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My Notebook: Asean must walk the talk in setting up AEC

25 Aug 2006
Hardev Kaur

"IF you want to be rich, you build a road," goes a Chinese saying. The Association of Southeast Asian Nations (Asean) needs to build roads but at the same time remove many of the bumps that hamper its progress on roads that have already been built.

The grouping, which continues to record positive economic growth, attracts foreign direct investments (FDI) and with an increasingly affluent population is seeking to speed up its integration process. The deadline for an Asean Economic Community (AEC) has been brought forward to 2015 from the original 2020.

This is one of the many plans for greater co-operation and collaboration outlined by the 10-member grouping. But it is essential that Asean walks the talk and gets its act together. There is increased competition and even greater challenges and unless it responds to them and works out its strategy, it may as Prime Minister Datuk Seri Abdullah Ahmad Badawi warned "run the risk of losing its position as an important investment destination".

Even now, China is drawing more FDI than the 10 members of Asean combined. Undoubtedly the region attracted US$38 billion (RM140.6 billion) in FDI last year, higher than the US$34 billion in 1997, but other countries in the region, particularly China, are attracting even higher amounts at US$50 billion.

The East Asian region has the highest accumulation of foreign reserves. Yet the countries in the region do not really benefit from them and depend on foreign investments to a large extent.

By some estimates, there are more than US$2.6 trillion in foreign reserves held by the central banks in East Asia. "The region has a lot of money. But we don’t have the money," Ambassador Wu Jianmin, country co-ordinator of the Network of East Asian Think Tanks, said.

He added that most of the reserves are invested in US Treasury and bonds. And the region, which is in the process of industrialisation and urbanisation, needs about US$2 billion a year for infrastructure development. But that is not available to it and there is a need to find ways to channel money to infrastructure, which in turn will increase intra-regional trade.

On the trade front too, while Asean’s global trade exceeded US$1.2 trillion last year, an increase from the US$1.07 trillion in 2004, intra-Asean trade needs a shot in the arm. Despite various efforts over the years, intra-Asean trade remains a meagre US$2.2 billion and as a percentage intra-Asean trade in the groupings total trade remained "relatively constant", increasing from 24.3 per cent in 2004 to 25 per cent in 2005. Undoubtedly the grouping has a lot going for it and many developed countries want to collaborate and sit at the same table with Asean.

The Japanese have proposed the Pan-Asian free trade zone, the European Union is keen on a regional trade agreement with Asean as are Australia and New Zealand.

The US, a leading trading partner with many Asean members with two- way trade amounting to US$150 billion last year, is set to conclude a Trade Investment Framework Agreement (Tifa) with Asean today. Tifa, according to the US Trade Representative Susan Schwab, is a building block to a free trade agreement with Asean.

Then there are other trade agreements on the table with emerging economies such as China and India. Even as the grouping is being courted, it needs to prepare itself for the challenges and competition that are growing keener and more intense every day.

The devil is in the details. Differing ideas coupled with cumbersome bureaucratic practices and rules — sometimes enshrined into the constitution — impede Asean’s efforts to be a single attractive investment destination and a trading entity.

But as Abdullah stressed, it is urgent that "we take the necessary steps to protect our position as a competitive production base and as an important economic entity in the global trading environment".

Asean cannot afford to ignore the obstacles and bumps on the road towards integration, closer collaboration and co-operation. The ministers, mindful of the rapidly changing environment and the challenges ahead, agreed to accelerate the formation of the AEC, a move designed to allow for free flow of goods, services and investments across borders.

But there are concerns that need to be dealt with and obstacles removed. As Tun Musa Hitam, chairman of Asean’s Eminent Persons’ Group, points out, numerous structures are still absent in areas such as decision- making for an AEC.

There is no monitoring nor implementation mechanisms and neither are there any modalities to impose sanctions on recalcitrant members.

"In essence, there is an agreement to do that (speed up formation of AEC) but we must now crystalise how we go about it," Minister of International Trade and Industry Datuk Seri Rafidah Aziz said.

The task falls to Malaysia, as chairman of the Asean Economic Ministers meeting, to flesh out the details for consideration by the Heads of Government at their summit in Cebu, Philippines, at the end of the year.