3 - Intra-Regional Trade Liberalization in ASEAN a la AFTA

Summary

Introduction

It is common knowledge that ASEAN (Association of Southeast Asian Nations) was created in 1967 primarily for security reasons in the midst of the Cold War. Understandably, geopolitics has always been the main focus of ASEAN affairs. Economics did not receive any attention in the first decade of ASEAN, although some lipservice was paid to regional economic co-operation in the second decade. Several economic co-operation schemes,which were initiated at the Bali Summit in 1976, did not perform well, either because they were formulated hastily without careful studies or because they were implemented in a somewhat half-hearted manner.

This observation need not be taken as a criticism. For it might well be argued that tightly knit regional economic integration is not in the best interest of ASEAN, given its extensive extra-regional commercial linkages. A closer economic co-operation would have rendered ASEAN an inward-looking regional entity and might have resulted in welfare losses. Besides, the distribution of gains and losses would have been very uneven, given the wide development disparities among its members.

ASEAN may not be considered a ‘natural grouping', if the share of intra-regional trade is any measure. Intra-ASEAN trade has constituted less than one-fifth of the total trade until recently and much of it is accounted for by the entrepot trade of Singapore. ASEAN may not also meet another, more stringent, criterion of a 'natural grouping', which requires complementarity in supply structures to prevent preferential trading arrangements from hurting third countries. For ASEAN economies tend to compete with one another in international markets.

If hindsight is any help, ASEAN countries do not need regional economic co-operation to prosper. ASEAN economies have registered creditable growth rates in the past. This, however, does not mean that ASEAN is of no economic consequence. Far from it. ASEAN has helped defuse tension and prevent conflicts in the region so that its members could concentrate on economic pursuits. The usefulness of ASEAN is beyond question, although the Cold War, which necessitated it, is over. Again, the current accent is clearly on geopolitical security and stability, with economic co-operation serving as a means rather than an end.