ASEAN Enlargement: Impacts & Implications

3. Impact and Implications of ASEAN Enlargement on Trade

Impact and Implications of ASEAN Enlargement on Trade 45© 2001 Institute of Southeast Asian Studies, Singapore Introduction ASEAN (Association of Southeast Asian Nations) leaders proclaimed in the Bangkok Declaration of 1995 that “ASEAN shall work towards the speedy realization of an ASEAN comprising all Southeast Asian countries as it enters the 21st century.” This indicates clearly that the enlargement of ASEAN to cover the entire Southeast Asian region is a priority and the ultimate objective of ASEAN regional co-operation. Subsequently, in July 1997 ASEAN accepted the Lao People’s Democratic Republic (PDR) and Myanmar as full members of ASEAN. Owing to internal political conflict, Cambodia was not granted membership at that time, but was integrated later in April 1999. The new members joined the Common Effective Preferential Tariff (CEPT) scheme, which is the key mechanism to integrate the ASEAN economies into the ASEAN Free Trade Area (AFTA). However, they have been given additional time to adjust their tariff schedules: Vietnam started reducing tariff rates in January 1996 and will reach the target in 2006, while the Lao PDR and Myanmar will have to complete their tariff reduction by 2008, eight years after the ASEAN-6 members. 45 3 Impact and Implications of ASEAN Enlargement on Trade NATTAPONG THONGPAKDE* * The author would like to thank Dr. Srawooth Paithonpong and Dr. Wisarn Pubhavesa for helpful comments. 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 Nattapong Thongpakde© 2001 Institute of Southeast Asian Studies, Singapore AFTA has become a main instrument to fulfill ASEAN’s objective towards free trade and investment, and an easing on the movement of people. ASEAN is not a homogeneous group: there are considerable differences among the members with respect to size, history, and level of industrialization and development (Ariff 1995). The inclusion of the new members aggravates the differences. These new members are still in the process of adjusting their institutions towards market-orientation. Furthermore, they have limited experience in international economic fora. Although the enlargement of ASEAN can create trade and economic opportunities, the new members may have difficulty restructuring their economies to take advantage of them. Such problems could also delay greater resource mobility within ASEAN. To enhance ASEAN co-operation, it is important to assess the positive impact of incorporating the new members and to identify the obstacles to future co-operation. This chapter aims to examine both, with special reference to trade issues. It will explore economic structures, trade patterns, and comparative advantages of the ASEAN members in order to analyse the impact and implications on trade of an enlarged ASEAN, and the potential for the future co-operation of ASEAN. In this chapter, the term ASEAN-6 refers to the “old” members: Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand. The term “new members” refers to Cambodia, Lao PDR, Myanmar, and Vietnam. The term “ASEAN-10” is loosely used to include the present members. COMPARISON OF SOCIO-ECONOMIC DEVELOPMENT Income, Population, and Structure of Production The economies of the new ASEAN members are much smaller compared with the older ones, although Vietnam and Myanmar have larger gross domestic product (GDP) than Brunei, the smallest economy in the ASEAN-6. In 1994, Vietnam’s GDP, the largest of the new members, was $15,570 million, compared with that of the Philippines, the smallest of the ASEAN-5, which was $64,162 million (Table 3.1). The Lao PDR’s GDP was only $1,534 million in 1994. Including new members, therefore, increases the variation of the size of the ASEAN economies. The coefficient of variation of GDP rises from 0.70 for the ASEAN-6 to 1.11 for the ASEAN-10. Table 3.1 shows the differences in per capita income. The Lao PDR’s per capita GDP was $320 in 1994, which was only one-fourth of the per capita GDP of Indonesia, and one-seventh of Singapore’s. The ASEAN-6 also show disparity of income per capita: the coefficient of variation of GDP per capita of the ASEAN-6 members is 1.19. The variation will be Impact and Implications of ASEAN Enlargement on Trade 47© 2001 Institute of Southeast Asian Studies, Singapore significantly reduced if Singapore is excluded. However, for the ASEAN10 the coefficient of variation rises to 1...