This continuing interest came to the fore once again in discussions, both official and on the sidelines, at the recent 42nd Asean Economic Ministers (ASEM) meeting in this city.

From being derided as a “talking shop” and a bloc largely “created” by the West in 1967 to crush the creeping communism in the region, Asean finally found its own decent place in the international community  after its adoption of a charter in December 2008.

The charter aims to build a stronger community of the 10-member nations through binding economic, political, and security and sociocultural agreements.

Before the charter’s adoption, members signed in November 2007 the Asean Economic Blueprint, creating a single market and production base economy by 2015 to boost growth and prosperity.

The blueprint is a set of measures to improve trading within the region and with the global economy, in order to provide Asean’s people with greater choice of goods and services. The foreseen increase in demand for goods and services will, thus, create employment in sectors like manufacturing and transport, as well as logistics and communications.

The plan recognizes the need to uplift the lives of the poor in the region, such as those lilving under the military junta in Burma/Myanmar, as well as those reeling from human catastrophes and a restrictive regime in Cambodia. The measures also aim to address widespread corruption and problems on governance in developing member-countries like the Philippines, in order to attract trade and investments in the region.

The single-market goal aims to balance the economic growth in the region by narrowing the development gap between four rich economies led by Singapore (the others being Malaysia, Brunei and Thailand), the middle-income members (the Philippines and Indonesia) and the less-developed members (Laos, Cambodia, Vietnam and Burma/Myanmar).

Members have signed and ratified a series of trade agreements among themselves and with dialogue partners to set the platform for the single market and production base goals by 2015.

To allow the free flow of goods within the region, members removed tariffs on products traded among them under the Asean Trade in Goods Agreement (Atiga) that took effect on January 1, 2010. The agreement now being implemented by the Asean-6 (Malaysia, Indonesia, Thailand, Singapore, Brunei and the Philippines) removed the tariffs on products representing 99 percent of total tariff lines. The average tariff is now down to 0.9 percent from 4.4 percent.

But the agreement does not remove tariffs on sensitive products, particularly on agriculture that remains between 5 and 6 percent, according to Philippine officials, because these are categorized as highly sensitive products under the rules of the World Trade Organization.

Although the single-market goal aims to make the lives of Asean nationals better, the benefits of  these agreements do not go down to the grassroots,  as the private industry in the 10 members remain largely oblivious to the economic deals, based on the midterm assessment this year.

According to Asean deputy secretary-general S. Pushpanathan, harmonizing economic rules through regional agreements and putting them in sync with national laws is difficult for most members.

“Despite the political will and the spirit to engage effectively, the biggest obstacle for Asean is how to transpose regional commitments to national obligations,” he said.

According to the Asean Economic Community (AEC) scorecard, 91, or 73 percent, of the 124 legal instruments have entered into force.

Agreements to boost investments in small and medium enterprises (SME) within the region and engage with the global economy through free-trade deals with regional partners have been fully achieved through legal instruments.

But whether benefits of these measures are felt on the ground in all the 10 members remains a question.

Pushpanathan explained that the Asean governments need to “make known” to the business sector and the people the benefits of trade agreements being made at the regional level.

“The Asean governments set the environment for trade and investment facilitation, but it’s still the business sector that drives the engagements,” he said.

Economic ministers who recently concluded a meeting here agreed that the regional bloc has not benefited from the free-trade agreements (FTAs) signed within and with dialogue partners due to the lack of awareness of the benefits.

An AEM joint statement said: “Ministers noted concerns on the low utilization of the FTAs and urged relevant officials to intensify efforts to increase awareness of the benefits accruing from these FTAs and to make administrative procedures for obtaining certificates of origin more business friendly.”

Among the first to sign FTAs with Asean are dialogue partners China, Japan and South Korea. Similar free-trade deals were also signed by Asean in 2009 with Australia-New Zealand and India. These FTAs have not entered into force on January 1, 2010, while the intratrade agreement of goods took effect in May this year.

The European Union, composed mostly of developed countries, is also seeking bilateral free- trade deals with Singapore and Vietnam, to be followed by Indonesia, Thailand, the Philippines, Brunei and Malaysia.

EU trade commissioner Karel de Gucht described these bilateral trade deals as stepping stones for a future region-to-region FTA which was originally proposed by the EU in 2007.

Pushpanathan said the US and Canada have also expressed intention to sign a Trade and Investment Facilitation Agreement with Asean. The US is interested to assist the regional bloc in improving standards and customs, as well as advancing trade and environment.

He said although Russia is not pushing for a free-trade deal, it wants to work out agreements on trade and economic cooperation.

Asean and the Gulf Cooperation Council (GCC) that comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates have agreed to do a two-year study on a possible free-trade agreement.

The region is also looking into a possible trade agreement with members of Mercosur that comprises Argentina, Brazil, Paraguay and Uruguay.

Although the single-market goal of Asean continues to attract the interest of world economies, the region, particularly less developed members, has suffered major blows from the global financial crisis.

As the global recession bit hard into Asean members, they protected the businesses in their own backyards and further reduced trading with their neighbors. In times of crisis, therefore, the goal to shift from “competing to complementing each other” has not been achieved.

Asean secretary-general Dr. Surin Pitsuwan stressed that “a house divided” cannot be stable enough to whether all sorts of storms because there is no stability from within.

Asean’s total merchandise trade declined by 19 percent, from $1.89 billion in 2008  to $1.53 billion in 2009.  Of this amount, Dr. Surin said only 25 percent is traded among the 10 member countries.

He said Asean members need to “take a risk” in investing in their neighbors, particularly in small and medium enterprises. An increase of 30 percent to 35 percent in Asean’s merchandise trade should be achieved to have an effective single market, said Dr. Surin.

Dr. Surin warned that the lingering impact of the global recession “would intensify the competition for foreign investments in the future.”

This means the “challenge for Asean is to formulate and implement solutions to further enhance our investment climate, so that we may continue to attract and retain FDI [foreign direct-investments] during uncertain times,” he said. “Nationally, member-states need to further improve their competitiveness, and collectively, all member-states need to project Asean as a truly integrated market,” he added.

Amid the global economic crisis, the United Nations Conference on Trade and Development (Unctad) estimates an increase in the global FDI from $1.2 trillion in 2010 to $1.3 trillion to $1.5 trillion in 2011.

The UN body believes that Asean will also be successful in grabbing a larger share of the global FDI inflows in the coming years. The increase in the region’s global FDI share from 2.8 percent in 2008 to 3.6 percent in 2009 boosts the hope that its share in the world’s investments will rise even more.

The bullish outlook globally about the integration efforts in Asean is also seen to attract for the regional bloc a higher share of investment flows.  Amid the economic turmoil, the FDI inflows into Asean reached $39.6 billion in 2009.

Spotty spread of benefits

There’s a fly in the ointment of growth and more investments: Asean officials fret that the benefits of increased investments linked to economic integration are not being reaped by people of less-developed countries as richer members like Singapore get the biggest cut of the expanding investments pie.

The top four recipients of $39.6 billion worth of FDI in 2009 are Singapore (41 percent), Vietnam (19 percent), Thailand (15 percent) and Indonesia (12 percent).  The less-developed members-Cambodia, Laos and Burma/Myanmar have together accounted for only 23 percent of total Asean FDI inflows.

Meanwhile, the Philippines’ share in foreign direct investments continues to decline as the lingering problems of corruption and inconsistent economic policies are further complicated by the impact of the global recession in the last two years.

Asean statistics showed the Philippines’ $2.92 billion worth of FDI in 2006 slid to $2.91 billion in 2007 and suffered further a huge loss of negative 47.9 percent in 2008, with only $1.52 billion.

Manila’s meager share of 4.8 percent, or $1.9 million, in the Asean’s FDI in 2009 was not even mentioned at the joint statement of the concluded AEM meeting which cited the progress of Asean members linked to economic integration.

Dr. Surin warned that the development gap between richer Asean members and less-developed members will further widen due to the lingering impact of the global recession.

He urged members to strengthen intra-Asean FDIs to increase competitiveness and resilience in times of crisis.

Human resource remains to be the biggest asset of the region with the services sector getting the highest share of FDI inflows, amounting to $26.8 billion (68 percent of total Asean FDI inflows in 2009).

The manufacturing sector came next with $8.5 billion (22 percent); mining and quarrying, $3.2 billion (8 percent).

Dr. Surin said the increase in FDIs has to trickle down to the bottom of the Asean population through effective integration.

Trade with dialogue partners

Total Asean trade with dialogue partners, meanwhile, also declined over the last two years due to the global recession, validating the claim of experts that indeed the economies are dependent on the economic growth of their dialogue partners.

The biggest loss for Asean is in its total investment flows from China, which posted a sharp decline of 28.4 percent, from $2.1 billion in 2008 to $1.5 billion in 2009.

Asean’s total trade with Japan also shrank by 25 percent, from $214.4 billion in 2008 to $160.9 billion in 2009.

However, foreign direct investments from Japan to Asean were not affected and even grew by 14 percent, from $4.7 billion in 2008 to $5.3 billion in 2009.

Economic ministers of Asean and South Korea also agreed that the decline in the total merchandise trade between their economies was due to the “low awareness” among private businesses of the Asean-South Korea FTAs.

“The ministers noted the concerns over the low utilization of the Asean-South Korea FTA, which could be attributed not only to the low awareness by businesses of AKFTA and the lack of information on preferential and/or reciprocal tariff rates, but also to the practical difficulties in the administrative procedures to claim tariff concessions under the AKFTA,” said the Economic ministers’ statement.

Total trade between Asean and South Korea declined by 4.5 percent, from $78.3 billion in 2008 to $74.7 billion in 2009.

Economic ministers also agreed that the global recession has affected the total merchandise trade between Asean and six dialogue partners—Japan, China, South Korea, New Zealand, Australia and India, declining by 16.1 percent from $598.8 billion in 2008 to $502.1 billion in 2009.

Foreign direct investments from these six dialogue partners grew, however, by 5.84 percent, from $9.5 billion in 2008 to $10 billion in 2009.

The free-trade deal with agriculture-rich economies Australia and New Zealand, that took effect on January 1, is expected to bring facilitate goods and services.

But whether the Philippines—suffering from more than the 10 years’ ban on tropical-fruit exports to Australia and New Zealand—will benefit from this trade agreement is another question.

Although FTAs are touted to facilitate the free flow of goods and services, the biggest question remains whether the removal of nontariff barriers such as sanitary and phytosanitary (SPS) measures of developed countries will be included.

Under the Asean-Australia-New Zealand FTA, several measures such as the implementation of rules on intellectual property, rules of origin and SPS measures are given emphasis.

With stricter trade rules imposed under the FTA with Australia and New Zealand—less-developed countries in Asean, including middle-income ones like the Philippines, may face further hurdles in penetrating the commonwealth markets.

The FTA between Asean and Australia-New Zealand has also stressed the need to sustain the interest of the business sector and mainstream their interests in the agreement.

Bullish on global growth

Asean economic ministers believe global growth will increase to over 4 percent in 2010 and 2011 and will be led by key economies in developing Asia, particularly by China, India and the Asean members.

The forecast for Asean’s real gross domestic product (GDP) growth in 2010 is over 5 percent, against 1.5 percent in 2009.

Dr. Surin said dialogue partners, led by the European Union, will remain instrumental in achieving growth in FDIs in the next few years.

The EU remains to be the biggest investor in Asean with a share of 18.3 percent, while Japan is second at 13.4 percent and the United States at 8.5 percent.

Asean members, particularly middle-income and less-developed economies, need to implement institutional reforms to benefit from the Asean single-market goal by 2015.

Members such as Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand have activated their National Single Windows to accelerate the implementation of the Asean Single Window.

Less-developed ones—Cambodia, Lao PDR, Myanmar and Vietnam—are undertaking preparatory work to implement their own National Single Windows before integration takes place in 2015.

Over the last two decades, the Philippines has trailed its Asean neighbors due to rampant corruption, Mindanao’s volatile security situation, and flip-flopping economic policies that impact trade and investments.

For instance, the Philippines is left along with less-developed Asean members Burma/Myanmar, Laos and Cambodia among those that have not adopted a competition policy law.

Leaders at the recent meeting here adopted the Asean Regional Guidelines on Competition Policy and the Handbook on Competition Law Policy and Law in Asean for Business.

The guidelines are necessary to create a fair and transparent competition environment in the region in order to support enterprises and attract foreign investments.

A competition law sets legal principles and standards to ensure foreign investors get fair, equal, transparent, consistent and nondiscriminatory treatment in the host country.

What it takes, from PCCI’s view

Atty. Miguel Varela, chairman emeritus of the Philippine Chamber of Commerce and Industry (PCCI), said the country needs to do its own housekeeping on governance before it can effectively join and benefit from the Asean economic integration.

He said among the primary concerns of businesses in the Philippines are the “lack of transparency and consistency in economic policies.”

“We need to show our investors that we have stable and sound economic policies,” said Varela in an interview at last week’s Mindanao Investments Forum in Manila.

He thinks transparency in government transactions should be improved and the cost of doing business lowered “to attract foreign investors.”

Varela said the Philippines needs to focus on strengthening its competitiveness because it has rich natural resources and highly skilled people—big draws for investments.

He noted the Philippines is now only exporting human resources but many of them are deployed as domestic helpers whose remittances are relied on to shore up the economy.

Time is ticking for Asean, particularly its less-developed members, to “shape up within”  to attract investments and benefit from the single market by 2015.

As a start-up to the single-market economy, Asean has adopted the Masterplan on Asean Connectivity from 2011 to 2015. This is meant to deepen physical and institutional connectivity between members.

The Tokyo-based Economic Research Institute for Asean and East Asia (ERIA) said the Asean connectivity master plan requires a $290-billion capital that could be sourced from funding agencies and private-sector investments.

Physical connectivity involves three aspects—transportation, information and communications technology (ICT), and energy security for the region.

Transport connectivity pertains to improvements on air, road, rail, maritime, port facilities, as well logistics service facilities.

Asean officials are eyeing the rehabilitation of at least 47 ports, most of them in archipelagic countries like the Philippines and Indonesia.

The connectivity project also includes a regional ICT through fiber-optic network.

The third aspect of physical connectivity is the establishment of the Asean power grid, the Trans-Asean gas pipeline and special economic zones that will help members to be self-sufficient in their energy needs.

The Asean transport connectivity master plan is also integrated with the East Asia connectivity  development projects in three subregions. These include:

·      Greater Mekong Subregion that establishes physical connection between countries surrounding the Mekong River. These include Asean members Cambodia, Laos, Thailand, Vietnam, Burma/Myanmar and dialogue partner China.

·      The Indonesia-Malaysia-Thailand Growth Triangle that aims to establish economic and geographical ties.

·      The Southern Archipelago growth area or the Brunei, Indonesia, Malaysia and the Philippines-East Asia Growth Area.

According to Hidetoshi Nishimura, executive director of ERIA, Asean should implement these projects simultaneously to boost trade and investments in the region.

If only one or two subregions are prioritized, the countries that were left out will feel the brunt of underdevelopment.

“The improvement of investment climate through these subregional projects is important, particularly to less developed Asean members like Cambodia, Laos, Burma/Myanmar and Vietnam,” said Nishimura in an interview in Da Nang.

At the same time, economic ministers of Asean have adopted core components of the Asean Connectivity Masterplan, including a strategic transport plan from 2011-2015; information and technology master plan from 2011-2015 and the Asean tourism strategic plan from 2011-2015.

Asean economies gearing for a single market by 2015 have planned and adopted ambitious projects that are expected to improve physical and institutional connectivity to boost growth and prosperity.

The onset of the global financial crisis and the response of economies have shown that Asean remains “fragile” and its less-developed members have not yet built enough capacity to cope with external tensions.

Dr. Surin said most Asean members have survived the impact of the global recession through stimulus packages, but these are not sustainable.

Asean as a regional bloc needs to strengthen itself from within and should stop competing against each member to attract foreign investments.

The economic ministers stressed the need to intensify public information and outreach campaigns to gain support for the ambitious infrastructure projects from the grassroots level.

The population in most of Southeast Asia are predominantly farmers, workers, youth and mothers who cannot deal with the numbers and complicated acronyms and terms used by experts who drafted the single-market goal.

But they are the frontliners when it comes to issues of poverty, hunger, injustice and all forms of deprivation that the goal of a single market will supposedly address in the first place.

Most of Asean members have pressing issues to address, like human rights and justice in Burma/Myanmar, peace and security and good governance in the Philippines.

But members have, for many years, tended to play down such pressing issues in deference to the Asean policy of constructive engagement and noninterference.

Given these, the road to creating a single market for the world’s biggest and most powerful regional bloc—in terms of human capital and resources—faces many roadblocks.

Still, there are those who hope that the global community will be inspired enough to set aside the failure in Doha, due to the powerful nations’ refusal to ease protective measures, and work to succeed in Southeast Asia.