Will asean economic integration progress beyond a free trade area?

International and Comparative Law Quarterly

Volumn 53, Issue 4, 2004, Pages 935-967

  Tan, Lay Hong ^a  

^a NANYANG TECHNOLOGICAL UNIVERSITY   (Singapore)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 34248054113     PISSN: 00205893     EISSN: 14716895     Source Type: Journal    
DOI: 10.1093/iclq/53.4.935     Document Type: Article

References (97)

1. South-East Asia was a region in tumult in the early 1960s. Singapore, Malaysia, and Brunei were straggling for survival and independence after being ‘de-colonized’ by Great Britain. Diplomatic ties between Malaysia and Philippines were severed between 1962–66 owing to the Sabah dispute. Then there was the confrontation between Indonesia and Malaysia; the separation of Singapore from Malaysia in August 1965, barely 3 years after merger with Malaysia; the Vietnam War, together with the threat of an expansion of communism to South-East Asia by the Chinese leaders during the Cultural Revolution of 1967, all of which contributed to the birth of ASEAN, see LK Yew The Singapore Story-Memoirs of Lee Kuan Yew (Singapore Press Holdings Times Editions 1998) 628–663.
2. D.A. Haas ‘Out of Others’ Shadows: ASEAN moves toward greater Regional Cooperation in the Face of the EC and NAFTA’ (1994) 9:3 American University Journal of International Law and Policy 809 and 814.
3. Haas above n 3 at 817. The five original projects included two urea projects in Indonesia and Malaysia; soda ash in Thailand; superphosphate fertilizer in the Philippines; and a diesel engine project in Singapore.
4. American University Journal of International Law and Policy.
5. A. Nasution ‘Open Regionalism: The Case of ASEAN FreeTrade Area’ in W Moellers et al ASEAN: Future Economic and Political Cooperation (1992) 12
6. N. Thongpakde ‘ASEAN Free Trade Area: Progress and Challenges’ in M Than ASEAN Beyond The Regional Crisis: Challenges and Initiatives (2001) 49.
7. Y. Kodama ‘Asia-Pacific Region: APEC and ASEAN’ (1996) 30 The International Lawyer 388.
8. Haas above n 3 at 818
9. N. Thongpakde above n 8 at 49–50.
10. N. Thongpakde above n 8 at 50.
11. Haas above n 3, at 817
12. C.G. Hernandez ‘The ASEAN Free Trade Area: A Step Towards Economic Integration?’ in M Than ASEAN Beyond The Regional Crisis: Challenges and Initiatives (1992) 26.
13. Haas above n 3 at 818
14. A. Nasution above n 8 at 26.
15. S. Chirathivate ‘ASEAN Economic Integration with the World through AFTA’ in JLH Tan AFTA in The Changing International Economy (1996) 23–24.
16. J.L.H. Tan AFTA in The Changing International Economy. Indonesia and Thailand excluded 54 per cent and 53 per cent respectively of their total items from the across-the-board tariff cuts. The figure for Malaysia was 37 per cent, the Philippines 25 per cent, and Singapore 2 per cent at 39.
17. Kodama above n 9 at 385.
18. E. Palmujoki Regionalism and Globalism in South-east Asia (New York Palgrave 2001) 10–11.
19. Palmujoki above n 16 at 50–52.
20. M. Rudner ‘Institutional Approaches to Regional Trade and Cooperation in the Asia Pacific Area’ (1994) 4 Transnational Law and Contemporary Problems 180. The new regionalism movement that swept across the globe in the early to mid-1990s was owed partly to the change in attitude in the United States towards regionalism. The United States, a strong bulwark of the ‘mostfavoured-nation’ non-discriminatory approach to trade liberalization, and the multilateral regime, changed its policy and began pursuing liberalization on a preferential basis. Preferential trading arrangements proliferating elsewhere, particularly in the European Community, were choking off US exports. As a result, it negotiated free trade agreements with Israel, Canada, and later NAFTA. Another reason for the move towards preferential arrangements is the ‘GATT-frustration’ factor.
21. ‘Some Inherent Problems with Free Trade Agreements’ (1996) 27 Law and Policy in International Business 991–992
22. C. Priino Braga ‘Comments on the Proliferation of Regional Integration Arrangements’ (1996) 27 Law and Policy in International Business 963–964.
23. Haas above n 3 at 823–825.
24. AFTA Reader (1993) 1.
25. see P-C Athukorala and J Menon ‘Foreign Direct Investment in ASEAN: Can AFTA Make a Difference?’ in JLH Tan AFTA In The Changing International Economy (1996) 80.
26. These products were of considerable commercial importance and account for roughly US$9.3 billion or 37 per cent of total intra-ASEAN trade, see MA bin Abdul Kareem AFTA=Another Futile Trade Area? (Kuala Lumpur Universiti Malaya 1994) 80.
27. AFTA=Another Futile Trade Area?.
28. J.L.H. Tan ‘Impact of Regional Currency Crisis on AFTA and Vietnam: A Singapore Perspective’ presented at International Workshop on AFTA and ASEAN Economies in Perspective of the Asian Financial Crisis, Hanoi, Vietnam (1998).
29. ‘Tariff Troubles’ AsiaWeek 1 Sept 2000, at 51.
30. ASEAN Annual Report, 2002–2003 above n 27, at 28.
31. The parts and component trade in Asia is staggering. For example, more than 40 per cent of Japan's trade in Asia is trade in parts rather than trade in final products. In the machinery trade sector, East-Asian intra-regional trade as a whole shot up 92 per cent in finished goods from 1990 to 1998, but 179 per cent for paits. The share of intra-ASEAN parts trade rose from 67 per cent to 84 per cent in the same period, see speeches of BG(NS) George Yeo, Singapore Minister for Trade and Industry and Hiroyuki Kato, President Director of JETRO Jakarta at the AFTA 2002 SYPOSIUM, 31 Jan 2002, Jakarta. Copies of the speeches can be found at and .
32. ASEAN Annual Report above n 27 at 23.
33. ASEAN Economic Into-View (A quarterly bulletin of the Bureau of Economic Cooperation, ASEAN Secretariat) 2, no 1 (Sept 1994), 10.
34. J. Pelkmans ‘European Integration, Methods and Economic Analysis’ New York Financial Times 2001 7–9.
35. R.Z. Lawrence Regionalism, Multilateralism, and deeper Integration (Washington DC The Brookings Institution 1995) 7–8.
36. Further see C Prima Braga ‘Comments on the Proliferation of Regional Integration Arrangements’ (1996) 27 Law and Policy in International Business 963–964.
37. J. Viner The Customs Union Issue (London Stevens 1950) ch IV.
38. A.J. Venables ‘International Trade: Regional Economic Integration’ prepared for the International Encyclopaedia of Social and Behavourial Sciences (Amsterdam, New York Elsevier 2001).
39. M.G. Plummer ‘The ASEAN Free-Trade Area: Backwards or Forwards’ Centre for ASEAN Studies Discussion Paper No 5 (1996).
40. The following economists have critiqued and expanded work on Viner's paradigm: J Meade The Theory of Customs Unions (Amsterdam NorthHolland 1955)
41. Gehrels ‘Customs Unions From a Single Country Viewpoint’ (1950–1957) 24 Review of Economic Studies 61–64
42. Lipsey ‘The Theory of Customs Unions: A General Survey’ (1960) 70 The Economic Journal 496–513
43. Cooper and Massell ‘A New Look At Customs Union Theory’ (1965) 75 Economic Journal 742–747
44. Wonnacott and Wonnacott ‘Is Unilateral Tariff Reduction Preferable to a Customs Union?’ (1981) 71 American Economic Review 704–714.
45. J.C. Brada and JA Mendez ‘An Estimate of the Dynamic Effects of Economic Intesration’ (1988) The Review of Economics and Statistics 163–168.
46. Venables above n 43 at 7
47. Plummer above n 44 at 12.
48. D. Puga and AJ Venables ‘Trading Arrangements and Industrial Development’ Centre for Economic Performance, Discussion Paper No 319 (1996).
49. E. Levy Yeyati, E Stein, and C Daude ‘Regional Integration and the Location of FDI’ Inter-American Development Bank et al Working Paper No 492 (2003).
50. Palmujoki above n 17, at 53.
51. There would be strong objections from the newer members such as Cambodia who derived 56 per cent of its tax revenue from customs duties, see E Fukase and W Martin ‘Free Trade Area Membership as a Stepping Stone to Development: The Case of ASEAN’ World Bank Discussion Paper No 421, The World Bank, Washington DC.
52. Plummer above n 44 at 9 and 32–3.
53. D.A. De Rosa ‘Regional Trading Arrangements Among Developing Countries: The ASEAN Example’ Research Report 103, International Food Policy Research Institute, Washington DC (1998).
54. But in a study conducted by Soloaga and Winters (1996), it was found that there was little evidence of trade diversion in AFTA between the period from 1980 to 1996, see Trade Blocs, A World Bank Policy Research Report (2000) at 49.
55. Fukase and Martin above n 51 at 70.
56. E. Fukase and LA Winters ‘Possible Dynamic Effects of AFTA for the New Member Countries’ 26 The World Economy No 4 (2003) 853–871.
57. M. Palmujoki above n 17 at 8 and 36.
58. The World Economy
59. N. Thongpakde above n 8 at 67.
60. H.A. Grigera Naon ‘Sovereignty and Regionalism’ (1996) 27 Law and Policy in International Business 1073, 1080–1.
61. The Straits Times 17 May 2002, H2. There are many areas of contention between Singapore and Malaysia even in the pre-independence days. They range from serious concerns like the ‘water issue’, ‘tudung issue’ and the reclamation works carried out by Singapore around Pulau Tekong and Tuas, which Malaysia alleged violated their territorial sovereignty, to even trivial matters that Singapore was buying fewer tomatoes from Malaysia.
62. Haas above n 3 at 857–63. Common law forms the basis for the legal systems of Brunei, Malaysia, and Singapore, while Spanish and US laws significantly influence the Philippines' legal system. Indonesia, on the other hand, follows the construct of the Dutch legal system, and Thailand's legal system derives from an amalgamation of the continental and common law structures.
63. Haas above n 3 at 863.
64. World Development Indicators, World Bank, 2002.
65. The IMF aid package to Indonesia and Malaysia was rejected as their governments perceived that the measures impinged upon their national sovereignty, see Palmujoki above n 17 at 135.
66. Palmujoki above n 17 at 135–137.
67. The ASEAN plus 3 refers to the ASEAN countries and Japan, China, and South Korea. For a detailed account of the early warning system, see ADB Asia Economic Monitor (2002) at 24. The URL address is .
68. S. Pitsuwan Future Directions for ASEAN (Singapore Institute of Southeast Asian Studies 2001).
69. In absolute figures, intra-ASEAN trade grew at an average annual rate of 18.29 per cent between 1993 (US$44.2 billion) and 2000 (USS100.8 billion). But the extra-ASEAN rate was also growing on par and hence, the intra-ASEAN trade had remained fairly constant despite AFTA, see World Development Indicators, The World Bank (2002).
70. Since the establishment of NAFTA, total trade and investment between Canada, Mexico, and the US have steadily increased each year. Canada's merchandise trade with the US reached US$588.7 billion in 2000. Two-way merchandise trade between Canada and Mexico has doubled since 1994 to reach US$14.1 billion in 2000. In terms of Canada's merchandise exports, 86.6 per cent went to the NAFTA partners, see Department of Foreign Affairs and International Trade (2001) .
71. ASEAN Secretariat Trade Report .
72. A. Kawada ‘Current Situation and Outlook for Economic and Technical Cooperation among Developing Countries in APEC: Singapore Cooperation Toward Neighbouring Asian Developing Countries’ IDE APEC Study Centre Working Paper Series 97/98-No 3.
73. L. Thanadsillapakul ‘Open Regionalism and deeper Integration: The Implementation of ASEAN Investment Area (AIA) and ASEAN Free Trade Area (AFTA)’ at 16–17.
74. Studies by the Japanese EXIM bank, JETRO, the Nomura Research Institute, and the Economist Intelligent Unit on AFTA and AICO support the view that more firms, especially Japanese firms, are undertaking investment strategies or regional operation activities built around the various regional arrangements. These firms capitalize on AFTA and AICO by establishing multiple plants which are strategically located across ASEAN, each with specific integrated products functions to produce parts, components, and finished products that allow optimal integrated operation processes, see the ASEAN Investment Report (1999) at 46.
75. ASEAN Investment Report.
76. F. Yun-Keung Kwan and LD Qiu ‘The ASEAN+3 Trading Bloc’ Working Paper Series No 198, City University of Hong Kong (2003). In this study, the authors used direct econometric evidence to show that integration among ASEAN countries has led to increased FDI inflows from Japan. In fact, compared with the rest of the world, an ASEAN member will receive an additional 3 per cent increase in Japanese FDI inflows per one percentage point increase in openness.
77. The other types of FDI are the ‘trade-barrier circumventing’ or ‘tariff-jumping’ FDI, ‘market and technology accessing or market-seeking’ FDI and ‘round-tripping’ FDI. A discussion on them can be found in K Fukushima and CH Kwan ‘Foreign Direct Investment and Regional Industrial Restructuring in Asia’ in The New Wave of Foreign Direct Investment in Asia (Singapore Institute of South-East Asian Studies 1995) 3, 8–10.
78. These studies include VN Balasubramanyan and D Greenaway ‘Regional Integration Agreements and Foreign Direct Investment’ in K Anderson and R Blackhurst Regional Integration and the Global Trading System (New York Harvester Wheatsheaf 1993) 147–166
79. K. Fukushima and CH Kwan above n 82 at 3–39
80. S. Urate ‘Japanese Foreign Direct Investment in Asia’ in N Kumar et al Globalization, Foreign Direct Investment and Technology Transfers (London and New York The United Nations University INTECH 1998) 146–173.
81. For instance, Mitsubishi Corporation launched a brand-to-brand complementation scheme which involved a regional division of labour amongst Malaysia, Thailand, and the Philippines. Malaysia concentrated on the production of door panels and other stamped parts, Thailand specialized in the manufacture of fuel tanks, consoles, bumpers and windshields, while the Philippines focused on the production of transmission parts, see P-C Athukorala and J Meno above n 22, at 81.
82. But after the initial euphoria of investing in China, foreign investors are reviewing their China strategy. A survey released by the Japan External Trade Organization (JETRO) found that Japanese automakers will stay put in ASEAN even in the face of intense competition from China because they need to balance against a possible failure of their Chinese operations, see The Straits Tunes 1 Mar 2003. The recent episode on the severe acute respiratory syndrome pandemic that swept across major cities in China such as Beijing and Guangdong serves as a warning to investors against putting all their eggs in the ‘China’ basket.
83. Statistics of Foreign Direct Investment in ASEAN, Comprehensive Data Set (2002).
84. The Straits Times 5 Nov 2002. A study commissioned by the ASEAN leaders has found that the costs of doing business in ASEAN had become ‘unnecessarily high’, not to mention the differing product standards and customs red tape that have prevented companies from achieving economies of scale across the region. The study concluded that ASEAN's competitiveness has been seriously eroded and the grouping has failed to capitalize on its strengths.
85. The Straits Times 8 Oct 2003.
86. The Straits Times 17 May 2002.
87. In January 2003, skirmishes between the Thai and Cambodian governments over insensitive remarks made by a popular Thai actress sparked off rioters who attacked the Thai embassy in Cambodia. A month later, Cambodia closed its borders with Thailand to protest against the unequal trade ties between the two countries, see The Straits Tunes 7 Feb 2002 and 7 Mar 2003.
88. The Straits Times 24 Jan 2003. Malaysia has ambitious plans to compete with Singapore in the sea-air transshipment business. It has built the Tanjung Pelapas Port which drew two of Singapore's largest clients (Mearsk and Evergreen) to use its facilities there. It hopes to build another port at Kuantan to intercept transshipment cargo en-route to Singapore.
89. The Economist Intelligence Unit-Executive Briefing. A copy can be obtained at .
90. Business Times Singapore 17 Sept 2003.
91. World Trade Organization, International Trade Statistics, 2003.
92. World Trade Organization, International Trade Statistics, 2003.
93. ASEAN Investment Report, 1999.
94. L. Sheng China-ASEAN Free Trade Area: Origins, Developments and Strategic Motivations (Singapore Institute of Southeast Asian Studies 2003).
95. S.C.S. Tay et al A New ASEAN in a New Millennium (Singapore Institute of International Affairs and Centre for Strategic and International Studies Jakarta 2003) 226.
96. ‘The Future of ASEAN’ a speech by HE Ong Keng Yong, Secretary-General of ASEAN in Singapore, 22 Mar 2003. A copy can be obtained from the ASEAN Secretariat website at .
97. The Straits Times 15 Sept 2003.