“INTEGRATING SOUTHEAST ASIAN ECONOMIES:
CHALLENGES FOR ASEAN”
H.E. Ong Keng Yong
Secretary-General of ASEAN
Remarks at the ASEAN Energy Business Forum (AEBF) 2004
Manila, Philippines, 8 June 2004
The context in which ASEAN operates is constantly changing. Having dealt with the impact of the 1997 financial crisis, the ASEAN region is now recovering quite convincingly despite the adverse consequences of the war in Iraq, the challenges of international terrorism and the threat of communicable diseases like the Severe Acute Respiratory Syndrome (SARS) and Avian Flu. Last year the region registered an average growth rate of 5% compared to 4.5% in 2002. For 2004, the growth is forecast to be 6 %.
To consolidate and sustain this recovery, however, ASEAN must recognize and address the challenges brought about by new technologies and the globalised economy. The dramatic economic growth of China and India and the associated developments have a tremendous impact on ASEAN.
In response, ASEAN has hastened its own economic integration process and is acting to enhance its economic competitiveness.
This came out clearly from the ASEAN Leaders’ Summit in Bali in October 2003. The Leaders reaffirmed their commitment to establish an ASEAN Community by the year 2020. They issued the Bali Concord II wherein they reiterated that the ASEAN Community consisted of three pillars, namely, ASEAN Economic Community, ASEAN Security Community and ASEAN Socio-Cultural Community.
The ASEAN Economic Community
Allow me to elaborate on what we mean by an ASEAN Economic Community or AEC for short.
AEC is the goal of economic integration in the region. We aim to achieve it by the year 2020. It will be a single market and single production base, characterized by free flow of goods, services, investment and skilled labor, and freer flow of capital.
Detailed medium to long-term programs and activities for achieving the AEC are being worked out including further liberalization of trade in goods, trade in services, and investment. Transparency and policy predictability will be enhanced. We will build upon the regional production networks which many companies have already established.
These broad strategic thrusts call for closer cooperation and integration activities in human resource development and capacity building; recognition of educational qualifications; closer consultation on macroeconomic and financial policies; trade financing measures; enhanced infrastructure and communications connectivity; development of electronic transactions through the e-ASEAN initiative; integrating industries across the region to promote regional sourcing; and increasing private-sector participation in policy-making on economic integration.
Despite the views of cynics, I want to reaffirm here that ASEAN is pro-business. ASEAN is aware that an environment of policy predictability and consistency is important for businesses to thrive. In this context, it has set out clear targets and schedules for the initiatives necessary to create the single market and production base. The process is not easy but there is no looking back. The ASEAN market of more than 520 million people can help us go forward substantially.
To this end, ASEAN has adopted the following strategies:
• Accelerating services liberalization by countries which are ready.
• Accelerating regional integration through 11 priority sectors which ASEAN enjoys competitive advantage. The 11 priority sectors are air travel and tourism; electronics; rubber-based products; textile & apparels; agro-based products and fisheries; wood-based products and automotive; healthcare and information and communications technology (ICT);
• Drafting the roadmap for each priority sector to chart out clear milestones for further integration;
• Implementing the roadmaps with the active involvement of the private sector, beginning 2004;
• Facilitating movement of professionals, business people and tourists;
• Strengthening the Dispute Settlement Mechanism for trade issues; and
• Harmonizing and standardizing its trade facilitation and investment procedures and standards.
As ASEAN evolves into the AEC, we must increase our efforts towards realizing a rules-based economic system where businesses will be guided by an adequate set of internationally accepted, transparent and consistent market-based investment and trading rules and practices. Given the historical economic development and competition among Southeast Asian countries, this is a formidable task. Yet, there is no alternative if ASEAN is to obtain a better economic advantage vis-à-vis its competitors.
Another key strategy ASEAN is pursuing is the strengthening of linkages with the world economy through increased trade and economic ties with ASEAN’s major trade partners like China, India, Japan and the Republic of Korea. Hence, ASEAN’s bold and concerted push for FTAs with these important players on the global economic scene. The aim is to expand the market for what we produce in ASEAN, to get cheaper sources of capital and intermediate products, and to strengthen inter-regional investment links.
It is indeed bewildering for those of you trying to follow the ups and downs of ASEAN trade talks with our major partners. The nitty-gritty might not make you feel optimistic about the desired outcome but I just want to leave you with a positive thought: namely, there is a growing convergence of strategic interests to conclude such FTAs or closer economic partnership frameworks. So, please continue to encourage our trade negotiators and get them to think of the big picture and the vast amount of benefits to come from staying together on the ASEAN team.
ASEAN Energy Cooperation
Where does ASEAN energy cooperation fit into all these? As a basic resource for production and business activities, demand for energy will continue to grow as industrial and business activities expand. Growing energy demand in turn will call for new investments in energy production and infrastructural development in order to secure adequate and stable supply.
ASEAN has a comprehensive six-year energy plan of action (APAEC) covering the period of 1999 until 2004. ASEAN will intensify this basic agenda in the medium to long term. The next energy plan of action will cover the cooperation activities to be implemented over the next six years from 2005 to 2010. It calls for sustainable energy development, enhancing the integration of the regional energy infrastructures, promoting energy security, creating progressive policies for market reforms and liberalization, as well as protecting the environment.
To achieve this, ASEAN will have to rely on greater private-sector involvement and participation in six cooperation areas, namely: (1) ASEAN Power Grid; (2) Trans-ASEAN Gas Pipeline; (3) Energy Efficiency and Conservation; (4) New and Renewable Sources of Energy; (5) Coal Technology and Trading; and (6) Regional Energy Policy and Planning.
ASEAN requires US$ 100 billion to meet the increasing electricity demand and US$ 7 billion for the gas pipeline networks. Private-sector investment will play a key role in carrying out these projects while ASEAN governments will work together to support their development through creating a stable, predictable and competitive business environment. Laws and regulations will be harmonized and made transparent on matters relating to energy trade, pricing and contracts.
ASEAN is pursuing 11 bilateral power interconnection projects under the ASEAN Power Grid Project, to optimize the exploitation of regional energy resources. Five of these power interconnections will be operational within the period 2005-2010. The ASEAN Power Grid Project will result in cheaper electricity and contribute to energy efficiency.
Interconnected electricity networks add strength to ASEAN’s economic integration. Interconnected networks can provide those countries with abundant natural resources but with little requirement for electric supply to generate income from their surplus power. On the other hand, countries with high power demand can meet their electricity shortfalls with power imports from neighboring ASEAN countries at reasonable prices. Interconnection will reduce national investment in power reserves to meet peak demand, provide a more reliable supply of electricity and increase consumers’ access to electricity.
Conclusion
ASEAN economic integration is not so much a matter of policy as it is an economic and strategic trend. It has built up its own momentum long before the push extended by the ASEAN Plus Three (China, Japan and the Republic of Korea) process. The challenge is how to manage that integration process to ensure that it will be smooth, equitable and inclusive.
To conclude, I personally believe that the potential of an economically integrated ASEAN is huge and the one thing we should do is to exert leadership to tap this vast reservoir of opportunities. ASEAN Leaders believe that the private sector and business people like yourselves should be actively involved in the region’s efforts towards infrastructure building and expansion of interconnection networks. This private sector – public sector engagement is critical to the successful establishment of the AEC and the bigger ASEAN Community. We may not be perfect in our way of mobilizing all of you. But we will endeavour to put into place a new mindset and a more coordinated arrangement to get more mutually-rewarding results.
Thank you.
