The Shifting Paradigm in Regional Economic Integration: The ASEAN Perspective

Abstract

ASEAN economic integration did not begin in earnest until the birth of ASEAN Free Trade Area (AFTA) in 1992. Spurred by the proliferation of regional trading arrangements elsewhere in the world in the mid-90's, notably NAFTA and the EU, and fears that ASEAN would become an outsider in a world increasingly divided into trading blocs, the ASEAN leaders created the AFTA to stimulate intra-ASEAN trade. Unfortunately, AFTA's performance was dismal, in part due to its lengthy scheduled time-frame of 15 years. The liberalisation process was fortuitously given a boost in the immediate aftermath of the 1997 Asian financial crisis; and by 2003 the ASEAN region will become a free trade zone with very low tariffs of zero to five per cent. ASEAN economic integration also expanded to other areas, notably services; and the ASEAN Vision 2020 was hatched. This paper first outlines the history of economic integration in ASEAN in the last 30 years. Secondly, it examines the obstacles and difficulties facing ASEAN in its endeavour to create a free economic zone of goods, services, capital and investments. Thirdly, it discusses the main provisions of AFTA, the ASEAN Investment Agreement and the ASEAN Agreement for Services from the angle of economic integration. Fourthly, it assesses the state of ASEAN economic integration and concludes that the ASEAN Vision 2020 is mere rhetoric. Lastly, it explores the strategy that ASEAN adopts to combat stiff competition from its neighbours and how this strategy impacts upon the future direction of ASEAN economic integration.

JEL Classification: F-F02