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WILL ASEAN ECONOMIC INTEGRATION PROGRESS BEYOND A FREE TRADE AREA?

Published online by Cambridge University Press:  17 January 2008

Lay Hong Tan
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Abstract

The raison d'être of ASEAN was a political one,1 to secure the region's peace, stability, and development. Against all odds, the founding members, namely, Indonesia, Malaysia, the Philippines, Singapore, and Thailand signed the ASEAN Declaration on 8 August 1967. Brunei was admitted in January 1984, Vietnam in 1995, which was followed closely by Laos and Myanmar in 1997. Thirty-two years later, on 30 April 1999, ASEAN formally encompassed all ten countries of South-East Asia by admitting Cambodia.2

Type
Articles
Information
International & Comparative Law Quarterly , Volume 53 , Issue 4 , October 2004 , pp. 935 - 967
Copyright
Copyright © British Institute of International and Comparative Law 2004

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References

1 South-East Asia was a region in tumult in the early 1960s. Singapore, Malaysia, and Brunei were struggling for survival and independence after being ‘de-colonized’ by Great Britain. Diplomatic ties between Malaysia and Philippines were severed between 1962–1966 owing to the Sabah dispute. Then there was the confrontation between Indonesia and Malaysia;the separation of Singapore from Malaysia in August 1965, barely 3 years after merger with Malaysia; the Vietnam War, together with the threat of an expansion of communism to South-East Asia by the Chinese leaders during the Cultural Revolution of 1967, all of which contributed to the birth of ASEAN, see Yew, LKThe Singapore Story-Memoirs of Lee Kuan Yew (SingaporePress Holdings Times Editions 1998) 628–63.Google Scholar

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32 Executive Order No 161. A copy can be obtained from <http://www.aseansec.org/14284.htm>. Singapore and Thailand initiated consultations with Philippines on the matter under AFTA. In August 2003, Singapore and the Philippines reached an amicable agreement in which the Philippines agreed to pay compensatory adjustment measures to Singapore through a programme of tariff reductions of Singapore's exports to Philippines. The adjustment measures due in favour of Singapore would be equivalent to the actual tariff differential collected by the Philippines for year 2003 and 2004 on eleven petrochemical products exported from Singapore to the Philippines. This information is obtained from the Ministry of Trade and Industry of Singapore..+Singapore+and+Thailand+initiated+consultations+with+Philippines+on+the+matter+under+AFTA.+In+August+2003,+Singapore+and+the+Philippines+reached+an+amicable+agreement+in+which+the+Philippines+agreed+to+pay+compensatory+adjustment+measures+to+Singapore+through+a+programme+of+tariff+reductions+of+Singapore's+exports+to+Philippines.+The+adjustment+measures+due+in+favour+of+Singapore+would+be+equivalent+to+the+actual+tariff+differential+collected+by+the+Philippines+for+year+2003+and+2004+on+eleven+petrochemical+products+exported+from+Singapore+to+the+Philippines.+This+information+is+obtained+from+the+Ministry+of+Trade+and+Industry+of+Singapore.>Google Scholar

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45 The following economists have critiqued and expanded work on Viner's paradigm: Meade, JThe Theory of Customs Unions (AmsterdamNorthHolland 1955);Google ScholarGehrels, ‘Customs Unions From a Single Country Viewpoint’ (1950–1957) 24 Review of Economic Studies 61–4;CrossRefGoogle ScholarLipsey, ‘The Theory of Customs Unions: A General Survey’ (1960) 70 The Economic Journal 496–513;CrossRefGoogle ScholarCooper, and Massell, ‘A New Look At Customs Union Theory’ (1965) 75 Economic Journal 742–7;CrossRefGoogle Scholarand Wonnacott, and Wonnacott, ‘Is Unilateral Tariff Reduction Preferable to a Customs Union?’ (1981) 71 American Economic Review 704–14.Google Scholar

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52 The ASEAN Community Roundtable on ‘Towards Realising An ASEAN Community’ hosted by the Institute of South-East Asian Studies and held on 4–5 June 2004, which this author was invited to attend as an observer.Google Scholar

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62 Art 12(1), AIA provides that Member States affirm their existing rights and obligations under the 1987 ASEAN Agreement for the Promotion and Protection of Investments and its 1996 Protocol. In the event that this Agreement provides for better or enhanced provisions over the said Agreement and its Protocol, then such provisions of this Agreement shall prevail.Google Scholar

63 The Straits Times 17 May 2002, H2. There are many areas of contention between Singapore and Malaysia even in the pre-independence days. They range from serious concerns tike the ‘water issue’, ‘tudung issue’ and the reclamation works carried out by Singapore around Pulau Tekong and Tuas, which Malaysia alleged violated their territorial sovereignty, to even trivial matters that Singapore was buying fewer tomatoes from Malaysia.Google Scholar

64 Haas, above n 3 at 857–63. Common law forms the basis for the legal systems of Brunei, Malaysia, and Singapore, while Spanish and US laws significantly influence the Philippines’ legal system. Indonesia, on the other hand, follows the construct of the Dutch legal system, and Thailand's legal system derives from an amalgamation of the continental and common law structures.Google Scholar

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72 Since the establishment of NAFTA, total trade and investment between Canada, Mexico, and the US have steadily increased each year. Canada's merchandise trade with the US reached US$588.7 billion in 2000. Two-way merchandise trade between Canada and Mexico has doubled since 1994 to reach US$14.1 billion in 2000. In terms of Canada's merchandise exports, 86.6 per cent went to the NAFTA partners, see Department of Foreign Affairs and International Trade (2001) <http://www.dfait-maeci.gc.ca/nafta-alena/over-e.asp>..>Google Scholar

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76 I have used the term ‘indigenous ASEAN investor or company’ to mean companies that are incorporated locally and wholly owned by nationals of the ASEAN countries. Note that a whollyowned subsidiary of a foreign multinational corporation would not qualify as an ASEAN investor as it would not meet the ASEAN equity requirement.Google Scholar

77 Studies by the Japanese EXIM bank, JETRO, the Nomura Research Institute, and the Economist Intelligent Unit on AFTA and AICO support the view that more firms, especially Japanese firms, are undertaking investment strategies or regional operation activities built around the various regional arrangements. These firms capitalize on AFTA and AICO by establishing multiple plants which are strategically located across ASEAN, each with specific integrated products functions to produce parts, components, and finished products that allow optimal integrated operation processes, see the ASEAN Investment Report (1999) at 46.Google Scholar

78 Ibid.

79 Under NAFTA, a Member State may deny access to an investor of another Member State if the investor is owned or controlled by investors from a non-Member State, and the denying Member State does not maintain diplomatic relations with the non-Member State; or adopts or maintains measures with respect to the non-Member State that prohibit transactions with the investor. Alternatively, a NAFTA Member State may deny access to an investor from a Member State that is owned or controlled by an investor from a non-Member State, if the first mentioned investor does not carry on a substantial business activity in the territory of that Member State. In contrast, the AIA has gone the other way and permitted investors owned by non-ASEAN members to access and invest in ASEAN. A copy of the NAFTA agreement can be obtained from <http://www.sice.oas.org/trade/nafta/chap-l11.asp>..>Google Scholar

80 Under this mandate, the ASEAN Coordinating Committee on Investment had conducted joint investment missions to major cities in the US and Japan. The private sectors from both host and source countries have been actively wooed to participate in these programmes, and information has been disseminated to the public through the ASEAN Supporting Industry database and various publications. Detailed discussions on the ASEAN Coordinating Committee's work to implement the AIA can be found in the ASEAN Investment Report (2000). The ASEAN Supporting Industry database contains more than 11,000 entries of parts and component manufacturers and is a valuable resource that investors can tap into. In addition, the Committee has organized regional training workshops for the VLMC countries to help them implement the AIA in their respective countries as well as coordinate the publication of numerous reports on FDI in ASEAN.Google Scholar

81 Note that unlike the NAFTA agreement, the subsidiary does not even need to prove that it has a substantial business in Singapore.Google Scholar

82 Yun-Keung Kwan, F and Qiu, LD ‘The ASEAN+3 Trading Bloc’ Working Paper Series No 198, City University of Hong Kong (2003). In this study, the authors used direct econometric evidence to show that integration among ASEAN countries has led to increased FDI inflows from Japan. In fact, compared with the rest of the world, an ASEAN member will receive an additional 3 per cent increase in Japanese FDI inflows per one percentage point increase in openness.Google Scholar

83 The other types of FDI are the ‘trade-barrier circumventing’ or ‘tariff-jumping’ FDI, ‘market and technology accessing or market-seeking’ FDI and ‘round-tripping’ FDI. A discussion on them can be found in Fukushima, K and Kwan, CH ‘Foreign Direct Investment and Regional Industrial Restructuring in Asia’ in The New Wave of Foreign Direct Investment in Asia (SingaporeInstitute of South-East Asian Studies 1995) 3, 8–10.Google Scholar

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85 For instance, Mitsubishi Corporation launched a brand-to-brand complementation scheme which involved a regional division of labour amongst Malaysia, Thailand, and the Philippines. Malaysia concentrated on the production of door panels and other stamped parts, Thailand specialized in the manufacture of fuel tanks, consoles, bumpers and windshields, while the Philippines focused on the production of transmission parts, see P-C Athukorala and J Meno above n 22, at 81.Google Scholar

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88 The Straits Times 5 Nov 2002. A study commissioned by the ASEAN leaders has found that the costs of doing business in ASEAN had become ‘unnecessarily high’, not to mention the differing product standards and customs red tape that have prevented companies from achieving economies of scale across the region. The study concluded that ASEAN's competitiveness has been seriously eroded and the grouping has failed to capitalize on its strengths.Google Scholar

89 A copy of the Declaration can be obtained from <http://iir.nccu.edu.tw/cscap/page_4c/documents/aseanvision2020.h>. The Declaration, inter alia, called for the creation of a stable, prosperous, and highly competitive ASEAN economic region in which there is a free flow of services and investments, a freer flow of capital, equitable economic development, and reduced poverty and socio-economic disparities..+The+Declaration,+inter+alia,+called+for+the+creation+of+a+stable,+prosperous,+and+highly+competitive+ASEAN+economic+region+in+which+there+is+a+free+flow+of+services+and+investments,+a+freer+flow+of+capital,+equitable+economic+development,+and+reduced+poverty+and+socio-economic+disparities.>Google Scholar

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92 In January 2003, skirmishes between the Thai and Cambodian governments over insensitive remarks made by a popular Thai actress sparked off rioters who attacked the Thai embassy in Cambodia. A month later, Cambodia closed its borders with Thailand to protest against the unequal trade ties between the two countries, see The Straits Times 7 Feb 2002 and 7 Mar 2003.Google Scholar

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94 The Straits Times 24 Jan 2003. Malaysia has ambitious plans to compete with Singapore in the sea-air transshipment business. It has built the Tanjung Pelapas Port which drew two of Singapore's largest clients (Mearsk and Evergreen) to use its facilities there. It hopes to build another port at Kuantan to intercept transshipment cargo en-route to Singapore.Google Scholar

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