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Asia leads the way
According to the International Monetary Fund’s World Economic Outlook Report released in September 2003, Asian economies will set the pace for growth, with projections at 6.4% in 2003 and 6.5% in 2004. China will gallop ahead with a 7.5% growth this year and next, while India follows with a 5.6-5.9% growth. Although the US economy is growing faster than expected at 2.6% this year and 3.9% in 2004, it is burdened with soaring budget and trade deficits, and is hence unlikely to play its traditional leadership role or provide much stimulus. On the other side of the Atlantic, the European economy suffers from weakness due to lacklustre performance from Germany, its largest economy.
Asia’s economic growth is partly fuelled by its burgeoning middle-class, which has seen an increase in recent years. This is especially evident in emerging economic powerhouses with a traditionally large base of impoverished rural class, like India and China. India’s National Council of Applied Economic Research estimated that the percentage of Indians who have reached middle-income status have risen 17% in the past three years to account for over 700 million people. As for China, the China State Information Centre estimates that 200 million Chinese become middle-class consumers in the next five years, with the definition of “middle-class” being the group of people with stable income, the ability to purchase apartments and cars, and have disposable income for spending in the tourism and education sectors.
Already, China is Asia-Pacific’s top recipient for foreign direct investments (FDI) according to the United Nations’ Conference on Trade and Development (UNCTAD) World Investment Report 2003. China received US$53 billion in FDI for the year 2002, well ahead of the rest of Asia, while India follows closely behind. Analysts predict that India is poised to join China as an economic powerhouse with an estimated growth of 6-8% in 2003 to 2004. In addition, data presented at the inaugural ASEAN Business and Investment Summit (ASEAN-BIS), held two days prior to the 9th ASEAN summit, highlighted this trend. ASEAN, with a population of 500 million, attracted only 1.7% of the available global FDI while China, with just double the population of 1.2 billion people, attracted 9%. As investments and trade trickle away from ASEAN towards China and India, what can ASEAN members do to stem the flow?
Trends of Consolidation
More and more regions around the world are realising the benefits of solidarity in areas of politics, economics and security. The successful formation of the European Union (EU) attests to this fact. The formation of the EU took over half a decade, and the Union’s ability to deliver stability, peace and prosperity has been the envy of other regions even like Africa. In 1999, the decision to form the African Union (AU) modelled on the EU was made with the issuing of the Sirte Declaration in hope of unifying and developing the economy and society of African countries. Among the AU’s initiatives is the formation of an African Economic Community.
Within Asia, there is no such “Asian Union”. But with China and India’s growth soaring over the heads of other Asian nations, the heat is on for smaller nations like the ASEAN members to seek strength in unity.
Integrating ASEAN Economies
The idea of forming an integrated ASEAN Economic Community (AEC) was brought up by Singapore’s Prime Minister Goh Chok Tong during the 8th ASEAN Summit in Phnom Penh, Cambodia, last November, where southeast Asian leaders committed to transforming the region into an AEC by the year 2020.
At this year’s summit, Thailand’s PM Thaksin and Singapore’s PM Goh, the two strongest proponents of an integrated economy, urged ASEAN leaders to speed up economic integration by the year 2015, five years before the current goal of 2020. Other Asean members like Indonesia and the Philippines are preoccupied with terrorism and domestic strife, and were unable to commit to the timeline.
With a total population of about 500 million, a combined GDP of about Euro 610 billion and a total trade of Euro 620 billion, ASEAN is economically powerful as a cohesive market. A study on regional competitiveness conducted by McKinsey & Company forecasted that the formation of an integrated ASEAN economy could raise the region’s GDP by at least 10% while reducing operational cost by 20%, which adds an additional US$50 billion to ASEAN’s total GDP.
Strategically, the AEC deals more than just economics. As highlighted by the ASEAN Secretary-general, Mr Ong Keng Yong, AEC represents an alternative for developing economies to proceed with creating a wider economic space while still committed to the multilateralism. The AEC will also allow bilateral FTAs signed by individual members to benefit the region as a whole. In addition, AEC serves as a political gesture that signifies the commitment of ASEAN in building a community and identity for the people of Southeast Asia.
Forging Trade Partnerships
Despite being rivals for investments and trade from the West, Asian economies like Japan, China and India are keen to implement FTAs with ASEAN. At the ASEAN-BIS held on 5 October, 2003, China, one of the non-ASEAN participants at the summit, agreed to implement the China-ASEAN FTA by 1 January, 2005, to form the world’s largest free trade area by 2010. Likewise, India has also signed a framework for an ASEAN-India Regional Trade and Investment area in the hope of increasing trade between India and the regional block to US$30 billion by 2007 and creating a free trade area within 10 years.
Separately, ASEAN members have sought to forge global, regional and bilateral trade ties, pushing towards greater developments in the global trading environment. Now that multilateral agreements has taken a big step backwards as the World Trade Organisation (WTO) talks in Cancun failed, bilateral and regional trade agreements are expected to grow.
In September this year, Cambodia became the latest entrant of the WTO, despite criticism that it is on the losing end of the deal. This leaves only Vietnam and Laos as the remaining ASEAN members who are not members of the global trade body.
There have been also great advances made in bilateral trade negotiations of late. In May 2003, the United States has signed a Free Trade Agreement (FTA) with Singapore, the first of its kind between the US and an Asian nation. This has paved the way for other ASEAN members to follow suit, with Thailand, Malaysia and the Philippines showing interest in such bilateral FTAs. Although some view this phenomenon as one that will erode the interest in global trade talks, the benefits of such FTAs cannot be dismissed. Apart from immediate economic gains, a closer US-ASEAN economic co-operation will also help the region stand its ground against economic powerhouses like China and India.
Results and Resolutions of Bali Summit
At the Bali summit, all ASEAN leaders signed the landmark agreement known as the Bali Concord II on the first day. The agreement encompasses three key areas of integration, namely the ASEAN Security Community, ASEAN Economic Community and ASEAN Socio-cultural Community. The strategic rationale of consolidating and forming an ASEAN Community is to serve as a counterbalancing force against the emerging economic blocs of China and India.
Shaking off the impression that ASEAN’s progress is hampered by its slower members, a “2+X” approach is put in place to allow any two or more members to forge ahead as pioneers in opening up sectors of their economy while the other members can join in later. As proof of the efficiency of the principle, five ASEAN members (Brunei, the Philippines, Singapore, Thailand and Vietnam) and India have agreed to liberalise air cargoes sector at the soonest possible time.
Agreement on Broader Issues
Among other things, ASEAN leaders agreed to co-operate in countering terrorism, maritime piracy and other forms of transnational crime through the formation of the ASEAN Security Community. The summit tasked Indonesia with formulating an action plan for next year. Although most ASEAN nations agreed with the broad principles, more has to be decided during next year’s summit. In the area of security and co-operation in the Asian region, China and India have also signed the Treaty of Amity and Co-operation (TAC), pledging the use of dialogues instead of force to resolve disputes.
However, as is the non-interfering style of ASEAN, the summit made little mention of the issues regarding the detention of Myanmar’s democracy advocate, Aung San Suu Kyi, and Myanmar’s democracy road map. Breaking the silence is non-Asean member, Japan’s PM Junichiro Koizumi, who urged Myanmar to release Ms Suu Kyi immediately and restore democracy in the country.
Comments from the Ground
Even before the summit, some observers have commented that for the AEC vision to follow through, ASEAN must “mean what it says” instead of the usual Asean style of “talk first, act later”. Moreover, despite the efforts put into the summit, the turnout of non-governmental organisations (NGO) was low, which is seen as a lack of confidence in what the NGOs think the summit can achieve. This is a pity, as the formation of the ASEAN Socio-Cultural Community (ASCC), which is part of the landmark Bali Concord II, would be especially of interest to regional civil groups working on common initiatives such as poverty alleviation, employment generation and cultural preservation.
With the firm belief that co-operation is the key to sustaining ASEAN competitiveness, Konrad-Adenauer-Stiftung’s Regional Programme in Southeast Asia continues to engage in initiatives that promote international co-operation. In this year, two such initiatives that deal with issues related to Asean’s economic and security integration were carried out. The first is the ASEAN Roundtable 2003 “Roadmap towards an ASEAN Economic Community”. Held in August 2003 in Singapore, the Roundtable was organised by Institute of Southeast Asian Studies (ISEAS) and supported by Konrad-Adenauer-Stiftung. The Roundtable works towards defining the concept of the AEC, the rationale for economic integration, the possibility of converging existing economic integration programmes into AEC as well as the challenges and concerns of each member country in achieving the AEC.
The second more recent inititative is the 5th EU-ASEAN Think Tank dialogue held on 6-7 October in Singapore. The dialogue was jointly organised by Konrad-Adenauer-Stiftung and Singapore Institute of International Affairs, and the discussion focused on five key areas: economic co-operation within ASEAN, political and security co-operation within ASEAN, challenges and opportunities for ASEAN pertaining to the enlarged EU, a new EU-ASEAN partnership as well as the present and future of EU-Asean relations. It is Konrad-Adenauer-Stiftung’s conviction by creating the opportunities for these small but essential incremental steps, Southeast Asia can progress towards realising the vision of a prosperous, peaceful and stable Asean community.
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