Roadmap to an ASEAN Economic Community

6. ASEAN Economic Community: Perspective from ASEAN’s Transitional Economies

Perspective from ASEAN’s Transitional Economies 105 6 ASEAN Economic Community: Perspective from ASEAN’s Transitional Economies Vo Tri Thanh 1. Introduction At the ASEAN Summit on 7 October 2003 in Bali, the ASEAN leaders agreed to establish an ASEAN Economic Community (AEC) by 2020. Although the AEC has yet to be clearly conceptualized, it is the next logical step in ASEAN economic integration.The AEC builds upon existing economic programmes such as the ASEAN Free Trade Area (AFTA), the ASEAN Framework Agreement on Services (AFAS), and the ASEAN Investment Area (AIA). The idea of an AEC is consistent with the realization of the ASEAN Vision 2020.1 The AEC can be also be seen as an appropriate response to recent developments in East Asia and greater regional integration in the world. The realization of the AEC is considered very ambitious but not beyond reach. Some observers may be sceptical about the realization of the AEC given the rather weak ASEAN institutions and the modest success thus far in regional economic co-operation and integration. The newer members of ASEAN, namely Cambodia, Laos, Myanmar, and Vietnam (CLMV) see deeper regional economic integration as a necessary 06 Roadmap2AEC Ch 6 7/9/05, 3:42 PM 105 106 Vo Tri Thanh and unavoidable process, which would bring about benefits as well as challenges to them. In this context, the key question for CLMV is how they can catch up with the more advanced economies in the region, given their limited resources. The concerns of CLMV about the widening development gap between the newer and older ASEAN members have been expressed many times. This problem is not easy to tackle because of the limitations of knowledge and practical experience. As noted by Schiff and Winters (2003, p. 11): regionalism is still a very fertile area for research, with new results and interpretations emerging every day … there are not many regional integration agreements of sufficient longevity and consistency of application to provide convincing historical evidence, and each case has so many different characteristics and is so confounded by other factors (such as development in politics, economic policy, and the world economy) that disentangling the various effects becomes difficult. Moreover, to some extent, CLMV themselves are also different in terms of their economic institutions and the pace of reforms and international integration.Therefore, it is difficult to generalize any proposition or conclusion for CLMV as a whole. This chapter examines the challenges arising from deeper ASEAN economic integration (with the AEC as the ultimate goal) and the possible impact on CLMV. In this context, this chapter suggests that key external assistance and policy responses may be necessary in order to accelerate regional economic integration and narrow the development gap between the older and newer ASEAN members. The remainder of the chapter is structured as follows: section 2 examines briefly CLMV’s economic positions in the context of the AEC and regional integration; section 3 analyses the possible configurations of the AEC and the resulting challenges and impact on CLMV; section 4 considers the significance of ASEAN’s assistance to CLMV and the appropriate policies needed to respond to the process of regional integration; the chapter concludes in section 5. 2. The AEC and CLMV in the Context of Regional Integration There is a theoretical belief that multilateralism is much better than regionalism in terms of trade liberalization since the former suffers no trade diversion effect. However, virtually all countries in the world are members of a trade bloc (in fact many belong to more than one) while regional integration and 06 Roadmap2AEC Ch 6 7/9/05, 3:42 PM 106 Perspective from ASEAN’s Transitional Economies 107 bilateral trade agreements have intensified recently. This trend can be also observed in Southeast Asia over the last five years and it can be attributed to the following: 1. It was generally agreed that after the Asian financial crisis of 1997–98, Southeast Asia should play a proactive role in ensuring regional economic stability and preventing future financial crises. This role can be strengthened through trade, investment, and financial liberalization and in solving the transnational issues such as environmental degradation, infectious diseases, terrorism, and illegal migration. 2. Regional integration is seen as an appropriate response to rapid trade expansion in Southeast Asia as well as to the emergence of China as the fastest growing economy in the world (and new member of the World...