VALUING A ONE-ASEAN BLOC

The Philippine Star
01/15/10

These are exciting times for the ten countries making up the Association of Southeast Asian Nations (ASEAN) as they solidify their objective of establishing the region as a free trade area that could pose a challenge to the supremacy other trade blocs including that of North America and the European Union.

Starting this year, duties on 7,881 products were effectively removed among six original ASEAN participating countries including the Philippines. This had widened the scope of goods and services traded on a zero tariff basis to a cover a total of 54,457 items, or about 99.11 percent of all listed products.

By 2015, the goal is to widen the free trade bloc to include Cambodia, Laos, Myanmar and Vietnam. These four countries had only lately joined ASEAN, then composed of the Philippines, Singapore, Indonesia, Thailand, Malaysia and Brunei.

Taken as a single entity, the ten countries make an impressive fraternity of nations that could pose some serious flexing of trading muscles. With a strong resolve to establish the ASEAN Community in five years time, this will essentially mean deepening the integration of the members’ economies, as well as political, security, and socio-cultural traits.

An ASEAN Secretariat has been at work since 1981 helping facilitate and coordinate member nations to work together towards realizing the various programs that have been agreed on during past summits; the ultimate goal is to become a truly one ASEAN region by 2020.

Uneven benefits

While the ASEAN vision, which focuses on accelerating economic growth, social progress and cultural development in the region, becomes increasingly clearer and attainable, the benefits for some individual members have not been more transparent.

In particular focus is the presence of free trade agreements signed by ASEAN with developed and newly industrialized countries.

Indonesia, for example, has been very vocal about delaying the elimination of import tariffs on more than 300 Chinese products. According to local industry players, more than a dozen sectors including steel and textiles could collapse because they will not ready to compete with low-cost Chinese imports.

Under a free trade agreement between China and ASEAN which took effect January 1 this year, Indonesia is required to remove import duties on 6,682 Chinese products. Despite the strong representation by Indonesian business chambers, the government had been not overly supportive.

Thailand is also seeing its textile and garment industry in grave peril with the signing of the FTA with China. The latter has highly modernized and efficient machineries and systems that, coupled with low wages, make for low-cost clothing materials and apparel.

Collapse in competitiveness

For the Philippines in particular, the lowering of tariff barriers has been seen as the cause in the collapse of a large number of industries and the reduction of productive farmlands. Some industries that have lost competitiveness are textiles, rubber, tire, tile, ceramics, battery, petrochemicals, plastics, pulp and paper and foundry.

In agricultural production, on the other hand, production of rice, corn, sugar, onion, garlic and livestock has been affected. In fact, for some agricultural products, which were previously in positions of export or self-reliance, are now being imported.

Because of this, the country has been transformed into an economy dependent on the remittances of Filipinos working abroad and the relatively better salaries of call center agents. Meanwhile, our government is content with export “earnings” from the minimal value-adding electronics assembly industry.

Potential value

Despite the disparities currently apparent, most economists and international organizations are saying that a unified ASEAN will eventually redound to more benefits for its member countries rather than setbacks.

Establishing a seamless single market and production base among the 10 member-nations in particular could mean uniform growth and development, which would be important in helping reduce the incidence of extreme poverty especially prevalent among the emerging developing countries.

True free trade – which does not only mean zero tariffs but likewise elimination of tariff barriers such as subsidies and a uniform customs system – will enhance the region’s competitiveness that is important when in dealing with other developed or new industrialized economies.

Intra-regional trade could be regarded by ASEAN members as an alternative market distinct and aside from the developed world, especially after the financial crisis that caused the near-collapse of the U.S. and European markets.

The value of China, which is positioning itself as a hub for intra-regional trade, can also not be ignored when dealing with more mature markets like the U.S., Europe, and Japan. Economists are saying that China’s strong push for world trade dominance will need tons of raw materials that countries from the ASEAN can supply.

Furthermore, China’s 1.3 billion-strong population is by itself one of the biggest markets that can be exploited by ASEAN countries. As the fastest growing economy to date, the China market alone will help buoy demand for raw materials and services that otherwise should have been exported to developed economies now recovering from the financial crisis.

Adapt or perish

Finally, amidst all the trepidations that change always brings, business and government from the Philippines need to start working in earnest with the objective of strengthening trade relations and channels with other trading blocs.

There may be drawbacks in going for an ASEAN bloc for a nation like ours, but we must be quick to take advantage of the immense potential and even quicker in mitigating the negative fall-outs.

Only this way will be have a chance in surviving in a changing global environment, one that may not be perfectly attuned to our liking, but one which we cannot ignore.

Champions League contest winners

Winners of the recent Philippine Collegiate Champions League (PCCL) contest are reminded that the January 18, 2010 deadline for claiming gift prizes is just a few days away. Visit www.CollegiateChampionsLeague.net for more details.

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, SalcedoVillage, 1227 MakatiCity. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net.