Impact of ASEAN to member economies Homework Help

Impact of ASEAN to member economies

The success of Asian continent in the expansion of its economies and the considerable progress in integrating them as well as the establishment of infinite linkages with the global economy can be considered to be among the greatest achievements of the region in the past few decades. The market oriented integration that is being propelled by national efforts and regional collective actions has resulted to the shared success between Asia and pacific. Currently, there is a force operating in Asian continent that is calling for Asian integration and this is seen through enhanced cooperation among governments, firms and people (Tavares, 2010: 78). The region has experienced rapid growth and this is indicated by enormous cross-border trade, capital flows and movement of people. The Asian continent, besides integrating with itself it has also integrated with the rest of the world. Nonetheless, the road to full integration is not that smooth for it is very long and with full of obstacles.

The Asia continent approach to integration has been very practical and flexible and because of this, it has followed a bottom-up approach. The process which reflects the diversity and heterogeneity of the region entails supporting sub-regional cooperation initiatives through what is known as multi-track and multi- speed approach (Singh, 2009: 45). The bottom-up approach is gradual but allows the participation of both the developing and developed economies towards building a broader and regional structure. The integration of Asia region is under the support of a dense web of overlapping regional and sub-regional institutions that are intergovernmental oriented with the aim of achieving specific functional goals. The Asia continent has diverse economies and societies which are bound to create a lot of challenges in the formation of regional structures (Axline, 1994: 65).

The formation of Asian regionalism can considered as a powerful historical force that will facilitate the building of peace and prosperity within the region as well as outside the region. The implementation of the correct institutional framework for Asian integration is very important for the region. It does not only help in eradicating poverty and sustaining growth momentum in the region but is also important to the rest of the world as the region increases its input in the global economy (Acharya, 2009). This purpose of this paper is to evaluate the influence of regional integration within the Association of Southeast Asian Nations (ASEAN) member states and the effects it has on the firms that operate within the region, and identify the potential for further integration beyond the current ASEAN membership and the trends in the coming years.

Background information of ASEAN
ASEAN is a regionally-based international organization that consists of ten South East Asian countries. During its inception in 1967, ASEAN had only five members and these include Thailand, Singapore, Malaysia, Indonesia and the Philippines. ASEAN organization was formed for the purpose of promoting of peace and security in addition to promoting economic growth of the region economies. Prior to the formation of ASEAN, the South East Asian region was characterized by division that came as a result of Cold War and warfare threatened nations such as Vietnam, Cambodia and Laos (Tanvanich, 1988: 70). ASEAN, since its inception, it is functioning under the principle of non-interference, for the governments of its members are considered to be both different and hostile towards one another. The principle of non-interference adopted by ASEAN is such that no member of ASEAN is allowed to criticize in public the activities the other member engages in its own territory.

The other five countries that make up ASEAN organization besides the five original members are Brunei which became a member in 1984, Vietnam in 1995, the other two Laos and Myanmar (Burma) joined the same year that was in 1997 while Cambodia in 1999. The ten members of ASEAN have a total population of about a half billion people and their GDP combine approximates to $700 billion (Alexander, 1999). The majority of people living in this region are poor, however there is quite a number of people, in millions considered being in wealthy status.

Achievements
ASEAN organization has achieved a lot, one being that it has managed to maintain an environment of peace and stability which has facilitated member countries to concentrate in the promotion of speedy and continuous economic growth and transformation (Pomfret, 2010). The flexibility that is characterizing the South Asian economies is something that many nations in the world would yearn to achieve for themselves. For two and half decades starting from 1970 to 1995, there was rapid growth in ASEAN’s GDP which grew at average rate of 7%. The region at the moment has a total market of approximately half a million people with total GDP of about $ 700 billion.

The overall trade in ASEAN region has grown. During its beginning in 1967, trade was at $ 10 billion while in 1970 it grew to $134 billion, in 1980 to $302 billion and 1995 to $650 billion. The region is ranked fourth in terms of trading value globally after European Union, USA and China.

ASEAN is part of the wider East Asia which is on the road to achieving economic status that equals that of North American region and the EU. In 1960, the total GDP of East Asian nations stood at 4% of the global GNP. In 1992, it increased to 25% and was projected to hit 33% in 2010. Currently, the East Asian central banks hold more than 46% of the global foreign reserves.
The modernization efforts undertaken by ASEAN organization has resulted to significant changes in the structure of production in the region. In the period between 1970 and 1993, there was a drop in the share of primary sector, from 27 percent to 20 percent (Lee, 2011: 120). On the other hand, there was increase in the share of secondary sector, from 26 percent to 33 percent but the tertiary sector maintained its share of 47 percent. The same trend was also observed in the composition of workforce in ASEAN region. The percentage of workforce in agriculture reduced, from 61 percent in the middle of 1970s to 53 percent in 1990. The region’s industrial and service sector have increasingly created employment opportunities to the people. These developments have helped the ASEAN member countries to achieve a newly industrialized economic status (Rana, 2006).

The 1992 Singapore Summit Declaration elevated the ASEAN economic cooperation to a higher level and this prompted the approval of Agreement on the Common Effective Preferential Tariff (CEPT) by ASEAN economic ministers for the organization Free Trade Area (AFTA) (Bureau of Public Affairs, 1994). The implementation of the free trade area was considered as a qualitative in the history of the organization economic cooperation. The CEPT agreement was limited to manufactured products only, capital goods and agricultural products that had been processed. However, it was later modified to cover agricultural products that are not processed. After two years of its implementation, ASEAN made a decision to accelerate AFTA’s time frame from 15 years to 10 years. Besides reducing tariffs and eliminating non-tariff barriers, ASEAN organization has adopted various trade facilitation measures that include ASEAN Agreement on Customs, customs nomenclature and synchronization of standards.

ASEAN has enhanced cooperation of member states in the finance and banking sector. This cooperation has the intention of promoting the expansion of capital markets, in addition to liberal movement of capital and further monetary resources that include legalizing the usage of ASEAN currencies in trading and investments.

ASEAN is pursuing cooperation in energy and minerals under agreed framework and program of action with the intention of supporting industrialization of member countries as well as meeting the increased demands of both manufacturing and construction sectors (Johnson and Langley, 2002). It has developed Minerals Information System which is a database to facilitate information sharing and dissemination to policymakers and other stakeholders. The ASEAN –EC Energy Management Training and Research is funded and provided technical support by European Union. It was established in 1988 and serves as a center of quality for combined energy studies and cooperation project between the member countries and the European Union.

Impact on member states
The bilateral trade between ASEAN member countries has indicated that there is an increase in the absolute number in export and in the share of the world’s total trade (Orakhelashvili, 2011). However, there are impacts on the ASEAN region including the disparities that have existed between the member states. The differences are in fields like health, where there has been increase in child mortality rates especially in Cambodia. In addition, there are the differences in GDP per capita to labor productivity. For instance, the GDP of Singapore is at par with other developed nations but more than three times of the other ASEAN states.

ASEAN has recognized that its interconnections in the political and economic realm among the member states necessitates the need for a comprehensive principle for security and thus, should be committed to addressing the wider political, economic and socio-cultural aspects in enhancing a dynamic ASEAN region. There are also responses that acknowledge that the area is under threat of lack of adequate security, poverty has remained to the high levels, and other threats include lack of adequate medication and the outbreak of infectious diseases (Amer and Zou, 2011). In addition, there are also other threats that include environmental degradation and natural calamities, as well as transitional crime such as the terrorist attacks. Transitional health threats in the region include HIV/AIDS and tuberculosis.

The region has also experienced environmental degradation due to deforestation and overexploitation of natural resources for economic development. The rapid increase in urbanization and industrialization has resulted into problems such as pollution. Threats that are associated to natural calamities include flood, droughts, and other natural disasters such as forest fires that are triggered by haze. Other threats identified in the region includes drug trafficking, human trafficking, terrorism, money laundering, sea piracy and smuggling of war weapons that poses a lot of threat to the security of the region (Amitav, 2001).
Impact on foreign and domestic business
Research carried out by IMF and World Bank, shows that despite of the presence of a wide range of measure to minimize trade barriers within the region, trade within the ASEAN member countries still remain low and face restrictions to other peripheral sectors (Tavares, 2010). A better example is the relationship between business organizations and governments which are the cause of the failures experienced, thus resulting into economic ineffectiveness.

In order to understand the relationship, the economic cooperation between the ASEAN member states has discounted the domestic conditions that tend to maintain the obstacles to free trade.
There has been an increase in economic welfare because the resources that had been previously put under costly domestic production are allocated in an efficient way to areas where the member nations face competitive advantage and this will have the impact of generating efficient trade and enhance a greater productivity (Wortzel, 1996).

A regional market that is extensive has been obtained in nations outside the region and this has led to the increase in trade and other opportunities in the region.

The elimination of trade barriers among the ASEAN member states has made trading to be more efficient with non member states. This has encouraged diversification to states that are less efficient. In addition, integration has caused investment diversification effect in a situation where investment resources are diverted.

The ASEAN economic integration is manipulated by politics instead of economics. The attempt to promote free trade in the ASEAN region has faced negative implications from governments under the influence of national interest.

Challenges before ASEAN Member States
The ASEAN organization is facing a lot of challenges which are increasingly taking regional dimension. To start with, the disparities with respect to economic development between the member countries are considerably significant. In 2006, Singapore’s GDP per capita in 2000 purchasing power parity in dollars was 28, 305, almost equivalent to that of France (Tavares, 2010: 40). The gap between Singapore and other ASEAN member states is very high. In fact, the GDP per capita of Malaysia and Thailand countries, which are next after Singapore is approximated to be 36% and 28% of Singapore’s respectively.

The enlargement of ASEAN organization has increased its degree and complexity and this might result to weakening and breaking up. Nonetheless, whether ASEAN is available or not, the diversities that define South Asia region will continue to exist. The real problem is the maintenance of peace and developing mutual confidence because the region has more than 10 different nations with a total population of about 500 million (Fry and Kahn, 2008: 113). ASEAN has a big challenge of building confidence and maintaining a meaningful regional cooperation.

Western countries, view the ASEAN organization as being ineffective and inefficient. The “outward looking” of the ASEAN has been flawed because of its non-interference principle, for one country is not allowed to interfere with the internal affairs of other member nations (Eckes, 2011). This principle of non-interference has negative repercussions in that in some member countries there are allegations of violation of human rights. The violation of human rights according to the eyes of the western world amounts to serious international concerns.

ASEAN has a major challenge in that the member countries territorial sizes are different and some markets in the region are complex. Besides that, finance ministers of the member countries lack control of certain important issues such as tax, custom, legal reforms as well as currency controls (Wesley, 2003). ASEAN organization has a challenge of achieving outcomes in that the member countries have the right to either support or not support initiatives. The organization risks not achieving meaningful outcomes and because of this it has to coordinate its activities with other regional organizations which are involved in developing same programs.

Through the creation of AFAT, there has been significant progress towards economic integration. However, the big challenge is to determine the appropriate form of the economic community of the ASEAN region that will need to address the associated effects of the increased number of FTA’S that have been negotiated by the member countries.

These FTA’s have strict rules that are liable for increases in administrative expenses. The FTA’s should work carefully to review and ensure that it is compatible with other FTA’s. The ASEAN has adopted tools to identify how far or close it works towards achieving its vision 2020 by using the ACPMS and AEC Scorecard. However, these tools are not yet finalized but have a challenge in imposing an incomplete monitoring tool.

Potential Development of the ASEAN
Globalization has made ASEAN economies to change the pace and patterns of their economic interaction with other economies including large firms within and across interdependent nations. Integration is important because it leads to the intensification of knowledge in production and marketing of goods and services (Than, 2005). In addition, competition has been enhanced between businesses while the demand for goods and services is becoming more sophisticated.

The liberalization across borders is always augmented with demanding commitments and has tended to be legalistic in practice. As a major vehicle for change and development in this region in terms of integrating ASEAN into the world community, there is tremendous scope for improvement and emancipation of poverty through wealth sharing between richer nations like Brunei Darussalam, Malaysia, Singapore and Thailand and poorer countries like Myanmar, Vietnam and Cambodia through aid packages, economic assistances during human and natural calamities and crises (Roberts and Satow, 2010).

The region has had significant economic growth coupled with a consistent rise in per capita income over the past few years. However, poverty and unequal distribution of income has been a major obstacle. The ASEAN member states have considered development al regionalism to be an important component to the existing ASEAN economic integration initiative that is the extent to which the implementation to such initiatives reflects the developmental needs to people within the region (Hirono, 2003).

Conclusion
Regional integration has positive effects on bilateral imports, hence makes trade between industries to increase the regional trade among the member countries and assist in further economic integration in the region. ASEAN is one of the most successful regional economic communities in the world, after the EU. The establishment of the ASEAN market, through AFTA, which comprises more than 576 million people, provides enormous potential for market expansion for ASEAN companies. The ASEAN experience demonstrates that intraregional trade barriers are largely policy-induced (Business International Asia, 1979).

ASEAN countries are trade-oriented, and overcoming these barriers has necessitated changes in their trade and commercial policies. Most important, ASEAN has made considerable progress in dismantling tariff and other obstacles to trade.
The ASEAN community has been instrumental in increasing its member nations’ bargaining power with their trading partners, European Union and USA, giving them the benefit of the combined force of their ASEAN partnership in their trade negotiations with the outside world.

Recommendations
Based on the findings of the study, there is a need for a proper regional integration that requires all member states to have minimum standards to foster economic and social developments. When such developments are not in place, then the member states will either be winners or losers. This may include inequality and poverty levels between and within member states. Areas that should be accorded more attention by the ASEAN members’ states in order to narrow the development gaps and fulfill the aspirations for ASEAN integration include governance which should be effective to achieve adequate decision making process in governance (Tongzon, 2002). This should also take into account the civil society, as well as, the private sector on political, social, and environmental issues that need minimum standards to governance. Most important is transparency in governance that should make people obtain reliable information and appropriate data (Acharya and Stubbs, 1995).

The cohesion policy embodies the ASEAN vision of the freedom of movement that should be possible and sustainable if only supported by a cohesion policy, which aims at reducing the development gas between winners and losers to the integration process. The policy should state financial transfers for social, economic and environmental developments. The other aspect involves the Trans-ASEAN networks forming the backbone of the freedom of movement within the region, adequate network of infrastructure, transportation services, Information Technology, water, energy that should aim at reflecting the regional rather than a national perspective. Trans-ASEAN networks are essentially important because to wide inter-country disparities in development outcomes. It is also necessary to develop a balance between ASEAN, s desire to adopt a principle to open regionalism and the organizations imperative to improve the living standards to people from poverty. Member countries should provide the necessary political and economic commitments such as adequate safety net to ensure a full implementation to the socio-economic initiatives in order to minimize impacts to economic globalization and regionalization.

Other measures should include reforming the outdated principle to non-interference which is an obstacle to economic advancement to the region in order to achieve the economic development goals. The organization should develop ways to empower the marginalized economic groups through involving the recognition to economic groups by involving the recognition to non-professional migrants hired for the majority to interstate employment in the region, thus, encourage the emergence to economic solidarity through the development to economic complementarities among the region’s economies and to ensure a common regional policies and positions in a wider multilateral forum (Severino, 2006). Finally, it is important to democratize the economic-policy making process through improving the quantity and quality to engagement between policy-makers and regional stakeholders.

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