97 Section 10: Trade and Commercial co-operation stated in the Joint Declaration Tenth ASEAN-EC Ministerial Meeting, Manila, Philippines, 29th-30th October 1992.
98 Commission o f the European Communities, MEMO/94/58 “EU-ASEAN Relations” Brussels, 15th September 1994.
99 Commission o f the European Communities, “The European Community's Relation with ASEAN”. Brussels, Europe Information No. 1/91, April 1991, p.3.
ASEAN exports to the EU enjoy tariff concessions under the EU GSP scheme, and they accounted for as much as 72% of imports by the Union under the scheme in 1992. Five ASEAN countries were among the top twelve users o f the scheme100. Thus they are among the major beneficiaries of the EU GSP even though ASEAN has the lowest priority under the scheme: the 69 ACP countries under the Lome Convention are ranked as first priority. However, despite the EU grants o f special support and privilege to the ACP countries especially under GSP, the ACP countries are hardly able to exploit these privileges (Wagner, 1989: 30). They give way to ASEAN, which is at the lowest hierarchy of privileges but enjoys the highest trade under GSP. This is because, as reported by the World Bank and IMF, in the past several years the ACP countries have stagnated with poor economic performance and a debt burden (see Table 8, p. 122).
When considered from the economic perspective of ASEAN and from its position in a changing Pacific and world economy, it can be justified that the EU should have benefits and gain advantages in several aspects of their relationship with ASEAN.
Firstly, ASEAN has implemented the AFTA, which enlarges the ASEAN market for EU exports in this region. The ASEAN population of 500 million has high purchasing power, and the region has a very young population, almost 50% and 70% o f the people are below 20 years old and 30 years old respectively. This means a continuous flow of workforce supply at competitive wages, and a rising demand for consumer and household products (Akrasanae, 1991). International investment has also moved to the region, mainly because o f the competitive cost o f
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industrial/commercial sites and labour, and because o f the market-oriented investment policies o f all ASEAN countries resulting in trade and investment liberalisation in this area.
Secondly, the creation of the AFTA gives the EU most opportunities to invest in this region, which is endowed with natural resources, low cost labour and skilled management. The establishment of an AFTA will attract trade and FDI into the region because o f its economies of scale generated by the intra-regional liberalisation. In addition, AFTA will be moving in train with, and complementarily to, the globalisation process both in the Asia-Pacific region and in the world. This will enhance economic prospects in the region which is hoped will attract EU investment into ASEAN.
Thirdly, ASEAN is in the Pacific rim among the other dynamic Asian countries where important economic co-operation schemes have been implemented, such as the Asia- Pacific Economic Co-operation (APEC), the East Asian Economic Caucus (EAEC), the Pacific Economic Co-operation Conference (PECC), and the Pacific Business Economic Council (PBEC) (Tan Kong Yam, Toh Mun Heng, & Linda Low, 1992: 309-31). ASEAN countries are members of those economic co operation arrangements and the location of ASEAN is the centre of economic progress in ‘the Growth Triangle’ and on the line of the Asia's New Economic Frontiers (Kwan Chi Hung, 1993: 6-10) and see Figures 1 and 2 (pp. 118 and 119). The EU's presence in this region, by channelling through ASEAN, closen its links with the whole region. This will benefit the EU in establishing economic bases in this region. Closer European links with ASEAN could help to give greater access to other Asian markets in various ways; through trade, through proximity, and as a means o f understanding the Asian way of doing business.
Fourthly, the enlargement of ASEAN encompassing the whole Southeast Asian region will increase economic strength in this region as Indochina, which is developing their economies after the cold war, is becoming a commercial area in Southeast Asia. These ten ASEAN countries will become one o f the major trading groups and a major potential region for investment from the EU.
The ASEAN economies are market-oriented with outward-looking policies and open economies, The Union itself has acknowledged that the dynamic growth record o f ASEAN's economies has resulted in considerable trade expansion. The EU has also acknowledged that ASEAN's exports to the EU have grown faster than its exports to any other market in the world since 1984101.
Fifthly, the EU has had a negative impact on trade and investment in other regions such as the ACP countries, even though the EU has a special relations with them, interaction in trade between the EU and those countries has been based on dependence more than interdependence. The Commission reported that:
“Economic growth in North America, the dynamic Asian economies and EFTA countries more than o ff set the adverse impact on EC exports o f poor economic performances in heavily-indebted countries o f Latin America, and Africa, and in the Middle East” (The European Commission, 1993: 8).
So in the long run the EU would not hope to gain any advantages in terms of trade from these countries other than trade with aid, except the Middle East countries which are important sources of energy for the EU. So ASEAN is the alternative choice o f the EU for a new dimension in two-way trade.
Finally, the EU would like to maintain its leading role in the world economy. Hence it seeks to strengthen its economic presence in Asia in order to compete with Japan and the United States. Thus close co-operation with ASEAN is a step towards
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economic penetration of this region, as ASEAN is the only regional grouping in Asia which combines not only economic but also political elements in maintaining regional stability.
2.2 .3 C om parison o f the EU and A SE A N integration
Considered from the point of view of institutional structure, the EU and ASEAN have significant differences, especially different mechanisms o f regional integration and types of institutional arrangements. The EU, based on French-inspired law and institutional integration (Eliassen, Kjell A. and Monsen, Catherine Borve : 1997), has a formal centralised supranational legal and institutional framework facilitating regional integration102, while ASEAN is less formally institutionalised, and opts for a pattern of co-ordinated networks: based on a decentralised system. ASEAN regional integration has been enhanced by economic production and trade networksl0j. This means that ASEAN regional integration has relied less on a legal and institutional framework or regional centralised governance (as clearly seen in section 2.1.3 discussed above), but rather it has functioned by “non-state actors and authority” 104 based on network co-ordination facilitated by the co-operation of national laws and institutions. ASEAN member countries are committed to the concerted liberalisation o f trade and investment at the regional level and then by incorporation o f such agreements into national laws and regulation, or applying agreed rules conforming to the general principle, enforced at national level. The concerted actions and the
101 Commission o f the European Union, “The European Community's Relation with ASEAN”, Europe Information No. 1/91 April 1991. This growth was confirmed in the Tenth ASEAN-EC Ministerial Meeting.
102 As the literature on EU institutions and integration mechanisms are considerable and well understood, the author will not repeat the topic here. See for example El-Agraa, A. M. (1998).
103 Eliassen and Monsen argued that ASEAN regional economic integration has been developed econom ically by “the production networks, sub-regional economic zones, ethnic business networks, trade patterns, business operations and investments and informal personal contacts”. See Eliassen and Monsen (1997: 2)
enforcement o f the framework agreements have been ensured by the implementation o f the Protocol on a Dispute Settlement Mechanism (discussed in chapter 7).
The development of ASEAN and the EU regional integration o f course have been different due to their different historical, political, economic and cultural background. The great differentiation in the political, legal, cultural systems of ASEAN countries is obviously a major barrier to the formalisation o f regional legal and institutional structures. ASEAN is a much more heterogeneous region compared to the EU. Thus, the major characteristics of non-institutional economic co-operation are informal, gradual and flexible. ASEAN therefore considers that informal approaches are a good way to open up its market while minimising the outside shock accompanying liberalisation103.
However, in the future ASEAN may become somewhat more similar to the EU, as the further development o f ASEAN in trade and investment liberalisation enhances greater needs for rules and controlling institutions in order to be effective and efficient in its implementation o f regional economic integration. At the same time, the EU has already developed some more informal patterns of co-operation, as evidenced by the EU’s new approach of mutual recognition and the more recent regulatory competition such as in the banking business106.
2 .2 .4 E conom ic R elations/In terdependence betw een A S E A N , A P E C and N A F T A
The success of ASEAN and the Asia-Pacific region has relied heavily both on trade with other countries and investment flows from outside, especially from North
105 Peng, Dajin (1997) An E ast A sian M o d el o f R egion al E conom ic C o-operation . Oslo, Norway:
Centre for European and Asian Studies, p. 48.
106 See Bratton, William; McCahery, Joseph; Picciotto Sol and Colin Scott (Eds.) In tern ation al
R e g u la to ry C o m p etitio n a n d C oordin ation : P ersp ectives on E conom ic R egu lation in E u ro p e a n d the U n ited S tates. Oxford: Clarendon Press, See introduction.
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America and European countries, and also gradually from within the region. Thus the intra-regional and inter-regional economic relations of these economies have been crucial to their economic performance. Tables 9 and 10 (p. 123) show the inter- and intra-regional trade o f the three economic blocs, indicating the gradually increasing intra-regional trade in Asia and also the increasing trade with the EU and the North America. On the other hand, the EU and North America are also having positive upward trends in trading with East Asian economies. Table 11 also shows the significance o f two-way trade between ASEAN and NAFTA.
Table 11
A SEAN T rade with NAFTA (US$ M illion), 1994
ASEAN Exports ASEAN Imports
United States 53,142.27 20.01% 42,736.34 14.80%
C anada 2,283.38 0.86% 1,809.18 0.63%
M exico 799.50 0.30% 149.26 0.05%
N AFTA 56,255.15 21.17% 44,694.78 15.48%
Source: ASEAN Secretariat.
Economically ASEAN fears that NAFTA would threaten ASEAN's economic standing in the North American market and would divert trade and investment from ASEAN countries to Mexico. Therefore, for ASEAN, to forge closer economic co operation with NAFTA both at a regional and national level is very crucial to ASEAN's economic sustainability. Thus APEC, in which all ASEAN and NAFTA member countries are members, functions as a forum for discussion between the western hemisphere and Asia-Pacific, to ensure that any economic tension between them can be resolved.
The Asia-Pacific Economic Co-operation (APEC) was created in 1989, during the period in which the success of the Uruguay Round was not certain. There were
also threats by the USA o f unilateral retaliation, and fear o f a ‘Fortress Europe’. It was formed by countries in East Asia, Australia, New Zealand, North America and some Latin American countries joining hands to develop economic co-operation and liberalisation.
APEC therefore provides a linkage between Asia and the western hemisphere, so in effect it combines two of the triads, i.e. Japan and East Asian economies on one hand, and USA, Canada and some Latin American countries on the other. In 1998, Japan, all high-performing Asian economies and all member countries of NAFTA are
i r\n
members of APEC . APEC's main objective is to strengthen liberalisation both among member countries and the rest o f the world. APEC members enter into non- legally-binding agreements based on political commitments and consultation. APEC
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has thus been characterised as an informal organisation with very loose institutional structures. But Cardenas and Buranakanits (1999: 49) have argued that “APEC's success has resulted from its informal and amorphous nature, and reflects the fact that the forum constitutes a process for co-operation rather than an institution”. They concluded that APEC's focus on openness, voluntariness, and decentralisation will continue to foster regional co-operation among its members. This confirms the strong intention o f APEC to maintain an open trading and investment regime in the region.
In fact, APEC’s members are composed of two groups with two different ideologies. The western members o f APEC, led by the US and supported by Canada, Australia and New Zealand, prefer a more formal and effective legal and institutional infrastructure, while the Asian members have insisted on maintaining their Asian Way
107. The current member o f APEC are Japan, China, Taiwan, Hong Kong, Korea, Brunei, Indonesia, Malaysia, The Philippines, Singapore, Thailand, USA, Canada, M exico and Chile.
108 Pelkmans (1997: 217) argued that it is somewhat difficult to decide whether APEC is an international organisation or a network for dialogue and project co-operation. Also some o f its members
I l l
as they fear western power domination in APEC109. The rationale behind the US's support for upgrading the institutional structure o f APEC was to show the EU that it would risk being marginalised if APEC was strengthened and institutionalised, encompassing two-thirds of the world’s economy. But after the success of the EU-US solution on agricultural issues in the Uruguay Round, the US placed less emphasis on the institutionalisation of APEC.
APEC can therefore be described as the fulcrum o f the triad, containing an engine propelling the openness of the global economy. ASEAN and other East Asian countries joined APEC in the hope of gaining relatively easy access to the US market and o f integrating themselves with NAFTA, and also to be shielded from the impact of a possible ‘Fortress Europe’. The US, Canada, Australia and New Zealand joined APEC to facilitate penetration of the Asian markets for their trade and investment, and also to threaten the EU (Pelkmans, 1997: 221) if they encountered conflicts in transatlantic relations. The EU, after assessing the increasing economic strength of Asia, expressed its intention to accord closer economic ties with Asian countries, although not with APEC itself (see discussion in section 2.2.2 above). Its aim was to ensure access to Asian markets and to balance the role o f the US and Japan in Asia.
Thus, from ASEAN’s point of view, APEC operates as an inter-regional institution through which ASEAN's relations with NAFTA, as well as Japan and Australia can be managed in a way that mediates its relations with the EU and the rest
can hardly be called countries, e.g. Hong Kong and Taiwan, so they are defined as APEC member econom ies instead o f countries.
109 Dr. Mahathir, the Malaysian Prime Minister, has frequently expressed the ‘Asian intention’ to exclude the US from involvement in Asian regional integration, and thus the East Asian Economic Caucus (EAEC), which excluded all western countries from being members, was to be strengthened (EAEC was proposed by the Malaysian Prime Minister in 1990 and was established in 1991). However, other Asian countries did not respond strongly to the proposed idea, as they are fully aware o f their econom ic links with the West that outweigh the sentiment o f exclusion o f the West. The EAEC was however operated.
o f the world economy. As ASEAN moves towards deeper regional integration, this role for APEC will become more important as will be discussed in chapter 5.