SECTION 3: ASEAN’S EXPERIENCE OF REGIONAL CO-OPERATION
The Association of South East Asian Nations (ASEAN) was born in 1967 amidst underdevelopment, chronic instability, and inter-state conflicts. The original five members (now 10) had little in common apart from climate and natural resources and somewhat similar ideological orientation. However, right from the outset ASEAN leaders recognised that integration as in the EU (or EEC at that time) would be difficult to reconcile with national interests and priorities. ASEAN leaders have, therefore, always shunned any suggestion of supra-nationalism and have been averse to the idea of building a strong institutional framework with rigid procedures as found, for instance, in the EU.
The statement of intent in the 1967 Bangkok Declaration, through which ASEAN was formed, reveals this. 25
Member countries would engage in such activities as joint cultural endeavours, exchange of cultural groups, meetings of scientists, agriculturists, postal authorities and so on. Seen in this perspective, ASEAN’s main objective clearly is co-operation rather than integration. It can be asserted, therefore, that regional co-operation is not to supplement national development efforts in the case of ASEAN. ASEAN emerged as an extension of national efforts for development through co-operation in the socio-economic, technical and cultural fields. More importantly, the countries, especially, Malaysia, the Philippines and Indonesia, were afflicted by incipient communist insurgency. The alleged Chinese involvement in fomenting communist insurgency movements and their alleged complicity in the attempted coup in Indonesia sharpened the threat perceptions of these nations in a more or less similar direction. Thus, the central goal is the furtherance of the cause of peace, harmony and stability in the region and to concert and harmonise efforts in accelerating economic development.
In many ASEAN countries today there is a widely-shared view that by and large the governments have been quite successful in undertaking first-order domestic adjustments, measured in terms of enhancing the economy’s ‘international competitiveness’. It simply suggests that in ASEAN countries, where economic reform is being initiated and promoted by the governments, their focus of attention and efforts have been first and foremost with the question of managing the process of reform and opening up of the economy, namely, with the problems of how to maintain macroeconomic stability as a pre-requisite for the reform, how to sequence the reform, and how to be able to demonstrate clear benefits from the reform. There has not been a sufficient awareness that the sustainability and the success of the reform process do not only depend on its positive achievements, but also on how well the negative impacts are seen to be dealt with. It can be asserted, therefore, that the second-order adjustment are as important as the first-order adjustments, since the process of participating in globalisation will need to be compatible with the country’s domestic social and political stability. This requirement becomes more real and urgent in the societies with more democratic political systems. In the longer run it is also important for more authoritarian systems.
ASEAN has drawn considerable interest in and outside the region because of its pragmatic policy, based on the objective assessment of what other countries (the East Asian newly industrialised economies – NICs) have been able to achieve. As a consequence, regional co-operation helps its participants to take part in global economic integration more effectively as a group of regional economies. Thus, in Southeast Asia, AFTA (ASEAN Free Trade Area) and APEC (Asia Pacific Economic Co-operation) are widely seen as representing the globalisation phenomenon because of the importance of trade and investment liberalisation on the agenda of these fora.
This paper undertakes a review and assessment of economic co-operation in a number of specific areas. 26
While there is no direct causality that can be attributed to the dynamic economic performance of the ASEAN economies in economic co-operation in the last three decades, it cannot be denied that the relative peace and stability in the region, and the increasing interactions among ASEAN states (officials, businesses, citizens) greatly enhanced the process and character of growth. According to an ASEAN scholar, Professor Jomo of the University of Malaysia, Kuala Lumpur, ASEAN has been able to attain such spectacular growth because of several factors:27
- emergence of ASEAN as one of the world’s most important exporters of primary products, such as rubber, tin, coffee, palm oil, rice, tapioca and copra, several kinds of other minerals like crude oil, petroleum, natural gas;
- private enterprise, dependence on market forces, emphasis on international standards of economic efficiency in resources allocation and production;
- financial stability and favourable foreign investment policy and liberal system of capital movements; and
- favourable political situation strongly conducive to economic development.
The ASEAN economies have grown rather accustomed to growth. The question has traditionally been ‘how much?’ rather than ‘will there be?’ as in ECOWAS. However, ASEAN’s achievements in the main areas of economic co-operation, specifically PTA, have been negligible, at best. The reason for the slow progress, according to Dr Samuel Okposen of the Multimedia University Malaysia may be traced to a number of factors. 28
Those familiar with what drives the ASEAN economies understand that dependence on commodity exports is both a bane and a blessing to them. Nine of the ASEAN Ten – Singapore excepted – are immensely well-endowed and major exporters of primary commodities. Thailand, the Philippines and Indonesia are the region’s ‘food bowls’ while Malaysia and Vietnam, along with the previous three, produce large quantities of rubber, palm oil, coconut and tin for export. Indonesia and Brunei serve as the region’s ‘petrol pumps’, relying heavily on it for export revenue, while Malaysia also produces large amounts of petroleum and liquefied natural gas.
ASEAN countries are dependent on both capital and intermediate goods such as chemicals, steel, iron, machines and transport equipment. While some, like Malaysia, may have made great inroads in producing certain items – it is the third largest producer of semi-conductors in the world after the United States and Japan – this is not true for the whole. ASEAN industry has prospered in light-consumer products such as textiles and resource-based products.
Moreover, expansion of intra-regional trade in manufacturing is constrained by lack of complementarity among the ASEAN market. The major problem is one of evolving ‘an agreed mechanism of who will produce what, and, their reluctance for market sharing arrangements beyond economic co-operation.’ 29
Why then have there been so few takers when it comes to regional trade and industrialisation schemes? Basically, the answer to this lies in determining the ‘truth’ behind the commonly held assumption that ASEAN members are full-bloodedly and unabashedly committed to ‘regionalism’. Regional interests are accorded priority only when they promote national interests. This also means that the ASEAN member countries had development perceptions regarding the long-term benefits to be derived from industrialisation or market sharing basis. While a more rigid trade regime may be acceptable to a number of ASEAN countries, this is certainly not true of all. Singapore and Brunei operate ‘free market’, and offer very little protection to their industries from all imports, not just those within the region. Judging from official and unofficial statements – gathered from the ASEAN Ministerial meetings proceedings – by their ministers, the Philippines, Thailand and Malaysia may also not be averse to the idea of initiating some economic integration scheme. 30
Indonesia with a population of over 160 million people had taken a different course of action from the very start of the organisation. She saw no need or little need to open the domestic market to ‘foreigners’. Instead, national policies were adopted to actively protect its industries from imports. Indonesians, therefore, have chosen to word their commitment to ASEAN differently: ‘ASEAN’, Indonesians declare, ‘can only be as strong as its individual members’, Ergo, what is good for Indonesia is also good for
ASEAN. 31
In many respects, although Indonesia may stand out in its ‘regionalism through nationalism’ attitude; this sentiment is shared by other countries as well for very different reasons. For as pointed out by Prime Minister of Malaysia – Dato’ Seri Dr Mahathir bin Mohamad ‘the enormous speeds attained by the ASEAN economies in the past decade were almost entirely of their own doing.’ 32
At its height, Singapore, for example, grew by an annual average of 9.2 per cent between 1984 and 1994, while Malaysia and Indonesia managed to attain 7.6 and 7.1 per cent respectively in the same period.33
Little of this can be attributed in any direct way to regional economic efforts.
Given the above and the ASEAN gentlemanly tradition of obtaining agreement from all ten parties before it proceeds on any decision, how then does closer co-operation come about? As one ASEAN scholar, Professor Othman of University of Malaysia, Kuala Lumpur puts it: ‘Promoting good outcomes is not just a matter of lecturing the players about the fact that there is more to be gained from mutual co-operation than mutual defection. It is also a matter of shaping the characteristic of interaction so that over the long run there can be a stable evolution of co-operation.’ 34
A careful reading of the unpublished ASEAN reviews indicate several salient points. For one, significant accomplishments were made in various areas. These range from regular ministerial meetings and dialogues to specific agreements (for example, coverage of tariff concessions, ASEAN Industrial Joint Ventures (AIJV) approvals, qualities of food security reserves, creation of ad hoc committees, and so forth). Another is the completion of many collaborative studies and understandings among all ASEAN states collectively (the 6-x, now 10-x principles). These range from simple declarations to concrete policy directives (for example, the use of ASEAN currencies for the settlement of trade payments, brand-to-brand complementation, the Singapore-Johor-Riau agreements, BIMP-EAGA, and so forth). Also, ASEAN solidarity was exhibited in various external fora, ranging from the ratification of international conventions to trade negotiations. The initiation of the development discussions with dialogue partners also strengthened ASEAN’s voice in dealing with bilateral donor countries.
As an observer and ASEAN scholar, at least three pervasive views can be discerned from my readings, interviews and judgement of economic co-operation in ASEAN. Transport co-operation is dismal and lacks urgency, while trade co-operation is punctuated by nominal agreements that mimick progress rather than reflect forthright efforts.
Second, the economic performance of ASEAN economies since the organisation started is impressive. Observers take great care in their pronouncements about the causal influence of ASEAN in this respect. Yet there is the acceptance of the fact that ASEAN’s conscious efforts at the conference table to achieve relative peace and stability in the region have resulted in the region’s ability to concentrate on substantial economic matters. The economic progress achieved by member states since 1970 appears to be a result of unilateral economic reforms and policies. Each member recognised early on that progress hinged on a predictable economic environment and sufficient public resources for infrastructure, resources that would have been earmarked for non-economic activities under less stable, less peaceful, and more hostile conditions.
With internal threats set aside, ASEAN was poised to take advantage of global restructuring in the late 1970s and mid-1980s. In particular, the currency realignments following the Plaza Accord helped, in large measure, the export boom of the ASEAN members and reaffirmed the importance of trade to these economies.
A final salient point of the reviews of ASEAN is the conclusion that ASEAN stands at a crossroads of its existence. There is a diplomatic style, which emphasises organisational minimalism, personal relationships, consensus, informality, politeness and intensive consultation. The ‘ASEANization’ process on security matters operates under the purview of musyawarah dan muafakat (the process of decision-making through discussions and consultation leading to consensus), 35
which are associated with traditional village politics in certain parts of Indonesia, Malaysia and the Philippines. It has engendered what can only be called ‘quiet diplomacy’ on issues of tension and rivalries. Agendas and discussions are constructed in such a way as to minimise conflict and to maximise the comfort level for all participants. Culturally, this particular model may be considered as part of the regional socio-cultural system. Prior to 1995, ASEAN has one ethnic and culturally dominant group – peoples of the Malay stock (except in Thailand). This may be unique to the ASEAN six but within the ASEAN ten raises some fundamental issues.
However, according to Dr Pushpa Thambipillai (University of Brunei) who conducted a study on ASEAN negotiating methods, there are a number of do’s and don’ts in the face of ASEAN negotiators: ‘For example, one does not approach a topic too directly in the initial stages, but probes around with the preliminaries before ‘coming to the point’.’ 36
The very fact that negotiations occur at different levels is viewed as an asset in consensus formation. From the committees to the senior officials and finally, to the ministerial meetings-at each level consensus is sought. By the time the final meeting on an issue is held basic differences would have been ironed out and the public would only hear the common areas of co-operation agreed upon, or the policy statement on a particular issue.
The issue of organisational structure and decision-making mechanism was discussed with scholars and opinion-formers in ASEAN capitals. The respondents, while recommending delegation of more responsibility to the ASEAN Secretariat, were in favour of not creating a highly centralised regional bureaucracy that may tend to subvert national sovereignty. Moreover, the respondents also supported the present lengthy but consultative and consensual method of decision-making.
AREAS AND MODALITIES OF COOPERATION
Attempt at regional economic co-operation began with the signing of the Declaration of ASEAN Concord in 1976. Trade liberalisation and industrial co-operation formed the core of the effort. In addition, there is regional co-operation in resource pooling and sharing, finance and banking, food, agriculture and forestry, transport and communication and private sector trade co-operation, tourism, science and technology, control of drug abuse and cultural affairs.
As an observer of ASEAN, three general observations may be made about the modalities of economic co-operation. In the first place, co-operation programmes are conceived, proposed and carried out in an informal and consultative manner. A certain country comes up with a proposal and discusses with one or more of his colleagues in other ASEAN countries. If they agree, the programme is undertaken under ASEAN banner. Secondly, it is not necessary that all ten have to agree to undertake an ASEAN programme because there is scope to opt out under 10-x formula of decision making. Thirdly, in view of the divergent economic structures and levels of economic development, ‘the pace of development of the slowest member,’ as described by a respondent of the present study, ‘is the pace of economic co-operation of the ASEAN.’
Trade Co-operation: ASEAN economies are trade-oriented, 37
each having a large external sector. Intra-ASEAN trade remains a small percentage of total trade for each of the ASEAN countries and a large share is accounted for by Singapore’s ‘entrepot’ trade. With the exception of Brunei, intra-ASEAN exports have increased for most of the ASEAN countries. The picture of intra-ASEAN imports reveals a less dramatic growth trend. However, the growth in intra-ASEAN trade can, in a large part, be attributed to overall growth of trade and the economies of each of the ASEAN countries as part of their overall restructuring and adjustment programmes domestically, rather than due to the ASEAN Free Trade Area (AFTA). This is because tariff reductions only began in 1994 and the scope of liberalisation is still confined to tariffs at present. Trade co-operation in ASEAN takes the shape of liberalisation which was conceived as far back as the 1970s when the ASEAN governments commissioned a UN Team to study the possibilities of closer co-operation, complete removal of tariffs and non-tariff barriers.
Co-operation through selective trade liberalisation was designed to increase efficiency and secure a more economical use of resources and in the long run, increasing trade among the ASEAN countries. Intra-ASEAN trade is relatively high for Malaysia, Singapore and Indonesia, but low for Thailand and the Philippines. Most of the intra-ASEAN trade that takes place for the aforementioned ASEAN 4 (see table 3) is with Singapore, while the highest share of intra-ASEAN trade in the case of Singapore is Malaysia. The underlying motivation for intra-ASEAN economic co-operation, as argued by Okposen is not aimed at ASEAN markets, as in the case of European co-operation and integration, but more in line with increasing ASEAN’s competitiveness as a production location so that the ASEAN countries can compete in the world market. 38
As earlier mentioned, the basic framework for the promotion of intra-ASEAN trade is provided by the ASEAN Preferential Trade Arrangements (PTA) signed by the Foreign Ministers of ASEAN countries in February 1977, and which comprised preferential tariffs on selected products which was only enjoyed based on ASEAN most favoured nation status. Specific instruments identified in PTA are: a) exchange of tariff preferences; b) purchase finance support; c) long term quantity contracts; and d) preference in procurement by government entities and liberalisation of non-tariff measures on a preferential basis.
The most important measure for liberalising intra-ASEAN trade involved extension of tariff preferences on a product-by-product basis. The fifteen commodity groups initially considered for PTA were certain types of textiles, clothing and footwear, certain chemicals and pharmaceuticals, certain types of preserved and packaged foodstuffs and certain types of household equipment and other consumer durables chosen to be on the fast track. 39
For fast track products with tariffs greater than 20 per cent, there would be an immediate reduction to 20 per cent, and within 10 years to 0-5 per cent. For fast track products with tariffs at about 20 per cent or below, tariffs would be reduced to 0-7 per cent within seven years. For other manufactured goods with tariffs greater than 20 per cent, the schedule of reduction was to be announced at the start date.
| Accelerated Tariff Reduction Schedule |
|
| | Old Timetable | | Accelerated Timetable |
| Normal Track | | | | |
| Tariffs > 20% | | 20% by 2001 | | 20% by 1998 |
| | 15% by 2003 | | 0-5% by 2003 |
| | 10% by 2005 | | 0-5% by 2007 |
| Tariffs < 20% | | 15% by 2003 | | 0-5% by 2000 | |
| | 10% by 2005 | | 0-5% by 2007 |
| Fast Track | | | | |
| Tariffs > 20% | | 0-5% by 2003 | | 0-5% by 2000 |
| Tariffs < 20% | | 0-5% by 2000 | | 0-5% by 1998 |
|
|
Source: ASEAN Secretariat, Jakarta, Indonesia. |
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Since 1980, this was complemented by across-the-board tariff reduction on selected items. Any tariff preference granted to one member country is automatically extended to all other countries. The principle was applied to those industries in which production was in the hands of numerous small-scale or medium-scale enterprises. Progress in intra-regional trade liberalisation up till 1991 had been slow due to implementation problems and lack of political will. In the early 1990s, the ASEAN governments increasingly realised that improving and strengthening such co-operation was imperative for the viability and relevance of ASEAN. The prospects of this proposition are hinted by the success of ASEAN which, according to Secretary General Dato’Agit Singh, is in the process of transforming into ‘a single investment region.’ 40
Foreign Direct Investment (FDI): Another sector that attracted much attention was the AFTA and the impact of FDI on trade. FDI refers to private long-term capital flows, which are intended to acquire a significant interest in an enterprise with the objective of being directly involved in its management. Evidence suggests that ASEAN remains relatively attractive as a regional haven for FDIs. Among the ASEAN countries, Malaysia, Singapore and Indonesia have continued to be still attractive. A 1998 UNCTAD survey of 500 largest MNCs in the world notes that Malaysia continues to remain an attractive investment destination. Amongst the reasons given are its lower property prices and cost of production arising from the currency depreciation and its relatively more liberal approach to
FDI. 41
Generally, most of the FDIs to ASEAN are from countries such as the United States, Japan, UK, Germany and Taiwan. Southeast Asian countries – especially Malaysia – continue to promote foreign direct investment (FDI), but discourage destabilising short-term capital flows. The ASEAN countries recognises that FDI has brought benefits in terms of transfer of technology and management expertise, employment creation, new product development, trade generation and access to new markets, beside being an important source of capital.
ASEAN countries continue to provide a liberal and competitive environment for FDI, by ensuring the presence of suitable supporting infrastructure, the availability of a well-trained manpower, consistency of policy, controlled repatriation of profits, expeditious approvals for investments and the provision of an attractive incentive package. While providing an appropriate environment for investment, the Southeast Asian countries made sure that FDI flows are mutually beneficial as well as consistent with the development objectives of the country in question. For example, Malaysia promoted FDI inflows which were assembly-type and labour intensive, but in the 1990s favoured FDI which is capital- intensive and high-tech. (See table on FDI Inflows by Home Region and Economy 1984-1994). It also ensures that newly established domestic industries which have potential are not exposed to unfair competition and that the employment and equity objectives under the New Economic Policy and the National Development Policy are not jeopardised.
Industrial Co-operation: The basic purpose of ASEAN industrial co-operation is to enable the ASEAN economies to reap the benefits of economies of large scale production, given the relatively small domestic markets of the ASEAN countries, through various programmes such as the joint production of basic industrial goods, industrial complementation in specific sectors and other schemes of joint industrial ventures.
Attempts at industrial co-operation, namely, including ASEAN Industrial Projects (AIP), started in the aftermath of the Bali summit. Under the scheme, each member country was allocated a large scale (US $300-400 million) industrial project, the output of which was to be accorded preferential access under PTA. The package included Urea Project in Indonesia and Malaysia, Copper Fabrication Project in the Philippines, a Hepatitis Vaccine Project in Singapore and Rock Salt Soda Ash Project in Thailand. 42
Other areas of co-operation include (but are not limited to): Finance and Banking, Food, Agriculture and Forestry; Transport and Communication, Mineral and Energy; Private Sector Economic Co-operation, Tourism, Science and Technology.
One striking characteristic of the ASEAN organisation is that the member states have hitherto co-operated primarily not for regional development, but basically for national development. Thus, economic nationalism limits co-operation, a pattern that ASEAN shares with other regional organisations where nationalistic impulses collide with collective goals. This is particularly acute in ASEAN in view of the fact that the smallest member of the ASEAN happens to be economically the most advanced, while the largest and politically most influential country is economically comparatively less developed. Such disparate levels of economic development had led to search for national solution of problems. Singapore, for example, seeks extra-regional contacts to sustain her economy and so do other member states.
At the regional level however, it was left to Indonesia to determine the type and format of joint projects, in line with what it could accommodate nationally. Consequently, ASEAN adopting common policies in certain areas appears to be a contentious point in regional discussions. There will always be differences in the distribution of benefits from a common regional policy and compensatory mechanisms for adjustment problems may not be automatic, as in the case of a proposal for a common agricultural policy in ASEAN.
The assessments and viewpoints of the cross-section of the people interviewed in connection with the study indicated a general consensus that ASEAN would follow its own course through experiences over time. So they are ‘not worried about the extent of co-operation actually achieved at the moment.’ 43
Another overall assessment of the ASEAN respondents was that on the whole ASEAN’s success was more in politico-strategic fields, specially in evolving an ‘ASEAN stand’, generating ASEAN identity and attaining regional stability, than in economic fields. Going into details of the political achievements, scholars in Malaysia and Indonesia argued that the major gains have been:
- Overcoming of the political crises; the problems are not completely solved but they have achieved a crisis management mechanism through open consultation and some degree of tolerance.
- ASEAN spirit- they feel very much ASEAN when they talk to outsiders;
- Evolution of certain ethics and values that help maintain a good neighbourly conduct and environment of co-operation in which differences are not allowed to reach a crisis point;
- In case of external influence, ASEAN countries face it together. Any extra-regional country cannot influence any member without ASEAN consensus.
The Thai scholars and opinion-forming elites stressed the achievement of bargaining strength by joining together and attainment of regional security. They also pointed out that bilateral problems are now easily solved. By way of example they mentioned that Thailand and Malaysia were able to solve a fishing problem by one visit of Thai officials to Malaysia.
Views in Kuala Lumpur were also similar. 44
It was pointed out that big powers couldn’t create confusion among the ASEAN countries because each country briefs the others about the proceedings of meetings with them. This practice contributes to dispelling of misgiving and building of greater confidence. Kuala Lumpur respondents also underscored the value of the diplomacy of conciliation based on mutual respect and consideration.
Opinion in Jakarta emphasised on the ASEAN identity and people-to-people contact at various levels. In Manila this was termed as community feelings while in Bandar Seri Begwan it was called political understanding and rapport.
The contention that ASEAN has been deflected from its regional goal of economic co-operation was also dwelt on. The respondents agreed that such has been the case but at the same time, it was pointed out that the regional strategic environment has dictated such deflection. As to poor performance in intra-regional economic co-operation, it was stated that the major lacuna lies in not encouraging the private sectors in each country to cooperate with the others. 45
The emphasis on the unilateral, on what each nation can do for itself, is central to creating a region of co-operative prosperity and economic dynamism. Moreover, Dr Mahathir put this succinctly in a speech delivered on ‘The Future of Asia’ – ‘We must act unilaterally, wherever possible, to reduce tension, to solve conflict, to generate confidence. Let us not forget the old Arabian saying the whole road is clean if everyone sweeps the front of his house.’46
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