How (and Why) the United States Should Help to Build an ASEAN Economic Community
MICHAEL G. PLUMMER
Professor of International Economics, The Johns Hopkins University, SAIS-Bologna, and Senior Fellow, East-West Center
The Association of Southeast Asian Nations (ASEAN) is coming of age. Initially focused on diplomacy, ASEAN did not really discover economics until the early 1990s. But it has made rapid progress since then and is now committed to building an ASEAN Community based on three pillars: the ASEAN Economic Community (AEC), the ASEAN Security-Political Community, and the ASEAN Socio-Political Community. In November 2007, it unveiled a Blueprint to achieve a “single market and production base” by 2015, and signed a charter to make ASEAN a distinct legal entity.
How important will the ASEAN Community be? What is its significance to the United States? What relationships should the United States build with ASEAN? This essay argues for active U.S. engagement in helping ASEAN achieve its ambitious AEC objectives and also for vigorous efforts to create a supportive U.S.-ASEAN agenda.
Why the ASEAN Economic Community Is Important
Last year ASEAN celebrated its 40th anniversary and 30 years of the U.S.-ASEAN Dialogue. Yet until recently, the relationship between the United States and the region was based mainly on bilateral ties. From a strategic perspective, individual countries enjoyed strong support from the United States for their role in containing communism during the Cold War, but ASEAN itself received little direct attention. Once the widening of ASEAN to its logical geographical limits was completed in the 1990s, ASEAN turned to economic deepening in the context of serious, “holistic” regional integration.
There are many obstacles to achieving the AEC, including sovereignty issues, lack of strong leadership from any single entity, and vested interests fearful of integration. However, greater economic integration is in the interest of ASEAN member countries and the United States. As ASEAN is becoming institutionalized, the time is right for the United States to build direct relationships with it. There are several major reasons for doing so.
1. ASEAN integration will enhance mutually beneficial ties with the United States. ASEAN itself is becoming more integrated and open. Intraregional trade as a percentage of total trade was modest (18 percent) a quarter-century ago but increased by 50 percent from 1980 to 2006 (figure 1). Average tariffs plummeted below 10 percent in 2005, placing them among the lowest in the developing world, and openness to the global economy has increased dramatically (table 1).
Sources: The World Fact Book (accessed February 2008); U.S. Census Bureau, mid-year 2008 population data; ASEAN Secretariat, Selected Basic ASEAN Indicators, table 1 and table 2, available at http://www.aseansec.org/. Export and GDP data for China and India are taken from the Congressional Research Service, Congressional Research Service, and the World Bank
Note: Openness is defined as the value of exports expressed as a percentage of GDP. ASEAN openness data are for 2006.
U.S. economic interactions with ASEAN are significant and rising. Trade with ASEAN ($169 billion in 2007 as shown in table 2) represents 5.4 percent of total U.S. trade. Given ASEAN’s modest share of world trade, this U.S.-ASEAN trade is about four times what would be expected. These numbers are likely to grow: ASEAN’s development is trade-led and rapid; its GDP grew by over 6 percent in 2007 and is expected to continue at that rate in 2008, despite the global slowdown. U.S. trade with ASEAN is four times U.S. trade with India. U.S. exports to ASEAN and China are about equal, but on a per capita basis, ASEAN buys twice as much from the United States as China does. U.S. imports from China are about three times as high as those from ASEAN.
ASEAN is also a key location for the world’s multinational corporations and hosts $99 billion in U.S. investment (table 2). While China and India receive tremendous media attention, in 2006 U.S. foreign direct investment (FDI) in Singapore alone was almost three times the amount in China and almost seven times the amount in India. Given ASEAN’s focus on trade and investment liberalization, its integration will make the region even more attractive as a destination for FDI, since it will facilitate the development of vertically integrated production networks.
Sources: For trade, U.S. Census Bureau, Foreign Trade Statistics. For foreign direct investment (FDI), Bureau of Economic Analysis.
Note: Complete data on FDI in the Lao PDR and Myanmar are unavailable. There is currently no trade with Myanmar under the U.S. embargo.
2. ASEAN integration will support U.S. global policy. ASEAN integration has always focused on outward-orientation, particularly in recent years. Although trade among members has grown significantly over the past two decades (to 27 percent in 2007), almost three-fourths of ASEAN trade is with the outside world. ASEAN has not, however, been a force in international organizations, in large part because of the diversity of its member states and its lack of central institutions. The cost of disunity has been high; for example, the stakes for ASEAN at the Doha Development Agenda negotiations are great, but its influence at the last round of (unsuccessful) talks (July 2008) was negligible. The AEC will change this, creating a new voice for global liberalization and (importantly) for openness in Asia’s new regional forums.
3. ASEAN integration will stabilize a strategically important region. Economic integration will positively affect several important strategic interests of the United States. ASEAN countries are critical allies in the “war on terror,” and some have long-standing (albeit low-level) insurgencies. U.S. assistance in confronting these problems can be accomplished at both local and regional levels. A strong AEC will also increase ASEAN’s potential leverage—and willingness to exercise that leverage—over Myanmar. The United States is rightly concerned about civil and other liberties in Myanmar, but the U.S. economic and strategic relationship with ASEAN should not be held hostage by the junta. In addition, integration will make the region safer by reducing development gaps and associated tensions within ASEAN, as captured in the Blueprint’s emphasis on “equitable economic development.”
4. ASEAN integration will help balance the economic power of China and India. The rise of China and India as global economic superpowers is creating tensions globally and in Asia. The role of these large economies is potentially very positive—in effect, they are new locomotives for global economic growth—but their emergence will require adjustments worldwide. Individually, ASEAN countries are, perhaps, too small to be important players in the economic and security game, but as an integrated group of more than half a billion people, they would be in the “major league.” The rise of ASEAN as an economic power—with advantages in production and scale similar to those of China and India—will help to bring greater symmetry and balance to managing this important period of transition. ASEAN can be particularly effective given its central role in regional organizations such as APEC (Asia-Pacific Economic Cooperation), ASEAN+3 (ASEAN with China, Japan, and South Korea), and the East Asian Summit.
Recommendations for a Proactive U.S. Approach to ASEAN
All this suggests that the United States has powerful reasons to support the development of ASEAN and to deepen relations with it. The details of the AEC will become clearer in the next few years. In the meantime, the United States can take important steps.
1. Pursue an active U.S.-ASEAN strategy. The foundations for the ASEAN-U.S. partnership are in place. The Enhanced Partnership Plan of Action, signed by Secretary Rice and ASEAN’s foreign ministers in July 2006, envisions cooperation in the political/security, economic, and social and educational areas. The creation of the post of a U.S. Ambassador to ASEAN was a major step signalling U.S. recognition of ASEAN’s significance. The Enterprise for ASEAN Initiative (EAI) of 2002 sets out terms for possible bilateral free-trade areas (FTAs) between the United States and ASEAN. And the U.S.-ASEAN Trade and Investment Framework Agreement (TIFA) of 2006 provides a means for discussing trade and investment links. All these offer important opportunities for enhancing economic integration with ASEAN, but need vigorous follow-up (see Naya and Plummer 2005 in “Further Reading”). So far, the United States has an FTA only with Singapore. Its negotiations with Malaysia and Thailand are stalled, and there are no immediate plans for negotiations with other ASEAN countries.
Effective FTAs with ASEAN need to be a U.S. priority. China and South Korea have in place FTAs with ASEAN, and India, Australia/New Zealand, and most recently the European Union are in negotiations. At the moment, the individual commercial policies of Southeast Asian countries are too varied for a serious U.S.-ASEAN FTA to be feasible. Nevertheless, several countries are ready for effective agreements, and their template—specifically based on the U.S.-Singapore FTA—could pave the way for ASEAN-wide efforts. Two steps for the United States are therefore recommended.
First, commence negotiations with all remaining ASEAN countries by 2010. Almost all ASEAN countries have a TIFA with the United States. Two have something similar: the Lao People’s Democratic Republic (Lao PDR) has a bilateral trade agreement, and Indonesia has a Trade and Investment Council. (Myanmar alone has no agreement and would be excluded from negotiations if political conditions there remain unacceptable.) Early negotiations on FTAs with nine ASEAN countries are therefore feasible, but will require an approach that makes them politically viable in the United States and ASEAN.
Second, plan to create an ASEAN-U.S. Economic Space by 2020. A systematic framework to deepen FTAs, to expand their coverage, and to remove additional obstacles to economic links between the United States and ASEAN would provide a long-term context for deepening economic relations. By 2020, the AEC will be operational, making it possible to develop a framework for a mature economic relationship.
2. Intensify U.S.-ASEAN cooperation on global economic issues. The strategic and economic interests of the United States span the world. As a stable, prosperous, and friendly region, Southeast Asia has received less attention than many others. As a united region, it will have much more influence than it does now. Just as a squeaky wheel needs oil, a well-running machine needs lubrication. The United States and ASEAN countries should hold a regular summit—perhaps consisting of senior ministers in some years—to confirm the importance of their partnership. Media reports from the 2007 APEC Leaders Meeting, attended by President Bush, suggested that such an invitation might be extended to the ASEAN leaders, but thus far nothing has been announced.
This approach could help the United States and ASEAN coordinate their positions in the World Trade Organization (WTO), APEC, and in other regional organizations, and mount joint global and regional initiatives as needed. It might also lead to the creation of ASEAN-U.S. “task forces” to promote mutual interests. In WTO issues, for example, where the current Doha Development Agenda is blocked by purported differences between developing and developed countries, an ASEAN-U.S. Task Force could be particularly influential. Of course, ASEAN and the United States need to remain staunch allies in fighting terrorism and in confronting other crises in the region and beyond.
3. Improve U.S.-ASEAN relationships through “soft power.” A solid U.S.-ASEAN relationship will require the full engagement of civil society. The Enhanced Partnership agreement envisions such cooperation in social and educational affairs. But much more can and should be done across all dimensions of society: science and engineering, the professions of law, management and medicine, business and nongovernmental organizations, and sports. Activities should target people-to-people connections (including by electronic means) to build relationships and trust throughout society.
To serve these and many other important ends, ASEAN and the United States should establish a substantial U.S.-ASEAN Partnership Fund, providing support for a wide range of programs, projects, and activities. These might include joint environmental and technological projects, poverty-reduction programs, scholarships, related university programs, cultural exchanges, and other projects articulating mutual priorities. The fund should be supported by governments, and even more so by the private sector. It should be managed—independently of governments—by an international committee of distinguished citizens.
Over the last four decades, Southeast Asia has been transformed from a region of strife and poverty to one of progress and spreading democracy. Much still remains to be done, but ASEAN’s “coming of age” is a historic milestone. The region’s extraordinary achievements deserve praise and celebration, and a forceful commitment of U.S. support for ASEAN’s new mission.
Next > Commentary by Scot A. Marciel, U.S. Ambassador to ASEAN.
