Asean’s secretary-general chided leaders attending the Asean Summit Monday for failing to chart a clear path toward economic integration, which he portrayed as a key step to compete successfully in the globalized world.
“It is critical for Asean to know its destination and which path will take it more rapidly and smoothly on the path of integration,” Rodolfo Severino said in his report to regional leaders.
Despite lower tariffs through the Asean Free Trade Agreement, the process toward integration has slowed, Severino said. Pledges to cooperate have not been backed up with action, he said.
“Regional economic integration seems to have become stuck in framework agreements, work programs and master plans,” he said.
The comments struck a rare note of criticism in a tightly sealed summit where public statements have been mostly limited to leaders complimenting and congratulating one another. The media was not allowed to hear the Severino speech but was given a summary press statement.
Severino said the implementation of some agreements has stalled because “one or two member countries have been unwilling or unable to carry them out.” The statement did name the countries.
Asean economic ministers who are willing to implement the agreements are being encouraged to do so anyway, Severino said. That signals a break from Asean’s usual adherence to consensus.
Asean planners lack clear direction on what form integration should take beyond tariff reduction, Severino said. Member countries have committed to integration involving not only trade and industry, but also finance.
“Asean Vision 2020 envisages an Asean Economic Region in which there is a free flow of goods, services and investments, but how precisely is this to be achieved? What kind of economic integration should Asean strive for? Should Asean now aim for a Customs union? A common market? A single market? An economic union?”
Leaders also reviewed a major consultant report that found Asean has “failed to fully capitalize on its strengths despite a total market size comparable to coastal China,” the Asean statement said.
“Asean’s small, fragmented markets are not attractive to investors compared to the large Chinese market and more integrated regions elsewhere in the world,” the report found. “Consumer electronics companies are moving both manufacturing and research and development to China and taking suppliers with them.”
The report on Asean’s global competitiveness by McKinsey & Company, an international consulting firm, commenced in May this year. Consultants made economic analyses and interviewed more than 100 investing executives. Excerpts appeared in the statement but Asean will not release the full report, a spokeswoman said.
Differing product standards and customs red tape have increased the cost of business in Asean by up to 15 percent of sales, the study found. Trade barriers have prevented companies from specializing and achieving economies of scale across the region, it stated.
The study suggested focusing on integrating the electronics and consumer-goods industries by establishing independent trade-enhancing institutions.
Improved economic integration will reduce the cost of doing business and facilitate new investment, the study found.
It said less-developed countries in Asean would be spurred toward reforms such as improving the rule of law, tax collection and land market reform.
That has occurred for less-developed countries that joined the European Union and North American Free Trade Agreement, it said.
The economic benefit could be as much as 10 percent of the region’s gross domestic product, it said.
Severino also that environmental, safety standards and product standards should be harmonized, said Asean could start by focusing on a single industry, such as the automotive sector. He also said where components and end products could be freely traded and tests conducted in one country would be recognized by the other member countries. The remark might have been aimed at Malaysia, which has tried to protect its auto industry.