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ASEAN ECONOMIC INTEGRATION
by Worapot Manupipatpong Director for Investment, Finance and Surveillance



(This paper was presented at a conference on ASEAN into the New Millennium
sponsored by the Indonesian Council on World Affairs
held in Jakarta on 26 August 1999)

To give you an overall view of what ASEAN aims to achieve and how it positions itself in the global community, allow me to refer to the grand vision of ASEAN called ASEAN 2020.

The ASEAN Heads of States and Government in Kuala Lumpur on 15 December 1997 have promulgated the ASEAN Vision 2020 charting a new direction for ASEAN through the turn of the century towards the year 2020. That vision is of an outward and forward looking ASEAN, living in peace, stability and prosperity, bonded together in partnership in dynamic development and in a community of caring society. In economic terms, it portrays ASEAN as one stable, prosperous and highly competitive Economic Region in which there is a free flow of goods, services and investments, a freer flow of capital, equitable economic development and reduced poverty and socio-economic disparities.

In moving toward ASEAN 2020, a six-year action plan, called the Hanoi Plan of Action or HPA, was drawn up and adopted by the ASEAN Heads of States and Government in Hanoi in December last year. It lays down specific steps and measures to be taken during the years 1999-2004 in order to strengthen macroeconomic and financial cooperation, advance economic integration and promote social, science & technology and information technology infrastructure as well as human resources development. The Plan is currently being implemented.

Recognizing an immediate need to quickly regain business confidence and hasten economic recovery, the Statement of Bold Measures was announced in Hanoi at the same time as the HPA. The Bold Measures involve an acceleration of the establishment of the ASEAN Free Trade Area or AFTA and ASEAN Investment Area or AIA including the provision of special incentives and privileges to qualified foreign investors for a limited period. To further encourage investment, the leaders agreed to waive the 30% national equity requirement for firms wishing to take advantage of the ASEAN Industrial Cooperation Scheme or AICO. Finally, they agreed on a new round of negotiation in services beginning in the year 1999 and ending in 2001, in all services sectors and all modes of supply.

On AFTA, the six original members agree to achieve a minimum of 90% of their total tariff lines with tariffs of 0-5% by the year 2000 and bring forward the implementation of AFTA from 2003 to 2002.

On Investment, ASEAN investors can now invest in manufacturing sector in any member country subject to certain exclusions which shall be phased out by 2003 instead of 2010 as previously agreed. Non-ASEAN investors can also invest in the manufacturing sector and enjoy special privileges if they come in between now and the end of year 2000. These privileges include income tax exemption, full foreign equity ownership, duty-free imports of capital goods, domestic market access and at least 30-year long-term lease for industrial land. They can also hire foreign personnel and enjoy speedy customs clearance. These privileges stay for the life of the investment and are additional to incentives each ASEAN country already offers to foreign investors.

On Industrial Cooperation, those who qualify and opt for ASEAN Industrial Cooperation Scheme during the same two-year window will also be waived the 30% national equity requirement in addition to being given full AFTA treatment. A number of large Japanese and European multinational companies, many in the automotive industry, have already taken advantage of the scheme.

In addition to accelerating liberalization in trade through tariff reduction and liberalization in investment through the opening up of industries and the granting of national treatment, integration is being fostered through trade facilitation measures in customs, harmonizing product standards and facilitating goods in transit.

In the area of customs, ASEAN countries are scheduled to implement the WTO Valuation Agreement in the Year 2000. We are also working on a common tariff nomenclature at the 8-digit Harmonized System level to be implemented by the year 2002. The Green Lane has been expanded to cover all ASEAN products. There is a strong commitment on the part of customs administrations in ASEAN to work towards world-class efficiency through automation and modernization of customs procedures.

To eliminate technical barriers to trade, a Framework Agreement on Mutual Recognition Arrangements or MRAs was signed in December 1998. MRAs allow countries to recognize one another's product standards or regulations and make it easier for trade to occur. Efforts are currently under way to formulate specific MRAs in three important areas - telecommunication equipment, pharmaceutical products and cosmetics.

A Framework Agreement on the Facilitation of Goods in Transit was also signed in December 1998. This will allow goods to be moved by road or rail across ASEAN countries with minimum customs inspections, vehicle specifications and regulations for drivers.

Work is also proceeding on bringing down barriers to investment. Studies will be conducted to identify and suggest ways to eliminate investment impediments. Investment application processes are being streamlined and made more transparent.

ASEAN is also strengthening its cooperation to foster the development of Small and Medium Enterprises. Annual match-making workshops are being organized to promote SME joint-ventures. Various forms of funding support are being explored including regional export financing and credit guarantee schemes, and an ASEAN Investment Fund.

Beyond trade in goods, ASEAN is bringing down barriers to trade among member countries in seven services sectors - air transport, business services, construction, financial services, maritime transport, telecommunication and tourism. A new round of negotiations on trade in services has already started and will eventually be expanded beyond the seven sectors above to cover all services and all modes of supply.

Supporting economic integration in trade and investment are the development of regional infrastructure and closer cooperation in developing human resources and science and technology, particularly information technology. Transport linkages are being streamlined through landmark agreements on goods in transit and multi-modal transport. An agreement on inter-state transport is being worked out. Plans for road or highway networks, railway links and trans-boundary gas pipelines have been laid. Framework and modality for the ASEAN Power Grid are being considered.

Telecommunications networks will be integrated through greater interconnectivity, coordination of frequencies and mutual recognition of equipment-type approval procedure, providing an infrastructure for the ongoing coordination to develop cross-border electronic commerce in ASEAN.

On human resources development and capacity building, ASEAN officials and private sectors have been participating in series of regional workshops and training programs in a wide variety of areas conducted by ASEAN and international experts in their respective fields. This ongoing activity has promoted the sharing of experiences, joint discussion of policy options and private sector participation. It also provides an opportunity to assist less developed members in their integration into various ASEAN schemes.

Economic integration has also been complemented by the considerable progress made on financial cooperation over the past few years. The ASEAN Surveillance Process has been established and the first peer review conducted early this year. Under the surveillance process, ASEAN is developing an early warning system to keep track of macroeconomic trends and provide early detection of any adverse development. Another integrated component of the surveillance process of equally importance if not more is the peer review in which ASEAN countries exchange views with one another on economic developments and measures being undertaken to address the crisis as well as jointly formulate policy responses to pending problems. Together with the early warning system, it provides safeguard against future crisis by providing an opportunity to take early unilateral or collective action against minor but potentially disastrous disturbances. It also promotes closer coordination of macroeconomic policies and facilitates peer support or in some cases exerts peer pressure for necessary economic and financial reforms.

In an effort to further strengthen its financial system, ASEAN plans to adopt and implement sound international financial practices and standards by 2003. Capital markets will be deepened, particularly the bond market, to provide a wider variety of instruments with longer maturity and ample liquidity. Further collective efforts shall be put into improving the practice of good governance. Accurate and reliable information shall be made available to all market participants in a timely manner and on a regular basis so that they can properly and independently monitor and assess the risk associated with their transactions. At a macro-level, ASEAN will also be working closely together to harmonize data collection and reporting systems on a wide range of statistics. This is to ensure that improved transparency and timely disclosure are complemented by equally high quality information that is reliable and comparable across countries. Capital account liberalization shall be properly sequenced so as to allow a freer flow of capitals while certain measures can be put in place to mitigate the adverse impact of sudden shift in capital flows.

Cooperation in money, tax and insurance will intensify. There will be greater use of ASEAN currencies in intra-regional trade and services while a study shall be conducted to consider a possibility of an ASEAN exchange rate system including a common ASEAN currency. On tax and insurance, we aim to establish ASEAN Tax Training and ASEAN Insurance Training and Research Institutes by the year 2003.

In general, ASEAN economic integration will be gradual in nature and cater to individual country's own capacity. This is particularly true for the liberalization process as it would allow ASEAN countries to develop their regulatory structures, trade, finance and investment regimes as well as legal framework to adequately support the more open and competitive systems. ASEAN companies can also build up their competitiveness in stages as they are gradually exposed to increased competition from regional to international level. Less developed countries are given more time to liberalize their trade and investment regimes. At the same time they will also be given assistance to build their capacity to integrate into ASEAN schemes.

ASEAN is also collaborating its integration efforts across related sectors. For example, experts on transport and insurance will get together this October in Jakarta to jointly draft the protocol on Common ASEAN Scheme on Motor Vehicle Third Party Liability Insurance to complement the facilitation of goods in transit. ASEAN Economic, Finance and Foreign Ministers will be meeting for the first time this November before the informal summit in Manila to exchange views on progresses in their respective areas of cooperation and discuss ways to further support each other cooperative efforts.

The next millennium will see increased cooperation between ASEAN and its dialogue partners as well as other non-dialogue countries in a larger grouping like East Asia, ASEM or APEC. Recognizing the considerable linkages between ASEAN and the rest of the world, we will see a more proactive ASEAN in these regional and international fora with participating members actively pursuing ASEAN common positions or interests on various issues ranging from finance and economics to social, environment and security.

After the Hanoi Plan of Action, there will be other action plans to carry the integration momentum forward, which shall require the same or even stronger commitment from member countries, economically and politically, both in terms of human and financial resources. Advancing economic integration will strengthen ASEAN competitiveness and allows the region and its members to compete successfully in an increasingly competitive global community.

With that, let me conclude by sharing with you a short story on competitiveness.

The story begins with these two friends who had saved just enough to go to Africa for a safari tour. Once there, they went directly into the jungle and with luck, immediately spotted a huge Rhinoceros. As they moved toward it in order to take a good close-up picture, the wind suddenly changed its direction and the Rhinoceros smelled the two intruders. The luck had turned against them as the Rhino charged toward our two friends at full speed. As they are running away from the chasing Rhino, one of them took off his shoes and pulled a new pair of Nike shoes from his backpack and put them on. Amazed by his friend's action, the other guy asked, "Are you stupid? Do you really think you can outrun a Rhino with the Nike?" Continued running at a faster speed, he turned to his friend who is running closely behind and responded, "My dear friend, I may not be able to outrun the Rhino. But given the current circumstance, it is very important that I outrun you."

As the story illustrates, ladies and gentlemen, one cannot afford to stay behind in a competitive world.

Thank you very much.

26 August 1999



 

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