1. by Marn-Heong Wong Assistant Professor
(1) Historical Development in ASEAN Economic Cooperation (2) Towards the ASEAN Economic Community
by Marn-Heong Wong
Assistant Professor

2. Learning Objectives To develop students’ knowledge of:
the changing economic context that drives ASEAN economic cooperation over the years;
details of these cooperation efforts;
in particular, the policy measures that ASEAN is undertaking to create an ASEAN Economic Community (AEC) by 2015 and the status of AEC implementation to-date.
MHW LKYSPP 2012

3. Suggested Key Contents
1. Early stage of economic cooperation (1970s/1980s). 2. Agreement to establish an ASEAN Free Trade Area (AFTA) (Singapore 1992) and other cooperation efforts in the 1990s. 3. Post-1997 Asian financial crisis and Road to an ASEAN Economic Community (AEC) (Bali Concord II 2003): details of AEC initiatives and update on progress.
MHW LKYSPP 2012

4. Short List of Teaching Materials
Severino, R. (2006), Southeast Asia in Search of an ASEAN Community, Chapter 5: Integrating the Regional Economy, Singapore: Institute of Southeast Asian Studies.
Severino, R. (2008), ASEAN, Chapter 3: ASEAN and the Regional Economy, part of the Southeast Asia Background Series, edited by Professor Saw Swee Hock, Singapore: Institute of Southeast Asian Studies.
Wong, M-H., Shankar R. and R. Toh (2011), ASEAN Competitiveness Report 2010, Singapore: Asia Competitiveness Institute.
MHW LKYSPP 2012

5. Short List of Teaching Materials
ASEAN Secretariat (2010). Roadmap for an ASEAN Community , ASEAN Economic Community Blueprint, Jakarta: ASEAN Secretariat.
 ASEAN (2010). Master Plan on ASEAN Connectivity, October 2010.
 ASEAN Secretariat (2011). ASEAN Economic Community Factbook, Jakarta: ASEAN Secretariat.
Various newspaper articles and news releases from the ASEAN Secretariat, and Chairman’s Statements at ASEAN Summits and Ministerial Statements.
MHW LKYSPP 2012

6. Early Stage of Economic Cooperation
1st ASEAN Summit (Bali 1976) puts economic cooperation on the ASEAN agenda
Context:
Energy crisis of ; energy and food security
Opportunities to cooperate on large-scale industrial projects to spur industrialization and sell in the regional market
Focus: to implement industrial policy on a regional scale, not trade liberalization and regional economic integration
Preferential Trading Arrangement (1977): accorded tariff preferences for trade among ASEAN countries in food and energy, the products of the ASEAN Industrial Projects and industrial complementation schemes, and negotiated lists of other goods
MHW LKYSPP 2012

7. Early Stage of Economic Cooperation
PTA was a failure, reflecting protectionist spirit and import-substitution policies of the time
By the end of the 1980s, nearly 16,000 products were on the PTA list, but they amounted to less than one percent of intra-ASEAN trade. E.g. snow ploughs and nuclear reactors
ASEAN’s industrial cooperation efforts were also largely unsuccessful
Only 2 of 5 inter-governmental ASEAN Industrial Projects implemented: lack of commitment of states, several changes in projects, clashes of national interests and inadequate financial and technical support
MHW LKYSPP 2012

8. Early Stage of Economic Cooperation
Industrial complementation schemes with private- sector participation fared better
ASEAN Industrial Complementation Program (1981), Brand-to-brand complementation scheme (1988), ASEAN Industrial Joint Venture (1983)
ASEAN Industrial Cooperation scheme (1977) superseded earlier industrial complementation schemes
Key references
Severino, R. (2006), Southeast Asia in Search of an ASEAN Community, Chapter 5: Integrating the Regional Economy
Severino, R. (2008), ASEAN, Chapter 3: ASEAN and the Regional Economy
MHW LKYSPP 2012

9. Economic Cooperation in the 1990s - AFTA
ASEAN changed its approach to economic cooperation in the early 1990s
Let businesses and market considerations determine trade and investment decisions
Government agreements aim to make trade and investment freer and easier and foster economic integration
Context (by the late 1980s):
Growing regionalism elsewhere (EU, NAFTA, Mercosur)
Uruguay Round paving the way for greater globalisation (though faltering at one stage)
New dynamism of China and later India from reforms pose greater competition for markets and investments
Establishment of an AFTA will prepare ASEAN industries for global competition, attract investments to the region, give ASEAN a more significant voice in the world economy
MHW LKYSPP 2012

10. Economic Cooperation in the 1990s - AFTA
Agreement on the Common Effective Preferential Tariff (CEPT) Scheme for the ASEAN Free Trade Area (AFTA) (1992): member countries to gradually reduce their tariff rates on intra-ASEAN trade in manufactured and processed agricultural products, with limited exceptions, to 0 to 5 percent within 15 years starting from January 1993.
Quantitative restrictions and other non-tariff barriers were also set to be eliminated.
The timeline was shortened to ten years (by 2003) in and most unprocessed agricultural products brought into the scheme; in 1998, timeline for ASEAN- 6 advanced to 2002
In 2003, ASEAN Economic Ministers adopted a target of zero tariffs by 2010 for the ASEAN-6 and 2015 for the CLMV countries, with some exceptions
MHW LKYSPP 2012

11. Economic Cooperation in the 1990s - AFTA
ASEAN has made great strides in tariff elimination
From 1 Jan 2010, ASEAN-6 countries can import and export almost all goods across their borders at no tariff. (covering 99.11% of tariff lines under CEPT-AFTA)
CLMV countries are scheduled to reduce tariffs on almost all products to zero by 015.
But little progress with removing non-tariff barriers despite provisions to do so
MHW LKYSPP 2012

12. Economic Cooperation in the 1990s - AFTA
In the second half of the 1990s, ASEAN also signed the ASEAN Framework Agreement on Services (AFAS) to promote the free flow of services by 2015 and the Framework Agreement on the ASEAN Investment Area (AIA) to reduce or eliminate investment barriers and grant national treatment to ASEAN and non-ASEAN investors.
The AFTA, AIA and AFAS together form the building blocks for the ASEAN Economic Community (AEC).
Key reference
Severino, R. (2006), Southeast Asia in Search of an ASEAN Community, Chapter 5: Integrating the Regional Economy
WMH LKYSPP 2012

13. Economic Cooperation in the 2000s - AEC
Context (post-1997, early 2000s):
Concern over ASEAN economies’ weakened ability to attract FDI post-1997
Rising competition from China and India
Deeper economic integration to create an integrated market seen as way to increase attractiveness to investors
Goal of an AEC was first formulated at the 2003 ASEAN Summit in Bali as the realisation of the end-goal of economic integration as outlined in the ASEAN Vision 2020 (1997)
Timeline advanced to 2015 in 2007
The AEC Blueprint adopted in 2007 sets clear targets, actions and timelines for the implementation of various measures from 2008 to 2015 to create an AEC.
MHW LKYSPP 2012

14. Economic Cooperation in the 2000s - AEC
The AEC as envisaged would comprise four key interrelated and mutually reinforcing characteristics:
(i) A single market and production base: free flow of goods, services, investment and skilled labour, as well as a freer flow of capital.
The single market and production base also includes two important components: (1) the 12 priority integration sectors: agro-based products, automotive, electronics, fisheries, rubber-based products, textiles and apparels, wood-based products, e-ASEAN (information and communication technology), healthcare, air travel (air transport), tourism and logistics, as well as (2) the food, agriculture and forestry products/commodities.
Priority sectors are selected based on considerations such as economic significance, growth potential in exports and FDI, broad relevance across ASEAN, urgency of reform and importance to consumers.
WMH LKYSPP 2012

15. Economic Cooperation in the 2000s - AEC
(ii) A competitive economic region: competition policy, consumer protection, intellectual property rights, infrastructure development, avoidance of double taxation, and promotion of e-commerce.
(iii) Equitable economic development: Small and Medium Enterprise (SME) development and Initiative for ASEAN Integration to narrow the development gap.
(iv) Integration into the global economy: adopting a coherent approach towards external economic relations through Free Trade Agreements (FTA) and Closer Economic Partnerships (CEP) while maintaining ASEAN centrality, and enhancing participation in global supply networks.
WMH LKYSPP 2012

16. Economic Cooperation in the 2000s - AEC
AEC Scorecard
To track progress towards the AEC 2015, a scorecard mechanism has been developed to monitor the implementation of measures listed in the AEC Blueprint.
First AEC Scorecard (April 2010); second AEC Scorecard (March 2012)
As of end-December 2011, 67.5 percent of (or 187 out of 277) measures scheduled for phase I ( ) and phase II ( ) implementation have been completed [=> behind schedule]
Measures that were not implemented were due to delays in ratification of signed ASEAN-wide agreements and their alignment into national domestic laws as well as delays in implementation of specific initiatives.
WMH LKYSPP 2012

17. Economic Cooperation in the 2000s - AEC
AEC Scorecard
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18. Economic Cooperation in the 2000s - AEC
Selected Areas of AEC Blueprint Implementation
Trade and investment liberalization and facilitation
Trade in goods
Tariff barriers have been substantially lowered
Rules of origin simplified
Considerable work remains for ASEAN in the elimination of non-tariff barriers and trade facilitation to reduce trade transaction costs.
E.g. ASEAN Single Window (ASW) to expedite customs clearance of goods across the region. A single window provides one entry point for traders to lodge information with government to fulfil all import- or export-related regulatory requirements. The ASW is an environment where ten National Single Windows (NSWs) of individual member countries operate and integrate.
WMH LKYSPP 2012

19. Economic Cooperation in the 2000s - AEC
Trade and investment liberalization and facilitation (cont.)
Trade in goods
ASW (cont.) NSWs of ASEAN-6 activated but at different levels of operational development. CLMV to set up NSWs by Need to accelerate the establishment of an ASW. Technical/legal issues.
Trade in services
8th package of services liberalization commitments under AFAS under negotiation since Oct 2010
Issue with opening up services sector for higher foreign equity participation
Conclusion and implementation of mutual recognition agreements (MRAs) on professional qualifications
WMH LKYSPP 2012

20. Economic Cooperation in the 2000s - AEC
Trade and investment liberalization and facilitation (cont.)
Investment
ASEAN Comprehensive Investment Agreement (ACIA) entered into force in March 2012 after a long delay (signed in Feb 2009)
Financial Cooperation
ASEAN financial cooperation gained momentum in 1997 with the onset of the Asian financial crisis
Chiang Mai Initiative Multilateralization agreement (a multilateral currency swap arrangement) implemented in March with Plus Three economies of China, Japan and South Korea to address short-term liquidity problems among participants and strengthen regional financial stability; (started with Chiang Mai Initiative in 2000)
ASEAN Trading Link
WMH LKYSPP 2012

21. Economic Cooperation in the 2000s - AEC
External Economic Relations
To-date, ASEAN has concluded agreements on free trade area or comprehensive economic partnership with China, Japan, Korea, Australia and New Zealand and India
ASEAN Framework for Regional Comprehensive Economic Partnership (19th ASEAN Summit 2011) sets out the principles for an ASEAN-led process to build on ASEAN+1 FTAs, to broaden and deepen ASEAN’s engagement with FTA partners and other external economic partners
Key references
the AEC Blueprint (2010), AEC Scorecard (2010, 2012), AEC Factbook (2011), other ASEAN documents from Secretariat website e.g. Statement of ASEAN Economic Ministers Meeting, Chair’s Statement of ASEAN Summit, news releases, and newspaper articles.
WMH LKYSPP 2012

22. Economic Cooperation in the 2000s - AEC
Master Plan on ASEAN Connectivity
Adopted at 17th ASEAN Summit in 2010 (October, Hanoi)
Both a strategic document for achieving overall ASEAN connectivity and a plan of action (with key strategies and prioritized projects) that consolidates current ASEAN work plans related to connectivity, for immediate implementation from
ASEAN connectivity will be achieved through a three- pronged strategy of:
Physical connectivity (physical infrastructure development)
Institutional connectivity (effective institutions, mechanisms, processes)
People-to-people connectivity (empowered people)
Supported by financial resources and coordinated institutional mechanism
WMH LKYSPP 2012

23. Master Plan on ASEAN Connectivity
Benefits of enhanced connectivity
Enhanced trade, investment, tourism and development and growth of regional production networks
Narrow development gap within ASEAN
Intensify and strengthen ASEAN Community building efforts
Beyond the region, place ASEAN at the centre of growth and development and preserve ASEAN centrality in the evolving regional architecture
Resource mobilization
Traditional funding sources
New and innovative sources of financing to tap the region’s large aggregate private savings and where appropriate from foreign exchange reserves
E.g. ASEAN Infrastructure Fund (Sep 2011)
WMH LKYSPP 2012

24. Suggested Questions
What were the characteristics of ASEAN economic cooperation in the 1970s and 1980s? What were the outcomes of these cooperation efforts?
Why did ASEAN want to forge closer regional economic integration in the 1990s and the 2000s?
What are the characteristics of an ASEAN Economic Community?
What are some of the measures that ASEAN is undertaking in moving towards an AEC in the areas of trade and investment liberalization and facilitation?
What are some of the measures that ASEAN is undertaking in financial cooperation?
MHW LKYSPP 2012

25. Suggested Questions
What do you understand by connectivity? What is ASEAN doing to create a more connected region and why is this important?
What is ASEAN’s progress in strengthening economic relations with its external partners? What is the guiding principle in ASEAN’s relations and cooperation with external partners?
Do you consider ASEAN economic cooperation over the years to be successful?
MHW LKYSPP 2012

26. Questions on Course Materials
Please me at
if you have further questions on the course materials
MHW LKYSPP 2012