Chapter 7: Southeast Asia in the Regional and International Economies §

(F) Day of the week: Wednesday Class: IS210 Created Time: April 29, 2020 2:14 PM Database: Class Notes Database Date: April 29, 2020 2:14 PM Days Till Date: Passed Last Edited Time: February 12, 2022 4:34 PM Type: Lecture

Post-colonist SEA states remain connected to their former colonial rulers through subsistence agriculture

• Imbalance between cheap agriculture exports and expensive manufactured goods

  ⇒ Import Substitution Industrialization: local manufacture replacing imported foreign goods

  ⇒ Export-led Industrialization: produce products locally and export for more profit

• 1980s, SEA ASEAN’s tigers were still small compared to the rest of Asia (China, Japan…)

  ⇒ 1990s, ASEAN looked to regional integration for a bigger market and voice in the world

I. Intra-ASEAN Regionalism and ASEAN Free Trade Area §

1. Intra-ASEAN Regionalism §

• 1967, Bangkok Declaration, formation of ASEAN for economic cooperation.
• 1976, ASEAN Bali Summit called for industrialization through
  • Market sharing: ?
  • Resource pooling: Sharing resource among members
  • Regional preferential tariffs: reduce trade barriers in the region
• ASEAN Industrial Joint Venture (AIJV), objected by Malaysia (have own automotive industry)

Lack of Integration §

1983, report on ASEAN Cooperation says ASEAN members:

• no intrastate objective
• had no political will
• is self-interested

⇒ 1986, after 19 years still ASEAN members didn’t trust one another

2. ASEAN Free Trade Area §

1992 Singapore Summit: first ever ASEAN talk about economic cooperation

• AFTA ran by Common Effective Preferential Tariffs
  • Effective: 1st Jan 1993
  • Target: of lowering tariff levels 0-5 %
  • CLMV joined and had later deadline to comply with AFTA
• AFTA Plus

  • ASEAN Framework Agreement in Services (AFAS): foreign services locally

    1995

    • Hospitals
    • Banks
    • Agencies

  • ASEAN Investment Area (AIA): fairly treat foreign investors to stimulate flow of investment

    Created: 1995

    Applies for both ASEAN members and non-ASEAN members

    • Tax exemption

  • ASEAN Industrial Cooperation (AICO): to manage taxation levels of imports

    1996

  • Problem of

    • how to harmonize the Six and CLMV economies
    • Diversity of banking, tax, regulations, judicial systems, corruptions

3. The External Impetus §

ASEAN concerned over competition for FDI against fast growing China

• Asia Pacific Economic Cooperation

  Created: 1989

  Aim: promote cooperation in Pacific Rim countries to influence dominant powers

  First Meeting: Blake Island 1993

• Bogor Declaration:

  Created: 1995

  Aim: for developed countries to open their economies by 2010, and developing countries by 2020

4. The Clash of 1997 §

China and Japan devaluated their currencies ⇒ their products are cheaper than SEA

• SEA financial crisis 1997
• IMF support program (billions) with conditional reforms: for changes in behavior by countries
  • Only Malaysia Rejected: Mahathir paranoid about external interference

ASEAN had no financial institution to deal with financial crisis

Regional Response §

• ASEAN approved Japan’s 100 billion assistance for no condition

  ASEAN looked East ⇒ ASEAN+3 (China, Japan, South Korea)

• The 2000 Chiang Mai Initiative linking ASEAN to China, South Korea, and Japan

• After financial crisis, ASEAN Surveillance Process created for monitoring and sharing info about financial issues

Pattern of ASEAN Trade and Investment §

• ASEAN wanted economic integration to
  • expand trade
  • attract investment
• ASEAN recovered from 1997 financial crisis
• ASEAN is concerned over the West market as China was rising
  • China has cheaper labor
  • ASEAN relied on outside markets more than among themselves

Inequality between market of the Six and CLMV

• No institution to promote trust among members
• Competition by CLMV to reduce wealth gap

Economic Regionalism Beyond AFTA §

ASEAN intends to promote deeper regional integration

ASEAN views the West protectionism a threat to it’s expansion

• Trump’s focus on unemployment “America First”
• ASEAN pursing both (depending on differing interests)
  • FTA through bilateral agreement
  • RTA through multilateral agreement

🍜 “Noodle Bowl” different lack of uniform rules of trades that compete with one another making prices higher for consumers

ASEAN strong relation with ASEAN+3

Trade Implication with Politics §

• China pursues dominant position with East Asia Free Trade Area
• Japan against China’s influence with Comprehensive Economic Partnership in East Asia
• Obama’s US opposed closed regionalism, advocated Free Trade Agreement of Asia Pacific against China
• Trump’s US imposed protectionism ⇒ Trade War with China
• Global supply chain may shift out of China after Coronavirus

Conclusion §

3 Stages of ASEAN’s Economic Cooperation

• The import substitution industrialization
• The export-led industrialization
• Regional Economic Integration

ASEAN’s economic integration relied on FTA and RTA with the weakness of "noodle bowl"

• Weak institution for cooperation and regulation for rules of common good
• Undermines ASEAN regional influence as members are absorbed into China’s and US’s framework

ASEAN has to adapt to the post coronavirus new world order

Discussion Questions §

1. Explain ASEAN economic evolution since post-independence to current day.

2. ASEAN has desire for regional integration but ASEAN’s economic outward looking method undermine ASEAN’s integrations efforts.

3. How does coronavirus and US-China Trade War implicate the ASEAN trade prospect in the future?

   • Foreign imports in US is taxed (protectionism)
   • US retract businesses/Companies from China from both Coronavirus and Trade War

   Positive: more foreign companies into SEA from China

   Negative: US’s protectionism impacting market accessibility from SEA