Remarks by H.E. Ong Keng Yong
Secretary General of ASEAN
at the
ASEAN Gala Dinner
London, 4 December 2006
H.E. Pengiran Dato Maidin Hashim, Chair of ASEAN London Committee
ASEAN Ambassadors and High Commissioners
Excellencies,
Distinguished Guests,
Ladies and Gentlemen,
Thank you for the generous introduction. I very much appreciate this opportunity to share with you some of my thoughts on the challenges and prospects for the ASEAN Economic Community (or AEC).
Free trade is a significant stimulus to regional production, linkages and competitiveness. ASEAN has made significant progress in that regard since the implementation of the ASEAN Free Trade Area (AFTA) from 1993. The AFTA initiative has been particularly successful in reducing tariffs in the trade in goods.
Currently, some 99.8 per cent of the products in the Inclusion Lists of ASEAN-6 (Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand) have been brought down to the tariff range of 0-5 per cent, with about 65 per cent of those products having zero import tariffs. Meanwhile, 91 per cent of the products traded by the CLMV countries (Cambodia, Lao People’s Democratic Republic, Myanmar and Viet Nam) under the Common Effective Preferential Tariff package have been moved into their respective Inclusion Lists. About 77 percent of those products are already within the 0-5 per cent tariff band.
However, regional free trade alone is not sufficient to release the full energies and the inherent potential of ASEAN. All of us now have to take a further step forward. Deeper economic integration is necessary for ASEAN to cope effectively with the unprecedented opportunities as well as the unprecedented challenges, on both scale and depth, unleashed by globalisation.
China and India have altered the global economic landscape through huge market openings and greater competition, too. Meanwhile, interlinked supply networks have proliferated all over the world, among many other innovative and more efficient ways in value creation and industrial organization. Last but not least, there are the freer and often instant movements of new ideas, people and resources across national boundaries.
The ASEAN Economic Community. In the midst of two giant economies, ASEAN Leaders made a historic resolution in December 1997 to leverage the region’s potential by building an economic community (ASEAN Vision 2020). Henceforth, ASEAN is to be transformed into a stable, prosperous, and highly competitive region with equitable economic development, and reduced poverty and socio-economic disparities.
Notably, that resolution took place in the midst of a severe financial and economic crisis in ASEAN. This underscored once again ASEAN’s common perception of the critical importance of greater regional cohesion and complementation in coping with good as well as bad times.
Subsequently at the Bali Summit in November 2003, ASEAN Leaders declared that the AEC would be the end-goal of regional economic integration (Bali Concord II). This Community shall weld together 10 separate entities as a single market and production base by 2020. The ASEAN Economic Ministers have recently recommended that the target year be sped up to 2015.
Put it simply, there will be a free flow of goods, services, investment and a freer flow of capital in the AEC. This is to be complemented by freer movements of skilled human resources -- including regional business persons, professionals, and cultural and artistic talents.
The consequent gains from deeper and broader integration are substantial in ASEAN. They are estimated by McKinsey and Co to cut as much as one-fifth of production costs of consumer goods in the region.
As such, the AEC building process will empower ASEAN to remain a dynamic and competitive player in the regional and global supply chains. But the same process is also predicated on wide-ranging adjustments and reforms to be carried out by Governments and the business sector, among other stakeholders in the region.
The commitments so far made include, to name just a few, the ASEAN Free Trade Area of 1992; the ASEAN Framework Agreement on Services of 1995; the ASEAN Agreement on Customs and the ASEAN Customs Vision 2020 of 1997; the Framework Agreement on the ASEAN Investment Area and the ASEAN Framework Agreement on Mutual Recognition Agreements, both of 1998; the Initiative for ASEAN Integration of 2000; the ASEAN Framework Agreement for the Integration of Priority Sectors of 2004; and the ASEAN Policy on Standards and Conformance of 2005.
ASEAN has three key strengths in the economic arena. We have abundant natural resources in our region. We have large supplies of professionals and talented people. And, we have the capability to adopt, adapt and advance technology. By leveraging on these strengths the AEC is likely to be realised sooner than later.
ASEAN Charter. A key development complementing the AEC work is the process to establish the ASEAN Charter. A Charter is certainly not a panacea. But at a minimum, it is going to facilitate the transformation of ASEAN into a rules-based regional organization with a legal personality. Provisions in the Charter to establish robust mechanisms for monitoring implementation and ensuring compliance would contribute greatly to ASEAN’s effectiveness. Through the Charter, ASEAN will be able to enshrine the values and principles that shaped by our history and experiences in the last 39 years. It will virtually become our new and official birth certificate in the sense that we are re-born as the ASEAN Community. Such a Charter would also serve to make ASEAN a more responsive, dynamic and integrated regional organisation. In short, the Charter will define ASEAN's future.
The ASEAN Eminent Persons Group (EPG) has been working on its recommendation for the drafting of the Charter. In a few days, the EPG’s report will be considered by the ASEAN Leaders during the 12th ASEAN Summit in Cebu, the Philippines, from 11-12 December 2006. In that report, the EPG will recommend what should go into an ASEAN Charter. And at the upcoming Summit, a High-Level Task Force is expected to be mandated by the ASEAN Leaders to start drafting an ASEAN Charter, taking into account recommendations of the EPG, among other things.
This achievement would not only become a benchmark for the region to further enhance its cohesiveness and coherence, but also would venture forth a new cooperative spirit for the community building in the region. To be sure, there is a lot more work to do, especially in converging the different levels of ambition. Yet, I am optimistic ASEAN is on the threshold of a quantum leap in collective development and growth.
ASEAN-EU economic interaction. Against that backdrop of dynamic changes and developments within ASEAN, the EU has remained, among other roles, an important partner in trade and investment and a major source of technical assistance to ASEAN. The EU's valued roles will continue to be very helpful to AEC building efforts in the coming decade.
As a market, for example, the EU-15 economies took in some US$ 78 billion worth of ASEAN exports in 2005, a steady growth of 5 per cent a year since 2000. The EU was the third largest trading partner, with an average share of 12 per cent of ASEAN trade in the last two years (or just about one percentage point behind Japan and the U.S.A. during 2004-2005). Germany, Netherlands, the United Kingdom, and France are the most important EU traders with ASEAN.
Likewise, the EU-15’s foreign direct investment (FDI) in ASEAN has been significant, with the largest share of 57 per cent of the FDI hosted by our region in 2000 (totalling US$ 23.5 billion). However, this share fell to 19 per cent of the FDI flows to ASEAN (US$ 38.1 billion) in 2005. Singapore, Indonesia, Malaysia, Viet Nam and Thailand were the main destinations of FDI from the EU.
FDI from the United Kingdom provides a contrast, however. It accounted for 20 per cent (or US$ 2.7 billion) of FDI from the EU-15 in ASEAN in 2000, and 62 per cent (or US$ 4.4 billion) in 2005. Singapore and, to a much lesser extent, Indonesia, Malaysia and Brunei Darussalam were the main hosts of FDI from the United Kingdom.
The sharp upswing in FDI flows into ASEAN, by 62 per cent between 2000 and 2005, is noteworthy. This is an eloquent expression of external market confidence in the prospects for sustained development and stability in our own part of the world.
But there is still much scope for a significant expansion of commercial synergies between ASEAN and the EU, according to the Report of the Vision Group on ASEAN-EU Economic Partnership. Furthermore, such an enlarged relationship will serve a catalyst to the harmonious and broad-based development of the two regions and, more generally, to the growth of world trade and investment in the 21st century. And an ASEAN-EU FTA has been mooted in this context.
In the meantime, however, the deepening integration within ASEAN itself will create numerous additional opportunities for gainful interactions in trade and investment, not just among the regional economies but also among all their external partners as well.
What then is the remaining agenda? On the one hand, it would be a mistake to underestimate the concerted efforts and sacrifices that have been made thus far by all ASEAN stakeholders in sustaining economic cooperation and in AEC building. This applies especially to those in the less developed economies of our region.
Nevertheless, the effective coordination and timely implementation of commitments remain a challenge for attention and management by most Governments and other stakeholders in ASEAN. There is also much room for more systematic and extensive dissemination of information to the public, both at home and abroad, regarding integration initiatives and their (actual or expected) progress and outcomes.
Regular consultations have been held with, and inputs received from, the ASEAN Business Advisory Council and the ASEAN Chamber of Commerce and Industry. However, a perception lingers that the private sector has not been fully and actively involved in the integration and community building processes in ASEAN. There are no easy answers as regards the workable alternatives and options.
On the other hand, it would also be a mistake to under-estimate the remaining tasks to be implemented and the new commitments to be made ahead. ASEAN is not a Customs Union with a common external trade policy, including the same external tariff wall. It is not the single market that the EU has evolved into. We have a large geography and vast seas separating thousands of islands. Communications and infra-structural deficiencies are daily headache for our people.
There are still major barriers to the free movement of resources and inputs in the region at present. Such barriers include large differences in tax rates on (intra- and trans-regional) businesses and investments. On this fiscal matter, ASEAN has yet to embark, for example, on the harmonization and standardization of laws and regulations on business and on competition.
Deeper integration in banking, finance and capital markets is on-going; this can also be an equally challenging process in ASEAN. Meanwhile, significant volatility in Member Countries’ rates of exchange and large differences in the rates of interest and inflation would certainly not be conducive to the most optimal allocation of scarce resources. At the same time, however, there is no plan for ASEAN common currency in the next 10-15 years.
There is then an over-arching issue: the development gap in ASEAN. This gap, which is unlikely to be bridged by 2020, can be another barrier to regional integration. More substantive programmes complementary to or in supplement to the Initiative for ASEAN Integration may be needed. The introduction of a region-wide levy (say, on tourists in or from ASEAN) for funding those programs is an often-cited option for consideration.
A final note. Deeper economic integration is an imperative although the symphony of integration is unfinished in ASEAN. All stakeholders must resolve, firmly and soon, to take the next steps toward the AEC.
To do less would surely mean a future less rewarding, less prosperous, less secure and less equitable for all the peoples of ASEAN. That is the challenge facing all of us but the challenge can be managed.
ASEAN’s resilience has not been derailed by the recent oil price shock and higher interest rates. Economic growth is expected at a respectable rate of about 5.5 per cent in the next few years, according to the Asian Development Bank. All these augur well for the region’s own transformation into a vibrant AEC a decade from now
But such dynamism also underpins a meaningful and differentiated role of ASEAN economies in the Pan-Asian region where the world’s manufacturer of choice (China) and the world’s back office (India) are situated. In particular, ASEAN-China trade has grown substantially and very fast in the recent years. ASEAN now has a free trade agreement on goods with China and with the Republic of Korea., while FTAs with Australia and New Zealand, India and Japan are under negotiation.
Thus, ASEAN is not standing alone in our historic efforts at AEC formation. The future looks bright with sustained regional and international collaboration, including from the EU and other partners of ours, in response to the constant emergence of opportunities for inclusive and stable development.
And that is the message I wish to convey to you all tonight. Thank you for your attention.
