How Far is Indochina from ASEAN?

Abstract

The enlargement of ASEAN to include the Indochinese countries is an important step in the creation of an integrated Southeast Asian marketplace. Nevertheless, the divergent levels of economic development between these countries will pose important challenges for the acceding countries as well as for ASEAN itself. This article considers the economic of the Indochinese countries from the ASEAN norm and ponders the implications of this divergence from the perspective of regional integration, with the experience of the European Union (EU) and the Central and Eastern European countries as a yardstick. I. Introduction Except for North Korea, the Indochinese countries' are the last countries in Asia to emerge from economic backwardness. Political isolation, captiveness in the economic system of central planning and autarky, and civil war have been powerful obstacles against capital formation and economic growth in Indochina for more than two decades. Now, after the demise of the ancien regime, Indochina has been released from external (Soviet Union) subordination. This is a necessary but by no means sufficient condition for take-off. Since economic liberalization is (correctly) purported to shape fundamentally political weights, overcoming politically-rooted internal resistance against market opening is still an unfinished job. Yet, time is on the side of the reformers. Political leaders in Indochina increasingly understand that market opening in low-income, unregulated countries neighbouring vibrant emerging markets will more rapidly promote economic recovery than in over-industrialized (as a heritage of the socialist system), highlyregulated Central and Eastern European countries neighboured by low-growth high income countries. Hence, if the transition period in former socialist Asia is shorter than in former socialist Europe, and there are good arguments why this can be expected (Sachs and Woo 1994; Diehl 1994), political leaders with high time preference rates will not oppose market opening. This can be expected since market opening strengthens their tax base and allows them to nourish political entitlements of their political clientele without depressing real incomes of the mass of population. In this situation, regional co-operation within ASEAN offers a helpful hand for market networking, access to know-how and risk capital, and institution building at easier terms than is provided by joining the multilateral institutions. The latter requires a process which is more tedious given higher political and economic hurdles imposed by non-Asian countries and the legal complexities of multilateral institutions. This article reviews and evaluates which arguments for integrating Indochina into ASEAN can be derived from the new theoretical literature treating regionalism as an endogenous response to the development of the multilateral trading system (Section II). Section III investigates the degree of divergence between the two regions, which has increased over the entire life span of ASEAN, and identifies leading indicators of emerging convergence attributable to policy changes and the transformation of economic structures in Indochina. Comparisons to the EU and its eastern neighbours are drawn. Section IV stylises the distance between AFTA and the most advanced Indochinese economy, Vietnam, in terms of trade policies. Section V integrates the theoretical discussion introduced in Section II and assesses its practical relevance for Indochina and ASEAN enlargement. Section VI gives some concluding remarks. II. Small Countries Linking up to Successful Integration Schemes: The Underpinnings of a Qualitative New Regionalism The underpinnings of new regionalism have been introduced by Ethier (1996) as follows: Multilateral liberalization among OECD countries and the NIEs is so advanced (at least with respect to trade in manufactures) that the old Vinerian dichotomy of trade creation versus trade diversion has lost much of its empirical relevance. …