AFTA to Become World System Miniature?

ASEAN is the sole regional organization that has been uniting the countries in
Southeast asian states since 1967. While Association of South East Asian
Nations (ASEAN) appeared to be solid and one voice in conducting its foreign
policy toward major players in International Relations such as EU, Japan,
China, South Korea and United States of America, ASEAN faces challenges with its stalled mechanism of managing the relations among the members.

ASEAN has put important stepstone toward economic integration which could lead it become a supranational body. But the progress could be either successful or being stagnant, considering the clash of interests between its members on the issue such as economy, politic, and environment.

This article intended to analyse how AFTA become important foundation toward ASEAN economic integration and the problem it faces such as different economic powers and exclusion of sensitive commodities, second, it will compare the method ASEAN use with European Union (EU), and finally, based on the comparison, it will conclude whether ASEAN integration shall become a supranational body, or keeping its policy of its stalled non-intereference policy which paradoxically, has been a significant obstacle toward further integration.

AFTA: The Dream of Free Market

Free trade and liberalism has risen as great importance in recent decades. The idea of free trade is basically the reduction of tariff among countries. The economic
integration is categorized into six steps, which are establishment of Preferential trading area, establishment of ASEAN Free trade area, Customs union, Common market, Economic and monetary union, Complete economic
integration. ASEAN, first proposed this idea on 1992 and has actually reached the 1^st step, which is establishment of preferential trading through Common Effective Preferential Tariff (CEPT).

The base of the idea is agreement to reduce tariff barrier within its member state to 0-5% in 2003. 10 Countries has reached this goal on 2003.

Source: ASEAN Secretariat

CEPT is the mechanism by which tariffs on goods traded within the ASEAN region,
which meet a 40% ASEAN content requirement, will be reduced to 0-5% by the year 2002/2003 (2006 for Vietnam, 2008 for Laos and Myanmar, and 2010 for Cambodia[1].

As shown in the table above, Singapore has been keeping its import tariff by 0%
since 1998, Laos keep its tariff at steady 5% since 1997, Brunei has successfully reduce its tarif up to 0,97%. Indonesia, Thailand, Malaysia, and The Phillipine have also keep its preferrential tariff on reached agreement.

Even though countries have reached the target, there are at least three problems
regarding AFTA, first is the large gap between ASEAN countries, 2nd, the
exclusion of specific sensitive commodities requested by certain ASEAN states,
and the 3rd, the absence of binding power on its ASEAN body itself.

We could categorize at least two types of countries according to their economic
power. First is the first group which is identified as ASEAN-6 consist of Indonesia,
Malaysia, The Phillipine, Singapore and Brunei Darussalam. Second is the group
consist of least-developing states which is Cambodia, Laos, Myanmmar, Vietnam
(which is also known collectively as CLMV countries).

There has been noticeable, growing gap within ASEAN member states. While Singapore and Brunei have proven itself as the richest countries in the area with
significant purchasing power parity which comparable to developed states, there
is significant gap with the ASEAN-6 and CLMV Countries.

Singapore and Brunei are the richest states in the region. Singapore GDP per capita is $29,499 and Brunei being $30,298[2], while at the same time, the region’s poorest, Myanmmar only listed $208,6 in 2006.

The amount of Foreign Direct Investment also imbalance. Singapore, with total land area being only 0,7%, got the largest amount of foreign direct investment in
total of $20,080 million, which is three times compared to Indonesia, five times to Malaysia, and nearly ten thousand times compared to Laos.

The different political and economic system adopted among ASEAN member states have also affected each states policy in adopting free market policy. In the Ease of
Doing Business Index published annually by World bank, the ten countries of
ASEAN were put in different ranks in great interval.

Source: Ease of Doing Business Index[3] and Selected Basic ASEAN Indicators[4], 2007

The table above has shown that the growing gap among ASEAN states are diverse. If ASEAN forces itself to integrate its economy too soon, it risks itself creating the micro world system as coined by Immanuel Wallerstein[5].

Countries in the world, according Wallerstein, are divided by core state, semi-periphery, and periphery. Western countries, these who have reached level of manufacturing high-industry products often called core states, while the countries that supply the primary commodities for core states are classified as periphery.
Semi-periphery states act as bridge between these states, semi-periphery states
often associated with ex-Soviet countries, Latin Countries, and other blocks of developing countries .

The gaps among ASEAN states could create a micro-world system amongthemselves. Singapore has the highest capability of manufacturing high tech products compared to its neighbour, it has potential to become the core state on the region, while five others, Indonesia, Malaysia, Thailand, the Phillipines, and
Brunei Darussalam ended in level of semi-periphery[6]. The rest of the countries, CLMV countries potentially become the periphery states, due to its lack of foreign direct investment, and technology compared to rest of ASEAN.

The idea of AFTA is primarily good, to increase the amount of trade among ASEAN
states because the amount of intraregion trade is exceptionally low, as seen in
from the table below. ASEAN states have also been posed challenge, particulary
from China’s cheap imported goods, and must take real stance to raise their competitiveness.

In 2004, Intra-ASEAN exports continue to grow at a rate higher than ASEAN�s total exports. Intra-ASEAN exports increased from US$ 86.39 billion in 2002 to US$ 99.7 billion in 2003, up by 15.4%. The growth in intra-ASEAN imports, on the other hand, remained modest as it registered a 3.1% increase or from US$ 72.23
billion in 2002 to US$ 74.49 billion in 2003. Intra-ASEAN export as a percentage of total ASEAN export increased from 22.51% in 2002 to 23.16% in 2003 while for import, the percentage went down from 22.01% in 2002 to 20.73% in 2003[7]. There is a need to increase further intra-region trade despite the raise, as seen from statistic.

But problems arise when ASEAN states, generally have common commodities to compete with. The AFTA, although quite successful on reducing tariff of its 10 states in 2003, there are still list of senstive products that are excluded, according
of Annex I of the treaty. ASEAN members have the option of excluding products from the CEPT in three cases[8]:

1. Temporary exclusions. Referring for
   products with tariffs that will ultimately be lowered to 0-5%. They are
   being protected temporarily by a delay in tariff reductions.
2. Sensitive agricultural products. A small
   number of sensitive agricultural products will be extended a deadline of
   the year 2010.
3. General exceptions. Referring to products
   which a country deems necessary for the protection of national security,
   public morals, the protection of human, animal or plant life and health,
   and protection of articles of artistic, historic, or archaelogical value

Indonesia has sugar commodities as sensitive products. If the tariff of imported sugar is to be reduced in basis of 0-5%, it could potentially hurt local sales because inequal competitiveness. Sugar producers consist of the farmers and industrial corporations. The amount of farmers is abundant compared to industrial counterpart. To keep the sales relatively high, producers often sell sugar in low price, abandoning the wealth of farmers, which commonly are in lower economic caste. If the barrier is to be lifted, allowing even cheaper commodities, it potentially could hurt both producers. Sugar is still listed as
highly sensitive commodities to protect economy security to Indonesian’s sugar
producer[9].

The case of Indonesia is portrayal of common case among other ASEAN members. They are posed in dilemmatic situation to follow or protect itself from free trade
movement. If they open their market as widely as possible, it will increase the
flow of goods, but at the same time, it could corrode the competitiveness of
local products. The Ninth AFTA Council meeting is set on January 1 2010 as the
deadline for ending tariff protection for highly sensitive list[10].

This is the primary reason why ASEAN is doomed being stagnant in the first phase of market integration, or creating a micro world system. The growing gaps between
ASEAN-6 and CLMV countries are so irony that it almost reflects situation of
North-South inequality.

ASEAN and Supranational Institution

Compared to EU, ASEAN has different history on the basis of its foundation. EU was build to prevent another clash between European powers. Hundred years of war and a two full-scale world wars have proven EU need a solid regional corporation to guarantee stability of Europe.

The ASEAN mainly consist of third world countries, where most of them only have been freed decades ago by its colonial masters, and have not experienced quite
regional interaction because of colonialization. ASEAN was made in 1967 to
prevent further open conflict. Indonesia has previously, engaged in ?Eem>konfrontasi�
against Malaysia. Only after Soeharto rose into power, Indonesia has started
softer foreign policy and putting emphasize on economic approach.

Neo realist argued that ASEAN was made due to urge of balance of power in the
region, a cooperation is necessary as measure to prevent open conflict between
member states. Neo realists argue that, ASEAN still exists today because ASEAN
members face similar external threat, which is particularly China. ASEAN is
necessary as umbrella to protect its member threatened by asymmetrical position.
Neo realist has been key player to maintain balance of power and regional
stability, particularly open conflict and full-scale wars among its members[11].

This is due to relationship among ASEAN states themselves which remains conflictual. The case of conflictual relationship bertween Singapore and its neighbour is a sheer example. Singapore, being the most powerful economic in the region, and state that is predominated by Chinese population, has been criticized not able to cope with its neighbour peacefully, comparable to Israel in middle East who are being Jewish minority among arab neighbour[12]. Singapore has been subject of criticism toward its pregmatism on protecting the runaway assets carried by corruptors on the ASEAN member states.

Merrill Lynch, a United-States-based firm has released report on businessmen in
Singapore. Roughly, about one-third of 55,000 millionaires resided in Singapore
actually are Indonesian. 18,000 of them carry assets of 87 billion dollar[13].
The unwilingness of Singapore to sign extradition treaty with Indonesia has
shown its half-hearted attempt and obvious pregmatism. Singapore has shown
behaviour to become a safe haven of money laundering in contrary to its strict
system of preventing internal corruption.

Here lies the main difference between ASEAN and EU. Because ASEAN states have not experienced long term interaction due to European colonialization, the ASEAN
was intentionally built to prevent a supranationalism that potentially seen
corroding sovereignty. It was relevant issue in the year of ASEAN foundation.
The states have just passed years or decades after achieving their indepedence,
a supranational body would have been posed as sensitive issue among them.

Non-Interference policy has been source of long criticism toward ASEAN’s credibility. ASEAN has proven not able to settle and pressing its member states who is proven as human right violator. The case of Myanmmar has proven the stall of non-interference policy. ASEAN has proven not be able to push Myanmmar of bad human right violation in the country. Indonesia’s abstain position represents the implication of ASEAN non-Interference in international plattform, that has affected Indonesia’s neutrality in judging problematic ASEAN states in United Nations Security Council.

Indonesia took an ambiguous position because of it must maintain its relationship with Myanmar and to proof the commitment to ASEAN’s non interference policy. If Indonesia took position against resolution, Indonesia is risked being labeled as supporter of human right abuse and opposing democracy. But at the same time, Indonesia is in dilemmatic position if it is to support the resolution due its membership in ASEAN, which has commited to non-interference policy. This has altered Indonesia;s perception toward Myanmar’s case as domestic issue and it’s not necessary to internationalize it.

Conclusion

AFTA is an important stepstone toward an integrated ASEAN economic, a mechanism that is necessary to boost the amount of intra-region trade.

But an integrated economy has its own risk, if AFTA is implemented too soon, despite unreadiness and the gap among ASEAN states, there is a chance to create a micro world system in ASEAN themselves. The gap among ASEAN states is significant and the capabilites of each states are different.

Singapore potentially become a core state, leaving the rest of states either semi-periphery (Indonesia, Malaysia, Thailand, the Phillipines, and Brunei Darussalam), or periphery (Cambodia, Laos, Myammar, Vietnam). AFTA, as promising as it sounds, could result in paradox way. It could hurt and increase protectionism among ASEAN states due to wide gap and different economic power.

Furhter integration is possible, but poses risk of being stagnant. The problem lies because ASEAN states still percept a supranational body is a threat toward sovereignty. ASEAN states have different history, compared to its European counterpart. Non-Interference policy should be changed gradually, instead of being drastically removed. There is a need to change the culture of ASEAN and the change of threat perception, ASEAN states should not percept their neighbour as enemies, and increase solidarity of having common enemies. A change is needed or there will not be a change. In the end, it is decision makers to choose, either reducing the sovereignty to increase competitiveness and stand against the rising China, or keeping the old non-interference policy and being stagnant, for the sake of protectionism.

Each choices have their disadavantages and advantages.

Bibliography

Adig Suwandi , 15 March 2003, Kesiapan Agribisnis Jatim Menghadapi AFTA

(http://www.mma.ipb.ac.id/today/artikelview.html?topic=rubrik_agribisnis&size_num=780540 957&page=kesiapan_agribisnis_jatim_menghadapi_afta.html).

AFTA Online. http://www.aftaonline.com/aol%20archives/aftawatch/tarff96.htm

Arnold, Wayne and Thomas Fuller, March 15, 2007, International Herald Tribune, Singapore and neighbors just can’t get along (http://www.iht.com/articles/2007/03/15/news/singapore.php)

ASEAN Secretariat. http://www.ASEANsec.org/stat/Table1.pdf

CIA World Fact Book, Brunei (https://www.cia.gov/cia/publications/factbook/print/bx.html)

Davison, Remy, Michael K Connors,and Jorn Dosch. 2004. The New Global Politics of the Asia Pacific (New York: RoutledgeCurzon)

Doingbusiness.org. 2007. Ease of Doing Business Index 2007. http://www.doingbusiness.org/documents/Doing_Business_2007_Country_pages

Martinez-Vela, Carlos A., World System Theory (web.mit.edu/esd.83/www/notebook/WorldSystem.pdf)

Rudy Parawisto, April 2, 2007, Inter Press Service, INDONESIA: Shifting Sands to Prod ‘Safe Haven’ Singapore (http://ipsnews.net/news.asp?idnews=37178).

The Eighteenth Meeting of the ASEAN Free Trade Area (AFTA) Council, 2 September 2004 (http://www.aseansec.org/16349.htm)

US-Asean Business Council.org. http://www.us-asean.org/afta.asp

[1] Statistic provided by ASEAN
Secretariat, cited from http://www.us-asean.org/afta.asp

[2] Selected basic ASEAN
indicators, as of 15 March 2007 (http://www.ASEANsec.org/stat/Table1.pdf)

[3] http://www.doingbusiness.org/documents/Doing_Business_2007_Country_pages.pdf

[4] op. cit.

[5] Carlos A. Mart�nez-Vela, World
System Theory, page 1.(web.mit.edu/esd.83/www/notebook/WorldSystem.pdf)

[6] Brunei Darussalam, despite the
high purchasing power, is lowest in term of Foreign Direct Investment. Crude
oil and natural gas production account for just over half of GDP and more than
90% of exports. (https://www.cia.gov/cia/publications/factbook/print/bx.html)

[7] The Eighteenth Meeting of the
ASEAN Free Trade Area (AFTA) Council, 2 September 2004
(http://www.aseansec.org/16349.htm)

[8] http://www.us-asean.org/afta.asp

[9] Adig Suwandi , 15 March 2003,
Kesiapan Agribisnis Jatim Menghadapi AFTA (http://www.mma.ipb.ac.id/today/artikelview.html?topic=rubrik_agribisnis&size_num=780540957&page=kesiapan_agribisnis_jatim_menghadapi_afta.html).
In this article, the author expressed concern the need to urge and clear policy
to make the local sugar producer ready for AFTA. The inclusion of commodities
should be seen as time to make a policy reform and rise the competitiveness of
local producers.

[10] For statistic of tariffs imposed by ASEAN states on sensitive list up to year 2003, see http://www.aftaonline.com/aol%20archives/aftawatch/tarff96.htm

[11] See Michael K Connors, Remy Davison, and Jorn Dosch, 2004, The New Global Politics of the Asia Pacific (New York: RoutledgeCurzon), page. 76.

[12] Wayne Arnold and Thomas Fuller, March 15, 2007, International Herald Tribune, Singapore and neighbors just can’t get along (http://www.iht.com/articles/2007/03/15/news/singapore.php).
Robert Broadfoot, managing director of the Political & Economic Risk Consultancy in Hong Kong has also commented that the relationship between ASEAN states are often more competitive than being natural allies.

[13] Rudy Parawisto, April 2, 2007, Inter Press Service, INDONESIA: Shifting Sands to Prod ‘Safe Haven’ Singapore (http://ipsnews.net/news.asp?idnews=37178).
In this article, Indonesia is reported for using sands as its bargain tool to
push Singapore to sign an extradition treaty due to Singapore’s construction
boom. This has raised price of sands into eight folds since Indonesia posed a
ban in January 23, 2007.

——–

This essay was published on SENTRIS, Academic Journal of International Relations Students published Kelompok Studi Mahasiswa Pengkaji Masalah Internasional (Student Study Group for International Affairs), ISSN 0216-5031, No 1 Year 4 - 2007

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