THE Philippines could become the ninth-largest economy in the world—but only if it integrates with the rest of the 10 countries—Brunei, Burma, Cambodia, East Timor, Indonesia, Laos, Malaysia, Singapore, Thailand and Vietnam—that make up the Association of Southeast Asian Nations or Asean.United, the Asean economy is valued at at least $1.8 trillion—a little smaller than Brazil but larger than Russia, according Dato Timothy Ong, founder and chairman of Asia Inc. Forum and the convener of the Asean 100 forum.
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Ong believes it is high time for the Asean to be integrated as an economic unit to become a more potent and stronger force in the global economic arena.
“In a globalizing world and with the rise of India and China, can Asean afford to be fragmented,” he said at a recent interview in Makati City. “If Asean is one, it’s going to be a more significant market and, at the same time, will be a force to reckon with.”
Indeed, economic integration is one of the hottest buzzwords of the global economy today.
The Asean has become a prominent figure in promoting bilateral and regional trading arrangements since 1997, starting with the Asean Plus Three process linking the 10-member bloc with China, South Korea and Japan.
Haruhiko Kuroda, president of Asian Development Bank, pointed out the importance of Asean in the global trading arena.
“Asean has become a manufacturing network for a wide range of products—from pharmaceuticals, automobiles and electronics to information-technology goods—and also produces high-end intermediate goods for final assembly elsewhere. Asean members have been major participants in the rapid expansion of free-trade agreements [FTAs] across Asia and the Pacific,” Kuroda said in one of his speeches.
Given its experience as a collegial body addressing common issues and concerns, the Asean can become an important vehicle for working toward a consolidation of FTAs into regionwide agreements. As synergies develop, it stands to gain as a community—as a center for expanding regionalism.
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Asean 100
To push the momentum in promoting economic integration, the Asia Forum Inc. is organizing its Asean 100 Leadership Forum on September 28 and 29 in Makati City. Ong, a Brunei businessman, said the Asean 100 is a highly interactive meeting of minds of the most promising Southeast Asian next-generation leaders from business, government and civil society.
The forum will begin with a dinner address and dialogue with President Aquino, followed on the next day by thought-provoking discussions around a central theme of “One Asean,” led by key figures from the region and other parts of the world, including Federico Lopez, chief executive of First Philippine Holdings Corp., and Jaime Augusto Zobel de Ayala, chairman and chief executive of Ayala Corp.
Ong said some homegrown businesses will find the forum a useful platform for relationship building and regional outreach. This is manifested by the attendance of CEOs of highly respected corporations to at least two of the prior forums. The list includes AirAsia, the region’s largest low-cost airline; the Para Group, a top Indonesian diversified group; Top Glove Corp., a Malaysian rubber-glove manufacturer that produces 22 percent of the world’s rubber gloves; First Philippine Holdings Corp., a leading energy player in the country; Ayala Corp., one of the Philippines’ largest and oldest business houses; Ascendas, a regional provider of office-space solutions headquartered in Singapore; the Wangkanai Group, a Thai sugar conglomerate; and the Adinin Group, a leading oil-and-gas engineering company in Brunei, to name only a few.
As far as the Philippines is concerned, Ong said the Philippines has a very good potential to become a player in the economic integration of Asean.
“The Philippines has a sufficient corporate sector which can be classified as world-class like SM, Ayala, Jollibee and ICTSI [International Container Terminal Services Inc.]. I am happy to tell you that Jollibee is No. 1 in Brunei,” he said.
Furthermore, Ong said the Philippines has excellent human capital as proven by the deployment of millions of Filipino professionals around the world.
“However, the sad thing is that many Filipinos are forced to work abroad because of lack of opportunities in the Philippine economy,” he said.
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Europe’s experience
According to Dr. Myrna Austria, vice chancellor for academics and full-time professor in economics at De La University-Manila, FTAs or regional trade agreements spur economic growth through increased specialization, greater trade, and the inclusion in a global value chain.
In her paper “Asean’s Extra Regional Linkages: Implications for an East Asian Economic Community,” Austria pointed out that it would be an advantage for the Asean to enter into formal arrangements because this also strengthens regional peace and security—which she said was the driving force behind the European integration.
Being at the center of two world wars, the Europeans know of their devastating effects such that after World War II the Europeans pushed with greater effort the formation of the Pan-Europa movement.
Austria believes that the China-Asean FTA should open the way of settling the current dispute over the Spratlys.
“In this regard, the insistence by Asean on accession by prospective partners to its Treaty of Amity and Cooperation is an important cornerstone in improving peace and security in the region,” Austria said.
“A formal arrangement should help countries either lock in domestic reforms or accelerate implementation of proposed reforms. International agreements can act as commitment mechanisms, providing policy-makers with the needed leverage to overcome domestic resistance to reforms. An FTA can also provide a government with credibility, thereby boosting domestic and foreign investment in the country,” added Austria.
An East Asian FTA will also make member-countries more conscious of the development gap in the region and might be the key to help neighboring countries stabilize and prosper for “altruistic purposes and get away from the effects of spillovers of unrest and population.” Austria said reducing the development gap will enhance the Asean, making it a more effective link between countries of Northeast Asia.
More important, Austria said an FTA will give the bloc a stronger political bargaining power because they’re sending the message they have banded together to pursue common interests.
And it is important for the Asean to ally with China, she stressed.
“Having China on its side will definitely enhance the political stature of Asean and vice-versa. One area that can be revived through advocacy by a China-Asean front is the reform of the international financial architecture. Efforts toward such measures were sidelined by indifference of the US Treasury,” she said.
The Philippine challenge
The Chinese experience, however, also proves that one can achieve economic growth without FTAs.
“The simple fact is that countries in East Asia which experienced high rates of economic growth did so without the benefit of an FTA. China was not even a signatory of GATT or an original member of the WTO. In other words, an FTA is not crucial to economic growth,” said Austria.
As such, Dr. Josef Yap, president of the Philippine Institute for Development Studies, said the Philippines must first address its own development so it can be a formidable partner in any economic merger.
In his paper “Economic Integration and Regional Cooperation in East Asia: A Pragmatic View,” Yap said the Philippines has to shape up its economy.
“It should be emphasized that the impediments to faster economic growth are largely internal. For example, the study of the East Asian miracle points to four main factors: outward orientation, a modernized agriculture sector, bureaucratic efficiency and a relatively equitable distribution of income. Moreover, outward orientation by these countries was not achieved through joining an FTA,” Yap said.
“The Philippines is a clear example where unimpressive economic growth is largely due to internal factors. The disparity is largest when all 10 Asean member-countries are compared as a group. It can be observed that the disparity of the Asean+3 is lower than the Asean 10 and the coefficient of variation declines further when the lower income countries are not included,” he said.
Yap pointed out that developing economies, such as the Philippines, need to beef up their own capabilities—in terms of infrastructure technology and human-resource development—to maintain a competitive business environment and economic and social stability in order to capitalize on the benefits of liberalization.
Right now, he said, there’s much to be desired in the capabilities of the country. For instance, the poor quality of infrastructure of the country has been cited frequently by several business groups and think tanks as one of the main reasons investors shy away from the country.
On resource development, the Philippines has a lot of catching up to do as its educational system has experienced a drastic decline in standards, resulting in a large number of graduates who don’t have sufficient skills.
So while it is important to strengthen Asean, a special focus must be placed on narrowing the development gap among the member-countries—which will not be achieved by merely deepening regional economic integration.
“Direct interventions at the regional level are necessary and this will be difficult to accomplish without East Asian countries establishing political rapprochement,” Yap said.
On her part, Austria said developing a common framework is a challenge itself for the Asean given the different levels of development of the member- economies.
She said Asean must review its approach and position as the hub of bilateral trade deals in East Asia if it wants to play a major role in building the whole process toward the formation of the East Asian community.
“An ideal framework would be one that strengthens, rather than contradicts, the market forces known to drive economic integration of the region,” she said.
(AP photo)
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