THE coming Association of Southeast Asian Nations (Asean) economic integration is striking fear into some people. Although their worries about this integration are understandable and valid, we believe that its benefits outweigh its costs.
Simply put, economic integration means the unification of economic policies, including trade, tax and monetary ones, which affect the exchanges of goods and services, as well as the movement of labor and capital in the countries involved. Later on, economic integration can involve the adoption of a common currency.
What are its benefits? For one, the trade that economic integration will spur will be enormous, because the market will grow from 100 million in the Philippines to some 600 million people in the region. Merely responding to a fraction of this figure will already pose a serious challenge to Filipino producers. But there will be ample rewards for responding producers. As for consumers, they will be faced with a wider array of lower-priced products.
There will also be opportunities to not only sell already existing products, but also produce new ones. This will need a rapid response from producers, who will be required to increase capacity and adopt more advanced production techniques. We have no doubt our producers can do this.
New employment opportunities will also be created throughout the economic community, and both local and foreign workers can be expected to respond to them. Member-countries can be expected to have their versions of our own overseas Filipino workers. If our employment-creation efforts have, so far, been ineffective, economic integration might just save the day for us.
We can expect businessmen and investments from other Southeast Asian countries to come to the Philippines, even as our own businessmen open up new ventures in those nations. But here, we come face-to-face with a problem: The restrictions on foreign investment that are embedded in our 1987 Constitution will naturally repel these countries from investing in the Philippines. As a result, investors within and outside the community will put their money elsewhere. So if we are only attracting a small amount of foreign investments these days, we can expect even fewer investments as integration progresses—unless, of course, we amend the Constitution.
Now, what are the costs? Following tariff and nontariff unification, the arrival of new competitors with lower production costs can pose a threat to local businesses with higher production costs. Fearful of losing their market, these businesses might be driven to seek government protection, which cannot be granted, because economic integration prohibits it. They just have to bite the bullet, reduce costs and become more competitive.
There is also the possibility of diverting trade from low-cost producers outside the integrated community to high-cost producers within it who are no longer subject to tariff. But this is a problem to those outside the community, not to those within.
Is this not exaggerating the benefits of integration and downplaying its costs? No, it is not. No matter how you slice the cake, this is the way it crumbles. Let’s welcome the Asean economic integration.
Image credits: jimbo Albano