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'Asean free trade pacts weak’
Publication Date : 26-12-2013
Asean free trade agreements (FTAs) tend to be ‘weak’ and could be distracting members from real economic reforms and regional integration, argued a study that reviews progress in the Asean Economic Community.
The Asian Development Bank (ADB) recently published a collection of articles in a study called “Asesan Economic Community – A Work in Progress”. The study looked at whether or not the AEC is achievable by 2015, the obstacles along the way in achieving it and the measures needed for eventual achievement.
Included in the study is an article by Razeen Sally, a visiting associate professor at the Lee Kuan Yew School of Public Policy, that characterised Asean FTAs as weak compared to other regional FTAs.
In his article titled “Asean FTAs: State of Play and Outlook for Asean’s Regional and Global Integration”, Razeen argued on a wide range of existing FTAs within the regional grouping as well as economic partners and suggested that “FTAs that Asean has concluded hardly promote regional economic integration or Asean’s integration with the wider Asia or the global economy”.
“They certainly will not help achieve the AEC by 2015,” he added in the report.
“There is ‘no serious prospect’ for regional FTAs actually to deepen economic integration,” Razeen suggested. He also proposed a different approach to regional economic integration.
While the agreements commit the parties to eliminating tariffs on trade among themselves, they do not address regulatory and other non-tariff barriers (NTBs), such as product standards and mutual recognition arrangements, services, investment, intellectual property rights, government procurement, or the movement of business people, which are all more important than tariffs for regional economic integration, according to the report overview.
Razeen suggested “that the AFTA reinforced by the AEC and the Asean Charter, looks good on paper”. However, he said that actual liberalisation beyond tariffs have been “weak and tardy” which made the most of the ambitious general commitments look like “paper tigers”.
Razeen pointed out that the AFTA’s Asean Way is reflected in Asean countries’ bilateral FTAs. “With the exception of some of Singapore’s FTA they are trade-light, at best fairly strong on tariff elimination, but also weak-to-very weak in tackling NTBs and regulatory barriers,” he said.
This is in turn reflected in Asesan Plus One FTAs. In general, they are “AFTA-minus”: the stronger ones go far on tariff elimination but are weak in other areas; the weaker ones are also less than comprehensive and overly complex on tariff elimination. “The weakness of all these FTAs is highlighted when compared with the three US and EU FTAs in Asia.”
Razeen noted the region’s diversity, saying that “countries (are) at widely different stages of development and differing levels of protection, competing producer interests, a history of intra-regional conflict and lack of a culture of cross-border cooperation, geopolitical divisions”. This, he said, has made impossible the creation of strong regional institutions, and hard policy coordination and deep integration.
“These reasons also preclude the emergence of strong region-wide FTAs. If such FTAs materialise, they will likely be even weaker than Asean+1 FTAs”, wrote Razeen.
Not new grand designs
The best that can be said for Asean+1 FTAs, Razeen argued in the article, was that there was little or no evidence to show that they had been a big obstacle to the region’s further regional and global economic integration, “apart from distracting attention from unilateral liberalisation and the World Trade Organisation’s Doha Round”.
He conceded that politically, FTAs can be said up to a point as “an expression of ‘strategic’ engagement between Asean and its major regional partners”. However, he suggested that even if these FTAs were stronger, they would still face the challenge of reconciling regional integration and global integration objectives and that “Asean cannot afford any contradiction between the two”.
“(Asean) is the most integrated sub-region in East Asian production-sharing arrangements (through imports and exports of intermediate goods and related FDI), but the latter still rely overwhelmingly on Western demand for finished goods. Preventing FTAs from compromising existing and future global supply chains will be an enduring challenge,” he said.
Razeen said that the Asean FTAs “cannot be wished away” but said that the point was to make them as compatible as possible with regional and global integration objectives.
He said that the answer was not “new grand designs that indulge in wishful thinking and distract attention from what is both feasible and desirable”. Instead, they should be “modest, incremental reforms that work with the grain of Asean and wider Asian realities”, he said. These could include filling in gaps in tariff elimination “by reducing exclusion lists and accelerating transition periods”, and ironing out inconsistencies between Asean+1 FTAs and Asean countries’ bilateral FTAs with the same external partners.
He also called for the strengthening of work programmes and implementation systems on NTBs in goods, standards and trade facilitation and establishing third-party mechanisms to assess FTA commitments and outcomes, and make their findings public.
A steep hill to climb
He said that those, however, are second-order priorities for regional and global integration.
He said that the first priority should be to revive country-by-country liberalisation of trade and foreign direct investment, now extended to next-generation, behind-the-border reforms. “That would spark competitive emulation within and beyond Asean. This was the real driver of Asean’s regional and global integration from the 1980s,” he said.
“This is indeed a steep hill to climb. But I think it is more scalable than top-down liberalisation through international and regional institutions,” he said.
He said the economically sound case for unilateral liberalisation must be made by experts and opinion-formers for a policymaking and broader public audience. He also recommended that policy-makers take advantage of events and circumstances – including crises and perceptions of flagging national competitiveness – to push through unilateral reforms.
He suggested that they scan the environment to emulate best practices abroad rather than wait for cumbersome, time-consuming international and regional negotiations to deliver desired outcomes.
“And fourth, all the above would be more achievable without the distraction of ambitious new initiatives and grand designs for regional integration, which invariably promise much but deliver little.”