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2 ASIA HAND One step
forward, two back for ASEAN By
Shawn W Crispin
BANGKOK - Just when it
seemed the Association of Southeast Asian Nations
(ASEAN) was united in its desire to establish a
cohesive, rules-based economic bloc, a series of
bilateral trade and investment spats has sent the
10-member regional grouping careering back toward
collective irrelevance - only this time to
potentially disastrous effect.
ASEAN
members agreed last month to fast-track the
establishment of a long-discussed regional
free-trade area, moving
up
the timetable by five years for eliminating
tariffs and promoting the free flow of capital
across regional borders from 2020 to 2015. More
significant, ASEAN also unanimously approved a
blueprint to transform the informal grouping into
a legally defined entity, giving it the central
authority to impose sanctions on members that
break its rules and regulations.
Those
were unusually bold moves for ASEAN, which
throughout its 40-year existence has served more
as a regional talk shop than a venue for hammering
out binding trade and investment agreements.
Formed loosely in 1967 to promote regional
security, culture exchanges and economic
prosperity, an expanded ASEAN now represents the
region's best hope of engaging and
counterbalancing China's economic rise on a
somewhat equal basis. It includes Thailand,
Malaysia, Singapore, Vietnam, Indonesia, the
Philippines, Cambodia, Laos, Myanmar and Brunei.
Last year, ASEAN agreed in principle to
establish a free-trade agreement with China, which
by 2010 should represent the world's largest
free-trade area, eclipsing both the European Union
and the North American Free Trade Area. It was a
deal that ASEAN's comparatively smaller economies
could not refuse, but one that China could still
go lukewarm on if the underlying conditions shift
- as recent protectionist lurches across the
region seem to indicate.
China's total
investment in ASEAN last year reached US$1.3
billion, including $200 million in new capital
outlays in 2006, according to Chinese Ministry of
Commerce official statistics. Meanwhile,
Sino-ASEAN trade hit a record high of $160.8
billion last year, up 23% year on year, and is
projected to rise to about $170 billion this year.
China is now on pace to become the region's
largest trade partner, surpassing the United
States, by year's end.
Behind those
statistics, however, China still represents a
potent threat to the region's transitional
economies. Beijing's proven track record of luring
away big foreign investments once destined for
Southeast Asia is slowly but surely pushing the
region down the value-added ladder as a mere
raw-materials and commodity-providing link in
China's emerging global manufacturing supply
chain. [1]
Ever since the 1997-98 Asian
financial crisis, China's huge unified market has
provided multinational manufacturers the
economies-of-scale benefits with which ASEAN's
still-fragmented markets cannot compete. While
Thailand's, Indonesia's, Malaysia's and
Singapore's relative economic openness were good
enough to win big export-oriented foreign
investments throughout the mid-1980s and 1990s,
that's clearly no longer the case as Asian
governments now nearly universally embrace
free-market economics.
Faster economic and
financial integration are therefore crucial in
resurrecting and maintaining Southeast Asia's
attractiveness to foreign investors - an urgent
conclusion that the grouping's economic ministers'
meeting came to belatedly in January.
Contrarian signals Yet while
ASEAN publicly pronounces plans for fast-track
liberalization, its individual members are sending
contrarian protectionist signals. Thailand in
particular has recently implemented policies,
including controversial capital controls on
certain types of foreign investments, that are at
direct odds with ASEAN's now-invigorated
liberalization drive.
A recent Bloomberg
report that referred to an Australia and New
Zealand note to clients hinted that Vietnam may
soon implement similar capital controls on foreign
equity transactions to cool speculation on the
stock market.
But a handful of politically
charged trade and investment rows among the
regional grouping's key members are raising the
hardest questions about individual countries'
political commitment to moving toward ASEAN's
plans for rules-based economic union.
Capital-flush Singapore, which is already making
the sort of investments in the region ASEAN says
it hopes to encourage, has significantly emerged
as the region's whipping boy.
Thailand's
and Singapore's escalating row over the island
state's politically charged $1.9 billion
acquisition of Shin Corp last year represents the
most heated and potentially damaging case in
point. Thailand's inward-looking ruling junta has
repeatedly said that Singapore's ownership of a
communications satellite operated through a
government concession undermines national
security, and military leaders have vaguely
threatened to nationalize the assets.
In
Indonesia, meanwhile, nationalistic politicians
have alleged that Singapore's investments in two
local telecommunication companies could be in
violation of local anti-monopoly laws - more than
four years after the multimillion-dollar
transactions were signed and sealed. Indonesia
also recently imposed a ban on exporting sand to
the neighboring island state, which uses the fill
for land-reclamation projects. Indonesia's
protectionist move follows a similar Malaysian
boycott on sand exports to Singapore. To be
sure, bilateral spats have always complicated
ASEAN's stated intention of developing a cohesive
and coherent regional marketplace. That's largely
because most member states trade
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