The 2nd ASEAN Reader

26. Impact of ASEAN Enlargement on GMS Countries

Impact of ASEAN Enlargement on GMS Countries 129 By: ROS Size: 7.5" x 10.25" J/No: 03-14474 Fonts: New Baskerville 26. IMPACT OF ASEAN ENLARGEMENT ON GMS COUNTRIES MYA THAN and GEORGE ABONYI Reprinted in abridged form from Mya Than and George Abonyi, “The Greater Mekong Subregion: Cooperation in Infrastructure and Finance”, in ASEAN Enlargement: Impacts and Implications, edited by Mya Than and Carolyn L. Gates (Singapore: Institute of Southeast Asian Studies, 2001), pp. 128–63, by permission of Mya Than and the publisher. Out of the six participating countries in the GMS, Thailand is an original member of ASEAN, while Vietnam, Laos, Myanmar and Cambodia are new members. This section will look at the implications and impact of new members joining ASEAN/ AFTA (ASEAN Free Trade Area) on the GMS, especially co-operation in infrastructure development and finance. Politically, there is peace and stability in the subregion where there was none for many years. Hence, a source of conflict among the participating countries in the past can become a source of co-operation. There is also likely to be better confidencebuilding among the participating countries together with improved dispute resolution. This will enhance the development of all the participating countries and GMS cooperation . As far as economic implications are concerned , generally speaking, members of any regional free trade area can potentially enjoy (1) more trade and investment links within the region; (2) increased attractiveness to foreign direct investment (FDI) from outside the region; (3) more secure access to the greater market of the region; (4) improved resource allocation from specialization according to comparative advantage and economies of scale in an enlarged regional market; (5) enhanced industrialization prospects of small and medium-scale enterprises; and (6) especially for less developed members, spillover effects and infant industry learning effects with improved quality control, design, and marketing , and thus improved competitiveness in the world market, among others. The existing ASEAN-6 members can benefit from an enlarged ASEAN-10 consumer market by about 38 per cent in terms of population. The promotion of freer trade in the region means the creation of an environment with greater competition among the firms, and this will lead to increased efficiency, which will benefit all participating members. 026 AR Ch 26 22/9/03, 12:43 PM 129 130 Mya Than and George Abonyi By: ROS Size: 7.5" x 10.25" J/No: 03-14474 Fonts: New Baskerville Moreover, more exports of labourintensive products from the less developed member countries to more developed members are expected because of the tariff reduction. On the other hand, more imports of capital-intensive products from the ASEAN-6 to the new member countries may also be increased. Furthermore, the lower cost of labour-intensive products may deflate inflation in the existing members of ASEAN. Owing to the lower costs of production, and if “national treatment” is confined to intra-subregional investments, more FDI originating from the ASEAN-6 is expected to flow into Cambodia, Laos, Myanmar, and Vietnam (CLMV countries). This can lead to greater economic cooperation among the ASEAN-10. As far as the CLMV countries are concerned , it will be easier for them to sell agricultural products to the ASEAN-6 as tariff rates and non-tariff barriers will be reduced under the Common Effective Preferential Tariff (CEPT) scheme. However , more imports of manufactured goods from the ASEAN-6 can also be expected in the CLMV countries. This means that the CLMV can anticipate greater trade competition , particularly in manufactures, from the ASEAN-6. As new members of AFTA, these countries will have to accelerate economic reform, and tariff and non-tariff barriers must be reduced. As a result, crossborder smuggling will gradually decline. As one of the objectives of AFTA is to create a unified market to attract FDI, multinational corporations will be encouraged to invest more in the region by taking advantage of low tariffs and an enlarged market. Moreover, it is likely that ASEAN’s reputation as a good investment area will spread to the new members. ASEAN can also provide the new members with capital, technology, expertise and linkages to the global economy. These factors will encourage foreign investors from inside and outside ASEAN to invest more in the CLMV countries, which in turn, will spill over to the GMS. Another way of assessing the likely impact of the ASEAN Free Trade Area on future trade performance and welfare of the ASEAN-10 countries is to examine whether trade...