Securing a string of neighbourly alliances
Thursday, 29 November 2007
John Burton and Amy Kazmin
AT its latest annual summit, the Association of South-East Asian Nations adopted the motto: "One Vision, One Identity, One Community". The slogan may come back to haunt the 10-member group given the scepticism that has greeted its plan to create a single market by 2015 and the political divisions exposed by Burma.
A more appropriate motto might have been "All Roads Lead Through Asean", as the group's other big economic initiative, to become the main hub for bilateral trade pacts in Asia, has been highly successful.
Asean's efforts to negotiate a web of trade deals with China, Japan, South Korea, India, Australia and New Zealand could lay the foundations for the emergence of the world's biggest trading bloc, which would include nearly half the global population and have an annual production capacity of $9,000bn (£4,380bn, €6,080bn). "Just think of it, a free trade area stretching from Hokkaido [in northern Japan] to Invercargill [in southern New Zealand]," says Tim Harcourt, chief economist at the Australian Trade Commission.
Japan has become the first Asian country to conclude negotiations with Asean on a comprehensive trade deal that covers trade in goods, services and investments. South Korea and China have already signed Asean agreements on goods and services and talks on investments are expected to be completed shortly. Asean officials say they expect similar progress with India, Australia and New Zealand in the next year or two. "Our countries offer complementary advantages to businesses and a neutral core around which the rest of Asia can build economic ties and a regional framework of co-operation," Lee Hsien Loong, Singapore's prime minister, told the Asean summit.
Asean's good record in forging trade alliances with neighbours is perhaps not surprising given that nearly 80 per cent of its total trade goes outside south-east Asia. But Asean also has other advantages. It is the oldest and most developed multinational economic group in Asia, while its rich storehouse of natural resources -- from gas and oil to timber - is attracting eager buyers such as China.
"Asean is of strategic importance because of the role it is playing in Asia's economic integration," says Haruhiko Kuroda, the Asian Development Bank president.
More than 40 per cent of Australian exporters think a trade pact with Asean would be beneficial, according to a recent DHL Export Barometer. Australia sees Asean as a growing market for beef, aluminium, crude oil, steel and dairy products.
Akira Amari, Japan's minister for trade and investment, predicts that more Japanese companies will use Asean as a production base under the new agreement. Officials in Tokyo also see a strategic importance in strengthening ties with Asean. As well as gaining greater access to energy, notably Indonesian and possibly Burmese natural gas, Japan is keen to ensure that its southern sea lanes remain open. The prospect of China gaining access to Russian energy and, with it, a stranglehold over continental supply routes, makes Japan even more sensitive to securing the safety of such sea lanes as the Malacca Strait.
But critics warn that while the trade deals are likely to boost economic growth for Asean, they also carry the risk that the region may be relegated to becoming a supplier of raw materials and half-finished goods. China could flood the region with cheap consumer products, wiping out local manufacturers. Malaysia has been forced back into its traditional role as a supplier of palm oil and other commodities as its industrialisation programme has withered under foreign competition.
Moreover, Asean has failed to gain access to the Japanese and South Korean markets for some of its most important products. Although Japan agreed to eliminate tariffs on 90 per cent of imports from Asean countries, it refused to make concessions on rice, sugar and livestock, due to opposition from Japan's powerful agricultural lobby. Thailand opted out in protest over the exclusion of rice from Asean's trade deal on goods with South Korea, which also has a strong farm lobby. India's insistence that up to 1,400 items, including textiles and farm products, should be excluded from its proposed pact with Asean has stymied talks, although a compromise is still being sought.
However, Asean has also won concessions, including the phased dismantling of trade barriers to give local industries more time to prepare for foreign competition. Japan, for example, agreed that Asean's six richest members would have up to 10 years to eliminate restrictions, while the four poorest would have up to 18 years.
With Asean's trade deals with China, Japan and South Korea near conclusion, those three are discussing ways to improve closer co-operation among themselves. "Once all three north-east Asian countries have trade agreements with Asean, sooner or later these should be able to be integrated," says Bark Tae-ho, a professor of international trade at Seoul National University.
An economic grouping in north-east Asia would in turn serve as a main building block for the more ambitious goal of creating a pan-Asian trade zone that would use Asean's bilateral deals as the point of departure.
But the concept has become embroiled in economic rivalry between Japan and China, Asia's two biggest powers: the two are vying to be first to complete a deal with Asean.
A Japanese official expresses concern that some Asean nations are China's "client states". Beijing's influence in Asean has grown due to the relative diplomatic passivity of Japan and what is seen by some as neglect by the US.
China wants to limit the size of the proposed Asian economic zone to Asean and north-east Asia, known as Asean+3. But Japan, fearing that China will dominate the group, has sought to have its democratic allies, India, Australia and New Zealand, join the zone as part of a Asean+6 proposal. Asean agreed last year to study the Japanese plan. "I don't see why we need to place India, with its large market of 1.0 bn people, outside of the territory" to be covered by such a zone, says Mr Amari.
Asean leaders have suggested they will delay proposed trade deals with the European Union and the US until they have made progress on an Asian zone. But Peter Mandelson, the EU trade commissioner, says that would be a mistake.
He maintains: "The Asean economies have great economic potential but they are in danger of failing to realise that potential if they don't look to the rest of the world as well as their own neighbourhood."
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FT Syndication Service
AT its latest annual summit, the Association of South-East Asian Nations adopted the motto: "One Vision, One Identity, One Community". The slogan may come back to haunt the 10-member group given the scepticism that has greeted its plan to create a single market by 2015 and the political divisions exposed by Burma.
A more appropriate motto might have been "All Roads Lead Through Asean", as the group's other big economic initiative, to become the main hub for bilateral trade pacts in Asia, has been highly successful.
Asean's efforts to negotiate a web of trade deals with China, Japan, South Korea, India, Australia and New Zealand could lay the foundations for the emergence of the world's biggest trading bloc, which would include nearly half the global population and have an annual production capacity of $9,000bn (£4,380bn, €6,080bn). "Just think of it, a free trade area stretching from Hokkaido [in northern Japan] to Invercargill [in southern New Zealand]," says Tim Harcourt, chief economist at the Australian Trade Commission.
Japan has become the first Asian country to conclude negotiations with Asean on a comprehensive trade deal that covers trade in goods, services and investments. South Korea and China have already signed Asean agreements on goods and services and talks on investments are expected to be completed shortly. Asean officials say they expect similar progress with India, Australia and New Zealand in the next year or two. "Our countries offer complementary advantages to businesses and a neutral core around which the rest of Asia can build economic ties and a regional framework of co-operation," Lee Hsien Loong, Singapore's prime minister, told the Asean summit.
Asean's good record in forging trade alliances with neighbours is perhaps not surprising given that nearly 80 per cent of its total trade goes outside south-east Asia. But Asean also has other advantages. It is the oldest and most developed multinational economic group in Asia, while its rich storehouse of natural resources -- from gas and oil to timber - is attracting eager buyers such as China.
"Asean is of strategic importance because of the role it is playing in Asia's economic integration," says Haruhiko Kuroda, the Asian Development Bank president.
More than 40 per cent of Australian exporters think a trade pact with Asean would be beneficial, according to a recent DHL Export Barometer. Australia sees Asean as a growing market for beef, aluminium, crude oil, steel and dairy products.
Akira Amari, Japan's minister for trade and investment, predicts that more Japanese companies will use Asean as a production base under the new agreement. Officials in Tokyo also see a strategic importance in strengthening ties with Asean. As well as gaining greater access to energy, notably Indonesian and possibly Burmese natural gas, Japan is keen to ensure that its southern sea lanes remain open. The prospect of China gaining access to Russian energy and, with it, a stranglehold over continental supply routes, makes Japan even more sensitive to securing the safety of such sea lanes as the Malacca Strait.
But critics warn that while the trade deals are likely to boost economic growth for Asean, they also carry the risk that the region may be relegated to becoming a supplier of raw materials and half-finished goods. China could flood the region with cheap consumer products, wiping out local manufacturers. Malaysia has been forced back into its traditional role as a supplier of palm oil and other commodities as its industrialisation programme has withered under foreign competition.
Moreover, Asean has failed to gain access to the Japanese and South Korean markets for some of its most important products. Although Japan agreed to eliminate tariffs on 90 per cent of imports from Asean countries, it refused to make concessions on rice, sugar and livestock, due to opposition from Japan's powerful agricultural lobby. Thailand opted out in protest over the exclusion of rice from Asean's trade deal on goods with South Korea, which also has a strong farm lobby. India's insistence that up to 1,400 items, including textiles and farm products, should be excluded from its proposed pact with Asean has stymied talks, although a compromise is still being sought.
However, Asean has also won concessions, including the phased dismantling of trade barriers to give local industries more time to prepare for foreign competition. Japan, for example, agreed that Asean's six richest members would have up to 10 years to eliminate restrictions, while the four poorest would have up to 18 years.
With Asean's trade deals with China, Japan and South Korea near conclusion, those three are discussing ways to improve closer co-operation among themselves. "Once all three north-east Asian countries have trade agreements with Asean, sooner or later these should be able to be integrated," says Bark Tae-ho, a professor of international trade at Seoul National University.
An economic grouping in north-east Asia would in turn serve as a main building block for the more ambitious goal of creating a pan-Asian trade zone that would use Asean's bilateral deals as the point of departure.
But the concept has become embroiled in economic rivalry between Japan and China, Asia's two biggest powers: the two are vying to be first to complete a deal with Asean.
A Japanese official expresses concern that some Asean nations are China's "client states". Beijing's influence in Asean has grown due to the relative diplomatic passivity of Japan and what is seen by some as neglect by the US.
China wants to limit the size of the proposed Asian economic zone to Asean and north-east Asia, known as Asean+3. But Japan, fearing that China will dominate the group, has sought to have its democratic allies, India, Australia and New Zealand, join the zone as part of a Asean+6 proposal. Asean agreed last year to study the Japanese plan. "I don't see why we need to place India, with its large market of 1.0 bn people, outside of the territory" to be covered by such a zone, says Mr Amari.
Asean leaders have suggested they will delay proposed trade deals with the European Union and the US until they have made progress on an Asian zone. But Peter Mandelson, the EU trade commissioner, says that would be a mistake.
He maintains: "The Asean economies have great economic potential but they are in danger of failing to realise that potential if they don't look to the rest of the world as well as their own neighbourhood."
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FT Syndication Service