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Introduction
- ISEAS–Yusof Ishak Institute
- Chapter
- Additional Information
By: ROS Size: 7.5" x 10.25" J/No: 03-14474 Fonts: New Baskerville Introduction 187 INTRODUCTION Sree Kumar ASEAN’s economic record has been, at best, one of mixed results. In most instances the verdict has been that it could have been better. There had already formed, in the previous decade, a view that expectation and implementation gaps were significant in the group. The addition of new members in the last decade made these gaps more complex and less readily amenable to any attempt at seamless cooperation , partly because of the nature of the consensus decision-making approach, and partly because of the wide disparities in the stages of development among the member countries. Nevertheless, the 1990s saw three major thrusts in economic co-operation — the creation of an ASEAN Free Trade Area (AFTA), inducing greater foreign direct investment (FDI) through deregulation and privatization, and a mixed response to the Asian financial crisis. Each of the thrusts had its own impetus and political drivers, with different member countries having a national agenda of their own. Perhaps the most visible element of ASEAN’s economic co-operation efforts in the last decade was the agreement to create AFTA. Despite the best of intentions in setting forth an ambitious timetable to reduce tariffs over a large spectrum of traded goods, the scheme began to falter at the outset as member states sought exemptions and longer periods for continuing protection of specific sectors. But even more delicate in the overall implementation of a tariff reduction scheme was the paucity of institutional measures such as a dispute settlement mechanism (DSM) to address cross-border trade issues. Many of these measures became more concrete and formal after 1995 as impending changes in the global trading regime became apparent. The real pressure to expedite tariff reductions and to create AFTA within a shorter time frame became pronounced after the initial negotiations to form the World Trade Organization (WTO) were underway. The second thrust, that of inducing FDI, had several elements, the most important of which was deregulation and privatization. The wave of market-led reforms took hold in ASEAN just as it had in the rest of the developing world except that in ASEAN it was more closely aligned with trade policy. These reforms were seen as a pillar for supporting AFTA by ensuring that the export-oriented economies of the region would continue to enjoy FDIs to fuel trade and gave life to the idea of creating an ASEAN Investment Area (AIA) in tandem 042 AR Section IV 22/9/03, 12:47 PM 187 By: ROS Size: 7.5" x 10.25" J/No: 03-14474 Fonts: New Baskerville 188 Introduction with AFTA. Privatization and deregulation were seen to effectively remove the hand of the state in several parts of the economy, allowing domestic capital to play a more important role. In order to ensure that FDI continued to enjoy economies of scale in production and to take advantage of relative factor costs, member countries sought to create growth triangles such as the Indonesia-Malaysia-Singapore Growth Triangle (IMS GT) and the IndonesiaMalaysia -Thailand (IMT) GT. Such areas provided the best combination of resources for distributed manufacturing and formed attractive investment locations for both domestic and foreign capital. Yet the record of the growth triangles, with the exception of IMS GT, has been one of limited success because of resource constraints and bureaucratic impediments. While growth triangles, if they had been successful, could have provided a glue to hold AFTA together, the more important determinant of regional investment distribution would have been harmonized investment policies. This has been further aggravated by the diversion of investments to China leaving ASEAN member countries to attract smaller amounts than previously available. The net result of a diverted FDI flow, a weak Japanese economy, and a febrile attempt at forming AFTA has been the need to seek new models of growth away from the exportled example. The search for new models of growth was, however, thwarted by the onset of the Asian financial crisis in 1997. ASEAN’s response to the contagion was, on the face of it, a co-ordinated regional effort. But the reality lay elsewhere on the compass. Member countries had to seek remedies unique to their own problems, leaving others to fend for themselves. Even where assistance was offered it was felt to be too onerous or too close to the demands of the international agencies such as the International Monetary Fund...