KEYNOTE ADDRESS
BY H.E. ONG KENG YONG
SECRETARY-GENERAL OF ASEAN
GLOBAL ENTREPOLIS @ SINGAPORE 2004
SINGAPORE, 11 OCTOBER 2004
COMPETITIVENESS: THE ASEAN WAY
1. I am honoured by this invitation to address such a gathering of distinguished participants. As you can see from the map, ASEAN covers a big geographical space. Recently, there are many news reports on ASEAN, especially about the FTAs ASEAN is working on with China, Japan, India, the Republic of Korea, Australia and New Zealand. This morning, I would like to share with you how ASEAN is keeping itself competitive in the face of globalization and other challenges.
2. Collectively, ASEAN is ten countries and has a population of more than 520 million, a combined gross domestic product (GDP) of over US$680 billion and a total trade of US$712 billion in 2003. The ASEAN region represents one of the fastest growing markets in the world. It has a growing educated middle class of demanding consumers who are well connected to the rest of the world. They are mobile and skillful with a strong sense of business and fair play. Increasingly, they speak in English and want to link their community with modernization and technology.
3. ASEAN started its drive to be competitive many years back. The ASEAN Free Trade Area (AFTA) was established more than ten years ago and has reached maturity in January 2004 when the more developed ASEAN economies brought an overwhelming amount of goods traded to a tariff level of zero to five percent. In 1993 when AFTA first went into effect, the average tariff rate for goods traded was 13 percent. In 2003, the average declined to less than 3 percent.
4. Mid way through the implementation of the AFTA, Viet Nam, Lao PDR, Myanmar and Cambodia were admitted into ASEAN in that order. These countries have different political and economic systems. Therefore, while the original six of Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand were integrating their economies, they also have to adjust to the inclusion of the four new members (the CLMV countries). Many people believed ASEAN would not make much progress because the CLMV countries would most likely undermine the whole AFTA process. However, the vast opportunities offered by greater economic integration, not only for industries located in the region but also for investors and consumers as well, have motivated ASEAN member countries to stay together and complete AFTA implementation. Freer trade eases the burden of procuring raw materials and intermediate goods elsewhere and this, for one, would drive manufacturing companies in ASEAN to be more cost competitive and likewise enjoy economies of scale. There is no denying that as a competitive manufacturing sector attracts foreign direct investments (FDI), the growth of supporting industries in the region would be stimulated as well.
5. ASEAN tariff reduction efforts should not lead to a wrong impression that ASEAN is an inward-looking grouping. On the contrary, AFTA is the mechanism to get ASEAN member countries to reduce tariffs for trade among themselves. Vis-à-vis other countries, ASEAN does not follow the European Union (EU) way of imposing an across-the-membership common tariff policy. ASEAN remains open to trade with all those wishing to do business with member countries.
Ladies and Gentlemen,
6. The context in which ASEAN operates is constantly changing. Having dealt with the impact of the 1997 – 1998 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 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%.
7. 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.
8. In response, ASEAN has hastened its own economic integration and is acting to further enhance its economic competitiveness.
9. 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 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.
10. Allow me to elaborate on what we mean by an ASEAN Economic Community or AEC for short.
11. AEC is the end 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, investments and skilled labor, and freer flow of capital.
12. 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 multinational corporations have already established in the ASEAN region.
13. 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.
14. 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 single production base. The process is not easy but there is no looking back. The ASEAN market of more than 520 million people can motivate us to go forward substantially.
15. More specifically, 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 and 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 trade facilitation and investment procedures and standards.
16. In the meantime, ASEAN continues to provide investors with a competitive and attractive environment for investments and business operations. The ASEAN Investment Area (AIA) was created to ensure that investments flow freely within the region and that the principle of non discrimination is applied. The AIA arrangement allows investors to harness the various complementary advantages of ASEAN member countries in order to maximize business and production efficiency at lower costs.
17. In addition to manufacturing, agriculture, mining, forestry and fishery sectors, and services incidental to these sectors, ASEAN has agreed to expand the AIA coverage to include more services sectors and speed up the opening of sectors currently on the sensitive list.
Ladies and Gentlemen,
18. I have just given you an overview of the progress in ASEAN’s economic integration and how the ten economies in ASEAN are working hand-in-hand to enhance their collective competitiveness. Besides AFTA, AIA and the fast tracking of the 11 priority sectors, most of the member countries have completed their domestic procedures to fully implement the ASEAN Harmonized Tariff Nomenclature (AHTN), by end 2004. Under the AHTN, the tariff classification of say, microchips, in Singapore will be the same in Viet Nam or any other member country.
19. Trade facilitation measures are also being undertaken in the areas of standards and conformity assessment, where the main thrust of work has been on mutual recognition arrangements (MRAs) and harmonization of technical regulations and product standards. Progress of work done in this area includes the completion of a number of MRAs, particularly on electrical and electronic equipment, cosmetics and telecommunication equipment.
20. The ASEAN Economic Ministers have also endorsed revision to the rules of origin and the certification procedures. While the 40% local content requirement has not been changed, its calculation has been standardized and certain principles and guidelines have been adopted to provide more certainty in its application. Substantial transformation has also been adopted as an alternative criterion in determining origin. Going forward, the ASEAN Economic Ministers have agreed on developing the implementing guidelines for partial cumulation of rules of origin, or what is commonly called the CRO, to give manufacturers with regional production networks in ASEAN greater access to lower tariff rates for the relevant products.
Ladies and Gentlemen,
21. There is no choice for ASEAN but to constantly review its strategies and policies to make ASEAN more business-friendly and competitive. The end-in-mind is to offer unparalleled opportunities to the business community to leverage upon. Such opportunities are not confined to the traditional sectors but extended to those in the “New Economy” as well. In other words, we are not neglecting the knowledge-based sectors. Let me cite a few examples.
22. First, in Information Communication Technology (ICT).
23. The diversity of ASEAN and the disparity in ICT development of its member countries present great challenges and opportunities. ASEAN is aware that success in the knowledge-driven economy is ultimately in the hands of the private sector in close partnership with government and key civil organizations. To this end, ASEAN ICT development focuses on a comprehensive framework that includes:
§ Developing the ASEAN Information Infrastructure, ensuring security, promoting trust and confidence in the use of Internet and the critical development of appropriate ASEAN contents;
§ Promoting e-Commerce and facilitating ICT trade;
§ Fostering e-Society and Capacity Building;
§ Liberalizing trade in ICT products and services and promoting investment; and
§ Promoting the use of ICT applications in the delivery of government services.
24. ASEAN ICT development aims for digital inclusion in support of ASEAN integration. Various initiatives are well on track. Look around you and you will see that ASEAN member countries have started “mainstreaming” ICT into their respective national developmental plans. For business to benefit, it should enable relevant assets and knowledge to be employed in a comprehensive and efficient way. Innovation is necessary and existing ways of doing business must be transformed.
25. Another knowledge-driven area is the environment-friendly technologies.
26. While there is a growing demand for the deployment of environment-friendly technologies, the transfer of such technologies to ASEAN member countries has not been an easy task. Cost is always a problem. Then, in several ASEAN member countries the enabling business and policy regimes do not exist as yet. To effectively realize the transfer or adoption of environment-friendly technologies, ASEAN is pursuing the following:
§ Capacity building: where efforts should be enhanced to build, develop and strengthen the skills of people and institutions essential to the technology transfer process;
§ Construction of social infrastructure and micro-credit facility: this will give sustainability and root the relevant technologies into daily living;
§ Market transformation: where SMEs should play important roles in ensuring sustainable markets for environment-friendly technologies;
§ Certification of codes and standards: whereby clear, harmonized and enforceable rules and benchmarks allow users to assess the quality and functionality of the technologies; and
§ Financing partnership: under which sources of financing needed to facilitate effective transfer of technology are obtained.
27. As ASEAN is adopting the relevant environment-friendly technologies, it is keenly interested in developing renewable energy sources.
28. ASEAN’s efforts in this area will enhance its competitiveness. Market studies have already been conducted in ASEAN member countries to identify barriers and constraints in marketing renewable energy technologies and systems. For example, there is a need for harmonization of applicable codes and standards. Infrastructure and access to updated information must also be improved to achieve the committed target of the ASEAN governments to make renewable energy comprise 10% of the ASEAN energy mix. Multilateral collaboration is being explored to bring in private and international agencies to invest in viable renewable energy projects in the ASEAN region.
29. Next, we have biotechnology.
30. The ASEAN region has the world's largest biodiversity. Locked in our rainforests and subtropical forests is a huge and diverse range of ecosystems which no where else in the world can match collectively. Therefore, ASEAN actually has a tremendous potential in the development of biotechnology.
31. ASEAN is keen to look for foreign investors to team up with local parties to advance various aspects of biotechnology. There are specialized agencies in ASEAN member countries ready to consider collaboration in the following areas:
§ Strategic partnerships in the development of vaccines, diagnostics, pharmaceuticals, especially for tropical diseases (human and animal);
§ Emerging diseases centres for diagnostics development in combating communicable diseases like Avian Flu and SARS. (In fact, a few such centres have been set up already);
§ Development of nutraceuticals, or functional foods in accordance with safety norms and established practice elsewhere; and
§ Systems biology and bioinformatics where the IT community can also consider it to be an attractive possibility.
Ladies and Gentlemen,
32. Economic integration in ASEAN is not an option but a survival imperative. Regions across the globe are also integrating, opening up their markets and making available bigger markets in order to be more attractive to business people and investors. ASEAN member countries cannot afford to be complacent. To make itself even more attractive, ASEAN has embarked on economic integration beyond the borders of ASEAN through the various proposed FTAs with China, Japan, India, the Republic of Korea, Australia and New Zealand. Thus, ASEAN is adding more breadth and depth to its collective size.
33. Allow me to conclude by saying that ASEAN, despite the diversity among its membership, had withstood and will continue to withstand the challenges – both global and regional – because they share one common vision and they coalesce in the face of competition and survival. The number of agreements, initiatives, programs and projects may be confusing and frequent references to timelines are not helping your understanding of what ASEAN is doing. Still, ASEAN is out there pushing all the buttons to stay competitive. ASEAN has not lost sight of the essence of competition: size matters.
34. It is our hope that entrepreneurs and investors will seize the opportunities created, correct the lack of policy and shortfall in implementation through constructive inputs to the ASEAN governments and help ASEAN leverage its comparative and competitive advantages to progress the economic prosperity in Southeast Asia. In the ultimate analysis, this will benefit everyone in the globalised matrix we share.
Thank you.
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