The Heritage Foundation

Executive Summary #2101 on Asia

January 29, 2008

January 29, 2008 | Executive Summary on Asia

Executive Summary: Enabling ASEAN's Economic Vision

U.S. interests in Asia begin with a stable, secure geopolitical and economic order that is friendly to free commerce. Central to this is an Association of Southeast Asian Nations (ASEAN) that can confi­dently hold its own, particularly in the face of China's incredible economic growth and rise as a global power. ASEAN needs an integrated, liberal economy of scale to meet the challenge. The U.S. has a major interest in helping ASEAN to reach this goal.

ASEAN at 40 Years. At 40 years of age, ASEAN-- which encompasses the five original member coun­tries of Indonesia, Malaysia, the Philippines, Sin­gapore, and Thailand and the newer member countries of Brunei, Cambodia, Laos, Burma, and Vietnam--is the oldest and largest organization of its kind in Asia. ASEAN countries have a combined population of more than 500 million people-- larger than the population of the European Union. Their combined gross domestic product (GDP) exceeds $1 trillion and is the 11th largest in the world, ahead of Russia and India.

ASEAN has committed itself to making the most of its collective economic strength by achieving an integrated, liberal market. Ten years ago in Kuala Lumpur, ASEAN launched ASEAN Vision 2020, which calls for creating "a stable, prosperous and highly competitive ASEAN Economic Region in which there is a free flow of goods, services and investments, a freer flow of capital, equitable eco­nomic development and reduced poverty and socio-economic disparities." This is ASEAN's guiding eco­nomic vision. It is echoed repeatedly in ASEAN doc­uments, including the new ASEAN Charter.

Despite its pledges, however, economic integra­tion is today more aspiration than reality. ASEAN is not a single integrated market. It is 10 separate mar­kets that are no more economically integrated with each another than they are with economies outside of ASEAN. Intra-ASEAN trade accounts for only about 25 percent of its global trade. Intra-ASEAN foreign direct investment (FDI) amounts to 11 per­cent of total FDI into ASEAN.

However, the measure of ASEAN's economic integration is not only intraregional trade and investment flows, but also its attractiveness as an investment destination. Yet even as it has sought ever new ways to stay competitive as a region, ASEAN has lagged behind China--particularly since the 1997 Asian financial crisis. (A few years prior to the crisis, ASEAN actually led China as an investment destination.)

It has been famously said that what East Asian economic integration needs is management, not vision. While ASEAN's dizzying array of agreements, initiatives, and commitments clearly lacks adequate management, ASEAN's vision is also unresolved. The member countries' less-than-resolute commit­ment to free markets contributes directly to the man­agement problem. It forces ASEAN to pursue a lowest-common-denominator path to integration that leaves it short of its ambitious economic goals. True commitment to economic freedom would ease integration by eliminating obstacles and feeding the market forces that are responsible for whatever real cross-border economic activity is taking place.

The ASEAN countries need to decide that ASEAN Vision 2020 is where they want to go, make the difficult choices at the national level that are required to achieve that vision, and exercise the necessary political will to follow through. With the right level of commitment, managing ASEAN eco­nomic integration will become easier, and an inte­grated, liberal Southeast Asian market will become a reality.

What the U.S. Should Do to Help. The United States should:

  • Stabilize the American diplomatic commitment to ASEAN,
  • Intensify U.S. Trade Representative involve­ment in the ASEAN economic ministers and associated forums,
  • Expand the U.S.-ASEAN Trade and Investment Framework Arrangement (TIFA) work program to address non-tariff barriers, barriers in cross-border services trade, and investment issues,
  • Stay focused on an eventual U.S.-ASEAN free trade agreement (FTA),
  • Continue to look for bilateral FTA opportuni­ties, and
  • Fully fund the ASEAN Development Vision to Advance National Cooperation and Economic Integration (ADVANCE).

Conclusion. ASEAN's ambition is clear, its record in implementing agreements to facilitate eco­nomic integration is spotty, and its commitment to economic freedom is subpar. ASEAN requires a res­olution of vision to get to ASEAN Economic Com­munity. It also needs the tools and resources to manage the undertaking effectively.

The U.S. cannot give ASEAN the political will that it needs, but by demonstrating serious, sustained interest in ASEAN's economic life, the U.S. can ensure that its advice and concerns are taken into account. The U.S. can also engage at the technical level in a way that enables the group to meet its objectives.

Walter Lohman is Director of the Asian Studies Center and Anthony B. Kim is a Policy Analyst in the Center for International Trade and Economics at The Heritage Foundation.

About the Author

Walter Lohman Director, Asian Studies Center
Asian Studies Center

Anthony B. Kim Research Manager, Index of Economic Freedom, and Senior Policy Analyst
Center for Trade and Economics (CTE)