Bridges Weekly Trade News Digest • Volume 9 • Number 34 • 12th October 2005

ASEAN Summit Draws Attention To Slow Pace Of Regional Trade Liberalisation

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Economic ministers from the ten members of the Association of Southeast Asian Nations (ASEAN) concluded their recent meeting with a message that rang overwhelmingly clear: economic liberalisation within ASEAN must proceed at a faster pace if the economic bloc hopes to compete with regional powerhouses China and India. Ministers at the proceedings, held in the Lao PDR capital of Vientiane, managed to move forward on removing impediments to trade amongst themselves and expanding regional commercial linkages. However, some analysts criticised the moves as insufficient. Progress in ASEAN’s ongoing free trade talks with Australia, New Zealand, Japan, Korea and India was also mixed.

ASEAN fails to clinch deal on new internal trade facilitation measure

The ASEAN free trade agreement (AFTA), signed in 1992, aimed to strengthen the region’s status as an export-oriented production base and destination for foreign investment by eliminating tariff and non-tariff barriers to trade among members. Tariffs are to supposed be cut to 5 percent among the six richer ASEAN countries — Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand — by 2007. Vietnam, Laos, Myanmar, and Cambodia are to be afforded longer transition periods.

The 28-30 September meeting in Vientiane set the groundwork for establishing an ASEAN ’single window’ (ASW), a customs initiative intended to expedite imports by electronically processing trade documents among the bloc’s members. Participants also advanced talks on establishing a small and medium enterprise fund aimed at bolstering sectors such as electronics, textiles and the automotive industry.

However, neither initiative was actually implemented at the summit, adding credence to assertions that ASEAN is not initiating change quickly enough. At the group’s annual summit last year, ministers tackled tariffs on 11 categories of goods but were unable to make progress on key tariff and non-tariff barriers. In spite of AFTA, trade among ASEAN states has grown at a rate similar to their trade with the rest of the world. In fact, it has been considerably outpaced by their trade with China.

ASEAN losing international clout?

This latest ASEAN meeting was notable for the absence of trade ministers from important trading partners, which some media sources interpreted as a sign that the bloc is losing clout in international trade circles. Trade ministers from Japan, China, India and New Zealand decided to bypass the meeting — mainly citing domestic responsibilities — and send their deputies instead. Their absence recalled US Secretary of State Condoleezza Rice’s decision to skip an important ASEAN summit in July of this year.

Unlike organisations such as the EU, ASEAN has consistently rejected the notion of establishing a supra-national governmental structure. Nonetheless, a lack of meaningful institutional support may be hampering the bloc’s ability to achieve its stated goals — for instance AFTA, which has often been panned as a paper tiger for its lack of enforcement mechanisms.

ASEAN looking elsewhere

A potential trade alliance joining ASEAN with China, Japan and South Korea — dubbed "ASEAN+3" — has elicited more attention of late than trade within ASEAN itself. ASEAN+3 has seen limited progress since late 2004, when ASEAN followed up a tariff-cutting agreement with China by announcing plans for large-scale trade liberalisation measures with Japan and India (see BRIDGES Weekly, 1 December 2004).

ASEAN’s recent FTA negotiations with Korea have been positive. In early September, the two parties announced "significant progress." However, little emerged on the talks from the meeting in Vientiane.

Talks with Japan have been at a protracted standstill over rules of origin. Japanese Trade Minister Shoichi Nakagawa’s absence in Vientiane was seen as particularly problematic for the Japan-ASEAN negotiations by observers who had been hoping for progress at the summit.

China-ASEAN free trade, in contrast, is progressing steadily. A framework agreement to cut tariffs in stages was established and signed in 2002 and already thousands of tariffs on industrial goods have been dismantled (see BRIDGES Weekly, 6 July 2004). Plans are currently underway to cut tariffs on as many as 7000 agricultural products.

Free trade talks with India have been in the works since 2003. While negotiations have tended to be sluggish but stable, the FTA suffered a setback at the Vientiane meeting when the date of implementation had to be pushed back from 1 January 2006 to 1 January 2007.

ASEAN is in the process of negotiating still more FTAs, such as that with Australia and New Zealand which was initially proposed in February 2005 (see BRIDGES Weekly, 23 February 2005). Progress was made on the issue in Vientiane and the Australian government has pegged 2007 as the target for implementation. Australia regards the FTA as essential to the country’s trade future in the region. "It’s very, very important that we [remove trade barriers], in a world that is changing dramatically in terms of trade." said Australian Trade Minister Mark Vaile.

With ASEAN’s internal and external liberalisation processes looking uncertain, some of the bloc’s members have also started to pursue FTAs bilaterally with other countries. Malaysia and Japan have been negotiating an accord since 2003, and Thailand is looking to conclude a comprehensive FTA with the US by next year (see BRIDGES Weekly, 5 October 2005).

"China-ASEAN Tariff Cuts Not to Affect Chinese Agro-Products Much," PEOPLE’S DAILY, 9 October 2005; "Joint Media Statement of the Thirty Seventh ASEAN Economic Ministers’ (AEM) Meeting," ASEAN MEDIA STATEMENT, 28 September 2005; "Japan, China, India, New Zealand ministers to skip ASEAN meeting in Laos," INDIA DAILY, 26 September, 2005; "Rice ‘Snub’ of ASEAN Meeting Unfortunate," HONOLULU ADVERTISER, 26 July 2005, "Vaile Talks Up ASEAN Free Trade Deal," AUSTRALIAN BROADCASTING CORPORATION, 5 October 2005; "More Effort Needed," THE ECONOMIST, 29 July 2004; "Every Man For Himself," THE ECONOMIST, 31 October 2002; Shame on the Summiteers," THE ECONOMIST, 2 December 2004; "Asean Economic Ministers Chalk Up Progress At Vientiane," MALAYSIAN NATIONAL NEWS AGENCY, 1 October 2005.