ASEAN Free Trade Area Research Articles

Association of Southeast Asian Nations Economic Integration: Developments and Challenges

The Association of Southeast Asian Nations (ASEAN) was formed in 1967 for geopolitical reasons, but faced with the competitive threat from the North American Free Trade Agreement and the European Single Market, it embarked in 1992 on the ASEAN Free Trade Area in goods, followed by liberalization of services trade and investment flows. A subsequent competitive threat from the rise of China and India led to the ASEAN Economic Community in 2003, targeted at creating a single market and production base and a competitive region with equitable economic development and integrated with the global economy. The ASEAN Economic Community is not quite a common market as it allows for only freer flows of capital and free flows of skilled labor. ASEAN's economic diversity led to difficulties with implementation and the need to narrow the development gap. ASEAN's dependence on global markets and investors led to the emphasis on open regionalism, support of the World Trade Organization, and free trade agreements with its major trade and investment partners.

Comment on “Politics of Association of Southeast Asian Nations Economic Cooperation”

Comment on “Politics of Association of Southeast Asian Nations Economic Cooperation”

ASEAN's Preferential Trade Agreements (PTA) Strategy

This paper provides a diversification explanation in order understand the development of PTAs in Southeast Asia. I argue that an important reason why ASEAN states participate in PTAs has been to diversify existing trade ties and to reduce overdependence on a narrow range of export markets. Southeast Asian countries have formed PTAs with markets with which they had weak or unexplored economic relations, as demonstrated by three case analyses: the ASEAN Free Trade Area (AFTA), the ASEAN-China Free Trade Agreement (ACFTA) and the ASEAN-Japan Comprehensive Economic Partnership Agreement (AJCEP). To maximise the economic gains and the diversification effects of PTA participation, ASEAN countries have pursued a strategy of strengthening economic unity while keeping external economic linkages as diversified as possible. Although East Asia, and especially China, was an important alternative market to reduce ASEAN's dependence on trade with America, ASEAN countries have also pursued PTAs with a number of other trading partners. This paper explains how PTAs have helped ASEAN states to develop more policy autonomy in their trading environment.

DAMPAK INTEGRASI EKONOMI ASEAN TERHADAP PERDAGANGAN INDONESIA PADA SEKTOR KENDARAAN RODA EMPAT

ABSTRACT This study aims to determine the significane of economic integration to Indonesia trade between ASEAN countries, especially the vehicle sector since ASEAN FREE TRADE AREA (AFTA) between 1991-2006. The methodology used is the Gravity model which often used to analyze bilateral trade, the effects of liberalization and trade agreements. The population in this study are the most dominant Indonesia trading partners at the four-wheeled vehicle, which are Malaysia, Philippines, Thailand, and Singapore, as the ASEAN members, and as comparison Australia, South Korea, Japan and the United States as non ASEAN members. The results showed that based on the estimation results, AFTA has a significant impact to Indonesia four-wheeled vehicle trade. The results of this study is expected to be uses as a reference for policy makers of ASEAN members and the private sector, especially Multi National Company (MNC) to formulated policy which are more efficient and effective on the automotive sector among ASEAN members.Keywords: economic integration, the Gravity model, AFTA

The Malaysian Polypropylene Industry Outlook In Facing ASEAN Free Trade Area (AFTA) Deregulation

The objective of this study is to focus specifically on the Malaysian polypropylene industrys performance in order to further understand the current situation. As the future of the plastics industry is becoming more competitive due to the uncertainties of the global economy, it is hoped that this study could help to assist the Malaysian polypropylene industry to understand the future potential challenges better. Another aspect of the future challenges for the industry is the lifting of the trade barrier within the ASEAN countries. By early 2003, the ASEAN Free Trade Area (AFTA) has imposed in the ASEAN regions and there will be little or no tariff at all between the ten ASEAN countries. Based on the surveys results, the Malaysian polypropylene industry is still very much dependent on the domestic market. The overall domestic market share commands about 60% of the total business. The trend to expand the export market is still in progress and in line with the overall Malaysian plastics industry. At the moment, only the large polypropylene industries are very aggressive in capturing the export market. If the current market segmentation of the overall industry is maintained, the AFTA deregulation could affect the future outlook of the industry as the alternative domestic market is not available in time in case of any penetration happens to this major market segment. As the small and medium polypropylene industries are very much dependent on the domestic market, they could be the first segment of the industry that would face the immediate effect or challenges of AFTA to the industry.

Evaluasi Komoditi Ekspor di Bandara Soekarno Hatta

Seeing of free trade in several continental markets such as of the establishment of the European Economic Community (EEC). The Asian Pacific Economy (Pasific Economy Community) NORTH America Free Trade Are (NAFTA), ASEAN Free Trade Area (AFTA), ASEAN free market with China is indirectly effect on determination of Indonesian strategy in exploting oppurtunities commodities what can penetrate the international market.With the opening of free markets Asean plus China which commenced in the year 2010 was the air transport sector has an important role in supporting efforts to increase exports, especially in the provision of adequate transport service.Soekarno Hatta airport is one of the airport that serves as the gates way of trade via air transport network, that plays an important role in supporting and smoth export and import of commodities.

Understanding Security in Regionalism Framework: ASEAN Maritime Security in Perspective

The International Relations of Southeast Asia have been transformed drastically over the last few decades. The transformation can be attributed to the development of regionalism in the region, following the onset of ASEAN in 1967. Twenty-five years of political cooperation in ASEAN paved the formation of the ASEAN Free Trade Area in 1992. The upcoming ASEAN trade bloc has ushered the integration of the region in various other sectors – with regional security turning out to be the major beneficiary. Considering the fact that Southeast Asia is essentially a maritime region and the maritime space and strategic sea-lanes straddling the region determine the continued existence of these nations, it is pertinent to examine the impact of the regionalisation process on maritime security. The paper aims to highlight the contribution of regionalism towards a secured and stable Southeast Asia. It will examine the maritime cooperation in the region under the ASEAN umbrella.3

An Appraisal of the South Asian Free Trade Agreement and Its Consistency with the WTO Rules on Preferential Trade Agreements

This article critically analyses the main features of the Agreement on South Asian Free Trade Area (SAFTA). As a preferential trade agreement (PTA) concluded among WTO members, the SAFTA must comply with the WTO rules on PTAs. This article finds that the SAFTA has flouted with the requirement of timely notification to the WTO. Even though the Agreement complies with the discreet requirements of the Enabling Clause, its shallow internal trade liberalization scheme would not have complied with Article XXIV of the GATT.

Comment on “Asia and the Reform of Global Governance”

Comment on “Asia and the Reform of Global Governance”

Asian Economic Integration and Cooperation: Challenges and Ways Forward for Pan-Asian Regionalism

As the Asian economies have grown larger and become more complex, they have also be-come more integrated at both the regional and the subregional level. Yet although economic integration has increased, regionalism in the sense of economic cooperation at both the pan-Asian and subregional levels has lagged behind. Regionalism or economic cooperation in terms of bilateral or multilateral FTAs is a relatively new phenomenon, but one that has in-creased rapidly in recent years. However, the progress of Asian regionalism faces several challenges. Also, the increasing number of FTAs could lead to a “spaghetti-bowl effect” and reduce trade volume instead of increasing it. In addition to resolving the existing challenges, actors in the region need to convert some of the existing FTAs into a broader one that can serve as a hub for further integration. Given the potential economic gains and future eco-nomic dynamism of the region, this paper suggests the pursuit of the Comprehensive Eco-nomic Partnership in East Asia (CEPEA) rather than the East Asia Free Trade Area (EAFTA). In dem Mase, in dem die asiatischen Okonomien gewachsen sind und an Komplexitat ge-wonnen haben, hat auch ihre regionale und subregionale Integration zugenommen. Dennoch hinkt Regionalismus im Sinne okonomischer Kooperation auf panasiatischer oder subregio-naler Ebene hinterher. Bilaterale oder multilaterale Freihandelszonen sind ein relativ neues Phanomen, erleben in jungster Zeit allerdings ein rapides Wachstum. Gleichwohl steht der Fortschritt des asiatischen Regionalismus vor einer Reihe von Herausforderungen. Die zu-nehmende Zahl von Freihandelsarrangements konnte zu einem „Spaghetti-Schussel-Effekt“ fuhren und das Handelsvolumen eher verringern als steigern. Die Akteure der Region mus-sen einige der bestehenden Freihandelszonen in eine weiter gefasste uberfuhren, die als Drehscheibe weiterer Integrationsprozesse fungieren kann. Angesichts der potenziellen wirt-schaftlichen Zuwachse und des kunftigen Dynamismus der Region pladiert der Beitrag da-fur, eher die Comprehensive Economic Partnership in East Asia (CEPEA) als die East Asia Free Trade Area (EAFTA) voranzutreiben.

Poverty Impacts of Preferential and Multilateral Trade Liberalization on the Philippines: A Computable General Equilibrium Analysis

The Philippines has been participating in preferential and multilateral trade liberalization since the 1990s. However, the poverty effects of these trading arrangements are not yet fully known. This paper, which uses a computable general equilibrium (CGE) model, finds that reducing both Most-Favored-Nation (MFN) tariff rate and ASEAN Free Trade Area’s Common Effective Preferential Tariff (CEPT) rate, combined with enhancing direct income taxes to offset the loss in tariff revenue, are instrumental in reducing poverty in the country. It also shows that the relatively poor and less-skilled household groups, like agricultural workers and industrial workers, as well as the poorest of the poor, gain from such trading arrangements because these substantially lower consumer prices. As such, this paper proposes that the Philippine government be more active and further promote preferential and multilateral trade liberalization in order to help eradicate poverty.

Prospects for Closer Economic Cooperation in Northeast Asia

AbstractIn contrast to developments in other world regions, efforts to institutionalize regional economic cooperation in East Asia have been weak. Though Southeast Asian economies have taken action toward trade liberalization (ASEAN Free Trade Area), the major economies of the region such as China, Japan, and Korea have not been part of any formal trade groupings until recently. However, given the slow pace of progress within AFTA and the importance of the Northeast Asian countries in terms of weight in the Asian economy, a de facto Northeast Asian economic cooperation is a necessary condition for East Asian integration. This paper investigates the substance of recent economic cooperation in Northeast Asia. The trilateral economic cooperation is analyzed through examination of trade and direct investment links for 1990–2004, and estimation of selected determinants of direct investment, in particular the relationship between trade and FDI. Estimation results suggest that the main driving forces for direct investment outflows from the source country have been the falling‐off of exchange rate risk, the level of the nominal bilateral exchange rates, growth rate of the recipient country, and the per capita GDP gap between source and host countries. Bilateral trade has been shown to be statistically insignificant.

Testing the Application of Heckscher-Ohlin Theorem to Contemporary Trade Between Malaysia and Singapore

Since members of the Association of Southeast Asian Nations (ASEAN) signed the ASEAN Free Trade Area agreement in 1992, trade between Singapore and Malaysia has continued to grow. Historically the economies of these two countries have had different characteristics, however, with Singapore known as a capital abundant country and a world financial center, while Malaysia has traditionally been relatively labor abundant and capital scarce. Because of this sharp contrast in their economies, one would expect that testing the Heckscher-Ohlin Theorem using trade data between Singapore and Malaysia would provide stark evidence of the H-O Theorem. That is to say that rather than find an exceptional case, as some past studies have done, this paper has attempted to find a country pair that seems to most closely resemble an idealized trade environment for the H-O Theorem. Thus, should a test find that the key hypotheses of the theory--namely that capital abundant countries export capital intensive goods, and labor abundant countries export labor intensive goods--are not evidenced in the data, then a serious re-evaluation of the theory may be necessary. The paper will first review past tests of the Heckscher-Ohlin Theorem to determine what relevant studies have been done to date. Following that, export data will be reviewed for several different sectors, dividing them up as either capital intensive or labor intensive. What we would expect is that Singapore is exporting capital intensive goods to Malaysia, and Malaysia is exporting labor intensive goods to Singapore. Further, labor intensive exports will be analyzed as a proportion of capital intensive exports to determine how the labor/capital export ratio compares to the labor/capital abundance ratio for each country.

The Global Financial Crisis and Economic Integration

The ASEAN Charter has been ratified by the ten member countries of ASEAN in 2008. This is to reaffirm the commitment of the member countries to the establishment of the ASEAN free trade area by 2015. The ASEAN members must prepare themselves with the economic and non economics aspects to be ready facing this era. Nevertheless, the global financial crisis could be a major hindrance to the implementation of the ASEAN free trade area. In this study, we attempt to determine how the global financial crisis could possibly affect the creation of the regional economic integration among ASEAN countries. The study based on Newtonian paradigm on economic regional or namely the gravity model. Gravity model explored the economic relation of the many regions or countries. The core properties of gravity model are export, GDP, population and distance inters countries. We will use the panel data method to execute the model. This followed by the analysis of the possibility of the economics integration using the core gravity model. Next, we will incorporate the Exchange Market Pressure (EMP) as the financial crisis index to the core gravity model, to determine the influence of financial crisis in ASEAN-5’s economic integration. The result indicate EMP giving negative effect on ASEAN-5’s economic integration. In overall result reported here indicate that economic integration is possible to implement on ASEAN-5 countries. But, the global financial crisis will be threat implementation of the economic integration.

Patterns and determinants of intra-industry trade in Asia

Intra-industry trade (IIT) has gained in importance across Asia as a result of the rapid growth of Asian economies and their key role in the international fragmentation of production. This paper examines the level of IIT for 22 countries in East, Southeast, South, and Central Asia in 2003. IIT is measured as a multilateral trade-weighted index and is reported for ten different categories of goods in the primary and secondary sectors. In addition, the determinants of IIT are investigated using a Tobit regression model. The results indicate that ASEAN and the high-income countries in East Asia exhibit the highest levels of IIT, followed closely by China and India. R&D spending, openness, and a higher share of manufactured exports were found to promote IIT, while geographical distance and the difference in economic size had an adverse effect, especially for manufactured goods. The ASEAN free trade area was most prominently associated with IIT across all SITC categories. Central and South Asian regional trade agreements had a positive influence on IIT in primary products.

A Two-level-games Analysis of AFTA Agreements: What Caused ASEAN States to Move towards Economic Integration?

The goal of this article is to investigate the conditions under which ASEAN states are more likely to pursue regional economic integration, namely, a series of ASEAN Free Trade Area (AFTA) agreements/protocols. Adopting Putnam's two-level-games model, this article examines the influences of domestic politics, political elites’ preferences, economic performance, and external impacts. Through the construction of a set of hypotheses, this article investigates five AFTA agreements/ protocols and the conditions of ASEAN states during the 1992–2003 period. The findings indicate that political leaders’ preferences have played a pivotal role in the development of the AFTA. Economic performance and domestic support in individual states has also affected the AFTA. The close link between AFTA agreements and external impacts reveals that the AFTA's inherent nature is defensive.

FTAs and Philippine Business: Evidence from Transport, Food, and Electronics Firms

Within East Asia, the outward-oriented Philippine economy is a latecomer to using free trade agreements (FTAs) as a trade policy instrument and has relied heavily on the Association of Southeast Asian Nations (ASEAN) for regional liberalization. While negotiating FTAs has consumed scarce time and other resources, limited attention has been hitherto given to evaluating the impact of FTAs - particularly the 15-year-old ASEAN Free Trade Area (AFTA) agreement - on business activity in the Philippines. Using a survey of 155 manufactured goods exporters from three sectors (transport equipment, processed foods, and electronics), this study deals with three questions: (i) Do firms use AFTA and why?; (ii) What impedes firms from using AFTA and other FTAs?; and (iii) What can be done to improve FTA use at firm level in the future? The study finds that utilization of AFTA is higher than expected from existing studies and is set to double in the future. Econometric analysis suggests that firm age, domestic ownership, awareness of FTAs, and membership in the transport sector increase the probability of using AFTA. Surprisingly, among nonusers, a lack of information is the biggest barrier to FTA use. Other impediments to use include the availability of export processing zone incentive schemes, low most-favored-nation rates (particularly in electronics), delays in origin administration, rent-seeking behavior, and nontariff measures in partner country markets. Interestingly, the majority of firms do not think that multiple rules of origin in overlapping Asian FTAs add significantly to business costs. However, there is room for improvement in the system of AFTA rules of origin (e.g., lower value content and introduction of self-certification mechanisms). The examination of institutional support reveals an excess demand for a range of support services (e.g., information, technology-based, and small or medium enterprise extension services) that will enable firms to use FTAs more effectively in the future. The paper concludes by making the case for better mainstreaming of FTAs into Philippine national trade policy and for improving support services to firms.

FTAs and Philippine Business: Evidence from Transport, Food, and Electronics Firms

Within East Asia, the outward-oriented Philippine economy is a latecomer to using free trade agreements (FTAs) as a trade policy instrument and has relied heavily on the Association of Southeast Asian Nations (ASEAN) for regional liberalization. While negotiating FTAs has consumed scarce time and other resources, limited attention has been hitherto given to evaluating the impact of FTAsparticularly the 15-year-old ASEAN Free Trade Area (AFTA) agreementon business activity in the Philippines. Using a survey of 155 manufactured goods exporters from three sectors (transport equipment, processed foods, and electronics), this study deals with three questions : (i) Do firms use AFTA and why?; (ii) What impedes firms from using AFTA and other FTAs?; and (iii) What can be done to improve FTA use at firm level in the future? The study finds that utilization of AFTA is higher than expected from existing studies and is set to double in the future. Econometric analysis suggests that firm age, domestic ownership, awareness of FTAs, and membership in the transport sector increase the probability of using AFTA. Surprisingly, among nonusers, a lack of information is the biggest barrier to FTA use. Other impediments to use include the availability of export processing zone incentive schemes, low most-favored-nation rates (particularly in electronics), delays in origin administration, rent-seeking behavior, and nontariff measures in partner country markets. Interestingly, the majority of firms do not think that multiple rules of origin in overlapping Asian FTAs add significantly to business costs. However, there is room for improvement in the system of AFTA rules of origin (e.g., lower value content and introduction of self-certification mechanisms). The examination of institutional support reveals an excess demand for a range of support services (e.g., information, technology-based, and small or medium enterprise extension services) that will enable firms to use FTAs more effectively in the future. The paper concludes by making the case for better mainstreaming of FTAs into Philippine national trade policy and for improving support services to firms.

Infrastructure for ASEAN Connectivity and Integration

I. Introduction The Association of Southeast Asian Nations (ASEAN) (1) has adopted the ASEAN Free Trade Area (AFTA) and ASEAN Vision 2020 for integrating its economies into a single production base, creating a regional market, and changing ASEAN into a stable, prosperous, and highly competitive region. The ASEAN Economic Community Blueprint, established to fast-track the ASEAN Economic Community (AEC) establishment by 2015, envisioned ASEAN as a highly competitive region, fully integrated into the global economy, possessing a single market production base, and characterized by equitable economic development (Goh 2008). Infrastructure development is essential to the realization of ASEAN's goal of economic integration and is indispensable to ASEAN's future success. In view of the ongoing global financial and economic crisis, now more than ever, the development of infrastructure needs to be accelerated to enhance physical connectivity and to encourage resource-sharing for rebalancing ASEAN growth towards increased intraregional trade and regional demand. To promote cross-border trade and investment, improve countries' productivity and competitiveness, and raise domestic output, it is important that ASEAN be connected through improved and integrated roads, railways, airways, ports and energy and tele-communication networks. This paper discusses the role of infrastructure development in ASEAN economic connectivity and integration and its associated issues and challenges. Section II presents the role of regional infrastructure cooperation in growth and integration. Section III provides an overview of ASEAN infrastructure and its importance for enhancing growth, trade, and investment; reducing the development gap; providing adequate basic needs; and achieving poverty reduction. Section IV examines issues and challenges in infrastructure development. Section V addresses infrastructure financing requirements, while section VI concludes. II. Regional Infrastructure Cooperation, Economic Growth, and Integration Infrastructure plays an important role in promoting rapid economic growth and making this growth more inclusive by sharing the benefits of growth with poorer groups and communities, particularly in remote and isolated areas and small and landlocked countries. Infrastructure facilitates the access of the poor to basic services and helps increase their income generating capacity. Physical connectivity through cross-border infrastructure (CBI) development is crucial for enhanced regional cooperation and economic integration (Kuroda 2006). Broadly defined, infrastructure can be categorized into hard and soft infrastructure. The former refers to physical structures or facilities that support the society and economy, such as transport, energy, telecommunications, and basic utilities. The latter refers to non-tangible aspects supporting the development and operation of hard infrastructure, such as policy, regulatory, governance, and institutional frameworks and mechanisms (Bhattacharyay 2008). Cross-border or regional infrastructure may be defined as infrastructure that connects two or more countries, as well as national infrastructure that has a significant cross-border impact. Therefore, a large portion of national infrastructure, such as airports, ports, roads, and railways, can be considered as CBI and is the building block for cross-border or regional connectivity. Empirical evidence indicates that infrastructure spending has a positive and statistically significant effect on long-run economic growth (World Bank 2002). Esfahani and Ramirez (2003) have found that if Africa had East Asia's growth rate in telephones per capita (10 per cent versus 5 per cent) and in electricity generation (6 per cent versus 2 per cent), its per capita GDP growth rate would have been at least 0.9 per cent higher. In East Asia, recent studies have indicated that greater stocks of infrastructure were indeed associated with higher growth (Seethepalli, Bramait, and Veredas 2008). …

Gravity Model by Panel Data Approach: An Empirical Application with Implications for the ASEAN Free Trade Area

This paper examines the determinants of export flows of countries in the ASEAN Free Trade Area (AFTA) through estimations of panel data using a gravity model. In particular, the paper employs the Hausman-Taylor (HT) estimation for a country panel data of thirty-nine countries during the period 1988–2002 based on a two-way error component form of the gravity model. The estimations show that export flows increased proportionately with GDP, and that the formation of AFTA has resulted in significant trade creation among its members. Finally, the paper suggests that trade facilitation policy can play an important role in setting the stage for AFTA’s transition to a Free Trade Area.