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43. The ASEAN Free Trade Area: The Search for a Common Property by Lee Tsao Yuan
- ISEAS–Yusof Ishak Institute
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194 Lee Tsao Yuan By: ROS Size: 7.5" x 10.25" J/No: 03-14474 Fonts: New Baskerville 43. THE ASEAN FREE TRADE AREA The Search for a Common Prosperity LEE TSAO YUAN The Association of South East Asian Nations (ASEAN) entered the decade of the 1990s faced with two new political challenges. The fall of the Berlin Wall in 1989 and the end of the Cold War meant that security issues would, in most parts of the world, no longer be of paramount importance. Instead, economic issues have moved to the top of the global agenda. At the same time, the signing of the Peace Accord in Paris in 1991 heralded the impending solution to the Cambodian problem, which had dominated discussions in ASEAN capitals and in New York for more than a decade. These two factors led to a fundamental re-thinking of strategy for ASEAN co-operation. The search began for a new glue which would be the focal point for ASEAN unity. While it is now widely acknowledged that, in the 1970s and 1980s, the raison d’être for ASEAN co-operation was political, a consensus began to develop that the new raison d’être for ASEAN co-operation in the 1990s and beyond had to be economic. In addition to the political factors mentioned above, developments on the economic front, both external and domestic, also contributed towards this change of mind-set. Externally, the prolonged delay in concluding the Uruguay Round of GATT negotiations which had begun in 1986 created a climate of uncertainty over continued global trade liberalization and market access. In this environment, the creation of the Single European Market and negotiations towards a North American Free Trade Area (NAFTA) raised the spectre of a protectionist world divided into trading blocs. At the same time, two new sources of competitive challenge to ASEAN emerged in the form of the possible diversion of investments away from ASEAN. The first was Mexico, because of NAFTA and its free Reprinted in abridged form from Lee Tsao Yuan, “The ASEAN Free Trade Area: The Search for a Common Prosperity”, Asian-Pacific Economic Literature 8, no. 1 (May 1994) (Canberra: Economics Division. Research School of Pacific and Asian Studies, Australian National University, 1994) by permission of the author and the publisher. 043 AR Ch 43 22/9/03, 12:47 PM 194 The ASEAN Free Trade Area: The Search for a Common Prosperity 195 By: ROS Size: 7.5" x 10.25" J/No: 03-14474 Fonts: New Baskerville access to the USA, ASEAN’s largest export market. The second was the marketization of the socialist economies of China and Vietnam which, together with their low-cost labour and land, made these economies attractive, both as production locations for export and for the domestic market. Economically, therefore, ASEAN faced two new challenges. The first was that of sustaining ASEAN’s economic competitiveness , and the second, of ensuring continued market access to ASEAN’s major markets in the USA, Japan and Europe. Both were essential for sustained rapid economic growth in ASEAN. Internally, the rapid economic development that had been achieved since the mid-1980s gave the ASEAN countries a newfound confidence that they could meet the competitive challenges that came with increased liberalization. Indeed, it was these very same liberalization, deregulation and privatization measures that attracted the wave of foreign, especially Asian, investment , sparked off an unprecedented growth in the manufacturing and financial sectors, and resulted in ASEAN becoming the fastest growing region in the world. The old fears that Singapore, the most developed of the ASEAN countries, would gain most from intra-regional trade liberalization subsided as Singapore began to compete in the higher cost, higher value added market segments, and more successful local companies emerged in the other ASEAN countries. The coincidence of factors, external and internal, political and economic, made the timing right for the Fourth ASEAN Summit Meeting in Singapore in January 1992. The Heads of Government/State signed a historic declaration to achieve an ASEAN Free Trade Area (AFTA) within fifteen years. Considering that economic co-operation efforts in ASEAN had never made much headway in the past, the agreement to proceed with AFTA constituted a milestone in ASEAN economic co-operation.1 AFTA: THE CHALLENGES AHEAD ASEAN faces major challenges ahead with regard to AFTA. The CEPT scheme needs to be implemented efficiently and expeditiously. The original intention, announced at the Singapore Summit, was for implementation to begin on 1 January...