Tuesday, August 03, 2004

Trading Frats

The economist dumps on ASEAN:

More effort needed

Jul 29th 2004 | BANGKOK

Nominally a free-trade area for more than a year, there is not much sign of economic integration in ASEAN

ON THE face of things, the ASEAN Free-Trade Area (AFTA), which covers the ten countries of the Association of South-East Asian Nations, is going from strength to strength. From the beginning of last year, the six long-standing members (Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand) reduced their tariffs on one another's goods to a maximum of 5%. They now plan to deepen AFTA by integrating the four newer members (Cambodia, Laos, Myanmar and Vietnam), tackling non-tariff barriers and expanding its scope to new areas such as investment. They also hope to conclude collective free-trade agreements with China, India and Japan. As proof of the group's success, the ASEAN secretariat, in Jakarta, says trade among its members roughly doubled in the decade from 1993.

But there is less to this rosy picture than meets the eye. For starters, ASEAN's trade with the rest of the world has grown just as fast as trade among its members (see chart). Trade with China has actually grown much faster and more consistently. Growth in trade within ASEAN, by contrast, has been patchy, with spurts in some years and declines in others.

In other words, AFTA is not quite what it is cracked up to be. Several of its members refused to lower tariffs on certain critical products to meet last year's deadline. Malaysia, for example, still insists on protecting its state-owned carmaker, Proton, to the dismay of Thailand, which has a fast-growing automotive industry. The Philippines did lower tariffs on petrochemicals as required, but later thought the better of it and raised them again. Rice, the region's biggest crop, is excluded from the pact altogether.

Okay, first off, nobody in Asia likes to depend on each others agriculture and especially not rice (see: WW2, problems of).

Secondly, of course these countries are tight, competitive and economically similar. Do they want to negotiate tariffs down between each other immediately? Would it not be better to act as a group in face of regionalized trading blocs as of the last round of the Doha talks?

These countries compete at every level for FDI, labour costs, etc....if they all knowingly reduce tariffs together, they can all keep the playing field level between each of them...food for thought anyways.

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