Reinventing ASEAN

4. Trade, Investment, and Interdependence

4 TRADE, INVESTMENT, AND INTERDEPENDENCE Mohamed Ariff INTRODUCTION Economic regionalism in Southeast Asia rests on a foundation that is arguably far more solid than is the case with any other regional arrangements in the developing world. ASEAN has evolved gradually from a small grouping of five to a large grouping of ten countries within a span of three decades, transforming foes and adversaries into friends and partners. It has also progressively deepened through increasingly closer economic integration among member nations. ASEAN is a unique experiment that has no close parallels. It came into being at a time of extreme regional turbulence, primarily for geopolitical and security reasons, with economic co-operation playing no more than a cosmetic role. However, over the years, especially after the end of the Cold War with the demise of the Soviet Union, economic co-operation has become increasingly important in ASEAN affairs. ASEAN had to find a new rationale for its own existence in the post-Cold War era, when developed country dialogue partners have shown diminishing interest in ASEAN in the new geopolitical equation. It has dawned on the ASEAN member states that they need ASEAN now more than ever before. Peace and stability in the region, necessary for economic growth and development, cannot be ensured if ASEAN is weak or non-existent. There is certainly too much at stake for every country in the region to treat ASEAN lightly. 45© 2001 Institute of Southeast Asian Studies, Singapore ISEAS DOCUMENT DELIVERY SERVICE. No reproduction without permission of the publisher: Institute of Southeast Asian Studies, 30 Heng Mui Keng Terrace, SINGAPORE 119614. FAX: (65)7756259; TEL: (65) 8702447; E-MAIL: publish@iseas.edu.sg 46 Mohamed Ariff© 2001 Institute of Southeast Asian Studies, Singapore ASEAN has been essentially a loosely-knit organization with a penchant for informality, flexibility, and pragmatism. In the initial stages, ASEAN had quite wisely concentrated on areas in which consensus was possible, steering away from areas where disagreements and differences might cause problems. ASEAN has nurtured what is often termed the “ASEAN way” which, at the risk of ambivalence or ambiguity, has enabled the ASEAN countries to stick together through thick and thin. ASEAN is painfully aware that the new millennium is going to be a completely different ball game. ASEAN needs to reassess itself, rethink its strategies, and reposition itself to face the challenges of globalization and liberalization. ASEAN also has to learn to relate to other regional entities such as the North American Free Trade Agreement (NAFTA), Closer Economic Relations (CER), Mercado Comun del Sur (MERCOSUR), and South Asian Association of Regional Co-operation (SAARC). In this context, opportunities and challenges provided by APEC are unique, given the overlapping interests of various subgroups in which not all ASEAN countries are represented. ASEAN has also to come to terms with new internal realities brought about by the inclusion of the Indochina countries as new members. ASEAN has become even more heterogeneous than before as a result of its widening. In particular, the gap between the new and old members of ASEAN is too wide to be ignored. At the same time, it does appear that the expanded ASEAN has introduced greater complementarity within the ASEAN economy. This augurs well for ASEAN economic integration and the international competitiveness of ASEAN products. To meet the challenges of the twenty-first century, ASEAN will have to seek new ways and means for economic co-operation. Principles and practices which worked well in the past may not work in the future. ASEAN will also have to go beyond preferential trading schemes, which have been the main effort to date. ASEAN needs to integrate itself more aggressively into the increasingly borderless global economy. ECONOMIC REGIONALISM Regional economic “integration” was never mentioned as an ASEAN objective by the founding fathers. ASEAN has only talked about regional economic “co-operation”. This too was admittedly with much hype and little action. It was only in December 1998 that the term “regional integration” was used somewhat formally in the Hanoi Plan of Action. Nonetheless, regional economic co-operation among the ASEAN countries has increased, albeit gradually, over the years since the Bali Summit in 1976. Trade, Investment, and Interdependence 47© 2001 Institute of Southeast Asian Studies, Singapore ASEAN trade co-operation initially took the form of the Preferential Trading Arrangement (PTA). This was based on a cumbersome item-by-item approach which did not result in any...