious trade body. During its apogee in the mid-1990's, APEC threatened to become a formal free trade area covering the area from San Francisco to Auckland. The establishment of AFTA in1992 and its reinvigoration in 1996 clearly was a direct response to APEC. Had there been serious movement on the APEC 2020 Plan, the whole ASEAN project of preferential regional trade and economic cooperation would have been rendered irrelevant.

 Equally important is the fact that different governments had different visions of regional free trade. Some, like Philippines and Singapore, where free market views dominate among trade technocrats, saw the reduction of tariffs regionally as a step towards eventual integration into a global free trade system. Others, like Indonesia and to some extent Malaysia, saw regional preferential trade as creating a large, protected regional market that would stimulate regional industrialization via import substitution.

ASEAN-EU Contrast

 Related to these conflicting visions was the failure to accompany the plan for regional free trade with strategies for regional economic integration in industry and agriculture. The purpose of such arrangements would have been to ensure that for each and every country, the benefits from greater market integration would be greater than the costs.

It was the presence of industrial and agricultural planning that made the difference in Europe, that gained the adherence of European governments to regional free trade. Indeed, in the European case, trans-border industrial planning in the form of the European Coal and Steel Community, preceded the establishment of the Common Market in 1957. Moreover, as analyst George Rosshas pointed out, the Common Market "was a circumscribed and protected playing field for trade, involving the pooling of limited, carefully chosen areas of sovereignty, designed less to transcend national sovereignty than to help EU member states pursue national growth strategies." In other words, regional arrangements did not diminish but enhanced national economic capabilities-something that Asean members do not see in AFTA.

 This is not to say that industrial policy schemes do not exist. There have been several, from the ASEAN Industrial Projects to the ASEAN Industrial Complementation Scheme (AICO). However, it has not been local industries and governments that have taken advantage of these arrangements, however, but Japanese car manufacturers like Toyota and Isuzu which see them as tools to integrate their regional operations for maximum penetration of the different national markets.

 Indeed, in the current economic crisis, a strategic industrial policy tool like AICO has been perverted into an inventory-reduction scheme by Isuzu. According to Marc Castellano of the Japan Economic Institute, the auto manufacturer has used AICO to "establish a flexible truck-supply scheme…that would enable the company to distribute its large-sized truck inventory among ASEAN countries to meet changing trends in demand. ASEAN countries charge a 33 per cent levy on assembled vehicles imported from Japan but only a 5 per cent duty on those coming from other association members. Upon approval, Isuzu, for example, could ship trucks made at its Thailand plant to Indonesia, where the demand for trucks is recovering. Most importantly, the swap plan will help reduce inventories, which remain excessive as a result of the economic crisis. " 

ASEAN's Achilles Heel

 As the ASEAN economic project unravels, one of the things that emerges is the absence of any significant constituency for it, except perhaps for fractions of the technocrat and industrial elites in each country. This is another manifestation of the democratic deficit in ASEAN, which is now turning out to be its Achilles Heel. Regional economic integration has remained something that has been tossed around only among the region's elites, and because it lacks a mass constituency, there is no other engine to push it once political will among the elites falters. Few people in ASEAN will miss AFTA when its corpse is finally interred. Indeed, few will miss ASEAN, which will probably be footnoted by future historians as the regional elite club during Southeast Asia's pre-democratic period.

 Hi. I am Marissa de Guzman of Focus on the Global South. I am also the moderator for this newsletter. I would appreciate very much comments and suggestions from you. I also welcome and encourage contributions, although I cannot guarantee an automatic 'publishing'. It would be nice to have your own views and thoughts on key issues known to a few but definitely interested people. You may send your comments, suggestions, and articles to me at this address, payster21@hotmail.com . Thank you.