Economic cooperation & ASEAN

The Association of Southeast Asian Nations1 (ASEAN)

was founded in August 1967 in response to the threat of
communism in Indochina. Although a stated goal of the
Bangkok Declaration and many of the succeeding
ASEAN pronouncements was to "accelerate economic
growth...through joint endeavours" and to "promote active
collaboration and mutual assistance on matters of
common interest in the [field of economics]," little
concrete action was taken to promote economic
cooperation (Akrasanee &Stifel, 1992).

Its reputation as the most successful regional grouping

among less developed countries stands in marked contrast
to its singular lack of achievement, despite a succession of
proposals, in promoting economic cooperation among its
member states (Ravenhill, 1995: 850).

In fact, until 1977, regional Economic Ministers failed to

meet on a regular basis; ASEAN had rotated around the
annual meeting of its Foreign Ministers In fact, until
1977, regional (Akrasanee &Stifel, 1992: 3).
At the macro level, the ASEAN leaders are in a "stag
hunt" situation, in which all can gain through cooperation;
if one party pursues its narrow national interests outside
of a regional context, however, the others may lose
relatively and absolutely. In the past, the gains from
cooperation were perceived to be minimal, thus the
ASEAN states were not compelled to cooperate with
genuine conviction. But as the gains from cooperation
increase, the opportunity cost of not participating grows
and cooperation becomes more attractive (Akrasanee
&Stifel, 1992: 3).

In 1974, pressure began to mount from external sources

for ASEAN to move beyond rhetoric. It was in that year
that a United Nations team completed its study of the
possible avenues for ASEAN economic cooperation.
Their recommendations included limited preferential
trade liberalization, intra-industry specialization schemes,
and large-scale inter-industry projects for the region.
These so-called Kansu proposals eventually became
institutionalized in the early 1980s in the form of the
Preferential Trade Arrangements (PTA), the ASEAN
Industrial Complementation (AIC) scheme, and the
ASEAN Industrial Projects (AIPs) (Akrasanee &Stifel,
1992: 4).
Five industrial projects under the ASEAN Industrial
Projects programs (AIPs) were launched in 1977,
focusing on promoting industrial cooperation, particularly
in meeting regional requirements for essential
commodities. This program obliged members to set up
one of the five projects in their countries. The
development of AIPs proved unsatisfactory. Despite the
assignment of one AIP to each member country in March
1979 and the Japanese financial aid for the program, the
first project did not operate until 1984. At that time
Singapore had effectively withdrawn from the program
and Thailand had taken up a decidedly negative position
towards AIPs (Kumbunlue, 2006: 57).

Besides the PTA and AIPs, there were other strategies to

promote intra-regional trade and industrial cooperation.
These were the ASEAN Industrial Complementation
(AIC) and the ASEAN Industrial Joint Ventures (AIJV).
These schemes, however, put in a disappointing
performance due to bureaucratic delays and the failure of
members to agree on the various proposals for joint
projects, as well as the protection of competing infant
industries, motivated by national interest (Kumbunlue,
2006: 57).
Undoubtedly, the low volume of intra-ASEAN trade, at
around 20 percent, and the heavy reliance of ASEAN
members on external markets played a role in making the
customs union unacceptable to ASEAN members
(Bowles, 1997).
Why earlier economic cooperation failed?
a). First, the consequence of excessive bureaucratic
procedures at both the ASEAN and national levels has
been that delays of a year or more for approvals have
weakened the attraction of the various schemes.

b). Second, there has been a general lack of commitment

to implement these schemes. ASEAN initiatives have not
been followed up with thorough promotion efforts, and
information has not been extensively disseminated to all
the parties who stand to benefit from cooperation.

c). Third, there has been an absence of private-sector

involvement in the decision-making process at a regional
level. Although the ASEAN Chamber of Commerce and
Industry (CCI) has been active in pursuing the interests of
the private sector, it has run up against the incestuous
interests of national bureaucracies.

d). Finally, a dearth of political will has been the most

important factor impeding genuine economic cooperation
in ASEAN. Government leaders have been more
concerned with the costs associated with cooperation than
the spillover of benefits, and have therefore been reluctant
to pursue greater cooperation.
Because ASEAN leaders did not believe that their
economies were ready for a comprehensive pursuit of
integration, cooperation progressed slowly by design.

Talk of supranationalism was suppressed by the regional

states as they developed their national identities in the
post-colonial era. Cooperation in the region has been
pursued as a means of assuring national independence and
mutual benefit for all participants. A Southeast Asian
community, similar to that of the European Community, is
not a realistic model for ASEAN cooperation.

In considering ASEAN's objectives in forming AFTA,

Bowles and MacLean identify three main factors. These
are (i) the changes in the international political economy
durng the 1980s; (ii) the rise in influence of business
interests throughout the ASEAN region and their general
pre- disposition towards regional trade liberalization
measures; and (iii) ASEAN's desire to maintain its
position as an important organization in a region
experiencing change and a proliferation of new regional
bodies, both proposed and actual (Bowles, 1997: 221).
ASEAN Free Trade Area
In January 1992, ASEAN announced ASEAN Free Trade
Area (AFTA).
The creation of the ASEAN Free Trade Area (AFTA) is
contained in three agreements issued at the Fourth
ASEAN Summit, namely the Singapore Declaration of
1992, Framework Agreement on Enhancing ASEAN
Economic Cooperation and Agreement on the Common
Effective Preferential Tariff (CEPT) Scheme.

Objectives of AFTA
a. To speed up the slow progress of trade liberalization
activities among ASEAN member countries under the
PTA which begins in 1977
b. To have responsive strength toward EU, NAFTA and
Uruguay Round and WTO,
c. To have appropriate strength in line with the trend of
world economy which has been moving towards the
formation of regional blocs,
d. To strengthen the responsive and adjustable ability in
line with drastically changing economies of ASEAN
member countries,
e. To have better rational allocation of resources within
the ASEAN member countries,
f. To strengthen ASEAN competitiveness in world
trade,
g. To maintain and accelerate the inflow of FDI toward
ASEAN member countries and
h. To promote the intra and extra regional tradeoff
ASEAN
A free trade area - the removal of obstacles to freer trade
among member countries by reducing tariffs to 0- 5% on
traded manufactured goods and processed agricultural
products and the removal of non-tariff barriers and
quantitative restrictions that limit the entry of imports - in
Southeast Asia was to be achieved in fifteen years (1993-
2008). The completion target was accelerated to 1 January
2003, then 1 January 2002. The main objectives of AFTA
are to increase ASEANs competitiveness as a production
base for both the regional and world markets by
eliminating intra-ASEAN tariffs and non-tariff barriers
(NTBs) and attract more foreign direct investments
(FDIs) into the region. The main mechanism is the CEPT.
The original CEPT scheme covered all manufactured
products (capital goods and processed agricultural
products) and excluded unprocessed agricultural products
(UAPs) (What is the ASEAN Free Trade Area? )
References:

Akrasanee, N & Stifel, D., 1992, The Political Economy of ASEAN Economic Cooperation in
TDRI Quarterly Review, Vol. 7 ( 3): 3-11.

Bowles, Paul, 1997, ASEAN, AFTA and the "New Regionalism , Pacific Affairs, Vol.
70, No. 2 : 219-23.

Kumbunlue, Sorayud, 2006, Economic Development and Integration in Southeast Asia

Economic Convergence, Distribution and Integration, PhD Thesis, Universitat Mannheim.

Ravenhill, John, 1995, Economic cooperation in Southeast Asia: Changing incentives, Asian
Survey, Vol. 35 (9): 850-866.

What is the ASEAN Free Trade Area?

http://www.seacouncil.org/seacon/images/stories/publications/what_is_afta.pdf