Roadmap to an ASEAN Economic Community

3. Creating an ASEAN Economic Community: Lessons from the EU and Reflections on the Roadmap

Lessons from the EU and Reflections on the Roadmap 31 3 Creating an ASEAN Economic Community: Lessons from the EU and Reflections on the Roadmap Michael G. Plummer 1. Introduction Southeast Asian economic co-operation through the institutional mechanism of the Association of Southeast Asian Nations (ASEAN) has been quite exciting of late. This is particularly noteworthy because the organization took almost a decade from its creation in 1967 to develop even the most superficial forms of economic co-operation, and then another fifteen years before the ASEAN Free Trade Area (AFTA) was launched in 1992. Since then, ASEAN has embraced other forms of co-operation, for example, the ASEAN Investment Area (AIA) in 1998, and is discussing other options pertinent to real and financial aspects of formal economic integration, as articulated, for example, in the Hanoi Plan of Action (ASEAN Vision 2020). Moreover, the group has been ambitious in terms of horizontal integration: it has expanded from five countries (Indonesia, Malaysia, the Philippines, Singapore, and Thailand) in 03 Roadmap2AEC Ch 3 7/9/05, 3:32 PM 31 32 Michael G. Plummer 1967 to include Brunei Darussalam in 1985, Vietnam in 1995, Laos and Myanmar in 1997, and finally Cambodia in 1999. Hence, it now encompasses all of Southeast Asia. At the Ninth ASEAN Summit in October 2003, the ASEAN Heads of Government agreed to create an ASEAN Economic Community (AEC) by 2020. The name is evocative, for an economic community immediately brings to mind the European experience. In fact, when APEC was reinventing itself, it was proposed that the name be changed from Asia-Pacific Economic Co-operation to Asia-Pacific Economic Community. This idea was rejected explicitly because it would give the impression that APEC was intending to move in the direction of the European Community (EC) model, which was thought to be too controversial. That the ASEAN Heads of Government should consider establishing an AEC, even with the baggage the term brings, is in some sense nothing new. ASEAN has always studied carefully European economic integration and has seen it as a sort of role model, though certainly to be adapted to the Southeast Asian development context. In this chapter, we will consider what lessons the European experience might hold for ASEAN, as well as extending some suggestions — based in part on the European Union (EU) experience — as to how ASEAN might evolve into an AEC, that is, a “roadmap”. In this process, we will divide, somewhat artificially, real-side economic issues (trade and direct foreign investment, or DFI) from financial aspects of co-operation (for example, regional capital market development). We consider real-side issues in section 2, first reviewing briefly the European integration experience, including statistical analysis of the importance of the EU in the determination of European intra-regional and extra-regional trade and DFI. This is followed by a summary of lessons in the European context and some thoughts as to what might be adopted (and eschewed) in the ASEAN context as part of the AEC. Next, in section 3 we consider capital market development, with a strong emphasis on the role of the bond market and how a regional market might be devised, as well as other ancillary issues of monetary and financial co-operation. Section 4 gives some brief concluding remarks. 2. Real-Side Considerations 2.1. A Brief Review of the European Experience The progression of real-side economic integration in Europe is fairly well known. We content ourselves here with a brief review. An excellent, detailed review of its progression is found in Messerlin (2001). 03 Roadmap2AEC Ch 3 7/9/05, 3:32 PM 32 Lessons from the EU and Reflections on the Roadmap 33 Substantive, multi-sector European economic integration began with the Treaty of Rome (1957), but other initiatives had been launched previously, for example, the European Coal and Steel Community, which in 1950 was the first initiative to bring resources under a common European authority (Story and Walter 1997). The European Payments Union (EPU), also established in 1950, was created as a multilateral clearing system for European balance of payments transactions serving to economize on scarce dollars at the time. The EPU had a strong effect in stimulating intra-European trade, mainly by discriminating against trade with the United States (Pomfret 1997). But the Treaty of Rome, which established the European Economic Community (EEC), constituted the most ambitious effort to create an...