Under one ASEAN - an impossible
dream By Gary LaMoshi
DENPASAR, Bali - When leaders of the Association
of Southeast Asian Nations (ASEAN) meet in Jakarta next
week, they'll have two big ideas making the rounds in
their minds. One is greater integration between the 10
ASEAN member states. The other is the region's
competition with China for investment, jobs and export
opportunities.
A recently published study from
consultants McKinsey & Company combines these two
ideas into a prescription for ASEAN to recapture its
economic vigor. The study says that ASEAN is losing its
competitive edge to China (and India) and recommends
closer integration of the ASEAN member states as a cure.
Research for the paper was completed before the
2003 ASEAN Summit in Bali, where leaders endorsed
creating a European Union-style single market by 2020
(See Asia's summit season: Just alphabet
soup, October 24, 2003). That summit also
featured a challenge from Chinese Premier Wen Jiabao for
ASEAN to boost trade with the Middle Kingdom.
On
Monday, Malaysia's Prime Minister Abdullah Ahmad Badawi
combined the two ideas, suggesting that ASEAN and China,
plus Japan and South Korea, form a greater East Asian
Community. "We have dallied long enough," Badawi
declared.
The region's other leaders seem to
agree that these twin pillars - closing ranks with each
other and with China - are the right prescription for
ASEAN. But the building blocks rest on a faulty
assumption and an impossible dream.
China
syndrome The faulty assumption is that China and
ASEAN compete the way companies do, where one side wins
and others lose. When it comes to foreign direct
investment (FDI) for manufacturing plants and other
infrastructure, countries do compete for a limited pool
of dollars, yen or euros. But, as China demonstrates,
even winners need friends.
While China chalks up
a massive trade surplus with the US, it runs a trade
deficit with ASEAN, importing everything from Indonesian
gas to electronic components from Thailand, Malaysia and
Singapore. China's call for increased trade with ASEAN
is a plea to keep fuel flowing to its burgeoning
industrial machine. China's recent attempts to throttle
back its explosive growth won't reverse the trend.
But while ASEAN may lose the headline battle for
FDI, it directly benefits from those investments in
China. Even in today's globalized world that supposedly
conquers distance, ASEAN gains much more from
investments in China than it would if those investments
went to Mexico or Poland. So it's in ASEAN's interest to
work with China to keep foreign investment streaming
into the region, no matter which country it lands in.
Competition between FDI contenders needs to be leavened
with understanding of the regional benefits.
Dream team An ASEAN Economic Community
(AEC) able to compete with China is the impossible dream
in this vision. And a tempting dream it is: 560 million
people with consumer spending of US$330 billion,
equivalent to China's wealthy coastal provinces. A
single market would also allow the consolidation of
operations in different countries to achieve greater
economies of scale and greater profits.
On the
export side, the McKinsey research estimates that
integration would cut the cost of electronics production
by 10-20%. Consumer goods manufacturers and other
companies could also cut costs by up to 20% thanks to
simplified border crossings, single production runs for
items such as hand soap and reduced working capital
requirements due to streamlined inventories.
Despite the obvious advantages of greater
integration, few ASEAN governments are willing to make
the tough decisions required. This lack of political
will points to the easy way out on other issues, too,
such as corruption, equal opportunity in education and
labor laws. It's simpler to pander to entrenched
interests or, at the other end of the spectrum, to keep
behaving autocratically, than it is to reform or to
surrender even a slice of sovereignty to strengthen
ASEAN.
While ASEAN leaders at the 2003 summit
declared they would take the next step toward an AEC by
2020, they still haven't closed the previous chapter.
Creation of the ASEAN Free Trade Area (AFTA) has been
fraught with delays and difficulties. Tariffs still
haven't disappeared and certain sectors remain
protected.
Odd coupling ASEAN's 10
member countries simply aren't for real integration. The
group includes underdeveloped microeconomies Laos and
Cambodia, wealthy microeconomies Singapore and Brunei,
pariah state Burma and communist Vietnam. The challenges
of integration go far beyond bridging per capita income
gaps and the possibly painful adjustment period ahead.
Moreover, no ASEAN leader has articulated the
advantages of integration convincingly to the
population. There's no public hint of even a broad
blueprint for the AEC. A serious plan for integration
would require beefing up ASEAN institutions; if form
holds, that would inspire a bitter row over where these
enlarged institutions would be headquartered as well as
who'd work in them before they got down to making any
real changes.
Creating a single market would
also shut down popular avenues for corruption, such as
customs. But the legal issue is more fundamental. An
ASEAN single market would require a readiness to follow
rules. If national authorities have failed to convince
citizens that rules apply across the board - yes, even
to you - it's unlikely that some remote regional
institution can manage it.
Fortunately, ASEAN
doesn't need to go all the way to the AEC to coexist
profitably with China's economic explosion and resume
its pre-crisis growth curve. The bad news is that
virtually every ASEAN country must undertake major
internal reforms to succeed with its ASEAN colleagues,
China or the world at large. Those changes don't require
new institutions or a vision that overcomes ASEAN's vast
economic differences and nationalist impulses. But few
member states have shown the political will to dare take
even baby steps in that direction.
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