ASEAN or the Association of Southeast Asian Nations was formed at the height of the cold war in August 1967 when the five original members — Indonesia, Malaysia, Philippines, Singapore, and Thailand — joined together. Brunei Darussalam became a member in January 1984, Vietnam in July 1995, Lao PDR and Myanmar in July 1997 and Cambodia in April 1999. According to ASEAN, as of 2006, the ASEAN region had a population of about 560 million, a total area of 4.5 million square kilometers, a combined gross domestic product of almost US$1,100 billion, and a total trade of about US$1,400 billion. The member nations are located in Southeast Asia with China to the north, India to the west and Australia to the south (see map below).

ASEAN’s prosperity depends on international trade — its ratio of exports to GDP is about 60 percent but is higher for many of its members. The group’s economic geography is as spectacular as its topography. Elaborate networks of production span the region and extend to China, Japan and South Korea. Much of the region’s trade is in components (such as car parts) and tasks (such as assembly) rather than finished goods. The table below gives selected relevant data for member countries and ASEAN as a whole.

Goals

According to the organization, the ASEAN Declaration states that the aims and purposes of the association are to accelerate economic growth, social progress and cultural development in the region and to promote regional peace and stability through abiding respect for justice and the rule of law in the relationship among countries in the region and adherence to the principles of the United Nations Charter. The target is an ASEAN Economic Community that should allow the creation of a stable, prosperous and highly competitive economic region in which there is a free flow of goods, services, investment and a freer flow of capital, equitable economic development and reduced poverty and socio-economic disparities by the year 2020.

The ASEAN Economic Community is to work towards the establishment of a single market and production base to make the region a more dynamic and stronger segment of the global supply chain. They are charged with establishing new mechanisms and measures to strengthen existing economic initiatives including the ASEAN Free Trade Area (AFTA), ASEAN Framework Agreement on Services (AFAS) and ASEAN Investment Area (AIA) and accelerate regional integration by 2010 in air travel, agro-based products, automotives, e-commerce, electronics, fisheries, healthcare, rubber-based products, textiles & apparels, tourism and wood-based products.

The ASEAN Free Trade Area (AFTA) which has been in place since 1992, has been promoting the region’s competitive advantage as a single production unit. Tariff and non-tariff barrier elimination among member countries continues to promote greater economic efficiency, productivity and competitiveness. For example, as of January 1, 2005 tariffs on almost 99 percent of the products in the Inclusion List of the ASEAN-6 (Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand) had been reduced to no more than 5 percent. More than 60 percent of these products have zero tariffs. For the newer members — Cambodia, Lao PDR, Myanmar, and Viet Nam (CLMV) — tariffs on about 81 percent of their Inclusion List have been brought down to within the zero to five percent range.

Recent bilateral agreements

ASEAN completed a free trade agreement with India at the end of August. Australia and New Zealand also have signed on in principle to similar accords. ASEAN now will have agreements with all six of the region's major countries. The deal with India, which will be signed at a heads of state meeting in Bangkok this December, was clinched after a list of some 1,400 tariff-exempt goods was whittled down to 489, mostly agricultural products. Talks to liberalize services and investments next year are under way. And Australia and New Zealand have agreed to a free trade pact that not only cuts tariffs on goods, but also incorporates services, investments and intellectual property. They also hope to sign this year. Free trade accords with China and South Korea are already in place while an economic partnership agreement with Japan will take effect this year.

After the Doha round of global trade talks broke up after seven years of intense negotiations — primarily because of sharp divisions between the U.S., India and China about access to agricultural markets in the developing world. With the Geneva disappointment, some free traders find consolation in the success of bilateral and regional deals such as those agreed upon by ASEAN. Since the Doha round was launched almost seven years ago, over 100 such deals have come into force, lowering tariffs for some members of the World Trade Organisation (WTO) but not others. Regionalism’s critics contend that preferential trade deals are not just inferior to multilateral trade but that they also undermine its foundations.

Some of ASEAN’s success may be due to the ASEAN Free-Trade Area (AFTA), which has cut barriers between members and attracted foreign direct investment. But it also demonstrates the flaws of such agreements. For example, if a country wants to grant favors to one trading partner but not all, it has to write complex rules of origin to establish the nationality of a product. However, ASEAN’s success owes more to ambitious cuts in its most favored nation (MFN) tariffs, which applies to everybody. Going forward, however, ASEAN intends to focus on expanding the free trade zone rather than signing agreements with individual nations.

The European Union and ASEAN

While the EU has exclusive rights to negotiate trade deals on behalf of its members, ASEAN's progress in negotiating as a block has been limited. It has agreed to free trade pacts with China and South Korea (though Thailand has opted out of the latter because it excludes trade in rice). But for all its faults, the EU has achieved economic integration through its members' willingness to pool sovereignty in important policy areas. It has created a powerful central bureaucracy to enforce the block's laws and through huge aid transfers from richer to poorer members. ASEAN says that it must move towards all three of these goals. But the block's leaders lack the political maturity to take such bold steps so its future is unknown. The association consists of 10 small and medium-size developing countries that do not boast solid political unity. That said, the members appear to be remarkably united in pursuing their common trade strategy — a welcome factor from the viewpoint of promoting free trade in East Asia.

Bottom Line

ASEAN’s success is in the eyes of the beholder and the organization has a long way to go to reach integration on the scale of the European Union. The failure of the Doha round of free trade talks shifts focus to regional pacts such as ASEAN. For some, ASEAN is perceived as an increasingly influential player in East Asian economic diplomacy especially after it reached its agreement with India. It has also reached basic agreements on trade liberalization with Australia and New Zealand. ASEAN's strategy is clearly aimed at putting itself at the center of economic diplomacy in the region by signing free trade pacts with key trade powers including Japan, China, South Korea, India and Australia.

The agreements with India, Australia and New Zealand coming so soon after Doha’s collapse send a powerful message. The global trade talks may have stumbled, but regional pacts are pushing ahead, particularly in the fastest-growing part of the world economy. According to the World Trade Organisation (WTO), over 200 regional and bilateral agreements are in place with many more under negotiation. More than 100 came into force during Doha’s seven frustrating years.

What is troubling, however, is the state of Japan's relations with ASEAN. Japan and ASEAN struck a bilateral “economic partnership agreement” in November 2007, and prime minister Yasuo Fukuda extended the regular Diet session to have the agreement ratified in June. But ASEAN reactions to the pact have been lukewarm. And with some members not quite willing to ratify the accord, it remains unclear when it will actually come into force. While the agreement lowers ASEAN import tariffs on industrial products, it does not significantly open Japan's market for ASEAN farm products. It is hardly surprising that some ASEAN members are not enthusiastic about the trade pact. Even more disturbing is the large number of Japanese companies that think little of the accord. Some leading companies apparently even believe it is unnecessary.