Brick by Brick: The Building of an ASEAN Economic Community

2. What Is a Single Market? An Application to the Case of ASEAN

What Is a Single Market? An Application to the Case of ASEAN 13 2 What Is a Single Market? An Application to the Case of ASEAN Peter J. Lloyd 1. Introduction Until recently, the European Union (EU) was the only major Regional Trading Agreement (RTA) that had formally adopted a Single Market as a goal. Since 2002, the Caribbean Community (CARICOM) has styled itself as a Single Market and Economy. The 2003 Declaration of ASEAN Concord II declared “The ASEAN Economic Community shall establish ASEAN as a single market and production base.” Australia and New Zealand are members of the regional trading agreement (RTA) known as the Closer Economic Relations (CER) Agreement. In January 2004 the Australian and New Zealand Prime Ministers announced an intention of creating a “single economic Reprinted from Peter J. Lloyd, “What is a Single Market? An Application to the Case of ASEAN”, ASEAN Economic Bulletin 22, no. 3 (2005): 251–65, by permission of the Institute of Southeast Asian Studies. 02 BrickByBrick Ch 2 10/30/07, 8:19 AM 13 14 Peter J. Lloyd market” (Prime Ministers Howard and Clark 2004). Thus, there are now four regional groups that are committed to the goal of a single market. The meaning of the term “single market” is not clearly defined in any of the four RTAs that have adopted this goal but the interpretation of the term will have a vital effect on the evolution of each agreement. The achievement of the declared goal of a single market can be made only if political decisionmakers and bureaucrats understand fully the meaning of a single market and the measures required to implement it. The meaning of the term, therefore, requires careful examination. To clarify the issues, section 2 defines a single market in terms of concepts of economic integration and the Law of One Price. Section 3 discusses the conditions that are necessary for the Law of One Price to hold. Section 4 discusses the progress that has been made towards complete economic integration in a sample of RTAs, including ASEAN and two of the three other RTAs that have adopted the goal of a single market (the EU and CER). Section 5 considers the steps necessary for ASEAN to become a single market. 2. A Single Market = The Law of One Price The idea of a single market comes of course from the European Economic Community (EEC)/EU. Initially the EEC created by the 1957 Treaty of Rome was a Common Market. This European concept of a common market was expressed in terms of the “four freedoms”, that is, freedom of trade in goods, services, capital, and labour. A Common Market required the abolition of all border restrictions on the movement of goods, services, capital, and labour. It also required the establishment of “common policies” in four designated areas: external trade, agriculture, transport, and competition. However, the 1985 White Paper (Commission of the European Communities 1985) identified 280 remaining restrictions on these movements and proposed measures to abolish all of these restrictions. The White Paper did not use the term single market. It spoke instead of a “fully unified internal market”. The implementation of these measures and the associated debate soon gave rise to the idea of a Single Market. The Single European Act of 1987 formally created a Single Market that came into operation on 1 July 1987. The Single Market is something more than the Common Market. The 1985 White Paper began with the statement: Unifying the market (of 320 million people) presupposes the member States will agree on the abolition of all barriers of all kinds, harmonisation of rules, approximation of legislation and tax structures, strengthening of 02 BrickByBrick Ch 2 10/30/07, 8:19 AM 14 What Is a Single Market? An Application to the Case of ASEAN 15 monetary cooperation and the necessary flanking measures to encourage European firms to work together. (Commission of the European Communities 1985, p. 4) The Single European Act describes the Single Market as “an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured”. Both of these descriptions are imprecise. The central idea of a single market is that there should be no discrimination according to source in the regional markets for goods, services or factors, thus creating a market that should be a single market with no geographic segmentation. It was realized that...