First, I would like to thank Mr. Ion de la Riva and Casa Asia for inviting me to participate in the fifth Asia Forum here in the beautiful city of Barcelona.

It’s a pleasure to be here and I welcome the opportunity to update and exchange views with you on what ASEAN has achieved over the past 40 years of cooperation and what it aims to become over the next few decades.

"One ASEAN at the Heart of Dynamic Asia", the official theme of this 40th Anniversary, not only captures the dynamic nature of regionalism in Asia but also signifies the achievement in community building in ASEAN and its key role in Asia. This key role has emerged as a result of closer cooperation and integration in ASEAN as well as its outward looking policies over the past 40 years.

Let me elaborate.

On economic front, ASEAN has made good progress in liberalizing its trade in goods, services and investment.

Substantial reduction in tariffs on intra-regional trade in goods has been achieved since the adoption of the ASEAN Free Trade Area (AFTA) in 1992.

In 2006, some 99.8% 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% of those products having zero import tariffs. Meanwhile, 91% 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% of those products are already within the 0-5 per cent tariff band.

In addition to trade in goods, ASEAN has also been making progress on liberalization of trade in services, opening up investment, streamlining customs procedure, harmonizing standards and reducing development gaps.

To expedite economic integration effort, 12 priority sectors have been identified for fast-tracked integration by 2010. These include agro-based products, air travel, automotive products, e-ASEAN, electronics, fisheries, health care, logistics, rubber-based products, textiles & apparels, tourism, and wood-based products. Nine of these sectors account for over 50% of total trade in goods.

On the non-economic front, the ASEAN Regional Forum (ARF), together with the other ASEAN forums on defence, law and transnational crime, have fostered closer dialogue among defence and law authorities/agencies, promoted better understanding of security challenges affecting ASEAN (and its dialogue partners) and enhanced capacity of relevant agencies to deal with them through information sharing and intelligence exchange. Under the ARF, a number of seminars were organized to share experiences and best practices in areas such as non-proliferation of weapons of mass destruction, cyber terrorism, missile defence, and maritime security.

ASEAN is also responding to natural disasters (such as earthquake and tsunami) and pandemics (such as Avian Influenza and HIV) in a more effective and timely manner through well-coordinated disaster management and emergency response mechanisms.

ASEAN people are getting to know each other better through a number of regional initiatives. These include the ASEAN Youth Camp, the ASEAN Youth Cultural Forum as well as Student and Faculty Exchanges through various ASEAN Programs, including the ASEAN Studies, Distinguished Scholar and Collaborative Research Programs.

This community building has allowed ASEAN economies, 10 years after financial crisis of 1997, to become more resilient and robust, enjoying an average real GDP growth of more than 5% since 2002.

Progress in financial reforms since the financial crisis have contributed to a sounder and robust financial system while fiscal consolidation efforts have led to much improved fiscal position with even fiscal surpluses recorded in some ASEAN countries.

Total ASEAN trade has more than doubled from its pre-crisis level of USD 674 billion in 1996 to USD 1.4 trillion in 2006.

FDI, too, has more than doubled from its trough of about USD 16 billion in 2002 to USD 52.4 billion in 2006.

ASEAN trade and investment with the EU, however, failed to keep up with the recent growth of ASEAN.

While the EU has been and remains one of the top trading partners of ASEAN (together with Japan, China, and the US), ASEAN-EU trade had gradually declined from about 14-16% of total ASEAN trade in the mid 1990s to about 9% in 2006 (USD 127.4 billion), despite the continued growth in total ASEAN trade.

ASEAN trade with Spain has been small but shown a more encouraging trend with 2006 trade (USD 5.1 billion) approaching the pre-crisis level (USD 6.4 billion in 1996) and 2006 ASEAN exports to Spain (USD 3.9 billion) exceeding the pre-crisis level (USD 3.3 billion in 1996).

Investment wise, the EU as a group has been the top investor in ASEAN from 1995 to 2004 with its share (actual level) of total FDI ranging from 18% (USD 5 billion) in 1995 to as high as 57% (USD 13.5 billion) in 2000. FDI from the US (USD 8.7 billion) however overtook the EU (USD 7.1 billion) in 2005.

Net FDI from Spain into ASEAN has also been relatively small and fluctuated widely during the same period from a peak of USD 40 million inflow in 1996 to an outflow of USD 12 million in 1997. Its latest FDI in 2005 stood at USD 9.7 million. All FDIs from Spain came to ASEAN-6.  However, tourists from Spain have registered double-digit growth.  In 2006, almost 200,000 tourists from Spain came to the ASEAN region.

In 2005, despite an almost 50% jump in total FDI, FDI from the EU actually declined by 9%, resulting in its share of total FDI decreasing by almost a half from 31% to 19%.

As an important trade and development partner of ASEAN, I would like to share with the EU and Spain the ASEAN vision for the next decade and to also exchange views with you on how to further promote trade and investment ties between ASEAN and all EU members including Spain as ASEAN pursues its vision.

That vision is one of a single community in ASEAN, comprising of three main pillars, namely the security, economic and socio-cultural communities.

In January 2007, the ASEAN Leaders decided to expedite the community building process to realize an ASEAN Community by 2015, five years earlier than originally planned in its ASEAN Vision 2020.

While the ASEAN Community comprises three pillars, namely security community, economic community and socio-cultural community, I would like to focus on the ASEAN Economic Community (AEC) whose vision is to develop a single market and production base, one that is competitive, equitably developed and well integrated into the global economy.

The vision of the ASEAN’s single market and production base is one in which goods, services, investment, and skilled labour can move freely within the region, supported by greater capital mobility.

Elimination of tariffs and non-tariff barriers, streamlining customs procedure, harmonization of technical regulations and standards and simplification of rules of origin are expected to help ASEAN companies reduce operating costs, improve their economies of scale, and enhance their capacity to participate in the regional production network and global supply chain.

The economic benefits from deeper economic integration were estimated by McKinsey at 10% of ASEAN’s GDP or more. In value terms, it amounts to over USD 100 billion based on estimated ASEAN GDP in 2006.

Going forward, a Blueprint for an ASEAN Economic Community (AEC) has been developed to link all sectoral integration roadmaps into one single, coherent master plan. It will guide future economic integration through well-defined targets and integrated work plan for realizing them. 

The community building efforts will also be enhanced by the signing of the ASEAN Charter. In addition to giving ASEAN a legal personality, the Charter is expected to enhance decision making mechanism, improve organizational structure, strengthen monitoring and compliance, and transform ASEAN into a more effective rules-based organization. It would provide a strong foundation for the building of the security, economic and socio-cultural communities of ASEAN.

Pace of economic integration is likely to accelerate in the years ahead as ASEAN pursues more vigorously its integration agenda to realize a single market and production base by 2015. This will open up a lot of trade and investment opportunities in goods, services, infrastructure, financial and capital markets. More developed financial and capital markets as well as more open investment and capital account regimes will also make it easier to invest and expand operation in the region.

As you may be aware, ASEAN is also negotiating FTAs with China, Japan, Korea, India, Australia and New Zealand. This would allow the region to expand the market for its products and services. An FTA with the EU is also being negotiated. A study has also been made on a multilateral FTA among the ASEAN Plus Three countries, to explore the benefits and costs as well as appropriate modality for such an arrangement.

As ASEAN pursues its integration target of an ASEAN Community by 2015, Asia will also strengthen its cooperation and become more integrated, with ASEAN as the driving force in this development.

Let me say a few words on recent policy challenges facing ASEAN.

Given the recent large inflows of capital in ASEAN, a key challenge for policy makers is how to effectively manage those flows through policy options that minimize distortions in domestic markets.  Among the options authorities may consider are: (i) greater flexibility in exchange rate system (to allow authorities more room to manage fluctuations in money supply arising from higher inflows), (ii) prudent fiscal policy (to prevent interest rates from rising that will lead to further currency appreciation), (iii) continued liberalization of capital outflows (to encourage more direct and portfolio investments overseas) and (iv) strong financial sector supervision (to further develop and stabilize domestic financial markets).  The success of Europe and other advanced countries in dealing with large surges in capital flows can be a good model for ASEAN economies to emulate.

The financial turbulence that broke out in July 2007 also highlights the need for ASEAN economies to continue its financial and corporate sector reforms and minimize the heightened volatility and widening of risk spreads that can undermine the region’s financial systems.  Although ASEAN has come a long way to strengthen its financial systems, vulnerabilities remain.  Thus, as in Europe in earlier years, the challenge for ASEAN is to sustain the foundation for a strong upswing through reforms that promote healthy banking and corporate balance sheets and accommodative financial conditions.

Finally, as the region continues to integrate itself into the global economy, policies that promote greater trade and financial liberalization need to be vigorously pursued.  As trade interdependence in ASEAN appears to be intensifying, policy makers face the daunting tasks of striking a balance between domestic and external objectives without compromising their comparative advantage and expanded presence in world trade.  Europe has a long history of integrating its economies which can provide the right lessons for ASEAN to move forward its trade and financial integration initiatives.
Be in ASEAN now will allow you to effectively and productively enjoy the benefits of a growing and integrating region.

Thank you.