Reinventing ASEAN 9789812305138

Table of contents :
CONTENTS
List of Tables
Preface
Contributors
I. THE CONTEXT FOR CHANGE
1. The Relevance of ASEAN: Crisis and Change
2. ASEAN’s Past and the Challenges Ahead: Aspects of Politics and Security
3. ASEAN in the Past Thirty-Three Years: Lessons for Economic Co-operation
II. CHALLENGES TO CO-OPERATION
4. Trade, Investment, and Interdependence
5. Southeast Asia: Development, Finance, and Trade
6. Challenges for Society and Politics
7. ASEAN in the Age of Globalization and Information
8. New Security Issues and Their Impact on ASEAN
9. The Greater Mekong Subregion: An ASEAN Issue
III. FUTURE NEEDS
10. Expectations and Experiences of the New Members: A Vietnamese Perspective
11. ASEAN and East Asia: A New Regionalism?
12. Towards an East Asian Regional Trading Arrangement
13. Institutions and Processes: Dilemmas and Possibilities
14. ASEAN in 2030: The Long View
Selected Bibliography and References

Citation preview

The Institute of Southeast Asian Studies (ISEAS) was established as an autonomous organization in 1968. It is a regional research centre for scholars and other specialists concerned with modern Southeast Asia, particularly the many-faceted problems of stability and security, economic development, and political and social change. The Institute’s research programmes are the Regional Economic Studies (RES, including ASEAN and APEC), Regional Strategic and Political Studies (RSPS), and Regional Social and Cultural Studies (RSCS). The Institute is governed by a twenty-two-member Board of Trustees comprising nominees from the Singapore Government, the National University of Singapore, the various Chambers of Commerce, and professional and civic organizations. An Executive Committee oversees day-to-day operations; it is chaired by the Director, the Institute’s chief academic and administrative officer.

© 2001 Institute of Southeast Asian Studies, Singapore

Edited by Simon S. C. Tay Jesus P. Estanislao Hadi Soesastro

INSTITUTE OF SOUTHEAST ASIAN STUDIES Singapore

Published by Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 Internet e-mail: [email protected] World Wide Web: http://www.iseas.edu.sg/pub.html All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies. © 2001 Institute of Southeast Asian Studies, Singapore. The responsibility for facts and opinions in this publication rests exclusively with the editors and contributors and their interpretations do not necessarily reflect the views or the policy of the Institute or its supporters. ISEAS Library Cataloguing-in-Publication Data Reinventing ASEAN / edited by Simon S. C. Tay, Jesus P. Estanislao and Hadi Soesastro. An updated edition of: A new ASEAN in a new millennium. Singapore: jointly published by Centre for Strategic and International Studies and Singapore Institute of International Affairs, 2000. 1. ASEAN. 2. Asia, Southeastern—Economic integration. 3. Asia, Southeastern—Politics and government—1945– I. Tay, Simon, 1961– II. Estanislao, Jesus P. III. Soesastro, Hadi. IV. Title: A new ASEAN in a new millennium. JX1979 R45 2001 sls2001037649 ISBN 981-230-147-X Printed in Singapore by Seng Lee Press Pte Ltd.

© 2001 Institute of Southeast Asian Studies, Singapore

CONTENTS List of Tables

vii

Preface

ix

Contributors I.

xiii

THE CONTEXT FOR CHANGE

1

1. The Relevance of ASEAN: Crisis and Change Simon S. C. Tay and Jesus P. Estanislao

3

2. ASEAN’s Past and the Challenges Ahead: Aspects of Politics and Security Jusuf Wanandi

25

3. ASEAN in the Past Thirty-Three Years: Lessons for Economic Co-operation Narongchai Akrasanee

35

II. CHALLENGES TO CO-OPERATION

43

4. Trade, Investment, and Interdependence Mohamed Ariff

45

5. Southeast Asia: Development, Finance, and Trade Jesus P. Estanislao

67

6. Challenges for Society and Politics Carolina G. Hernandez

103

7. ASEAN in the Age of Globalization and Information Chia Siow Yue

121

8. New Security Issues and Their Impact on ASEAN Kusuma Snitwongse and Suchit Bunbongkarn

148

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9. The Greater Mekong Subregion: An ASEAN Issue Kao Kim Hourn and Sisowath D. Chanto III. FUTURE NEEDS

163 183

10. Expectations and Experiences of the New Members: A Vietnamese Perspective Nguyen Phuong Binh and Luan Thuy Duong

185

11. ASEAN and East Asia: A New Regionalism? Simon S. C. Tay

206

12. Towards an East Asian Regional Trading Arrangement Hadi Soesastro

226

13. Institutions and Processes: Dilemmas and Possibilities Simon S. C. Tay

243

14. ASEAN in 2030: The Long View Hadi Soesastro

273

Selected Bibliography and References

© 2001 Institute of Southeast Asian Studies, Singapore

311

LIST OF TABLES 4.1 4.2 4.3 4.4 7.1 7.2 12.1 12.2 12.3 14.1

CEPT Product List for the Year 2000 — ASEAN-6 CEPT Product List for the Year 2000 — ASEAN-4 Average MFN Tariffs Number of Tariff Lines Technology Achievement Index in Asia Diffusion of Information and Communication Technology in Asia Number of Tariff Lines in the Tentative CEPT Product List for 2001 Number of Tariff Lines with Tariffs of 0–5 Per Cent by 2001 Average CEPT Tariff Rates (1999–2003) Automotive Parts and Components Production

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49 49 58 59 131 132 230 231 232 293

PREFACE There is now widespread recognition that the Association of Southeast Asian Nations (ASEAN) needs to be revitalized. Government ministers and officials have increasingly acknowledged that they must act or risk irrelevance. Singapore’s Foreign Minister Professor S. Jayakumar was probably the most candid when he stated, at the ASEAN Ministerial Meeting in July 2000, that, “If we continue to be perceived as ineffective, we can be marginalized as our Dialogue Partners and international investors relegate us to the sidelines. The danger is real.” This recognition of potential irrelevance contrasts sharply with the high reputation that ASEAN had previously enjoyed. The Asian crisis that began in mid-1997 has been a key trigger in this change in perception. The severe impact of the crisis threw ASEAN member states into disarray and exposed their limits of co-operation in dealing with the financial contagion. Although some ASEAN member states were buoyed by a sharp, V-shaped economic recovery in 1999–2000, the overall reputation of ASEAN did not improve much. Moreover, even as the crisis abated, some continued to experience political and social instability, with Indonesia, the centre of gravity of the grouping by size and history, the worst hit. The worldwide economic slowdown in 2001, led by the downturn in the U.S. market, will not assist the region. Instead, it exposes the fragility of the economic development policies that ASEAN member states have adopted, especially when, in contrast, China seemingly continues to prosper. The terrorist attacks of 11 September 2001 on New York’s World Trade Centre and the Pentagon in the United States add another challenge for the ASEAN member states. The terrible events have accelerated the economic downturn and worsened the external environment for ASEAN. Moreover, if the U.S.-led response against the terrorists in Afghanistan is perceived to be directed against Islamic countries and their religion, it can potentially increase tensions within and between the ASEAN member states. Three of them — the Philippines, Singapore, and Thailand ix © 2001 Institute of Southeast Asian Studies, Singapore

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— have sizeable Muslim minorities and another three — Brunei, Indonesia, and Malaysia — are predominantly Muslim. The recent recognition by government ministers and officials of the dilemmas and challenges ASEAN faces, comes after expert opinion. Since the first two years of the crisis, think-tanks and academics who know ASEAN well have come increasingly to question the role of the institution. Among them have been members of two networks of think-tanks and academics, who have played a “track-two” role in ASEAN, providing exchange, ideas, analysis, and criticism on a wide range of issues. One of these networks is the ASEAN Institutes of Strategic and International Studies (ASEAN-ISIS). The ASEAN-ISIS has been in existence for more than fifteen years. Founded with one institute each in Indonesia, Malaysia, the Philippines, Singapore, and Thailand, the ASEAN-ISIS network has expanded to include representatives from Brunei, Cambodia, Laos, and Vietnam. The work of the ASEAN-ISIS has generated some results in policy initiatives, perhaps most notably the formation of the ASEAN Regional Forum as the main multilateral security forum in the region. The other network is the ASEAN Economic Forum. This brings together some of the leading policy-oriented economic experts of the region. This volume is the result of collaboration between members of these two networks. In July 2000, immediately after the ASEAN Ministerial Meeting, the ASEAN-ISIS and ASEAN Economic Forum networks convened a meeting, which included some of its leading members. The purpose of this meeting was to discuss frankly the difficulties and challenges facing ASEAN and to consider suggestions on how the Association might proceed. This was a response to the official recognition of the challenges faced by ASEAN, as well as to a call made by the then Thai Foreign Minister Surin Pitsuwan to these think-tanks and experts to serve as a reservoir of knowledge and wisdom for the region. Many of the academics and experts from these two networks had, after many years of studying ASEAN closely, come, in their own manner and to their own thinking, to be increasingly critical of ASEAN. While loyal to the Association’s past achievements and consistent in their belief in regionalism, many had ideas of what might be done to respond to the problems and challenges. From the deliberations, a book resulted, entitled A New ASEAN in a New Millennium, which was published at the end of 2000, barely four months after its conception. This allowed the book to be launched at the ASEAN Informal Summit of leaders, and at the first ASEAN People’s Assembly, a meeting for civil society groups of the region, held in Batam, Indonesia. The book was well received and quickly exhausted its print run.

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This present book, Reinventing ASEAN, builds on the earlier effort. It brings together contributions by some of the leading and well-established experts on ASEAN. Many of the contributions have been updated since the first publication in 2000 to take into account new events, and to offer additional analyses. A number of chapters have also been added, most notably by writers from the newer ASEAN member states. Reinventing ASEAN focuses primarily on the political-security and economic dimensions of ASEAN co-operation. In so doing, the authors have all treated the scope of their topics broadly. The idea of politics and security in ASEAN has been considered from many different aspects, under the rubric of “comprehensive” security or, to use a more recent term, “human” security. The consideration of economics is also rounded, and includes issues of development, as well as the political context for economic co-operation. Additionally, ASEAN’s processes and institutions, or what has been called the “ASEAN way”, are also studied. After all, co-operation between nation-states does not only encompass what the members are trying to achieve together, but also the rules of how they are to work together. Thus, other areas for ASEAN co-operation, such as financial matters and environmental protection, are also considered among the larger issues. The volume also sets out the context for change in ASEAN not just because of the recent crisis but also because of changing circumstances. It also seeks to give an idea of what ASEAN can do in the future, with a long-term view stretching to 2030. This is in keeping with the belief that policy prescriptions relate not just to the here and now but also to the future. There are a number of overlaps and shared ideas between the different chapters. This is inevitable in the cross-pollination of ideas among the authors. As members of “track-two” networks, it is often difficult to pinpoint the precise originator of an idea. What the authors share most of all is their belief and hope in ASEAN. While critical of certain limits and policies in today’s ASEAN, they all share the wish to see ASEAN continue and adapt to new circumstances. What emerges, therefore, is a core of ideas that have the common aim of trying to revitalize and even reinvent ASEAN. In bringing together this book, there are a number of people that the editors must especially thank: the Asia Foundation for the support it provided to enable the authors to meet to conceive the book; the authors of the different chapters, especially those who have updated their chapters or added new chapters; the Centre for Strategic and International Studies in Indonesia, and its executive director, Dr Hadi Soesastro, for publishing the earlier work, A New ASEAN in a New Millennium, in such a short time; the staff of the Institute of Southeast Asian Studies (ISEAS), especially Professor Chia Siow

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Yue, for agreeing to publish this revised book; and Ms Yeo Lay Hwee, Research Fellow at the Singapore Institute of International Affairs, who provided much editorial assistance. Simon S. C. Tay Chairman Singapore Institute of International Affairs September 2001

© 2001 Institute of Southeast Asian Studies, Singapore

CONTRIBUTORS Narongchai Akrasanee is former Minister of Commerce and Senator of Thailand. He is currently Chairman of Seranee Holdings Company, Limited, and President of Schiller-Stamford International College, Bangkok, Thailand. Mohamed Ariff is Executive Director of the Malaysian Institute of Economic Research (MIER), Kuala Lumpur, Malaysia. Suchit Bunbongkarn was previously Director of the Institute of Strategic and International Studies (ISIS) at Chulalongkorn University, Bangkok, Thailand, and now sits as a Judge of the Constitutional Court. Chia Siow Yue is Director of the Institute of Southeast Asian Studies (ISEAS), Singapore. Jesus P. Estanislao is President of the Institute of Corporate Directors in the Philippines, while holding the title of University Professor at the University of Asia and the Pacific, Manila, Philippines. Carolina G. Hernandez is founding President of the Institute for Strategic and Development Studies (ISDS), Inc. and Professor of Political Science at the University of the Philippines (Diliman), Manila, Philippines. Kao Kim Hourn is Executive Director at the Cambodian Institute for Co-operation and Peace (CICP). Concurrently, he serves on the Supreme National Economic Council, and as adviser to the Ministry of Foreign Affairs and International Co-operation. Luan Thuy Duong is Deputy Director of the Centre for Southeast Asian Studies, Institute for International Relations (IIR), Vietnam.

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Nguyen Phuong Binh is Deputy Director-General of the Institute for International Relations (IIR) and also Director of the Centre for Southeast Asian Studies, IIR, Vietnam. Sisowath D. Chanto is Assistant Director of the Cambodian Institute for Co-operation and Peace (CICP). He has previously served in the Council of Ministers’ Legal Co-ordinating Unit of the Royal Government of Cambodia. Kusuma Snitwongse is Chairperson of the Advisory Board of the Institute of Strategic and International Studies (ISIS) at Chulalongkorn University, Bangkok, Thailand. Hadi Soesastro is Executive Director of the Centre for Strategic and International Studies (CSIS), Jakarta, Indonesia. Simon S. C. Tay is Chairman of the Singapore Institute of International Affairs (SIIA) and teaches international law at the National University of Singapore. He is also a Nominated Member of Parliament in Singapore. Jusuf Wanandi is a member of the Supervisory Board of the Centre for Strategic and International Studies (CSIS), Jakarta, Indonesia.

© 2001 Institute of Southeast Asian Studies, Singapore

Part I

THE CONTEXT FOR CHANGE

ISEAS DOCUMENT DELIVERY SERVICE. No reproduction without permission of the publisher: Institute of Southeast Asian Studies, 30 Heng Mui Keng Terrace, SINGAPORE 119614. FAX: (65)7756259; TEL: (65) 8702447; E-MAIL: [email protected]

1 THE RELEVANCE OF ASEAN Crisis and Change Simon S. C. Tay and Jesus P. Estanislao

INTRODUCTION: CRISIS AND CHANGE Crisis and changing times challenge our fixed ideas and our institutions. Few institutions die, but many may lose their relevance and limp on, with less urgency, importance, and credibility. On the other hand, it is also possible that, when faced with crisis, some institutions are able to change and reinvent themselves. If so, they may secure a new mission, relevance, and energy. The Association of Southeast Asian Nations (ASEAN) has not died in the crisis that swept the region from mid-1997. There is little doubt, however, that its credibility has been dented. The crisis affected the economies of all the ASEAN members and many more in Asia. A sense of doom and gloom prevailed. The Association was criticized for being unable to effectively address the financial crisis. The “miracle” was over, and some feared there would be a lost decade for the region. The economic crisis was not the only point of criticism. A second concern was the Indonesian forest fires in 1997 and 1998 that blanketed the region with haze pollution. This was a literal and symbolic pall over the countries. In this environmental crisis too, ASEAN seemed ineffective. A third criticism of ASEAN concerned East Timor and the inability of ASEAN and its members to take a firm and united stand in dealing with the humanitarian and security crisis that arose after the vote for independence from Indonesia. A fourth ground for criticism of ASEAN was with regard to 3 © 2001 Institute of Southeast Asian Studies, Singapore

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Simon S. C. Tay and Jesus Estanislao

the enlargement of the group. Questions over the wisdom to enlarge ASEAN to include Cambodia, Laos, and Myanmar loomed. There were concerns that ASEAN would be divided into two tiers by economics and politics. ASEAN’s past success in forging growth, stability, and peace seemed forgotten. The issues of the economic crisis, the environmental disaster caused by the haze, the humanitarian emergency in East Timor, and the question of enlargement have been the four “E”s of embarrassment for ASEAN. While ASEAN has been widely criticized, it has not been inactive. ASEAN has tried to face up to both the economic crisis and the environmental disaster and to change some of its ways of doing things. Moreover, ASEAN has embarked on an ambitious vision for the year 2020 and set itself a shorter-term road map for implementing that vision, in the Hanoi Plan of Action. This includes steps to address the concerns of newer members, and efforts to strengthen institutions to keep peace and stability in the region. There is no certainty, however, that ASEAN will succeed in implementing that Plan and realizing that vision. Is ASEAN still relevant? Or will globalization allow and propel states to think in the much broader framework of the Asia-Pacific and the international community as a whole? If ASEAN is to remain relevant, what should the different ASEAN members and the citizens and business communities of the region expect from ASEAN? What should their priorities be? In the wake of the Asian crisis, what should be ASEAN’s role in the world? This introductory chapter will briefly address these questions, as they concern politics and security, as well as business and economics. At the start of 2000, the crisis seemed to be over. ASEAN leaders, at their informal summit at end-1999, celebrated a return to growth. Economic indicators in the first quarter of the new millennium were generally positive. Even the haze pollution was limited; while fires were still burning, they were kept low by rain or dispersed by winds. The worst of the crisis may indeed be over. However, by early 2001, the sharp V-shaped economic recovery that many countries experienced had given way to a fresh downturn. The cause — a sharp slowdown in the U.S. economy that had been the engine to drive the region’s export-led recovery — was outside the control of Asia and ASEAN. Nevertheless, coming so soon after the economic crisis, the region has been ill-prepared. Many of the reforms that were promised are yet to be implemented. Some countries, especially Indonesia but also the Philippines, face the new downturn without an intervening period of stability and recovery. Like survivors of a typhoon or earthquake, we look out to survey what is left and what may be ahead of us. What do we see?

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There are those who think that ASEAN and the countries of the region can go back to old ways, and resume business as usual. This is what some mean when they speak of the region’s “recovery”. There are others, however, who would argue that the crisis has brought about profound challenges for the region and ASEAN. In this view, sustained economic growth will only return if we aim, not for a recovery of old ways, but for a transformation to new paths. This, in brief, is the argument of this chapter. The crisis may be over but challenges continue to face us and push us to change. There is a need for ASEAN to reinvent itself in the new millennium. The first part of the chapter explores some major emerging trends that are, and will increasingly affect the ASEAN member states. Next, it considers how ASEAN has tried to respond to the different crises by increasing co-operation. Lastly, it suggests how ASEAN can and should evolve to meet the new challenges in the face of crisis.

THE EMERGING TRENDS The landscape of ASEAN has changed considerably in the short but intense period of the crisis. Three major trends among the ASEAN member states relate to: 1. Democracy: How ASEAN member states are governed internally and how they interact with each other and the outside world. 2. Economic Openness: How ASEAN member states have individually reacted to the economic crisis, and what outlook and policies they have put in place in seeking to sustain recovery. 3. Development and Security: What hotspots of instability have arisen, and how do ASEAN member states deal with them. How ASEAN members ensure that economic growth is, to some degree, equitable and that the vast majority of their citizens have a chance to participate and prosper. Democracy The ASEAN countries have often been considered “soft authoritarian” states. Many had voting rights but limited freedom for individuals and the media. A single party or regime dominated the young democracies. In the 1990s, most ASEAN countries propounded “Asian values” and regional approaches to human rights and democracy that emphasized differences in culture and developmental levels. The Philippines, with its emblem of “people power” after the fall of Ferdinand Marcos, was seen as an exception, an aberration. In this context, the first important change in ASEAN after the crisis has

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been the rise of democracy. Democracy has strengthened in Thailand as people organized to demand government response to the pressures of the crisis. This was manifested in street demonstrations as well as freer press discussion. Indonesia has seen perhaps the most dramatic surge in democracy. After thirty-two years, President Soeharto was swept from power during the crisis. Many millions participated in elections that, for the first time, were widely accepted as free and fair. They brought a coalition into office, with President Abdurrahman Wahid and other centrist parties expected to take steps for further reform. Democracy is no panacea of course. Indonesia continues to face great political and economic challenges, such as the integrity of the country, the role of the military in politics, and the insolvency of many banks and companies. While Wahid was president, Cabinet positions were spread between different parties, with differing agendas. In many ways, the democratic process of addressing these difficult concerns has been subjected to new pressures and uncertainties. The prime example of this has been the prolonged and tumultuous political contest that resulted in Vice-President Megawati Sukarnoputri being elevated to the office of the President in mid-2001. However, democracy also holds out the prospect of winning wide consensus for reforms and sustaining change. If it can consolidate democracy and provide good governance, Indonesia will be historically transformed. What happens in Indonesia is of great consequence to other ASEAN members and the nature of the Association itself. While ASEAN has a rotating chairmanship, Indonesia — because of its size and history — has been its epicentre. If Indonesia consolidates democracy, and if the progress of democracy continues in Thailand and the Philippines, the ethos of governance in ASEAN will shift. This has implications for other ASEAN members. In Malaysia, the crisis years have brought controversy and a growth in opposition, especially after the sacking of the deputy premier, Anwar Ibrahim. For Singapore, the crisis has seen a gradual opening where leaders now welcome a civil society but one that is co-operative, rather than confrontational. A change in the region towards democracy can hasten this gradual opening, strengthen civil society, and even opposition parties. Most of all, such a movement in ASEAN stands to impact members such as Laos, Vietnam, and Myanmar, which are oneparty states with closed regimes. Democracy will not necessarily be a factor that all states will welcome. Nor will it solve all their problems. Indeed, if some ASEAN countries become more vigorously democratic and others do not, the differences may cause tensions between the members. However, problematic or not, the democratic

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impulse generated during the crisis cannot be wished away even in these days of recovery. Democracy — more than at any time in the past — will be part of ASEAN’s future. Economic Openness The economies of the original ASEAN members and the newly industrialized economies (NIEs) have traditionally been relatively open to world trade and foreign investment. This example was attractive to the newer ASEAN members such as Vietnam and Laos. The crisis has changed this. It has not led to autarky as some feared. Indeed, economic co-operation among the ASEAN countries has increased. A system has been set up to exchange financial information between governments. By subjecting the information to peer review, countries hope to discourage policies that might lead to another devaluation and crisis. The crisis years have also seen ASEAN leaders reaffirm and speed up their commitments to agreements for free trade and cross-border investments. Despite this progress, however, there are less than happy consequences from the crisis. The crisis has made more economies in the region doubt aspects of the outward-oriented, export-led NIE model. Malaysia, a very open economy, experimented with controls over capital flows and currency rates. This allowed the government of Dr Mahathir Mohamad to shield its currency and selected Malaysian companies, preferring to unwind their financial problems internally, behind protective barriers. They were not alone in seeking to lessen the impact of the crisis and to seek greater control over their economy. During the crisis, ASEAN countries that were relatively new in the world market, such as Vietnam, Laos, and Myanmar, slowed their moves towards economic openness. This has had an impact on the initial interest shown by foreign investors. Investments in these countries from ASEAN have declined because of the crisis and are likely to stay at low levels for some time. Investments from other countries outside the region are even more difficult to attract. This is especially so since — as an offshoot of the crisis — there has been an increase in investment opportunities and a lowering of costs in the older and more established ASEAN members. On the other hand, Thailand responded to the crisis by opening up its economy, under the supervision of the International Monetary Fund (IMF). To enhance its competitiveness, Singapore, too, further liberalized key sectors, by opening up the banking and telecommunications sectors to foreign competition.

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As such, the crisis years witnessed not simply a slowdown in growth. In their reactions to the crisis, with different reforms and outlooks, the diversity of the ASEAN economies widened. With this, it would be harder for the group to achieve greater co-operation and harmonization in investment, trade, and financial policies. Where once the formula for the Asian “miracle” seemed agreed, there may be far less consensus on the suitable models and strategies for ASEAN’s economic development in the future. Development and Human Security The crisis was not limited to a fall in macroeconomic indicators. Beyond political contests at the polls, pockets of violent clashes and instability have plagued the region since the crisis of 1997. The Indonesian archipelago has been racked by violence in East Timor, Aceh, the once peaceful Maluku islands, and other provinces. In the Philippines too, the long-standing problems in the largely Muslim South have come to worldwide attention with the recurring seizure of hostages. The Southeast Asian region as a whole has experienced greater political instability, with violent clashes along ethnic and religious lines, than at any time since the 1970s. Less attention has been given to the immediate and still lingering impacts of the crisis. Yet, while less spectacular, these are real deprivations that have impacted many in the region. Many millions of people have actually lost their jobs and fallen below the poverty line. The progress made over several decades of growth has been reversed almost overnight. For very many people, there is a new sense of insecurity. This experience has exposed the vulnerability of the middle class and new rich created in the “miracle” years to sudden shocks. Dealing with the human and social aftermath of the crisis will be a future preoccupation for ASEAN. This goes beyond handouts and “band-aid” policies. The crisis has allowed observers to see how the years of rapid growth have extracted high costs in the environment and in human terms, leaving persistent pockets of poverty. As such, new policies with greater inclusion and equity are called for. This will be a challenge for many ASEAN countries, which have generally failed to provide social safety nets. This is especially so for countries with larger populations, large discrepancies between urban and rural areas, and small élite groups that have tended to monopolize wealth. No easy solutions are at hand. Even developed countries have struggled with these issues. In Europe, for example, the high cost of the social welfare system is being questioned. So too are large subsidies enjoyed by agricultural sectors, particularly in the context of the discussions in the World Trade

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Organization (WTO). Such questions will continue to face ASEAN even as the crisis recedes for most people. There is, after all, the aim in Vision 2020 of being “a community of caring societies.” The three trends discussed — democracy, economic openness, and development and security — relate mainly to the internal dynamics of the ASEAN member states. They do not directly concern ASEAN as an institution. They will, however, have an increasing impact on ASEAN. The changes in belief within states can lead to changes in their external attitudes and foreign policy. Can ASEAN stay united if some countries become more democratic, economically liberal, and inclusive, while others remain authoritarian, closed, and operate for the benefit of a small élite? ASEAN has always been an association of diverse nations of different make-up and belief. The flip side of this is that ASEAN has been relatively poor at fostering systems of co-operation and co-ordination. Diversity and co-operation are not, of course, opposites. Countries need not be identical in order to co-operate with each other. However, co-operation and co-ordination are more easily achieved when there are central policies and directions that all agree on. The relationship between diversity and co-operation relates to what the ASEAN countries want to do together. If ASEAN were a social club or a country club for the pursuit of only golf and karaoke, then members are free to differ in many ways. However, if ASEAN were to be more like a corporate alliance, then there must be strategic imperatives that all can accept and recognize as ideals to work towards. And if ASEAN were to aspire towards becoming a good and effective club, it must remember that, generally, the better clubs have certain rules of dress and behaviour that members are expected to observe. To what extent is ASEAN willing and able to foster co-operation and coordination among its members?

CO-OPERATION IN ECONOMICS AND THE ENVIRONMENT ASEAN’s ability to effectively deal with the crisis issues mentioned earlier has been limited by a number of factors related directly to a code of conduct known as the “ASEAN way”. This is the traditional way in which the Association has functioned. This “ASEAN way”, among other things, (1) emphasizes the norm of non-interference in other states’ affairs; (2) prefers consensus and non-binding plans to treaties and legalistic rules; and (3) relies on national institutions and actions, rather than creating a strong central bureaucracy.

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Those who defend ASEAN’s record in the face of the recent crises tend to suggest that these criticisms misunderstand the intentions and self-imposed limits of the group. There are also legitimate limitations to what regional institutions can do, given the scale of the problems. In particular, it is notable that the economic crisis also involved Japan, Taiwan, South Korea, and other economies outside ASEAN’s orbit. In the case of East Timor, there are also grounds to criticize (perhaps unfairly and with hindsight) the United Nations and the international community. There was an overly eager race to reach an agreement on a UNsponsored referendum, once then President B. J. Habibie made a sudden volte-face on Indonesia’s policy with regard to the territory. This was followed by an acceptance by the United Nations and the international community, which now appears to have bordered on the incredulous or carelessness, that Indonesian forces would keep the peace, no matter the referendum’s outcome. In the case of the environment, defenders of ASEAN could point out that the Northeast Asian countries have been equally unable to address the problem of acid rain. Similarly, the European countries too have had many difficulties with transboundary pollution, whether involving themselves or other countries, such as Russia. In this context, its defenders would ask, what could ASEAN reasonably be expected to do in these cases when the international community itself stood quite powerless? ASEAN has never functioned in any way other than as a soft association, and it is wrong to have expected it to function as a strong union even at a time of crisis. ASEAN, they would say, was never meant to evolve in the way the European Union (EU) has evolved. There is historical truth in this. The norms of the “ASEAN way”, especially the norm of non-interference and the aversion to a strong central bureaucracy, have meant that ASEAN is more an association than an institution. This has been particularly so during the first phase of ASEAN’s evolution, from 1967 to 1976. In this period, ASEAN was characterized by a loose and highly decentralized structure with functions determined and undertaken, and programmes driven by national governments. ASEAN itself was labelled as merely a “letter box” during this early phase. In the next phase, from 1976 to 1992, ASEAN was more like a “travelling circus” with increasing activity in different fields, but with only minimal and largely administrative support from the ASEAN Secretariat. Only from 1992 onwards, with the Singapore declaration and the first economic undertakings towards creating an ASEAN Free Trade Area (AFTA) did ASEAN require greater co-ordination and institutionalization. It is also notable that even before the recent crisis, when many adjudged

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ASEAN as the most successful regional grouping outside Western Europe, it had its detractors and limitations. In the midst of the recent crises, the views on ASEAN and the “ASEAN way” have been polarized and perhaps overly simplified. On one side are the cynics who suggest that ASEAN is unlikely to change. On the other side are the reformers who demand radical change and a sharp abandonment of past ASEAN norms and practices. This chapter argues that in a number of areas, there has been some evolution, slow perhaps but sure, towards reforms. In response to the economic crisis, for example, the ASEAN countries began a process to exchange financial information and review as well as comment on such information with increasing levels of frankness.1 This has been supported by the establishment of institutions and processes both at the political level and in its small bureaucracy, the ASEAN Secretariat. The ASEAN Surveillance Process (ASP) was formally established in October 1998. The ASP involves a peer review process and frank exchange of views and information on important financial matters. The ASEAN Secretariat and the Asian Development Bank (ADB) are providing support to the operation of the ASP.2 Recently, ASEAN co-operation on financial matters has led to an increased role for currency swap mechanisms to promote greater currency stability during wild swings and wide short-term fluctuations in international financial markets.3 There have also been changes to the ASEAN way of doing things in response to the environmental crisis caused by the Indonesian fires and haze. For while the efforts on the fires have yet to achieve their goals, ASEAN’s institutional approaches have been modified and pragmatically adjusted. Three developments stand out in this regard. The first is the convening of regular and frequent meetings to review progress. The meetings of senior environment officials have taken place as often as once a month, a frequency broken occasionally only by the disruptions caused by Indonesia’s political transition. The second is that these meetings have gone beyond the exchange of formalities. They have become the occasion for a more open and frank discussion of the problems underlying the fires and the lack of sufficient action to address them. It is notable in this regard that ASEAN officials on the environment have officially referred to Indonesia’s forestry and land use policies, issues that are literally a matter of sovereign territorial rights. Previous attempts by the international community to address similar issues in regard to the conservation of tropical rainforests had been repeatedly rebuffed, and no internationally binding treaty on forests and land use had been agreed upon.

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Nonetheless, during the haze crisis, even ASEAN’s non-intervention principle has not stopped, nor has it been used as a shield against, this increasingly candid review of Indonesia’s internal policies on an environmental issue with serious regional implications. The third notable development in addressing this environmental issue is that ASEAN has increasingly opened its proceedings to international institutions and even to non-government organizations (NGOs). The ADB and the UN Environment Programme have been regularly included in ASEAN discussions on the haze. Their offers of assistance and advice to the ASEAN Secretariat on the issue have also largely been accepted by Indonesia and the other member states. As for NGOs, ASEAN environment ministers have taken the step — unusual in state-centric ASEAN — of inviting them to support efforts to deal with the fires.4 This was perhaps the first occasion at which an NGO formally met and made direct representations to ASEAN environmental officials. Other NGOs have since made similar interventions. These three developments may not have solved the problem brought about by the fires and haze, but they represent more than straws in the wind. They do point ASEAN forward, in the direction of greater openness towards each other and to other constituencies outside government. More pointedly, the strict adherence to the principle of non-interference in the internal policies and affairs of member states has been softened and dented. When we look at ASEAN from the perspective of finance and the environment, ASEAN in the past few years has neither been static nor radically reforming. It is clearly changing, and the pace of change may have accelerated in response to the crises. The significance of this evolution does not lie in the results achieved, but in the change of orientation towards becoming more than a soft association. Indeed, ASEAN has set for itself the long-term goal of eventually becoming a community. To this end, the first ASEAN People’s Assembly brought together more than 300 activists from community and non-government organizations at the end of 2000, parallel to the ASEAN Informal Summit held in Singapore. Under the aegis of the ASEAN Institutes of Strategic and International Studies, the People’s Assembly was perhaps the first concerted effort to bring people’s organizations together to share their perspectives with the official ASEAN processes. Concurrently, the officially appointed ASEAN Eminent Persons Group articulated a vision of a “people’s ASEAN”. These modest steps are a significant change for ASEAN, which has traditionally been almost exclusively centred on politicians and bureaucratic élites.

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What more must be done in pursuit of this long-term goal? There are many specific proposals that can be considered for each issue of concern, whether it is economics, the environment, security, the enlargement to include new members, or other issues. Given the limits of length, however, this chapter cannot go into these specific proposals. What can be offered are the key principles and concerns that ASEAN should address as it tries to move forward. In our earlier discussion of the crises that confronted ASEAN and dented its credibility, we reviewed the four “E”s of embarrassment: economics, the environment, East Timor, and the enlargement of membership. As we look ahead, we shall offer five key “E”s as principles to follow and priorities to pursue in moving ASEAN forward.

PRINCIPLES IN MOVING FORWARD Much of ASEAN’s credibility and attraction to the outside world was built on the economic success of many of its members, and their potential for still greater growth. ASEAN’s other strong points were the stability in the region and a good measure of cohesion among its members. This allowed the grouping of mainly small and medium-sized powers to unite and engage more powerful countries and economies. The region has changed in the crucible of crisis. In 2000, growth started to return, but the halo of ASEAN’s previous “miracle” was gone. In looking forward, competition will also be greater with other regions such as Latin America and others in Asia, especially China. Coming out of the crisis, ASEAN faces greater diversity and divisions among its member countries, in politics as well as economics. How can ASEAN go forward? What should be the key principles and priorities for the group? Much of course depends on actions taken at the national level, by the different and sovereign states in the region. There is a role, however, for ASEAN as an evolving regional institution. ASEAN must set out to address five key principles and priorities, which can be expressed as the five “E”s for ASEAN to move forward. These are: 1. 2. 3. 4. 5.

Effectiveness Enlargement and Engagement Environment and Other Concerns East Asia “E-space”.

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Effectiveness ASEAN has committed itself to a Vision for 2020 and an ambitious Hanoi Plan of Action. These are broad and cover a full range of economic, social, and political matters. While 2020 is a generation away, it is important to show that steps are being taken presently in a consistent and decisive manner. Priorities must be established within the broad Plan. More than that, concrete steps must be taken to implement those priorities. This is critical for the credibility of the grouping, as a demonstration of their political will and ability to get things done. It is particularly crucial as co-operation entails mainly economics and business. ASEAN commitments to AFTA and an ASEAN Investment Agreement (AIA) must be implemented effectively and efficiently, preferably with no slowdown, but on an accelerated basis. Moreover, the legitimate needs and concerns of those in the business community who deal in these matters and are directly affected by the action (or inaction) of governments must be taken into account in the implementation. At the ASEAN Summit of 2001 in Brunei, the leaders will receive and review reports on the Hanoi Plan of Action. The ASEAN Secretariat is expected to provide the major report, through the ASEAN senior officials, detailing activities undertaken by ASEAN and by individual member states towards the goals set out by the Hanoi Plan of Action. The network of think-tanks, the ASEAN Institutes of Strategic and International Studies (ASEAN ISIS), will provide an additional report to the leaders, seeking to identify key thrusts that require emphasis in the post-crisis context. These efforts may be seen as attempts to move the ASEAN Summit away from a focus on formalities and generalities, to bring the leaders closer to questions of implementation and effectiveness. This is a step in the right direction, given the larger role that leaders — rather than foreign ministers in ASEAN — have in supervising the commitments of their governments in the many and varied sectors that the Hanoi Plan touches upon. While their effectiveness has yet to be demonstrated, the efforts also seem to have time on their side, as a number of countries in ASEAN — Indonesia, the Philippines, and Thailand — have witnessed change and consolidation in their leadership in the last year. Enlargement and Engagement A second “E” is the issue of enlargement and the need to engage the new members. The older ASEAN members must try to engage and bring on board the newer members, integrating them fully into all ASEAN processes as

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quickly as possible. Cynics have doubts about the economic openness of some new members, such as Vietnam. They point to the political instability in others such as Cambodia. They question the legitimacy of Myanmar. Indeed, Myanmar looms as a large sticking point for ASEAN as many in the international community continue to isolate the regime in that country because of its poor human rights record. The ASEAN members, particularly the older ones, must play a big role in helping the new members to meet these difficult political, economic, and social challenges and to make necessary changes as required by the progress of the entire region. In engaging the newer members (known as the CLMV countries), the older ASEAN members should focus on giving the right signals and proper example. Development assistance among the ASEAN countries should be given greater emphasis but they must be set in the proper context as well. Transfer of funds and financing of mega-projects have never been on the ASEAN agenda. Furthermore, treating a few ASEAN members primarily as donors and others as aid recipients may be deeply divisive for the Association and probably unhealthy for the long term. Sending the right signals should be the highlight of a new approach, primarily that of increased trade and investment. This calls for the right policies in the older ASEAN countries to promote trade expansion and foreign investment, with the export of capital and expertise. Most importantly, the right policies and conditions in the newer ASEAN members as hosts of foreign investment and partners in trade must complement this. For their faster development and fuller integration into ASEAN, they must give the highest priority to putting their own houses in order. There is much scope for expanding intra-ASEAN assistance, especially in training and development skills in the CLMV countries. A programme for skills development, scholarships, and promotion of centres of excellence should be emphasized. The older ASEAN members should assist in these areas by offering scholarships and helping to develop and support educational institutions and training institutes in the CLMV countries. By these means — trade, investment, and educational assistance — the older ASEAN countries can effectively assist the newer members by helping them to focus on policies that emphasize openness, education, and training. These, after all, have been an essential part of their own experience in development. These lessons have provided clear milestones in the path to human and sustainable development. They are also lessons that the business sector can embrace and provide support for. The concern with enlargement and the need to engage the CLMV countries more fully in ASEAN processes and mechanisms should not foster

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long-term dependency on aid. Development funding has its proper place and ASEAN needs to pay careful attention to economic gaps between the rich and poor within its membership. It should not, however, unwittingly create perpetual dependency through large and continuing aid programmes. ASEAN policies should avoid the waste of many assistance programmes and, worse, the mentality associated with divisions between donors and aid recipients. Environment and Other Concerns A third “E” principle for ASEAN is the environment and other aspects of economic progress. In the aftermath of the crisis, attention must also be given to the social, human, and environmental dimensions of development. It is no longer sufficient that countries seek to grow at all costs. There are important questions of environmental protection, labour and human rights, and human security to attend to. It is no longer enough to enrich a small élite. The ASEAN members must instead seek systems that promote greater equity as they develop. These should aim to provide jobs for the vast majority, and reach out especially to the most vulnerable, such as women and children. This consideration points to policies that must stimulate growth and at the same time promote social equity. It should not be an “either/or” choice between growth and equity. The ASEAN countries should aim to pursue both, primarily for themselves and their citizens. They also need to take into account the external dimensions in all this. Accordingly, in the World Trade Organization (WTO), we can argue that there are legitimate connections between an economic activity — trade — and the economic and human consequences and conditions for trade. This, of course, should not be used as a pretext for protectionism by the developed economies, to use trade sanctions. It does, however, mean that the ASEAN countries can and should take environmental and human factors more into account in the manufacture of goods and, more generally, in doing business. If they do so, this would not strengthen the cause of protectionists. On the contrary, there would be stronger grounds to rebut criticism and hold trade sanctions at bay. This would in turn help businesses based in the ASEAN countries as they seek to export their goods into developed country markets. East Asia or the “ASEAN Plus Three” The fourth “E” is East Asia, and the need for ASEAN to engage with the three Northeast Asian countries of China, Japan, and South Korea. The current

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ASEAN summit meetings with the three Northeast Asian leaders should be further developed. In the medium to longer term, the “ASEAN Plus Three” process can both strengthen ASEAN and help to stabilize Northeast Asia. Closer connections between ASEAN and Northeast Asia can also be a basis for greater engagement with the United States and other regions, such as Europe. Greater co-operation within the “ASEAN Plus Three” framework can give ASEAN much greater economic weight and attractiveness. It is notable, after all, that ASEAN was inherently unable to deal with the 1997–99 crisis on its own. This is because the ASEAN economies remain very much dependent on extra-regional trade and investment, especially with the United States and the EU, but also with China, Japan, and the other Northeast Asian economies of Hong Kong, Taiwan, and South Korea. For this reason, the ASEAN financial surveillance mechanism is now seeking a larger “ASEAN Plus Three” coverage so as to include the economies in East Asia that have become more closely interdependent and consequently have much greater impact on each other. Similarly, in the arena of security, many flashpoints in Asia are situated in Northeast Asia (for example, the Taiwan Straits and the Korean Peninsula) or between countries in the two subregions of ASEAN and Northeast Asia (such as the South China Sea). Peace and stability are the bedrock of economic prosperity and progress. Only if ASEAN can engage constructively with Northeast Asia can it become a more positive force for peace in the East Asian region. But while the “ASEAN Plus Three”, or East Asian framework, is giving momentum to several promising initiatives in the region, certain caveats are necessary. It should be seen that this framework does not replace ASEAN. Nor should it be seen as excluding other countries in the Asia-Pacific, particularly the United States and the wider international community. In this respect, the new and emerging “ASEAN Plus Three”, or East Asian framework, should be distinguished for its open regionalism principle from the more closed, inclusive idea of the East Asian Economic Caucus floated by Malaysian Prime Minister Dr Mahathir Mohamad nearly a decade ago. In contrast, today’s emerging spirit of East Asian regionalism does not aim at forming an exclusive bloc. It is, instead, an inclusive and flexible framework. It is one that should be consistent with both the broader regionalism of the Asia-Pacific and the smaller subregional institution of ASEAN. In this regard, it is important to note that, at present, the new East Asian regionalism has no grand vision of an East Asian Union, approximating the

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European Union. There is instead an incremental, step-by-step attitude to the idea. A few thinkers in the region have suggested grander visions, such as an Asian Monetary Fund, or even a common Asian currency. These ideas should not be rejected out of hand. Neither should they be rushed into. Much depends on future and indeterminate factors beyond ASEAN’s control, such as Japan’s internal reforms after a decade of slow growth, China’s next stage of economic development and its resulting political paradigms, and the prospect of a future reconciliation between Japan and China. While these factors are still unfolding, we should do best to study these and other grand proposals for East Asia with an open and pragmatic mind, without committing ourselves blindly or ideologically to them. At the same time, we should bear in mind that this new East Asian framework needs to be explained again and again to the United States and other countries with a vital stake and interest in the region. We need to assure one and all that East Asia does not aim to dissociate itself from them. We need to ensure that they become comfortable with this growing regional sense of identity since it should be made to evolve for the good of all. ASEAN as “E-Space” The fifth key principle and priority for ASEAN is to recognize that the landscape has changed quite profoundly in these short but intense years. The change can be captured by the phrase, “e-space”, inspired by the proposal to link up ASEAN members by Internet and electronic means so that ASEAN becomes one cyberspace. However, this should mean more than electronic and Internet connections. “E-space” connotes the rapid changes in the competitive environment since the late 1990s. It also suggests how the new engines of growth have shifted from natural resources and manufacturing to services, and new services. For ASEAN and its members, this places a premium on certain policy areas, such as education. While education and skills development have already been mentioned in connection with the CLMV countries, it bears repetition that there are new skills that all must learn. It is no longer a question of basic vocational skills only. There is also the imperative for education to foster creativity and critical thinking. There is the bigger challenge in ASEAN to avoid a “digital divide” between its member states. Policies oriented towards the new economy need increased co-ordination and harmonization between the ASEAN countries. All can and should compete for a share in the new economy, but this competition has to be paired with cooperative policies and common steps to ensure common standards and

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compatible technologies. ASEAN should, in this regard, aim to be one common “e-space”. This would ensure greater unity among the members and allow businesses to invest across ASEAN borders. The real economy should move in tandem. The challenge of AFTA and the AIA is to enable business leaders, both within ASEAN and from outside, to think of ASEAN as an integrated destination and centre. This, in both the real and Internet worlds, is the challenge of ASEAN as an “e-space”. The goal of economic integration among the ASEAN member states has been repeatedly articulated and increasingly accepted. In many ways, this is understood as a necessary strategy to compete with China, for foreign investment and economic development. Economic integration would allow the smaller to mediumsized ASEAN member states to offer a much larger market which — while still only half the size of China’s — would be more competitive than ten separate and smaller ones. To pursue these five “E” priorities, ASEAN must learn to adapt its ways of doing things and consider important lessons from other regions. ASEAN must ensure both continuity and change. In this regard, three traditions need to be reconsidered.

QUESTIONING THREE TRADITIONS The first tradition that needs revisiting is the norm of non-intervention by one state into the affairs of another. This is seen as a foundation stone of the “ASEAN way” and it need not be abandoned. Indeed, non-intervention is a cornerstone of all interstate relations. Exceptions must, however, be found as co-operation increases and we see the need for ASEAN to be more closely integrated. Only then will true and stronger co-operation and co-ordination be possible. In this regard, ASEAN must now begin to develop stronger and more effective regional mechanisms. These need not be a supranational authority, akin to the European Commission. However, the ASEAN countries must devolve sufficient authority to regional mechanisms and institutions to enable them to review and co-ordinate between the different countries. This becomes more necessary as economic and political differences emerge. The ASEAN Informal Summit of 2000, held in Singapore, moved in this direction. The member states agreed that some members would assist others in areas in which they had expertise, by providing technical assistance, finance, and other forms of help. This is especially in areas connected to the new economy in which some member states such as Singapore and Malaysia can assist the

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new members. These efforts, while modest, do signal a change in thinking among the ASEAN member states. The second tradition that needs rethinking is the tendency to conceive of ASEAN as only an association of governments, of politicians and bureaucrats. ASEAN has promised, in its own Vision 2020, to be a community of caring societies. Accordingly, the ASEAN governments must be willing to recognize the rising voice and influence of civil society and non-government organizations. The greater participation of the peoples of the region is critical to building a sense of community within the region. Where ASEAN has traditionally been a state-centric organization, in the future much greater room should be provided to allow civil society organizations within ASEAN to reach out towards each other and co-operate more intensely in the pursuit of common interests. In this context, it is hoped that the Eminent Persons Group report on “A People’s ASEAN” and the initiative of the ASEAN People’s Assembly will continue and strengthen. A third tradition in ASEAN is that of being open to other economies and countries outside the region. In its openness, ASEAN has tried to walk a fine line between promoting greater intra-ASEAN unity and strength and having to think more broadly and act more expansively with partners outside the region. In thinking more broadly, this chapter has already suggested that ASEAN should serve as a platform for a greater sense of regionalism in East Asia, following the “ASEAN Plus Three” framework. Beyond East Asia, ASEAN unity and co-ordination should be secured so that ASEAN remains a foundation stone for greater Asia-Pacific institutions, such as the Asia-Pacific Economic Co-operation (APEC) forum and the ASEAN Regional Forum (ARF). ASEAN’s greater unity and cohesion can indeed serve the cause of more open regionalism. They would enable ASEAN to become a stronger voice and have greater influence in global institutions such as the WTO, the World Bank, the IMF, and the United Nations. All these are in the midst of serious reconsideration of their future mission, roles, and structures. If ASEAN were united and thus fully engaged with them, it can have a positive and constructive role in shaping their architecture. ASEAN has always recognized and even encouraged smaller groupings and partnerships, such as those that have been termed as “coalitions of the willing”. This is a paradigm that has been accepted so that ASEAN as a grouping of ten very different countries at different levels of development can move forward, or would not stop any one of its members from moving forward, even without the unanimous agreement of all members on all matters.

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The prerogative of one or more ASEAN members to take an initiative and to act alone or in concert with other ASEAN countries has not been questioned. Indeed, any ASEAN country can — and in many instances, does — forge agreements with other ASEAN or non-ASEAN countries in pursuit of its own interests and consistent with its sovereign rights. Recently, Singapore has been actively studying a free trade agreement with New Zealand, a non-ASEAN country. This initiative has been put forward as being consistent with AFTA and the WTO. Other ASEAN members have been shown that this may be for the larger good of the region. Indeed, ASEAN was engaged in a study for a wider agreement to link AFTA to the Closer Economic Relations (CER) of Australia and New Zealand. Similarly, Singapore has completed an inquiry into a free trade or new age economic partnership agreement with Japan (Japan–Singapore Economic Partnership Agreement [JSEPA]). It is being argued in some quarters that if a Japan–Singapore Free Trade Agreement succeeds in opening up some of Japan’s closed sectors, this could have benefits for ASEAN and the wider community. A wider Japan–ASEAN free trade agreement is now being discussed. At the ASEAN Summit of 2000, China too floated the idea of an ASEAN–China agreement. This is being considered in the framework of a wider East Asian Free Trade Agreement. Thailand’s new government has also been reported to be keen to study a possible bilateral agreement with Australia. There has, however, been some unease that the ASEAN economies would follow one after another, leaving the remaining members with a fait accompli in the terms of co-operation they had no part in formulating. In these ways, the bilateral initiatives by one ASEAN member has led other countries, both inside ASEAN and outside it, to bring a new emphasis to free trade. These are important, given the failure of the global trade talks in the aftermath of the WTO Ministerial Meeting at Seattle in December 1999. The bilateral efforts are, after all, designed to be WTO-consistent, and aim to encourage other states to move ahead with further liberalization and trade. Nevertheless, in some quarters, especially in Malaysia, there have been some questions regarding the priority given to ASEAN and AFTA by some member states vis-à-vis their bilateral efforts. In a very different arena, but following a similar principle, the role of different ASEAN countries in taking part in the UN mission to East Timor should be applauded. While ASEAN did not and perhaps could not act in unison, this “coalition of the willing” helped East Timor and served to address the initial criticism that ASEAN was helpless and ineffective. More of such initiatives by the ASEAN member states and “coalitions of the willing”

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should be encouraged in helping the region maintain peace and stability. Where all ASEAN members cannot take part, there should indeed be room for some to be engaged and move ahead with a critical initiative. This would help ASEAN retain credibility as the chairman and “driver” of the ASEAN Regional Forum, which seeks to keep peace in a much wider area, and with a much more diverse membership, including the superpowers. In this regard, we should see that even as we call for greater unity and coordination among ASEAN, there is also a need for greater flexibility in allowing the willing and committed among ASEAN to move ahead without waiting for all members, for as long as the long-term goal of building ASEAN as a closely knit community continues to be observed as a top priority. This is a pragmatic way to strike a dynamic balance between unity within an emerging community and freedom to lurch out towards progress for those few who are willing and able to lead the way for ASEAN. It allows ASEAN to benefit from “coalitions of the willing”, and avoid being weighed and slowed down by its lowest common denominator.

ASEAN IN THE WORLD In the 1960s, Asia seemed doomed to trouble and poverty as part of the “Asian drama” that Gunnar Mydral foresaw. The long decades of growth defied such pessimism and led to euphoria over a “miracle”, proclaimed by the World Bank. Perhaps both the pessimism and euphoria have been misplaced. ASEAN in the new century has been weakened by the crisis, but in some respects also strengthened. For these short but intense years of crisis have begun a process of change in the region. Another crisis might still come. The course of change may not run smooth or easy. However, if the countries in the region press ahead with the right reforms, take up appropriate policies, build strong institutions, and set up more effective regional mechanisms, they will be transformed. The “ASEAN way” has emphasized, among other things, the norm of non-intervention, decision-making by consensus, and a relatively limited Secretariat. In the face of its present challenges, many have suggested that ASEAN must change. Some propose radical change, such as the possible adoption of the pragmatic principle of “flexible engagement”. This proposal to allow public criticism between ASEAN members was rejected. Yet the need for closer co-operation and enhanced interaction has been stressed. Given increasing interdependence, ASEAN must in future act with greater

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unity and deeper commitment to the community it seeks to build. Its members have in fact agreed to do so, in economics and finance as well as in environment and other fields. Such agreements carry the potential for changing ASEAN. As interdependence among its members increases, commitments to the community and the responsibilities of one member to another must be honoured more conscientiously. They should not remain at the level of hollow promises. There must, therefore, be ways to assist members to meet those obligations, and hold them to scrutiny when they fail. This will require, among other things, timely and regular review of government actions towards implementing the Hanoi Plan of Action. To undertake such review and to assist members, the ASEAN Secretariat may well require more resources and greater capacity. The ASEAN Secretariat may have to be equipped and empowered to help not just governments, but businesses and sectors in civil society as well. The values that have served ASEAN well should not be cast aside abruptly. Unity and co-operation will continue to be foundation stones for a successful ASEAN. Yet the implementation of commitments and an openness to new ways is also necessary. The ASEAN governments may thus choose to act pragmatically and with circumspection, but they must act and be seen to act, both for results and for international standing. The imperatives of the crisis, ASEAN enlargement, and the efforts to sustain peace in the region require nothing less. ASEAN must be strengthened as an institution with greater powers to foster co-operation and co-ordination. This is the only way to see real progress towards the Vision 2020 that ASEAN leaders have announced and accepted. For that progress to be realized, every ASEAN economy should be prepared to contribute to the building up of a regional community spirit, which may sometimes require narrowing national interests for positive, longterm impact on the region. Yet even as we increase ASEAN’s unity and internal strength, we should recognize that ASEAN was never meant to be a closed club. ASEAN has functioned best when it looked outwards to the wider world and found a common purpose. Accordingly, we should in future see ASEAN finding a new relevance in East Asia and helping Asia-Pacific and global initiatives. In doing so, there is a need to recognize the flexibility and strength of “coalitions of the willing”. Here, ASEAN’s new sense of unity and co-ordination must show an equal ability to let a few of its members move ahead of the others in economics and finance, security and the environment, or any other critical field. The main objective is that the actions of these “coalitions of the willing” should, in the broader scheme of things and in the final analysis, help the

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other ASEAN members and, for the long-term, ASEAN as a more integrated community. It is by embracing both co-operation and diversity, unity and flexibility, ASEAN-ness and universal values, that we can go forward. Where critics once saw ASEAN as a troubled region, with a spotty democratic record by Western standards, and with a few booming yet vulnerable economies, there may yet arise in this region, countries with much stronger democratic credentials, economies dynamically growing along the path of sustainable development, and societies more open, fair, cohesive, and caring. Notes 1.

2.

3. 4.

The ASEAN finance ministers held their first ever meeting on 1 March 1997 in Phuket, Thailand, to promote ASEAN co-operation in the area of finance. This meeting produced a Ministerial Understanding on ASEAN Co-operation in Finance. It provided a framework to enhance co-operation and facilitation in several areas of finance within the existing institutional arrangement. ASEAN Finance Ministers Meetings (AFMM) were to be conducted regularly and assisted by the ASEAN Senior Finance Officials Meeting (ASFOM). The activities were to include exchanging views on macroeconomic policies, improving transparency of policies, regulations, and rules affecting the financial sector. The various initiatives of the ASEAN finance ministers, including the establishment of a Select Committee to develop the regional surveillance mechanism, were fully endorsed by the ASEAN heads of state/government during the second Informal Summit in Kuala Lumpur on 15 December 1997. At the Second AFMM in Jakarta on 28 February 1998, the decision was made to immediately establish the ASEAN surveillance mechanism “within the general framework of the IMF with the assistance of the Asian Development Bank”. ASEAN finance ministers agreed to this in a meeting in Brunei held in March 2000. In June 1998, the Singapore Environment Council made a presentation to the ASEAN senior officials for the environment on the fires, after an international dialogue on the issue issued a statement on means to address the issue. For a reprint of the NGO statement, see Simon S. C. Tay, “Southeast Asian Fires: The Challenge to International Law and Development”, Georgetown International Environmental Law Review (Winter 1999). The author chaired the international dialogue for NGOs and made the presentation to the ASOEN.

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2 ASEAN’S PAST AND THE CHALLENGES AHEAD Aspects of Politics and Security Jusuf Wanandi

HISTORY AND PAST ACHIEVEMENTS ASEAN was founded in 1967 for strategic and security reasons. It was the result of the ending of confrontation between Indonesia and Malaysia in 1966, and was made possible by a maturing of ideas about regional cooperation in Southeast Asia. It was also a reaction to the Vietnam War’s uncertain outcome, and the need for the non-communist countries of Southeast Asia to get together in facing a possible withdrawal of the United States from the region. Thus, ASEAN’s establishment was mainly for political-security reasons. ASEAN’s founding document, the Bangkok Declaration of 1967, may have spoken of promoting economic, social, and cultural co-operation, but the Association’s basic underpinnings were political-security concerns. This explains why from the beginning ASEAN has been dominated by the foreign ministers, and has taken the form of state-to-state co-operation, where diplomacy is the main instrument. Its main aim is to prevent interstate conflicts between the members. From the beginning, a single Southeast Asia, consisting of all ten countries, was envisioned. Since Southeast Asia was known as the “Balkan of Asia”, the efforts and the lessons learned from 25 © 2001 Institute of Southeast Asian Studies, Singapore

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Indonesia’s confrontation against Malaysia and Singapore were seen as critical to the region’s peace and stability. It took nine years for ASEAN to have its first Summit in 1976 in Bali. That event was given impetus by the ending of the Vietnam War with a complete victory to the Vietnamese in 1975. It was in Bali that the first concrete programmes for economic co-operation were laid down, and further strengthened in 1977 at the Summit in Kuala Lumpur, where, among other things, the ASEAN Industrial Projects (AIPs) were agreed upon. In the first nine years, ASEAN’s efforts were mainly to get to know each other and to learn how to co-operate with each other. It was also a time to develop a consensus on strategic views about the region, because there were real differences among the members. Two members, namely Thailand and the Philippines, were alliance partners of the United States, and they had U.S. bases on their territories. Two others, Singapore and Malaysia, while recognizing non-aligned policies, were members of the Five-Power Defence Arrangement with the United Kingdom, Australia, and New Zealand. Only Indonesia was genuinely non-aligned. Even then, it was inclined to the West owing to its economic relations and anti-communist stance domestically. Indonesia came out with the concept of regional resilience as a strategy to face the uncertainties of the region. The concept proposed that the strength of each of the member countries based on balanced development would enable it to overcome domestic instabilities and prevent infiltration and subversion from the outside. If all members acquired national resilience then regional resilience would be achieved, as one member’s strength would enhance the others as part of a chain. This principle was stated in the 1977 Kuala Lumpur Declaration. Although a working committee was established to work it out, it was never really concluded. The fall of Saigon (Ho Chi Minh City) resulted in the ASEAN members turning back to their own strategic outlook. Their national strategies became more dominant than the regional consensus view. In fact, the Declaration was aimed at creating a Zone of Peace, Freedom and Neutrality (ZOPFAN) for Southeast Asia. However, interpretations of this principle differed among the ASEAN members. Indonesia saw it based on the concept of national and regional resilience, while Malaysia wanted the great powers to leave the region. On their part, the Philippines and Thailand both preferred to keep their security alliances with the United States. These different interpretations were typical of ASEAN. Members’ policies and strategic outlook on the region have never been the same or completely

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congruent until the end of the Cold War in 1990. That was also the reason why there had always been some constraints on security co-operation as a whole in ASEAN. Co-operation between the ASEAN members was more often based on bilateral terms, on issues concerning the domestic security of both sides, such as joint border patrols, exchanges of views on strategic developments, and intelligence exchanges. These bilateral exchanges and co-operation in the political security field became the basis on which ASEAN has largely been able to prevent tensions and conflicts from developing between them, because of the web of CBMs (confidence-building measures) and conflict prevention established between themselves. This web of bilateral co-operation arrangements initially involved diplomats and defence officials but has subsequently been complemented by intelligence exchanges at the ASEAN level, and exchanges of students at staff and command schools. Meetings of top military and defence officials occasionally took place at the multilateral level, while at the bilateral level such meetings occur regularly. Real tensions have occurred between the ASEAN members, however. Even a military conflict almost happened between Malaysia and the Philippines over their claims on Sabah. The web of security relations has prevented these tensions from becoming open conflicts. This should be recognized as the first achievement of ASEAN co-operation, perhaps exactly the way it was envisioned by the founding fathers. There has never been any real threat of open conflicts between the original members, except the one referred to above. It can be expected that the same situation could be achieved with the new members, among whom tensions also exist. What was seen as a potential “Balkan of Asia” has indeed been turned into a zone of peace. This is not a small achievement. The second objective of establishing a stable and peaceful Southeast Asia in accordance with the concept of ZOPFAN in the aftermath of the Vietnam War turned out to be not so simple and was not a linear development. First, Vietnam was in a victorious mood and did not want to agree to ZOPFAN. Instead, it proposed a zone of peace, freedom, and independence. What they meant was that those ASEAN members that were helping the United States in the Vietnam War had to be checked. Secondly, it was willing to control the Khmer Rouge by invading and subjugating them. The principle of the sanctity of national borders, that is upheld by ASEAN, was trampled. This showed that Vietnam was willing to commit aggression against another sovereign country. ASEAN could not accept this as it was a violation of its fundamental principle. This resulted in ASEAN’s opposition to Vietnam’s invasion and aggression, politically and diplomatically, for almost a decade.

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In the end, because of the crumbling of the Soviet Union, its main sponsor, Vietnam had to withdraw. Through the Jakarta informal meetings, a final Paris meeting was held to find a political solution to the so-called Cambodia problem, with the support of the five permanent members of the United Nations Security Council (UNSC). This diplomatic victory was also ASEAN’s finest to date. Despite some real differences in views on Vietnam’s invasion into Cambodia, in the last instance all the ASEAN members showed their solidarity with the “frontline state”, namely, Thailand, which was experiencing the greatest pressures from the invasion. This was another major achievement for ASEAN. The next achievement of ASEAN in the political security field was the establishment of the ASEAN Regional Forum (ARF) in 1993. This initiative has filled in a need after the Cold War to establish new institutions for the East Asian region that are multilateral in nature. Bilateral alliances alone are no longer adequate in the post-Cold War situation. Regional multilateral institutions, like the ARF, are meant to complement and even soften those bilateral alliances at the edges to make them more acceptable for the region. With the ARF, ASEAN has begun the efforts towards a more co-operative security climate in the region, especially for CBM’s and preventive security in general, including preventive diplomacy. Conflict resolution is the objective for the longer term. In this effort, the ASEAN member states, while still very different in their outlooks, have on important occasions managed to come together to present a united stance. One of the most important examples of ASEAN unity in this regard was the common stand the governments took in response to China and the disputes over islands in the South China Sea. ASEAN’s contribution to regional peace, stability, and security has indirectly given a tremendous boost to economic development in each of the member countries. While it is true that the economic co-operation programmes of ASEAN as a regional entity are minimal and there is not much to be proud of, ASEAN’s contribution to individual member economies has been substantial. First, regional peace and stability have provided a secure environment for foreign investors. Secondly, the successful development of one member economy has significant demonstration effects on other members. The incentive to catch up with the other members is also an important factor. The model of an open and deregulated economy, which is export-oriented and private sector-led, and has high savings and low inflation rates is accepted because it has been successfully practised by other members. Thirdly, the successes of the region in the economic field have given emotional support to

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its members, giving them trust and increased confidence in pursuing their development. A further achievement is that ASEAN has begun to deal with the nontraditional security issues, such as the environment (particularly the haze), drug-trafficking, migration, AIDS and other possible epidemic diseases, piracy, and transnational crime that have become important security issues. Although much more have yet to be done, the ASEAN members have made a good start in tackling together issues beyond the national boundaries. On the traditional security issues, ASEAN could not do much because it has limited military power, but on the new issues ASEAN can make a difference for the East Asian region and even for the world. Finally, the establishment of one Southeast Asia, as the founding fathers had dreamed of, is a remarkable achievement. This has laid down the basis for a cohesive and co-operative subregion, not only for promoting peace and security for the whole region but also for creating a strong and united Southeast Asia that can influence developments in the region, and that can balance the influence of the great powers in the future. ASEAN’s expansion of its membership has created new challenges for ASEAN, especially in forging cohesion and unity, but in the longer term this should be of great strategic importance. If ASEAN can overcome the financial and economic crisis as well as the divide between the old and the new members in the medium term, then ASEAN will become much stronger in facing its future challenges. In this regard, the long established practice of what has come to be known as the “ASEAN way” must be radically changed, if not completely done away with.

FUTURE CHALLENGES Significant internal changes within countries and external, global, and regional changes, particularly in the last decade, have created extreme and dramatic pressures for ASEAN as a whole and for each of its members. The greatest impact on ASEAN has been the pressures resulting from globalization. Its influence is all-encompassing, as the financial crisis in East Asia has shown since 1997. The ASEAN members cannot adjust to these external pressures by themselves. Even developed nations cannot cope with these changes on their own. That may be one of the reasons for the European Union to deepen their co-operation. The second global event affecting ASEAN was the end of the Cold War. That has altered the security and stability of the region and has opened new horizons in strategic developments. It has also put pressures on existing

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mechanisms and institutions to adjust and to change, or risk the possibility of perishing. Thus, the big question is whether ASEAN can adjust and change in the medium term and cope with these changes. The task will not be easy as it seems almost impossible for ASEAN to undertake fundamental changes, given the constraints that it is now facing. Because of the financial crisis, the ASEAN members have tended to become more inward-looking. In addition, because of leadership changes in some of the older members, personal relations are no longer as critical for ASEAN cooperation as in the past. The new members have also brought difficulties of all sorts because of great differences in experience, political systems, and levels of economic development. Many of the old principles on which ASEAN has functioned for the last thirty years are no longer adequate for coping with the fundamental changes in ASEAN, and in each of its member countries. For example, the personal, non-legalistic, and informal system of co-operation between states or their bureaucracies has proved inadequate, not least because of the change of leaders in some of the states. Domestic problems, such as the financial crisis, drug-trafficking, environmental hazards, migration problems, transnational crimes (for example, piracy) are also regional problems. They call for regional, and in some instances, even global co-operation and solutions. The new challenges no longer recognize the divide between domestic and external aspects. Therefore, ASEAN as a regional entity can only maintain its relevance if it can get its act together by undertaking fundamental changes. To achieve this, ASEAN members must have a common vision of the future. The first step has been taken. ASEAN heads agreed on a Vision 2020 almost three years ago in Hanoi. However, the ASEAN members also need to develop new principles of co-operation. Based on these principles, rules have to be established to guide the organization, and to make co-operation viable. These rules have to be based on an acknowledgement that the many problems ASEAN is facing cannot be solved individually. Therefore, the principle of “non-intervention” is passé. As a last resort, “intervention” can be done in a more acceptable way. Examples where beneficial intervention might have worked in past experiences in ASEAN include the surveillance of macroeconomic indicators, the haze problem, and some policies on migration, drug-trafficking, and transnational crime. For the implementation of the rules, institutions would have to be established. ASEAN heads should meet annually and empower this meeting as the highest decision-making body. A council of ministers also has to be formed with the task of deciding on programmes and directives. The dominant

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role of the foreign minister in ASEAN is no longer relevant. ASEAN problems have become all encompassing and complex, and other ministers have to get directly involved in working out the answers. The office of the Secretary-General has to be strengthened and prepared for all the decisions that the council of ministers and heads of ASEAN have to make. The workload of the existing rotating Senior Officials Meetings has to be taken over by the Secretariat with very few exceptions. Last but not least, the public, think-tanks, non-government organizations (NGOs), and the society at large who have a stake in the co-operation should have their say and should be allowed in some instances to take the initiative towards ASEAN functional co-operation. What are the future challenges in the politico-security field? The first task is to strengthen co-operation among the ASEAN countries. As has been explained earlier, co-operation in this field has been most critical to ASEAN’s success and remains vital to ASEAN. However, changes have to take place if ASEAN wants to be relevant in future politico-security co-operation. Most important for ASEAN is to decide how the principle of “non-intervention” can be overcome, and in so doing upgrade and intensify co-operation. As has been said earlier, state-to-state relations alone will no longer be adequate because internal and domestic instabilities and a stagnation of national development could result. With these new challenges, old ways of co-operation such as border patrols against insurgencies and infiltration are no longer sufficient. There are now domestic disturbances and conflicts, such as those in the Moluccas, Irian Jaya, and Aceh in Indonesia, and support and assistance should be given if needed by and at the request and invitation of Indonesia. This principle of non-intervention is now being adjusted by ASEAN using such euphemisms as “deeper co-operation” or “enhanced interaction”, because the word “intervention” is “loaded” and politically “incorrect” in the ASEAN jargon. Whatever the word used, Indonesia’s case is one example where active support may be called for. Another is how the region can constructively engage in assisting Myanmar. Myanmar is in a stagnant situation where it is unable to develop politically, socially, and economically, creating a danger of turmoil and instabilities in the future, and possibly becoming a “failed state” as a result. ASEAN has to assist Myanmar, but that can only come about if ASEAN has total engagement with the new members, especially with Myanmar. Here, economic assistance and support are vital, but political relations are also important. This should involve extending assistance to the regime for

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promoting a peaceful and democratic transfer of authority. This can be done through the establishment of a transitional authority over a certain transition period. This can happen only if ASEAN can fully engage the Myanmar Government. This may happen gradually and second track efforts can be useful to promote exchanges initially. Otherwise there is a real danger that Myanmar may lose everything that it has struggled for over more than fifty years. The example of Indonesia’s political stagnation until it exploded should be a lesson to be learned by all other ASEAN countries. For, despite national differences, the basic factors of change are similar everywhere. In the case of domestic turbulences, Simon Tay, chair of the ASEAN Institute of Strategic and International Studies (ISIS), has suggested that ASEAN should have a peacekeeping capability, for instance in assisting Indonesia. This suggestion should be examined seriously and be worked out into a more complete and realistic undertaking. It does make sense for a regional entity such as ASEAN, supported by the UNSC and the global community, to give assistance in peacekeeping and peace-building whenever required in the region. The case in mind is East Timor, where on hindsight a more active and immediate engagement by ASEAN could have prevented much of the havoc through preventive security measures. Of course, these should be made only with the consent of Indonesia. An early engagement as a matter of regional support and assistance would have been relevant and acceptable. For these activities to take place, more rigorous changes have to be made in ASEAN’s mechanisms. Introducing the “Troika” idea alone will not be adequate. What are the concrete actions that ASEAN has to take for such development and its future policies? The existing co-operation among diplomats and defence officials should be continued. This consists of exchanges, dialogues, and training (at military academies, and staff and command, or defence universities). In fact, most of these activities are undertaken bilaterally, although training and intelligence exchanges are also undertaken multilaterally. Part of these activities are being postponed because of the financial crisis. In fact, to be more effective and efficient, more dialogues and exchanges as well as training should be conducted multilaterally. For instance, exchanges of future strategic developments could be arranged by policy planning staffs in the foreign and defence ministries. This could be assisted by second track think-tanks like the ASEAN ISIS with Staff and Command Colleges and Defence Universities, as well as Foreign Affairs Colleges and Training Institutes. Joint training and education activities for defence and military officers have to be continued and expanded. A peacekeeping training centre for ASEAN is a must if the Association is to be able to cope with future

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challenges in the region. If financing is the main problem, part of aid programmes such as that from Japan could be used, as long as it is not used for hardware purchases or direct military operations. For this type of cooperation to be effective in the near future, a special Senior Officials Meeting (SOM), consisting of foreign and defence officials should be established. In all these instances, second track activities and support are crucial because of the limitations that officials have in terms of being able to sit back and reflect on policies and to think beyond the official policies. In relation to ASEAN’s external co-operation in the politico-security field, ARF activities should be the main focus. Here, ASEAN should be bold enough to open up the process to outside participation. That has already happened at the second track level, namely, the Council for Security Cooperation in the Asia-Pacific (CSCAP), and it should now be possible to do it also at the ARF level. Only then can the ARF become more effective. This means that a co-chair from a non-ASEAN member could be elected among the other non-ASEAN members as an ASEAN “Troika” alone cannot fulfil the need. A small ARF Secretariat should also be established. This can be part of the ASEAN Secretariat, but functionally separate and staffed by both ASEAN and non-ASEAN personnel. In addition, the ARF should be more active in implementing the many agreements on CBMs, such as publishing annual defence white papers, exchanges of military/defence officials and teachers and students from training institutes, sending observers to military exercises, strengthening nonproliferation regimes at the regional level, and establishing search and rescue (SAR) as well as peacekeeping centres for training purposes and possible coordination. Again, to be able to implement them, ASEAN should first get its act together to stay as the driving force within the ARF. Second track support will be critical to ASEAN in this endeavour.

CONCLUDING REMARKS Can the above changes be implemented? Many wise men and visionary groups have proposed modest institutional changes, but these have failed. However, the future will be different. The challenges are huge and complex. If ASEAN fails to change, then it will become irrelevant to its members and will wither away. Changes could be implemented over a medium term. In the meantime, two priorities have to be accepted. First is the total engagement of the older members with the new members of ASEAN that will also involve providing development assistance. This could be done in a triangular arrangement with

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financial assistance from international/financial institutions or from Japan. Only then can the new members participate fully in ASEAN’s programmes. This is critically important if ASEAN is to stay united. Secondly, the principle of the “coalition of the willing”, or the decision of ASEAN minus X should be introduced. This should allow some members to develop a programme and to proceed without the participation of others at the beginning. However, it should be open to them whenever they are ready to participate. To be able to get these changes moving, the civil societies in ASEAN have to participate fully in the effort and should put pressure on their governments by arousing public opinion and initiate programmes in the respective countries. At the functional and professional levels, there is ample co-operation among ASEAN civil societies. The organization of the first ASEAN People’s Assembly (APA) in November 2000 in Batam, Indonesia, in conjunction with the Informal Summit in Singapore, was meant to give a push to these changes that are so vital for ASEAN’s survival. APA was initiated by the ASEAN ISIS. Over 300 NGO and civil society representatives as well as governments attended the Assembly.

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3 ASEAN IN THE PAST THIRTY-THREE YEARS Lessons for Economic Co-operation Narongchai Akrasanee

ASEAN has been in existence for thirty-three years, during which time it has gone through many changes in terms of what ASEAN co-operation was all about. For most of the thirty-three years, the Association focused on political co-operation, while economic co-operation was used to reinforce political unity. In more recent years, political situations and economic changes in the ASEAN countries have become more intertwined. In fact, economics has often influenced politics, particularly following the economic crisis of 1997– 99. It is therefore important for ASEAN, at present and in the future, that effective economic co-operation schemes are applied to enhance ASEAN as a community. This chapter reviews ASEAN economic co-operation during the last thirty-three years. Developments in ASEAN’s economic co-operation can be seen over four periods, determined by the major issues or events confronting ASEAN at the time. Through these events and different periods, ASEAN has moved from little or no economic co-operation to recognizing the urgent need for effective economic co-operation in the face of globalization. The chapter concludes with suggestions on ASEAN’s possible vision for the future.

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PEACE, SECURITY, AND ECONOMIC CO-OPERATION: 1967–82 When ASEAN was established in August 1967, it was all about peace and political security in the region. At that time there were serious disputes among neighbouring countries, particularly Malaysia, the Philippines, and Indonesia. ASEAN co-operation was used as a strategy to contain internal political conflicts. In addition to border disputes, there was the threat of communism spreading to the region. By forming an association of nations with governments which were anti-communism, it was believed that the spread of communism could be contained and eliminated. It was obvious from the beginning that ASEAN was a state-to-state organization, with little or no participation from the peoples. For several years after the formation of ASEAN, the member states were able to avoid conflicts among themselves. Then in the early 1970s, the Vietnam War intensified, drawing the attention of the world to events in Southeast Asia. Some countries, particularly Thailand, co-operated with the United States to assist the non-communist South Vietnam to fight against the communist North Vietnam. The end of the Vietnam War in April 1975 led to concern about possible regional conflicts between communist/socialist states and ASEAN. The then President of the Philippines, Ferdinand E. Marcos, said: “The Vietnam war has been terminated, but the political effects are just beginning to be felt as the victorious side, militant both in temper and ideology, seeks to assert itself.” Lee Kuan Yew of Singapore said: “Since April last year, the ASEAN countries have to face up to competition from the Marxist-Socialist systems of Vietnam, Laos and Cambodia. We must ensure that difference in political and economic systems between these countries and ASEAN are confined to peaceful competition.” To counter the growing influence of communist/socialist states the member countries decided to strengthen ASEAN as the defining regional community. Economic co-operation was adopted as a means to serve the purpose, so that ASEAN would become a stronger political entity. Economic co-operation schemes were meant to achieve economic integration. Both market-sharing and resource-pooling schemes were introduced. The preferential trading arrangement (PTA) was intended for ASEAN markets to become more accessible to the member countries and more integrated. For large-scale capital-intensive projects, joint investments with proper division of responsibilities would benefit from economies of scale. These projects would be in the forms of ASEAN Industrial Projects (AIPs), and ASEAN Industrial Joint Ventures (AIJVs).

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To highlight the economic co-operation schemes, the ASEAN Summit of heads of states was held for the first time in Bali, Indonesia, in 1976. This was followed closely by the second ASEAN Summit in Kuala Lumpur, Malaysia, in 1977. At these meetings, major agreements, such as the ASEAN Concord, were signed, and the economic co-operation schemes mentioned above were adopted. In 1977 too, ASEAN broadened its contact to East Asia and South Asia, as well as Australia and New Zealand. All the economic co-operation schemes adopted seemed to be very rational on paper. In practice, however, very little actually happened. At that time, most ASEAN businesses were operating with trade protection in both tariff and non-tariff forms, except in Singapore. The political economy was resisting the PTA and AIJV. As for the AIP, most countries did not want to entrust their investment with the host governments. Thus, five years after the adoption of these schemes, very little economic integration took place in ASEAN.

IN SEARCH OF INTERNAL ECONOMIC STRENGTH: 1982–90 The second oil crisis of 1979–80 came together with falling commodity prices in 1980 and an unfavourable global economy. This combination of external shocks caused widespread economic recession in ASEAN. Even the usually resilient Singapore economy was not spared. In response, the ASEAN leaders looked for internal economic strength to revive the economies. ASEAN economic co-operation was thought to be an internal force that could be relied upon by the different member states. One significant initiative at the time was an ASEAN Task Force consisting of fifteen “wise men” who were appointed to study and propose more realistic and effective economic co-operation schemes. After a series of long and extensive consultations, the Task Force recommended that emphasis should be on resource-pooling. As for market-sharing, stronger political will was necessary. The creation of an ASEAN free trade area was proposed, the adoption of which would demonstrate such political will. However, when ASEAN was about to deliberate on these proposed economic co-operation schemes, world economic events turned positive. Oil prices and interest rates fell. The Plaza Accord of September 1985 led to the depreciation of the U.S. dollar vis-à-vis other major currencies, particularly the Japanese yen. As most ASEAN currencies were linked to the U.S. dollar, exchange rates turned in favour of ASEAN. These developments led to economic recovery in most ASEAN countries, starting from 1986/87. By the time of the ASEAN Summit in Manila in

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1987, there was very little interest in ASEAN economic co-operation schemes. This lack of interest continued until about 1990.

PREPARING FOR GLOBAL LIBERALIZATION: 1991–93 Towards the end of the 1980s the ASEAN member states were busy with the booming trade and investment. Economic prosperity was everywhere. Additionally, the GATT Uruguay Round of trade negotiations took up much time in ASEAN’s external economic activities. These efforts at the global level left little time for officials to work on intra-ASEAN economic co-operation. The imminent conclusion of the GATT Uruguay Round at the beginning of the 1990s, which was expected to start the process of serious global trade liberalization, led ASEAN to look for an economic safeguard. As trade liberalization appeared to be inevitable, ASEAN thought that it should start within the group. Thus, the Common Effective Preferential Tariff (CEPT) scheme and the ASEAN Free Trade Area (AFTA) were proposed. It took ASEAN a whole year in 1991 to complete the AFTA agreement, which was signed at the Singapore Summit in January 1992. The agreement was for the ASEAN member states to achieve “free trade” among themselves in fifteen years. Soon after the AFTA agreement was signed, the Uruguay Round was concluded in December 1993. This was followed by the signing of the agreement in 1994 and the establishment of the World Trade Organization (WTO) in 1995. The process of comprehensive global trade liberalization was thus started. In the meantime, ASEAN continued to take other measures to minimize the adverse effects of global trade liberalization. For example, ASEAN participated in the setting up of the Asia-Pacific Economic Cooperation (APEC) forum to promote trade, investment, and economic and technical co-operation among the member economies. APEC became an important economic and political forum when it started to organize meetings of the leaders of the member economies. The first Leadership Summit was held in Seattle, USA, in 1993. The meeting declared APEC to be a community of free trading nations. Subsequent leadership summits, held annually in different cities of the member economies, continued to push for trade and investment liberalization, with trade and investment facilitation and economic and technical co-operation measures and schemes added on. The goals set out at the Bogor meeting in 1994 were particularly important for the vision of APEC. ASEAN initially played a key role in the new APEC. Things were, however, to change with ASEAN enlargement and the economic crisis.

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ISSUES OF ENLARGEMENT AND CRISIS: 1994–99 ASEAN co-operation began to have new priority in about 1994 when the states of Indochina and Myanmar started to open up to ASEAN economically and politically. The decision was then made to enlarge ASEAN, beyond the original and mainly maritime states. This aimed to make ASEAN an association of ten nations, representing the entire geography of Southeast Asia. ASEAN worked very hard to achieve this vision of an ASEAN-10. The economic systems of Cambodia, Laos, Myanmar, and Vietnam were, however, not like those of the original ASEAN-6. They were used to strong state participation and new to mixed market economies and the global economic system. They were also starting from a considerably lower base of economic development, with some ranking among the least developed countries in the world. Against this background, ASEAN had to come up with measures and schemes that were acceptable to and workable with the new member states. It took ASEAN until 1999 to achieve ASEAN-10, largely because of the political uncertainties in Cambodia. In the meantime, the AFTA and CEPT schemes had been implemented with relative ease, because of the flexibility built into the schemes. Issues involving sectors with problems were postponed to later years. While there have been some delays in the sectors that are sensitive to some countries, a wide array of tariff reductions have been achieved. This achievement of ASEAN is all the more remarkable in view of the crisis that began in mid-1997 and affected almost all the economies of the region. Even those economies that were not directly affected suffered because of the downturn in their neighbours. For the newer members, the crisis meant that the ASEAN-6 members were less able to assist in their economic transition and adjustments. Nevertheless, in 1998, amidst the crisis, the deadlines for the achievement of AFTA were again advanced.

IN SEARCH OF A NEW VISION From the 1990s, the ASEAN economies have been very much influenced by the various forces of globalization. These include improvements in telecommunications, computerization, and the greater speed and lower costs of transportation of people and goods. These changes, combined with a change in regulatory regimes, favour greater financial globalization, easier cross-border mergers and acquisitions and, more generally, the trend towards deregulation, liberalization, and privatization.

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The processes of globalization have translated into interdependent market forces. Together with AFTA and other economic co-operation schemes, a significantly higher degree of integration among the ASEAN economies have resulted. Today, the peace, stability, and prosperity of any one ASEAN member state is increasingly dependent upon the economic and political conditions of other member states. Thus, they cannot ignore situations going on in other member countries. Recognizing their interdependence, and with the conviction that integration should occur by design rather than by default, ASEAN introduced and adopted the concept of ASEAN Vision 2020 in 1997 on the theme of “Partnership in Dynamic Development”. The intention is to build a strong ASEAN community, by means of very comprehensive schemes for economic and social co-operation. Unfortunately, the economic and financial crisis that took place in several ASEAN countries from mid-1997 caused economic and political instability. They brought to the surface many social problems, including those which had impact across borders. The worst of the crisis seemed to be over for most ASEAN member states by the end of 1999 or mid-2000. Some lessons, however, have been learnt. ASEAN in the year 2000 clearly recognized the high degree of interdependence among its member countries. An important but relatively modest step in this regard was the agreement of ASEAN member states to exchange information on their macroeconomic and financial policies and their impacts. This agreement was made with the view that mutual surveillance among peers can help curb wrong policies. This has the prospect of helping to prevent a recurrence of the financial crisis that began in 1997. Similarly, the Chiang Mai initiative entered into by ASEAN and the three East Asian countries of China, Japan, and South Korea, is significant. The agreement for short-term currency swops can potentially avoid short-term currency fluctuations that were the trigger for the crisis. What other lessons can be gleaned from thirty-three years of ASEAN economic co-operation? Economic co-operation was not, after all, the real objective of the formation of ASEAN. At the beginning, in 1976, it was simply a means to strengthen political unity. Economic co-operation was therefore largely considered only when the need arose. It was used as a policy instrument for economic recovery at the time of economic stagnation during 1980–86 and then relatively ignored when the economy was recovering as a result of external forces after that. It was again adopted as a policy instrument in 1992 when the challenge and threat of global trade liberalization were felt. The conclusion is that, until recently, ASEAN economic co-operation

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has continued to be determined by political rather than market forces. Yet, partly because of forced economic co-operation and the development of market forces, there is now a much higher degree of economic integration among the ASEAN economies. The market now demands economic cooperation, particularly on institutional matters. For economic co-operation schemes to be “market friendly”, the private sector needs to be involved in their development. Global liberalization highlights many cases of market failure. Co-operation should also involve competition policy and social issues. In the new millennium, global market forces — in terms of finance, trade and production — are imposing strong competition for ASEAN vis-àvis other developing regions of the world. This increased competition and their interdependence mean that in order to achieve peace, stability, and prosperity in the new millennium, ASEAN has to become a much stronger economic community. The political dimension may never disappear, but the importance of economic co-operation — independent of political considerations — will certainly increase.

© 2001 Institute of Southeast Asian Studies, Singapore

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4 TRADE, INVESTMENT, AND INTERDEPENDENCE Mohamed Ariff

INTRODUCTION Economic regionalism in Southeast Asia rests on a foundation that is arguably far more solid than is the case with any other regional arrangements in the developing world. ASEAN has evolved gradually from a small grouping of five to a large grouping of ten countries within a span of three decades, transforming foes and adversaries into friends and partners. It has also progressively deepened through increasingly closer economic integration among member nations. ASEAN is a unique experiment that has no close parallels. It came into being at a time of extreme regional turbulence, primarily for geopolitical and security reasons, with economic co-operation playing no more than a cosmetic role. However, over the years, especially after the end of the Cold War with the demise of the Soviet Union, economic co-operation has become increasingly important in ASEAN affairs. ASEAN had to find a new rationale for its own existence in the post-Cold War era, when developed country dialogue partners have shown diminishing interest in ASEAN in the new geopolitical equation. It has dawned on the ASEAN member states that they need ASEAN now more than ever before. Peace and stability in the region, necessary for economic growth and development, cannot be ensured if ASEAN is weak or non-existent. There is certainly too much at stake for every country in the region to treat ASEAN lightly. 45 © 2001 Institute of Southeast Asian Studies, Singapore

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ASEAN has been essentially a loosely-knit organization with a penchant for informality, flexibility, and pragmatism. In the initial stages, ASEAN had quite wisely concentrated on areas in which consensus was possible, steering away from areas where disagreements and differences might cause problems. ASEAN has nurtured what is often termed the “ASEAN way” which, at the risk of ambivalence or ambiguity, has enabled the ASEAN countries to stick together through thick and thin. ASEAN is painfully aware that the new millennium is going to be a completely different ball game. ASEAN needs to reassess itself, rethink its strategies, and reposition itself to face the challenges of globalization and liberalization. ASEAN also has to learn to relate to other regional entities such as the North American Free Trade Agreement (NAFTA), Closer Economic Relations (CER), Mercado Comun del Sur (MERCOSUR), and South Asian Association of Regional Co-operation (SAARC). In this context, opportunities and challenges provided by APEC are unique, given the overlapping interests of various subgroups in which not all ASEAN countries are represented. ASEAN has also to come to terms with new internal realities brought about by the inclusion of the Indochina countries as new members. ASEAN has become even more heterogeneous than before as a result of its widening. In particular, the gap between the new and old members of ASEAN is too wide to be ignored. At the same time, it does appear that the expanded ASEAN has introduced greater complementarity within the ASEAN economy. This augurs well for ASEAN economic integration and the international competitiveness of ASEAN products. To meet the challenges of the twenty-first century, ASEAN will have to seek new ways and means for economic co-operation. Principles and practices which worked well in the past may not work in the future. ASEAN will also have to go beyond preferential trading schemes, which have been the main effort to date. ASEAN needs to integrate itself more aggressively into the increasingly borderless global economy.

ECONOMIC REGIONALISM Regional economic “integration” was never mentioned as an ASEAN objective by the founding fathers. ASEAN has only talked about regional economic “co-operation”. This too was admittedly with much hype and little action. It was only in December 1998 that the term “regional integration” was used somewhat formally in the Hanoi Plan of Action. Nonetheless, regional economic co-operation among the ASEAN countries has increased, albeit gradually, over the years since the Bali Summit in 1976.

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ASEAN trade co-operation initially took the form of the Preferential Trading Arrangement (PTA). This was based on a cumbersome item-by-item approach which did not result in any significant increase in intra-regional trade. ASEAN industrial co-operation through ASEAN Investment Projects (AIPs) and ASEAN Industrial Complementation Programmes, and ASEAN Industrial Joint Ventures (AIJVs) also failed to live up to the great expectations that were raised when the schemes were first announced. The main drawback of all these initiatives was that they were ad hoc or piecemeal attempts at forging closer regional economic co-operation. What ASEAN needed was a holistic approach. This did not and could not materialize until the ASEAN Free Trade Area (AFTA) and the ASEAN Investment Area (AIA) ideas became politically acceptable to ASEAN members. The advent of AFTA was announced in 1992, to be completed by the year 2008 with tariffs of 0 to 5 per cent. ASEAN has moved closer to the realization of that objective by moving the deadline in 1994 forward from 2008 to 2003 and once again in 1998 to 2002. This, in itself, marks a breakthrough for ASEAN, as it is a manifestation of the growing political will in favour of economic regionalism. It is important to take stock of what has been achieved, in terms of commitments if not accomplishments, thus far, before one can identify areas where more needs to be done. AFTA is to be implemented through the Common Effective Preferential Tariff (CEPT) scheme, which was initially riddled with exclusions of all sorts. It is heartening to note that the CEPT scheme is far more comprehensive now than it originally was. Thus, unprocessed agricultural products which were originally excluded from the CEPT scheme are now scheduled to be included by the year 2010. What is more, products which were temporarily excluded from the CEPT scheme have been phased in gradually since 1996. The last tranche of manufactured items was phased in recently at tariffs of no more than 20 per cent. One notable exception was made for automotive components and parts, the inclusion of which was postponed for another two years. The expansion of ASEAN from six to ten members has not impaired AFTA. Instead, it has provided a mechanism for the transition economies of Myanmar, Cambodia, Laos, and Vietnam to be integrated into regional and global trade. Nor has the 1997–98 economic crisis derailed the AFTA process. On the contrary, the crisis appears to have strengthened the political will and resolve for closer economic co-operation among the ASEAN countries. The advancement of the AFTA deadline by one year from 2003 to 2002 in the midst of the financial crisis is a clear testimony to that political resolve. Moreover, in September 1999, the ASEAN Economic Ministers accepted

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zero tariff as the ultimate target of AFTA, with 2015 and 2018 as deadlines for the old and the new members, respectively. The four newer members of ASEAN are now committed to complete their transition to AFTA in ten years from the date of entry into ASEAN. Thus, Vietnam will complete the process in 2006, Laos and Myanmar in 2008, and Cambodia in 2010. Vietnam has agreed to maximize the number of tariff lines whose rates could be reduced to 0 to 5 per cent by 2003, while Laos and Myanmar have agreed to do likewise by 2005. There had been talks in the past about reducing all tariffs to zero without stopping at 5 per cent for some. However, it was not until the Singapore meeting in September 1999 that the target of zero tariffs was formally adopted, albeit with an extended time-frame. Thus, there is now a firm commitment to zero tariffs as the ultimate goal to be achieved by 2015 for the six older members (the ASEAN-6) and by 2018 for the four new members (the ASEAN-4). The former will set an example by ensuring that 60 per cent of their tariff lines will carry zero tariffs by the year 2003. This is an improvement over the original deadline for reducing tariffs to 0 to 5 per cent. In fact, both Brunei and Singapore have already met the target. However, it appears that the Philippines and Thailand have a long way to go. Some issues relating to the width or breadth of tariff cuts, in addition to the depth, have also been resolved. In addition to a Temporary Exclusion List (TEL), there were unprocessed agricultural products (UAPs) and products that could threaten national security, public morals, life and health, and the like, which had been excluded from the CEPT scheme. In 1994, ASEAN decided to widen the CEPT coverage beyond manufactured and processed agricultural products. Thus, UAPs are to be phased in gradually, while TEL products would get into the CEPT scheme in five equal instalments between 1996 and 2000. The latter has been accomplished with some exceptions. Some progress has also been made with respect to UAPs. Out of a total of 1,995 UAP tariff lines, 1,358 tariff lines (68 per cent) were phased into the Inclusion List in 1996; another 402 tariff lines (20 per cent) that were given TEL status were to be phased into the CEPT scheme in seven equal instalments between 1997 and 2003. Reference must also be made to ASEAN efforts at shortening the General Exception List (GEL), which consists of items which pose a threat to national security, public morals, human life, etc. A thorough review of Article 9 of the CEPT scheme which governs the GEL has led the Thirteenth AFTA Council meeting in September 1999 to transfer some 230 tariff lines (29 per cent) out of the GEL. As a result, the Inclusion List now covers over 98 per cent of all

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TABLE 4.1 CEPT Product List for the Year 2000 — ASEAN-6 Country

Inclusion List

Brunei Darussalam Indonesia Malaysia Philippines Singapore Thailand ASEAN Total Percentage

6,276 7,158 9,092 5,571 5,739 9,103 42,939 98.4

Temporary Exclusion List

General Exclusion List

— 21 — 35 — — 56 0.13

202 69 63 27 120 — 481 1.10

Sensitive List 14 4 73 62 — 7 160 0.37

Total 6,492 7,252 9,228 5,695 5,859 9,110 43,636 100.0

Source: ASEAN Secretariat.

tariff lines for the ASEAN-6 (Table 4.1). This ratio is much smaller but still significant at around 50 per cent for the ASEAN-4 (Table 4.2). That ASEAN is well on its way towards the completion of the AFTA process is also evident from other trade-related developments. Of particular interest among these is the signing of the Protocol on the ASEAN Dispute Settlement Mechanism in 1996. This will provide an expeditious and transparent means of settling disputes arising from the implementation of intra-regional economic agreements. A Protocol on Notification Procedures TABLE 4.2 CEPT Product List for the Year 2000 — ASEAN-4 Country

Cambodia Laos Myanmar Vietnam ASEAN Total Percentage

Inclusion List

Temporary Exclusion List

General Exclusion List

Sensitive List

3,114 1,247 2,356 3,573 10,290 49.78

3,523 2,126 2,987 984 9,620 46.54

134 90 108 219 551 2.67

50 88 21 51 210 1.02

Source: ASEAN Secretariat.

© 2001 Institute of Southeast Asian Studies, Singapore

Total 6,821 3,551 5,472 4,827 20,671 100.00

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was also agreed in 1998, obliging each member to provide early notification of actions or measures that might nullify existing benefits enjoyed by other members. Additionally, the Interpretive Notes of Article 6 on Emergency Measures were streamlined to make them consistent with the relevant provisions of the WTO (World Trade Organization) Agreement on Safeguards. There is also some progress with regards to the inclusion of sensitive items. Some UAPs were classified as “sensitive” or “highly sensitive”, which called for a special arrangement. The 31st ASEAN Economic Ministers Meeting in October 1999 endorsed the Protocol on the Special Arrangement for Sensitive and Highly Sensitive Products. This paved the way for the integration of sensitive products into the CEPT scheme by 2010 with 0 to 5 per cent tariff rates and without any quantitative restrictions (QRs) or nontariff barriers (NTBs). However, rice, a highly sensitive product for Indonesia, Malaysia and the Philippines, is allowed an end-tariff of over 5 per cent but with no QRs or NTBs. It is of interest to note that both Indonesia and Malaysia are committed to an end-tariff rate of 20 per cent on rice. Understandably, rice is a sticky item. Almost all member states in ASEAN would like to have a fairly high degree of self-sufficiency in rice production, given its status as a staple product for their people. This is therefore not so much a question of economic co-operation and trade, as an issue of economic and human security. Individual ASEAN member states cannot be expected to compromise on this issue, unless a full-blown food security system is put in place. Recognizing that trade and investment are interlinked, with one reinforcing the other, ASEAN has also paid attention to the question of promoting increased intra-ASEAN investment. Singapore is the lynchpin of intra-ASEAN trade by virtue of the fact it has the most extensive investment linkages with other countries in ASEAN, and enjoys the status of a free port. The investment–trade nexus is also manifest in ASEAN’s external trade structure where the major trading partners are also the major sources of foreign direct investment (FDI). All these suggest that ASEAN should promote intra-regional investment in order to increase intra-regional trade flows. A call for the establishment of a regional investment arrangement to enhance the attractiveness and competitiveness of the region for investment flows in the form of an ASEAN Investment Area (AIA) was made at the Fifth ASEAN Summit in Bangkok in 1995. The inaugural meeting of the AIA Council was held in October 1998 in Manila with the objective of realizing the AIA by 2010. The primary purpose of the AIA is to substantially increase investment flows from ASEAN and non-ASEAN sources by making the region a competitive, open, and liberal investment area.

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The AIA envisages active private sector participation, freer flow of capital, skilled labour, and technology among member countries, transparency of investment policies, rules, procedures, and administrative processes, and coordinated ASEAN investment co-operation, facilitation, and promotion. Under the AIA, all industries, with some exceptions as specified in the Temporary Exclusion List and Sensitive List, will be open to ASEAN investors by 2010, and to all investors by 2020. The preceding timetable is also valid for the granting of national treatment to ASEAN and non-ASEAN investors. The AIA, together with AFTA, upon completion, will render the region borderless for trade and investment flows.

WELFARE IMPLICATIONS How will all these impact on ASEAN members in welfare terms? Under AFTA, one can expect intra-regional trade to rise significantly in absolute terms. Much of the rise will be simply because illegal trade, previously left out by trade statistics, will now be recorded. Beyond this one-shot increase, AFTA can stimulate intra-ASEAN trade if it leads to higher incomes (for example, through more employment opportunities) and lower prices (for example, through greater efficiency). Increased regional demand and supply can augment a rapid expansion of the ASEAN economy. Welfare gains and losses in static terms, as measured by trade creation, trade diversion and consumer surplus, are not likely to be significant. The positive effects will probably more than offset the negative ones by a thin margin. Much would depend, however, on ASEAN member states’ tariff regimes offered to fellow ASEAN member states, in comparison to those given to the rest of the world. If ASEAN countries also lower their external tariffs significantly, in tandem with their intra-ASEAN tariffs, trade diversion effects will be small and the net effect will be considerably more positive. It will take a while before the full impact of AFTA can manifest itself. Thus far, the results are not impressive, if the use of Form D (the CEPT scheme Certificate of Origin) is any measure. The use of Form D to take advantage of the AFTA concessions accounted for only 1.5 per cent of the total intra-ASEAN imports for four ASEAN countries (Indonesia, Malaysia, Philippines, and Thailand) in 1998. This suggests that the remaining 98.5 per cent of intra-ASEAN trade, in value terms, is still conducted outside the AFTA framework in these economies. The figures may not, however, mean that precisely. It may be because Form D is not widely in use. Its low utilization rate may be attributed to a number of factors, such as: (a) the lack of awareness of this facility, (b) the

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hassle associated with bureaucracy in processing the necessary paperwork, and (c) the narrow difference between the CEPT and the MFN (mostfavoured-nation) rates on most items. Interestingly, the CEPT and the MFN rates are the same for as much as two-thirds of the tariff lines in the Inclusion List. Of the remaining 14,980 items in the Inclusion List where the MFN rates exceed the CEPT rates, the differential is less than 10 percentage points for 10,873 tariff lines (Teh 1999). It may be surmised that the current CEPT rate is not low enough to provide sufficient incentive for ASEAN traders to make use of the scheme. If so, one may expect a greater utilization of the scheme as the CEPT rates continue to fall over the years, while MFN rates remain unchanged. This tendency may, however, be neutralized if the MFN rates also decline over time. In any case, the percentage share of intra-ASEAN trade in total ASEAN trade is unlikely to increase substantially, given the high degree of economic openness of the ASEAN member countries, which is not necessarily a bad thing. It will not be in the interest of ASEAN to have a high ratio of intraregional trade which would be at the expense of extra-regional trade, with significant cost implications to massive trade diversion. Be that as it may, there is little doubt that intra-ASEAN trade will continue to grow faster than extra-ASEAN trade mainly because of the low base. A recent simulation analysis used a ten-region by ten-sector Global Trade Analysis Project (GTAP) model for six ASEAN countries (Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam), the United States, the European Union (EU), Japan, and the Rest of the World (Teh 1999). This found that intra-ASEAN trade will rise by 44.2 per cent under a zero tariff assumption. This expansion, however, was at the cost of reduced exports to other regions. The study also suggested that the ASEAN countries would experience net welfare gains, except for the Philippines and Thailand. Welfare losses and gains were estimated in most cases to be fairly small, less than 1.0 per cent of gross domestic product (GDP). It may be surmised that the net welfare loss for the Philippines and Thailand was primarily due to their high MFN tariffs. The results also showed that non-ASEAN countries would suffer a welfare loss mainly from trade diversion and terms of trade changes. The impact of the AFTA exercise, according this model, on ASEAN exports would be, at most, no more than modest, as increased intra-regional exports were to a great extent offset by reduced extra-regional exports. A word of caution, however, is in order. The above simulation exercise only deals with static effects of trade liberalization without taking into account the dynamic effects which defy quantification. Similar studies undertaken for other regional groupings also suggest small net static gains or

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losses. If the dynamic effects are taken into account, the net welfare effect is likely to be positive for all ASEAN countries, although the distribution of the gains among member countries may well be uneven. It is in this sense that AFTA trade liberalization can be seen as a positive-sum game.

ASEAN VISION 2020 The preceding analysis underscores the need for ASEAN to go beyond AFTA. ASEAN Vision 2020, adopted at the ASEAN heads of state and government meeting in Kuala Lumpur on 15 December 1997, speaks of peace, freedom, neutrality, justice, rule of law, national and regional resilience, development and shared prosperity, confidence-building, and conflict-resolution in very broad terms. In the economic domain, the ASEAN Vision 2020 seeks to chart a new direction through “partnership in dynamic development” to forge closer economic integration within ASEAN with emphasis on sustainable and equitable growth and national and regional resilience. The Vision seeks to create “a stable, prosperous, and highly competitive ASEAN economic region in which there is a free flow of goods, services and investments, a freer flow of capital, equitable economic development and reduced poverty and socio-economic disparities” (ASEAN Secretariat 1999). The Vision also underlines the importance of regional macroeconomic and financial stability, modern and competitive small and medium enterprises (SMEs), development of science and technology, food security, improved infrastructure and communications, human resource development, and so forth. The ASEAN Vision 2020 is certainly very laudable and promising. No one would find fault with its goals which envision “open ASEAN societies”, “a socially cohesive and caring ASEAN”, “a technologically competitive ASEAN competent in strategic and enabling technologies”, “clean and green ASEAN with fully established mechanisms for sustainable development”, “an outwardlooking ASEAN playing a pivotal role in international fora”, and so forth. By any measure, the Vision seems complete and comprehensive. That ASEAN takes a serious view of the above long-term vision is evident from the fact that action plans are being drawn up to translate the above dream into reality. The Hanoi Plan of Action (HPA) has been put in place with a six-year time-frame (1999–2004), which represents the first in a series. Briefly, the HPA attempts to: 1. strengthen macroeconomic and financial co-operation; 2. enhance greater economic integration; 3. promote science and technology (S&T) development and develop information technology (IT) infrastructure;

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4. promote social development and address the social impact of the 1997– 98 crisis; 5. promote human resource development (HRD); 6. protect the environment and promote sustainable development; 7. strengthen regional peace and security; 8. enhance its role as a force for peace, justice and moderation internationally; 9. promote its awareness and standing in the world community; and 10. improve its structure and mechanism. The HPA is seemingly a tall order. It has a fairly specific, practical agenda which includes an ASEAN surveillance process, liberalization of the financial services sector, development of regional capital markets, acceleration of the AFTA process, implementation of the framework agreement on AIA, liberalization of trade in services, focus on food security, intensification of industrial co-operation, promotion of SMEs, co-operation in intellectual property, development of e-commerce, promotion of ASEAN tourism, development of regional infrastructure, development of growth areas, and establishment of the ASEAN Information Infrastructure (AII).

PARADIGM SHIFT ASEAN Vision 2020 appears to be quite ambitious if not awesome. No one would want to quarrel with the laudable visionary objectives of ASEAN or doubt the seriousness of ASEAN’s commitments to its long-term goals. If implemented successfully, all these should translate into better living standards for the people of the region. The fact remains, however, that ASEAN needs more than a vision. It needs to do a lot of soul-searching to get its bearings right before it can shift gears and change direction. ASEAN cannot hope to realize its Vision 2020, if it continues to operate in the same old manner. Instruments which facilitated the ASEAN process in the past may hinder it in the future. It is time that ASEAN take a hard look at itself in the rapidly changing global economy. The relatively easy phase of regional co-operation in the bipolar world is over. ASEAN had enjoyed the support of its dialogue partners who had acted partly in self-interest. The equations have changed dramatically with the collapse of the Soviet Empire. Under the current globalization mode in a unipolar system, ASEAN will have to not only formulate new policies and new strategies but also seek new alliances. This does not mean that ASEAN should have a complete break with the past. Far from it, the Association must build upon its past achievements and successes. It must, at the same time, also draw lessons from its own past

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policy errors and failures. Nothing short of a paradigm shift can enable ASEAN to move forward. ASEAN is by no means a homogenous grouping. Even at birth, ASEAN had to wrestle with glaring inequalities and imbalances of sorts. Over the years, ASEAN’s heterogeneity has widened and deepened, partly because of the inclusion of the transition economies of the ASEAN-4, which are way behind the rest, and partly because of the structural changes that have taken place in the ASEAN-6 economies themselves. ASEAN will, therefore, have to pay much attention to the question of equity from now on, so that the benefits and costs of economic co-operation are distributed among its members fairly equitably if not evenly. This, however, does not necessarily warrant financial compensation from those who gain more to those who gain less. Such a compensation scheme will create more problems than it can solve. Nonetheless, mechanisms and institutions will have to be put in place to ensure that the ASEAN-4 can catch up quickly with the ASEAN-6. With the world economy moving rapidly towards what is referred to as the k-economy and e-commerce, ASEAN will have to ensure that all members move in tandem. Efforts will have to be made to reduce the “digital divide” or “knowledge gap” within ASEAN. ASEAN’s heterogeneity need not be seen as a liability. It can be a source of strength rather than weakness. The expansion of ASEAN and the resultant diversity have increased the degree of complementarity within the grouping. Hence, the increased capacity for intra-regional trade. While intra-industry trade among the ASEAN-6 will continue to grow, inter-industry trade between the ASEAN-6 and the ASEAN-4 is likely to expand rapidly. Be that as it may, the share of intra-regional trade is by no means a good measure of the success of regional economic co-operation. It does not necessarily mean that the higher the ratio of intra-regional trade, the better. What matters in the final analysis is the volume and value of total trade. It does not matter to which country one exports to or imports from so long as the terms of trade are most favourable. If non-ASEAN countries can offer better terms of trade, extra-regional trade should be preferred, other things being equal. ASEAN must ensure that the expansion of intra-ASEAN trade is not at the expense of its lucrative trade with non-members. It will not make economic sense if ASEAN were to target at a high intra-regional trade ratio through deep preferential tariff cuts and high external tariffs. It would be better for ASEAN to liberalize its trade as much as possible, allowing market forces to determine the level of intra-ASEAN trade. The purpose of the AFTA exercise should not be to increase intraASEAN exports but to make ASEAN exports internationally competitive

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through more efficient allocations of regional resources. As alluded to above, what really matters is not the export destinations but total exports in valueadded terms. Freer intra-regional trade should lead to cheaper sourcing of intermediate inputs from neighbours so that the final product can compete in the international market on the basis of quality and price. Only then can ASEAN be described as a truly outward-looking regional grouping. As the econometric study, cited above, suggests, AFTA, if left on its own, cannot lead to huge welfare gains for ASEAN as a whole. Welfare gains are estimated to be roughly 0.8 per cent of regional GDP (Teh 1999). Admittedly, as noted earlier, econometric simulations cannot fully capture the benefits, especially the dynamic effects, of AFTA liberalization. Even if some allowance is made for the omission of the dynamic benefits of AFTA, the net gains are unlikely to be large and the distribution of gains may well be extremely uneven, especially between the ASEAN-6 and the ASEAN-4. This observation underscores the need for ASEAN to go beyond AFTA. The AIA idea is a bold move in the right direction. The AIA timetable, however, seems long-drawn. As in the case of AFTA, there is a need to telescope the AIA time-frame so that AFTA and AIA can reinforce each other in a synergistic fashion. As mentioned, investment and trade are, more often than not, intertwined. It will take a long, long time for intra-regional trade to integrate the ASEAN economies in the absence of a freer flow of investments within the region. It appears that attracting foreign investment will become an increasingly uphill task for the ASEAN countries, as more and more countries in other parts of the world open up their economies. Foreign investors will have a greater choice as more and more countries compete to host them. In fact, foreign direct investment (FDI) inflows into the ASEAN region dropped by 22 per cent in 1998 and 21 per cent in 1999 (Wain 2000). Southeast Asia appears to have become less attractive for foreign investors, as shown by the fact that less than 5 per cent of U.S. and European investments now goes to ASEAN (Wain 2000). The admission of China into the WTO may also divert investments from ASEAN into China in the near term. In the light of such developments, the Association needs to rethink its strategies. It will have to compete with others, especially China, for FDI by making the region borderless. Hence the need for ASEAN not only to expedite AFTA and accelerate AIA, but also to hasten the work on harmonizing and streamlining customs procedures. Increased intra-regional trade and investment are necessary but not sufficient to bring about greater regional economic integration. As a matter of fact, it is trade with, and investments from, the rest of the world that have brought the ASEAN economies closer during the last three decades. Much of

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the intra-ASEAN exports of primary commodities passing through Singapore have had final destinations outside the region. In a similar vein, Malaysia’s imports of crude palm oil from Indonesia are processed and refined mainly for re-export to third countries outside the region. Multinational corporations (MNCs) operating in the ASEAN countries have been integrating the region through intra-firm trade. Industrial working among MNCs have led to increased intra-industry trade within ASEAN. All this clearly demonstrates the importance of liberalizing ASEAN’s external tariffs and investment rules in tandem. ASEAN will have to go beyond WTO trade and investment liberalization if it is to emerge as a major player in the world economy. The trade diversion cost of preferential tariff cuts will be low for those member countries with low external tariffs, as in the case of Brunei and Singapore. Countries which subsequently multilateralize AFTA tariff cuts stand to benefit more from the liberalization exercise than those which do not. Similar reasoning would suggest that AIA concessions be extended to all others so that ASEAN as a region becomes attractive for FDI from everywhere. An inward-looking ASEAN that jealously guards its regional market and investment interests would risk the chance of being bypassed and marginalized by the rest of the world. The economic growth and development of the ASEAN countries will suffer if it were to ignore the global trends. The regional market is still too small. ASEAN needs foreign capital, technology, and know-how, in the absence of which ASEAN cannot prosper and transform from being a production-based economy into a knowledge-based one. Structural changes in the ASEAN economies will hinge critically on its external linkages. What is envisioned here is nothing less than “open regionalism” for ASEAN where non-members can also contribute to and benefit from the regional economic integration process. It is important to understand that this is not a zero-sum game where someone gains at the expense of someone else. On the contrary, ASEAN can turn itself into an arena where everyone is a winner and no one is a loser. The Customs Union (CU) option, which calls for common external tariffs, will take ASEAN in the opposite direction, unless the common external tariff rates are no different from the preferential rates. It is not only less desirable but also more difficult for ASEAN to be a CU. Average tariffs among the ASEAN-6 range from 0.1 per cent for Singapore to 43.2 for Thailand (Table 4.3). To be sure, there are many above-average tariffs on such items as agricultural products, motor vehicles and transport equipment, textiles and apparel, and footwear. A common external tariff would hurt low tariff countries like Brunei and Singapore as this would force them to shift their source of imports to high-cost partners.

© 2001 Institute of Southeast Asian Studies, Singapore

© 2001 Institute of Southeast Asian Studies, Singapore

Source: ASEAN Secretariat.

Live Animals Fruits and Vegetable Products Fats & Oils Prepared Foodstuffs Mineral Products Chemicals Plastics Hides & Leather Wood & Wood Articles Pulp & Paper Textiles & Apparel Footwear Stone/Cement/Ceramics Gems Base Metal and Metal Articles Machinery & Electrical Appliances Vehicles Optical, Precision & Musical Instruments Arms Miscellaneous Manufactured Articles Antiques and Works of Art Average 0.00 0.00 0.00 0.05 0.00 0.64 2.14 1.36 10.44 0.00 0.44 5.33 0.65 2.41 0.12 9.22 21.21 7.79 0.00 2.26 0.00 3.12

Brunei Darussalam 4.74 4.63 4.86 17.57 4.05 5.76 11.14 6.25 3.42 6.94 13.90 16.54 7.26 10.76 9.70 4.86 39.28 7.38 9.29 14.70 12.86 9.34

Indonesia 3.96 2.45 2.11 10.85 2.04 1.86 15.05 6.91 1.42 9.51 16.70 19.25 16.91 2.87 9.36 8.12 52.55 1.82 15.00 14.64 1.96 9.42

Malaysia

TABLE 4.3 Average MFN Tariffs (In percentages)

8.12 7.50 2.05 13.43 1.42 2.34 2.65 7.28 11.21 2.78 10.54 7.41 3.68 13.65 3.18 2.77 4.68 5.84 9.47 7.15 4.25 5.55

Myanmar 20.00 11.19 8.45 18.76 3.54 4.06 8.43 8.42 11.73 8.61 18.24 15.47 11.01 7.07 8.14 5.68 11.48 4.60 19.00 11.23 15.00 10.08

Philippines

49.28 48.27 31.35 49.91 18.05 32.23 46.13 46.67 36.59 32.34 72.07 79.64 47.38 33.4 25.37 36.25 47.57 36.75 37.65 53.28 31.67 43.18

Thailand

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Alternatively, a harmonization of MFN rates by collapsing them to three tariff bands — low (0–5 per cent), medium (10–12 per cent) and high (18– 20 per cent) — would bring down the regional average rate and reduce sectoral and intercountry variations (Teh 1999). Reducing the tariff structure of the ASEAN countries to three narrow bands is certainly feasible, considering the fact that tariff lines in most ASEAN countries cluster around the above three bands (Table 4.4). A CU with harmonized external tariffs will be more difficult to manage than an FTA with harmonized external tariffs. A CU with harmonized external tariff would work better for a homogenous grouping where all members can conform neatly to common bands with considerable ease. This will, however, present a problem for the ASEAN countries which have great variations in industrial and tariff structures. It is in the interest of individual member countries to lower their external tariff rates along with preferential rates so as to avert massive trade diversion. This calls for a commitment by the ASEAN countries, with a clear timeframe, to reduce MFN tariff rates. In any case, some flexibility may well be in order. Some countries may prefer slightly wider bands while others would like to opt for narrow bands, just as some would need a longer time-frame than others. In this context, Indonesia’s bold proposal to reduce tariff rates to just three, namely, 0 per cent, 5 per cent, and 10 per cent, is an interesting proposition for others to emulate in the long run. The long-run goal should be to liberalize trade globally without discrimination. It is important to view AFTA as a transition or stepping stone towards that objective. AFTA can be used as a “training ground” where the ASEAN countries can learn to compete with one another before they compete in the international market place (Ariff 1994a) ASEAN can make use of TABLE 4.4 Number of Tariff Lines Sector Brunei Indonesia Laos Malaysia Myanmar Philippines Thailand Vietnam (%) Darussalam 0–5 5,568 6–9 0 10–12 85 13–17 40 18–20 675 Above 20 34 Others 90

4,276 0 936 1,084 700 214 3

1,821 0 1,146 7 247 327 3

6,713 19 288 204 1,048 1,633 495

3,722 413 336 799 249 52 0

Source: ASEAN Secretariat.

© 2001 Institute of Southeast Asian Studies, Singapore

2,958 107 863 355 882 473 0

148 34 166 255 113 4,850 84

1,538 36 237 61 282 560 291

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AFTA and other avenues, including APEC, for this purpose. Bilateral regional trading arrangements (RTAs) between ASEAN and other groupings such as Australia–New Zealand Closer Economic Co-operation (CER), Latin American MERCOSUR, South Asian Association of Regional Co-operation (SAARC), North American Free Trade Agreement (NAFTA), and the European Union (EU) can also be seen as building blocks for ASEAN’s open regionalism. RTAs are on the increase not only between regional groupings, as noted above, but also between individual countries such as the proposed Singapore– Japan, Singapore–New Zealand, and Japan–South Korea trading arrangements. While RTAs represent building blocks, one must be wary of any proliferation of RTAs as these will raise negotiation, administrative, and transaction costs. A simpler and more cost-effective route would be to liberalize tariffs multilaterally under the WTO, if not unilaterally. If the region becomes truly borderless without barriers, welfare will be maximized, with every member focusing on what each is best at. Economic restructuring which follows trade and investment liberalization will cause unskilled labour-intensive industries and plantations to migrate from less competitive locations to more efficient ones. This will also mean taking factories and plantations to where the workers are, instead of bringing immigrant workers to factories and plantations, which has, in recent times, given rise to considerable social problems. The AFTA focus on tariffs misses the important point that trade expansion calls for more than just tariff reductions. Tariffs will become increasingly irrelevant, as they are being reduced everywhere, be it unilaterally or multilaterally. As MFN tariff rates continue to decline globally, regional preferential tariff cuts will become meaningless. This observation calls for a shift in the attention of ASEAN not only to look beyond tariffs to non-tariff barriers or to look beyond trade in manufactures to services trade, but also to rethink its strategies for trade expansion. Services trade will become increasingly important as ASEAN moves towards a knowledge-based economy (KBE). As the knowledge content of primary production and manufacturing increases mainly through the application of science and technology, the services component of intraregional trade will also increase. Liberalization of trade in services, especially financial and technical services, thus becomes critical for the integration of the Southeast Asian economies. The chances are that AFTA will be overtaken by other developments in the global economy where tariffs will no longer play any significant role. AFTA will also become a victim of its own success, as ASEAN expedites the process. Ironic as it may sound, the sooner AFTA becomes redundant the

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better, so that ASEAN can focus on new global developments that pose potential threats for ASEAN members in the medium and long term. It is also in this sense that AFTA is no big deal. AFTA, nevertheless, still has a symbolic role to play within ASEAN at present. It can be construed as a transition towards something much bigger and far more significant. All this relates to the challenges and opportunities that globalization, KBE and IT revolution will present. Through mergers and acquisitions (M&As) companies will become bigger, transcending national identities. It is such transnational companies rather than governments that will call the shots in this new global environment. ASEAN must measure up to this new challenge, at least to ensure that others do not take undue advantage of its members’ unpreparedness and at most to ride on the new developments for scaling greater heights through resource pooling and risk sharing rather than market sharing. All this warrants new ASEAN strategies which, however, will necessarily entail some erosion of the national sovereignty of member states. For one thing, national sovereignty is by no means absolute. For another, new strategies, which will inevitably involve harmonization and co-ordination of national policies, will naturally eat into national sovereignty. The saving grace, however, is that the question of sacrificing some national interest for the sake of regional interest does not arise under this new paradigm because regional approaches can provide better solutions to domestic problems. To be sure, the ASEAN countries will lose their sovereignty under the impact of globalization, if they were to go it alone. The point made here is that they can keep at least some of their sovereignty if they were to stick together, lest they risk losing all. ASEAN must not lose sight of the fact that there are limits to the extent to which it can flex its muscles. Despite enlargement, ASEAN is a small player in the international arena. It is dwarfed by bigger and more powerful groupings. ASEAN needs to work with others, including other similar groupings, to have an impact on the world economy’s evolutionary process. ASEAN can make itself important by taking the centre stage, that is, by being a “core” in the new configurations of economies on a variety of issues, as in the formation of concentric circles. Thus, ASEAN can be the core of both the proposed East Asian Economic Grouping (EAEG) and the bigger APEC circles (Ariff 1994b). The main recipe for this is co-operation, not confrontation. The ASEAN Regional Forum (ARF), although strictly a security forum, does help advance ASEAN’s economic interest indirectly, as regional security represents the foundation of the region’s extensive trade and investment networks. The extension of ASEAN to ASEAN Plus Three (APT) with the

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inclusion of Japan, China, and South Korea is particularly promising, as its composition is strikingly similar to that of the proposed EAEG. The recent financial crisis has exposed the vulnerability of the regional economies and the inability of ASEAN as a regional body in terms of crisis management. Hence, the new focus on the APT. Needless to say, the APT wields much more power than the ASEAN-10 by virtue of the fact that the former is many times both bigger in terms of market size and more influential in terms of economic clout. ASEAN can definitely benefit far more through the APT than by going it alone. The currency swap arrangements within the APT, in particular, portend a prelude to the establishment of an Asian Monetary Fund (AMF). It is not difficult to craft a case in favour of an AMF, although the idea received adverse backlash from the United States. The U.S. apprehensions can be redressed by moulding it in such a way that it does not duplicate or undermine the International Monetary Fund (IMF). It is not difficult to understand that the IMF’s capacity to help economies in distress is by no means unlimited. The IMF cannot effectively handle situations where crisis hits many economies simultaneously. A supplementary regional institution, such as an AMF, which complements IMF initiatives, would serve its goal of international financial stability. However, care must be taken to ensure that this facility is not misused or abused to defend overvalued exchange rates in member countries. The AMF should not allow itself to be used as a shield to ward off speculative attacks on weak currencies that truly deserve to be devalued. Artificial maintenance of overvalued exchange rates would harm the economies through distortions and resource misallocations. If the AMF is conceived as a shield, there is no guarantee that it would deter currency attackers, despite its vast resources. For there is a real danger that it may instead entice currency speculators to attack indefensible currencies, as they would see a more profitable opportunity in the event where AMF resources will be used by member countries in their misadventure to intervene in the foreign exchange market, in which case the regional fund will represent yet another plum pool of reserves to be drained out by the speculators. The AMF would make better sense if its resources are used for bringing about reforms and restructuring that would set the houses of member economies in order. Even so, the AMF would still need to guard itself against possibilities of bailouts of any kind, especially of politically connected entities. There is a need for the AMF not only to distinguish situations of “insolvency” from that of “illiquidity”, but also to step aside if it is the former. The AMF should step in only if there is a liquidity, but not solvency, problem. Such considerations notwithstanding, the AMF will have to be wary of the “moral

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hazard” problem that it may inadvertently give rise to. For the certainty of help from the AMF may embolden member countries to adopt extremely risky projects and untenable policies. This observation calls for conditionalities for AMF assistance, which must include good governance, transparency, accountability, and discipline, among others. The AMF idea is worth pursuing but one must be very wary of the pitfalls. Conventional wisdom suggests that prevention is better than cure. Seen in such terms, it is wiser to prevent a crisis than to redress it after it takes place. In this regard, the AMF can play an extremely useful role through constant monitoring and surveillance. Exchange of macroeconomic data and information, consultation on macroeconomic issues, and co-ordination of macroeconomic policies are among the instruments which can help predict, if not forestall, financial turbulence and economic crisis. In the final analysis, much has to do with the quality of housekeeping in member countries. After all, regional co-operation is no substitute for sound national economic policies. The idea of a common currency for ASEAN is clearly far-fetched and totally out of the question in the foreseeable future. A less ambitious proposal would be to go for a common currency basket peg. Even here it will be extremely hazardous for ASEAN to act on its own. An APT approach would perhaps make better sense with respect to currency arrangements. This idea, in any case, is fraught with risks of sorts. The trade patterns of the APT countries are so diverse that a common weighted basket would distort the competitiveness in the region, thereby increasing the probability of speculative attacks on regional currencies. Moreover, a reduced intra-regional volatility of exchange rates, thanks to a common currency basket, does not necessarily mean reduced volatility of Asian currency units against the majors (de Brouwer 2000). It is important that ASEAN learns to work very closely with Japan, Korea, and China within the APT framework. These three countries put together represent a far more formidable nexus than the ASEAN-10. ASEAN can ride on their clout to make a stronger impact in the international arena. Demonstration effect and peer pressure can play a useful role in a regional community like ASEAN. Countries that conduct themselves well can be a source of inspiration for those that are willing and keen, while the pressure it exerts on others can force policy reforms on those that are reluctant. Peer pressure can induce discipline in a community where there are no barriers for such pressure to pass through. Regrettably, the ASEAN principle of non-interference in the internal affairs of partner countries severely curtails the scope of peer pressure within the grouping. In the same vein, ASEAN will find it increasingly difficult to adhere to consensus formation, not only

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because ASEAN has become more heterogeneous as a result of expansion but also because the regional and international equations have changed dramatically. The “ASEAN minus X” formula will have to be used more extensively than ever before. Otherwise, consensus would simply mean stooping to the lowest common denominator, a recipe for inertia. Moreover, there are no palpable reasons why the ASEAN “Troika” concept, hatched in Bangkok in July 2000 for dealing with external issues, cannot be used for handling internal issues as well. Regional interdependence and open regionalism will represent two important ingredients for the success of ASEAN in the next two to three decades. It is only through regional interdependence and solidarity that the ASEAN countries can protect their resilience, independence, and sovereignty from external threats emanating from globalization. Greater interdependence necessarily imply greater externalities of national policies for partner countries. In other words, no ASEAN member can ignore the impact of domestic policies on other ASEAN countries. Hence the need for the ASEAN countries to consult one another prior to important policy decisions. Finally, “open regionalism” can be manifested in ASEAN in a variety of ways. For starters, MFN tariff rates can be reduced along with AFTA rates, thereby minimizing the preferential tariff margins. It can also be practised by working with non-members via the ASEAN Ministerial Meetings (AMM), ARF, APT, RTAs, APEC, and the WTO. It can also be expressed through ASEAN’s co-operation and collaboration with like-minded countries and groupings in international forums and active participation in global initiatives.

THE CHINA FACTOR The emergence of China as a major player in the region and the global arena has serious implications for the ASEAN countries. It portends both opportunities and challenges for ASEAN. The rapid growth and expansion of the Chinese economy is good news, as it means bigger market opportunities for ASEAN products and services. China can also become an increasingly important source of investment for some ASEAN countries, in addition to being a major trading partner. The reverse side of the coin, however, shows that China will make ASEAN run harder. China can eat into ASEAN’s share of the global market. China is so huge and so good at almost everything, ranging from simple unskilled assembly operations to technologically sophisticated launching of satellite rockets. It will not be easy for ASEAN to compete with China, if the ASEAN countries were to continue to operate in the existing mode.

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The admission of China into the WTO is likely to see a new wave of foreign investments in China. To be sure, China has done it before and it can do it again. After the devaluation of the yuan in 1994, China was able to eat into the export markets of some ASEAN countries, especially Thailand, and to divert foreign direct investment away from Southeast Asia. All this is no cause for alarm. The entry of China into the WTO will mean not just freer access to the mainland China market for the ASEAN countries but also, more importantly, a trading partnership with China, based on international rules and discipline. One can expect China to conduct itself in a highly responsible fashion in the future. The main advantage of China vis-à-vis the ASEAN countries lies in its sheer size with a population of over one billion people. The huge domestic market of China will tilt the scale strongly in favour of China insofar as foreign investment is concerned. Foreign investors will use China not only as an offshore base for manufactures aimed at export markets but also for setting up plants to serve the domestic market. The only counterweight that ASEAN can come up with will be by making ASEAN a single market entity of 500 million people. This calls for a closer integration of the ASEAN economies by expediting the AFTA and AIA processes so that resources, goods and services can move freely within the regional grouping. This, in turn, will lead to lower costs so that ASEAN products can compete effectively in the international market-place. Foreign investors will then find ASEAN an attractive place to invest in, enticed by the new-found efficiency arising from market integration and the new opportunities that the bigger regional market will offer.

CONCLUSION The time has come for ASEAN to do soul-searching. The Associaiton has arrived at yet another crossroad after more than three decades of existence. The world that ASEAN finds itself now is very different from the one it got into at inception. The world that ASEAN will face in the new millennium seems far more challenging. There is a need for ASEAN not only to get its bearings right but also to chart a new course. A new direction for ASEAN should mean not only a new vision but also new ways of conducting its affairs. This need not amount to breaking away from the past, as ASEAN can build on its past achievements. However, this does mean that ASEAN must review its past practices which served its interests well in the past but which cannot fit into the new realities. Thus, the so-called “ASEAN way” code of conduct needs to be re-examined. Informal approaches that worked fairly well in the yesteryears may well be inadequate for handling the complexities

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and challenges that lie ahead. It might have been wise for ASEAN to be extramindful of the sensitivities of member countries in the initial infant stage, but it is high time that ASEAN acted as a grown-up. The formula based on informality and ambiguity that helped ASEAN take root in the early days cannot reinvigorate or galvanize the regional entity in the new millennium. ASEAN should be mature enough to take the bold step of encouraging its members to benchmark and emulate, and allow them to be questioned, scrutinized, and criticized. ASEAN must therefore opt for a rules-based system. ASEAN’s present structure is too inadequate to deal with new issues. It has to put in place a host of new institutions to support a rules-based system. The private sector needs to play a more proactive role than was the case hitherto. It appears that the private sector has been somewhat passive thus far, being influenced by the governments rather than the other way around. ASEAN is too important to be left to the governments only. It needs the inputs and active participation of all sectors and all layers of society. It is no secret that ASEAN has always been driven by politics, with economics taking the back seat and ASEAN foreign ministers occupying the centre stage. The issues that will dominate and drive ASEAN in the next two to three decades will largely be in the domain of economics. It is time that ASEAN is steered by a Council of Economic Ministers.

© 2001 Institute of Southeast Asian Studies, Singapore

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5 SOUTHEAST ASIA Development, Finance, and Trade Jesus P. Estanislao

INTRODUCTION The ten economies of Southeast Asia are now all together in ASEAN. Their coming together under one association should have been celebrated with greater pomp and enthusiasm. However, several developments have conspired to significantly tone down enthusiasm over the “accomplishment” of covering the whole of Southeast Asia — with Laos and Myanmar, and later Cambodia included — under the common mantle of ASEAN. The entry of Myanmar into ASEAN raised more than eyebrows in the international community. Several other Western countries, besides the United States and the European Union, raised their concerns about the democratic credentials of Myanmar. They are unable to carry on normal relations with its government, which is still presiding over a “transition to democracy” too ambiguous and lacking of substance to be regarded in the most polite terms as a mere euphemism. ASEAN in its enthusiasm and ambition to include all ten Southeast Asian economies before the turn of the century and millennium has been frequently reminded by the international community that democracy is more than a word. Indeed, it needs to be substantiated by a genuine respect for human and political rights. Precisely because human rights are involved, respect for them cannot be an internal matter for any government seeking membership in a regional association and normal political relations with the global community. 67 © 2001 Institute of Southeast Asian Studies, Singapore

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Then, the financial and economic crisis that swept through Southeast Asia, originating from Thailand, pulled the rug from under the feet of those who had been extolling the achievements of the ASEAN economies. Their fall into recession, the fragility of their banking sector, and the lack of transparency in their corporate governance regime highlighted the need for key reforms in Southeast Asia. These reforms may have been given short shrift in their race to post the highest growth rates, attract the biggest foreign exchange inflows, and boast of the biggest investment rates. While past achievements were real, they became the façade for over-confidence to disregard even the market fundamentals of transparency, accountability, and fairness. The crisis of 1997–99 tore that façade down. It brought home the imperative for Southeast Asia to observe all economic fundamentals as much as in other regions of the world. Moreover, the disruption of normality in Indonesia brought considerable pain and concern not only to Indonesia but also to all its immediate neighbours in the region. Happily, in recent weeks, Indonesia has managed a transition from one presidency to another. There is now basis for hope that it has turned the corner. Previously, the social tension that erupted in the wake of a severe economic and financial crisis was allowed to simmer for too long. That long crisis pushed wide open the divide along ethnic and religious lines in a few places. That divide could no longer be breached by a political order that had been in the process of disarray and disintegration. The resulting uncertainty, which lasted for too long and has only recently been put behind, sapped Indonesia of vital energy. It cramped its ability to lead its diverse peoples, and play a decisive role for ASEAN. Indeed, both Indonesia and the whole of Southeast Asia have been reminded that civic and political development cannot be allowed to lag far behind economic development. It is easy to look at all these developments — the seemingly precipitate expansion of ASEAN, the East Asian financial crisis, and the disruptive change in Indonesia — as merely negative events that took the lustre off the ASEAN star. The regard with which the international community accorded ASEAN may have fallen. Even the hubris with which many ASEAN officials and academics preached about the superiority of ASEAN and East Asian values may have been removed. Behind these negative events, however, there may be glimmers of light, which ASEAN can use to guide its efforts towards community building during the first two decades of this new century and millennium. To find a few glimmers of light in these events, we need to look at them from the Southeast Asian perspective. The seemingly precipitate expansion of ASEAN was driven, in part, by a

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regional ambition to build a community in Southeast Asia with its own identity and defining ideals. The ambition to pull the weight of Southeast Asia together is nascent, but it is broadly shared. It may not be deep or fully defined as yet, but it is palpable. It is difficult to put a finger on it, but it is real enough for ASEAN to be willing to pay a price for its initial manifestation. ASEAN has taken as a matter of course the political difficulty that the accession of Myanmar has caused. ASEAN has regarded it as worth the shortterm price it has to pay for the early impetus it can give towards the long-term build-up of an ASEAN community. From this perspective, an ASEAN community is a strategic, long-term imperative well worth the short-term price of the apparent haste to admit as members those nations several Western countries consider as unprepared and undeserving. The financial crisis may also have hurt ASEAN’s pride as deeply as its economic pocket, but it has also brought much greater openness to reforms, which many ASEAN economies had been resisting for years. There is now among the members greater openness to co-ordination in macroeconomic risk management and to peer pressure for financial sector strengthening and corporate governance reforms. Actions to carry out reforms remain in the realm of each economy, but the phenomenon of regional contagion has brought the necessary structural reforms into the regional agenda of dialogue and co-operation. From this perspective, ASEAN has moved forward to initiate the process of regional consultation and working together on monetary and financial issues. These have been added to the ASEAN agenda, which had been heavily weighted towards trade. The wrenching change that Indonesia had to undergo until very recently has also put pressure for change in the modalities with which ASEAN members deal with each other. As Indonesia has had to grapple with its bigger domestic challenges, ASEAN has been forced to evolve in a manner which enables it to face up to regional challenges. Its informal networks and channels are now being used actively so that seemingly internal matters of one member become the concern of, and provide impetus for initiative from, other ASEAN members. The handling of the crisis in East Timor, in particular, necessitated the participation and “interference” — with invitation from Indonesia — of several other ASEAN members. As community links in ASEAN strengthen and as the prospects of contagion heighten, further creative and realistic evolution of ASEAN mechanisms for facing up to regional challenges is likely to accelerate. The old mould of strict non-interference in the internal matters of one ASEAN member has been dented, if not yet formally and fully broken. There are glimmers of light, then, even in the seemingly negative events that have shaken ASEAN down to its core. They may well be harbingers of

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deep change in the region. The vision of the ten Southeast Asian countries to build an ASEAN community, the openness to dialogue and co-operation on the macroeconomic, financial, and corporate governance reforms highlighted by the East Asian financial crisis, and the forced evolution of ASEAN mechanisms to deal with internal issues having regional repercussions are opportunities to steer change in a positive direction. They should guide the efforts of those trying to chart a road map for ASEAN as it moves forward in the next two decades. They may even help provide a coherent framework for several key initiatives ASEAN needs to consider and take, if it is to regain the lustre in its star and give substance to its hopes. All this requires a long-term outlook and a vision that sustains hopes in the midst of grim, short-term realities. It is to help shape that outlook and formulate such a vision for ASEAN that serious dialogue among ASEAN scholars and policy-makers should be fostered and supported.

TOWARDS A NEW ASEAN ASEAN has in fact been forthright about its long-term ambition. It has been clear about its goal of “closer cohesion and economic integration” as well as of building an “ASEAN community” by 2020 (ASEAN Leaders 1997). The words have a bold ring. They bear a grand sweep. They present a golden opportunity for all those with goodwill for the region and the determination to build a community in Southeast Asia that can contribute positively to peace and prosperity in the global community. The challenge in the next two decades is to begin to put substance to these words. Fortunately, there is more to them, reinforced as they are by specific calls. First, ASEAN has made a call for “caring societies” where people have “access to opportunities for total human development”. The access has to be “equitable” and therefore fair. Fairness flows out of justice, and justice starts with a focus on the “dignity of the human person”. This is a solid principle to work from. It is a foundation stone upon which to build a strong society. Secondly, the conviction that strong families are “the basic units of society” and the main instruments for social cohesion complements that foundation stone. ASEAN recognizes strong and united families as the bedrock of peace and harmony as well as of civic responsibility for “the good of the community”. A proper balance is being struck between the welfare of the individual and that of the community. Both need to be stressed and served, since they stand for truly fundamental values (Chen 2000). Thirdly, ASEAN has made a call for a “highly competitive economic

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region” where enterprises operate in a free and open environment. To survive in such an environment, they have to be “modern”, including those in the small and medium enterprises sector. To be modern, enterprises have to be highly productive, technologically empowered, manned by properly equipped human resources, able to meet and conform to “world class standards”. As exacting as the internal demands are upon modern enterprises, the external environment to be provided for them must be positively conducive for “industrial development and efficiency”. Banks must be strong. Capital markets need to be developed. Macroeconomic policy has to provide a framework for short-term flexibility and long-term stability. In this regard, the financial sector needs to be “liberalized” and the regional macroeconomic environment needs to be “stabilized” in the context of free and open flows within the global financial system. Fourthly, ASEAN has made a call for nations within the ASEAN community to be “governed with the consent and greater participation of the people”. The polity can progress for the long term if people are given wide opportunities for participation in civic, social, and political affairs. They have to be empowered to take the affairs of the community and polity in their hands so that these affairs are truly theirs, and therefore are genuinely of the people. The ultimate power to decide should rest with them since in the final analysis it is their welfare that is at stake. Thus, the final determination is by the people and for the people. For this people-orientation to become operative, the rule of law needs to be observed. For it is by the rule of law that “social justice” is promoted, “civil society is empowered”, and the sustainability of a “high quality of life” of the people is secured. Where elections are free and fair, and the press is a bastion of freedom and fairness, there the rule of law is nurtured. Moreover, freedom and fairness thrive in an open environment. In this sense, openness should pervade each polity, each economy, and each society in ASEAN. Indeed, it is by each national community within ASEAN being genuinely open to one another, to the rest of East Asia and the world that a new ASEAN community can be built. It is through a “People’s ASEAN” that the vision of Southeast Asia for 2020 can be realized! These are noble statements. They are grand ideals. They conform to universal values. However, they seem so distant from current realities in most ASEAN societies that anyone can justifiably be cynical about them. The fact, nevertheless, is that ASEAN has adopted them as guiding principles on which an ASEAN community must be built. Any seriousness and sincerity towards these principles should provide a real test on whether that community is in the process of being actually built in the years and decades ahead.

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INTERCONNECTED ASPECTS OF PEOPLE’S WELFARE Our experience within the region in the recent past has engraved deeply in our minds and hearts that human security and people’s welfare are holistic. They encompass many aspects of civics, economics, and politics, which cannot be set apart from each other because they are fundamentally interconnected. Indeed, a genuine and holistic development of peoples entails progress in all civic, economic, and political aspects, which need to be pursued in broad consistency with each other, since the same general principles apply to all dimensions of human security and welfare. The principles that apply to civics also apply broadly to economics and politics (Estanislao 1999a). In the development of civil society, for instance, it is particularly important that social cohesion is promoted by stressing both rights and duties, both personal dignity and civic responsibility, both equitable opportunity for all individuals and solidarity for the common good. Each local community and each national society would need to strike the appropriate balance between these fundamentals for itself. That balance may vary with circumstances. Nonetheless, in the final analysis, it has to lead to a progressive outcome. That outcome should be characterized by individuals as fully empowered as their abilities permit, and as socially committed as the common good requires. To help bring about that outcome, it is necessary to put in place processes that are transparent and fair as well as a system of clear accountability. In other words, there should be as wide a room as possible for participation and contribution by everyone to social and community welfare. The sure way towards this ideal is by having governance systems that are at par with those in any open and free society. This work is still very much in progress throughout the region. The different national societies in Southeast Asia are at different levels of development of their civil society. It is becoming clear that for them to cohere as one and become an ASEAN community, each of them has to accept transparency, accountability, and fairness as the common principles by which to develop their governance systems and further strengthen their respective civil societies. Moreover, each has to achieve progress in this regard as quickly as possible, for it is by such fast individual progress that an important dimension — the development of civil society — of the ASEAN community can be realized. As civil society develops, so must the economy, guided by the same principles. Therefore, in reforming the economies of the region, the same principles

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of transparency, accountability, and fairness have to be brought to bear upon the corporate governance systems of enterprises. These enterprises need to be competitive in a free trade area, where tariffs are low and other barriers to the free flow of goods, services, and funds are significantly reduced. They need to be efficient, with levels of productivity that are broadly comparable with those that prevail in other economies. They need to operate in a realistic, pragmatic, business-like fashion, which gives a premium on low cost, high quality, reliable service, and dependable delivery schedules. To meet these needs, enterprises, institutions, and individuals in the region need to adopt the modern business paradigms of integrity in operations, professionalism in arms-length relationships, and pragmatism in delivering only excellent results. These paradigms are as true in enterprises as in banking, in financial institutions as in the financial system, in microeconomic units as in the macroeconomic system. Again, the sooner these paradigms are accepted, observed, and made fully operational in each economy, the more competitive the enterprises, the stronger the banking sectors, and the more stable the macroeconomic systems become. The faster these paradigms characterize the enterprises, banks, and macroeconomies, the sooner the ASEAN Free Trade Area (AFTA) can become a reality. Moreover, the relationship between the financial and monetary systems within the region as well as with those in East Asia and beyond can also become more open and liberal. In other words, the bridges by which the Southeast Asian nations have resolved to reach out to each other will become bigger and more heavily travelled. Co-operation becomes more necessary precisely because competition has become more intense. Co-ordination becomes more critical because as cross-border flows become heavy, regulatory practices would need to be aligned, supervision more comparable, and specification of the bolts and nuts of doing business in each jurisdiction within the ASEAN community more similar. Indeed, the aspirations to become a free trade area and a common investment area would become a reality by the ready and quick observance of the common discipline imposed by free and open markets. Once again, we are reminded that in dealing with each other, common fundamental principles give life to patterns of behaviour which are conducive to co-operation and coordination, the well-springs of the important economic dimension of progress as one community. The fundamental principles of free and open polities should also animate ASEAN relations with the rest of the world. They should give rise to paradigms of thought and conduct which lead Southeast Asia to become outwardoriented, connected with the global community, and interdependent with those economies and nations in the forefront of building a peaceful and

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prosperous world. In an era of globalization, Southeast Asia cannot limit its gaze inwards. It has to look outward, for its own self-interest and in the interest of being able to contribute positively and meaningfully to the new global architecture that is being framed up. It has to be wired and plugged into the mainstream of commerce, the flow of ideas and technology, the different gateways by which international efforts are channelled to promote justice and peace in the world. It has to strike a proper balance between concern for independence and the imperative for interdependence with other economies and nations in the global community (Luhulima 1999). Through a spirit of co-operation, with the ability to compromise, Southeast Asia should be proactive in forging consensus on codes of conduct, best practices, standards, and conventions to guide political relations in Asia, in other regions of the world, and in the global community. This would require ASEAN to have good standing and to occupy a high moral ground in its dealings with the rest of the world. These it can secure if Southeast Asia takes great care in promoting internal stability and human security in each of its ten member nations. The same high principles that guide the development of civics and economics in ASEAN should also guide the development of its politics. Indeed, a rapid process of transition to democracy can help secure the political dimension of the ASEAN community. In Southeast Asia, with vast differences partly bequeathed by history and partly by patterns of development in the past five decades, this process has proven to be long, arduous, and difficult. In fact, the challenge in many member nations is still to make democracy work. The task before them is still to apply the fundamental principles of democracy, showing genuine long-term commitment to them as well as pragmatic flexibility, while making progress, in view of pressing shortterm realities. This huge challenge entails, among others, the spread of universal education, instilling a civic spirit, people empowerment, building up of institutions, securing the freedom of the press, and the fairness of regular elections. Even as the challenge has manifold and heavy demands, ASEAN has to rise to meet them. It has to prove that short-term realism is not an excuse for giving short shrift to its long-term commitment to fundamental ideals. It cannot do any less as an ASEAN community, which aims to exercise a constructive and positive influence in the global community. In sum, it is because human security and people’s welfare are holistic and multifaceted, that the different dimensions of civic, economic, and political development are deeply interconnected. Their close interconnection demands that the paradigms of free and open societies, economies and polities must

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pervade each ASEAN member, and in time the ASEAN community as well. The paradigms include the following: transparent, accountable, and fair; competitive, productive and realistic; connected, interdependent, and outwardoriented. All these apply as much to the development of civil society as to economic and political development (Almonte 2000). The process of applying these paradigms, which flow out of shared fundamental principles, the permanent foundation stones for the ASEAN community, highlights the closely interconnected priorities Southeast Asia needs to pursue. These priorities are the promotion of domestic cohesion, strengthening of regional solidarity, and a positive response to the challenge of economic globalization and political democratization from the international community. These priorities need to be pursued in close tandem and in productive mutual support of each other. Indeed, progress in one leads to further development in others. Furthermore, progress in one is also a prerequisite for further development in others! Only by coherence can strength be secured and development sustained. In civics, economics, and politics, development needs to be inspired by, and pursued on the basis of, the same principles upon which an open and free ASEAN community must be built.

THE ECONOMIC DEVELOPMENT DIMENSION It is within the long-term holistic context of human security and people’s progress in an ASEAN community — still in the initial stage of being built — that the economic and trade dimension can be highlighted. As a regional association, ASEAN has, from its pronoucements, given prime importance to economic co-operation. Not surprisingly, today there is an asymmetry within ASEAN (Siazon 2000). Although ASEAN regional cooperation has, in the main, given great stress on the economic dimension, the other dimensions of civil society development and political co-operation still have to be given their due share of attention and concern. Nonetheless, in the next two decades, as ASEAN builds itself up into a community, even as these other dimensions take on much greater importance than in the past, the economic dimension will continue to be in the forefront of ASEAN concerns. It will continue to attract considerable attention. It will continue to be a rich area for dialogue, co-operation, and co-ordination. In the economic area, the holistic nature of human security brings to the fore at least two perspectives. The first of these is the importance of integrity, solidarity, and responsibility. Integrity within each national economy is essential, since it is on the basis of domestic cohesion that local stability and

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progress can be obtained. Solidarity with one’s immediate neighbours in ASEAN is critical, since in the case of Southeast Asia the truism applies that hanging separately makes for irrelevance, and banding together makes for acceptance as a partner with sufficient weight in international councils. A deep sense of responsibility adds weight to ASEAN as it moves about trying to become a constructive force for the new global architecture it should be helping to frame and build. Economic liberalization provides the second perspective. The process has become inexorable, and its pace appears to be quickening, in part because of the broad and increasingly universal commitment to freedom and openness. Free and open flows can happen within, and are facilitated by, liberalized economic regimes, which operate by competition principles and the discipline of markets. Markets work through invisible hands. They are blind to privilege. They are unsentimental towards bleeding hearts. They are intolerant of distortions. They are quick to give rewards to winners and to mete out punishments to losers, putting a great divide and some distance between them. Although markets bring in the tide that lifts all boats, still they dispense equity, not equality. Both these perspectives bring changes in the way Southeast Asia should promote economic progress in the next two decades. For instance, governments are still relevant and important, but their role in promoting development becomes less preponderant than it may have been in the past. The provision of special privileges for a few to become the big captains of industry and chosen champions of specific sectors ceases to be the preferred approach. Rather, it is that of providing equal opportunity to all who must be empowered to compete on the basis of their ability, entrepreneurship, and access to markets, technology, and capital. Handouts, safety nets, and special projects for the poor are no longer the main channels through which charity reaches out to the underprivileged. Rather, it is putting within their reach various business-oriented, income-generating instruments by which the poor can uplift themselves. More generally, competition from others, particularly from foreigners, is no longer to be feared. Rather, it is to be taken up as a challenge to become better and more efficient. Protection from others seeking to enter into one’s domestic market can no longer be invoked as a shield for one’s relative inefficiency. Rather, it is the removal of barriers to entry into foreign markets that needs to be secured. The inferiority complex that assumes foreigners to be formidable opponents against whom there is no hope of winning needs to be cast aside. Even start-ups should have the mature confidence to take on

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any competitors in any market, including foreign markets, and succeed against them on business and economic grounds. These changes in attitude can give a lift to, and facilitate the liberalization of trade, finance, and development in Southeast Asia. These three — trade, finance, and development — are so closely interrelated that liberalization in trade also brings in pressure for liberalization in finance and development.

TRADE LIBERALIZATION Trade liberalization in ASEAN has been taking a life of its own since 1992. Schedules and deadlines have been brought forward. Even in the midst of the 1997–99 crisis, ASEAN took pains to show strong resolve not to step back from its commitment to lower tariffs within AFTA. Moreover, ASEAN seems to be going by the experience of other free trade areas, which shows that once firm and certain deadlines have been set, the tendency — once the process of lowering tariffs has started — is to keep on moving the timetable forward. However, trade liberalization entails more than lowering tariff rates. It also calls for technical co-operation so that non-tariff barriers are removed, and administrative discretion is not abused as a substitute for former tariff and non-tariff barriers. Administrative arrangements have to be made transparent and comparable. Over time, they need to converge. Furthermore, common standards need to be adopted, and regulatory practices more closely aligned with each other. All these take time, a great deal of work, and much greater patience and goodwill. As difficult and tedious as the process to get all these done, still its intermediate as well as final effect is to broaden the ties that bind the community and deepen the spirit that animates its trade and other regimes (ASEAN Secretariat 1998). ASEAN cannot afford to make haste slowly, since pressures are becoming intense for negotiating free trade agreements with economies outside the Southeast Asian region. Japan is actively negotiating such an agreement with Singapore, with the idea of extending in time the results of such negotiation to the other ASEAN members. ASEAN is beginning to conduct regular dialogue with the three Northeast Asian economies of China, Japan, and South Korea. A similar dialogue has also been initiated with Australia and New Zealand (Siazon 2000). South Asia has also expressed openness to carry on a similar dialogue. On top of all these, most ASEAN members have been actively engaged in the Asia-Pacific Economic Co-operation (APEC) forum and the World Trade Organization (WTO). Through all this flurry of dialogue and engagement with several partners,

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ASEAN would do well to remember the principle of concentric circles. It is best to start with one’s own immediate neighbours, and then reach out systematically to others farther out. Indeed, the highest priority and the greatest speed for trade liberalization should be reserved for AFTA. The faster the process for AFTA is accelerated, and the sooner trade barriers within ASEAN are brought to their lowest pre-agreed levels, the more attractive ASEAN becomes as a partner in any free trade agreement. It follows that after 2002, ASEAN can begin multilateralizing any or all of the components of AFTA to several of its dialogue partners. The three Northeast Asian economies present the most immediate challenge and opportunity. ASEAN should take care not to exclude these economies, which are also members of APEC, specifically Hong Kong and Chinese Taipei, from its next target area. For the same reason, Australia and New Zealand should be included in its next zone of preference. In time, it would make sense to intensify dealings and make appropriate arrangements with South Asia. A more systematic and structured approach towards economic neighbours, depending on their relative economic distance from ASEAN, would require Southeast Asia to direct all its serious efforts and intense attention at AFTA: what it accomplishes in AFTA, it can then offer to others. There may well be a temptation for one ASEAN member to strike a deal with another economy from outside Southeast Asia. There may well be attempts by other economies from outside the region to pick ASEAN members, one after another, so as to arrive at a quick free trade agreement with a few of them. Such a temptation has to be resisted, and such attempts spurned, for they represent a direct threat to ASEAN solidarity. Even as ASEAN solidarity is still in the process of being enhanced, and even as AFTA agreements are gradually and systematically extended to several dialogue partners — particularly those in Asia as well as Australia and New Zealand — those ASEAN economies that are already in APEC and the WTO should continue to be actively engaged in these bigger and broader processes. As AFTA is further substantiated by much freer and more open flows within Southeast Asia, the ASEAN economies in APEC and the WTO can play a more positive and constructive role in them. They can push for agreements within APEC and the WTO that can mirror those already in place in AFTA. They can press forward the wave of trade liberalization that had already swept through AFTA so that it too would eventually reach and wash over APEC and the WTO as well. The key to all this is AFTA. The more real and credible it is, the greater the role the ASEAN economies can play in East Asia, APEC, and in the global trading community through the WTO. AFTA, then, should be the primary focus and highest priority of each

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ASEAN economy. All other trade preferential arrangements with other economies should be pursued and forged, but only in a manner that supports and strengthens AFTA.

FINANCIAL REFORMS The recent East Asian financial crisis has highlighted the importance of liberalization in finance in Southeast Asia. That crisis has been traced to many different causes. However, even in the initial confusion that it brought, it highlighted the strong and intimate connection between trade and financial liberalization. As trade has become more open and free, so have financial flows. As money has flowed in and out of various Southeast Asian economies more openly and freely, its volume has risen. So has its volatility. With closer trade interdependence between ASEAN and other East Asian economies, there has also been a greater tendency to view them under a broadly similar light and treat them as they have been claiming to become, that is, as economies belonging to one economic region. The 1997–99 crisis has brought home to Southeast Asia a few broad lessons. Firstly, that trade liberalization soon brings in pressure for financial liberalization. Secondly, that financial liberalization is complex and multifaceted, which can be as demanding and arduous a process as trade liberalization. For instance, financial liberalization entails reforms in corporate governance. At the enterprise level, the system of governance has to be transparent, accountable, and fair. Books have to be kept according to internationally accepted accounting and auditing standards. Boards of directors have to take full responsibility for the governance of the enterprise, whose management is accountable to them, as much as they are accountable to all shareholders and other relevant stakeholders. Adequate and timely information has to be disclosed to market players, agents and regulators, with whom an open relationship has to be maintained on a professional, arms-length basis. All these requirements enable markets to make a judgement and an assessment of the shareholder value of the enterprise. That judgement is critical to making markets work. Just as critical to making markets work is the proper and professional supervision of banks and financial institutions. Their books need to be clean and their transactions above-board. Their strength and credibility should be beyond doubt. To secure all these, standards of proper dealing, operational integrity, and financial prudence should be religiously observed and strictly enforced. Adequate capital has to be on hand, and other safeguards for suitable risk management have to be put in place. Supervision has to be

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competent, tight, and strict. These principles are well known. Their application, however, needs to be taken much more seriously in Southeast Asia. After all, as the financial crisis of 1997–99 has shown, any breach — uncorrected and sustained over a period of time — can turn out to be very expensive. Deviations from these principles weaken the entire banking system and spread moral hazard, which weighs down the entire economy. The macroeconomy too is subject to serious risks, when distortions are allowed to build up and adjustments are postponed for too long that, even when they are eventually taken, they are too little and too late. The macroeconomy is a system of closely interrelated items. Foreign exchange flows, reserve levels, foreign exchange rates, interest rates, inflation rates referring not only to the prices of goods but to asset prices as well, and growth rates in credit are among the items that need to be monitored and viewed in context with each other. The system is not too complex for markets to understand, and markets do respond sensitively to distortions. The interrelationship is not too abstruse for financial flows to determine how they must move. Thus, imbalances that run up to imprudent levels and tolerated for too long eventually tempt speculation. As the financial crisis of 1997–99 has shown, it is necessary to put up a macroeconomic risk management system that calls for quick and flexible adjustments in the short-term in order to secure long-term stability. It is when such a system fails and short-term adjustments are neglected that macroeconomic shocks put severe stress upon banks. When banks have been falling short of the standards of prudence, and banking supervision has been less than tight and rigorous, such severe stress upon them can cause a number of them to fail and the banking system to weaken. When the banking system weakens, it passes on the pressure to the enterprises and individuals indebted to banks. Faced with this pressure and with the wide impact of the macroeconomic shock, enterprises and individuals are thrown into considerable financial difficulty. Some are forced across the threshold towards bankruptcy. With bankruptcies, the cycle turns ever more vicious and the crisis progressively worsens. Corporate governance reforms, financial sector strengthening, professional banking supervision, and adequate macroeconomic risk management are the major components of a programme at the core of financial liberalization. The demands from each component are great. The effort and expense required to meet them is enormous. The change they call for is deep. However, there can be no half measures and no half steps towards the sweeping reforms they entail. For the cost of not going all the way and covering all bases is much steeper for the corporate sector, the banking system, and the entire economy

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than adapting quickly and taking in all the reforms decisively. There is also no choice once trade liberalization has been put on stream: once trade is free and open, money also finds ways to move just as freely and openly. Moreover, the broad sweep of finance, which interconnects microeconomic enterprises, banks, and the financial system as well as the macroeconomy, makes financial liberalization necessary, and even imperative, over time, for the economy from top to bottom and vice versa (PECC Peer Assistance and Review Network 1999). Fortunately, Southeast Asia does not need to reinvent the wheel. The principles behind the reforms are clear. The experience gained from undertaking them is available from various sources. Best practices have been put together, and in some instances standards have already been set and codes formulated. The Organization for Economic Co-operation and Development (OECD), for instance, has formulated a code of corporate governance to guide reforms in the field. The Bank of International Settlement (BIS) has also published the core principles for bank supervision, over which there has been broad consensus. The International Monetary Fund (IMF) continues to be in the forefront of macroeconomic monitoring and surveillance. For ASEAN, therefore, there are international or global principles and codes to draw from. These can provide clear guidelines on the financial reform road map ASEAN may have to chart for itself. The guidelines need to be adapted to the circumstances of the region, with flexibility allowed because of the diversity of those circumstances. ASEAN has been clear about the need for working closely with each other. It launched its own surveillance mechanism for assessing macroeconomic risk that the economies of the region have been facing. It has also called for regular dialogue, close co-operation and eventual co-ordination on reforms for strengthening the financial sector and improving corporate governance in Southeast Asia and in East Asia as a whole (ASEAN Plus Three Leaders 1999). While ASEAN has made the appropriate calls for financial reforms, including all three components of corporate governance, financial sector strengthening, and macroeconomic risk management, the substantive work is yet to be done. Mechanisms for regular dialogue have to be firmed up, and proper arrangements for servicing them have to be put in place. Modalities for eventual close co-operation need to be clarified and tested so that work with peers in the region can facilitate actual implementation of financial reforms. The goals for the region in the next two decades need to be articulated and debated on. That debate cannot skirt the fundamental choices ASEAN has to make in undertaking financial reforms in the region. As with other regions, ASEAN

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faces a trinity of objectives: stability of exchange rates, mobility of capital, and independence of monetary policy (Harding 1999). These three objectives are all prime, but it is impossible to pursue all three of them to the same extent. Some compromises need to be made, and some priorities set. In the short term, some individual economies in the region may insist on giving the highest priority to stability of exchange rates and the independence of monetary policy. For a limited period, particularly in the middle of a crisis, they may sacrifice the mobility of capital by imposing restrictions on the free flow of foreign exchange, as Malaysia did. For the long term, the priorities may well be different. Both as individual economies and as a region, the ASEAN members, individually or collectively, may opt to put the highest premium on stability of exchange rates and mobility of capital for the long term. This may mean that the relative independence of monetary policy may have to be compromised. This may also mean closer co-operation and tighter co-ordination on monetary and financial issues in ASEAN, and perhaps in East Asia as a whole (Estanislao 1999b). It is in this light that the proposal for an Asian Monetary Fund or an East Asian common currency can be seen and assessed. The proposal is indicative of the initial stirrings for an East Asian financial zone. The stirrings are nascent. As with most proposals from East Asia, they are not clearly articulated. However, some elements have been floated, such as the idea of multiple anchors (the U.S. dollar, the European euro, and the Japanese yen), reserve baskets (with dynamically changing composition), and broad bands (within which currencies in ASEAN and East Asia fluctuate relative to each other). Such an idea is far too complex to tax the patience of those who simply wish to set a political goal, such as to work towards an East Asian common currency over many decades (Estrada 1999). Whatever the final goal may be, for Southeast Asia the process of pursuing deep and serious financial reforms has been initiated, and it has to be pursued with sustained effort and team work in the years ahead. The pragmatism of the region is to be tested by its smartness to pick the best elements and practices on offer from the global community. On the basis of such elements and practices, each ASEAN economy should be shoring up its financial integrity so as to become a strong financial pillar in the region. Furthermore, ASEAN solidarity is constantly to be tested by the forthrightness in which the peer process is made to work. Its responsibility is to be displayed by its openness to work with others in East Asia in setting up mechanisms designed for the region that must be fully in step with the constructive initiatives for building a global financial architecture. In this field, ASEAN has not been short of ideas. It has also made a

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number of noises about the probable direction it should be taking. On the whole, the region has thus far been woefully short of pragmatic actions and decisive steps towards fully adopting financial reforms and strengthening its financial architecture.

PEOPLE DEVELOPMENT Much has been said about the difficulty of building an ASEAN community and developing it, because of the significant differences between the members (Almonte 2000). They are at different stages of development. A few already qualify for membership in the OECD, the exclusive club of developed economies. Others are still at a very early stage of transition to the market economy. The differences are too real to be ignored, and the problem of moving forward together towards becoming one community cannot be underestimated. Moreover, development is a dynamic process. It issues fresh challenges to any economy, at any stage of development, to keep moving up the development ladder. Thus, no economy, however developed, can rest and stray from the process of reform because changes arising from new circumstances are always required. Nevertheless, the distance it has to cover in its effort to catch up with the others should awe no economy, however undeveloped it may be. It is always possible to learn from the experience of others, avoid their mistakes, build on their successes, and thereby make the road to development much shorter. For Southeast Asia, as in any other region, the challenge of development remains that of raising productivity to the highest level possible. This challenge has remained the same since fifty years ago, when the process of development started in some economies of the region. The same challenge still faces all the ASEAN members — and the region as a whole — as they strive to build one ASEAN community and develop it in the next two decades. The challenge to higher productivity is to be met by putting in place the facilities and infrastructure that enable enterprises to operate competitively. Technology, finance, and organization play their role in this regard. It is possible to import technology. To do so, finance is necessary, but this need can be met from both domestic sources (savings rates need to be high) and foreign sources (investments and other sources of long-term capital are critical). The mix of technology and finance becomes productive and efficient if the proper organization is in place to put the mix to competitive use in the marketplace. Business enterprises in the hands of private entrepreneurs are an example of such an organization. Moreover, past experience has shown that

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state-owned enterprises are less able to compete in free and open markets. In any case, enterprises become dynamic and flexible in an environment where the state steps back to give them the proper environment and a wider room for adhering to market discipline and competing in open markets. The challenge to higher productivity is also to be met by ensuring that human resources are properly developed and equipped. They have to secure a high base of general education, and the bar for this base is being set higher today. They must also have the appropriate skills, which need to be upgraded continuously to remain relevant in a dynamic context. Attitudes to work must be positive and attuned to the requirements of the modern workplace. Flexibility and the spirit of innovation have also become part of the critical demand of the times. Indeed, not only is universal education required. Its standards also need to be upgraded. Moreover, education has to continue throughout one’s lifetime. Beyond the hardware of productive infrastructure and the software of continuously educated human resources, the challenge to higher productivity is to be met by a market-oriented regime with the institutions to ensure that markets work. Markets thrive in a policy environment which fosters competition, secures a level playing field, formulates fair and simple rules, and sees to it that those rules apply to all. For markets to work efficiently, governments must also work efficiently, fairly, and cleanly. Indeed, markets and governments have to work in tandem — instead of standing in the way of each other or working at cross purposes — to accelerate the process of development. For Southeast Asia, while the principles for sustained development are clear and common, their observance may have to take into account the vastly differing circumstances in the different economies. Nonetheless, there are a number of areas where they can learn from each other’s experience and, in the spirit of regional solidarity, adopt common best practices taken from within the region as well as from the wider global community. For instance, to be able to put in and improve the infrastructure needed for further development, focus has to be trained on savings. The rates of savings need to be raised and maintained at high levels. Capital and financial markets need to be developed. These financial markets should ensure that rewards for savings and returns to investments are market-determined. Privatization and private business development should complement the initial thrust towards the liberalization of the investment regime. To give some edge to human resource development in the region, initiatives for networking between educational and skills training institutions should be promoted. The use of information technology for improvement of standards

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and facilitation of the sharing of resources should be promoted. People-topeople exchanges can be multiplied. They should be made functional for entrepreneurs, managers of small and medium enterprises, businessmen in search of partners within the region, NGO volunteers, and development workers, etc. However, even as regional initiatives are opened up and brought to the level of the ordinary people, there should also be more productive exchanges to improve administrative regimes, sharpen supervisory practices, align business laws and regulations, and upgrade public sector services for business development. In Southeast Asia, there is also a deepening consciousness that development goes beyond increasing productivity. Development also reaches out and includes broadening the opportunity for higher levels of welfare for all, and for a better quality of life in all its dimensions. This opens up a broad panorama for regional co-operation as the ASEAN community strives to promote the genuine development of people in the region (Estanislao 1999a).

PATHWAYS TOWARDS PROGRESS IN THE NEXT TWO DECADES Globalization hurls awesome challenges to Southeast Asia over the next two decades, during which the realization of ASEAN Vision 2020 should be pursued in earnest. Globalization, however, is all about change, and the pursuit of a vision is also about change. Fortunately, the changes required by both globalization and the pursuit of ASEAN Vision 2020 are broadly similar and remarkably consistent with each other. Globalization calls for changes demanded by openness, freedom, and fairness. All these apply to civil society development, adherence to market competition and democratization, which the Vision entails. Thus, for Southeast Asia to move forward towards the building up of an ASEAN community, it has to rise up to the challenge of globalization by becoming more open, free and fair as societies, economies, and polities. The process of becoming more open, free, and fair starts at home, at the level of each national ASEAN member state. It is at this level where the most creative, local initiatives for people’s welfare are undertaken to promote social cohesion, economic productivity, and national integrity. It is where the widest room for flexibility has to be provided, not as a licence to resist or slow down change, but as freedom to bring about reforms as effectively and quickly as possible. At the regional level, working with peers towards the common objective of building the ASEAN community by 2020 requires forthrightness, frankness,

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and friendship. Dialogue, co-operation, and co-ordination need to be extended to many areas, but they can produce positive outcomes only if neighbours begin to deal with one another with the comfort and ease of friends. It is among friends and neighbours that exchanges have to be frank so that they can mutually support each other, and hearts and minds have to be considerate so that they can be forthright in extending help to each other. In the process, codes of conduct have to evolve, mechanisms to adapt to changing circumstances, and practices to respond to real needs. ASEAN also needs to play its cards well in the international community even as it is still engaged in the process of building the ASEAN community. In order to become a positive force in the international community, each member state must endeavour to contribute to ASEAN solidarity. Each must remain true and faithful to the fundamental principles that underlie the ASEAN community. Each must develop its civil society, submit its economy to market discipline, and strengthen its democracy through the principles of transparency, accountability and fairness, competitiveness, productivity and realism, connectedness, interdependence, and outward orientation. These principles can give to ASEAN more than regional solidarity. They can also confer upon ASEAN a moral authority and power to work constructively with other nations in East Asia, Asia, the Asia-Pacific region, and other regions to build solid global institutions. ASEAN must adhere to the principles it shares with all other nations which are equally committed to openness, freedom, and fairness in the global community where market competition and democracy are ascendant. It is from those principles that codes of conduct, best practices, standards, and conventions can be drawn. It is by those principles that mechanisms for cooperation and co-ordination between nations and regions can operate. It is on the basis of those principles that agreements can be forged, operational programmes formulated, and actions taken. ASEAN must place itself in a position to participate actively, and in many instances take the lead, in formulating those codes, setting up those mechanisms, and forging those agreements. If it does so, it can gain back its lustre, get back the power of its voice, and give new weight and influence to its community. In trade, finance, and development, ASEAN must also show that it has learned the lesson of consistency. It should pursue its initiatives at trade liberalization with the same principles that it brings to bear upon financial liberalization and holistic people development. It is because ASEAN pursues reforms in all the interconnected dimensions of economics with consistency, pragmatism, and vigour — with the requisite speed demanded by the tight timetable set by its community-building programme — that it can and

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should look beyond the region. In trade reforms, it can consider extending the elements of AFTA that it has already put in place, to others in East Asia, Asia, the Asia Pacific region, and through the WTO to all others in the world economy. In financial reforms and people development, once regional solidarity has been strengthened, it can seek greater co-operation and closer co-ordination with other economies too. Indeed, by banding more tightly with each other in the pursuit of all reforms encompassed by trade, finance, and development, ASEAN can get out of the isolated backwaters and place itself in the global mainstream. It can thus play a more constructive role and exercise a more positive influence in the international economy. The building of the ASEAN community should be centred on people. After all, people are the ones to build the ASEAN community through their enterprise and productivity. In a real sense, that community should, first and foremost, consist of them. It should also be for them. Thus, the community should broaden the opportunities that increase their welfare. In the final analysis, it should empower and equip them in the process, for selfimprovement and personal progress. The responsibility for building the ASEAN community rests with the people of the region. However, in an age of globalization, and of civil society development, market competition, and democratization, those from the international community who share this commitment to the same fundamental principles should extend their goodwill. They can show it in diverse ways that reinforce, complement, prod, and effectively help the people, specifically the ordinary people of the ASEAN community.

SPECIFIC PERSPECTIVES FOR MOVING FORWARD Against this background, a number of perspectives can be put forward as ASEAN tries to build itself up into a community in the next two decades (ASEAN Economic Forum 2000). Is ASEAN Still Relevant? It has been thirty-three years since ASEAN was founded, and over the years it has been credited with noteworthy achievements. Its most critical, although often unheralded, achievement has been the peace it has helped secure in Southeast Asia. ASEAN members, largely through the regional association, which now covers all ten Southeast Asian countries, have managed to interact more positively rather than only peacefully co-exist with each other. However, each ASEAN member and the Association itself are being put

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under increasing strain. They face enormous challenges. Globalization and the information technology (IT) revolution are bringing about changes which are difficult to resist, and even more difficult to appreciate and adapt to. Enormous twin pressures are at work to hollow out the traditional, centralized, assertive, and dominating nation-state: there is downward pressure to hand more autonomy to local communities, and there is upward pressure to share or surrender certain aspects of sovereignty to bigger regional and global associations and institutions. Moreover, different types of faultlines are widening, from the digital to the economic and social, which tend to make the gaps within nation-states and between neighbours in the region much bigger and more difficult to bridge. There are also new demands, such as those related to the environment, values, and equity, which draw impetus from groups from all around the globe. In trying to face up to these enormous challenges, each ASEAN member has come to realize that individually and in relative isolation from the others, it is too small to grapple with them on its own. However, the question has always been whether, as each country looks outward, it should relate more strongly and act more cohesively with its immediate neighbours, or should it act in a virtual world where borders, physical distance, and geography have become irrelevant? Each ASEAN member can choose to work and deal more closely with its immediate neighbours in Southeast Asia, or make a big, decisive leap into the global community without any regional preferences or membership in a regional grouping. Fortuitously, the either-or choice may be open if nation-states were concerned about economics and finance alone, but politics and security cannot be pushed too far into the background. Civics as well as the other aspects and dimensions of civil society always tend to bring themselves into the foreground. For as long as these non-economic and non-financial aspects continue to loom large, as they always do, then there is little choice other than that of working and co-operating well with one’s immediate neighbours. This is why ASEAN continues to be relevant not only to Southeast Asia, but to East Asia as well, and even to the entire global community. The comprehensive and interconnected aspects of modern life, from the economic and financial to the political and social, need to be dealt with integrally and seamlessly in a dynamic, open, and wired global society. Precisely because of the complexity of the challenge, countries do well by pulling together rather than by setting out separately. Realistically, because of culture, geography, and the dictates of effective governance, as the nation states have become too small, the entire globe is still too big. So, regional groupings such as ASEAN may prove to be “just about right”, at least for the next thirty-three years.

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However, ASEAN has to continue to be pragmatically flexible to remain relevant in view of the dynamic challenges its members face. The Opportunities for ASEAN ASEAN, as it has been functioning, is fast becoming irrelevant. During its first thirty-three years, ASEAN has been operating as a set of nation-states, each jealous of its sovereignty but trying to come to an agreement on a few issues that made as little a dent on each other’s national sovereignty as diplomatically possible. For all its economic pretensions, ASEAN has been mainly about political issues, defined and worked on by the ministries (departments) of foreign affairs. It thrived on the basis of protocol and consensus rather than of substance and firm resolutions. It cared more about agreements on paper than results in the field. It grew more out of words uttered in meetings than out of actions taken after the meetings. Moreover, in a world that has become so much more interdependent, ASEAN has been trying vainly to hang on to its operating principle of nonintervention in the domestic affairs of member states. In the next thirty-three years, on the basis of present trends, ASEAN needs to make a radical shift in its paradigms. Each ASEAN member is challenged to show greater restraint in the pursuit of narrow national selfinterest and to regard national sovereignty as less than absolute. As the East Timor problem and the 1997–99 financial crisis have shown, the pressure is for greater co-operation and mutual support, which extend even to domestic issues having great regional and international relevance and implications. Economic and financial issues are becoming more substantive, substantial, and broader in their impact. They are intruding forcefully into the ASEAN agenda as are other issues, including social, environmental, etc. ASEAN is thus given an opportunity to make its agenda broader and more comprehensive. This can no longer be heavily weighted in favour of the traditionally predominant political and security issues. It must bring in the other issues, which had been at the periphery, such as the economic and social. These need to be brought more decisively into the core of ASEAN concerns and programmes. ASEAN can begin to seize this opportunity only if it gives more meaning and conviction to its professed goal of building a people-centred ASEAN community. Visionary leaders are needed to build a community, not bureaucrats, no matter how internationally minded. These leaders must come from a broad field, the political, economic, and social. They have to be imbued with a community spirit, that draws life and inspiration from shared

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principles and convictions. They have to be given a wide range within which to take free initiatives and pursue bold programmes. ASEAN’s opportunity lies in opening its thus far narrow confines to these leaders. It must provide a framework so that these leaders can interact regularly, pursue bold initiatives with a sense of urgency and deep commitment, and forge flexible coalitions of the willing and able so as to get things done quickly. A great opportunity lies ahead for ASEAN, but only if it expands its agenda beyond the mainly political field, engages more players beyond the international bureaucrats in a few government ministries, and provides an enabling environment in which things get done in many fields. By showing genuine pragmatic flexibility, ASEAN can still regain the lustre it has lost and the appeal it once enjoyed. A New ASEAN Style It has often been said that form follows function. Once functions are expanded, the structures to pursue them need to be amended, and the style for doing things within those structures needs to be changed as well. A more comprehensive ASEAN cannot limit itself to mainly political and traditional security issues. Its agenda is broader and its functions wider. So, its structures cannot be limited to those framed by state-to-state, governmentto-government relations. They need to be more open, inclusive, and enabling. The style of doing things must also change, from the official, formal, and protocol-constrained, to the more open, inclusive, enabling, and entrepreneurial. The official style calls for meetings, and for even more meetings. Meetings are generally closed-door affairs. Leaks must be guarded against, especially when negotiations are going on, and state secrets must be kept sacrosanct. Results are measured mainly by the consensus forged, agreements signed, memoranda issued, and protocols formalized. Official proclamation is equated with task completion. So, what happens afterwards is of little interest, except for a few academics and think-tank scholars. Beyond the government, however, the style changes. On many economic issues, transparency is given a premium. There is greater interest in what happens after any agreement is signed: parties must live up to their commitments, and they must deliver on their promises. There is accountability for actions taken, targets met, and specifications complied with. There is deep interest in giving generous incentives and rewards for excellent performance and in giving the boot to non-performers. Even as everyone is held to a

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certain standard of responsibility, everyone is given a good measure of freedom to rise up to that standard. With freedom, a creative, entrepreneurial culture is fostered. On social issues, the style is not only more open, but it is also much more participatory and inclusive. Consultations are given a premium. Process counts. Reaching out matters. Winning understanding, support, and approval is critical. While fairness is the mother of all criteria, transparency and accountability are given their due importance. Freedom, creativity, and a spirit of enterprise are also deeply valued. In the next thirty-three years, the ASEAN style needs to evolve and change. Many more initiatives would need to come from the ground and move up. Governments would need to step back and focus on providing a framework and an enabling environment for initiatives, consistent with fundamental principles and broad policy. Different groups, institutions, and individuals in the polity, the economy, and society would need to be encouraged to form networks, forge coalitions, and strike up co-operative arrangements, which can gradually give more flesh to the community spirit that must arise in ASEAN. Towards an Open ASEAN To their credit, the ASEAN governments have been talking about a “People’s ASEAN” to signal the shift from a government-driven regional association to a people-centred regional community. To “walk this talk”, much more than a paradigm shift is required. No less than a more open, inclusive, participatory ASEAN must be made to evolve quickly. Governments would need to continue to co-ordinate ASEAN programmes and initiatives that must be broader and more wide-ranging than those of the past three decades. Not only political issues, but also economic and financial, social and environmental issues need to be brought to the core. All these need to be handled and interconnected at the highest political level. Thus, heads of governments should meet regularly and formally in summits, which decide complex, forward-looking and outward-oriented issues of critical importance to ASEAN. A Council of Ministers should also meet to push forward various aspects of the ASEAN agenda. Indeed, the pressure has become more intense for the ASEAN Secretariat to be empowered in every regard. Its responsibilities should be broadened, and functions expanded with the corresponding staffing and financial support. The complexity, diversity, and all-inclusiveness of issues that come into the ASEAN agenda require governance to be more fully in line with the

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principles and ideals of free and open polities, economies, and societies. Thus, instead of ASEAN intergovernment institutions trying to micromanage programmes and initiatives, they should step up and occupy the high ground. There they should limit themselves largely to macromanagement. This calls for them to mainly provide the basic framework and enabling environment for other players and participants who can give flesh and blood to the ASEAN community ideals and principles. A basic framework and enabling environment for a genuine community to be built would require a shared community spirit and deep commitment to common convictions and aspirations. It should emphasize sharing of best practices, and pursuing the idea of a coalition of the willing and able, as well as mutual support and assistance through different stages of a usually difficult transition. Inevitably, there should be a sharing of resources for capacitybuilding so that at whatever stage any ASEAN member may find itself in, the transition up the stream to better practices, stronger institutions, greater competitiveness, and broader participation in regional and international programmes can be smoother, easier, and faster. In the next thirty-three years, there will be greater stress on each member’s ability to participate in global financial flows and the digital and biochemical revolution. ASEAN should ensure that the best practices it adopts, the stronger institutions it builds, and the greater competitiveness it achieves are fully in line and consistent with the demands of the global community. Only then can ASEAN be a truly open regional grouping. Only then can it be a positive regional building block to greater solidarity and harmony in the bigger and looser communities in East Asia, the Asia-Pacific, and the world.

RECOMMENDATIONS FOR ASEAN’S MOVE FORWARD It is against the above perspectives that a number of recommendations can be put forward for consideration (ASEAN Eminent Persons Group on Vision 2020, 2000). The Economic Dimension ASEAN risks becoming irrelevant in the economic field as it faces the twin challenges from globalization and the current tendency towards bilateral agreements. The challenge from globalization has at least two dimensions. The first is the spectre of reversal, demanded by a spectrum of interests that are opposed to free trade and investments. The riots in Seattle and Washington D.C., and

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more recently in Melbourne, Prague, and Genoa brought home the point that globalization cannot be taken as an inexorable process. It can be stalled and stopped. It may even be set back by a lack of conviction that free trade and investments can lift all boats. Indeed, the once solid commitment of ASEAN to move ahead with AFTA, despite the financial crisis of 1997–99, has ostensibly weakened after the Chiang Mai meeting. Soothing rhetoric and reassurance tried to hide the temporary stalling, but there can be no success in hiding the exceptions allowed and the postponement of due dates for the liberalization of a few critical sectors. The second is the disaffection with progress made in global trade negotiations. Attempts to launch a new round were aborted in Seattle, and the subsequent attempts to restart the process have not been productive thus far. The main silver lining behind the dark clouds is the imminent entry of China into the WTO. Beyond this, there may be some hustle, but no real movement. This has led a number of economies that are impatient for further progress to look elsewhere for further liberalization. This impatience has given rise to another challenge: the tendency of a few economies to go for bilateral trade and non-trade agreements. Singapore, an ASEAN economy, has been active in pursuing this route. It has recently signed an agreement with Japan, and it is in intense conversation with a few other economies as well — New Zealand and the United States, for instance. This tendency on the part of one or a few other ASEAN economies poses a danger to ASEAN, indeed threatening to marginalize it for the long term. To be fair, there is nothing to stop any ASEAN economy from entering into bilateral trade and non-trade agreements with other non-ASEAN economies. It may even be understandable, considering the stalling of progress in AFTA as well as the drift in APEC and the WTO. Lack of progress in regional (AFTA and APEC) and global (WTO) trade roundtables forces an economy eager to move on with further liberalization to seek alternatives elsewhere, for example, in bilateral trade and non-trade agreements. However, any ASEAN economy doing this can have its ASEAN commitment questioned, and its ASEAN credentials challenged. For it opens the door for members to enter into separate agreements with other economies, thus weakening their ability to secure better terms if they negotiated together as a group. This is illustrated by agriculture, which is a sticking point for Japan and of no relevance for Singapore. Thus, except for a minor hitch over the trade in orchids, the bilateral agreement between these two economies was relatively easy to forge without agriculture standing in the way. However, agriculture does stand in the way in the case of all the other ASEAN economies. Should

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they attempt to negotiate their own separate agreements with Japan, they would surely find themselves in relative disadvantage, bargaining for concessions in agriculture. The adage that by hanging together, ASEAN economies become stronger, still holds true, but this is being compromised by the recent tendency to go for bilateral agreements with other economies, without consultation with others in ASEAN. In global trade negotiations, ASEAN is a marginal player unless it cooperates closely with other emerging economies. In trying to make progress with AFTA, its very own regional arrangement, ASEAN has recently shown signs of losing heart and thereby risks being further marginalized. In bilateral trade negotiations too, ASEAN is being marginalized as one economy tries to go off on its own. ASEAN faces dire threats, indeed. Going Beyond AFTA AFTA has concentrated mainly on tariff reductions. Within a few years, hopefully within this decade, tariff rates on products and services moving within the ASEAN free trade area should be zero or very close to zero. This is an exhilarating prospect, which should raise the level of competition and force up the level of productivity within each ASEAN economy. The gains in trade volume and efficiency should be considerable. There are, however, many interests trying to stall or even stop this process. There has already been some stalling, as agreed in Chiang Mai. Moreover, the door for tagging a specific sector as an exception to enjoy two or three years’ delay in tariff reduction has been opened. How many sectors will be dragged through that door bears close watching in the next two years. Fortunately, however, the programme for tariff reduction within ASEAN is still largely in place. By 2003, most products in virtually all sectors will have close to zero tariffs within AFTA. In fact, in some economies such as Indonesia, because of their reform programmes in the wake of the 1997–99 crisis, most of the tariff rates are already consistent with the targets set for 2003. Thus, even as close watch needs to be given to the exceptions introduced and delays asked for, it is now time to look beyond AFTA. What are some of the steps that need to be aggressively taken? First, since free and open trade goes beyond tariff reduction into removing non-tariff barriers, one obvious next step is to ensure that all remaining nontariff barriers within AFTA are reduced and eventually taken down within clear timetables. Furthermore, ASEAN should move very quickly towards the adoption of common trade facilitation measures, common standards, and practices. This requires much technical work at ground level. It will pose a

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considerable task for government administrators in ASEAN, but it represents a wide and rich field for serious community-building within the region. Secondly, together with free and open trade must come free and open investment. In this regard, ASEAN needs to accelerate the implementation of the agreement to establish an ASEAN investment area. Investment promotion programmes, now in place in several ASEAN economies, need to be harmonized. They may need to be reformulated so as to complement, instead of competing against one another. This is a big task, one that will test the serious commitment of the different boards of investment in ASEAN to regional solidarity. The ASEAN leaders need to weigh in with their political authority to get this difficult and serious task done. Thirdly, the ASEAN economies must now put attention and resources to what they have been touting, the imperative of capacity-building. They now need to share best practices, swap notes of experience, and pursue the training of specialist administrators in all key aspects of trade facilitation and investment promotion. This calls for good neighbourliness. Indeed, it is in this area of capacity-building that the ASEAN community spirit can come to life. There are other steps also, such as e-ASEAN (e-commerce), conclusion of services liberalization, and the adoption of an “open skies” policy within the region. The plate is full, and there should be enough work to keep ASEAN busy for the rest of this decade. The exhilarating prospect is that once the plate is emptied, by taking off those that have already been accomplished, it can be filled up again with higher-level requirements of an economic area that is well on the way towards becoming a closely-knit community. Making ASEAN a Building Block Over the past few years, there have been many discussions about, along with some efforts towards, a new global financial architecture. In the wake of the 1997–99 financial crisis, those discussions have become more intense, although not much new ground has been broken. In East Asia, where the 1997–99 crisis began, there have been many meetings on possible new arrangements, which can help prevent or at least mitigate future financial crises. Several proposals have been aired at those meetings, and a few initiatives have actually been taken as a result. For instance, a surveillance mechanism has been put in place in ASEAN. In addition, in the ASEAN Plus Three process, there has been agreement in principle to work towards an expanded and much increased currency swap arrangement. In the critical area of exchange rate management, there is wide room for

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the ASEAN economies to build on best practice within the region. In a few economies, for instance, there has already been the practice of using several anchor currencies and placing exchange reserves on them, with proportions dynamically varying according to the relative importance of exchange flows and needs. In particular, the U.S. dollar, the European euro, or British pound, and the Japanese yen have been used as “reserve currencies” in a basket, whose composition varies flexibly and pragmatically. Sensibly, the exact manner in which such flexible and pragmatic exchange rate management is undertaken has been treated as a strictly reserved matter for the monetary authorities only. However, there has been a serious effort at striking a balance between stability and flexibility. Indeed, most ASEAN economies need not look far in order to strike an appropriate balance between exchange rate stability and flexibility. Most of them can look to one of their own, that is, Singapore, which has been operating such a flexible and pragmatic system. This can be used as a base for the others, and then perhaps together they can move on, such as towards agreeing on relatively wide bands within which their currencies get exchanged with each other. Over time, these bands may become narrower, as greater interdependence and more experience may demand. Indeed, as ASEAN becomes more of a free trade area, there may be greater demand for a narrowing of bands within which the ASEAN currencies get exchanged with each other. It is necessary, therefore, for the ASEAN economies to expand their current arrangements for sharing experience and deepening their dialogue on currency baskets and other practices. Indeed, they need to strengthen cooperation in the financial and monetary fields. Moreover, in the foreseeable future, they need to go beyond their existing currency swaps and other currency arrangements. In the process of doing so, they should start the long-term effort towards co-operating more closely with each other with regard to the structures of the international financial institutions (IFIs). In the World Bank, the IMF, and the Asian Development Bank (ADB), the ASEAN economies are now spread widely across several constituencies; and there is yet low-intensity co-ordination between their positions within these institutions. Over time, they could pool their positions together in these institutions and eventually work towards belonging to the same constituency or closely related constituencies in these IFIs. If ASEAN is to have a voice and become a force in building a new international financial architecture, the ASEAN economies must first learn to

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synchronize their different voices and to pool their votes in the IFIs. Then, they can participate more actively in constructive dialogue on international monetary and financial reforms. Towards an ASEAN Finance Institute Experience with the ASEAN surveillance mechanism has been instructive. Financial co-operation, if left to ministers and officials alone, can go some distance but, without further openness and transparency, it cannot go far enough. Ministers and officials tend to be reticent and differential towards each other. They are naturally accommodating of each other and avoid commenting on another economy’s internal policies, trends, and developments. This natural and understandable preference of government representatives highlights the importance of involving business and academe in promoting ASEAN financial co-operation. At least, these two sectors should be coopted, thereby opening up the ASEAN process to them. The business sector brings a reality check to the process. The academic sector brings independence, possibly deeper analysis, and a fresher if more irreverent perspective on alternative approaches and policies; it can be more harshly critical of any economy’s internal policies, trends, and developments. Indeed, in the wake of the 1997–99 financial crisis, several critical areas have arisen that require reforms, which are best promoted by close cooperation between government officials, business representatives, and research academicians. These areas include corporate governance, banking sector strengthening and development, capital market development, macroeconomic risk management, and economic monitoring and surveillance. These are huge areas, presenting varying degrees of difficulty for reforms. Corporate governance alone is a massive undertaking, considering that most ASEAN practices are relative to the OECD core principles. Banking supervision is another massive enterprise, as indeed all other areas included in the list for reforms. These areas call for urgent attention in virtually all the ASEAN and East Asian economies. Given the urgency, the size of the reform initiative, and the need to involve several sectors outside government, ASEAN leaders should give due consideration to the establishment of an ASEAN Finance Institute. This would need to be private sector-driven, with academic researchers included in the core of policy research, monitoring programmes, and regular dialogues and consultation. This Institute should promote networking arrangements which complement and expand those that governments have already set up in

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ASEAN and in the ASEAN Plus Three process. Moreover, it should undertake an intensive as well as extensive capacity-building programme in all the critical areas for reform. The capacity-building dimension is of prime importance for all ASEAN economies, but especially for the new ASEAN member economies. If undertaken alongside a serious research programme, capacity-building can open new avenues for policy dialogues, which can be more open, more substantive, and increasingly more in line with the standards of transparency demanded by any meaningful and productive monitoring and surveillance mechanism. An ASEAN Finance Institute can contribute significantly to bring to a higher and more productive level the monitoring and surveillance mechanism ASEAN has already officially established. For as long as it is genuinely tripartite in character, it can also be an instrument for greater transparency in ASEAN in all the critical reform areas within banking and finance. Creating an ASEAN Community Spirit Many ASEAN meetings are held each year, perhaps far exceeding 200. These meetings are not confined to government officials. People in various fields, outside government, are reaching out to their counterparts in other ASEAN countries. They are talking, exchanging notes, and agreeing to co-operate in a few initiatives. These meetings may have accomplished nothing dramatic, but because of them, there is a growing consciousness of immediate neighbours in the region helping and reinforcing each other. Indeed, the seeds for ASEAN solidarity are being sown, and the growing number and intensity of these meetings, especially those involving people outside government, are fertilizing the ground for an ASEAN community. In the next three decades, ASEAN should continue to further enrich and expand the paradigm under which it has been operating. Instead of being largely framed by intergovernmental dialogue and interaction, ASEAN is broadening itself to encompass a more diverse interaction among peoples in many fields of endeavour. From an ASEAN mainly dominated by governments, it is evolving rapidly and transforming itself into a people’s ASEAN. A few symbolic programmes can signal the definitive turn towards actively promoting an ASEAN community spirit among all the peoples of ASEAN. These programmes include, but certainly should not be limited to: linking the different ASEAN cultural centres; encouraging students and young professionals to enlist in an ASEAN volunteer corps; renaming the Southeast

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Asian (SEA) Games as the ASEAN Games; and above all, enlisting corporations, and particularly the media, in promoting the ASEAN community spirit. Substantive programmes designed to confront serious problems facing several ASEAN societies can underpin these important symbolic programmes. Three substantive programmes immediately come to mind. The first is to arrest the worsening condition of the poor in several ASEAN economies. Every effort should be exerted to involve the business sector and civil society in a co-ordinated ASEAN-wide programme to promote higher economic growth and greater social equity. The second is to build capacity especially among the marginalized so that they can undertake self-help programmes such as those that provide community-based microcredit facilities. The third is to promote immediate and long-term strategies in technical education, prevention and eradication of drug abuse, and other scourges such as HIV/AIDs. To be sure there can be other substantive programmes that serve to bring several ASEAN societies much closer to each other as they confront common challenges and aim to achieve higher levels of social and economic achievement. In all these programmes, it is critical to involve governments, the business sector, academia, and other institutions in civil society. Thus can an ASEAN community take shape and develop. Using Education as a Bond Any community that seeks to build itself should focus on education, and if it looks far enough into the future, it should give emphasis to quality education. ASEAN can use education as a bond for building itself up into a community. Since the ASEAN community-building programme is for the long term, there should be a concerted effort in the region to develop a common high standard of education. The regional concerted effort in education should have one clear aim, that of a much higher standard for all. This means developing and broadening linkages among the best educational institutions at all levels. There should be exchanges between primary schools, high schools, colleges, and universities with a view to raising their standards to be at par with the best in the region and in the world. Curricular offerings need to be improved, and there should be wide opportunities for sharing of resources and mutual assistance. In particular, those with established high standards should be open to help those that need to catch up.

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A programme of mutual assistance should be undertaken in both formal and informal education. As the ASEAN economies try to equip themselves for the knowledge-based economy, they should put high priority to setting up training institutes for the continuous training and retraining of workers to adjust their skills to the dynamically evolving job markets. Those ASEAN economies which have already developed such training institutes should be prepared to provide assistance to others still in the process of establishing them. Indeed, these training institutes in ASEAN should develop an effective network among themselves to better provide mutual assistance. In order to work closely with each other ASEAN societies should also face up to the challenge of communication. They can do so if they remain firmly committed to be open not only to each other, but also to the rest of the world. Openness, however, demands a willingness and ability to enter into partnerships and other forms of co-operation with peoples from across the region and other parts of the world. Attitudes, educational attainment, and skills are critical. Proficiency in English as a working language is also becoming critical. ASEAN would do well by helping each other in securing the necessary equipment for reaching out and working productively with others. Education is a multifaceted bond that can bring people together. It provides a common interest for ASEAN societies to co-operate closely and productively with each other. Over time, as they get closer to each other, they will develop into a more closely-knit community. Prioritizing Relations with Other Countries and Regions ASEAN societies, especially during the initial decades of building an ASEAN community, would face the dual temptation of reverting to looking only after their own interests and of jumping over the regional fence to give much higher priority to their relations with others outside ASEAN. Falling into either temptation or to both would weaken their contribution to the ASEAN community, which would thereby be left wanting of the deep commitment it needs to progress at this critical stage. The challenge from ASEAN to each member country is to firm up its commitment to building up the ASEAN community. This commitment may entail having to restrain its natural tendency to serve only its own interest without regard for that of the region as a whole. It may also entail having to prioritize the importance it gives to its external relations, to ensure that ASEAN comes out on top. The strengthening of ASEAN and securing its cohesion, in dealing with other societies and economies outside the region, should be a major consideration for each of the nations in the community.

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ASEAN is intensifying its internal consultation within the ASEAN Plus Three process. Even as further improvements are introduced to the manner and conduct of such consultation, this should serve as a model for dealing with other groups of countries. It is for this and for other strategic reasons that ASEAN should pay greater attention and give higher importance to the ASEAN Plus Three process. Indeed, the principle of ever-wider concentric circles can be observed in ASEAN’s involvement in the ASEM (ASEAN-Europe Meeting) process. Ideally, this principle would call for ASEAN to co-ordinate closely with each other as it prepares to sit down with the three other East Asian countries. Once the ASEAN Plus Three grouping has gone through its own broader coordination process, then it can engage itself with the European Union in ASEM. ASEAN should use the same modality in dealing with both Australia and New Zealand as AFTA forges closer links with the Australia–New Zealand Closer Economic Relations Trade Agreement (ANZCERTA). These links have great potential and should be made stronger especially since both Australia and New Zealand are also in APEC, together with several ASEAN economies. In the process of tapping into this potential, however, ASEAN should take care that it strengthens its internal cohesion and should resist any temptation to weaken it. Within APEC, the ASEAN economies should co-ordinate their positions and consult more openly and support each other’s initiatives. The members have been at the very core of the forum, and they should play a solid leadership role within it. However, they can succeed in doing so only by acting increasingly as members of an ASEAN community rather than as unrelated economies, each fending for itself and going off on its own. Finally, in global institutions such as the United Nations, the WTO, the World Bank and the IMF, ASEAN polities and economies should set an example of a robust, cohesive regional organization seriously striving to build itself into a community. Increasingly, they should speak with a more unified voice, and vote only after close consultation with each other. The more they band together in these forums, the more they can accomplish and the greater attention they will get for ASEAN as a community worthy of respect and consideration. Organizing ASEAN for the Future ASEAN can be justifiably proud of its accomplishments during the first thirty years of its existence. It should be doubly proud that it has accomplished so

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much with so little put into its internal mechanism. Pragmatism and realism have been at the very core of ASEAN’s past success. It focused on the areas where it was likely to make progress. It was also careful to take measured steps, going at a pace that was realistic. Success has brought ASEAN to a higher level, and the changes both within the region, and in the world more generally, have broadened the areas for ASEAN’s attention. They may still demand measured steps, but perhaps at a quicker pace. Pragmatism and realism, which have been the hallmarks of ASEAN, may now demand some changes in the way the Association propels itself towards becoming a community. First and foremost, the ASEAN heads of government would need to take charge and direct activities with a view to realizing the ASEAN Vision 2020 formulated in Kuala Lumpur. That Vision is broad and all-encompassing. It should stimulate many initiatives across a broad front. It calls for the involvement of all sectors of society. It opens ASEAN to participation by business, civil society organizations, including those in education and sports as well as in other fields of endeavour. There should be cohesion in all these initiatives. Given their breadth and diversity, only the heads of government have the authority and capacity to do so. The ASEAN heads of government may have to convert all their informal summit meetings into formal, working meetings, where they make strategic decisions annually. Over time, as circumstances may require in the future, these annual meetings can become more frequent, being held semi-annually. Once the heads of government decide to take a more direct charge over ASEAN activities, with more frequent working meetings at the summit, the ASEAN Secretariat would have to be considerably strengthened. More resources must be given to the Secretariat to attend to the requirements of the ASEAN summit process. Its staff must be strengthened, further upgraded and professionalized. As the demands on it rise, it may have to be expanded and, more importantly, also adequately empowered. ASEAN has been pragmatic enough to realize that it gets what it is prepared to pay for. In the decades ahead, ASEAN would need to get much more than in the past, simply because goals have become higher and ambitions greater. It should therefore be prepared to pay much more, particularly through the political commitment of the ASEAN heads of government and the personnel and financial resources they are willing to place at the disposal of the Secretariat to service them.

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6 CHALLENGES FOR SOCIETY AND POLITICS Carolina G. Hernandez

THE DEFINING ENVIRONMENT OF THE CHALLENGES TO ASEAN The enlargement of the Association of Southeast Asian Nations (ASEAN) to include all the ten Southeast Asian countries in 1999 caused a number of concerns among analysts and observers of ASEAN affairs. Among their concerns are the implications of enlargement for the solidarity, cohesion, and effectiveness of the Association, given its challenging decision-making process based on consensus, and the other elements of the code of conduct known as the “ASEAN way” that enabled its members to work together in the past. Its non-communist orientation within the environment of the Cold War was diluted with enlargement to include the communist nations that were their antagonists during the Cambodian conflict in the 1980s. Fairly economically well off, the old ASEAN members joined relatively poorer neighbours in Southeast Asia, creating a two-tier ASEAN, one rich and one poor. Thus, an ASEAN divide consisting of the six old members — Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand (ASEAN-6) — and the four new members — Cambodia, Laos, Myanmar, and Vietnam (CLMV) — arose. This economic divide also exists within each of the ten countries where, with few exceptions, serious social inequalities persist. 103 © 2001 Institute of Southeast Asian Studies, Singapore

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The different historical experiences, geographical and strategic realities of the members, together with contemporary challenges combine to pose difficulties in developing a common foreign and security policy that would enable them to meet present challenges in international relations and global politics. These have implications for regional co-operation, particularly in the security, political, and even social fields. For instance, while all ten countries have stable and beneficial relations with Japan, territorial disputes in the South China Sea between four of the ASEAN members with China and Taiwan have posed difficulties in these members’ bilateral relations with Beijing, particularly in the cases of the Philippines and Vietnam. Close ties with the United States among the ASEAN-6 are not shared by the new members, particularly Myanmar and Vietnam. It is not yet clear at this time how the terrorist attacks against the United States on 11 September 2001 would impact on ASEAN cohesion in regard to the response of individual states to the U.S. call for a global coalition against international terrorism. As a close U.S. ally, the Philippines gave its full commitment of support to Washington, including the use of its facilities in the military bases formerly used by U.S. forces in Clark and Subic Bay and the sending of troops as part of the coalition, if necessary. Indonesia, Malaysia, and Singaproe have standing agreements that allow port calls by U.S. forces, with Singapore permitting the stationing of U.S. troops on its soil. Indonesia and the Philippines are likely to face domestic opposition to co-operation with the United States. Such opposition has already surfaced in Manila, while in Jakarta the country’s ulama have already called for an Islamic jihad should the global coalition attack the Taliban in Afghanistan. Moreover, traditional ties between the former Soviet Union and Vietnam and Laos are also not shared by the rest. Finally, Cambodian and Myanmar ties with China are unique to these two countries within ASEAN. The concept of an ASEAN divide, however, lies beyond these divergences in the levels of economic development, historical, geographic, and strategic realities, and contemporary challenges facing the ten Southeast Asian states. Faultlines also exist in other dimensions, including the variety of political regimes and ideologies and the issue of domestic political stability, as well as the levels of social development among them. Since these dimensions lie in the domestic realm, it can be argued that these are not ASEAN concerns. However, they create political and social challenges for ASEAN in the sense that they represent causes of an ASEAN divide that could pose obstacles to closer regional collaboration on political, economic, and social issues as ASEAN moves into its next thirty years of existence. Moreover, it may be argued that domestic challenges in the political and

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social dimensions that are not effectively addressed by individual members are likely to affect ASEAN as a whole. This is because the security of ASEAN encompasses political stability, economic prosperity, social cohesion, and external defence where the domestic, regional, and global levels interact with one another. Hence, domestic, political, and social challenges are likely to become ASEAN challenges. The cases of Indonesia and Myanmar are illustrative in this regard. Domestic challenges in both the political and social dimensions face both countries. These have impacts on ASEAN as a whole for different reasons. Indonesia, because of its size and international weight, can engender confidence in ASEAN if it manages its problems successfully. If it should unravel, the implications for ASEAN and the wider region would be serious. It could spell the end of ASEAN that in the meanwhile has been adjusting to a weakened Indonesia by trying to find a temporary informal leader. Thailand and the Philippines have tried to take the slack on some issues, Singapore in others. However, the absence of a strong Indonesian influence is felt in both the ASEAN Regional Forum (ARF) and in the Asia-Pacific Economic Cooperation (APEC) forum where the Kuala Lumpur Summit did not arrest the slide in APEC’s progress since the Manila and Subic meetings. In the case of Myanmar, its internal political and social problems have already impacted on ASEAN’s external relations with its dialogue partners from the West, particularly the European Union (EU). ASEAN’s political dialogue with the EU stalled when Myanmar was admitted as a full member of the Association. Fortunately, it resumed when Myanmar’s State Peace and Development Council (SPDC) began to show signs of softening its hard-line approach to the opposition National League for Democracy (NLD), initially through the release of some members of the opposition. Mediation by the United Nations, through Secretary-General Kofi Annan’s special representative, has also led to informal talks between the two sides. On 12 December 2000, ASEAN and the EU met in Vientiane, effectively resuming the stalled political dialogue between them. However, the spillover of Myanmar’s domestic political and social problems into Thailand has caused a souring of bilateral relations. This has also caused a stir within ASEAN, particularly when Thailand came up with an initiative intended to respond to the issue of transborder impacts of Myanmar’s domestic problems. At the Thirty-First ASEAN Ministerial Meeting (AMM) in Manila in July 1998, it sought the agreement of other members to relax the principle of non-intervention in another’s domestic affairs in the form of “flexible engagement”. As Bangkok obtained only Manila’s support, ASEAN settled for “enhanced interaction”. This initiative is not likely to die as ASEAN

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moves to address the ASEAN divide and to realize the broad and comprehensive goals of its Vision 2020. These challenging tasks will require some form of flexible engagement for their success. Consequently, it is crucial to look into the political and social challenges facing the ASEAN members to avoid any negative impact on ASEAN — its cohesion and credibility that enabled it to play a crucial regional role so far. This chapter will analyse the key political and social challenges facing member states and their implications for ASEAN. It will also discuss the challenges facing ASEAN in enhancing co-operation in the political and social fields among ASEAN members and with dialogue partners. The responses that ASEAN has taken to address some of the implications of the challenges it faces will be analysed, followed by an argument for relaxing the “ASEAN way”. A number of policy directions and suggestions on how to meet these challenges more effectively will also be made, followed by a concluding section on future prospects.

DOMESTIC SOCIAL AND POLITICAL CHALLENGES AND IMPLICATIONS FOR ASEAN The performance of the ASEAN member states in the human development index (HDI) of the United Nations Development Programme (UNDP) is highly diverse, indicating an ASEAN divide. Of 174 countries worldwide covered by the UNDP’s Human Development Report 2000, Singapore and Brunei were rated as having a high HDI (ranked 24th and 32nd), Malaysia, Thailand, the Philippines, Vietnam, Indonesia, Myanmar, and Cambodia were rated as having medium HDI (61st, 76th, 77th, 108th, 109th, 125th, and 136th, respectively), and Laos was rated as having low HDI (140th, the first among countries under this category).1 Note that even within the medium human development category, there are wide gaps between Malaysia, Thailand, and the Philippines, and the next cluster of ASEAN members consisting of Vietnam and Indonesia, and then the next cluster consisting of Myanmar and Cambodia. Disparities within ASEAN are demonstrated in the highest HDI value of 0.881 earned by Singapore and the lowest HDI value of 0.484 earned by Laos. The human development index includes mostly social indicators, such as life expectancy at birth, adult literacy rate, and combined primary, secondary, and tertiary gross enrolment ratio, and an economic indicator, the gross domestic product (GDP) per capita. This human development divide is likely to be complicated by the fact that the ASEAN member states are all undergoing economic and social changes brought about by their integration into the regional and global

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economy, speeded up by the revolution in communications and information technology (IT). Demographic change is also taking place where advances in medical science and healthcare are prolonging life expectancy (a component of the HDI) and where a younger generation of people are replacing their elders in their country’s economy, society, and politics. As in other parts of the world, this younger generation is likely to have perspectives different from those of their elders on the basis of widely divergent life experiences. These changes are likely to have domestic social and political implications. Economic development that is sought by all countries brings unintended results, including the rise of middle classes whose new-found wealth would be used for education and travel, and increased access to various sources of information and knowledge.2 These middle classes would in general be younger. Their compliance and conformity to state expectations and authority can no longer be taken for granted because of their empowerment.3 This would impact on political governance, as seen in the third wave of democratization of the 1980s and the 1990s.4 Governments that do not anticipate and manage successfully the implications of economic growth for the political regime are likely to face social and political challenges that could lead to violent political transitions and uncertainties, as we saw in Indonesia. This experience contrasts sharply with those of South Korea and Taiwan whose transition to democracy was far smoother, more peaceful, and perhaps likely to be more successful. The prosperity that economic growth brings has not always been equitably distributed across social sectors and classes, as well as across regions within each country. These social inequities need to be redressed as they cause social tension and conflict and can eventually contribute to the decline or loss of the political legitimacy of government. The ASEAN countries have Gini indices that reflect substantial income gaps. They range from 48.5 for Malaysia to 30.4 for Laos.5 This can be a potential source of social conflict triggered by harsher economic conditions combined with political repression. Because Southeast Asian societies are multi-ethnic, these social inequalities that often follow ethnic and religious lines can lead to domestic instability and violent social conflict. The problem in Mindanao is rooted in social inequalities that have festered for a very long time. These inequalities unfortunately also have some religious overtones and have fuelled Moro secessionism since the 1970s. These have also created a criminal group that has wreaked terror and violence not only within the Philippines, but also across the waters into Malaysian territory. In this case, a domestic problem has crossed national boundaries and can have negative impacts on ASEAN if peaceful and co-operative bilateral relations are undermined as a consequence.

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The call for a global coalition against international terrorism is likely to complicate further the management of Muslim-related secessionism and domestic conflict by the ASEAN member states that currently face these problems. As noted above, the Indonesian ulama’s call for an Islamic jihad has already been made and it is likely to have repercussions for the country’s already fraying social fabric. Social inequalities in Indonesia have also provided further complications to its domestic problems. Economic disparities tended to be highlighted by the fact that many big conglomerates in Indonesia belonged to its ethnic Chinese citizens. Thus, class lines also tended to be the same as ethnic, and often, religious lines. The explosion of social tension prior to Soeharto’s fall included the burning and destruction of places of worship — churches, temples, and mosques. Perceived persecution of its ethnic Chinese population led China to express its concern to Jakarta over a domestic Indonesian problem, echoing a similar reaction during the transition from Soekarno to Soeharto in the mid-1960s. Fear of the spillover of affected population became realized with the flight of ethnic Chinese Indonesians into Malaysia and Singapore after May 1998. These ethnic-related incidents directed against Indonesia’s ethnic Chinese citizens have led the more politically aware among them to question, for the first time in their lives, the basis of their identity and to ponder on their future in an uncertain land. However, a clearer instance of the implications of domestic problems for relations with neighbours is the spillover of economic refugees into more prosperous neighbours. This occurs often across the highly porous Indonesian– Malaysian borders and the southern Philippine borders, with Malaysia hosting several hundred thousand or a couple of million illegal immigrants from both Indonesia and the Philippines. The financial crisis also led Malaysia to repatriate undocumented Indonesian and Filipino workers that were working in Malaysia. While bilateral relations have not deteriorated, this problem remains outstanding between Malaysia and each of its two neighbours. This situation is also replicated in the Thai borders with Cambodia and Myanmar, especially during the Cambodian conflict and recently with continuing political problems in Myanmar that have pushed refugees into Thailand. This has caused a temporary closing of the Thai–Myanmar border and the souring of bilateral relations. Unfortunately, this came at a time when the members of ASEAN should be improving their co-operation in the face of centrifugal forces engendered by the financial crisis and its aftermath that threaten the survival of the Association.6 These developments have a political dimension in the sense that economic and social problems are rarely autonomous of the political context in which

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they occur. Economic decline and social inequalities in the ASEAN countries have their roots in poor governance in both the public and business spheres where transparency, accountability, and responsiveness are absent. Poor governance in these sectors had been identified as a major cause of the Asian financial crisis that seriously affected a number of East Asian countries, including ASEAN.7 Obviously, while these matters fall within the domestic domain, they have also seriously affected the neighbouring countries. They have also weakened the capacity of ASEAN as a grouping to address the challenges that enlargement brought about because of the priority given by distressed countries to the resolution of their domestic problems. Differences in political systems of governance also affect ASEAN as a whole. As already noted, lack of democracy and poor human rights performance in Myanmar, as perceived in the West, has already led to the stalling of ASEAN’s political dialogue with the EU.8 These differences have also affected bilateral relations between the ASEAN members, such as between the Philippines and Singapore following the execution of a Filipino domestic helper in Singapore in the mid-1990s, and the sensitivity of Malaysia to former Philippine President Joseph Estrada’s public declaration of concern over the jailed former Deputy Prime Minister and Finance Minister Anwar Ibrahim while visiting Malaysia and his meeting with the latter’s wife, Wan Azizah, in both Kuala Lumpur and Manila. Indonesia’s political transition has also resulted in the vote for independence by East Timor. Subsequent civil violence perpetrated by anti-independence militias, organized with the authority of the Indonesian military, resulted in international peacekeeping after Indonesia consented to it, at first through the authority of the United Nations Security Council Resolution 1264 creating the International Force for East Timor (INTERFET) under Australian leadership. This was later replaced by the UN Transitional Administration in East Timor (UNTAET) through Resolution 1272, headed in succession by Philippine and Thai officers. ASEAN as an association of states was put to an acid test, as its members waited until Indonesia had agreed to international peacekeeping before some of them decided to join in this international effort. Even with Indonesian agreement, not all the ASEAN members that have the capability and good performance record in international peacekeeping participated in the action in East Timor. Moreover, ASEAN members also abstained from the resolution of the United Nations Commission for Human Rights that held Indonesia accountable for the atrocities of the militias in East Timor. In this case, ASEAN appeared to be on trial as a mechanism for the promotion of regional peace and security.9 Its commitment to the principle of non-intervention in

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the domestic affairs of other countries tied its hands in undertaking timely action to avert the scorched earth policy adopted by the militias, apparently with the knowledge and support of the Indonesian military. Australia’s bid for leadership early in the crisis saved ASEAN from having to craft a common policy for such a difficult and sensitive issue,10 a task that could have dramatized further the limitations of the “ASEAN way” in dealing with domestic sources of regional instability. These examples would show that although social and political challenges may be domestic in origin, their tendency to spill beyond national boundaries either create or make them ASEAN problems. Hence, ASEAN needs to examine these matters seriously as they constitute challenges to the Association in the social and political fields. Part of this process should include a reexamination of its operating norms and principles that have come to be known as the “ASEAN way” of doing things. This is due to the fact that averting the spillover of domestic problems into the rest of the region requires joint collaboration between the source of the problem and those that are likely to be affected by it. Waiting until the problem spills over into the borders of another would make its resolution more difficult and usually only after much loss of lives and property. The “ASEAN way” includes a principle not unique to ASEAN but is recognized in international relations and constitutes one of its cornerstones, that is, the principle of non-intervention in another state’s domestic affairs.

RESPONDING TO THE CHALLENGES Aware of these challenges, ASEAN has come up with a number of responses. In order to narrow the ASEAN divide and in the absence of qualifications for membership and cohesion funds as in the EU, it took steps to prepare the CLMV for ASEAN membership. Accession to the Treaty of Amity and Cooperation (TAC), the grant of observer status in ASEAN processes and mechanisms prior to formal admission, and preparation on the mechanics of entry into ASEAN were extended to them through various working groups. ASEAN also allowed different compliance dates for the new members in the ASEAN Free Trade Area (AFTA), during which they were to bring themselves to the agreed level of harmonization. Participation in AFTA is seen as a training ground for new members for their integration into the global economy.11 New members have also become beneficiaries of special programmes on economic, social, and technical co-operation to redress the ASEAN divide.12 Some observers, however, believe that these are not enough. According to

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them, no less than a re-examination of the “ASEAN way” is necessary if ASEAN were to meet the challenges of an enlarged ASEAN, the altered domestic, regional, and global environment of the twenty-first century that ASEAN must deal with, and the ambitious goals of its Vision 2020. A relaxation of its norms and principles, including non-intervention, would spell the difference between success and failure in achieving the new goals its leaders have set for ASEAN. An alternative is for ASEAN not to seek new goals and continue being a mechanism for conflict avoidance.13 Moreover, the erosion of compliance to the norm of non-intervention, evident since the Cambodian conflict of the 1980s, was again highlighted following the July 1997 coup by Hun Sen against Prince Ranariddh that occasioned the postponement of Cambodia’s entry into ASEAN. The ASEAN Troika that was organized to deal with the resolution of this new Cambodian problem could be a means of going around the non-intervention principle without opening the floodgates for unwarranted meddling in another’s domestic affairs. The member states also agreed to adopt the mechanism of an ASEAN Troika in future problems that are domestic in origin but with transborder impacts. They also adopted the practice of an informal retreat among the foreign ministers and the ASEAN Secretary-General — an occasion to raise domestic issues with regional impact to the concerned parties. Moreover, the ASEAN member states decided to adopt the milder alternative of “enhanced interaction” to the Thai proposal for “flexible engagement” in another country’s domestic problems.14 These measures are intended to ameliorate the difficulties posed by the principle of non-intervention towards increased institutional capacity and effectiveness. However, critics continue to doubt the efficacy of these measures. Consequently, imperatives to re-examine the “ASEAN way”, including nonintervention are not likely to disappear. Besides the spillover of domestic problems beyond national borders are the pressures of globalization and increasing interdependence graphically illustrated by the Asian financial crisis. These processes affect states with or without their consent, rendering national borders practically meaningless. Transnational problems, including transnational crime, international population flows, and environmental problems also require regional and global solutions, even if they originate within one country. When they cross borders, they become regional problems. Thus, the boundaries separating the domestic from the external spheres are becoming more and more blurred. Moreover, ASEAN leaders may have provided a new imperative to reexamine the “ASEAN way” when they adopted the ASEAN Vision 2020. The Vision seeks to achieve by 2020 a region whose members are “a concert of

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Southeast Asian nations, outward-looking, living in peace, stability, and prosperity, bonded together in partnership in dynamic development and in a community of caring societies”.15 It then identifies more concretely the elements of this vision. These elements constitute many challenges for ASEAN, including in the social and political fields. According to the Vision, a concert of Southeast Asian nations consists of the following: 1. Southeast Asia as a Zone of Peace, Freedom, and Neutrality (ZOPFAN); 2. a peaceful and stable Southeast Asia where each nation is at peace with itself and where the causes for conflict have been eliminated, through abiding respect for justice and the rule of law, and through the strengthening of national and regional resilience; 3. a region where territorial and other disputes are resolved by peaceful means; 4. the TAC functioning fully as a binding code of conduct for Southeast Asian governments and peoples, to which other states with interests in Southeast Asia adhere; 5. a region free from nuclear weapons, with all nuclear-weapons states committed to the Southeast Asia Nuclear Weapon-Free Zone (SEANWFZ) Treaty through its Protocols, and also free from other weapons of mass destruction; 6. a region where its rich human and natural resources can contribute to regional development and shared prosperity; 7. the ASEAN Regional Forum as an established means for confidencebuilding and preventive diplomacy, and for promoting conflict-resolution; 8. a Southeast Asia where its geographical barriers no longer divide but instead link them together in friendship, co-operation, and commerce; and 9. ASEAN as an effective force for peace, justice, and moderation in the Asia-Pacific and in the world.16 Enhanced political co-operation within and between ASEAN and its dialogue partners is necessary to achieve this part of the ASEAN vision. The TAC as a binding code of conduct within Southeast Asia to which other states with interests in the region adhere and the realization of the ARF as a regional means for confidence-building and preventive diplomacy, and for the promotion of conflict-resolution, require the support of non-ASEAN countries. With regard to the TAC, it is not conceivable that great powers such as the United States would submit themselves to conflict resolution through the High Council. Based on the slow pace of the work of the ARF, which has not progressed beyond the confidence-building phase, its future development as a means for preventive diplomacy and conflict-resolution would also be slow.

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Part of the reason for the lack of progress is that issues that lend themselves to preventive diplomacy in the region mostly fall within the domestic domain. They include cross-strait relations and various kinds of separatist movements in many Southeast Asian states, particularly Indonesia, Myanmar, the Philippines, and Thailand. China’s tendency to stall the work of multilateral institutions in which it is involved, including the ARF, is not likely to disappear in the foreseeable future. This is due to uncertainties in its future, given the fluidity of the domestic political and economic environment in China and its relations with other great powers in the region, particularly the United States and Japan. Moreover, rational choice does not always prevail in decision-making. Likewise, the ZOPFAN and SEANWFZ concepts are unachievable without broader regional peace and security in the Asia-Pacific. All these require stable and predictable relations among ASEAN members and between and among the major regional powers — the United States, China, Japan, Russia, and India. These relations are a function of domestic conditions, as already noted above. Particularly critical are domestic conditions in China and Russia whose economic, social, and political transitions have not yet run their full course. Depending on their outcome, relations with the United States, Japan, and India could improve or worsen, with different sorts of implications for regional peace and security. Even with improved relations, there is no certainty that ZOPFAN and SEANWFZ would be realized. These goals also require a consensus on foreign and security policy that would determine whether or not present alliance relationships or port call arrangements and visiting forces agreements with the United States, or strategic partnerships with other powers, would continue to be relevant to regional security. Some of these arrangements are silent about the presence of nuclear weapons in the region. Therefore, these goals would be achievable if the U.S. military presence is no longer necessary, if other nuclear-weapons states in the region no longer require nuclear weapons, and those that hold other weapons of mass destruction no longer rely on them for their security. Moreover, the terrorist attacks against the United States have fundamentally altered existing notions of security, including the meaning of warfare. To what extent this development would affect this part of the Vision remains unknown at this point. Taken together, they constitute tall orders for ASEAN and its partners in the next thirty years. ASEAN could be an effective force for peace, justice, and moderation in the broader region and in the world. However, its member states must be able to achieve these first within their own domestic jurisdiction. It would not be

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possible for ASEAN to become this kind of force in the world if the sources of conflict, injustice, and extremism persist within ASEAN societies. Hence,the intimate connection between social and political challenges at home and challenges to ASEAN as a region are clear. There is no certainty, however, that these domestic sources of conflict, injustice, and extremism would be eliminated in the foreseeable future because they are so complicated and often intractable. Thus, they would remain both domestic and regional challenges. The Vision also seeks a community of caring societies in ASEAN. This has the following elements: 1. an ASEAN community conscious of its ties of history, aware of its cultural heritage, and bound by a common regional identity; 2. vibrant and open ASEAN societies consistent with their respective national identities, where all people enjoy equitable access to opportunities for total human development regardless of gender, race, religion, language, or social and cultural background; 3. a socially cohesive and caring ASEAN where hunger, malnutrition, deprivation, and poverty are no longer basic problems, where strong families as the basic units of society tend to their members, particularly the children, youth, women, and elderly; and where the civil society is empowered and gives special attention to the disadvantaged, disabled, and marginalized; and where social justice and the rule of law reign; 4. societies free from illicit drugs, free of their production, processing, trafficking, and use; 5. a technologically competitive ASEAN competent in strategic and enabling technologies, with an adequate pool of technologically qualified and trained manpower, and strong networks of scientific and technological institutions and centres of excellence; 6. a clean and green ASEAN with fully established mechanisms for sustainable development to ensure the protection of the region’s environment, the sustainability of its natural resources, and the high quality of life of its peoples; 7. with agreed rules of behaviour and co-operative measures to deal with problems that can be met only on a regional scale, including environmental pollution and degradation, drug trafficking, trafficking in women and children, and other transnational crimes; and 8. Southeast Asian nations being governed with the consent and greater participation of the people, with its focus on the welfare and dignity of the human person and the good of the community.17 An ASEAN divide exists in most, if not all, of these elements of a

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community of caring societies. The challenge to ASEAN is to narrow the divide. This requires domestic, regional, and international efforts. Enhanced co-operation and close relations with its dialogue partners, particularly in narrowing the economic and technological divide is essential because these require financial and technological resources not available within ASEAN.18 However, because most of their dialogue partners have democratic political systems whose constituencies demand compliance with democratic norms and human rights obligations, those ASEAN countries that do not meet these standards may not benefit from economic and technical co-operation from these partners. This is the present state of affairs regarding Myanmar, the issue behind the once stalled political dialogue between ASEAN and the EU. Such a situation is related to the principle of non-intervention because the choice of political regime and human rights compliance are regarded as domestic issues in ASEAN, but seen as a legitimate international concern by the EU and others in the West. A narrowing of the political divide within the ASEAN countries and between them requires the commitment of leaders to the political ideals embodied in the Vision. At the same time, domestic civil society groups, including the political opposition have also a responsibility to build an environment conducive to political dialogue with authoritarian rulers. Here, mediation by external actors that are trusted by all parties is crucial to break the political impasse. This suggests that there may be a legitimate role for outsiders to assist in resolving domestic political difficulties with the consent of the concerned state. This is perhaps the most difficult of the challenges that face ASEAN members individually, and as a group, in order to realize the social and political goals of the Vision. This may require a relaxation of some of the constituent elements of the “ASEAN way”.

RELAXING THE “ASEAN WAY” The debate on the need to re-examine the “ASEAN way” has been under way since the enlargement of ASEAN. The debate has focused on the principle of non-intervention, consensus decision-making, and the informality of the ASEAN processes and mechanisms. However, the debate has not progressed beyond the philosophical, logical, and empirical levels. In the case of nonintervention, the debate lacks a practical component in terms of (1) defining the conditions under which the relevant aspects of the “ASEAN way” might be relaxed, (2) the specific types of problems where “flexible engagement” or whatever genre of external involvement in a domestic issue might be allowed, (3) the question of who are authorized to get involved, and (4) whether and

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to what extent the outcome of external involvement would be binding on the concerned state. Clearly, any domestic problem that crosses national boundaries should be regarded as a regional problem and the affected neighbours should be entitled to represent their concerns to the source of the problem, as well as collaborate with them jointly to solve it. The concept of an ASEAN Troika, not limited to the past, present, and future chair of the ASEAN Standing Committee (ASC) could be a useful starting point in addressing this kind of problem. Moreover, there has to be willingness on the part of the ASEAN members to call on the help of their neighbours to solve problems that impact on their neighbours if they are unable to solve them through unilateral efforts. Indonesia’s call on the ASEAN members to assist it in the management of the problem in Maluku should be applauded and raised as a model for others to follow. Likewise, on the problem of the haze, collaborative efforts appear to be necessary. Earlier, the Philippines led the way by calling upon Indonesia and the Organization of Islamic Conference (OIC) to broker the peace agreement between itself and the Moro National Liberation Front (MNLF), the main Muslim secessionist movement in Southern Philippines. In August 2001, President Gloria Macapagal Arroyo similarly sought the assistance of Malaysia to broker the ceasefire agreement between the Philippine Government and the Moro Islamic Liberation Front (MILF), the main breakaway faction of the MNLF. If ASEAN is indeed a family, and if it aims to become a community of caring societies, this is an approach worth adopting to address many of the causes of the ASEAN divide. ASEAN should also commit to examine the areas where members can consider giving more authority to its mechanisms, such as the ASEAN Secretary-General and the Secretariat, or to create other mechanisms to enhance regional co-operation in the social and political fields. The establishment of an ASEAN University System constituted of the existing centres of academic excellence in each of the ASEAN members is an example. Such a system can promote some of the elements of the ASEAN 2020 Vision. Likewise, harmonization of social policies should also be sought to erode the ASEAN divide in the social field as ASEAN moves into the new millennium. In the political field, perhaps providing a role to the ASEAN SecretaryGeneral within the concept of the ASEAN Troika could be another measure, as well as working with ARF participants for the empowerment of the Forum through the provision of a preventive diplomacy role for the ARF chair. This could pave the way for the consideration of regional security issues that may be managed better through preventive diplomacy. It would help to have an energetic, determined, and influential ARF chair. The adoption of the practice

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of having co-chairs for the ARF, as in the Council for Security Co-operation in the Asia Pacific (CSCAP), should also be given serious consideration to improve the ARF’s institutional effectiveness and to enable non-ASEAN participants to have a greater stake in its success. A small ARF Secretariat could also be initially attached to the ASEAN Secretariat pending agreement to further institutionalization that would provide continuity and institutional memory to the ARF. The liberal approach in facilitating the growth of middle classes that are empowered, that would organize open and vibrant civil societies, that would lead to greater political participation, more social equality, greater human rights observance, more political liberalization, and eventual democratization should continue to be employed by ASEAN and its dialogue partners in addressing the ASEAN divide. In this regard, economic growth and development is key to the realization of this scenario. As in other issue areas, close relations between dialogue partners and ASEAN members that are able and willing to address specific areas of the ASEAN divide should be undertaken. In this regard, a useful way of responding to the challenge of consensusbuilding could be through the principle of ASEAN minus X, or a coalition of the willing. This means that joint collaboration in an undertaking could proceed without full consensus but begin with a coalition of the willing until others are able to join. The value of the demonstration effect to encourage others to join a successful undertaking is a constructive contribution towards regional co-operation of this principle. It will also avert the possibility of inaction in the absence of consensus, thereby enhancing ASEAN’s effectiveness. The ASEAN members should also continue to work in the difficult area of harmonization of their foreign and security policies. They have already begun this task through the adoption of various codes of conduct, beginning with the TAC and including the ASEAN Declaration on the South China Sea. They have also agreed to consider rules and procedures to activate the High Council through preparatory work by the Secretariat. The effort must continue. Two prospects in sight are the Regional Code of Conduct on the South China Sea with China, and the Pacific Concord under the auspices of the ARF. In this regard, it would be extremely necessary for ASEAN members to abide by the commitments under these various codes of conduct and to be exempted from their obligations only upon mutual agreement of all parties. The practice of some members to renege on their obligations can only reduce ASEAN’s moral authority to demand compliance from others and is counterproductive to internal and external political co-operation. The practice of making separate deals with outside parties can also undermine ASEAN cohesion. If they must hang, they should hang together,

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rather than separately. In this regard, a harmonization of foreign and security policies, although extremely difficult, is necessary in the longer run. Preparatory work can be done by track-two mechanisms such as the ASEAN Institutes of Strategic and International Studies (ASEAN ISIS) and the CSCAP independently of or in association with the ASEAN Secretary-General and the Secretariat. A systematic evaluation of ASEAN — past, present, and future — and a serious exploration of its options are a necessary part of this work.

FUTURE PROSPECTS In view of the foregoing discussion, the imperative for ASEAN to re-invent or re-engineer19 itself appears to be the logical path to take, if it wishes to remain relevant to its members and continue to enjoy the respect of its partners as a credible and dependable regional and global actor. It cannot deliver on its vision if its way of doing things remains inviolable. Thus, a careful re-examination of the elements of the “ASEAN way” is indicated. ASEAN is quite up to the task, if its past performance is any guide. The original members set aside their internecine quarrels to organize ASEAN in 1967; they embraced former foes when the time was ripe. They decided to convene a special Senior Officials Meeting (SOM) in 1992 in order to put political and defence officials together in the consideration of political and security issues after the end of the Cold War. They agreed to establish the ARF as the only regional vehicle for the discussion of political and security issues in the broader Asia-Pacific region, and in so doing invited non-like-minded states to join because they were relevant strategic actors in the region. They also moved beyond economic co-operation and decided to share markets through trade liberalization in AFTA. Against their original position, they came together in the APEC process and became participants. When the financial crisis struck, their finance ministers got together and decided to adopt a regional financial surveillance mechanism that would require the grant of some elements of national sovereignty to the regional body in the financial field. This series of actions indicate the capability of ASEAN to re-invent itself when it is necessary and the time has come, even if the time was slow in coming. In the future, ASEAN will also have to seriously consider becoming more institutionalized through the empowerment of existing structures and mechanisms, especially the Secretary-General and the Secretariat. The challenges in the social field will also lead ASEAN to work more closely with track-two actors and with elements of civil society in track-three activities.

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The ASEAN People’s Assembly (APA), organized by the ASEAN ISIS, could be a useful vehicle for connecting the three tracks in ASEAN in addressing social and political issues that challenge governments. In the end, a relaxation of the “ASEAN way”, instead of undermining the integrity, cohesion, effectiveness, and credibility of the Association can enhance its international standing by becoming more able to manage the challenges confronting the ASEAN members and their peoples. It may even be necessary in this regard to pool sovereignty in order to exercise effective national sovereignty after the fashion of the EU, when the time is ripe. Notes 1. United Nations Development Programme, Human Development Report 2000 (New York: Oxford University Press), pp. 157–59. 2. The rise of middle classes as a function of economic growth is analysed in Richard Robison and David S. G. Goodman, eds., The New Rich in Asia: Mobile Phones, McDonalds and Middle-Class Revolution (London and New York: Routledge, 1996). 3. For an analysis of the transformation of world politics in the last fifty years, shaped by technological revolution, among other factors, see James N. Rosenau, Turbulence in World Politics: A Theory of Change and Continuity (Princeton, N.J.: Princeton University Press, 1990), especially Parts One, Four, and Five. 4. Samuel P. Huntington, The Third Wave: Democratization in the Late 20th Century (Norman: University of Oklahoma Press, 1991). 5. Table 2.8, Distribution of income or consumption, World Development Indicators 2000, World Bank Group, . No data are available for Brunei, Myanmar, and Singapore. 6. The 1 September 2000 issue of Asiaweek is titled “Is ASEAN Dying?” a question that is shared by many observers of ASEAN. 7. Asian Development Bank, Asian Development Outlook 1998 (New York: Oxford University Press, 1998), pp. 23–32. 8. This issue is documented in Termsak Chalermpalanupap, “ASEAN 10: Meeting the Challenges”, in Beyond the Crisis: Challenges and Opportunities, vol. I, edited by Mely C. Anthony and Mohammed Jawhar Hassan (Kuala Lumpur: Insitute of Strategic and International Studies, 2000), pp. 282–83. See Robin Ramcharan, “ASEAN and Non-interference: A Principle Maintained”, and Tobias Ingo Nischalke, “Insights from ASEAN Foreign Policy Co-operation: The ‘ASEAN Way’, a Real Spirit or Phantom?”, Contemporary Southeast Asia 22, no. 1 (April 2000): 60–88; 89–112 on how ASEAN has dealt with this issue in the past and what it needs to do in the future. See also Khoo How San, “ASEAN as a Neighbourhood Watch Group”, Contemporary Southeast Asia 22, no. 2 (August 2000): 279–301, on new challenges to ASEAN’s fundamental purpose.

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9. See Carolina G. Hernandez, “The East Timor Crisis: Regional Mechanisms on Trial”, in Community Building in Asia Pacific: Dialogue in Okinawa, Asia Pacific Agenda Project 2000 (Tokyo: Japan Center for International Exchange, 2000), pp. 68–79. 10. Nischalke, “Insights from ASEAN’s Foreign Policy Co-operation”, p. 107. 11. Hadi Soesastro, “ASEAN Economic Co-operation in a Changed Regional and International Economy”, in ASEAN in a Changed Regional and International Economy, edited by Hadi Soesastro (Jakarta: Centre for Strategic and International Studies, 1995), p. 2. 12. On the question of the challenges to ASEAN enlargement, see three chapters commonly titled “ASEAN-10: Meeting the Challenges”, by Carolina G. Hernandez, Michael Leifer, and Termsak Chalermpalanupap, in Beyond the Crisis: Challenges and Opportunities, pp. 239–52; 261–67; and 269–84, respectively. 13. Hernandez and Leifer argue along these lines in the above chapters, while Termsak believes that this is not necessary. 14. For an analysis of national imperatives behind these developments and the issue of non-interference in ASEAN, see Ramcharan, “ASEAN and Non-interference”. 15. ASEAN Secretariat, “ASEAN Vision 2020”, ASEAN into the Next Millennium (Jakarta: ASEAN Secretariat, 1999), p. 2. 16. Ibid., pp. 2–3. 17. Ibid., pp. 6–8. 18. Japan has initiated a consultation conference with ASEAN eminent persons to make specific recommendations to the Japanese and ASEAN governments on concrete policy measures for enhanced ASEAN–Japan co-operation under a new partnership beginning with the Hanoi Plan of Action and the ASEAN Vision 2020. The group’s report was submitted to the meeting of the ASEAN Plus Three leaders in Singapore in November 2000. 19. M. C. Abad, Jr., “Re-engineering ASEAN”, Contemporary Southeast Asia 18, no. 3 (1996), argues convincingly that ASEAN is capable of re-engineering itself by documenting the ways in which the grouping adjusted to the needs of the times.

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7 ASEAN IN THE AGE OF GLOBALIZATION AND INFORMATION Chia Siow Yue

INTRODUCTION Until mid-1997, the ASEAN region was widely lauded for its “economic miracle”, an achievement it shared with the economies of Northeast Asia. A major explanatory factor was the strong external and global orientation of these economies. Then in July 1997, a financial crisis suddenly erupted in the region, starting with Thailand and spreading rapidly to other countries, resulting in severe economic downturns and social and political dislocations and turmoil. One major reason for this phenomenon was the integration of the region into the global financial market. Then, against general predictions and expectations of a long drawn-out economic recession, the region staged a remarkable V-shaped recovery in 1999–2000. Factors contributing to the strong recovery included the strong export demand generated by the continuing U.S. economic boom, the global electronics up-cycle, domestic government pump-priming, and official and private capital inflows. At the dawn of the twenty-first century, the ASEAN economies, individually and collectively, are being seriously challenged by the external forces of globalization and technological change, particularly information and communications technology (ICT). The two are closely related. ICT has sharply reduced the cost of information and communication and is driving globalization. In turn, developments in ICT are being shaped by globalization. The combined result of ICT and globalization has ushered in the network age. 121 © 2001 Institute of Southeast Asian Studies, Singapore

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The UNDP’s Human Development Report 2001 characterizes the network age as structured along horizontal networks, with each organization focusing on competitive niches, unlike the vertically integrated organizations of the industrial age. Production networks span the world and production is increasingly organized among separate players — subcontractors, suppliers, research institutes, and distributors — each playing a niche role along the value chain. Production and competition are becoming global in nature. Countries need to exploit global technologies to meet global competition.

CHALLENGES FROM GLOBALIZATION AND ICT Opportunities and Challenges from Globalization Globalization is not a new phenomenon. There have been earlier waves in the last century. What distinguishes the current globalization wave is its speed and scope. The UNDP’s Human Development Report 1999 refers to “shrinking space, shrinking time, and disappearing borders linking people’s lives more deeply, more intensely, more immediately than ever before”. First, there is the integration of markets for goods and services, particularly financial markets which are linked seamlessly across the globe and functioning twenty-four hours a day. Secondly, there are new integration instruments, as the Internet, mobile phones, and media networks shrink space and time. Thirdly, there are new players, particularly multinational corporations (MNCs) which have more financial and economic power than many small nation-states. The current wave of globalization is being driven by three interrelated forces. The first is national economic policy reforms, with deregulation, liberalization and privatization facilitating cross-border flows of goods, services, capital, skills, and technology. The second driver is the internationalization of production by MNCs, resulting in the strong linkage of investment, production, and trade. Thus, it has become commonplace for a product to be “produced” in many countries — for example, designed in the United States, with parts sourced from South Korea, Philippines, and Thailand, and assembly taking place in Mexico. The third driver is ICT, which has enabled the storage and transmission of massive amounts of information, the swift transportation of goods and services, and just-in-time manufacturing using global production and distribution networks. Globalization (and ICT) is shaping a new era of competition and interaction among countries and peoples, breaching geographical borders. While it has positive, innovative, and dynamic aspects, it also has negative, disruptive and marginalizing dimensions. Concern over the latter have led to

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anti-globalization demonstrations at various international forums. While the majority are of the view that globalization is irreversible and countries and societies have to learn to manage the processes, risks, and consequences, it bears remembering that economic liberalization was reversed last century, in the period between World War I and World War II. On the upside, globalization enables countries, particularly smaller and developing countries, to achieve economic progress beyond the limits imposed by domestic resources and markets, by accessing global resources, markets, technologies, and ideas, leading to higher economic growth, upgrading of economic structures, lower costs for businesses, and lower prices, improved product quality and wider product choice for consumers. Trade flows result not only in static efficiency gains from better resource allocation, but by enabling domestic producers to access the global market it also leads to dynamic gains from economies of scale, production specialization, and competitive and learning effects. Export earnings also lessen the foreign exchange constraint and facilitate the expansion of other sectors in the economy. Import liberalization alleviates supply bottlenecks, enables access to foreign technology embodied in equipment, reduces distorting effects of industrial policy, and induces domestic producers to be more competitive. Trade openness has enabled the East Asian economies to become part of the international production network and supply chain of MNCs. However, while the benefits from trade are clear, what is less clear is the optimal degree of openness and the optimal mix of global and regional trade liberalization. There is less consensus on the benefits of financial openness. Financial inflows enable higher rates of domestic investment as they supplement domestic savings and overcome foreign exchange constraints. More particularly, financial flows in the form of foreign direct investments (FDI) also enhance the domestic stock of skills and technological and management capabilities, and improves international market access. Financial openness can also lead to financial deepening. Technology flows, including ICT, are made possible by improved methods of production, new products and services, better delivery of health, education and other knowledge services, better standards of living, and faster and lower costs of travel for business people, students, and tourists. As goods, services, information, and ideas flow across borders, they impact on governments, businesses, and societies. However, the ability of countries, societies and peoples to benefit from globalization depends on their competitiveness in the global economy and the institutional and social systems put in place domestically to cope with the attendant risks. Most developing countries, including those in ASEAN, do not have effective countervailing institutions and policies.

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Sceptics from both industrialized and developing economies stress the downside of globalization. The exposure to global disturbances threaten stability, traditional sources of competitiveness, human security, and the pattern of daily life. First, there is the exposure to global financial market volatility. The globalization of financial markets has been facilitated by the widespread deregulation of domestic financial markets and application of ICT. The volume of volatile capital flows has increased the risk and cost of banking and financial crises. As evidenced by the East Asian financial crisis of 1997–98, heavy dependence on short-term financial inflows exposes an economy to both an exchange rate crisis and a financial sector crisis. International financial markets suffer from asymmetric information, adverse selection, moral hazard, and herd reaction. On the policy front, a country cannot simultaneously pursue a pegged exchange rate system and an open capital account, and policy sequencing has to ensure that rapid liberalization of the capital account is supported by adequate domestic prudential regulation and supervision, proper accounting practices, and financial disclosures. In addition, short-term capital flows, which featured prominently in several East Asian economies prior to the onset of the crisis, are more volatile than FDI flows and subject the recipient economy to the high risk of speedy flow reversals when investor sentiments change. It has become obvious that countries need to manage their vulnerabilities. International action is also needed to manage and prevent systemic crises and their tsunami effects. Secondly, there is increased economic vulnerability from participation in international trade. High export dependence increases the vulnerability to various external changes in demand conditions, import policies of trading partners, exchange rates, and marketing strategies of MNCs. On the import side, opening to import competition can destroy domestic industries and small and medium businesses. Remedial measures to reduce vulnerability include product and market diversification and regional market integration. For industries heavily dependent on imported inputs of parts and components, and thus highly exposed to exchange rate instability and current account deficits, deepening of the industrial structure beyond assembly and into component manufacturing and development of domestic capacity to absorb technology and skills will help. Globalization threatens the traditional production of goods and services for the domestic market as well, and countries have to continually monitor and upgrade their competitiveness and capabilities. Such pressures for change put stress on domestic businesses and workers. Thirdly, globalization is attributed as a contributing factor to increased income inequality among countries and within countries, as capabilities and

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opportunities to benefit from globalization are unevenly spread. Many countries, including not only the industrialized countries but also the Asian newly industrialized economies (NIEs), have been able to seize the opportunities of globalization — linking into the global market, attracting foreign investments, and exploiting technological advances. At the same time, many developing countries have become increasingly marginalized, with little prospects of export growth for their traditional natural resources and labourintensive exports, their investment environments fail to attract FDI, and they lack human and financial resources to upgrade. These countries have to put in place better macroeconomic management, sound governance, and capacitybuilding through investments in education, health, and technology. While much self-effort and governance are required of developing countries, stronger international action is also needed to improve access to the global market and global finance and to support human development in the marginalized countries. Regional co-operation and regional initiatives can also help to improve negotiating leverage in international forums such as the World Trade Organization (WTO). Fourthly, at the micro level, globalization increases human vulnerability and insecurity. Blue- and many white-collar workers in the industrialized countries fear being displaced by cheaper labour in developing countries. As the Asian crisis of 1997–98 showed, a financial crisis can develop into massive job and income losses, while corporate restructuring and mergers and acquisitions invariably lead to further lay-offs of workers. Global competition has led governments and businesses to adopt more flexible labour practices, which have aggravated personal job and income insecurity. Traditional social safety nets based on family and community are under threat in many developing countries, first from urbanization and industrialization, and now from globalization. Human insecurity also increases with the boom and bust of capitalist business cycles and movement of mobile capital and production facilities across borders. Following the trauma of the Great Depression, Western industrial countries created welfare states, but their social safety nets also carry the burden of mounting government expenditures and an entitlement culture. Developing countries are compelled to develop systems which provide sufficient labour market flexibility to meet the global competitive challenge, and human security for the workforce. Fifthly, many countries and societies feel that their cultures, values, and standards are under threat. Family and community bonds which had weakened during the earlier transition from the agricultural to the industrial age are now further threatened with the transition from the industrial age to the information age. ICT and global media networks have led to onslaughts by

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foreign culture. Political and social leaders fear that people are losing their cultural identity and values. Again, a balanced response is called for. While there is a need to protect and conserve what is best for society, there is also the need to keep up with the rapid pace of change. With globalization, national systems of laws, regulations, taxation, and dispute settlement are being challenged as jurisdictional boundaries are blurred or made irrelevant. The challenge is how to handle differences in national standards and policies on health, safety, labour, and environment. Sixthly, there is the concern that with globalization, national sovereignty is threatened. Governments fear the loss of authority and autonomy in policy-making, and in defining their economic, political, legal, and social institutions. Production and trade are dominated by MNCs from the advanced industrial countries, which are perceived to exploit the gains from globalization and degrade the environment, without regard for the longer term development objectives of host countries. Their economies and labour are exposed to the pressure of global competition. Their policies and actions are subject to the rules and regulations of international institutions such as the World Trade Organization (WTO), International Monetary Fund (IMF), and Bank for International Settlement (BIS). There appears to be a growing resistance to further integration into the global economy, which became more evident in the aftermath of the Asian financial crisis of 1997–98. The inability of the WTO Ministerial Summit, held in Seattle in November 1999, to launch the Millennium Round reflects the lack of requisite political support. Both this failure at Seattle and the lack of support by the OECD (Organization for Economic Co-operation and Development) countries to ratify the Multilateral Agreement on Investment (MAI) also reflect the power of the Internet in galvanizing support of civil society and non-government organizations (NGOs) to oppose globalization. As experience during the past century has shown, reversing globalization, even if it could be done, would be a severe setback for global welfare. The challenging task is for national, regional, and international efforts to manage the risks of globalization so as to reap its full benefits. Opportunities and Challenges from ICT Information and communications technology represents the convergence of information technology and communications technology. ICT involves innovations in microelectronics, computing (hardware and software), telecommunications and opto-electronics (microprocessors, semiconductors, fibre optics), which have enabled the processing and storage of mountains of

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information and its rapid distribution through communication networks. Computing power has increased a billionfold over the past four decades. Moore’s Law predicts the doubling of computing power every 18–24 months because of the rapid evolution of microprocessor technology (UNDP 2001, p. 30). The capacity and speed of communications networks have grown exponentially with the emergence of the Internet in the past decade. Gilder’s Law predicts the doubling of communication power every six months — a bandwidth explosion — owing to advances in fibre optic network technologies. Both are accompanied by huge reductions in costs and increases in speed and quantity. The UNDP study notes that e-mailing a forty-page document from Chile to Kenya costs less than US$0.10, while faxing it would cost about US$10, and sending it by courier US$50. More information can be sent over the Internet on just a single cable in a second in 2001 than was sent over the entire Internet in a month in 1997. The rapidly falling prices of personal computers (PCs) and the convergence of information technology and telecommunications have led to a dramatic growth in usage. The Internet has grown exponentially from 16 million users in 1995 to more than 400 million users in 2000, and is projected to reach one billion users by 2005 (UNDP 2001, p. 35). Within Asia, Internet penetration is beginning to catch up with the United States and Europe. It is projected that Asia will account for more than a quarter of the world’s Internet users and PC owners. ICT enables ready access to information and communication at very low cost and shrinks geographic distance and time. ICT, as represented by computers, telecommunications, and Internet, is having a profound impact on the competitiveness of countries, business models, and lifestyles. It allows people to communicate and access information in ways never before possible, dramatically increasing connectivity and participation. It increases the opportunities for citizens and civil society to participate in the political process and demands accountability from governments. It provides rapid low-cost access to information in almost all areas of human activity — distance learning, online medical diagnosis, online information on market conditions, and prices of commodities. ICT increases the efficiency of markets. It helps to globalize goods and capital markets; makes possible online procurement and outsourcing; enables quick supplier response to changing consumer demand and taste; and enables industrial processes with flexible and just-in-time manufacturing systems and low inventories. The Internet enables businesses to develop e-commerce, e-procurement, and e-market places across borders. E-commerce is one area where ICT is transforming the ways of buying and selling in the market-place. ICT overcomes barriers to knowledge and information, as the Internet

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can deliver information to all; overcomes barriers to participation, as the Internet provides for very low-cost communication and enables the global reach of civil society movements; and removes barriers to economic opportunity as ICT opens up new products and services, creates new jobs, and improves productivity and incomes. ICT offers developing countries leapfrogging opportunities. As latecomers, they can access, acquire, and adopt the information and communications technologies already produced by the advanced countries. As a tool, ICT can enable developing countries to reduce the cost of production and participate in global production networks and supply chains. With falling communications cost, it has become easier for MNCs to shift production to developing economies to take advantage of low labour costs. It enables developing countries to provide skilled but low-cost labour to participate in MNC outsourcing, such as in computer programming, airline revenue accounting, insurance claims, and call centres. The Internet offers virtually free access to the huge pool of global information and knowledge, and expertise on a wide range of subjects; provides a cheap tool for purchasing and marketing goods and services and facilitating payments; and reduces transaction costs, and costs of inventory stocking and warehousing. ICT not only lowers the barriers of time and distance but also of size. It reduces the traditional disadvantage that small and medium enterprises (SMEs) from developing countries have when competing against giant MNCs in the global market. With Internet, SMEs can compete online as buyers and sellers and target small market niches. For SMEs in service industries such as data processing and software, the Internet is multiplying market possibilities, as seen in the rapid expansion of software providers in India and the Philippines. E-commerce will reduce the role of middlemen, as the functions of marketing, ordering, delivery, and payments can be carried out directly and easily over the Internet. However, to successfully leapfrog and exploit opportunities and reap benefits from ICT, certain prerequisites have to be met. The first requirement is the enhancement of telecommunications infrastructure to enable the widespread application of ICT. These include broadband facilities and wireless as well as machine translation software to overcome language difficulties and provide access to English-language content. Businesses in developing countries can become active participants in the global e-business and e-commerce if the transport infrastructure and delivery services can enable them to meet tight schedules. The second is the development of human skills through education, training, and retraining so as to provide an adequate pool of ICT professionals and other relevant skilled manpower for ICT innovation and diffusion, and

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to provide the population with basic skills and tools to use ICT in the workplace, in school, and at home. Many advanced countries have been attracting ICT talent from developing countries, such as India, as their domestic demands have far outstripped supply. Thus, the developing countries are severely handicapped by inadequate resources for education and training as well as by brain drain. ICT skills include English language proficiency as well as skills for content development for e-commerce, e-learning, egovernment, and multimedia programming. More resources are required for higher education in science and engineering and for research and development. The third prerequisite includes an environment that nurtures ICT entrepreneurship, innovation, and technological diffusion; a legal and regulatory framework that protects intellectual property rights and secure ecommerce transactions; a policy regime that minimizes barriers to trade in ICT goods and services; and mechanisms and procedures for certifying products and standards and taxing products traded online. Developing countries that can build the requisite infrastructure, frameworks and mechanisms can participate in the new global e-business. Those that do not possess the prerequisites risk being excluded and marginalized and even losing their competitive advantage in traditional low-wage labourintensive activities when high-tech methods of manufacturing production using ICT become cost-effective. There is growing concern that ICT will lead to a digital divide, arising from differential access between industrialized and developing countries and among the developing countries, in ICT-related investment, ICT infrastructure and equipment, and ICT expertise. Only less than 5 per cent of the world population has access to Internet, and only about 10 per cent of Internet users are from developing countries. The digital divide is also present within each country, whether rich or poor. The OECD defines this digital divide as the “gap between individuals, households, businesses, geographical areas at different socio-economic levels with regard to both their opportunities to access information and communication technologies and their use of the Internet for a wide variety of activities” (OECD 2001, p. 5). In the advanced industrial countries of North America and Europe, the digital divide was initially seen as existing between those with home PCs and those without. However, with the sharp fall in the price of PCs to very affordable levels, the concern has now shifted to one of access to high-speed/broadband Internet services. These services require major investments, and are likely to be first introduced in high-density high-income areas, and poor rural households will get left behind. There are essentially five alternative sources of broadband connections to households and SMEs — DSL (digital subscriber line) over

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copper wires, cable modems, satellite circuits, mobile wireless services, and fixed wireless services. Availability, accessibility, and affordability of ICT services is worst in the rural areas of developing countries, which may lack even infrastructure such as telephone, electricity, and roads, let alone broadband connections. Infrastructure development in the rural areas does not normally attract private sector investments. The UNDP’s Human Development Report 2001 has produced a technology achievement index to measure countries’ achievements in creating and diffusing technology and in building human skills to master new innovations. With regard to intra-country digital divide, the index shows considerable disparities between the urban and rural regions, with groups differentiated by education, wealth, age, and sex. Tables 7.1 and 7.2 show the technology achievement and the ICT diffusion among East Asian economies. A clear digital divide, in terms of Internet access, fixed and mobile teledensity and human skills, is evident between Japan on the one hand, and the CLMV countries (Cambodia, Laos, Myanmar, and Vietnam) on the other. The digital divide does not have to follow the traditional income divide. Throughout human history, technological development has been a powerful tool for human development and poverty reduction. The digital divide also does not need to be permanent. Technological adaptations and institutional innovations can lead to ever-expanding access. For example, low-cost and solar-powered wireless devices are now available; software has already been developed for illiterate users; community access, such as cyber cafes and kiosks, are proliferating in both urban and rural settings; and prepaid phone cards are expanding. There are several dimensions to the digital divide issue. First, there is the divide arising from the lack of universal access to ICT infrastructure — mobile and satellite systems, access networks such as FTTH (fibre to the home), ADSL (asynchronous digital subscriber line), FWA (fixed wireless access), and broadband backbone networks. Where private sector investments are not forthcoming, the public sector may need to intervene in providing some of the key telecommunications services. Secondly, there is the issue of international and regional co-operation in standardization or management of radio frequencies and satellite orbital positions that are needed for costeffective and efficient development of IC infrastructure. Thirdly, there is the issue of access to relevant and adequate content. Content is usually provided by the advanced countries and may not be relevant to producers and consumers in developing countries, particularly those located in poor rural areas. The lack of local content is a function of the size of market demand and profitable business opportunities. A related issue is technological illiteracy and thus

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0.698 0.666 0.585 0.455 0.396 0.337 0.300 0.299 0.211 — — — — —

994 779 8 6 — 1 — 1 — — — — — — 64.6 9.8 25.5 — 0.0 0.3 0.1 0.1 — — — — — —

Technology Technology Creation Achievement Index Patents Receipts of granted royalties & 1998 licence fees (per 1999 million (per 1,000 persons) persons)

Source: UNDP, Human Development Report 2001.

Japan South Korea Singapore Hong Kong Malaysia Thailand Philippines China Indonesia Brunei Cambodia Laos Myanmar Vietnam

Country Diffusion of Old Innovation Human Skills

49.0 4.8 72.3 33.6 2.4 1.6 0.4 0.1 0.2 8.0 — 0.0 0.0 — 80.8 66.7 74.9 33.6 67.4 48.9 32.8 39.0 17.9 — — — — — 1,007 938 901 1,212 340 124 77 120 40 451 11 8 6 31

7,322 4,497 6,771 5,244 2,554 1,345 451 746 320 7,676 — — 64 232

9.5 10.8 7.1 9.4 6.8 6.5 8.2 6.4 5.0 — — — 2.8 —

10.0 23.2 24.2 9.8 3.3 4.6 5.2 3.2 3.1 0.4 0.2 — 2.3 —

Internet High & Telephones Electricity Mean Gross tertiary hosts medium fixed & consumption years of science 2000 tech exports mobile 1999 schooling enrolment (per 1,000 1999 1999 (kw hour 2000 ratio persons) (% of (per 1,000 per capita) (age 15 1995–97 goods persons) & above) (%) exports)

Diffusion of Recent Innovation

TABLE 7.1 Technology Achievement Index in Asia

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441 310 349 450 89 24 10 6 6 136 — 2 2 1

1990

558 438 482 576 203 86 39 86 29 246 3 7 6 27

1999 7 2 17 24 5 1 0 — — 7 0 0 0 0

1990 449 500 419 636 137 38 38 34 11 205 8 2 — 4

1999

Telephone Machines Cellular Mobile (per 1,000 persons) (per 1,000 persons)

Source: UNDP, Human Development Report 2001.

Japan South Korea Singapore Hong Kong Malaysia Thailand Philippines China Indonesia Brunei Cambodia Laos Myanmar Vietnam

Country

2.3 0.8 7.4 5.2 0.3 0.1 — — — 0.5 0.0 0.0 0.0 0.0

1990 49.0 4.8 72.3 33.6 2.4 1.6 0.4 0.1 0.2 8.0 — 0.0 0.0 —

1999

Internet Hosts (per 1,000 persons)

0.06 0.06 0.02 0.0 0.06 0.23 0.0 0.06 0.08 — 0.15 — — 0.37

1999 91 94 — — 44 — — — 44 — — — — —

1999

Cost of 3-minute Local Call ppp Index US$ (1990=100)

TABLE 7.2 Diffusion of Information and Communication Technology in Asia

0 — — 1 5 18 9 1 2 52 — — — —

1990

0 0 0 0 — 7 — — — — — — 2 —

1999

Waiting List for Mainline (per 1,000 persons)

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inability to access and use ICT. Another related issue is the barrier posed by language for non-English-speaking countries and people — the major part of Internet content worldwide is in the English language and much of ecommerce is conducted in English. Efforts to bridge the digital divide are multifaceted, requiring appropriate government policies as well as business and community initiatives. Government alone cannot resolve the digital divide and the participation of private sector and civil society groups is crucial. The government’s role is to provide an enabling policy environment for the private sector to invest in the necessary infrastructure and applications. The liberalization of telecommunications services and the attendant competition among service providers have been crucial in bringing down usage charges and expanding access and usage, thus helping to bridge the digital divide. The debate is between cost-based and unfettered access to ICT. Stiglitz and Orszag have outlined the following principles for government provision of ICT goods and services: providing public data and information; improving efficiency of government services; supporting basic research; adding with caution specialized value to public data and information; providing private goods under limited circumstances, even if private firms are not providing them; providing services online if private provision with regulation or appropriate taxation is not more efficient; ensuring that mechanisms exist to protect consumer privacy and security; promoting network externalities with great deliberation and care; allowing the maintenance of proprietary information or the exercise of rights under patents and/or copyrights only under special conditions (including national security); exercising substantial caution in entering markets in which private sector firms are active; generally not aiming to maximize net revenue or taking actions that would reduce competition; and only allowing the provision of goods or services for which appropriate privacy and conflict-of-interest protection has been erected. Concern over the digital divide at the G8 Okinawa Summit in July 2000 brought about the establishment of the Okinawa IT Charter. The Japanese Government offered to provide a comprehensive co-operation programme for bridging the digital divide with a grant of US$15 billion spread over a period of five years; this fund can be used for ICT network infrastructure development, human resource development, and promotion of IT applications. Likewise, the APT Asia-Pacific Summit on Information Society in November 2000 adopted the Tokyo Declaration with action plans for a shared vision for IT, bridging the digital divide, developing ICT infrastructure, and the essential applications for the information society, human resource development, and enhancement of ICT literacy, and regional and global co-operation.

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ASEAN EXPERIENCES WITH GLOBALIZATION Globalization and the ASEAN Economic Miracle Until mid-1997, ASEAN was widely acknowledged to be among the world’s most economically successful and dynamic regions. Much of this economic success may be attributed to the economic reforms and trade and investment liberalization efforts taken unilaterally at the national level, which improved competitiveness and access to the world’s markets, capital resources, and technology. Most of the ASEAN countries made great strides in integrating their economies with the global product and capital markets. Trade integration, as measured by the trade/GDP ratios, has risen for most countries in the region. Rising trade ratios followed the significant liberalization of trade policy regimes. On the import side, this entailed reductions in tariff rates and reduction or elimination of quantitative controls and licensing requirements. On the export side, tax incentives and export processing zones — with ready availability of physical infrastructure, industrial facilities, and import duty exemption or drawback schemes — encouraged investments in export industries. The export structures shifted from traditional primary products towards more dynamic manufactured exports, initially resource-based and labour-intensive, but increasingly more skill- and technology-intensive. Intraindustry trade and intra-firm trade rose with the growth of regional component sourcing by MNCs. As a rising proportion of manufactured exports comprised electronics, the export performance of a number of countries became closely linked and vulnerable to the global business cycle that characterizes the electronics industry. In trade direction, the ASEAN economies were more globally than regionally integrated, as their major trading partners were the United States, the European Union, and Japan rather than one another. IntraASEAN trade remained less than a quarter of the region’s total external trade. A growing number of countries liberalized their policies towards FDI inflows, particularly in export manufacturing, through various measures, such as simplification of rules and procedures on investment approvals; relaxation of foreign ownership restrictions; relaxation on restrictions on the repatriation of capital and profits; provision of fiscal incentives; provision of investment facilities, including export processing zones and industrial parks; and treaties on investment protection and avoidance of double taxation. These policy reforms, together with economic dynamism and political-social stability, led to accelerated FDI inflows in the post-1986 period. In addition to the traditional sources of FDI from the United States and Europe, the

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ASEAN region benefited from the wave of outward FDI by Japan and the Asian newly industrialized economies (NIEs) of Hong Kong, Singapore, South Korea, and Taiwan, in response to rising costs and appreciating currencies at home. Within ASEAN, the transitional economies of Cambodia, Laos, Myanmar, and Vietnam began to attract sizeable investments from the more developed ASEAN economies of Singapore, Malaysia, and Thailand. The ASEAN economies also benefited from its gradual integration into the regional and global economy through trade and direct investment flows. It bears repeating that international trade and direct investment enable economies to access the world’s resources, technology and ideas, and managerial and marketing expertise and networks. They also enable greater efficiency and productivity through the exploitation of comparative advantage, scale economies, competition and innovation; and provide wider consumer choice. The liberalization of FDI inflow was complemented by financial sector reforms which intensified during the 1990s. They included the deregulation of interest rates; promotion of new financial markets and instruments; permitting local and foreign residents to open bank accounts in foreign currencies; allowing banks to extend credit in foreign currencies in the domestic markets; allowing financial institutions and non-financial corporations to borrow abroad; allowing foreigners to own shares on domestic stock exchanges; permitting the sale of securities on international stock and bond markets by national companies; reducing barriers to entry for banks and other financial institutions; and establishment of offshore banks. The financial liberalizations exposed the economies to considerable risks, as discussed below.

Globalization and the ASEAN Financial Crisis The regional financial crisis of 1997–98 can be traced to the large capital inflows in the pre-1997 period and the subsequent sharp reversals. Net capital inflows into the five crisis economies of Indonesia, Malaysia, Philippines, Thailand, and South Korea escalated in the 1990s, and reached US$93 billion by 1996. These were mainly short-term capital, comprising privatesector unhedged commercial bank borrowings as well as volatile portfolio investments. The inflows reflected the region’s economic success. International investors and creditors were keen to invest and lend to countries, businesses, and individuals in the region. In 1997 there was a sharp reversal of short-term capital flows, with the huge outflows triggering the currency, financial, and economic crisis. Much has been written about the causes. First, deteriorating macroeconomic

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fundamentals eroded investor and creditor confidence. These fundamentals had appeared generally sound and attractive to international commercial banks, fund managers, and other institutional investors. However, there were emerging weaknesses — slowdown in exports and rising current account deficits. The deceleration of exports in 1996 persisted through 1997 with the global electronics downcycle as well as the erosion of export competitiveness as a result of rising domestic production costs and appreciating real exchange rates. Secondly, the economies became highly vulnerable as a result of the massive short-term capital inflows. Short-term loans and portfolio investment rather than long-term FDI dominated the large capital inflows. The pegged exchange rate provided the implicit government guarantee and removed the exchange rate risk, allowing domestic borrowers to access cheaper international funds without hedging. These short-term inflows exceeded the level of official foreign reserves, thus increasing the vulnerability to any capital outflow or failure to roll-over the debt. The unhedged foreign borrowings were vulnerable to any sharp changes in the exchange rate. The inflows led to overvalued exchange rates, over-investment in productive capacity, asset bubbles in real estate and the stock market, and falling quality of investment projects. Erosion of investor and creditor confidence set in and led to the outflow of funds or non-renewal of short-term loans. Initial efforts by the central banks to defend their currencies proved futile, resulting in depletions of official foreign reserves, currency devaluations, and financial panic among foreign creditors. The sharp capital outflow led to macroeconomic collapse, with soaring interest rates and inflation, plunging stock market and real estate prices, and sharp economic contractions. Thirdly, the crisis economies had weak banking systems and corporate governance characterized by inadequate regulatory and disclosure frameworks, poor reporting standards, lack of transparency in accounting systems, lack of reliable and timely financial data, extensive insider and intra-party transactions and government-directed lending, and high exposure in real estate and the stock markets. When a full-scale financial crisis developed, non-performing loans escalated and insolvency became a serious problem. Weak public governance contributed to the collapse of the financial and corporate sectors. The lesson from the 1997-98 crisis is that globalization needs strong governance and institutions. Political and corporate governance will ensure efficiency, fair competition, and rule of law. Strong institutions are necessary to complement the entrepreneurial and production roles of the private sector, and they range from stabilization and regulation to social safety nets.

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RESPONSES TO GLOBALIZATION AND ICT Globalization poses a dual challenge for the ASEAN countries: to open to the global economy, and to manage the risks and adverse effects of globalization. The first is necessary to capture the benefits of access to a larger volume and wider range of resources, and to improve competitiveness, productivity, and living standards. Adverse effects include economic vulnerability and human insecurity. The technological revolution, as represented by information and communications technology, also poses a dual challenge for the ASEAN countries: to promote the growth and diffusion of ICT and to prevent a digital divide. To respond to these twin forces of globalization and ICT, the ASEAN region needs to improve its economic competitiveness, and develop national and regional resilience to global disturbances as well as the capacity to exploit ICT and not be caught on the wrong side of the digital divide. Managing Competitiveness and Vulnerabilities As the ASEAN economies recover from the 1997–98 crisis, the concern is the long-term sustainability of economic growth in an environment of intensified global competition and rapid technological change. For competitiveness, there is a need to maintain sound economic fundamentals, strengthen the financial system, and put in place better public and corporate governance. The basic factors contributing to the economic miracle of the past decades have not changed — high savings rates, investments in infrastructure and human resources, and policies for privatization, deregulation, and trade and investment liberalization. National competitiveness can be enhanced by attracting FDI, which increases access not only to foreign capital but also foreign technology and managerial and marketing know-how. The ASEAN countries have been embarking on unilateral investment liberalization from the 1980s. Since the 1997–98 financial crisis, FDI policy liberalization has intensified and extended beyond greenfield investments to include mergers and acquisitions, as the crisis has exposed the volatility of short-term capital inflows in sharp contrast to the more stable long-term FDI, and as domestic financial institutions and corporations are saddled with mountains of debt and the need for recapitalization. FDI policy liberalization has involved streamlining the bureaucratic process of investment approval, removing foreign ownership ceilings and performance requirements, and providing investment incentives and facilities. Collectively, ASEAN is pushing to accelerate the realization of the ASEAN Investment Area (AIA), aimed at promoting inflows of direct

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investment. However, investor confidence in ASEAN continues to be undermined by political and social instability in a number of countries, and investor interest is being diverted to Northeast Asia, particularly drawn by China’s huge market size, cheap labour, and impending accession to the WTO. Globalization is leading to more opportunities for cross-border trade and investment, but it also means intensified competition. Increasingly, many of the ASEAN economies can no longer compete on the basis of cheap labour. In the new economy heralded by ICT, creativity, entrepreneurship, and human resources will make the difference. For long-term sustainability, the ASEAN countries need to give stronger emphasis to human resource development and upgrading their technological and financial infrastructure. Countries need to produce more technical, scientific, engineering, and IT manpower, and provide an environment for entrepreneurship, creativity, and innovation. Standard physical infrastructure has also to be augmented by telecommunications and sound domestic financial institutions and capital markets. As individual economies face intensified regional and global competition for markets and investments, ASEAN can help its members to enhance their competitiveness as a production base and investment location. The ASEAN Free Trade Area (AFTA) will result in regional free trade by the year 2002, with tariff levels not exceeding the 5 per cent level, except for those included in the Sensitive List and General Exclusion List. The ASEAN Framework Agreement on Services is an effort to improve ASEAN’s competitiveness for services through trade liberalization and facilitation. Seven priority sectors have been identified for liberalization negotiations: air transport, maritime transport, business services, construction, financial services, telecommunications, and tourism. Since the 1997–98 crisis, ASEAN has been perceived to be not moving fast enough in trade and investment liberalization, as well as in structural reforms. Many also regard ASEAN as too small to be effective as an economic integration group — while the ASEAN population of 500 million is larger than the EU or the North American Free Trade Agreement (NAFTA), its GDP size is less than 10 per cent of that of either grouping, and the region is a large importer of investment capital and technology. ASEAN has to move towards linking up with Northeast Asia — as with the ASEAN Plus Three proposal — and with other regional groupings, such as the Australia-New Zealand CER (Closer Economic Relations) to create a larger and more secure market and resource base. ASEAN failed to help its members avert or moderate the 1997–98 financial crisis. Its major members were all caught up by the currency crisis

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and were unable to help one another. There was weak financial co-operation. Financial help was given on a bilateral ad hoc basis rather than regional and co-ordinated. ASEAN finance ministers met on this issue for the first time only in 1998. Since then, ASEAN has set up a regional financial monitoring mechanism to provide up-to-date information on various financial indicators and give early warning signals of any impending or emerging financial trouble among its economies. Bilateral swap arrangements have also been expanded to include a wider group of countries. However, ASEAN is being perceived as being slow to undertake financial and corporate reforms. The 1997–98 crisis has also demonstrated that individual ASEAN countries cannot cope with systemic shocks from the international financial system by themselves and international co-operation and assistance are needed. Regionalization and Production Networks Globalization and regionalization go hand in hand. With the globalization of trade and finance, production is also regionalizing for two reasons. First, notwithstanding the emergence and exponential growth of Internet and ecommerce, geographical proximity still facilitates customer–supplier relationships. Secondly, with volatile swings in exchange rates, business firms have learned to hedge exchange rate risks by matching sales and purchases more closely in the same currency or in the same region where exchange rates are likely to move in tandem. Globalization and regionalization tend to be mutually reinforcing, as policies to promote regionalization help countries and firms to achieve global competitiveness. Regionalization enlarges market size and stimulates competition. It attracts FDI and strengthens market access negotiations with other economic blocs. It is easier to achieve harmonization of domestic policies and standards and mutual recognition at the regional level than multilaterally because it involves a smaller number of countries with shared geographical, historical, cultural, institutional, and strategic interests. Multinational corporations increasingly build production and distribution networks. They look at a region as one production area and allocate different parts of the value and supply chain or different product models to different locations within ASEAN. Production networks are particularly evident in the electronics and automotive industries. In the electronics industry, American, European, and Japanese MNCs locate different production processes and products among the ASEAN and Northeast Asian countries. Higher-end processes and products are located in the more advanced countries with more skilled human resources and technological capabilities while the labour-

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intensive processes are located in countries with low-wage abundant labour. These production networks have led to the growth of intra-industry and intra-firm trade in parts and components, and in final products. As cost structures and levels change, relocations take place within the region or across regions. With AFTA and the AIA, intra-regional industrial relocations and intra-industry and intra-firm trades are facilitated. The ASEAN growth triangles have been languishing and could be revived to promote cross-border industry clusters. Promoting ICT and e-ASEAN The ICT revolution has been a major driver of the rapid industrialization of the ASEAN countries from the 1970s. The region has become a major export production platform for ICT goods, particularly computer equipment, and parts and components. Extensive production networks and supply chains in electronics parts and components production and in the assembly of final products for consumer and industrial electronics have emerged, driven by foreign direct investment by multinationals from the United States, the EU, and Japan, giving rise to not only intra-industry trade but also extensive intrafirm trade. The heavy concentration of investments, production, and exports in the electronics industry and dependence on the U.S. market have rendered the economies of Singapore, Malaysia, South Korea, and Taiwan highly vulnerable to business cycles emanating from the United States and the EU. Unlike the production and export of ICT hardware, information content production and application of ICT as a productivity and competitiveness tool to produce and deliver goods and services have been much less developed in the ASEAN region. Except for Singapore, the ASEAN countries have fallen behind in the adoption and diffusion of ICT, especially the Internet and ecommerce. The competitiveness of ASEAN as an integrated manufacturing platform can be strengthened not only by the establishment of AFTA and the AIA but also by the development of Internet and e-commerce. For most of the ASEAN countries, there is a need to provide adequate telecommunications networks, and expand the usage of the Internet for information access, ecommerce, e-government, and e-learning. The Third ASEAN Informal Summit of November 1999 established the e-ASEAN Task Force. The ASEAN Framework Agreement on Information and Communications Technology Products, Services and Investment, or the e-ASEAN Agreement, was adopted at the Fourth ASEAN Informal Summit in November 2000. The First ASEAN Telecommunications Ministers Meeting took place in July 2001.

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The aims of e-ASEAN are to promote economic growth, social development, and better governance; enhance access to information and news worldwide; boost economic growth and employment; provide better access to a range of government services; provide distance learning and education and delivery of health services; and promote cross-border business and networks. The vision for e-ASEAN is a bold one, given the difficulties in co-operation posed by differences in the stage of ICT development among member countries. Key ICT concerns include the promotion and enhancement of ICT usage, development of local and ASEAN regional content, development of ICT skills and expertise, ensuring a well co-ordinated network security system to combat the rise in cyber-crime and misinformation on the Internet, and accessibility in order to narrow the digital divide. The e-ASEAN Task Force was mandated to develop a broad-based and comprehensive action plan to identify the necessary physical, legal, logistical, and economic infrastructure for ASEAN to compete in the global information economy. The Task Force comprises public and private sector representatives from each ASEAN country. It advises the governments on the most appropriate enabling policy and legal and regulatory environment for the development of information infrastructure. The e-ASEAN Agreement has the following objectives: to strengthen and enhance the economic competitiveness of ASEAN through harnessing ICT in the private and public sectors; to create a common market-place of half a billion people for ICT products and services through trade liberalization; and to improve the living standards of the ASEAN people through ICT and narrowing the digital divide. Elements of the Action Plan focus on the following: the establishment of the ASEAN Information Infrastructure (AII) by leveraging on the national IIs and enhancing connectivity among them; development of an e-commerce legal and regulatory environment to boost the competitiveness of ASEAN industries and businesses; liberalization of trade to provide a borderless ASEAN market-place for trade and investment in ICT products and services; enhancement of e-government services to improve the efficiency of government and the delivery of public services; capacity-building to reduce the digital divide and nurture an e-society through human resource development and the provision of ICT services; and pilot projects to jumpstart e-ASEAN. The Telecommunications Ministers Meeting emphasized the need to intensify collaborative efforts in advancing e-ASEAN, particularly in facilitating the early realization of the AII, promoting universal and affordable access to ICT services, including the Internet, and building up the human resource capacity. The meeting called for the following: an industry-led solution for

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the problems posed by the current international charging arrangements for Internet services; the fostering of a culture of partnerships, competitiveness, innovation, and entrepreneurship to support and sustain the development and growth of the ICT sector in ASEAN; the creation of a responsive policy and regulatory environment for investment, in infrastructure and technology development; collaboration in building the capacity for ASEAN citizens to communicate in the information age; the development of ASEAN content on the Internet; the bridging of the digital divide between the old ASEAN members and the newer CLMV members with the sharing of expertise, training, and educational resources; accelerating the development and implementation of respective national information infrastructures, removing barriers that impede the growth of e-commerce, and encouraging private sector investment and participation in ICT development; and co-operating in the development of the regional AII, including network infrastructure, applications and services, and in regulatory and investment policies.

ASEAN Information Infrastructure (AII) The e-ASEAN Agreement commits member countries to facilitate interconnectivity and technical interoperability among their national information infrastructures (NII) and evolve these into a regional ASEAN information infrastructure. Information can be exchanged and goods and services traded much faster and cheaper through increased connectivity. In defining the AII, the ASEAN governments called for interconnectivity, technical interoperability, high-speed direct connections among ASEAN countries, developing ASEAN content, and the setting up of regional Internet exchanges and Internet gateways, including regional caching and mirroring. The AII will be a combination of all the national information infrastructures of the ASEAN countries with a specific regional content. It will consist of an interconnected, interoperable broadband communication network; information devices such as computers, fax, and TV; software, information services, and databases; and trained ICT manpower to build, maintain, and operate. The AII will also be a gateway linking Southeast Asia to the Asia-Pacific Information Infrastructure and the Global Information Infrastructure. A technical architecture is being put together to guide the development and implementation of interoperable ICT applications and services. A forum for Internet service providers (ISPs) in ASEAN has been organized to work towards the setting up of regional Internet exchanges and gateways to make Internet traffic flow within ASEAN more efficient and cost-effective. An effort is also under way to develop measures to encourage

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the production of regional and locally relevant content, including co-operation in digital libraries and tourism portals. The development of AII cannot be the responsibility of governments alone. Information infrastructure development is highly capital-intensive and the promise of AII can only be realized by involving the private sector in the provision of necessary broadband information networks and suitable applications. The private sector has the technology, resources, and creativity. It is closer to the market and has better understanding of emerging technologies and so is in a better position to initiate and implement ICT projects that are commercially viable and implementable. A private-sector-led ASEAN Internet service providers forum was organized to explore ways of promoting the more efficient flow of Internet traffic, including regional mirroring and hubbing and the setting up of national and regional Internet exchanges and Internet gateways. The role of government is to ensure the necessary legal and regulatory framework and policy environment to promote competition in the marketplace and to be a lead user of ICT. Governments should act as facilitators in providing a market-friendly regulatory framework and undertake appropriate policy reforms, harmonizing policies and legislation to facilitate cross-border transactions. Policy issues involve the following: with the convergence of information, telecommunications and media, the need to develop applicable regulatory frameworks; security of the information system to ensure the genuineness of orders for goods and services, and guarantee the accreditation of payments to the proper accounts; protection of personal data and privacy of individuals and of business plans; and protection of intellectual property rights so as to encourage innovation and technology transfer. One problem is how to strike a balance between legislated standards and industry-driven standards. It is important to ensure that ASEAN standards are consistent with international standards such as ISO/IDC, JTC1, and XML when the ASEAN countries collaborate in developing regional standards. There are industry and user concerns that standards should not be rigid or specific to any platform but should be open. Difficulties in pursuing harmonization to provide common standards would also be encountered, as member countries are in different stages of development. It is more feasible and realistic for each country to draft its own framework and to agree to a minimum set of standards to facilitate interoperability across borders.

Legal and Regulatory Framework for e-Commerce The growth of e-commerce in the region requires physical infrastructure, human resources, as well as a seamless legal and regulatory framework that

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creates trust and confidence for consumers and facilitates development of ebusiness. Measures to improve trust and confidence include the establishment of national laws and policies relating to e-commerce transactions, based on international norms such as the United Nations Commission on International Trade Law (UNCITRAL) framework; the establishment of a system for mutual recognition of digital signatures; secure electronic transactions, payments, and settlements through mechanisms such as electronic payment gateways; protection of intellectual property rights arising from e-commerce; promotion of personal data protection and consumer privacy; and dispute settlement mechanisms for online transactions. In e-commerce, the ASEAN countries must enact laws to regulate and ensure that they are regionally harmonized. Only four ASEAN countries — Malaysia, the Philippines, Singapore, Thailand — have laws covering ecommerce, based largely on the model suggested by the UNCITRAL. Other ASEAN member states are working on their own legislation and need to expedite the process. A Reference Framework for E-commerce Legal Infrastructure has been endorsed, and countries preparing their laws have been advised to use the UNCITRAL Model Law as the baseline and the Reference Framework as a guide to the minimum requirements. There have been suggestions to look carefully at developments in international standards and select one that is globally recognized; alternatively, ASEAN should have a repository of e-laws so that policy-makers, lawyers, and businessmen can have easier access to the legislation in each country. There are proposals for the Electronic Payment Gateway System to be linked through a common system, with images of cheques sent and cleared electronically, and that the regional clearing system should include the clearing of U.S. currency cheques, which are currently routed back to the United States for clearance. There have been complaints from merchants that clearing cheques and credit card transactions under this system took much longer. The ASEAN Bankers’ Association is working on a regional e-payment gateway. A common legal framework has been developed to facilitate the legal recognition of digital certificates issued by the certification authorities of Singapore, Malaysia, Thailand, the Philippines, and Brunei. Concurrently, a certification authority forum has been initiated to work out common technical standards to enable the cross-recognition and cross-certification of digital certificates. It is necessary not only to establish a comprehensive legal and regulatory framework, but also to develop the requisite legal expertise on e-commerce. The e-ASEAN Task Force proposed a time schedule for achieving

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region-wide e-commerce targets — encourage mutual recognition and crosscertification of digital signatures and documents by 2001; facilitate secure regional electronic payments and settlements by 2002; implement an ecommerce code based on UNICTRAL for all countries by 2003; cyber laws by 2004; and region-wide broadband telecommunications backbone by 2005. Among the ASEAN countries, Singapore has the most advanced e-commerce action plan. The Singapore Government’s efforts to create a market-friendly e-commerce environment include facilitating the development of e-commerce infrastructure services; enhancing an e-commerce legal framework; working with the private sector to build e-commerce capabilities through technical assistance, financial incentives, and the promotion of elearning; building consumer confidence in e-commerce through consumer education and awareness programmes and merchant accreditation; promoting Singapore as an e-commerce hub; attracting foreign talents to the infocomm industry; and taking measures to enable every citizen to be ICT-savvy. To enhance e-commerce legal infrastructure and legal competency, an IT law think-tank was established to develop a core group of ICT-savvy lawyers. The Singapore Mediation Centre has started to develop a comprehensive framework for e-commerce mediation and the Singapore International Arbitration Centre is preparing to conduct e-arbitration.

Trade and Investment Liberalization for ICT Products and Services To create a common market-place for ICT goods and services and to facilitate investment flows in the ICT sector, the ASEAN member countries have agreed to accelerate the reduction and elimination of tariffs and non-tariff barriers in intra-regional trade on ICT products and services under the AFTA/CEPT and ASEAN Framework Agreement on Services. The accelerated liberalization of trade in ICT goods is being carried out in three tranches, beginning in January 2003 and to be completed by January 2005; for the CLMV countries, the time-frame is between January 2008 and January 2010. On non-tariff barriers, the ASEAN Harmonized Tariff Nomenclature (AHTN) for ICT products will be implemented in 2002. The harmonization of customs valuation for ICT products will be based on the implementation of the WTO Valuation Agreement. Trade facilitation for ICT products is through the fast track implementation of mutual recognition arrangements (MRA), where applicable, and aligning national standards to relevant international standards. This would make trade in such products much easier and less expensive. The ASEAN Sectoral MRA for Telecommunications Equipment has been adopted

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by the ASEAN Telecommunications Regulators’ Council. To promote intraASEAN investment in ICT products and services, incentives are provided under the Framework Agreement on the ASEAN Investment Area.

e-Government The e-ASEAN Agreement calls for e-government, that is, efforts by government to spearhead the application of ICT by providing a range of government services online so as to improve efficiency, promote transparency, and facilitate linkages between the public and private sectors. Inter-governmental cooperation in ASEAN could also be enhanced by promoting e-procurement of goods and services and facilitating the flow of goods, information, and people.

e-Society and Capacity-Building The ASEAN member states have agreed to build an e-ASEAN community by promoting awareness, general knowledge and appreciation of ICT, especially the Internet. First, increase ICT literacy and expand the base of ICT workers through a human resource development programme covering schools, the workplace, and the community. Schools should introduce an integrated curriculum supported by ICT at all levels; advanced education and learning services to the masses can be introduced through online libraries; and Internet access can be provided to the majority of schools. Apart from efforts through formal education, the ASEAN governments should also focus on non-formal education to develop the ICT skills of the citizenry. Governments should be ready to retrain those from the second wave industries to ensure their employability in the knowledge industries. They also need to provide entrepreneurs in SMEs with the qualifications to compete in the new economy, and facilitate the usage of ICT to narrow the digital divide and promote the spirit of an ASEAN community. Secondly, the more advanced ASEAN countries could assist the less ICTenabled members with education and training facilities in ICT for small business enterprises, ICT workers, policy-makers, and regulators. A series of “train the trainers” programmes to upgrade the ICT skills of the less developed CLMV countries is being developed. At the Fourth ASEAN Informal Summit in November 2000, Singapore offered IT “train-the-trainers” courses and training attachments in its educational institutions. Under the e-ASEAN framework, some twenty pilot projects have been proposed by private sector and quasi-government organizations, and include

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a proposal by Singapore and Malaysia to implement an e-passport system for the smooth flow of frequent travellers. The pilot projects endorsed as eASEAN projects have to demonstrate that these initiatives can benefit ASEAN citizens and identify implementation obstacles faced by businesses. Japan has pledged priority in the disbursement of the US$15 billion promised at the Okinawa Summit. South Korea has also offered training programmes in human resource development and ICT. The Telecommunications Ministers Meeting agreed to accelerate the following deliverables under the e-ASEAN Framework Agreement: technical and policy framework for AII to cover, inter alia, regional interconnectivity and interoperability; development of high speed direct connection/broadband services for the AII backbone network; improving universal access and narrow the digital divide; capacity-building and human resource development; implementation of the Sectoral MRA for Telecommunications Equipment which was adopted at the Sixth ASEAN Telecoms Regulators Council Meeting in Brunei in October 2000. The Meeting agreed to form Working Groups under TELSOM, with designated co-ordinating countries — AII (Philippines/ Singapore), capacity-building (Thailand/CLMV), universal access and digital divide (Malaysia/Vietnam and Indonesia), trade and investment facilitation (Indonesia/Singapore), positive use of Internet (Malaysia/Thailand). Reflecting initiatives in other fora to extend and expand ASEAN economic co-operation to a larger geographical area to ensure a sizeable critical mass to build a strong IT community in Asia, an Asian IT Belt was proposed by the Singapore Prime Minister at the Fourth ASEAN Informal Summit in November 2000. This larger grouping will harness the strengths of complementary pockets of IT excellence in the region to enhance Asia’s competitiveness in ICT. As a first step, leading cities in Asia can be linked to an Asian IT Belt. The linkage should not only be in terms of physical broadband connectivity, but also in softer areas such as harmonization of rules and regulations, and the Internet working of applications and services. Over time, more cities and regions can join the IT Belt as and when they are ready. By creating an environment where e-business, e-commerce, venture capital, talent, and ideas flow easily, the IT Belt can better position Asia to keep up with the rapid development in North America and Europe. China, Japan, and South Korea have agreed to support the IT Belt. An “IT in Asia” Conference in Tokyo is planned for 2001.

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8 NEW SECURITY ISSUES AND THEIR IMPACT ON ASEAN Kusuma Snitwongse and Suchit Bunbongkarn

SECURITY: A BROADENING AGENDA The state has been the focus of security discourse in the traditional study of international relations. Realism which had dominated thinking in international relations saw the international environment as one of anarchy and, therefore, in a potential state of war. States find themselves in a “security dilemma” in that they always fear for their own security and have to rely on self-help to maintain international order. Therefore, they “are driven to acquire more power in order to escape the impact of the power of others”.1 In the extreme, they have to rely on the use of military power for the protection of national interest and state sovereignty. The referent object of security is the state and its survival. In pursuit of its own survival, the state is entitled to do almost anything. This realist security paradigm has been under increasing challenge. In the late 1970s, Koehane and Nye argued in their book, Power and Interdependence: World Politics in Transition, that the realist ideal type of world politics is far from reality. For example, force is often not an appropriate way of achieving other goals (such as economic and ecological welfare) which are becoming more important.2 Especially since the end of the Cold War, the security paradigm has 148 © 2001 Institute of Southeast Asian Studies, Singapore

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greatly expanded. From the traditional focus on security of the state, new referent objects of security have emerged. The neo-realists, while adhering to state security as the ultimate goal, accept that economic, social, and cultural dimensions of power, besides the military one, also contribute to state security. New security issues range from ethnic conflict, environmental degradation, resource depletion, and mass migration, to organized crimes and the related drug and human trafficking and terrorism, most of which are transnational in character. Many of these security challenges are, in fact, not new but are now referred to as new or non-traditional security issues. They are “new” because they are now being perceived as security threats while, in the past, threats to security were related exclusively to security of the state from external sources and of a military nature. This change in security perception can be attributed to a number of factors. The end of the Cold War has allowed such security issues, previously overshadowed by Cold War concerns with superpower conflict and its possible fallout that range from nuclear conflagration to proxy war, to come to the fore. Globalization provides another explanation. The consequent acceleration of interdependence among nations has also created many security issues that are transnational in nature. Advances in transportation and information technology have brought both benefits and threats. The greater immediacy of threats, such as contagious diseases and economic crises, is cause for a greater sense of vulnerability. The growth of civil society also accounts for the broadening of the security paradigm. Mostly through nongovernment organizations (NGOs), the grievances of those who hitherto have had no means of expressing them have been brought to the attention of the general public and the government. For the above reasons, traditional thinking as to the meaning of security has come under reappraisal as regards its appropriate parameters and the priority of security policy in addressing different concerns. One major shift in the security paradigm has been the increasing focus given to “human security” at the level of the individual or society, both domestic and international. The definition of human security has been most commonly associated with the UNDP’s Human Development Report 1994. As defined by the Report, human security consists of seven distinct dimensions of security: economic, food, health, environmental, personal, community, and political. On the other hand, Canadian Foreign Minister Lloyd Axworthy sees the UNDP as emphasizing the threats associated with underdevelopment while largely ignoring human insecurity resulting from violent conflict that has been on the increase despite the end of the Cold War.3

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NEW SECURITY ISSUES IN ASEAN It can rightly be said that for the ASEAN countries, many non-traditional security issues have long been their concern, with emphasis on freedom from want, similar to the UNDP’s definition of human security. This is evident in their concern with developing their economies. Such developments are seen as the basis for “national resilience” and, by extension, “regional resilience”. Nevertheless, the ultimate referent object of security has been and still remains that of the state. The growing civil society in many ASEAN countries provides the prospect of a shift more towards the people as the referent object of security. In the early days of their independence from Western colonialism, most ASEAN countries were concerned with the task of nation-building. This focused on developing the economy and creating national unity. Economic development itself has brought about new security issues that include environmental degradation, resource depletion, and looming food, water, and energy scarcity. These security threats, along with ethnic problems, may well generate mass migration, mostly illegal. The impact of globalization could also have a negative impact in the form of transnational crimes involving drug, human, and small arms trafficking. The most recent security issue is e-crime that is a function of the revolution in information technology. All these and more are transnational in nature and could impact on ASEAN in either a positive or negative way. This chapter will deal with each of the issues and their possible impact. It will then consider how ASEAN has sought to respond to these new issues.

ENVIRONMENTAL DEGRADATION The smoke haze from Indonesia’s forest fires in 1997 that affected neighbouring countries served as an alarm bell calling attention to the environmental problems facing Southeast Asia. The fires that were started as an inexpensive way of clearing forest cover for palm oil plantations also pointed to the problem of resource management in the region. It was just one example of the ASEAN governments’ pro-development policy to the neglect of preserving natural resources and being conscious of environmental impact. The forest fires also made it evident that the environmental issue has become a security issue both for the states and people in terms of economic cost and impact on the health and general well-being of the populace. It should be recognized also that environmental degradation as a security issue is closely linked to other security issues that include deforestation, water and food scarcity, and migration.

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Besides the more visible devastating smoke haze from forest fires, the ASEAN countries are experiencing pollution from other sources as a result of economic growth. The ensuing fast-growing urbanization and increased consumption of the urban middle class, especially energy for transportation vehicles, contribute to the degradation of environmental conditions that include air pollution and water pollution. The latter has a negative impact on the ability to access safe drinking water. This trend can be expected to continue over the long term with the expected growth in the economy, population, and energy consumption. Further pollution, with cross-border implications, can be expected in the long run from industrial emissions from southern China. It has also been pointed out that the South China Sea has become a sink for regional environmental pollution from the industrial effluents of the littoral countries as well as the spills and dumping of vessels in transit.4 The forest fires also reflect the deforestation that has been occurring in Southeast Asia at an alarming pace. Thailand’s forest cover which was 53.33 per cent of the country’s total land area in 1961 went down to 28 per cent in 1988, the year the government banned logging in the country.5 The Philippines’ forest cover went from 70–80 per cent in 1900 to 20 per cent in the mid1990s. Overall, nearly 50 per cent of Southeast Asia’s forest cover has been destroyed.6 Environmental impacts from deforestation include land degradation, water shortages, transboundary air pollution, and emission of greenhouse gas. The last contributes to global warming and the related rising of the sea level, estimated to be 20 centimetres by the year 2030. All countries bordering the South China Sea would be especially vulnerable, and as much as 20,000 square kilometres in Malaysia, Thailand, and Indonesia could be threatened with flooding.7 As a result of deforestation, the capacity for grain production will be adversely affected. Given the rising population, there is a high likelihood of food scarcity. There is an indication also that crop yield increases have begun to level off and there is little sign that biotechnology is on the verge of creating another green revolution.8 Depleted fish stocks are another threat to security, related to food scarcity. Fish is the main source of protein for an estimated one billion Asians. The Pacific, however, is showing signs of environmental degradation, caused by coastal pollution, over-fishing, and unsustainable exploitation of other forms of living marine resources.9 Thailand, with the third largest fishing fleet in Pacific Asia, has long depleted marine resources in its own waters and is now known to poach in waters of neighbouring states, which has led to disputes with other ASEAN members. The South China Sea, with its abundant

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fishing resources that bring in large earnings, could well be the site for increasing conflicts among the littoral states. Water scarcity could be another cause of conflicts among the peninsular ASEAN states, particularly those located in the Mekong River Basin. The Mekong water is vital to the economy of many countries. Cambodia’s Tonle Sap, which is sustained by the Mekong, is vital to the country for fish, irrigation, transport, and rice growing. For Vietnam, the Mekong Delta provides more than half of the country’s rice. Thailand uses the Mekong water to irrigate its northeast provinces. Laos looks to its hydroelectric energy from dams to be its major income earner. However, dams, especially the fourteen projected in China, could affect the flow of the Mekong that will have negative impact on the lower riparian states. Despite the 1995 Agreement on Co-operation for the Sustainable Development of the Mekong River Basin, signed by Cambodia, Laos, Thailand, and Vietnam, potential problems exist in the relative freedom to divert water. The accord allows each state to divert the river’s water without seeking the approval of other members except during the dry season.10 Ecological damage can be expected from the building of dams and deforestation, with the lower Mekong states bearing the most damage in terms of reduction in water level, silting, and increasing salinity. One can well imagine how Vietnam would react to the salinity of the Mekong in the delta area caused by dams. It is, therefore, not difficult to imagine that disputes could arise out of water allocation and ecological damage. Closer cooperation is required but, even more important, is the sense of community in that the Mekong is the common heritage of all riparian states, which means that national interest should not come before that of the community. In this respect, China also needs to be convinced. Thus far, China has claimed that its dam building on the upper Mekong is its internal matter.

MASS MIGRATION Illegal immigrants crossing from Sumatra into Malaysia, and the presence in Thailand of hundreds of thousands of refugees and illegal immigrants from Myanmar, are just the tip of the iceberg. The problem arising from mass migration can be expected to grow and create problems in intra-ASEAN relations. One major cause of migration, legal and illegal, is inequity in economic development among countries, which creates both push and pull factors. It is noted that people in abject poverty normally do not migrate as they are too occupied with day-to-day survival, but it is people from middle range countries, just emerging from extreme poverty, who seek to migrate.11

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The present problems of migration in the ASEAN countries are related mainly to illegal mass migration, which is transnational in nature. There are two major causes: economic inequity as a result of different levels of development, and political uncertainty and turmoil in a country that cause people to escape from threats of persecution or violence. Thailand’s migrants from Myanmar, as a result of government suppression of dissidents in 1988 as well as continuing ethno-nationalist strife, number more than 500,000. Other than the refugees, there are those who are economic migrants, seeking better economic opportunity. The political and ethnic turmoil in Indonesia has caused the influx of illegal migrants to Malaysia. Proximity and easy access because of the porous nature of frontiers also encourage influx. As compassion fatigue unavoidably sets in after a period of time, conflict between the receiving country and the country of origin could result. Mass migration becomes a security issue when the government and its people perceive it to be a political, economic, social, or cultural threat. As states are increasingly putting up barriers to migration, criminal elements have found the illegal trafficking of people to be a lucrative business opportunity. Thus, the issue of migration becomes a threat also by its association with transnational crimes. As more barriers are created to discourage migration, it is to be expected that illegal trafficking will rise. Criminal trafficking of people does not involve only moving people within Southeast Asia. Thailand has become the transit point for illegal migrants from South Asian countries as well as China to Europe or North America. With globalization, continuous advances in information technology and transportation, the trend of migration and related illegal trafficking of people is likely to follow an upward trajectory. The issue of migration and security must also be looked at in the domestic context. Causes of internal migration include government policy, such as Indonesia’s transmigration policy. Among other causes is the inequitable income distribution, especially between the rural and urban centres, that draws a segment of the rural population, seeking employment, to urban areas. Growing population and environmental degradation could also lead to people moving into unoccupied areas, often forest reserves. Such internal migration has caused conflict and threatened domestic stability. Ethnic conflicts have erupted in Irian Jaya, in Indonesia, between the original inhabitants and the newcomers. Migration into urban areas, with overcrowding and difficulty in earning a living along with other unpleasantness, can cause social tension. As the agricultural frontier is reached owing to the growing population, many move into unoccupied areas, mainly forest reserves. This has caused conflict between the state and the people, as happened in Thailand when the government evicted the “trespassers”.12 To avoid threats to internal stability,

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attention has to be given to growth with equity and resource management and allocation. In the ASEAN context, mass migration is transnational in nature and needs to be treated in a co-operative mode. For ASEAN, this will mean the need to narrow, if not eliminate, the gap in economic development between the better off and less developed members. Managing and preventing ethnic conflicts by ASEAN will be difficult as long as the principle of non-intervention is strictly adhered to by member countries. Norms for intervention should be considered for such cases that involve excessive burden on other members. The best way to deal with mass migration is at the source. It is to be hoped, however, that as ASEAN becomes economically integrated, easier flows of labour according to market forces will help cut down on illegal human trafficking in the region.

ENERGY SECURITY In response to the recent astronomical rise in oil prices in the world market, former Thai Foreign Minister Surin Pitsuwan expressed his concerns to the United Nations Millennium Summit that the economic recovery in Thailand and the Asian region could be hit by surging oil prices. Accordingly, he voiced his hope that “the international community will be able to find a mutually satisfactory resolution to this problem before it gets out of hand and possibly lead to another worldwide economic crisis”.13 It can be said that the Thai Foreign Minister was speaking for other ASEAN countries as their economic development hinges to a great extent on the availability of affordable energy. Such concerns are not surprising. Apart from the oil crisis in the late 1970s, the trend towards higher energy demand in ASEAN is inevitable. As a predominantly agricultural country in the throes of modernization, as was the case of Thailand, there will be a move away from non-commercial energy, such as bio-mass, towards greater use of oil products. With a growing middle class, much of this rising demand will come from transportation and domestic use. The 1997 economic crisis may have temporarily slowed down automobile purchases in Southeast Asia that were increasing at the rate of nearly 30 per cent annually.14 The greater demand for electricity, if not met adequately, could result in frequent blackouts, as was the case in the Philippines, causing the disruption of industrial production and private life. When population growth is factored into energy demand, the potential for expansion would appear immense. The prospect is one of large increases in oil imports and thus greater vulnerability to the variability of supply and price. The present net oil

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exporters, that include Indonesia, Malaysia, Brunei, and Vietnam, according to some forecasts, may become net importers by the year 2010.15 At the same time, China’s share of oil consumption is expected to rise sharply, which means that ASEAN will have to compete for a potentially tight regional and global market.16 China’s share of Asian oil imports will rise from 10.9 per cent in the year 2000 to 19.4 per cent in 2010, compared to ASEAN’s 5.9 per cent in 2000 to 16.9 per cent in 2010.17 Natural gas provides a most promising respite to the competition for oil supply. Indonesia, Malaysia, and Brunei are already major exporters. With China and India shifting from traditional coal and oil to cleaner burning gas, the potential for the exporting countries are greatly promising. Thailand expects to deplete its gas reserves in the Gulf of Thailand in the not far future and is looking to Myanmar for supplies. Another possible source of energy is nuclear energy. However, there are a number of concerns among the public, especially with safety as well as the disposal of spent fuel. The projected increase in demand for oil has created concerns over growing tension in the South China Sea as a result of disputed claims. However, increasing reliance on gas by the ASEAN countries could provide the basis for interdependence that could promote better relations. ASEAN’s own planned gas and power grid could also serve to bind the members closer together in the web of interdependence. What ASEAN needs to do in facing the future of oil scarcity, besides looking for alternative sources of energy, is to co-operate in working out a long-term strategy for energy security. This should include instilling in the public the culture of conservation and promoting efficient use of energy. The roots of disputed claims in the South China Sea include, among other reasons, the anticipated oil and gas reserves in the area. These disputes are potential sources of conflict and admittedly will be difficult to resolve. However, the shift to co-operation and the building of interdependence provides a better alternative to dealing with the prospect of energy scarcity.

DRUG TRAFFICKING The flood of methamphetamines that have been entering into Thailand from factories on its western and eastern borders in recent years has led to drug trafficking being identified as a serious threat to national security. The threats are perceived to come from the lower level of productivity of those addicted to drug abuse. A Thai general expressed his concern with the high degree of pervasiveness of drug abuse, “What is the benefit of Thailand becoming more democratic if the vast majority of its young people are addicted to drugs?”18 Other threats are perceived to come from violence, crime, and power amassed

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by criminal elements involved in drug production and trafficking. The Colombia drug lords exemplify the extent to which the sovereign power of the state could be challenged by criminal elements. The problems of drug production and trafficking are difficult to deal with as the drug traders have shown as much sophistication and adaptability in their business as in any licit business. This can be seen in the shift from opium growing and production of heroin to production and trade in synthetic drugs such as methamphetamine. The cost of producing the latter is much less and is thus much more profitable. Not only is Southeast Asia a lucrative market, but it has also served as a transit route to other areas of the world, particularly Europe and North America. More recently, China has also become a transit route. Myanmar has been the major site of drug production and trade. More recently, Laos has become another location for such illicit enterprise. The ethno-nationalist conflicts in Myanmar and the government’s policy in dealing with the problem explain the situation. In dealing with ethnic rebellions, the government has entered into several ceasefire agreements since 1989. Lacking economic resources as leverage, the ceasefire terms have allowed the rebel ethnic groups to maintain their own armed forces and freedom to carry out their own enterprises, understood to include the drug trade.19 As a result, the Shan State has become an infamous centre of heroin production and trade. A similar deal was struck with the Wa ethnic group from whose area of control, 600 million to 1 billion amphetamine tablets are produced annually, most of which are shipped to Thailand. Other ethnic groups that continue to fight the government rely on income from the drug trade to acquire arms. Laos, which has similar problems with ethnic rebels, has become another source of the drug trade. As for the case of Myanmar and Laos, it can be said that from the supply side, weak states make control of drug problems more difficult. The very high profit margin, the porous borders among the ASEAN states, and the proximity to the drug production area, make control of the supply side of the drug trade most difficult. However, it has been argued convincingly that to deal with drug problems, equal if not more attention should be given to the demand side. While there are both the supply side and demand side to the problem, the demand side concerns not just Southeast Asia but has a global dimension. Thus, co-operation to curb drug problems will have to go beyond the confines of Southeast Asia. Nevertheless, the ASEAN countries need to work individually and co-operatively on reaching the goals of the Joint Declaration for a Drug-Free ASEAN, set for the year 2015. The projected date may appear overly optimistic. Co-operation on the supply side has to do basically

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with the police and the military in the suppression of production and trafficking. However, the root cause of ethnic problems in Myanmar and Laos will have to be successfully managed with an eye also to drug production. Dealing with the demand side will require educating and imbuing its citizens with the commitment to a societal zero tolerance of drugs. Unless actions are taken at the national and regional levels, the scourge of drug addiction and the criminality related to the drug trade can undermine the viability of individual ASEAN countries, and ASEAN as a whole.

CYBER CRIME Over the past decade, we have witnessed the rapid development of information technologies that have improved military effectiveness and the functioning of government bureaucracies, as well as research and academic institutions. This development has also improved the performance of financial and economic institutions, making trade and service transactions at the global level faster and more efficient. With the development of information technologies, the Internet has grown from a tool in intelligence and research communities to a global electronic network affecting almost all aspects of everyday life, not only in America and Europe but also in the Asia-Pacific region. However, the reliance on the Internet has created vulnerabilities too. Cyber attacks on leading commercial websites, such as Yahoo! and Amazon.com, and the bombardment of electronic viruses, such as the “I Love You” virus, have done serious damage to a large number of Internet users worldwide. As many experts have said, these attacks are only the tip of the iceberg and the larger part of the iceberg lies beneath the surface of the water and is difficult to detect.20 Moreover, as the “I Love You” virus indicates, these attacks can originate anywhere in the world and most of the attackers’ motives are more sinister than just the thrill of breaking into a secure system.21 Cyber crime is expected to increase significantly with the rise in computer use in the next ten to fifteen years. Cyber crime or computer crime is defined as “an offence in which a computer network is directly and significantly instrumental in the commission of the crime. Computer inter-connectivity is the essential characteristic”.22 According to Steven Philippsohn, cyber crimes include: • •

financial fraud — pump and dump/advance fee/bogus investment pyramids; cyber terrorism;

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fraudulent Internet banking sites; net espionage; electronic theft; viruses, worms and Trojan horses; non-supply of goods and services; and credit card fraud.23

It has been reported that in 1999, around 2 million instances of credit card fraud took place on Internet purchases in Europe.24 In the United States, the Federal Bureau of Investigation (FBI) handled 547 computer intrusion cases in 1998. In 1999, the number jumped to 1,154.25 Although the FBI’s capabilities to fight cyber intrusions have improved markedly, the problem is growing even faster. There are a number of categories of cyber threats that confront us. These are conducted by insiders, hackers, frauds, virus writers, criminal groups, and terrorists.26 Insiders are those who are current or former employees of a company or contractors or consultants employed who have knowledge of the target company. At the moment, they are more dangerous than external hackers since they have greater opportunities to commit crimes without being detected by accessing confidential information. There was at least one case reported by the FBI of an intruder who was a former computer programmer of the National Library of Medicine computer system in the United States whose accesss to the computer system was revoked but was still able to gain access to the system through a “backdoor” he had created in the programme code.27 Hackers are another threat. They sometimes crack into the system for the thrill of the challenge, but there have been more cases of hacking for malicious purposes. As the attack mechanisms are becoming more sophisticated, they are easier to use. Hackers can now download attack scripts from the World Wide Web against the victim sites. Virus writers pose another serious threat to the worldwide network. The proliferating computer viruses have corrupted data and caused damage to computer systems as in the case of the Melissa Macro virus, the CIH (Chernobyl) virus, and the “I Love You” virus. Another threat comes from criminal groups or frauds who seek to use cyber intrusions for illicit financial gain. These intrusions include “pump and dump” bogus investments or advanced fee fraud, and fraudulent Internet banking sites. The “pump and dump” starts with a fraud who buys cheap shares in a lesser-known company and generates false publicity in an effort to pump up the share price through the Internet. After having increased the price, the fraud then dumps them, taking a profit and leaving other investors

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with valueless shares. The bogus investments involve a website which misleads investors into believing that their investments could generate extraordinary rates of return. The fraudulent banking sites can entice victims with high interest rates. They can be established anywhere to attract funds and be dissolved at any time. Terrorists are increasingly using computer systems for their activities. Some transnational terrorist organizations are using computerized files, emails, and encryption to support their operations. It is anticipated that the use of the Internet and other computer networks in the Asia-Pacific region will rise markedly in the future. In the Hanoi Plan of Action (HPA), e-commerce is one of the items to be encouraged in ASEAN. The development of information technologies is also one of the top priorities in ASEAN, as reflected in the HPA. It is estimated that the volume of e-commerce in Asia in the next three years will be at US$250,000 million to US$300,000 million, compared to US$6,000 million to US$8,000 million in 1998. It is also estimated that in 2003, 90 per cent of e-commerce in Asia will be “business to business” and the number of Internet users in the region will increase from the present 21 per cent of the total number of users worldwide to 25 per cent.28 In ASEAN, Singapore and Malaysia may be the prime movers for the development of information super highways, followed closely by Thailand, the Philippines, and Indonesia. With the increased reliance on computer systems in ASEAN, cyber crime in the region will be on the rise and will have a vital impact on regional security. ASEAN will be more vulnerable to hackers/crackers, frauds, criminals, and terrorist groups who could manipulate or corrupt data and information to disrupt the functioning of national security and defence systems, communication facilities such as aircraft control systems, and economic infrastructures, including stock markets, banking systems, and power systems. Cyber crime is transnational in nature and to fight against it requires the co-operation of all the states concerned.

THE NEW SECURITY ISSUES: CHALLENGES TO ASEAN The rationale for ASEAN’s existence from the time of its founding has been the maintenance of regional order. The underlying basis for such an order is the concept of national resilience, which means that each government, by raising the level of social and economic well-being, would win the support of the populace. The result of such support would be political stability. The cumulative effect of national resilience, achieved by all members, would be regional resilience. It is to be noted that the traditional referent object of

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security is the state. This, however, is changing with the broadening security paradigm that covers human security. Many of the new security issues threaten not only the state but even more so the people. Environmental degradation and the consequent resource scarcity and mass migration are closely related to human security. The result could be a growing sense of relative deprivation that is the root of social and political instability. Other new security issues have to do with transnational crimes which also relate to human security as well as the security of the state. Drug trafficking not only corrupts society but threatens the health and well-being of the population, and in the longer term affects the productive capacity of the country as a whole. Human trafficking often involves the exploitation of an illegal labour force that includes women and children. The newest security issue is cyber crime which presents a threat to the security of the people as well as the state. Cyber crimes, such as bogus investments, fraudulent banking sites, and the disruption of the stock markets not only bring losses to individual investors but can destabilize the economy as a whole. By lowering the economic growth rate, they widen the income gap and heighten the sense of relative deprivation. As these new security issues are, without exception, transnational in nature, co-operation among the ASEAN member countries is imperative. To be effective, such co-operation will necessarily require a state to cede a degree of its national sovereignty. There is, thus, a need to readjust the old mindset that sovereignty is absolute. Unless such an adjustment is accepted, ASEAN solidarity could be adversely affected. With the advance of globalization, the coming two or three decades will witness the growth of civil society together with demands for greater political participation and good governance. Greater focus will be given to human security relative to that of the state. Unless the state can adjust to such changes, national resilience will be hard to sustain. The ASEAN Vision 2020 and the Hanoi Plan of Action constitute both the goals and their implementation that will foster human security and make ASEAN a community of caring societies. These lofty objectives cannot be achieved unless the ASEAN members are truly committed to their realization. This will involve co-operation to deal effectively with the negative impact of the new security issues. Notes 1. John Herz, Statenwelt und Weltpolitik, quoted in Werner Link, “Reflections on Paradigmatic Complementarity”, in Global Changes and Theoretical Challenges,

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6. 7. 8. 9. 10. 11.

12. 13. 14. 15. 16. 17. 18. 19.

19. 20.

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edited by Ernst-Otto Czempiel and James Rosenau (Lexington Books, 1989), p. 103. Robert O. Keohane and Joseph S. Nye, Power and Interdependence: World Politics in Transition (Boston: Little, Brown and Company, 1977), pp. 27–28. Lloyd Axworthy, Human Security: Safety for People in a Changing World (Canada: Department of Foreign Affairs and International Trade, April 1999), pp. 3–4. David Rosenberg, “Environmental Pollution around the South China Sea”, Contemporary Southeast Asia 21, no. 1 (April 1999): 121. Chai-anan Samudavanija and Kusuma Snitwongse, The Environment and National Security, Security of the State, Insecurity of the People (in Thai) (Bangkok: Institute of Security and International Studies, 1992), p. 33. Alan Dupont, “The Environment and Security in Pacific Asia”, Adelphi Paper 319 (IISS, 1998), p. 62. Rosenberg, “Environmental Pollution”, p. 127. Dupont, “The Environment and Security”, p. 47. Ibid., p. 50. Patrick Lescott, “Asian Nations Sign to Preserve Mekong”, The Australian, 7 April 1995, p. 8, cited in Dupont, “The Environment and Security”. John McFarlane, “Transnational Crimes” (Paper presented at the Fifth Kanazawa Symposium). See also Margaret Beare, “Illegal Migration”, in Transnational Crime and Regional Security in the Asia Pacific, edited by Carolina G. Hernandez, Gina R. Pattugalan (Manila: Institute for Strategic and Development Studies, Inc., 1999), pp. 261–63. Samudhavanija and Snitwongse,The Environment and National Security. “Act on oil, Surin pleads”, Nation Review, 9 September 2000. Robert A. Manning, “The Asian Energy Predicament”, Survival 42, no. 3 (Autumn 2000): 78. Ibid., p. 78. Kent E. Calder, Asia’s Deadly Triangle (London: Nicholas Brealey Publishing Ltd, 1996), p. 56. Ibid., p. 57. “Fighting a losing battle”, Nation Review, 20 August 2000. Apirat Pumkumarn, “Thai-U.S. Relations: A Case Study of the Development of Co-operation among Drugs and Narcotics Control and Enforcement Organizations, 1987–1997” (in Thai) (M.A. thesis, Faculty of Political Science, Chulalongkorn University, 1999), p. 83. Ibid. Statement of Congressman Stephen Horn, Chairman, Subcommittee on Government Management of Information and Technology at a hearing on “Computer Security: A War Without Borders”, 26 July 2000, and the Statement for the Record of Louis J. Freeh, Director, Federal Bureau of Investigation on Cyber Crime before the Senate Committee on Judiciary Subcommittee for Technology, Terrorism and Government Information, Washington, D.C.,

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28 March 2000, at . 21. Congressman Stephen Horn, op. cit. 22. Steven Philippsohn, “Combating Financial Fraud on the Internet: An Overview of the Electronic Crime of the 21st Century”, at . 23. Ibid. 24. Steven Philippsohn, “An Overview of the Electronic Crimes of the 21st Century”, Journal of International Security (April 2000) at . 25. Louis J. Freeh, op. cit. 26. For a detailed analysis of these cyber threats, see ibid. 27. Ibid. 28. Krungthep Thurakij, 12 September 2000, p. 8 (in Thai).

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9 THE GREATER MEKONG SUBREGION An ASEAN Issue Kao Kim Hourn and Sisowath D. Chanto We all drink water from the same source — the Mekong River. — Prime Minister Hun Sen of Cambodia, 1999 Now, we have to remind ourselves that the development of the Greater Mekong Subregion has profound implications for peace and security of the region no less than for its economic and social development. — ASEAN Secretary-General Rodolfo C. Severino, 1999 It is time for all parties to sit down with the six countries that share the river and work out rules for sound management. Participants should include the Asian Development Bank, the UN Economic and Social Commission for Asia and the Pacific, the Mekong River Commission, the World Bank, the UN Development Programme, bilateral donor agencies and civil society groups. The Association of Southeast Asian Nations could lend its weight. — Joern Kristensen, Chief Executive of the Mekong River Commission, 2001

INTRODUCTION The Greater Mekong Subregion (GMS) brings together six countries: Cambodia, the Lao People’s Democratic Republic (PDR), Myanmar, Thailand, 163 © 2001 Institute of Southeast Asian Studies, Singapore

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Vietnam, and the Yunnan province of China. The economic significance of the GMS is often emphasized. There is clearly great potential in terms of market expansion, increased employment, greater economic space, the reduction of poverty, and stronger economic mechanisms, as well as the building of infrastructure, such as railways through each member country. Beyond this, however, there is a strategic importance in the GMS. It is a mega-project that involves not just the contiguous GMS states but all of ASEAN and even states in Northeast Asia — China, Japan, and South Korea. Other significant actors in the GMS are regional and international institutions, including the Asian Development Bank (ADB), the Economic and Social Commission for Asia and the Pacific (ESCAP), and the Mekong River Commission (MRC). In this, ASEAN’s ownership and participation in the development of the subregion are vital. The issue of ownership is critical for the region because it would strengthen the prospect of human security and engender confidencebuilding measures (CBMs) for ASEAN and its peoples. As a corollary, there are implications that must be considered in involving countries from outside ASEAN as key actors, and how their participation may impact on ASEAN’s interests. This chapter will look at the present state of and future plans for the GMS. It will begin by detailing some of the projects and plans being undertaken or being considered at present. The chapter will, however, go beyond this to emphasize the strategic importance of the GMS as a project for ASEAN member states. It argues that ASEAN and its member states must take ownership over the development of the GMS, and be a leading participant in major plans. This is notwithstanding the participation of much larger states, or the lingering effects of the Asian economic crisis that began in 1997, on the financial strength of several ASEAN states. The chapter will, as such, also assess how ASEAN can strengthen its ownership in developing the GMS.

BACKGROUND: THE GMS AND ASEAN The GMS has a combined land area of 2.3 million square kilometres, and is home to approximately 243 million people. The majority of the people live in the rural areas and depend on sub-subsistence, or semi-sub-subsistence farming. More than 75 per cent of the Lao PDR population, for example, live in the Mekong Basin. As for Thailand, the most urbanized of the Mekong countries, its poorer north and northeastern provinces thrive predominantly on an agricultural economy in the Mekong Basin. The Mekong subregion has

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been able to support such a large rural population because it is endowed with rich natural resources. Communities in the Mekong Subregion have benefited from a strong agricultural base and fisheries that provide a source of food and income. Potentially, the subregion will also gain from timber, minerals, and energy resources, in the form of hydropower, coal, and petroleum reserves. The ecological environment of the Mekong Subregion also provides rich potential for tourism and the development and use of natural resources.1 During the past decade, much of the Mekong Subregion has been experiencing a double transition: from subsistence farming to more diversified economies, and from command economies to more open, market-based ones. The double transition has spurred foreign direct investment and donor assistance, and led to the rapid expansion of commercial relations among the six Mekong countries. Regional stability together with economic integration, seen in cross-border trade, labour mobility, and investments, has expanded the economic space across the region. Other economic mechanisms, such as the ASEAN Investment Area (AIA), the Common Effective Preferential Tariff (CEPT), and the ASEAN Free Trade Agreement (AFTA), are necessary for facilitating the free flow of capital and goods within the region. As the Mekong countries gradually shift from a subsistence economy to a more diversified market economy, ASEAN needs to play a more active role in providing comprehensive management to materialize regional development. This, while important, is not guaranteed, however. Southeast Asia as a whole is endowed with bountiful natural resources, such as petroleum, natural gas, quartz, manganese, coal, and mineral ores. The marine and river biospheres too are rich. Historically, however, the pursuit of development in Southeast Asia was not made at the regional level but by individual states separately. With a number of territorial conflicts among the states of the region, there were many constraints on development, especially in areas where ownership was disputed. The nations of Southeast Asia were often compelled to focus on territorial integrity, instead of being able to explore and develop the dynamism of regional co-operation. Multinational investors, financiers, and developers have, however, appreciated the potential of the natural and human resources in the region, including the GMS. These private and very often non-ASEAN entities have sought to assert their ownership on the natural resources of the subregion. These historical precedents should teach the present generation many valuable lessons about a regional agenda concerning security, unity, and stability. The lack of co-operation among the states of Southeast Asia has

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made the region vulnerable to external shocks. The ability of the states and their peoples to develop the land and resources that they own has been undermined. The lesson learnt must be that each state should reduce its vulnerability, to become more self-sufficient and self-reliant, and use this national strength as a basis for achieving greater interdependence through regional development. In this way, national efforts and regionalism can proceed in tandem. This can be seen in the case of the GMS. To realize the economic and security potential of the GMS, the United Nations Economic and Social Council (ECOSOC) mandated the ESCAP to co-ordinate activities in various areas of technical assistance to countries in the subregion. Resolution 66/12 expresses the importance attached to the development of the subregion and the need for a co-ordinated approach. Indeed, the integrated sustainable development of the Mekong River Basin has been a major interest in ESCAP activities in the subregion since the early 1950s. Steps taken have included the establishment of the Mekong Committee by ESCAP in 1957. Since the creation of the Mekong Committee, states in Southeast Asia have been gradually working towards a more cohesive regional bloc by solidifying their financial and security parameters. Consensus has been built on the need for both inter- and intra-regional development and investment to serve as a cornerstone for the region. In this context, it is hoped that security and development processes and mechanisms will gradually promote a harmonization between the different systems through financial interdependence. Many of these regional efforts have been made through ASEAN. In 1995, the sixth ASEAN Summit declared the establishment of the ASEANMekong Basin Development Co-operation (AMBDC) to provide a regional administrative organ to promote development in the GMS. ASEAN could undertake this because it had increasingly developed a role in overseeing the region’s financial and economic development. It has been able to build consensus among member states to co-operate in regional projects, and provide leadership on strategic issues that concern the region. ASEAN’s leadership in providing and managing regional strategic development and ownership is vital for the region’s sustainable development and human security. The GMS is a mega strategic project that will ultimately affect the increasing co-operation and integration of the ASEAN economies. This applies especially to the newer member states of ASEAN within the GMS. In this context, what has been done to date in the GMS, and who have been the main owners and drivers?

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ASEAN-MEKONG BASIN DEVELOPMENT CO-OPERATION: PROGRESS AND ACTIVITIES Three priorities can be identified in seeking to realize the programmes for developing the GMS. First, subregional trade and investment are key components. However, the improvement of transportation and telecommunications may be a prior condition to facilitate trade and investment. Secondly, the governments and international institutions involved need to facilitate subregional development opportunities. Subregional co-operation is a central condition for many energy projects. It is also the facilitating factor for tourism promotion, access, and product development. Thirdly, governments of the region must prioritize efforts to resolve outstanding transborder issues. This is perhaps one of the most crucial aspects for the ASEAN member states because it requires co-operation in a number of different sectors. The important issues that require inter-state co-operation to be effective include: (1) safeguarding critical watersheds; (2) containing the spread of communicable diseases across borders; and (3) assisting trade by harmonizing training standards, accreditation, and certification. Inevitably, the implementation of the GMS programmes will bring about many challenges, particularly in administration, finance, and legal systems. On the positive side, the programmes promote economic growth that would fuel economic development for the GMS states. Subregional economic cooperation should be expected to contribute to stability and better relationships. As such, economic co-operation is undeniably an important dividend in creating a positive climate for investment and the promotion of the economy of the region, especially small and medium-sized enterprises. The ASEAN Summit in December 1995 created the AMBDC. The purpose and function of this development council is to link the Mekong and non-Mekong members of ASEAN together. The AMBDC reports and gives updates of its initiatives, activities, progress, and setbacks directly to the ASEAN ministers. The AMBDC also communicates with the Mekong River Commission on such activities as recommending projects or monitoring those that have been undertaken by the MRC. The flow of communications between the AMBDC steering committee and the MRC is facilitated by the ASEAN Secretariat. The AMBDC is very important for the co-ordination of activities because it strengthens the sense of local ownership in the development process. It has subsequently led to the conceptualization and prioritization of the East-West, and North-South Corridors in the Mekong Basin, and the trans-Asia railway.

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However, the progress of activities initiated by the AMBDC has been hampered by the lack of funds to finance the projects it has identified. This is largely due to the Asian economic crisis in 1997 that compelled member countries to focus on their own national development and economic programmes and diminished the funds that might otherwise have been available for regional projects such as the GMS. There has been some progress, nevertheless. One noticeable area is in transport. The ASEAN Informal Summit held in December 1997 agreed on the need for a trans-Asia railway. This would link the region, from south to north, from Singapore to Kunming, in China. China’s response to this initiative has been positive. It hopes that the railway will be implemented by a consortium that would involve not just all the ASEAN member states and China, but also countries such as Japan, the United States and the European states. At the 1998 ASEAN Summit, a follow-up study was agreed on to help decide the precise location and path of the rail link through the GMS. A number of other projects have also been proposed in the GMS. Some relate to agriculture, forests and riverine resources, especially the development of fisheries.3 Other projects relating to the transport of goods and for tourism have also been proposed by Thailand.4 Some of these have been considered for possible funding under the ASEAN-China Co-operation Fund at the Second Meeting of the ASEAN-China Joint Co-operation Committee (ACJCCP) in March 1999. No progress has, however, been noted at present. The AMBDC Steering Committee has requested the ASEAN Secretariat to find out if the MRC has undertaken or would be interested in undertaking any of the proposed projects. Some countries, including Malaysia, have revised their proposed projects in the GMS because of the economic crisis. A number of other countries, although also affected, have proceeded with theirs. Thailand, for example, has reserved land on the Mekong Basin bank in Changrai Province and requested the Thai Government for US$4 million to fund the construction of a biological research centre to study the Mekong giant catfish. Another example is Singapore, which has conducted training for participants from Myanmar for the project entitled, “Co-operation in Fisheries Post-harvest Technology in the ASEAN-Mekong Basin”. In September 1998, the senior officials of ASEAN concerned with the GMS concurred that, to avoid a duplication of activities, ASEAN should cooperate closely with international organizations that were already implementing development projects in the Mekong Basin. By 1999, the ASEAN Secretariat had prepared details of proposals of various projects and sent them to a Project Appraisal Committee (PAC). While efforts by ASEAN and some of its member states have been made,

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much more remains to be done for the development of the GMS. It is also apparent that ASEAN member states cannot do this on their own. The geographical presence of China in the GMS, and the reduced economic strength of the ASEAN member states after the economic crisis dictate that non-ASEAN countries must be involved. Yet these countries come with different and possibly contending interests.

EXTERNAL PLAYERS IN GMS DEVELOPMENT: CONTENDING INTERESTS The economic potential in the GMS is tremendous and many private sector developers have approached the MRC, showing strong interest in developing the region. Governments must, however, set the right framework for private sector involvement. Contending claims and interests in the GMS development process are almost inevitable because of the participation of countries outside the GMS and ASEAN. This is made worse by the lack of formal organization and structure. The GMS is relatively weak in structure and administration. Most notably, there is contention over the decision-making process on the access to development. Contentious areas relate in particular to the overlapping territories that are rich in natural resources. Cambodia and Thailand, for example, are trying to work out technical agreements over oil reserves in the Gulf of Thailand. Therefore, the issue of territorial integrity is not only a matter of physical landscape and terrains. The territorial claims to natural resources may give rise to regional fragmentation because of mistrust and nationalist sentiments.5 The Asian Development Bank is currently the most active financier of GMS development. The ADB’s GMS Programme focuses on eight priority sectors: (1) transport; (2) energy; (3) telecommunications; (4) environment; (5) human resource development; (6) tourism; (7) trade facilitation; and (8) investment. Of these, the emphasis of the ADB’s own activities has been on environmental issues and human resource development. In 1992, the ADB gave assistance to the six GMS countries to enhance economic relations among themselves. This aimed to allow them to focus on infrastructure development, promoting the freer flow of capital and goods in the GMS Programme. The ADB also helped to promote international recognition of the potential growth of the region. Given the priorities of development, as listed by the ADB, there are other development projects that are being carried out by private companies within each respective country, especially in the field of energy development. Japan

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and Canada are exploring natural gas and petroleum in Myanmar. As for Thailand, power plant projects have become the central issue of concern for local communities because of the development impact on the environment. The four new members — Cambodia, Lao PDR, Myanmar, and the People’s Republic of Vietnam — are in need of information and communications technology and infrastructure to alleviate the digital divide between the developed and developing ASEAN members. In addition, some GMS countries are implementing their own development initiatives. Cambodia has just recently signed loan agreements with the Republic of Korea for US$20 million to boost its technology sector.6 In the present circumstances, efforts at the regional, trilateral, bilateral, and national levels are proceeding without firm or clear co-ordination or supervision. An equitable representation of the different countries, and especially of the ASEAN member states, is therefore very important. It can help facilitate the standardization of regional economic and legal mechanisms within the GMS, and with the rest of ASEAN. A broad representation and involvement of countries can also help to improve relations among states, increase the support for regional development, and downplay the concerns that each state may have over its sovereignty. For this to happen, ASEAN must come up with some realistic and operational plans for the GMS countries to co-operate in regional development. If GMS development is to be a regional project, the success of the project must depend on consensus building, with ASEAN as the most influential actor in balancing contending interests. This is needed among the GMS countries, in their relations with ASEAN member states who are outside the GMS, and with non-ASEAN states. This is not to advocate that ASEAN should be solely responsible for GMS development. It is, however, clear that ASEAN is the only collective body that adequately recognizes and represents the interests of each regional member. For this reason, ASEAN should play a leading role in tightening the relationship with the MRC and strengthening the AMBDC.7 It must develop regional work programmes that are in accordance with the national development plans of the GMS countries, so as to harness synergies in economic growth.

DELIVERING DEVELOPMENT: THE QUESTIONS OF “HARDWARE” AND “SOFTWARE” In general, ASEAN’s economic processes are in place. The challenging task is to develop a sustainable and reliable programme for delivering development,

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in addition to improving capital and credit transfers to the developing members. Apart from border issues, and sporadic security hot flashes along the borders, the stability of the region depends heavily on its capacity to enhance development for its people. This needs the improvement of both “hard” and “soft” capital. Physical infrastructure is needed, but the challenge of improving human resources is also very real. Creating a viable delivery mechanism is something that the ASEAN member states must commit to, especially for human resource development. To enhance the prospects of the GMS, human resource development is not a luxury but a necessity. The plans for regional social and economic integration cannot otherwise become reality. The arguments for closing income and development gaps between the developing and developed members in ASEAN are manifold. The relevant economic issues include the allocation of foreign direct investments (FDI), the availability of commercial and government credit to businesses, the transfer of skills, the transfer of technology, and the laws regarding investment and tariffs. Additionally, legal frameworks for transregional extradition treaties, the enforcement of civil and criminal law, and the protection of intellectual property and copyright must be on the agenda. Even more broadly, social issues like the spread of HIV/AIDS require technical skills to administer and manage. Yet when there is discussion of the needs of the GMS, the focus is often on the physical aspects, or “hardware” of development. Ravaged by wars, and severed by closed market systems and the Cold War, the GMS countries were largely marginalized in the world economy. The 1997 Asian economic crisis added another burden to the rebuilding process. Many promises have been made and are waiting to be met. Many of the plans, moreover, should be run by private sector entities. How can governments and intergovernmental institutions help? The ADB is playing a very active role in administering technical assistance, in addition to soliciting potential investors to invest in the GMS. The two go hand-in-hand. As one commentator, Council Secretary of the Singapore Institute of International Affairs, Dr Eric Teo, has suggested, economic development should be inherently embedded in human resource development in order to enhance the capacity for development. The GMS member states must tune their mindsets accordingly. They must establish a public–private partnership (PPP) to involve the private sector.8 There are other co-operation initiatives in the Mekong Basin too. For example, the ASEAN Economic Ministers (AEM), and the Ministry of International Trade and Industry (MITI) of Japan met on 4–5 July 2000, and

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created a working group to implement the following work programme:9 • • •

To eradicate poverty and to reduce the gap in development between the West and East Corridor (WEC); To utilize the comparative advantages of the WEC areas in terms of labour and natural resource; To enhance economic liberalization and facilitation of cultural interaction, and to strengthen economic integration among the ASEAN member countries, and between ASEAN and other countries outside the region.

In trade facilitation, the GMS countries have taken the following measures: 1. Border trade facilitation, including customs co-operation; 2. In customs matters, mutual recognition arrangements, standardization of customs procedures and forms, and customs co-operation in ASEAN and APEC. In investment, the GMS countries are focusing on: 1. Promotion: How to promote the GMS as an investment region? Can a GMS trade fair or investment promotion exhibition be held back-toback with some major ASEAN economic meetings? 2. Deregulation: How to promote an “even playing field” so that GMS countries do not undercut one another in offering excessive investment incentives? How can it build on what ASEAN is doing in the AIA? 3. Co-operation: GMS co-operation also includes activities in the areas of tourism, environment, energy, and human resource development. In addition to these broader concerns regarding the development of the GMS, and the appropriate focus on human development and economic liberalization, emphasis is being given to infrastructure and “hardware” development in four main areas: (1) transport; (2) energy; (3) telecommunications; and (4) tourism. Transportation Transportation is highly significant to the GMS. It connects people and also serves economic interests, by facilitating the flow of goods, capital, and people. Industrial goods can move across borders more easily. Labour markets can be expanded to provide more diversity of skills, and people-to-people relations can also be improved as tourism, or visiting friends and families across the borders, would be facilitated. Improving transportation also promotes endeavour and exchange in different fields of knowledge.

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Through funding from the ASEAN-China Co-operation Fund, the improved transport system in the GMS is expected to be operational by 2004. This will link the GMS to the increasingly important market in China, especially its western and southern provinces. This can enlarge the bilateral trade in goods, as well as enhance tourism.10 Energy With regard to the energy sector, there is little evidence that ASEAN is initiating the construction of major power plants in the GMS countries. Partly because of the financial crisis, the prospect of building a GMS-ASEAN power plant has yet to be discussed, or recommended by the AMBDC. On the other hand, the ADB has completed the 210MW Theun Hinboun Hydropower Project. It is the first public–private joint venture in the Lao PDR, which has enabled it to increase revenues by selling hydropower to neighbouring countries, particularly the long-term agreement with Thailand for the use of electricity. Another Lao PDR-based energy project has been the recently completed Nam Leuk Hydropower Project, which is now exporting power to Thailand. Moreover, the GMS Electric Power Forum, with the participation of the World Bank, is reviewing the opportunities for creating a subregional power grid and power pooling system.11 Private corporations too have taken initiatives in commercializing natural resources in the region and then converting them into industrial and domestic energy. The Marubeni Corporation is working with Myanmar in the natural gas and copper smelting projects. For instance, the Yadana natural gas project, one of Southeast Asia’s largest, is a joint development venture among Total, Unocal Thai Oil, Myanmar Oils and Gas, and Marubeni, and exports natural gas by pipeline to Thailand to fuel electric power there. Plans are also under way to use natural gas domestically in Myanmar to generate electricity and to produce fertilizers.12 Telecommunications The telecommunication projects have been complicated largely by the lack of funding. The AMBDC has not released any concrete initiatives to improve the WEC telecommunications plans. In comparison, the ADB has started a regional co-operation initiative in telecommunications in partnership with the private sector. The technical assistance projects are helping to create a reliable, high-quality, low-cost telecommunications service linking the six GMS countries. A framework

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plan has been agreed upon, and feasibility studies completed for several proposed telecommunications links. The implementation of Phase 1 for a “backbone” transmission network for the GMS is under preparation.13 The private sector is active in the telecommunications sector. However, each country has been left to decide for itself on the development and priority of this sector. Perhaps the Hanoi Plan of Action (HPA) agreed upon by ASEAN can be made to complement the GMS Programme since the components and objectives of the two development packages are similar in wanting to close development disparity, and both initiatives are driven by foreign direct investments. The ASEAN Information Infrastructure (AII), which essentially forges agreements among member countries on the design, standardization, interconnection, and interoperability of information have not yet found its way to GMS development. The information technology (IT) and telecommunications sectors are still waiting for concrete initiatives from ASEAN. The ADB and other international institutions and donors, including Japan, are shying away from investing in the GMS telecommunications sector partly because of the financial crisis and the weakness of the AII. However, the GMS can benefit and will likely gain investor confidence as the ASEAN Plus Three process grows stronger. The transfer of technology from the ASEAN Plus Three process would strengthen the AII and give it a boost of confidence. Tourism In the area of tourism, the ADB has financed or co-financed six technical agreements for the GMS countries. These cover a range of topics and activities, including the promotion of the subregion as a tourist destination; training the trainers in the basic skills of tourism; training resource managers in conservation and tourism; a Mekong/Lancan River tourism planning study; village-based tourism projects; and a North-South tourism corridor project. A seventh project, the Mekong River Tourism Infrastructure Development, is being processed. The GMS Tourism Working Group has partnered the private sector in establishing the Mekong Tourism Forum, which meets annually. The GMS countries have also established the Agency for Coordinating Mekong Tourism Activities, located in the Tourism Authority of Thailand, Bangkok. The success of GMS-ASEAN development depends on the role and capacity of the people to support the system. Clearly, capacity is essential as the availability of skilled labour would boost investor confidence. The ASEAN

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economies have been FDI-driven, and it is important that capacity enhancement should be a priority in the development agenda. The region’s human resource development is inadequate because of the lack of education and access to market information for creating the knowledge-based workers. Today’s workers need both skills and creativity. Skilled and creative workers are the building blocks for harnessing internal resources and are the cornerstone in building an ASEAN community. Education is important for capacitybuilding, and the utility that can be derived from innovation depends on the prevailing level of education. The paramount goal of education is to empower people by giving them the tools and capacities to engage in globalization, such as taking advantage of the increasingly important role of information technology and market information. Equity and access to education remain the prevailing issues among the ASEAN member states, particularly those in the GMS. Degrees of difficulty and disparity, however, exist. The education systems in Cambodia, Lao PDR, and Myanmar have all been affected by internal conflicts. As a result, knowledge-based workers are nearly non-existent. Other countries, including even relatively developed Malaysia, also experience significant disparities between the urban and rural populations in terms of their access, and the quality of education that they receive. Thailand, too, is looking to find a new education paradigm to solve social problems, such as environmental destruction and crimes. All these countries realize that education is essential for harnessing internal resources. Development areas such as the GMS face similar challenges in making education the building block for creating economic development. This means that the GMS member countries would have to establish vocational institutions to support GMS development. There is a need for more vocational institutions such as the Greater Mekong Subregion Academic and Research Network (GMSARN).14 This is essentially not an academic institution but one that provides relevant skills training related to the GMS Programme. An alternative consideration is to implement the HPA strategies for GMS human resource development. The needs of the GMS overlap with the HPA’s human resource development components. However, the HPA’s programme for human resource development may not be fully compatible, as it emphasizes universal education, rather than more technical and vocational skills. Therefore, to harness its internal resources, ASEAN should focus on two critical components in its strategy to tap external resources: people and markets. ASEAN has to strengthen human resource development as a confidence-building measure. The GMS development process should also

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involve all stakeholders, especially those in the subregion itself and in ASEAN. In this context, the AMBDC should focus on substantive as well as economic strategies. Against this background, the following criteria are important for harnessing external resources. 1. Empowerment: Empowering people in many aspects would enable them to make informed decisions in the process of market development. Moreover, it would enable them to participate in the market system, and provide all participants “fair and equal opportunities” to access the market economy. Empowering people with tools to make independent market and investment decisions is the essence of a market economy. 2. Ethnic minorities: What is their role and contribution to economic development? The ethnic minorities are important because they often form the majority in parts of the GMS, even if not in the country as a whole. Moreover, ethnic tensions and separatist movements, such as those in the south of the Philippines and some Indonesian provinces, demonstrate the interconnection between economic development and ethnic and racial co-existence. If there are tensions and problems, these would only delay progress, and add to the social cost of development. 3. Education: The GMS states can effectively harness and materialize the economic opportunities in the global economy if the majority of their peoples possess the tools to engage in the market economy. The correlation is economic access, equity, increase in income, and growth, which is based on the capacity of a nation to meet the supply and demand of the international market. The issue of education should be a regional concern. 4. ICT: Most of the ASEAN member states and especially those in the GMS lag behind the worldwide movement in information and communication technology (ICT). This deprives them of the means for instant access to market information. Thus, they will not be able to benefit from the acceleration that e-commerce brings to markets.

STRATEGIC AND SECURITY DIMENSIONS15 While the importance of the economic aspects of the GMS is often emphasized, its strategic and security dimensions should not be overlooked. The development of the GMS involves China as well as potentially powerful financiers and developers such as the Asian Development Bank, multinational corporations, and sovereign powers such as South Korea and Japan. Given

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ASEAN’s efforts to engage with Northeast Asia in the ASEAN Plus Three process, co-operation in the GMS would be an additional point of interaction. Another strategic dimension relates to the potential for improving transport connections through the GMS countries, connecting them to one another and to other ASEAN member states. The main purposes of a trans-Asian railway would be to facilitate the flow of goods to and from ASEAN countries, enhance the linkage with China’s southwestern area, and gain access to development projects in China’s landlocked western region. However, the region cannot turn away from the political reality that improved transport might inadvertently assist regional hotspots such as the Golden Triangle. Therefore, ASEAN has to give serious attention to such security matters even as it proceeds with development. In so doing, co-ordination between economic institutions and those that relate to anti-drug trafficking issues, especially within the United Nations system, must be emphasized. Beyond drugs, transnational or transregional crime is another issue that will require regional co-operation. Efforts have already begun. In 1999, Myanmar hosted the second ASEAN Ministerial Meeting on Transnational Crime, which adopted the ASEAN Plan of Action to Combat Transnational Crime. The Plan of Action will deal with many forms of transnational crimes, including terrorism, drug trafficking, people trafficking, arms smuggling, money laundering, illegal trade in cultural artefacts, and fraudulent travel documents. The Meeting also agreed in principle to establish an ASEAN Centre for Combating Transnational Crime (ACTC). The Senior Officials Meeting on Transnational Crime (SOMTC) was directed to appoint a working group to prepare a full report on the establishment of the ACTC. The ASEAN Secretariat would explore ways in which it could work closely with ASEAN dialogue partners, other countries, regional and international organizations, including the United Nations and its specialized agencies, Colombo Plan Bureau, and the International Criminal Police Organization (ICPO)-INTERPOL. Singapore will host the third ASEAN Ministerial Meeting on Transnational Crime.16 Border issues between the GMS states have fuelled conflicts in mainland Southeast Asia for centuries. Many of these remain unresolved. Indeed, globalization, the development of the GMS, and the issue of illicit activities may place more stress on existing sensitivities. Inevitably, the binding nucleus of the GMS programmes will be participation by the ASEAN Plus Three countries. The GMS still requires the recognition that development is essential in combination with financial, technical, and political support. China by itself, and ASEAN Plus Three, will be instrumental in implementing the GMS development programmes. In

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this, ASEAN Plus Three should facilitate GMS-ASEAN objectives while at the same time help to promote regional ownership by the GMS and other ASEAN states. By these means, the ASEAN Plus Three process can facilitate the implementation of selective development components from the Hanoi Plan of Action, such as the ASEAN Information Infrastructure. The ASEAN Plus Three process should also focus on the AMBDC for the technical and financial support that it needs. In this regard, China’s interests and participation in the GMS is highly important, especially in the development of transport. China has provided ground transport systems in order to facilitate the flow of people and goods into the markets of the ASEAN countries in the GMS. This is in effect giving China access to the region. China’s participation in the GMS is, as such, motivated by economics as well as serving as a response to globalization to help maintain security at its borders, especially the flow of people. Moreover, the transport network could provide the physical security parameters for China in terms of protecting and facilitating transport, and maintaining the balance of power in the region.

CONCLUSION: WHAT CAN ASEAN DO? The Report of the ASEAN Secretary-General 1999-2000 suggested three developmental strategies towards improving the current ASEAN paradigm: (1) firmer commitment to regionalism; (2) self-reliance; and (3) public support. All three components require a holistic approach, but the calling for firmer commitment will be extremely challenging since this option requires domestic policy adjustments to match what other ASEAN member states do. Self-reliance and public support are perhaps more feasible alternatives since these strategies can be implemented by individual member countries based on their capacity and resources. However, public support could be achieved if local governments establish communication channels with their people. Moreover, this strategy is the most sustainable since domestic policy adjustments will have to match the capacity and resources available in each respective country. Essentially, the requirement for boosting investor confidence is substantive reform. Member governments have to manage their administration effectively by having the capacity to co-ordinate the development process with the private sector. This means that good governance measures will have to be credible and realistic. People must have equal and fair opportunities to participate in the market economy. As a result of the 1997 economic crisis,

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ASEAN has strived to improve and push for political reform that would enable people to become participants rather than the audience. Yet, for example, the Ministerial Meeting in Yangon, and the ASEAN Plus Three Financial Ministers Meeting in Chiang Mai were attended exclusively by ministers. The role of civil society and social institutions, and the political commitment by the decision-makers are very important factors to sustain investor confidence. The GMS-ASEAN process will have to create an environment of mutual benefit among the developing and the less developed members, such as providing better communication between the people and the decision-makers: (1) credible substantive reform in governance together with the creation of a public-private partnership scheme would boost investor confidence in the region; (2) political commitment by each member country to focus on development components, such as education and economic freedom. This scenario could be achieved by strengthening the AFTA mechanism, or the ASEAN Financial Structure; (3) credit access for less developed members is crucial in expanding the market dimension in the region, such as by the promotion of small and medium-sized enterprises; (4) inter-state trade regulations must be enforceable and transparent; and (5) commitment to administrative reform is required within each member country. In addition to this, the GMS-ASEAN process should proceed by prioritizing: (1) human resource development; (2) finance and credit incentives to all, particularly those members that are most in need; (3) ICT development; and (4) intellectual property rights. The dynamism of the GMS is evidently its economic potential, in terms of natural resources, and physical and human capital. To realize the potential of the GMS member countries, ASEAN must ponder on several critical issues: (1) how to achieve ownership and self-reliance in development; (2) the commitments from each member country; and (3) the strategies for sustainable development. Driven by FDI and private sector initiatives, such as those by the ADB, World Bank, and multinational corporations, the GMS-ASEAN must be pragmatic on the issue of regional ownership. It is evident that the region failed to secure external resources because it fell behind in human capital development. The acceleration of technology and market information demands not only knowledgeable skilled workers but also creative skilled workers, and the GMS has to match this demand so that investors can have confidence in the region. In terms of expanding economic space and market dimensions to attract external resources, the GMS-ASEAN will have to increase the level of consumption by creating purchasing power. To achieve this feat, the region

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needs to have equity, access, and income growth to sustain the strategy. Again, education will play a very important role in enabling “sustainable development”. Ultimately, the realization of the GMS-ASEAN is heavily dependent on public support. Local governments will have the primary task of improving communication with the public. In a macroeconomic-oriented regime, macrolevel participation is required to push the policy agenda forward. Stakeholders, that is, the citizens, should be the participants rather than the audience. Therefore, civil society, and educational, cultural, and social institutions must have access to government information and activities. In sum, it would be encouraging if substantive issues are improved on for the purpose of creating a knowledgeable society. Perhaps an adjustment in the conventional mindset would help to expedite the reform process. A knowledgeable society is very important for tapping external resources from the global financial flow. The challenge rests not only on the GMS-ASEAN member states. All stakeholders should focus on the substantive aspects of development, as well as the process of getting there. All members should have fair opportunities to benefit from the system. The process of development should be based on a people approach and should be realistic, consistent, credible, and enforceable. Notes 1. Mekong River Commission, “For Sustainable Development” (Cambodia: MRC, 2000). 2. Resolution 66/1 of 7 June 2000-2009, passed at the fifty-sixth session of the UN ECOSOC. 3. The programme proposals include: (1) Biological Studies of the Mekong Giant Catfish, Pangasianodon gigas (Chevey) in the Mekong Basin (by Thailand); (2) The Mekong Basin Animal Quarantine Network (by Malaysia); (3) Training in Rice Technology and Establishment of a Seed Centre in Selected Countries in the Mekong Basin (by Malaysia); (4) R&D and Establishment of an Integrated Forest Management Information System (INFORMIS) (later revised to HRD in Forest Resource Management for the Mekong Basin) (by Malaysia); (5) HRD Training: Establishment of an Agricultural Mechanization Training Centre (by Malaysia); (6) A Model Forest Area on Sustainable Forest Management in the Mekong River Basin (by Malaysia); (7) Groundwater Resources Development in the Mekong Basin (later revised to Training in Groundwater Resources Management for Cambodia, Lao PDR, and Myanmar) (by Malaysia); (8) Inventory Survey on Biodiversity and the Economic Potential of Fishes in the Mekong Basin (by Thailand); (9) Establishment of the Network of ASEAN Mekong Fisheries Management and Aquaculture Training Centre (by Thailand);

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5.

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9. 10.

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(10) Co-operation in Fisheries Post-harvest Technology in the ASEAN Mekong Basin (by Singapore); (11) Programme on the Community-based Sustainable Irrigated Agricultural Development for Poverty Alleviation in the Remote Areas of the Mekong Basin (by Vietnam); (12) The Mekong Flow Forecasting Centre for Sustainable Water Resources Management in the Mekong Basin (by Vietnam). Projects proposed by Thailand include those for: (1) central market connections of the five countries beside the Mekong Basin; (2) warehouse, silo, cold storage and Mekong River navy transportation business; (3) a seminar on Transhipment Between Countries in the Mekong Basin and ASEAN; and (4) a Tourism Cooperation Centre. Suchit Bunbongkarn, “The Security Challenges in the Greater Mekong Subregion”, in The Greater Mekong Subregion and ASEAN: From Backwaters to Headwaters, edited by Kao Kim Hourn and Jeffrey Kaplan (Phnom Penh: Cambodian Institute for Co-operation and Peace, 2000). The agreement is attributed to the Economic Development Co-operation Fund which is primarily to be used to install or update ministry computers and Internet services, and also to start a programme for bringing Cambodia’s car, land, and resident registration online. “Cambodia Embarks on Efforts to Boost Technology Sector”, Cambodian Daily, 16 August 2001. Even though five out of six members of the GMS countries are members of ASEAN, one ASEAN member, Myanmar, is not a member of the MRC. The Myanmar question is something that ASEAN ought to look into and try to find a sustainable solution so as to give Myanmar more confidence in ASEAN. Eric Teo, “The Second Annual GMS-ASEAN Conference on Development and Good Governance in the Greater Mekong Subregion” (Paper presented at a conference held at the Cambodian Institute for Co-operation and Peace, Phnom Penh, Cambodia, 2000). Eric Teo Chu Cheow is Council Secretary of the Singapore Institute of International Affairs. ASEAN Secretariat Information Paper, Second Ministerial Meeting on the AMBDC, Hanoi, 4–5 July 2000. Gu Xaison, “On The Development of Co-operation Between South China and GMS: Building a Transportation Network of ‘1 Vertical and 2 Horizontal’” (Paper presented at a conference held at the Cambodian Institute for Cooperation and Peace, Phnom Penh, Cambodia, 1–2 November 2000). ADB, “Economic Co-operation in the Greater Mekong Subregion” (Manila, October 2000). Iwao Toriumi, “Towards Vision 2020: Japan Asian Consultation Conference on the Hanoi Plan of Action”, Nara, Japan, 26–28 March 2000. ADB, “Economic Co-operation in the Greater Mekong Subregion” (Manila, October 2000). The GMSARN is not associated with ASEAN or any of its affiliations. The GMSARN is a research network composed of regional universities that have been promoting GMS development through research, teaching, and other activities.

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15. See also Do Van Bach, “Sensitive Political and Security Implications of the Great Mekong Subregion in Southeast Asia”, in The Greater Mekong Subregion and ASEAN: From Backwaters to Headwaters, edited by Kao Kim Hourn and Jeffrey Kaplan (Phnom Penh: Cambodian Institute for Co-operation and Peace, 2000). 16. U Khin Maung Lay, “Setting Priorities for the Greater Mekong Subregion — Issues, Strategies and Realities: A Myanmar Perspective”, in The Greater Mekong Subregion and ASEAN: From Backwaters to Headwaters, edited by Kao Kim Hourn and Jeffrey Kaplan (Phnom Penh: Cambodian Institute for Co-operation and Peace, 2000).

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10 EXPECTATIONS AND EXPERIENCES OF THE NEW MEMBERS A Vietnamese Perspective Nguyen Phuong Binh and Luan Thuy Duong

INTRODUCTION Vietnam joined the Association of Southeast Asian Nations (ASEAN) in 1995. The same course was followed by Laos and Myanmar in 1997, and Cambodia in 1999. This expansion of ASEAN to include all ten Southeast Asian countries reflected not only the desire of these countries to join the grouping, but also their dependence on a favourable environment for regional co-operation in the post-Cold War period. In joining ASEAN in the last decade before the new millennium, the new members, Vietnam, Laos, Myanmar, and Cambodia (CLMV), were encouraged by hopes of a prosperous region through development, co-operation, and peace. Yet, the financial crisis that swept through the region in 1997–98 has brought serious and lingering strategic, economic, political, and social consequences. This, sadly, has affected several of the main and founding members of ASEAN. It has also shaken the very rationale for the ASEAN concept of national and regional resilience, and undermined the confidence of the new members in the future of ASEAN. In addition, ASEAN is facing new challenges in the new millennium, associated with globalization, the emerging formation of a new economy, and the rapid development of information technology. These challenges would 185 © 2001 Institute of Southeast Asian Studies, Singapore

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affect ASEAN’s newer members in more severe ways as they are less developed than the older ones and are only at the beginning stage of regional and international integration. Such a context has raised three major questions. First, what were the new members’ expectations of ASEAN when they decided to join? Secondly, has their participation in ASEAN met these expectations during the past few years? Thirdly, what do the new members expect from ASEAN in the new millennium, and what can they bring to it? This chapter will explore these questions, mainly from the perspective of Vietnam as a new member of ASEAN. However, these perspectives will tend, to some extent, to be shared in common with other new ASEAN members. This is to be expected as the four new members share common ground in their relatively low level of development, as well as some common economic and political concerns in facing an increasingly globalized world.

EXPECTATIONS: ATTRACTIONS OF THE “ASEAN WAY” In 1995, Vietnam, owing to the changing international and regional political climate, was able to join ASEAN as a full member. This was a considerable achievement, given the political and security concerns between the original ASEAN members and Vietnam during the 1970s and 1980s over the question of Cambodia and other related issues. The end of the conflict in Vietnam, and of the Cold War, removed some of the barriers to co-operation. The essential factor for Vietnam’s membership into ASEAN, however, stemmed from the policy of reform or renovation (doi moi) that the Vietnamese Communist Party announced in 1986. It was this policy that led Vietnam to approach ASEAN with increasing interest from the mid-1980s. The Vietnamese Government recognized that the course of reform in the country needed, first and foremost, a favourable external environment, with peaceful and friendly relations with its neighbouring countries. It had observed the experiences and practices of the different ASEAN member states in dealing with each other. It was thought that these ASEAN experiences and processes could help ensure that Vietnam, upon joining, would enjoy the same favourable conditions. As many scholars from both within and outside ASEAN have observed, it is an organization for co-operation, especially in the political field. Differences in political and social preferences did not prevent member countries from promoting good neighbourliness and forging an open regionalism, which serves the need for peace, stability, and development of its members. The success of ASEAN in this regard lies in the fact that the organization has

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found ways to manage and diffuse territorial disputes among its members by encouraging the parties concerned to use peaceful means of settlement. Since 1967, no intra-ASEAN disputes have turned into military conflicts. The “ASEAN way” for dealing with inter-state relations among its members was anchored in the Treaty of Amity and Co-operation in Southeast Asia (also known as the Bali Treaty, or TAC) signed in 1976. This is primarily a nonaggression pact which sets out the principles for ASEAN inter-state relations and emphasizes respect for independence and territorial integrity, noninterference in domestic affairs, refraining from the use of force, and seeking the peaceful settlement of conflicts between countries that are parties to the agreement. Thus, when Vietnam expressed its desire to become a member of ASEAN, the same political and security principles were expected to apply to future relations between Vietnam and the ASEAN countries. In this way, the TAC would become a code of conduct, guiding relations between all countries in Southeast Asia, including the new members. This code of conduct had already proved to be effective in softening disputes between individual member states. There had also been some signs that the ASEAN member states had resolved some of these disputes by transforming potential conflicts into co-operation. Vietnam has been negotiating with a few ASEAN countries on the demarcation of borders, continental shelves, and overlapping sea zones, as well as fishing and other issues. Some issues have been satisfactorily settled while prospects for resolving others are promising. The “ASEAN way” was once again highlighted in the resolution of disputes in the South China Sea, where a number of states, both in ASEAN and outside the group, have overlapping claims to territory. ASEAN’s Declaration on the South China Sea of 1992 called on all parties concerned “to exercise restraint and resolve all sovereignty and jurisdictional issues pertaining to the South China Sea by peaceful means; to explore the possibility of cooperation there on safety of maritime navigation and communication, etc.; to apply the principles of the Bali Treaty as the basis for establishing a code of international conduct in the South China Sea; to subscribe to this declaration”. As far as ASEAN member states involved in the disputes are concerned, the Declaration serves as a guide for their policies, principles, and measures to resolve disputes over islands in the South China Sea. At least, the disputes over the Spratlys do not represent an obstacle to improving relations between Vietnam, Malaysia, Brunei, and the Philippines. Nor do they become a hindrance to co-operation and a source of possible military conflicts between the ASEAN member states. In this regard, the ASEAN Declaration and

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other efforts have been significant reference points in this continuing controversy. In this context, by acceding to the Bali Treaty and later joining ASEAN, the new members have entered a second phase of reconciliation. They, therefore, should not have to worry and spend much on defence expenditures to maintain their borders. This fact alone contributes greatly to the new course of reform in Vietnam. More resources can be focused on the development of its economy and human welfare. Other new members can be expected to benefit similarly. For Vietnam, the importance of relations with ASEAN has been attached to the creation of an environment of peace and security at a time when there is a greater need following the end of the Cold War.1 With ASEAN membership, Vietnam expects that it would have more capacity to deal with conflicts within ASEAN. When actual or potential conflicts between and among Vietnam and other ASEAN member states arise, they will likely be dealt with on an intra-ASEAN basis, leaving no possibility for outside powers to intervene, as they did in the past. This also gives ASEAN the ability to take on a greater role in the broader region of the Asia-Pacific and in global affairs. The expectations of new members in joining ASEAN also had an economic dimension. The new members recognized that ASEAN could also be an organization for economic co-operation — as promised in its original vision. By the 1990s, economic reforms in Vietnam had created favourable conditions for other, more advanced ASEAN member states to trade and invest in the country. Other forms of economic co-operation were also possible, and beneficial to Vietnam’s development. Trade and investment by other ASEAN member states have played an important role in Vietnam’s economy in the past decade. Even before Vietnam formally joined ASEAN, with improving relations, ASEAN member states helped Vietnam to find new markets and investments to replace the traditional markets and economic partners — the former Soviet Union and Eastern Europe — that had diminished in the post-Cold War period. More generally, the experiences in economic development of the ASEAN member states, both positive and negative, were felt to be potentially relevant to the situation of Vietnam. Vietnamese officials recognized that ASEAN member states had started from a similarly low starting point as Vietnam, and had made credible gains in their development. Many Vietnamese officials referred positively to the significance of the country’s entry into ASEAN. Then Foreign Minister Nguyen Manh Cam said: “ASEAN represents another channel for us to integrate into the region and allow us to join the process of globalization”.2 The statement is an

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example of the sentiment of many Vietnamese officials; a driving force behind the decision was the necessity to open the economy and attract foreign direct investment, which could be possible only if normal and friendly relations prevailed. One could also detect a genuine feeling of admiration for the economic successes of the other ASEAN member states, and a sincere desire to learn from their experiences. This was reflected, among other things, in the following statement of Foreign Minister Nguyen Manh Cam on his visit to Malaysia: “... the experience of development from other ASEAN member countries, ... your successes and failures will help our country to shorten the course of development”, and “joining ASEAN is also the opportunity for us to push forward the reform process”.3 A third driving force in Vietnam’s desire to join ASEAN was the group’s standing in the wider Asia-Pacific region and the world. Vietnam noted that, since 1977, ASEAN had increasingly established partnerships with major countries outside the region, including the United States, Japan, China, Russia, India, and other states. In these relations, ASEAN had been able to moderate and co-ordinate with these countries, at a positive level, on major policy issues concerning the security of Southeast Asia. Since 1992, ASEAN had begun to discuss security issues at various fora, including the annual ASEAN Ministerial Meeting (AMM), Post-Ministerial Conference (PMC), and the ASEAN Regional Forum (ARF). The ARF so far represents the only multilateral forum for the regional states and major powers of the world to discuss security issues in the AsiaPacific where they are committed to the peace, stability, and development of the region. Vietnam’s officials and thinkers recognized and were attracted by these achievements of ASEAN in reaching out beyond the region. It was, therefore, the expectation that good ASEAN–Vietnam relations would facilitate the development of better relations between Vietnam and others in the region beyond ASEAN. Improved relations between Vietnam and other ASEAN member states could, among other things, help to bring about normalized and improved relations between Vietnam and the United States. Vietnam’s relations with Japan and China could also benefit. In these ways, closer and better relations with ASEAN could help Vietnam form and carry out a more balanced foreign policy. On its part, Vietnam drew closer to ASEAN’s founding members for the first time. Since Vietnam moved towards ASEAN membership, the government has given to its relations with ASEAN member states a priority that had previously been enjoyed only by its immediate neighbours — Laos, Cambodia,

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and China. All these countries were now seen as belonging to the category of close neighbours with whom friendship must be cultivated as an important aspect of the diversification of Vietnam’s foreign relations. This new geopolitical approach represents an advance in the foreign policy thinking of Vietnam. It shows that the improved Vietnam–ASEAN relationship has led to a broader context for Vietnam’s long-term foreign relations. Notably, in cultivating better relations with ASEAN, Vietnam did not have to sacrifice any of its relationships with external countries. Instead, becoming an ASEAN member helped the country to develop and improve its relations with other countries in its effort to become a friend of all nations in the world community. In addition, Vietnam and some ASEAN member states shared common views in terms of democracy and human rights, especially in the pre-crisis period. This helped them to find a common position to face the challenges of interference posed by the West. Therefore, Vietnam has looked for support from other ASEAN member states for the maintenance of its political and social stability. In sum, there has been consensus in Vietnam that as long as doi moi continues, the role of ASEAN will be strategically important. Vietnam has expected that membership in ASEAN would help the country to ensure favourable external conditions for further economic and political reforms, enhance its geopolitical stance and that of Southeast Asia, in dealing with other countries outside the region, including the major powers of the world. It was also expected that membership would render prospects for better bilateral and multilateral co-operation between Vietnam and the rest of the world, and help it to forge a new sense of regional belonging and identity. Other new members have expressed similar expectations of ASEAN membership. In 1997, Cambodia’s then First Prime Minister Ung Huot suggested that, “Cambodia’s security will be enhanced by joining ASEAN, a dynamic group progressive enough to meet as equals and not tamper in each other’s affairs, and at the same time strong enough to stand together as a group and meet foreign powers on equal terms, not divided and subject to their influence”. In economic terms, he said that “we seek ASEAN’s support, its business knowledge, and its guidance and assistance to help us grow where we are still weak”. He also believed that “the inclusion in the AFTA [ASEAN Free Trade Area] could make Cambodia take off into newly industrialized status”.4 The tremendous strides taken by the original ASEAN member states in politics and economics led the new member states to expect that they too would benefit greatly from membership in ASEAN. Yet, more importantly,

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all the new members of ASEAN expected that they could actively contribute in return. They did not join the Association as weak links or charity cases, but as countries that possessed the energy to grow, the deep desire for peace and stability, and the ability to strategically link Southeast Asia to the rest of the world.

GAINING FROM MEMBERSHIP: LESSONS FROM EXPERIENCE The expectations of new members about the benefits of being in ASEAN ran high in the run-up to membership. Have the actual experiences met those expectations? For Vietnam, ASEAN has proved to be even more important after it joined the organization in 1995. Membership has helped to further boost the sense of good neighbourliness and political co-operation between Vietnam and the other ASEAN countries, thus enhancing the country’s security. The relationship between Vietnam and Thailand is a good example of the benefits. Relations between the two countries had not always been smooth, owing to the Vietnam War and the question of Cambodia. Nevertheless, soon after Vietnam joined ASEAN in 1995, the two countries resolved their overlapping claims to areas in the Gulf of Thailand, as well as the long-standing issue of Vietnamese citizens living in Thailand. Co-operation between the two countries has extended to many fields, including politics, commerce, science and technology, culture, education, public health, tourism, defence, and security. Two-way trade grew from just US$0.1 million in 1986 to US$759 million in 1996 and to US$1.2 billion in 2000. Thailand now ranks second among ASEAN investors and eleventh among foreign investors in Vietnam, with some ninety-six investment projects capitalized at US$1.1 billion.5 This example of Thai–Vietnam relations is not an isolated one. Many agreements have been concluded as steps towards pacifying and solving disputes over overlapping claims to sea zones, notably those between Vietnam and Malaysia. The aggregate effects of political and security co-operation undertaken by Vietnam with other member states within the ASEAN framework contribute greatly to the betterment of the external environment. For the first time in its contemporary history, Vietnam is less worried about security concerning its geographical borders. Accordingly, expenditures on national defence can be decreased while more resources can be allocated to the development of its economy and combating poverty, which has been considered “the biggest threat” for Vietnam.6

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Indeed, closer political co-operation with ASEAN has directly helped Vietnam’s economic development. Trade and investment from the member states to Vietnam continuously increased from the time it became a member until the Asian crisis of 1997. The member states have accounted for large shares of Vietnam’s trade, and AFTA has intensified this relationship. The numbers bear this out. Trade between Vietnam and the rest of ASEAN accounts for about 30 per cent of Vietnam’s total foreign trade volume, a 37.9 per cent increase from 1990 to 1996. The value of two-way trade between Vietnam and other ASEAN member states has doubled since it began reducing tariffs, with the aim of joining AFTA. This reached US$7.1 billion in 2000. Import-export turnover with the other ASEAN member states accounted for 23.7 per cent of the country’s total trade turnover, with the export value reaching US$2.6 billion. This represents an increase of 2.3 times during the years 1996–2001.7 Concurrent with the progress of the ASEAN Investment Area (AIA), the ASEAN member states have also contributed about 30 per cent of total foreign investment in Vietnam.8 Business transactions with the other ASEAN member states have also served Vietnam well, in indirect ways. Coming out of the state of economic isolation and opening its economy to the rest of the world in the mid-1980s, Vietnam lacked a grasp of the principles and practices needed to manage a market economy. Interactions with ASEAN, including joining AFTA, have therefore served as a form of on-the-job training for Vietnam to better understand and effectively operate in a new economic setting. Moreover, Vietnam’s participation in AFTA requires the country to enact further marketoriented reforms and to develop its human resources to facilitate effective cooperation with its ASEAN partners. In this regard, ASEAN represents another channel for Vietnam to integrate into the wider region and to participate in the process of globalization. ASEAN’s backing of Vietnam to join the Asia-Pacific Economic Cooperation (APEC) enabled it to be admitted as a member in 1998. ASEAN’s support for Vietnam’s membership in the World Trade Organization (WTO) has also been crucial. Above all, Vietnam’s participation in AFTA was a necessary step in preparation for its participation in these broader organizations. The same support for Laos, Myanmar, and Cambodia for membership in APEC and the WTO has also been given by ASEAN. It is noteworthy that the more Vietnam integrates into the rest of the world, the more it has to accelerate the reforms at home, thus making doi moi an irreversible process. Joining ASEAN, indeed, has been a two-pronged process: on the one hand, its bears evidence of a new strategy for economic

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development and foreign policy in Vietnam; and on the other hand, it has been the catalyst for further reforms. More broadly, similarities between Vietnam and some ASEAN member states in the philosophy of governance, and historical and cultural legacies have contributed to make the ASEAN experience more attractive and more easily absorbed by Vietnam. The geographical proximity has benefited Vietnam by reducing the costs of transactions and enhancing the developmental wave from ASEAN. Vietnam has gained fruitful assistance with capital, science and technology, and experience of economic management from the older ASEAN member states. Accordingly, great importance has been attached to the “ASEAN factor” in the cause of renovation and reforms in Vietnam, and strong determination has also been attached to the process of fully integrating into ASEAN. Similar outlooks and experiences can be noted among the other new members. Cambodia’s Minister of Economy and Finance, Keat Chhon, has said that to effectively participate in ASEAN, the new members must address a number of specific challenges. The Cambodian minister emphasized that they must strengthen human resources and skills; continue to liberalize their economies; develop and manage their natural resources in a sustainable manner; improve the accountability of the decision-making process; and improve communication and co-ordination among governmental institutions. Effective participation in ASEAN requires close co-operation among ministries to ensure that consistent and comprehensive policies towards ASEAN are provided. Institutional and legal reforms are also vital parts of this process.9 In the broader context of external relations, the ASEAN experience in dealing with actors outside the region has also been appreciated by Vietnam and other new members. By initiating the establishment of the ARF and by acting as the “primary driving force”, ASEAN has been able to ensure the continued commitments by external powers to peace, stability, and predictability of the Asia-Pacific as a whole, and Southeast Asia in particular. Through this forum, ASEAN, as a group of small and medium states, has had a voice to be heard and a role to play in a new process of power distribution in the region. Southeast Asia, therefore, can enjoy a relatively stable and predictable strategic environment compared with other regions of the world since the end of the Cold War. Membership in ASEAN has particularly helped to ease relations between Vietnam and the major powers in the Asia-Pacific region. These actors see developments in Vietnam–ASEAN relations as evidence of a new commitment to peace, stability, and prosperity on the part of Vietnam. In response, they have become more willing to assist Vietnam in its efforts at renovation.

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Backed by ASEAN, Vietnam can be in a better position to conduct its foreign policy, now aimed at diversifying and multilateralizing external relations, while preserving its national independence and identity. It was no surprise, for example, that Vietnam’s admission into ASEAN almost coincided with the normalization of diplomatic relations between Vietnam and the United States. In this context, the economic and developmental expectations of the newer ASEAN members, while important, were not as primary as the longterm political and strategic expectations. In Vietnam’s case, both sets of expectations in joining ASEAN were initially met. Tremendous changes, however, have taken place in the wake of the regional crisis that began in July 1997 and swept through the ASEAN member states.

IMPACTS OF THE ASIAN CRISIS Although the crisis began in the more developed member states of ASEAN, the new and less developed members were also affected. The negative impacts on Vietnam came in two ways. The first impact was that many ASEAN members became unable to continue their commitment to the economic development of Vietnam, whether through intergovernmental assistance or the commercial endeavours of their private sector companies. In trying to deal with the crisis, the ASEAN member states have had to pay more attention to their domestic priorities. Consequently, an inward-looking tendency has become stronger than the sense of community among most ASEAN member states. In the process of integrating into ASEAN, the new member states had expected much assistance from ASEAN as an organization, as well as from the founding and more developed member states. With the crisis, however, the ability of the organization and its founding members to give assistance has been limited. The Filipino academic and think-tank leader, Dr Carolina G. Hernandez, has observed that “the crisis demands the payment of more attention to domestic problems by affected countries. Indonesia, Malaysia, the Philippines, and Thailand will be forced to look inward to manage the impacts of the crisis on their societies”.10 This has directly reduced the commitment to the economic development of Vietnam. For example, Singapore’s biggest investment project in Vietnam for 1998, worth US$780 million, has been postponed. At the same time, dozens of Thai, Indonesian, and Malaysian companies have pulled out or scaled down their business in Vietnam.11 Moreover, ASEAN member states have focused their resources on “self-

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help” programmes, rather than collective programmes aimed at addressing the crisis.12 As a result, there has been doubt whether ASEAN is able to agree to and implement collective programmes of assistance. The second impact in the wake of the crisis is that economic transactions between Vietnam and other ASEAN member states have been less effective. The structure of trade between Vietnam and the other ASEAN member states has not been in favour of Vietnam. While trade with ASEAN amounted to about 30 per cent of Vietnam’s total trade, exports from Vietnam only accounted for 0.025 per cent of total ASEAN exports to the rest of the world.13 Under the impact of the crisis, Vietnam’s exports faced more disadvantages of competition, as they became more expensive in comparison with those of other ASEAN member states. In addition, lowered prices from these states put many Vietnamese domestic producers out of business. Nevertheless, Vietnam does not hold other ASEAN member states responsible for igniting the crisis or for making Vietnam a subsequent “victim”. Many problems have arisen in the Vietnamese economy under reform. The challenges for doi moi in Vietnam already existed before the crisis. Foreign direct investments (FDI) flowing into Vietnam had in fact been declining in the years shortly before the crisis and after. This was not so much because of the crisis. The falling FDI flows were mainly due to investment conditions in Vietnam itself. Infrastructure, laws, and management mechanisms in favour of foreign investments are needed. In this context, the crisis has consolidated the view in Vietnam that the country must accelerate its doi moi policy. Yet, the lesson has also been that policies must take into account the specific conditions of the country. Efforts must be made to learn from the experiences of its neighbours, as this will allow Vietnam to have a less alarmist perspective of the crisis. It is also Vietnam’s belief that ASEAN will overcome the crisis, recover, and prosper again. As such, Vietnam can benefit from the next development wave of ASEAN — provided its internal reforms proceed. Vietnam, although affected by the crisis, has not taken a diminished view of ASEAN. There are, however, concerns over the role of ASEAN in the future, especially with regard to the strategic and political ramifications that the crisis has brought about.14 It seems that the crisis has brought ASEAN to a new stage in which state leaders do not seem to stay in power for long, unlike their predecessors. This has several implications for ASEAN. Firstly, as many have argued, ASEAN during the past three decades had developed into a “club” of statesmen who, through personal interactions, made inter-state relations in ASEAN more friendly and stable. In fact, inter-state relations in ASEAN have been very

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much dependent on these high-level interactions. The new leaders in ASEAN, however, will need time to understand and accommodate each other and build up relations to a similar level. With greater political instability, the terms of office of leaders in some ASEAN member states have been shortened, making them more preoccupied with domestic politics and thus less devoted to regional affairs. As a result, solidarity among the ASEAN leaders may be affected. Secondly, leaders in some ASEAN member states are now subjected to greater public scrutiny and criticism. This means that pressures exerted on them by other circles and interest groups in society will increase. As a result, the new members are watching recent developments in these founding ASEAN member states closely in order to fully appreciate them and predict their political and social implications. Many Vietnamese scholars share a concern that the political and social ramifications in several member states of ASEAN would pose a challenge to ASEAN’s cohesion. This concern stems from the argument that the tendency to look inward would lead to different sets of priorities, and thus widen the gaps in development levels within ASEAN, making consensus more difficult, slowing down the process of decision-making, and as a result, eroding ASEAN solidarity. During the financial crisis, ASEAN still enlarged its membership and adopted unanimously many bold measures to deal with the crisis, at both dimensions, individual and collective. In addition, some founding ASEAN members, after emerging from the worst of the crisis, have initiated programmes aimed at bridging the gap in development levels between the old and new members of ASEAN. Accordingly, Vietnam and the other new members have grounds to expect more effective co-operation and closer integration in ASEAN, and benefit from the wider role of ASEAN in the Asia-Pacific region.

ENLARGEMENT AND THE “ASEAN WAY”: VIETNAMESE PERSPECTIVES The expansion of ASEAN to include the whole of Southeast Asia was one of the goals of ASEAN when it was founded. ASEAN enlargement, nevertheless, coincided with the regional crisis, and there have been serious negative impacts. How can the ASEAN-10 deal with current and future challenges and meet the goals that have been defined in the ASEAN Vision 2020? Will an enlarged ASEAN continue to play a significant role in the wider AsiaPacific region?

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ASEAN is going through its hardest period ever. In the process of enlargement and consolidation, its cohesion, solidarity, and co-operation have been put to the test. Some have argued that the presence of some new members in the organization in effect slows down the decision-making and consensus-building process of ASEAN. This argument is somewhat misleading. ASEAN is, first and foremost, a political organization, and the inclusion of new members serves the geopolitical purpose of ASEAN to build an organization which is politically united, and to make ASEAN as a whole a considerable political force in the broader region of the Asia-Pacific and the world. At the same time, with new members, at least in the case of Vietnam’s membership, consensus on major issues within ASEAN concerning regional peace, security and stability, and relations with outside powers and AFTA have been reached without great difficulties.15 As one regional observer, John Funston, notes, “the biggest test for ASEAN in this regard came with the admission of Vietnam in 1995, and the two years since have not revealed fundamental difficulties to ASEAN”.16 Most notably, within five years of joining ASEAN, Vietnam undertook two great tasks against the background of fast changes in the region and in the world. The first task was the hosting of the Sixth ASEAN Summit in Hanoi in 1998 at the time when the financial crisis was sweeping throughout Southeast Asia. For the Summit, Vietnam played a key role in bringing together the Hanoi Plan of Action, that set out concerted efforts by the ASEAN member states to overcome the crisis and promote ASEAN cooperation. The second task undertaken by Vietnam has been the chairmanship of the ASEAN Standing Committee and the ARF, which it assumed in July 2000 and saw through for one year, ending in July 2001. During its term in the chair, Vietnam accelerated the economic integration of the new member states within ASEAN. It also expedited an Initiative for ASEAN Integration, which was launched at the Fourth ASEAN Informal Summit in Singapore in 2000. To narrow the gaps in economic development, Vietnam also initiated the Hanoi Declaration on Narrowing the Development Gap for Closer ASEAN Integration. This Declaration was adopted at the 34th ASEAN Ministerial Meeting in Hanoi in July 2001. With an awareness of the need for greater solidarity and mutual understanding in the Association, Vietnam has suggested the establishment of a hotline between the leaders and officials at different levels in the member states. Under Vietnam’s chairmanship, ASEAN’s relationship with its dialogue partners, and regional and international organizations have also made noted progress. Thus, the concern among some quarters that the new members may be a burden is not healthy for the Association and may lead to possible divisions

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within the group. Nevertheless, it should be recognized that a severe challenge to the cohesion of the group is the possibility of a two-tier ASEAN caused by the different levels of economic development: the founding members are more developed economies, while the newer members are less so. There have been great efforts by the new ASEAN members to address the challenges of poverty. There have also been efforts to increase ASEAN economic co-operation to benefit all the parties concerned. Yet, this gap existed before the enlargement of ASEAN and is likely to continue for the foreseeable future. Thus, finding a relevant way to address this challenge will be a task for all member states, old as well as new, in the decades ahead. Similar thinking can be seen from the views of leaders of other new members. Deputy Prime Minister and Foreign Minister of Laos, Somsavat Lengsavat, has suggested that, “The correct understanding about the situation and the diversity of ASEAN including the different levels of development between old and new members is a decisive factor to our ASEAN family. In the long term, all ASEAN members will gain benefits as each ASEAN member country possesses different economic potential”.17 The diversity that already existed in the ASEAN-6 has increased with an expanded ASEAN. Given this, what is important is the enormous task ASEAN faces in minimizing the negative impacts of diversity. This means that the goal of enhancing the “unity of diversity” requires great efforts from all member states. This is especially as, beyond economics, other areas that may pose division relate to differences in national interests, security perceptions, and attitudes towards the great powers. Efforts to strengthen cohesion in ASEAN have met with difficulties because of the lack of information concerning one another and mutual understanding. Beside this, relationships among Southeast Asian countries have had a long history of economic disintegration, social non-cohesion, political prejudice, and strategic suspicion. In that context, membership in ASEAN is only the beginning. Enormous tasks remain for all the ASEAN member states to overcome past legacies and to set up agendas in order to promote mutual understanding and improve the climate for collaboration. Being committed to the cohesion of the organization is therefore a first priority. Through its thirty years of development, ASEAN has been successful in establishing the “ASEAN way” that comprises basic principles to handle its inter-state relations and build solidarity among its member countries. As noted earlier, it was the “ASEAN way” that made ASEAN attractive to Vietnam, a country with a long history of resisting foreign intervention of various kinds. Controversy over these principles, therefore, has been seen by

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Vietnamese observers as weakening the unity of ASEAN, especially in the linkage between the new and old members. Vietnam and other new members also emphasize ASEAN solidarity because of their wish to see the Association enhance its position in the AsiaPacific. Potentially, ASEAN can build a new sense of regionalism among its members, and help to make the region a considerable force in the emerging regional and global order. The financial crisis has, however, weakened ASEAN economically, and changed its relative strategic power with regard to the major external players. If, in addition, ASEAN becomes less cohesive, the group would suffer more from its decreased importance. Impacts have been felt by some new member states in this regard. New member states who had hoped that they could find in ASEAN a source of support in dealing with Western countries that have been hard on democracy and human right issues have been disappointed. These arguments seem to suggest that the enlargement has weakened ASEAN and that the group would likely play a less important role in the future. However, there are many reasons to argue for a degree of optimism. Firstly, there is still a sober view of the role that ASEAN can play. For the past few years, the perception of ASEAN’s role has been inflated by a psychological factor: economic successes have strengthened the arguments for the superiority of the “ASEAN way” in the Asia-Pacific region. The economic crisis has then led to an alarmist approach that warns of ASEAN losing its strategic weight in the Asia-Pacific region and being irrelevant to geographical settings outside Southeast Asia. This line of argument may lose sight of the strategic importance of ASEAN brought about by its enlargement. Enlargement, in incorporating all the countries in Southeast Asia, is seen to promote stability and co-operation in the region in the foreseeable future. Political co-operation will then provide ASEAN with a common stance and a sense of control over a region located in a geostrategic position of great importance to the major powers. On the other hand, the major powers are still in the process of establishing a framework to regulate relations among themselves, which, among other things, requires an aggressive gathering of forces with regard to other actors in the region. Thus, the extension of ASEAN support is very important. This explains why the major powers are, to various extents, trying to promote relations with ASEAN and are agreeable to most of the grouping’s initiatives with regard to Asia-Pacific political and security issues. Therefore, the factors that will give ASEAN a bigger role than its capacities is the cohesion of the region, and its good relations with all major powers. Secondly, an extended ASEAN would become more important for

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Southeast Asia as well as for the Asia-Pacific economies. The size of the ASEAN market, with a population of more than 500 million people, and integrated under the AFTA scheme, would provide bigger opportunities for trade and investments from outside the region. For ASEAN, economic regionalism is also increasingly important in the context of globalization.

LOOKING FORWARD The image of a new ASEAN in the new millennium has been clearly drawn up in the group’s key documents. Among these documents, the following could be listed as the most fundamental and important: ASEAN Vision 2020 (1997), Hanoi Plan of Action (1998), Initiative for ASEAN Integration (2000), and the Hanoi Declaration on Narrowing the Development Gap for Closer ASEAN Integration (2001). The ASEAN Vision 2020 envisages “a concert of Southeast Asian nations, outward looking, living in peace, stability and prosperity, bonded together in partnership in dynamic development and in a community of caring societies”. The ASEAN Vision 2020 has defined the strategic directions that the group would pursue in the twenty-first century. The Hanoi Plan of Action and other main documents of ASEAN have identified several priority areas of concern, outlining specific courses of action, and mapping out bold measures to realize the goals of the Vision. ASEAN is now at the start of a journey into the twenty-first century. The new millennium, with a growing trend towards globalization and the revolution in information technology has presented both opportunities and challenges to ASEAN. Countries outside the region are watching how ASEAN will respond to the challenges, and whether it will be able to continue playing a credible role in the Asia-Pacific. The above-mentioned documents are evidence of the political will of the ASEAN member states to respond to the challenges. More specifically, the new members of ASEAN jointly hold the view that ASEAN should focus its efforts on the following priorities: 1. helping all members to overcome the current economic situation, especially the new members to reduce poverty and to move onto the path of sustainable development; 2. strengthening national and regional resilience, enhancing integration, and consolidating regional co-operation; and 3. promoting international activities that engage other states in the wider Asia-Pacific and the international community.

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When Vietnam put forward the Hanoi Declaration on Narrowing the Development Gap for Closer ASEAN Integration, it hoped that ASEAN would unite “to reduce poverty and socio-economic disparity in the region” and “facilitate economic integration of new members”. This is because Vietnam believes that poverty and socio-economic disparities within a country and within the region can cause serious political and security damage. In some ways, the economic consequences of the financial crisis demonstrate this. Another reason is that, “poverty reduction is an effective measure for environmental protection and sustainable development”.18 The development gap between the richer and poorer member states is considerable. At present, Singapore has the highest per capita income of more than US$25,000, followed by Brunei with US$18,500, Malaysia and Thailand with about US$3,000–4,000, and the Philippines and Indonesia with US$1,000. In contrast, Laos, Cambodia, and Vietnam have an average per capita income of only about US$300 per year. The disparity in information technology, a vital component of the knowledge-based economy, is another cause for concern. According to UNDP 2000 statistics, the number of computers per 1,000 population for 1995 was 0.41 units in Vietnam, while it was 8.6 in the Philippines, 13.6 in Thailand, 37 in Malaysia, and 180 in Singapore. Gaps between ASEAN and nonASEAN members in this sector are also quite broad. For instance, Internet users number some 43.3 million in Japan, 22.5 million in China, and 19 million in the Republic of Korea. In contrast, the number even in the three more developed ASEAN member states — Singapore, Malaysia, and the Philippines — does not exceed 7.5 million.19 Thus, the new member states believe it is imperative to narrow the development gap, since only then, “ASEAN will be able to enhance its position and role in the region and the world, contributing to promoting security, peace, stability, including economic security of each member country and the whole Association”.20 Cambodian Foreign Minister Hor Nam Hong pointedly said, The Initiative for ASEAN Integration (IAI) which ASEAN leaders agreed to launch at the ASEAN Informal Summit last year (2000) in Singapore provides the framework for the more developed ASEAN to help the new members in their development efforts towards regional integration... Concretely, the more developed ASEAN members should help the new members in the field of Human Resources Development (HRD), Infrastructure and Information Technology (IT). The early implementation of the

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ASEAN GSP Scheme agreed upon at the ASEAN Economic Ministers’ Retreat in Siem Reap in May this year (2001) will attract more Foreign Direct Investment (FDI) into our region and contribute to ensure sustainable development in the new ASEAN member countries.21 The same idea was shared by the Foreign Minister of Myanmar, who stressed that, Myanmar appreciates the IAI programme which has already started in May 2001 and the aim focused on education, skills, development and training to narrow the divide within the grouping and to enhance its competitiveness as a region... With the view to the IAI Programme, Myanmar likes to see similar arrangements not only within ASEAN but also from dialogue partners to benefit and materialize the desire of CLMV countries in closing the gap for dynamic and sustainable development in ASEAN.22 All the new members have focused on the ASEAN Mekong Basin Development Co-operation and West-East Corridor development programmes. From their perspective, these are two important co-operation and development projects that would not only benefit the new members, but also help to narrow the gap in the level of development and facilitate the economic integration of the new members into ASEAN. The new ASEAN member states realize the difficulties and challenges facing them now and in the decades to come, but they also realize that, in addition to their own efforts, the co-operation and assistance of their neighbours in the Association will ease their part in building a prosperous nation, thus contributing to regional peace and prosperity. For this reason, Vietnamese Prime Minister Phan Van Khai emphasized, at the Fourth ASEAN Informal Summit in Singapore in 2000, that: “Without effective measures of co-operation and assistance, there will be a risk of two rich and poor groups quite far apart which obstruct the Association’s co-operation and harmonious development, creating the danger of regional instability.” Accordingly, the new members expect that there will be greater integration between ASEAN’s economic and functional co-operation programmes. The development strategy of ASEAN can and should focus more on economic integration by linking functional areas through initiatives in information technology, human resource development, and education, and by sharing experiences and expertise in technical assistance, from which the new members can greatly benefit.

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Deputy Prime Minister Nguyen Manh Cam of Vietnam emphasized the importance of international co-operation by ASEAN, when he addressed the Asia-Pacific Economic Summit, organized by the World Economic Forum in Australia in September 2000. The Minister mentioned the trend of globalization and the information revolution, and the severe challenges that have resulted, especially for the developing and less-developed nations. He argued that it would be necessary to establish a new equitable and suitable economic-political order, on both regional and global scales. This would aim for mutually beneficial co-operation, particularly in the economic, trade, and scientific-technological domains. He also asserted that once developed and larger countries pay due consideration to the interests of developing and lessdeveloped ones, co-operation for common development among nations would be certainly accelerated.23 In this context, Vietnam and other new members emphasize that cooperation with ASEAN’s dialogue partners should be focused on human resource development, infrastructure, and information technology. In addition, China, Japan, the Republic of Korea, and other dialogue partners should help ASEAN to successfully implement the IAI by providing more assistance to the new members of the group. In sum, Vietnam and the other new members have great expectations about the future of ASEAN as a group that can consolidate its cohesion, solidarity, integration, and co-operation for development. Based on this vital foundation, the new members believe that ASEAN can regain credibility and advance towards a greater role in the wider region.

CONCLUSION Since the mid-1980s, the new thinking in Vietnam about national and regional strength and security has paved the way for its new approach to ASEAN and the group’s role in the region. Membership in ASEAN has helped and continues to help Vietnam ensure that external conditions are favourable for economic and political reforms. Vietnam has also benefited from inter-state co-operation, both among regional states and with countries outside Southeast Asia. This has enhanced the country’s geopolitical status in its relations with external powers. Thus far, the consensus in Vietnam has been that the country has made the correct decision to join ASEAN, and that the role of ASEAN is still of strategic importance for Vietnam’s course of development. This view has been definitely shared by other new members of ASEAN since Laos, Myanmar, and Cambodia have also gained many benefits from ASEAN membership.

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The financial and economic crisis in 1997–98 has brought about serious consequences to some ASEAN member states. Concerns and doubts about ASEAN’s role have arisen in respect of its members and the region. However, the active participation of the new members in the group’s activities, their willingness to pursue their commitments to AFTA, their initiatives to promote closer integration among the members in the years to come, and finally, their expectations of a new ASEAN in the new millennium expressed by their leaders, have reflected the confidence that the new members have in the bright prospects of ASEAN. The new members hold the view that the regional economic crisis has served to promote regional co-operation. There is a belief that ASEAN can and will overcome the crisis, prosper again, and regain its role in Southeast Asia and in the wider region. These expectations derive from the reality of the group’s development and co-operation over the past decades, and the achievements recorded by the new members themselves. Moreover, the concrete assistance programmes, such as in human resources development, information technology, and infrastructure, given to the new members by the founder members such as Singapore, Malaysia, and Thailand also give new hope. The efforts by all the ASEAN members, old and new, will turn the expectations of the new members into reality. Notes 1. See Nguyen Phuong Binh and Hoang Anh Tuan, Vietnam’s Integration into ASEAN (Hanoi: National Political Publishing House, 1997), p. 12. 2. Nguyen Manh Cam, Speech at the 31st AMM, Manila, 24 July 1998. 3. Documents of Department, Asia II, Ministry of Foreign Affairs, Vietnam, 1995. 4. Ung Huot, Keynote address at the Cambodia-ASEAN Forum on “ASEAN at 30: Achievements and Lessons for Tomorrow”, Phnom Penh, 8 August 1997. 5. Phuong Ha, “Vietnam–Thailand relations look forward”, People’s News Paper, 5 August 2001, p. 5. 6. See Nguyen Vu Tung, “An initial analysis of Vietnam’s concept of security”, in Conceptualizing Asia-Pacific Security, edited by Mohamed Jawhar Hassan and Thangam Ramnath (Malaysia: Institute for Strategic and International Studies, 1996). 7. “A workshop to promote regional understanding of the Common Effective Preferential Tariff (CEPT)”, Vietnam News Agency, Daily Bulletin, 31 March 2001, p. 1. 8. According to Vietnam’s Ministry for Planning and Investment, until June 1998, total registered capital of foreign direct investments (FDI) in Vietnam amounted to US$32,725.21 million, out of which US$10,029.45 million was from the ASEAN countries.

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9. Keat Chhon, Closing remarks at the Cambodia-ASEAN Forum on “ASEAN at 30: Achievements and Lessons for Tomorrow”, Phnom Penh, 8 August 1997. 10. Carolina G. Hernandez, “The future role of ASEAN: A view from an ASEAN ISIS member”, Paper presented at the Workshop on East Asia at Crossroad: Challenges for ASEAN, Institute for International Relations, Hanoi, 24–25 September 1998. 11. New Hanoi Daily, 28 October 1998, reported that twenty-six investment projects by Thailand have been withdrawn because of financial difficulties. 12. See Luan Thuy Duong, “ASEAN 10: Challenges ahead and responses”, Beyond the Crisis: Challenges and Opportunities (Malaysia: Institute for Strategic and International Studies, 1999), Vol. 1, p. 254. 13. Journal of Vietnam Foreign Trade, March 1998. 14. See Bui Thanh Son, “Impacts of the Present Crisis to Vietnam”, Paper presented at the ASEAN ISIS Heads Bali Retreat, Bali, Indonesia, 30–31 August 1998. 15. Nguyen Dinh Vinh, “ASEAN: Where has it been and where is it going: Perspective of Vietnam as a new member”, Paper delivered at an international conference on Cambodia’s future in ASEAN: Dynamo and Dynamite, Phnom Penh, 19–20 February 1998, p. 6. 16. John Funston, “ASEAN: Out of Its Depth?”, Contemporary Southeast Asia 20, No. 1 (April 1998): 26. 17. Somsavat Lengsavat,”A matter of decisive significance to ASEAN”, International Affairs Review, Special issue on AMM-34 (Hanoi, July 2001), p. 11. 18. Mrs Nguyen Thi Hang, Minister of Labour, War Invalids, and Social Affairs of Vietnam, “Report at the Seminar on Environment and Development, Hanoi, 14 August 2001”, Vietnam News Agency Bulletin, 14 August 2001, p. 3. 19. See “ASEAN’s Imperative and Long-term Task in the new Millennium”, International Affairs Review, Special Issue on AMM-34 (Hanoi, July 2001), p. 7. 20. Nguyen Dzy Nien, Foreign Minister of Vietnam, “ASEAN’s Imperative and Long-term Task in the New Millennium”, International Affairs Review, Special Issue on AMM-34 (Hanoi, July 2001), p. 7. 21. Hor Nam Hong, “A Crucial Matter to ASEAN”, International Affairs Review, Special Issue on AMM-34 (Hanoi, July 2001), p. 13. 22. U Win Aung, “A priority in ASEAN and between ASEAN and the outside”, International Affairs Review, Special Issue on AMM-34 (Hanoi, July 2001), p. 12. 23. “Globalization puts forward severe challenges to developing countries”, Vietnam News Agency Bulletin, 14 September 2000, p. 7.

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11 ASEAN AND EAST ASIA A New Regionalism? Simon S. C. Tay

INTRODUCTION: A NEW EAST ASIA There is a rising sense of East Asian identity today. There has been interest in Asia in finding new frameworks for co-operation. These have had the rough sense that Asia should go forward as a grouping that is larger than ASEAN but smaller than the Asia-Pacific. The ASEAN Plus Three (APT) process, that links the ten ASEAN members to the three East Asian states of China, Japan, and South Korea, has perhaps been the most notable of these initiatives. The APT leaders sent a strong signal at the informal summit at the end of 1999 and 2000 for the APT process to become a formal summit. Foreign ministers of the countries met on this for the first time in July 2000, after the ASEAN Ministerial Meeting, and met again in 2001. Economic ministers and finance ministers have followed up with a number of concrete proposals. Starting from informal discussions among the leaders, the APT has progressed in co-operation on finance. The Chiang Mai initiative formulated by the thirteen countries has committed the governments to exchange information and review each other’s financial policies. They have since agreed to a system of currency swaps, allowing one state to borrow from another on a short-term basis, to fend off currency speculation and instability. This is closely connected with the currency fluctuations which triggered the Asian crisis in 1997. In March 2000, finance ministers from the ASEAN Plus Three 206 © 2001 Institute of Southeast Asian Studies, Singapore

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countries agreed to stand-by arrangements for currency swaps, to help each other in the event of sudden raids on their currencies. By mid-2001, a number of bilateral swap arrangements had been agreed on and were being finalized. The APT efforts laudably recognize and seek to manage the interdependence of the region. In addition to this financial co-operation, there are other proposals. China and Japan have separately suggested that free trade agreements be reached between each of them and ASEAN. A study on an East Asia Free Trade Agreement has also been proposed. Some think-tanks and academics are suggesting further and grander measures. The idea of an Asian Monetary Fund, first suggested by Japan in the early days of the crisis and quite summarily dismissed by the United States and others, is being reconsidered. Some suggest that Asia should aim for a common currency. Even more grandly, some suggest that Asians adopt the vision of an East Asian union. These steps and suggestions point to something of a change. In the past decade, the Asia-Pacific has been the preferred framework. Asia-Pacific Economic Co-operation (APEC) embraced the United States, Canada, Australia, New Zealand, and others as well as Asian countries, to build a community spanning the Pacific rim for trade and other issues. In security, the ASEAN Regional Forum (ARF) again included these countries as well as those further afield, such as Russia, the European Union (EU), and India. Such inclusionary frameworks often consisted of more states than function would have suggested. But the broader groupings were favoured. East Asia was never seen as a separate group. The singular exception to this was the proposal by Malaysian premier, Dr Mahathir Mohamad, for an East Asian Economic Grouping. This, like the Asian Monetary Fund (AMF) proposal more recently, was put aside in the face of American objection and the doubt of some fellow Asians. At the subregional level, ASEAN united the nations of Southeast Asia. There was, however, little co-operation among the countries in Northeast Asia. A priori, co-operation was poor between Northeast Asia and ASEAN, and therefore in East Asia. It is against this context that some have begun, in this new millennium, to speak of a “new” regionalism in East Asia. The APT may be said to be at the centre of this. Yet, there are also questions of how the APT is to sit with existing institutions like ASEAN, and the wider Asia-Pacific fora of APEC and the ASEAN Regional Forum, as well as its relation to international institutions. Why does the sense of regionalism arise? What implications does the growing sense of East Asian regionalism hold for the subregions and for the

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wider Asia-Pacific? There are few clear answers at present. The phenomenon is recent and still uncertain. Many possibilities can limit or derail it. The APT and this new sense of regionalism in East Asia are, as yet, indefinite in the longer term. Nor is its leadership certain. This chapter can, however, sketch some of the present trends. It also serves to outline how the APT and the new East Asian regionalism might be best developed in relation to other regional groupings. The first part of the chapter suggests why the new sense of East Asia has arisen and also considers some of the present limits and doubts that East Asian regionalism and the APT face. The second part suggests what East Asia might become, and some principles of a new architecture that are centred on ideas of open regionalism, leadership by issue, and “coalitions of the willing”. Taken together, these principles point to an East Asia that would be a flexible and open caucus, rather than a closed, fixed group or bloc. The third and final part of the chapter considers some of the recent initiatives for free trade in Asia and the Pacific and argues that, while these are bilateral efforts, they can serve to benefit many more in the region. These bilateral initiatives, therefore, stand to change how we think of the APT process and East Asia’s new regionalism.

WHY EAST ASIA IS (AGAIN) RISING Asia has no strong and enduring history of unity and accepted commonality, whether in polity, culture, language, or religion. The antecedents of East Asian regionalism have been brief and contested. One such period was in the fifteenth century, when the Ming Empire of China ruled the waves and, in the pre-colonial period, extracted an acceptance of suzerainty from most of the kingdoms in East and Southeast Asia. A second incident was the Japanese co-prosperity sphere. Neither sets a happy precedent for East Asian regionalism. Why then East Asian regionalism now? Several factors are at play. The first and most important factor is the economic crisis. This started in mid-1997 and spread quickly among almost all nations in East Asia, with little regard to the real differences in their economic fundamentals and little co-ordinated response by the countries affected. The crisis now seems over for most. New crises should, however, be expected. Crises are the historical experience of every continent, both developed and developing, and the international context has grown even more competitive and fast changing. Asian integration has not diminished, and as such the need for co-operation has grown.

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Beyond financial flows, other areas such as trade and investment, and environmental pollution demonstrate the interdependence in the region or subregions of East Asia. Some examples are the haze from Indonesian fires, the acid rain and yellow dust from China that impact on Northeast Asia, and the unsustainable and often illegal logging in the ASEAN countries to meet the demand of the Japanese and Chinese markets (especially since China has banned domestic logging). Even in sensitive areas such as violent political upheaval and gross human rights abuses, there is a growing awareness and moral interdependency among many people in Asia. The recognition of the need for co-operation to manage an existing integration is part of the explanation for the new regionalism. Regionalism, in this view, is a process for handling globalization and interdependence. This is a forward-looking reason. On this basis, both East Asians and their friends should welcome this trend. This is not, however, the only factor. A second key factor is that the crisis spurred frustration with APEC and the ARF for their lack of ready response. A related factor is Asian frustration with the International Monetary Fund (IMF), the primary institution that responded to the crisis. The IMF was heavily criticized after the fact for its lack of understanding of regional realities and, therefore, misprescriptions of the medicine to take. This led to the present complaints over the lack of Asian representation in global institutions. Another, and perhaps underlying, factor is Asia–United States relations. To many, the crisis also added to the perception that the United States — in its present unipolar position — largely ignored the region in crisis. This was seen in economics with the failure to lead international institutions like APEC and the World Trade Organization (WTO) for the benefit of all. Questions over the United States were also felt in regional security issues. Notwithstanding the continuing and even resurgent importance of the U.S. security engagement as a foundation for peace in the region, Asians seemed ambivalent. They seemed to swing between the poles of fearing that the United States would ignore them and that the United States would intervene unilaterally, at the whims of its domestic audience. The answer of some East Asians — that they wanted a sustained, knowledgeable, and consultative American engagement — was explained as impossible because of, among other things, domestic politics. The new Bush administration has done little to assuage this sense. Indeed, with issues like the plans for national missile defence and its relations with Taiwan, it has done quite the reverse. A third factor worth mentioning, although perhaps not as significant as the others, was the Asia-Europe Meeting (ASEM). The ASEM brought the East Asians together to meet with their European counterparts. The ASEM

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goal was not, however, to build a community for all, as espoused in the Asia-Pacific, but to have an inter-civilizational dialogue, between two regions. In this sense, the ASEM is built upon the supposition that East Asia has some unity or identity. A final and more speculative reason is culture. By this, I do not mean to revisit the debate of “Asian” values from the early 1990s. This debate, participated by a number of countries, has largely been discredited by the corruption, and state excesses uncovered by the crisis. There are reasons to suggest, however, that the leaders and peoples of the region are becoming more international as well as more aware of themselves as a region. A new generation is rising — through travel, education, satellite television, the Internet, and commerce — which has an understanding of the United States and U.S.-influenced international standards that is their second nature. Yet, this does not mean that Asia will be homogenized, like a McDonalds’ franchise. Rather, the increased and increasingly individualized interconnections with the United States and the West will likely result in hybrids. Subtler mixes will arise that will leave behind traditional Asian forms while still insisting on a difference with the West. A region will arise that is both modern and yet, somehow “Asian”. In many ways, this will mirror the realignments in the West itself. Asian and other minorities there have sought to reclaim their own culture, rather than being amalgamated into a largely White mainstream. The process has enriched the textures of many metropolitan cities and states, such as California. Asia’s accommodation of what is universal, Western and American, holds similar promise. Its richness, moreover, stands to be magnified by the sheer numbers and diversity of the continent. Asian values will not, in this way, be wholly silenced. They stand to be transformed. However, a return to the state-centred discourse of Asian values is unlikely. What is emerging will instead be negotiated at the level of individuals and communities, and not states and political leaders. The new Asian culture is, therefore, not to be found in a museum of Confucian analects or the speeches of octogenerian party cadres. It is, instead, seen in the streets of Shanghai, Shibuya in Tokyo, and Singapore. My guess is that it is emerging with influences of J-pop, topical films by Ang Lee and others, and California-roll sushi. It will grow as new Asians meet and communicate their similarities, differences, and interdependencies. Moreover, in all likelihood, they will do so in English, with their own particular accents. These different factors together — for function, for identity, and for geopolitical weight — have tended to bring East Asia together. It should not be the job of politicians in the region to stir Asian nationalism or to find some

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new excuse for their differences. The task will be to keep up with the trends, and prepare the institutions — economic, social, cultural, and political — to give space to the cosmopolitan generation of Asians that is emerging. What has been missing in this is an institutional or recurring process. This, some would suggest, is the challenge of the APT process. Where will it lead to? Some believe that East Asia must imitate Europe. There is talk, along these lines, about a common currency, an East Asian free trade area, and an Asian monetary fund. These ideas, and even perhaps a grand vision of union, might be possible in the longer term. Europe’s union itself, after all, must have seemed a pipe-dream in the immediate aftermath of World War II. Asian leaders, in looking forward, should know that Jean Monnet and Robert Schuman were not a painter and pianist, respectively. However, while we may have high hopes for East Asia, we have to recognize present limits and obstacles. Having surveyed some of the factors that are bringing East Asia together, we should also be aware of these other contrary factors. They help set the context against which we might (realistically but optimistically) go forward. What are these factors and cautionary notes? The first major factor is the importance of the United States to the region as a whole and to particular countries especially. The U.S. presence has been the foundation stone and guarantor of security in the region. Japan and South Korea in Northeast Asia, and Thailand and the Philippines in Southeast Asia, have defence alliances with the United States. Many others in ASEAN see the continuing U.S. presence as a guarantor of peace and stability. The United States has been and continues to be a major investor. The U.S. role in both security and economic development was especially important during the Cold War, and for the original ASEAN members who had feared Vietnamese expansionism. It must be remembered that, in the 1960s, many saw the region as a troubled “drama”, beset by poverty and instability. As such, where some (especially in China) may see U.S. hegemony and neo-imperialism, many others in ASEAN and Northeast Asia have known the United States as a relatively benign great power. Without U.S. engagement, many would argue, East Asia would lack a security balance. This is not only in terms of the great power question. Given the history of ASEAN and the region, there is a lack of a collective framework even for peacekeeping and other measures. Recent incidents in East Timor expose how much the region is left to ad hoc solutions. The resentment towards Australia’s intervention by some and Prime Minister John Howard’s unfortunate comment that it would serve as a U.S. deputy do not fundamentally detract from this. Many in East Asia,

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however, do share concerns over U.S. hegemony and its tendency to flip-flop between ignorance and unilaterally decided intervention. The United States, as such, remains the vital non-regional actor in East Asia’s new regionalism. If it strongly opposes the nascent institutional identity of the region, it will fail, much as the AMF and the East Asian Economic Grouping (EAEG) did before. If it is more comfortable with the idea, or even supportive, there is still no guarantee of success; but the chances increase significantly. The second factor is China–Japan relations. The relationship is troubled by suspicion and differences, notwithstanding the high levels of investment that Japan has in China. In part, of course, this is due to historical reasons arising from World War II. The politics of apology/amnesia has been troubling to Japan’s ties with Korea, and ASEAN too. However, ASEAN has emphasized a pragmatic and forward-looking strategy on trade, investment, and other aspects of the relationship. This must be seen as a sharp change when we consider how, in the 1970s, the visit of the Japanese premier to Southeast Asia was marked by street protests. To a far lesser extent, South Korea under President Kim Dae Jung has also taken some steps towards a more normal reconciliation. However, there seems little fundamental improvement in China–Japan relations. In large part, this is because the differences are not only historical but also present and prospective. Present day relations between Japan and China are often adversely impacted by the U.S. position. Japan is dependent on the U.S. alliance for its security. When China–United States relations are strained, the Chinese may view Japan as a U.S. junior partner, or even less kindly, a pawn. Conversely, when United States–China relations show improvement, Japan displays concern that its special place is threatened. Such a view would undermine the nascent sense of East Asian unity. Prospectively too, China– Japan relations are troubled. There is a sense of contest for pre-eminence between the two giants of East Asia. This trend was observable in the response to the crisis. As such, history, present circumstances, and future prospects point to the central need for reconciliation between China and Japan as a foundation stone for East Asia. Without such a rapprochement, the emerging trends of regionalism can easily falter. In this context, Japan must come to terms with its past. Moreover, it must build its future in the region that includes its neighbours as partners. Japan’s role is further complicated by its own decade-long recession and present attempts at reform. With a mix of economic indicators, the verdict on

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the efforts it has made, emphasizing massive public spending, is still out. Moreover, there are growing divergent strands in Japanese public opinion. One strand among non-bureaucratic élites, as seen in Taichi Sakaiya’s writings and the Japan Twenty-first Century Commission’s report, calls for more radical reform and the “internationalization” of Japan. This includes private sector reform, an emphasis on individual creativity and selfresponsibility, and the increased use of English. A second strand has been seen in Tokyo governor Ishihara, and may be characterized as a narrow nationalism. This would likely lessen the chances for reconciliation between Japan and its neighbours. The rise of the new Prime Minister, Junichiro Koizumi, is based on a slate of reform. The reform plans are, however, as yet unclear. The Japanese Prime Minister’s early announcement of plans to visit a controversial war shrine in Tokyo, and to revisit the question of Japan’s constitutional limitation against military engagement overseas, have unsettled some in Asia. There may be concern that Koizumi’s popularity may turn to popularism and narrow nationalism. Unless and until these internal debates and dynamics are decided, Japan’s ability to contribute strongly to the leadership of the region must be doubted. For this reason, some have raised questions over the wisdom of initiatives such as an Asian Monetary Fund and a common currency. Assuming that Japan would be an actor in such efforts, there are questions of whether it would be a good influence, or only bankroll dubious policies. Some see, as such, reasons that Japan cannot be the sole or main leader of East Asia, even if it must play a major part in the region. Conversely, there is some suggestion that the smaller and medium countries, such as South Korea and ASEAN, may have a greater role to play than their size or power would normally dictate.

WHAT EAST ASIA SHOULD AND SHOULD NOT BE From observations of the driving forces and limits of the nascent sense of East Asia, several principles may be suggested. The new East Asian regionalism should at best have the following characteristics: 1. Open and Fexible Caucus, Not An Exclusive Group or Bloc Given the existence of both larger and smaller institutions (international, Asia-Pacific, and ASEAN), there is little need for another. This is especially given the concerns that the United States and others might have of being

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excluded, and the existing reliance of many in the region on the United States for both economics and security. The new East Asian regionalism might therefore serve best as a caucus, to discuss and (where possible) agree on mutually acceptable positions to bring before larger institutions. Seen in this way, East Asian regionalism would not detract from AsiaPacific and international efforts but serve to make them more effective and representative. 2. Functionality, Not Political Fixity One of the main and perhaps most constructive factors in the new East Asian regionalism is the need to manage and co-operate in the face of integration and globalization. This emphasizes that the new regionalism should be functional. This will test the tendency to include and exclude members on largely political grounds. One example of this is in the field of economic and financial cooperation in the region. This has been emphasized in the ASEAN Plus Three process. Yet, ASEAN Plus Three has both more and also less members than this function would dictate. If we accept ASEAN Plus Three as a fixed structure, then we would exclude important economic players, such as Hong Kong, Taiwan, and Australia, in preference to much smaller and more isolated economies. The reverse should be the case. The new regionalism should be inclusionary, with reference to the function that each member can bring to the issue. This approach should be tied to an imperative for the new Asian regionalism to avoid a reverse racial discrimination — excluding countries which have a majority of Whites, such as New Zealand and Australia. An example of this is the region’s new dialogue with Latin America, in which the APT countries join with New Zealand and Australia. 3. Issue-led Leadership, Not Great Powers If we look to traditional models of regionalism, central leadership seems critical, like the Franco-German agreement in the European Union. Without a historical reconciliation between China and Japan, this is not possible in East Asia. For different reasons surveyed in this chapter, East Asia lacks a single leader who is acceptable, and able. Indeed, there are signs of competition and rivalry between these two Asian giants. There are some suggestions that small- and medium-sized countries, such as South Korea and ASEAN, might therefore lead the region. They may have a special and larger role to play than may be expected, but they cannot, by default, offer permanent and strong leadership of the traditional type in the region. What we may therefore have to look to are newer and more limited forms of leadership in the region. This could be offered by

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having leaders on different issues. Leadership would arise from the initiative and interest of different states. Some examples might help to illustrate the suggestion more fully. On investment and development assistance, for example, Japan’s leadership might be acceptable. Singapore might lead on free trade initiatives. Thailand and Malaysia might offer leadership on regional peacekeeping. The region’s representatives, too, might shift according to different needs and abilities, to reflect the region’s views after caucusing. Japan might represent the region’s views in the G-8. China might play a similar role in the United Nations Security Council (UNSC). ASEAN’s chairmanship of the ARF could be shared with its Northeast Asian neighbours, in function, even if not in form. East Asia would continue the ASEM process with a surer sense of itself as a region. Such an issue-led leadership would be consonant with the ideas of flexibility and functionality, already outlined. It might also follow principles of equality more closely than the idea of “great power” leadership. In this way, the new East Asian regionalism might accord with many of the aspirations voiced in ASEAN and the Asia-Pacific. 4. Coalitions of the Willing The above principles, in total, suggest that East Asian regionalism should not be a fixed bloc or union with permanent membership and permanent leaders. Instead it should be a framework for what we may call “coalitions of the willing”. These coalitions can arise from certain issues or even events. They may then dissolve or evolve to new issues. As the need arises, they would work with existing regional and subregional institutions, such as the APEC, ARF and ASEAN, or international institutions. The idea of coalitions might extend beyond East Asia, and raft together other countries such as Australia and New Zealand, or even partners in Europe. The ASEAN Free Trade Area (AFTA) link to the Closer Economic Relations (CER) that is being studied may emerge as one early example of a “coalition of the willing”, and a flexible sense of regionalism. Such “coalitions” can play a vital role in moving larger institutions. Even for ASEAN, the “coalitions” can help circumvent possible divisions on some issues, especially given the two-tier ASEAN. If East Asia’s new regionalism draws from these principles, it would not displace the existing Asia-Pacific institutions, nor ASEAN. East Asia would instead be a framework for different initiatives and coalitions to move these existing processes and institutions. It would also not seek to replicate international institutions unnecessarily,

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such as the Asian Monetary Fund. The representation of East Asian views in existing institutions by Asians would be the alternative goal, and the East Asian process can act as a caucus to enable such representation. If these principles are used, there is likely to be considerable difference with the European experience. This is not so much a failure of vision or an anti-European reaction. It may be, instead, a recognition of existing realities and a wish to take initiative despite those realities.

WHAT NEXT? There is a wish in East Asia’s new regionalism for a vision and bold steps. This contrasts with the incremental steps taken in APEC and the ARF which have been felt to have slowed or even failed in these years of crisis. However, while this wish may be understandable, it may seem unrealistic, given the present geopolitics. East Asia’s nascent realism may not be ready for more than incremental and limited initiatives in co-operation, on the basis of recognized needs. They can also lead to grander things, much as co-operation in the coal and steel industries were the first steps in Europe’s experiment in supranationalism. Many other things would also have to happen, including China–Japan reconciliation. However, they may not for a long time. As such, what initiatives that are taken should have worth in themselves. What can be done, in this context? The following are some suggestions, in brief. Financial Co-operation Financial co-operation should proceed in the framework of the Manila declaration. The ASEAN Plus Three process is a firm basis for this. However, there should also be efforts to go beyond this, to find ways of including others who are relevant to the function, such as Hong Kong, Taiwan, and Australia. Free Trade With the stalling of the World Trade Organization and APEC, regional, subregional, and bilateral efforts assume new importance. Efforts by Singapore and New Zealand, announced at the APEC summit in 2000, should be widened to reach ASEAN and the CER. Similarly, while Singapore’s initiative with Japan is bilateral, if progress in some sectors results, this might benefit others too. In this context, one example that may be interesting is Singapore’s

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move to offer AFTA privileges to non-AFTA members. An East Asian Free Trade Agreement will not occur overnight, but bilateral and other initiatives, working in tandem to restart the WTO and APEC processes, may yet bring such benefits. Economic Co-operation Many aspects of the East Asian economies are complementary. Nevertheless, a number of sectors are competitive, especially between China and the newer ASEAN members. Rationalization and a regional industrial policy are difficult to reach, and vested interests will resist the removal of trade and other protections they enjoy. This is so even in ASEAN itself, as seen with the automobile industry. Some progress may nevertheless be possible. An area that may have special potential is the “new” economy. The “eeconomy” may have less vested interests at present, that would resist increased harmonization and co-operation. Similarly, initiatives that use or drive the new economy may be fruitful areas of co-operation. The linking of security exchanges might be considered in this context. The Environment The East Asian region faces both common and similar problems. For example, the haze pollution from Indonesian fires has immediate impact on the Indonesian people as well as their neighbours (especially Brunei, Malaysia, and Singapore). There are also global effects (climate change) that concern the developed countries (Japan and South Korea). This problem has regional and global causes as the fires relate to trade, investment, and consumer patterns of plantation and other products. ASEAN has made attempts to address the issue directly, and at the level of environmental ministers. There is, however, no forum in East Asia or the Asia-Pacific to address the problem. This should be created to recognize the connections to economic issues, as well as to raise the level of attention given by the leaders, to ensure better co-ordination among environmental and other agencies. In this way, the wider East Asian process can assist (not displace) the more detailed response of the subregional group. There are also parallels between haze pollution and environmental problems in Northeast Asia. The incidents of acid rain and yellow dust storms also bear attention, and require similar approaches. Comparisons and exchanges may also assist both efforts.

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Piracy There is a common regional and international interest in keeping the seas of the region safe for commercial vessels. This is especially so with the Straits of Malacca, a vital international shipping lane. In recent years, there have been reports of increased piracy in the Straits. This is not only a criminal activity, but one that results in increased accidents and possible environmental damage. In this context, regional co-operation on piracy would assist. Such cooperation would be especially among Singapore, Malaysia, and Indonesia. There is also a role for assistance from Japan, both financial and functional. The Japanese role in patrols, however, should preferably have the agreement of all the countries in the region.

FREE TRADE IN ASIA: AN EXAMPLE OF THE NEW REGIONALISM? The principles and approaches suggested in this chapter can be illustrated by looking at the present prospects to free trade in East Asia. The cautions and limits of the new regionalism are also made apparent. There used to be a consensus about the benefits of free trade. Many in the world, especially in Asia, believed that trade and exports provided an engine for their economic growth and development. Opening up the borders required adjustments in some sectors of industry, but the promise of free trade was that, on the whole, countries, communities, and companies would benefit. The Asian “miracle” demonstrated the benefits of export-led industrialization. By the mid-1990s, even socialist countries, such as China and Vietnam, began to follow similar policies. East Asians were strong believers in global trade, its institutions, and rules. Events at Seattle, in the last months of the past century, marked the end of that consensus. The WTO ministerial meeting, once a restrained gathering of trade officials and experts, was disrupted by an unlikely alliance of protesters, including environmentalists, labour unions, and farmers. Inside the halls of the WTO too, dissension ruled. Developing countries felt that trade agreements had brought them more costs than benefits. The traditional trade giants — the United States, Europe, and Japan — also disagreed over topics that ranged from agriculture to anti-dumping. Talk has turned from the benefits of globalization and free trade to its costs, and the increasing gaps between winners and losers. No new round of trade talks is possible in this context. Even progress on the remaining agenda of the Uruguay Round agreements has been difficult. Concern with globalization and the WTO remains strong

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in many quarters. There seems little possibility that the majority of countries will change their minds soon to strongly support fresh negotiations on freer trade across the world. This is troubling. Many trade specialists believe in the bicycle theory of free trade. This argues that unless trade talks continue to move forward, they will, like the bicycle, fall and fail. This is something the world can ill afford. For much of Asia, increasing exports to the United States has been the formula to recover from the economic crisis. With the end of the long bull run in the United States, these countries stand poised in 2001 on the verge of a global slowdown. Freer trade could bring a much-needed fillip. In trying to move free trade forward, there are reasons to prefer a new global round. In the traditional thinking about free trade, bigger is better. Involving almost all the countries in a new round of trade talks would bring a larger list of items to the table. These can then be bargained off against each other, so each country believes it has realized some gains in exchange for concessions given away. Asians would do best to reject autarky and to join in efforts to strengthen global trade. However, if no new round is on the horizon, what else can be done? Regional agreements among groups of neighbouring countries are a possible approach. Regional trade agreements have a ready logic in seeking to link up neighbours more closely. With the impasse at the WTO level, regional plans have a greater pull. The United States and its neighbours are pursuing a free trade agreement for the Americas, to cover the two continents from Alaska to Terra del Fuego. Steps forward have been taken despite anti-globalization protests in Quebec City, where the American leaders met in April 2001. The Americas, and not the Asia-Pacific, seem to be receiving the highest priority in the new Bush administration. Europe too is pursuing closer co-operation and integration at the regional level. The planned expansion of the European Union will bring in former Eastern bloc countries. Larger markets for the free movement of capital, goods, and services will result. What about Asian regionalism for free trade? The worst of the economic crisis that swept through the region from mid-1997 is over for most countries. Social change and political instability have, however, arisen in the wake of the crisis. Moreover, many of the reforms in both the public and private sectors remain incomplete. Even as some countries have been opened up under IMF instruction, others have increasingly been discomforted by further opening. For Asia, the worldwide resistance to globalization combines with a reaction to the crisis. Economic liberalization and efforts to expand free trade have demonstrably slowed in the existing fora of APEC and ASEAN. APEC has faced many difficulties in the years since the Asian crisis. It has drifted without real leadership. APEC’s focus on voluntary liberalization by

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countries has not survived the loss of confidence brought by the crisis. Countries prefer not to move ahead too fast or too far. They would prefer to wait for the tit-for-tat horse bargaining in the WTO when it proceeds, rather than move ahead on their own. The grouping that once was an engine for the WTO seems to have stalled. The AFTA too has stalled. This is especially over motor-cars. Malaysia, which has promoted the Proton range of motor-cars as a national project, has asked to postpone removing tariffs and opening this sector to competition. It is feared that, without protection, the Proton cannot at present compete against imports from Thailand and Indonesia. The delay in this sector should not obscure the progress that the AFTA has made in a large number of areas and products. It does, however, symbolize the limits that the ASEAN regional scheme faces as different countries shy away from opening sectors that are especially sensitive for their domestic producers. Even more importantly perhaps, we must recognize that ASEAN is an incomplete region for trade liberalization. While trade among the ASEAN members has increased in recent years, trade with non-ASEAN members remains larger for almost all of them. Traditionally, Japan has been closely integrated with the ASEAN economies through investments and trade, as captured by the idea of the “flying geese” pattern in Asian development. More recently, the American market has been the main recipient as countries have sought to export themselves out of the Asian crisis. In the circumstances, while progress in AFTA can help, it has been hobbled by the lack of significant progress in APEC and the WTO. Consequently, if the WTO fails to make progress and regions become the focus for further efforts towards free trade, Asia may well find itself unable to match the regions of Europe and the Americas. Is the APT a possible answer to these difficulties at the global, AsiaPacific, and ASEAN arenas? The possibility of a free trade agreement for the APT countries is being studied. The study was called for at the 2000 APT Informal Summit, held in Singapore. Most commentators, however, do not expect much progress on an actual agreement in the near future. The prospect of an East Asian trade agreement suffers from several factors. One of these is the unwillingness of Japan to open its agricultural market. It fears that the cheaper products of the ASEAN countries will pressure the farmers, who form a base of support for the long-incumbent Liberal Democratic Party (LDP). A second factor is that the broader political relationship between China and Japan remains quite tense. Without a

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reconciliation between these two giants, Asia’s regional integration will be stunted and cannot proceed à la the European Union. A third factor is the increasing sense of competition between China and many ASEAN countries. Indeed, the study of an APT free trade agreement arose in large part after China had first suggested an agreement between ASEAN and itself. A number in ASEAN preferred to study the larger framework instead because of their concern that a free trade agreement with China would put them under greater pressure from China’s rising economic growth. In 2001, it has also been agreed that government experts will study the possibility of a free trade agreement between ASEAN and Japan. This has yet to begin and it can possibly progress if the new Japanese Government, under Prime Minister Junichiro Koizumi, begins the reforms it has promised. However, Japanese reform will not be easy, especially in the agricultural and other protected sectors that form part of the political support base for the LDP. Given this, the Japanese Government would face considerable difficulty in signing any agreement that would commit it to open its agricultural sector more widely to the ASEAN countries, a number of whom are significant exporters of agricultural products. It is in this context that Asians can and should consider the other phenomenon of bilateral free trade arrangements, which has been of growing interest in Asia and elsewhere. In Asia, Japan is exploring such arrangements with South Korea, Mexico, and Singapore. These represent a new direction for a country that, despite being the world’s second largest economy, has traditionally focused on the WTO as its main means for fostering freer trade. Similarly, Singapore is augmenting its reliance on the WTO through bilateral arrangements. It has concluded its first bilateral agreement with New Zealand. Singapore is at present also negotiating with Japan, Mexico, and the United States. Discussions to begin negotiations are also proceeding with Australia, Canada, and the European Free Trade Association (EFTA). The increasing feeling is that regional and bilateral efforts can assist the global process. These must, however, be consistent with the WTO, cover substantially all trade and service sectors, and indeed try to go beyond existing WTO commitments. In this way, the free trade bicycle can keep moving forward, even if not all are as yet ready to pedal. Some wonder what benefits can come from bilateral agreements. After all, most countries involved already enjoy relatively liberal trade regimes and low tariffs. Such questions underscore discussions started by Singapore with New Zealand and, to a degree, with Japan. It is, therefore, noteworthy that Singapore and New Zealand have recorded a growth in trade of about 25 per

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cent in the first year after their bilateral negotiations were started. The increase is especially significant, given that both countries, especially Singapore, have relatively few tariffs and barriers to trade. The benefits have been larger than most had expected because of a number of factors. First, traditional economic analysis of trade agreements is mostly based on static assumptions. In contrast, the aim of these bilateral agreements is to increase the volume of interactions between the two economies involved and facilitate dynamic growth in benefits for both parties. Agreements are like the green light that urge traffic to pass through a junction, safely, quickly, and in greater volume. Secondly, many of the agreements being studied will potentially go beyond trade in goods, the traditional subject of trade. Liberalization of services stand to be covered, in advance of WTO timetables. Additionally, there are other possible elements of co-operation and support. Support can simply be in allowing personnel employed by companies from one country to enjoy freer movement in and out of the other. Co-operation can mean mutual agreement and recognition on standards and processes in activities, such as the electronic processing of shipped goods, or more generally, ecommerce. Linking stock exchanges or even educational institutions are other possibilities for mutual benefit in the emerging global economy. These are relatively simple, but often neglected, ancillaries for closer economic co-operation. Agreements on such points will not require governments to drive greater economic interaction. They instead better recognize and assist the ongoing economic interdependence that is propelled by the private sector. In view of this, the Japan–Singapore agreement being negotiated has been labelled a “new age” economic partnership, rather than only a free trade agreement. By these bilateral initiatives, Singapore is seeking to drive not only the region but the global processes too, in tandem with other like-minded states. There is a national interest in this; Singapore companies, consumers, and the economy do stand to gain from the free trade initiatives. This may be expected, given that trade is 300 per cent of Singapore’s gross domestic product, and is the economy’s life-blood. The initiatives also connect to its domestic policies to liberalize different sectors, such as banking, in order to increase competition and improve efficiencies. A case can also be made that the region and even the global community stand to gain. This is because Singapore’s bilateral initiatives, if concluded successfully, will help link Southeast Asia to many major partners in Northeast Asia and across the Pacific to keep strong ties with regions that are doing better. This increases contacts between the ASEAN region with major trading

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nations. The bilateral agreements should not be a closed bloc, but can and should be building blocks for the region and the wider international community. Bilateral initiatives can, therefore, help to gather momentum for a new round of global trade talks. An even stronger case can be made that the bilateral initiatives have not hurt anyone. There has been no reduction or delay in Singapore’s commitments to the ASEAN countries and to AFTA. The bilateral agreements must also be WTO-consistent or even go beyond WTO commitments in covering new areas. From this, one might expect at least a neutral response from other ASEAN members. However, there are signs that misunderstanding and perhaps envy are brewing over Singapore’s free trade initiatives. Malaysian premier Mahathir Mohamad has voiced concern over creating a “back door” for goods transiting through Singapore. To this, there is a relatively short answer: trade agreements provide for rules of origin that stipulate what goods will qualify. For AFTA, only goods with 40 per cent or more of domestic input will benefit. As such, there is no back door, as Dr Mahathir fears, only a front door that all ASEAN member states have agreed to. Beyond this, however, there are more general reservations that are more difficult to address. A number of ASEAN states have been more reserved about globalization after the crisis, as noted earlier. Malaysia has erected not only capital controls but delayed the opening of some sectors, most notably its automobile industry. This is despite the fact that, in general, the Malaysian economy is one of the most open in the world. Other states that are more closed, like Vietnam, have remained cautious. ASEAN as a whole has decided against linking AFTA to the economic zone of Australia and New Zealand. It may, therefore, be disturbing for these states to see Singapore going ahead on its own, even if there is no agreed reason to prevent it from doing so. In this regard, the main basis for the reaction of some against Singapore’s free trade initiatives may not be so much economic, but political. Seeing Singapore ride out most of the crisis and coming out stronger has produced a certain envy in some quarters and renewed tensions between neighbours. Seeing Singapore taking a “driving” role on trade issues, and in bilateral discussions with many of the major economies of the world, compounds that sentiment. The poet Yeats wondered if, in the end of days, the centre can hold. For free trade and economic liberalization, the answer is less than clear. The WTO will remain the key factor in freeing trade and providing a unified regime of agreed rules for countries. It seems, however, that there is presently no consensus on ways to go forward at the WTO, or if indeed all will benefit by going forward. Most experts expect that the WTO Ministerial Meeting

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in 2001, to be held in Qatar, will not alter this, even if some progress is made. In the absence of real movement and progress at the centre, what should Asians and their partners do? The first need is to avoid antagonistic and closed forms of competition between regions. There are those who see the world divided into three closed blocs in the Americas, Europe, and Asia. Their concerns should be reassured by steps to make any agreements in these regions more open and consistent with global norms and rules. On its part, Asia remains very open to trade, investment, and co-operation across many fronts, with the United States and Europe as partners. The vast majority of Asians continue to welcome these partnerships even as steps are taken to bring Asia closer together. The second need is for those outside Asia to recognize institutions to manage economic and other forms of interdependence in the region which are underdeveloped. As such, steps in financial information exchange and policy review should be welcome by all, as steps taken by Asians to take better care of their own affairs. Caution will need to be exercised for more ambitious projects that may have less clear aims, such as the proposal for an Asian Monetary Fund that, some fear, might compete and be inconsistent with the International Monetary Fund. However, there should be confidence that Asians will not rush in and indeed cannot, given their own divisions on many issues. The third need is for efforts to be made to cut across regions. It is here that the bilateral initiatives in trade and associated issues can make a contribution that goes more deeply. Bilateral efforts can complement regional efforts by allowing a state in one region to reach out to other regions. Singapore’s efforts, for example, aim to link itself in Southeast Asia, to Japan in Northeast Asia; to New Zealand and, perhaps, Australia in the South Pacific; to Mexico in Latin America; and to Canada and the United States in North America. All of these are WTO and APEC members and have a common interest in making sure that these institutions thrive. As for the APT, the issue of free trade arguably demonstrates how initiatives by two parties or “coalitions of the willing” can assist the emerging sense of regionalism, even if not all parties of the APT wish to be involved. Thinking should now begin on how these bilateral initiatives can be linked to the wider frameworks, or otherwise rafted together to help unite Asia and the Pacific. Steps by two or more countries willing and able to do so will, in this context, make sense. This is not only for those directly involved. Potentially, such efforts will benefit the region and keep free trade efforts going forward as an example for all.

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CONCLUDING REMARKS There can presently be no conclusion on the question of East Asia. Trends are perceptible but there is no certainty. Talks have increased and co-operation has begun in some areas. However, talks can turn cold and empty. Cooperation can cease, or turn routine and limited, with no further progress. In the immediate future, East Asian regionalism has one overriding need: that the phenomenon should be explained to the United States and other Asia-Pacific partners of the East Asian countries. There may be less concern by the United States than in the mid-1980s as APEC and the ARF are now quite well established. However, efforts should be made to convey this new sense of regionalism to the United States, and to distinguish it from the earlier and rejected East Asian economic grouping. It should also be understood and explained that this is not meant to exclude the United States or move too fast in security areas. There is also a need for the Asians involved to give a new regionalism more thought and attention. In this, the APT among all thirteen countries will well play the key role but not the only one. As the financial swap arrangements show, a larger APT framework stands to be filled in by bilateral agreements. So too, as argued in this chapter, in the area of free trade, can bilateral initiatives assist. This may fall far short of the grand vision that some in Asia call for, but it may be more useful and achievable. It might also help to create dialogues and initiatives in functional co-operation in different arenas. These might yet serve in future as a foundation on which a larger and grander project for the region can be built.

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12 TOWARDS AN EAST ASIAN REGIONAL TRADING ARRANGEMENT Hadi Soesastro

INTRODUCTION ASEAN Plus Three (APT) is perhaps the embryo of an East Asian regional organization. It refers to a regional process involving the ten ASEAN countries and three Northeast Asian countries (China, Japan, and Korea). As suggested by its name, this emerging regional process is driven by ASEAN. APT meetings take place around ASEAN meetings, initially by inviting the Three to come to the venue of an ASEAN meeting and have a meeting with ASEAN. Some see this as an obstacle to the creation of a truly East Asian regional arrangement (Jayasuriya 2000). Yet, this process may not have come about had it not taken this route. An earlier proposal to establish an East Asian Economic Grouping (EAEG), subsequently modified into an East Asian Economic Caucus (EAEC), never took off. The Asia-Europe Meeting (ASEM) also brings together the East Asian participants into a de facto grouping. However, this grouping did not develop into a process that has a separate agenda from that of ASEM. The EAEG proposal came from within ASEAN (Malaysia), and the modified EAEC was adopted by ASEAN. The ASEM process was also initiated from within the ASEAN region (Singapore) with the support of all ASEAN members. Likewise, the APT was initiated by ASEAN. It began as a modest undertaking. 226 © 2001 Institute of Southeast Asian Studies, Singapore

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Foreign ministers from the three Northeast Asian countries initially came for an informal meeting over lunch during an ASEAN meeting. There was no specific agenda for those meetings. Soon enough, this process attracted the involvement of heads of state. The first APT Summit was held in December 1997 in Kuala Lumpur. The financial crisis in East Asia is regarded as having provided the impetus for this Summit. The APT process became a more serious one. While the process has been and is essentially driven by ASEAN, the agenda setting was not controlled by ASEAN. In the second APT Summit in Hanoi in November 1998, Korean President Kim Dae-jung made his mark by proposing the establishment of an East Asia Vision Group to present a mid- to long-term vision for co-operation. The third APT Summit in Manila in November 1999 was held under the banner of “East Asian Co-operation”. The meeting discussed various ways to promote co-operation and to cope with the new challenges of the twenty-first century. The APT heads of state adopted the “Joint Statement on East Asian Cooperation”, which suggested co-operative measures in various areas, including security, economy, culture, and development strategy. This agreement led to the launching since 2000 of a series of APT meetings of finance and economic ministers, in addition to those of foreign ministers. In the fourth APT Summit in Singapore in November 2000, Chinese Prime Minister Zhu Rongji suggested the main tasks for the APT, which included co-operation in the development of the Mekong River Basin transportation and communication infrastructure, co-operation in IT (information technology), human resource development, agriculture, and tourism. China also took the initiative to convene an APT meeting of agriculture and forestry ministers, and offered to host an agricultural technology and co-operation business forum. The Singapore Summit concluded with a public statement by Prime Minister Goh Chok Tong highlighting the “two big ideas” that emerged from the discussion, namely, the development of institutional links between Southeast Asia and Northeast Asia, and the setting up of a working group to study the merits of an East Asian free trade and investment area. He further stated: “I see no problem in ASEAN Plus Three evolving, if that’s the desire of leaders, into some kind of East Asia Summit. But there are implications. I myself would not recommend a hasty evolution” (Thayer 2000). In his statement, Goh seemed to suggest that what was important was that the leaders of the thirteen countries were starting to think as “East Asians”. Where will these developments lead to? While the Three have greatly influenced the APT’s agenda, ASEAN’s role is likely to remain critical to the APT’s future development. The first section of this chapter examines ASEAN’s

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own developments that may have an influence on its emerging policies towards East Asian co-operation. This is followed by an examination of the various ideas and initiatives on regional co-operation in East Asia. Some tentative conclusions will be drawn in the final section.

DEVELOPMENTS OF ASEAN SINCE THE 1990s: DEEPENING, WIDENING, AND LINKING ASEAN is the oldest, and still the only formal, regional grouping in East Asia. Over the years since its inception in 1967, its development has been influenced by the internal dynamics of Southeast Asia as well as by developments in the wider regional and international environments. While its coming into being was motivated by political and security considerations, ASEAN co-operation was to be pursued mainly in the economic and social fields. Various schemes for economic co-operation were introduced and tried out over a period of twenty-five years, but their results have been rather disappointing. ASEAN was much more successful in its political co-operation. It became a diplomatic power through its ability to maintain and enhance peace and stability in the region and to organize itself into a cohesive group in the international arena. It developed an extensive “dialogue” process with its major trading partners and major regional powers, which further enhanced its diplomatic standing. It was the “reaching out” by ASEAN and its diplomatic standing that paved the way for the development of Asia-Pacific region-wide processes, such as APEC (Asia-Pacific Economic Co-operation) and the ARF (ASEAN Regional Forum), capitalizing on the relations that had developed through the annual ASEAN Post-Ministerial Conferences (ASEAN PMC). The end of the Cold War and the growing pressures from globalization have led to the transformation of ASEAN. In 1992, ASEAN heads of state formally endorsed the creation of an ASEAN Free Trade Area (AFTA). This symbolized ASEAN’s desire to strengthen the region through economic integration. This was not in the blueprint of ASEAN’s founding fathers. AFTA was to lead to a deepening of regional economic co-operation to enhance the region’s competitiveness in the face of globalization. At the same time that ASEAN pursued a deepening of its co-operation, it embarked on an effort to realize the dream of its founding fathers, namely, to widen its membership to create One Southeast Asia. This project was completed in 1998. ASEAN’s “new” members also acceded to AFTA as a condition of entry. The “old” members, the original six signatories of AFTA (ASEAN-6), have accelerated the implementation of AFTA, from completion in fifteen years to ten years in 2003, and subsequently brought forward the target date to 2002.

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The last new member (Cambodia) will complete its AFTA commitments in 2010. The Common Effective Preferential Tariff (CEPT) scheme for AFTA covers all manufactured and agricultural products, although the timetables for reducing tariffs and removing quantitative and other non-tariff barriers (NTBs) differ. Products in the Inclusion List (IL) are those that have to undergo immediate liberalization through the reduction of tariffs to 0–5 per cent, removal of quantitative restrictions, and other NTBs. The deadline is 2002 for the ASEAN-6, 2006 for Vietnam, 2008 for Laos and Myanmar, and 2010 for Cambodia. In 2001, a total of 56,082 tariff lines would be in the IL, representing about 84 per cent of all tariff lines in ASEAN. Products in the Temporary Exclusion List (TEL) are allowed to be shielded from liberalization only for a temporary period. All products in the TEL must be transferred into the IL and begin a process of tariff reduction to reach 0–5 per cent. The transfer of products from the TEL to the IL at annual instalments began in 1996 for the ASEAN-6, 1999 for Vietnam, 2001 for Laos and Myanmar, and 2003 for Cambodia. In 2001, there were 9,780 tariff lines in the TEL, representing 14.6 per cent of all tariff lines in ASEAN. Unprocessed agricultural products have been given a longer period for their liberalization. These products are contained in the Sensitive List (SL). The ASEAN-6 have to reduce tariffs to 0–5 per cent, and remove quantitative restrictions and other NTBs by 2010. The deadline for the new members is 2013 for Vietnam, 2015 for Laos and Myanmar, and 2017 for Cambodia. In 2001, a total of 368 tariff lines, or 0.55 per cent of all tariff lines in ASEAN, were in the SL. A total of 734 tariff lines were in the General Exception (GE) List in 2001. These are items that are permanently excluded from liberalization for reasons of national security, protection of human, animal or plant life and health, and articles of artistic, historic, and archeological value. Table 12.1 shows the number of tariff lines in each of these four lists for individual ASEAN members (as of May 2001). Contrary to popular perception, the financial crisis has not resulted in a slowing down of AFTA’s implementation (Soesastro 1999b). Definite timetables were introduced in 1998 that resulted in an acceleration of implementation by the ASEAN-6. The agreement was that by 2000, each country would have a minimum of 85 per cent of the IL with tariffs of 0–5 per cent. This would be increased to 90 per cent in 2001, and 100 per cent in 2002. In 2001 (as of May), a total of 92.73 tariff lines in the IL have tariffs of 0–5 per cent (see Table 12.2). The average CEPT tariff rate of the ASEAN6 would be reduced to 2.91 per cent in 2002, from 12.76 per cent in 1993 at the launch of AFTA (see Table 12.3).

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TABLE 12.1 Number of Tariff Lines in the Tentative CEPT Product List for 2001 Country

Inclusion List

Temporary Exclusion List

General Exception List

Sensitive List

Total

Brunei Darussalam Indonesia Malaysia* Philippines Singapore Thailand ASEAN-6 Total Percentage

6,276 7,192 10,025 5,621 5,859 9,104 44,077 98.34

0 21 218 6 0 0 245 0.55

202 68 53 16 0 0 339 0.76

14 4 83 50 0 7 158 0.35

6,492 7,285 10,379 5,693 5,859 9,111 44,819 100.00

Cambodia Laos Myanmar Vietnam New Member Total Percentage

3,115 1,673 2,984 4,233 12,005 54.21

3,523 1,716 2,419 1,877 9,535 43.06

134 74 48 139 395 1.78

50 88 21 51 210 0.95

6,822 3,551 5,472 6,300 22,145 100.00

ASEAN Total Percentage

56,082 83.75

9,780 14.60

734 1.10

368 0.55

66,964 100.00

Note: Data as of May 2001. *Malaysia: including 1,168 items of wood products which came from the extension of eleven items.

It should be noted that legal enactment processes in some ASEAN countries result in delays in implementation. As of May 2001, Indonesia, Laos, and Myanmar had issued their legal enactment for the 2001 CEPT package (ASEAN Secretariat, interview). It should also be noted that the 2002 deadline for 100 per cent of the IL to have tariffs of 0–5 per cent allows for some “flexibility”, namely, an extension to 2003. Three of the ASEAN-6 have submitted the list of products under this clause. In the case of Brunei Darussalam, the list contains sixteen items with a value of US$3 million in its intra-ASEAN imports. The products include petroleum oils (nine items), electric motors, lenses/optics, antique goods, and postal packages. Indonesia submitted a list of sixty-six products, having a value of intra-ASEAN imports of US$14.3 million, which include petrochemicals (thirty-four items), plastics/ rubber (nineteen items), lamps for interior decoration, other electric

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TABLE 12.2 Number of Tariff Lines with Tariffs of 0–5 Per Cent by 2001 Number of Tariff Lines Country

0–5%

>5% Other Total

Brunei Darussalam 6,107 Indonesia 6,483 Malaysia 9,189 Philippines* 5,040 Singapore 5,859 Thailand 8,195 ASEAN-6 Total 40,873

157 709 836 530 0 908 3,140

Cambodia Laos Myanmar Vietnam New Member Total

238 1,028 2,426 2,963 6,654

2,877 645 558 1,270 5,342

0 3,115 0 1,673 0 2,984 0 4,233 0 11,996

47,527

8,482

64 56,073

ASEAN Total

Percentage of IL 0–5%

12 6,276 97.31 0 7,192 90.14 0 10,025 91.66 51 5,621 89.66 0 5,859 100.00 1 9,104 90.02 64 44,077 92.73

>5% Other Total 2.50 9.86 8.34 9.43 0 9.97 7.12

0.19 0 0 0.91 0 0 0.15

100 100 100 100 100 100 100

7.64 61.45 81.30 70.00 55.47

92.36 38.55 18.70 30.00 44.53

0 0 0 0 0

100 100 100 100 100

84.76

15.13

0.11 100

Note: Data as of May 2001. *For the Philippines, among those items where the 2001 CEPT rate are not 0–5 per cent, there are 87 items with the MFN rates already at 0–5 per cent so that the percentage number of items with 0–5 per cent tariff in 2001 would be more than 91 per cent.

conductors, works of arts, steel (leaf spring), and vegetable products. The Philippines’ “flexibility” list includes 192 products, of which 113 are agricultural products and 45 are automotive parts. Other products are glass/glassware, plastics/rubber, iron/steel/base metal, and electric accumulators. The intraASEAN imports of these products amounted to about US$180 million (ASEAN Secretariat, interview). In addition to this development, it can also be observed from Table 12.1 that of the 245 tariff lines still in the 2001 TEL of the ASEAN-6, 218 are in Malaysia’s TEL, relating to the automotive sector. Malaysia has requested for deferment to 2005 and was allowed to do so with the condition that it provides compensation for potential loss of market to other ASEAN producers. Thailand is the first ASEAN member to seek compensation, but negotiations have yet to produce a decision, which has to be made within six months after Malaysia filed its formal request (19 January 2001). Malaysia seeks proof from Thailand that its cars meet the 40 per cent rules of origin provision. It has been reported that on 28 May 2001 Indonesia also submitted a claim for

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© 2001 Institute of Southeast Asian Studies, Singapore

Note: As of May 2001.

Total ASEAN-10

Cambodia Lao PDR Myanmar Vietnam ASEAN-4

Brunei Darussalam Indonesia Malaysia Philippines Singapore Thailand ASEAN-6

Country

48,782

1,247 2,356 3,487 7,090

6,264 6,931 8,354 5,335 5,746 9,062 41,692

Tariff Lines

5.01

7.54 4.45 7.11 6.31

1.55 5.36 3.2 7.34 0 9.58 4.79

Average

1999

53,759

3,115 1,247 2,386 4,233 10,981

6,264 7,176 8,864 5,550 5,821 9,103 42,778

Tariff Lines

4.43

10.39 7.07 4.43 7.25 7.51

1.26 4.76 3.32 5.18 0 6.12 3.64

Average

2000

3.85

7.45

7,772 51,785

10.39 7.08 4.57

1.17 4.27 2.7 4.41 0 5.66 3.21

Average

3,115 1,673 2,984

6,264 7,192 10,025 5,570 5,859 9,103 44,013

Tariff Lines

2001

TABLE 12.3 Average CEPT Tariff Rates (1999–2003)

51,785

7,772

3,115 1,673 2,984

6,264 7,192 10,025 5,570 5,859 9,103 44,013

Tariff Lines

3.48

6.7

8.89 6.42 4.56

0.96 3.69 2.58 4.3 0 5.01 2.91

Average

2002

51,794

7,772

3,115 1,673 2,984

6,273 7,192 10,025 5,570 5,859 9,103 44,022

Tariff Lines

2.93

6.09

7.93 5.6 4.43

0.96 2.17 1.94 3.81 0 4.63 2.37

Average

2003

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compensation. Malaysia is said to have demanded that Indonesia must prove that it has the potential to supply cars to Malaysia (Jakarta Post, 7 June 2001). The remaining items in the TEL of the ASEAN-6 are agricultural products (twenty-one items in Indonesia’s TEL and six items in the Philippines’ TEL). They will have to be transferred into the IL by 1 January 2003. The above developments show that, with some exceptions, by 2002 the ASEAN-6 would have fulfilled their AFTA commitments. As AFTA is nearing completion (for the ASEAN-6), new ideas and initiatives have begun to be considered by ASEAN. Zero Tariffs The target of “zero duties” has already been agreed upon. Firstly, 60 per cent of the IL will have zero duties by 2003. Brunei Darussalam, Malaysia, and Singapore have already reached this target in 2001. Indonesia, the Philippines, and Thailand have pledged to comply with this target. Secondly, in the 1999 Summit, the ASEAN leaders agreed to eliminate all import duties by 2010 for the ASEAN-6, and by 2015 for the new members, allowing for some flexibility for sensitive products. This is likely to be applied to rice and perhaps sugar. Some countries (Indonesia and Malaysia) have indicated that they may retain a 20 per cent tariff for rice by 2010 (ASEAN Secretariat, interview). ASEAN-GSP At the most recent meeting of ASEAN economic ministers in Siem Reap (Cambodia) in early May 2001, an ASEAN General System of Preferences (GSP) scheme was introduced. This idea was first proposed by the ASEAN Secretary-General (ASEAN Secretariat, interview). According to this scheme, the ASEAN-6 would give trade preferences (zero duties) immediately to the new members. The implementation of this scheme would result from negotiations on a bilateral basis. The four new members will provide a list of products of their interest to be considered by each ASEAN-6 member. This scheme is aimed at reducing the wide economic disparity within ASEAN as well as at integrating the new members more closely with the ASEAN-6. To achieve this, Singapore also pledged to provide financial assistance to the new members. Until recently, there has been hesitation to move in the direction of providing one-way assistance from the ASEAN-6 to the new members. It was thought to be politically unwise to do so for fear of creating a two-tier ASEAN. However, this is a reality, and unless it is recognized it will act as an obstacle to developing measures to help the new members, which is critical to

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maintaining ASEAN solidarity and solidity. It also needs to be recognized that the enlargement of ASEAN has complicated ASEAN’s market integration process (Chia 1998b; Menon 1998). AFTA Plus The idea of AFTA Plus dates back to the mid-1990s. It refers to initiatives that go beyond reducing tariff barriers and NTBs in goods traded under the CEPT to investment and services liberalization (Lee 1994; Soesastro 1995; Pangestu 1995), and other non-border areas, such as intellectual property rights and competition laws. More recent suggestions have included the adoption of common trade facilitation measures and common standards and practices as well as capacity-building initiatives (Estanislao 2000). Many of these suggestions have been introduced into ASEAN’s economic co-operation agenda. These include the AIA (ASEAN Investment Area), the ASEAN Framework Agreement on Intellectual Property Co-operation, and the ASEAN Framework Agreement on Services. Yet, these have been pursued separately from, and are often not parallel with AFTA’s implementation (Soesastro 1997). The idea of AFTA Plus is to bring these other activities into a coherent framework so that they can reinforce one another. AFTA Plus has not entered the vocabulary of ASEAN officialdom. The AIA time-frame, for example, is out of line with that of AFTA (Soesastro 2000; Ariff 2000). Developing a coherent AFTA Plus framework would further increase the region’s gain from liberalization. Linking AFTA with the AIA and other schemes would lead to a single Southeast Asia market, generating economies of scale. AFTA and the AIA are instruments that should facilitate trade and production linkages both within the region and with the world. The linkages would be strengthened by an increased involvement of MNC (multinational corporation) networks. AFTA was formed not with the aim of creating an internal, closed market for ASEAN. The ASEAN members are aware that it is trade with and investments from the rest of the world that have brought the ASEAN economies closer during the last three decades. ASEAN schemes have adopted the principle of “open regionalism”, where the deepening of economic integration in the region would be pursued parallel with the opening of the ASEAN market to the world. This would ensure that non-members can contribute to and at the same time benefit from ASEAN’s regional economic integration process (Ariff 2000). AFTA’s relatively liberal rules of origin, effectively allowing for up to 76 per cent non-ASEAN content to benefit from AFTA preferences, have made it a very open regional trading arrangement. Unilateral

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liberalization by the ASEAN members parallel to their implementation of AFTA has resulted in small differentials between CEPT rates and MFN rates. In fact, in 1998, as much as two-thirds of the tariff lines in the IL had the same CEPT and MFN rates. It is no wonder that the utilization of AFTA preferences in intra-ASEAN trade remains very small. The utilization of these trade concessions may increase with the acceleration of AFTA in the years ahead. However, this is not a major issue for ASEAN as AFTA is not meant to increase intra-ASEAN trade per se. A Monetary Union and All That Some far-fetched ideas for ASEAN’s future development have been proposed even by leaders (for example, former Philippine President Estrada) and from within ASEAN officialdom. These include the proposal for a common ASEAN currency. A number of questions will need to be answered first before such an idea can be pursued. These include the reasons for adopting a common currency and a careful examination of what is the optimum currency area (Piei and Tan 1999). Most importantly, however, is the fact that the move towards such deep integration requires a political will that cannot be taken for granted. Extra- and Inter-Regional Linking Over the years, ASEAN has proposed various co-operation arrangements beyond Southeast Asia. This has led to the establishment of ASEM and the more recent EALAF (East Asia Latin America Forum) through which ASEAN plus China, Japan, and Korea develop links with other regions (Europe and Latin America, respectively). The East Asian side in these processes is being strengthened by the development of ASEAN Plus Three (APT), which can be seen as linking Southeast Asia to Northeast Asia. As mentioned earlier, and will be discussed later, this linking could result into an integration of the two subregions into one East Asian regional structure of sorts. A study group is to examine this possibility and report on the deliberations to the APT Summit in November 2001 in Brunei Darussalam. Another group, the East Asia Vision Group will present its report to this Summit on the medium- and long-term vision for East Asia. It may well turn into an inter-regional link between ASEAN (or AFTA) and a Northeast Asian entity, if the latter is being formed. A similar link has developed between ASEAN and its neighbours in the South (Australia and New Zealand) in the form of AFTA-Closer Economic Relations (CER). Alternatively, ASEAN may become some kind of a “hub” in East Asia, in which separate relations are developed between ASEAN (AFTA)

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with each of the three Northeast Asian countries (China, Japan, and Korea). Indeed, an ASEAN-China Expert Group on Economic Co-operation has been established to recommend measures to further enhance ASEAN–China economic co-operation and integration, including the possibility of establishing a free trade area (FTA) between ASEAN and China. A similar ASEAN-Japan Expert Group has been proposed, also to examine the possibility of an FTA between ASEAN and Japan (Kyodo News Service, 28 April 2001). These groups are supposed to report to the ASEAN-China Summit and ASEANJapan Summit, respectively, in November 2001 in Brunei Darussalam. In their recent meeting in Siem Reap (Cambodia), ASEAN economic ministers agreed to expand “free trade links” with China, Japan, Korea, as well as Australia and New Zealand (Yahoo! India News, 5 May 2001; ). Probably, by November 2001 more concrete ideas may be presented to ASEAN leaders. The AFTA-CER Experiment Thailand has been identified as the “engine” of this linkage (Smith 1998). The idea was first aired by Thai Deputy Prime Minister, Supachai, in 1993. Encouragement was received from Australia’s Prime Minister, Paul Keating, and Singapore’s Goh Chok Tong. The first (informal) consultations between ASEAN economic ministers and ministers from the CER took place in 1995 in Brunei Darussalam and agreed “to establish region-to-region linkages between the free trade areas, reflecting the ‘open regionalism’ concept of AFTA and the CER” (Joint Press Statement, 9 September 1995). At this meeting, the list of activities put forward for future consideration has a comprehensive coverage of non-border issues. The list was further expanded, and by the third meeting in 1997 it covered seven broad areas: customs, standards and conformance, human resource development, investment promotion, services, sanitary and phytosanitary, and others (for example, linkage of trade and investment database between the two regions). From the perspective of Australia and New Zealand, the linkage could increase their trade access to ASEAN. As Australia and New Zealand already have low tariffs, ASEAN’s market access to the CER would not likely increase dramatically. Smith (1998) lists a number of reasons why ASEAN chose to develop the linkage with the CER: (a) to learn from the CER process; (b) to take advantage of the CER’s “non-discriminatory” trading practices; (c) to provide ASEAN with both an affluent and complementary market; and (d) to somehow correct the imbalance of trade with Australia and New Zealand. Follow-up ministerial meetings were held annually. At the fourth meeting

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in Singapore in October 1999, the ministers established a high-level Task Force to look into the feasibility of an AFTA-CER FTA. The Task Force, headed by Cesar Virata, former economic czar in the Philippines, proposed the architecture of an AFTA-CER FTA (ASEAN Secretariat 2000). It is based on the following set of principles: 1. the FTA would be comprehensive, but AFTA and CER would maintain their respective identities; 2. the FTA should be mutually beneficial; 3. the pace of liberalization should proceed faster than that of APEC; 4. the pace of liberalization would not normally go beyond that of AFTA; 5. the FTA would be open to inclusion of new issues not currently covered by the AFTA and CER Agreements; 6. the FTA should provide development assistance and a longer time-frame for the new members of ASEAN; 7. the FTA would be open to accession by any other country or regional grouping that shares the common principles and underlying objectives; 8. elements of either CER or AFTA may be incorporated in the FTA agreement; 9. AFTA and CER would continue to exist as functioning agreements. The modalities of the proposed FTA would include the following provisions: 1. to cover trade in \all goods, services (covering all modes of supply), investments, technical barriers to trade, and mutual recognition arrangements (MRAs); 2. some elements of the agreement can be achieved earlier than others; 3. the rules of origin threshold would be at 40 per cent and should be simplified and standardized for the two regions; 4. the agreement should cover areas such as anti-dumping, standards and conformance, price undertakings, import licensing, labelling, import quota, and sanitary and phytosanitary standards (SPS) issues, and the rules must be simple and transparent, and administered efficiently; 5. a separate agreement or protocol on services may need to be formulated and agreed upon; 6. the agreement should contain a framework of investment principles and rules; 7. the agreement would need provisions on technical assistance, particularly in relation to the new ASEAN members; 8. the work on trade facilitation should be continued; 9. the agreement must be consistent with the rules of the World Trade

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Organization (WTO); 10. the agreement should incorporate a dispute settlement and review mechanism; 11. the agreement should affirm commitment to implement the WTOTRIPs Agreement. 12. the agreement should provide a framework to cover competition policy. An agreement to begin the process of negotiating the FTA failed to emerge at the ministerial meeting the following year. This may have been due to political factors (the state of relations between some ASEAN countries and Australia) or because some ASEAN officials were uncertain about the feasibility and desirability of the wide scope of the proposed FTA. The ASEAN side had also put some preconditions (in the area of development assistance) for the discussion/negotiation which may have been unacceptable to the CER (ASEAN Secretariat, interview). Both sides did not abandon the efforts, however, but decided to work towards a Closer Economic Partnership (CEP) rather than an FTA. It is not immediately clear what the elements or parameters of a CEP would be. These are being worked out by ASEAN senior officials and their CER counterparts. One interesting question is whether this CEP would develop into a “new age” FTA (Yamazawa 2001). This type of FTA is being promoted by Japan and Singapore in crafting their Economic Partnership Agreement (EPA). This “new age” FTA is aimed at developing a flexible and attractive business environment by promoting the transborder flow of human resources, assets, capital, and information (Regional Co-operation Division, METI 2001). ASEAN’s policies on promoting regional economic co-operation in East Asia may be influenced by these new developments in trade diplomacy. It may also be influenced by the emerging East Asian focus in the policies of regional countries. There is a growing sense in ASEAN that in many areas of economic co-operation it needs to involve other East Asian countries. Hence ASEAN Plus Three (APT). Could an East Asian structure of sorts reinvigorate ASEAN?

DEVELOPMENTS IN EAST ASIA: THE SEARCH FOR A REGIONAL IDENTITY It seems that East Asia is rapidly being transformed from a geographic concept into an economic region. Economic interactions, largely through trade, have brought countries in the region much closer together. With the exception of Japan, all other East Asian countries rely on the region for more

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than half of their trade. For all of them, Japan is an important, in many instances the most important, trading partner. Trade patterns are indeed an important factor in the emergence of economic regions. In addition, intraregional investment and financial flows continue to intensify. Should this development be strengthened through some kind of institutionalization? The first attempt to do so began about a decade ago with the proposal for the establishment of an East Asian Economic Grouping (EAEG). This idea, subsequently modified and endorsed by ASEAN, did not get off the ground. Since then, however, a series of events have led to intensified relations between the ASEAN countries and the three Northeast Asian countries, namely, Japan, China, and South Korea. ASEM has led to some degree of organization of the East Asian component of that process. It was thought that ASEM could provide a strong impetus for the East Asians to form a regional mechanism that would adopt an agenda to help strengthen East Asia’s role in the ASEM process. However, this does not seem to be the case. Perhaps, the impetus must come from within the region itself. The APT has become the main forum for the thirteen East Asian countries. It has been driven by a desire to express an (East) Asian view on many important regional and global issues. As reviewed earlier, the APT’s agenda has evolved rather rapidly. The region is not short of common problems and challenges. A regional effort in dealing with those problems can result in a rich and interesting agenda, ranging from the issue of appropriate forms of social safety nets to the development of common policies on various international economic issues, including the new architecture for global finance. The best way for the region to deal with those problems would be to establish an OECD-type of institution in the region that can mobilize and organize intellectual resources and formulate common policy proposals and responses. However, the search for an institutional identity in East Asia, as in other regions, tends to be dominated by ideas about regional trade structures, in particular FTAs. In a region as diverse as East Asia, it will not be easy to establish a region-wide free trade arrangement. There are suggestions that perhaps such a regional arrangement can result from the development of bilateral or sub-regional trading arrangements as its building blocks. Recent initiatives to form bilateral FTAs might have been inspired by that idea. Can they succeed? Recent initiatives to develop bilateral FTAs cannot be generalized as each of them is driven by different motivations. One motivation is to use bilateral arrangements to provide new impetus for regional or global trade liberalization. The initiative by Bill Brock, the U.S. Trade Representative, in the 1980s to

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develop bilateral FTAs between the United States and a number of countries or regions was meant primarily as a means to force Europe to agree on embarking on a new round of multilateral trade negotiations. It was a dangerous game as it compromised the U.S. policy of promoting multilateral, non-discriminatory trade liberalization. The strategy was successful in forcing others to react as intended, largely because it was pursued by a superpower. The recently concluded Singapore–New Zealand bilateral “FTA initiative”, called Closer Economic Partnership (CEP), may have a number of objectives. One of these is to create a new stimulus towards further trade liberalization in the region. The argument that a Singapore–New Zealand FTA would have no significant effect on trade since both already have very low tariffs is certainly correct. However, precisely because this bilateral deal does not threaten anyone, it cannot achieve its objective of stimulating trade liberalization efforts in the region. A Japan–Korea initiative is potentially more influential. This initiative was driven largely by the desire on both sides to cement an improved bilateral relationship that has been marred for so long by deep mistrusts. This initiative appears to have led Japan to adopt a new policy that promotes regional and bilateral FTAs. Japan began to pursue bilateral agreements with other countries, including Singapore. There have been suggestions that the Japan–Korea initiative should logically be extended to include China because it would otherwise create serious political tensions in Northeast Asia. The inclusion of China would effectively transform the exercise in the direction of a bigger enterprise: the formation of a Northeast Asian subregional arrangement. This subregional arrangement could then be linked to the one already in existence in Southeast Asia (AFTA). A kind of East Asian regional architecture would emerge from this development. This is one route to developing an East Asian institutional identity. However, the Japan–Korea proposal appears to have lost some steam by now. In addition, AFTA may be hesitant to provide leadership in crafting the link to a much larger economic entity. It appears that there are some concerns in ASEAN that it could be overwhelmed by the much larger Northeast Asian region. The combined gross domestic product (GDP) of the three Northeast Asian countries is currently about thirteen times larger than ASEAN’s GDP. The other option is to develop an OECD-type institution. This will require large resources to establish and to maintain, and takes away much of the limelight from the political leaders. This option is a desirable one but not likely to be pursued in East Asia. Yet another route is through financial co-operation. Higgott (2000) saw the emergence of a “new monetary regionalism” in East Asia resulting from

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the financial crisis. Various initiatives have been taken by the regional countries. In the context of APT co-operation, the most important is the Chiang Mai Initiative (CMI) for a regional swap arrangement that builds on the ASEAN swap arrangement. ASEAN has also instituted a surveillance process. It may invite other East Asian countries to join in the exercise at a later stage. The creation of an Asian Monetary Fund could be part of a regional financial architecture. In addition, ideas for creating some kind of a common currency basket have been proposed. It remains to be seen how these ideas and initiatives could bring about institutional integration as they deeply impinge on sovereignty issues that are still regarded as highly sensitive in many regional countries. Ito (2000) is of the opinion that this route may take fifty years. He raised two fundamental questions. First, is there a sequencing in regional co-operation that require trade co-operation to be forged before financial co-operation could be undertaken, thus calling for the establishment of an FTA before the creation of a monetary pact? Secondly, is APT, constituting the thirteen East Asian countries, the right grouping? The route that is currently being taken, namely, along the pragmatic, develop-as-you-go approach, is the only feasible one. Its manifestation today is the APT meetings, most importantly at the summit level. As mentioned before, in November 2000 the APT heads of state agreed to explore the possibility of transforming the APT Summit into a formal East Asian Summit and the merits of an East Asian FTA. In addition, it requested the East Asia Vision Group to propose a vision for East Asia. These explorations may help the leaders to direct the process. They cannot just emulate the APEC process and apply it to East Asia, a smaller subset of APEC. They will have to go beyond and develop much faster than APEC. The agenda for East Asian co-operation is likely to be a comprehensive one, to cover trade and investment facilitation and liberalization, technical co-operation, financial co-operation, and development co-operation (Lee 1999). Tay (2000b) proposed that an East Asian regionalism should have the following characteristics: (a) an open and flexible caucus, not an exclusive group or block; (b) functionality, not political fixity, in deciding on membership; (c) issue-led leadership; and (d) coalition of the willing. He also proposed that in addition to free trade, and financial and economic cooperation, the agenda for East Asian co-operation should include the environment, and piracy. It does appear that any economic co-operation arrangement today, be it bilateral, subregional or interregional, cannot have a narrow agenda. Any FTA initiative today will have to be of a “new age” type. It can be given any label, FTA, CEP (Closer Economic Partnership), or EPA (Economic

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Partnership Arrangement), but whatever it is called it will have to have a broad, comprehensive agenda that covers a host of non-border measures in addition to border liberalization efforts.

A CONCLUDING NOTE Whither APT? The answer depends on where the “leadership” in the APT process will come from. Will it, as in the case of APEC, be issue-specific? Can it adopt the principle of functionality, rather than political fixity, that can allow the participation of other economies in the region such as Australia, New Zealand, and even Taiwan (Chinese Taipei)? In view of the nature of the relationship between the two major Northeast Asian countries, Japan and China, would the leadership role fall on ASEAN by default? ASEAN will soon have to decide whether it will (and has the capacity to) promote the development of a region-wide East Asian co-operation arrangement, or whether it should opt for a set of bilateral arrangements with individual East Asian countries. It may go for the latter as it may well feel more comfortable to deal with individual Northeast Asian countries. However, to be able to play this role effectively, ASEAN has to put its house in order first. It has to formulate a comprehensive and coherent AFTA Plus as the basis for developing external, bilateral, and interregional linkages. Its first attempt to develop such a bilateral linkage, namely, between AFTA and CER, has not been encouraging. It is also unlikely that it can build its efforts on bilateral links that one of its member economies has developed. Singapore’s aggressiveness, and “go-it-alone” strategy, in developing a series of bilateral FTAs has created misgiving among its ASEAN neighbours (Rajan et al. 2001). Estanislao (2000) has argued that bilateral agreements entered into by any ASEAN economy would allow ASEAN members “to be picked, one by one, to enter into separate agreements with one big economic neighbour and to weaken their ability to secure better terms”. Malaysia’s Prime Minister Mahathir Mohamad has aired his suspicion that those FTAs will be used by other countries as a backdoor into the ASEAN countries (Agence France Presse, 8 June 2001). Given AFTA’s liberal rules of origin, one way for Singapore to overcome this problem is by negotiating equally liberal rules of origin in its bilateral agreements. The same “liberal rules of origin” must also guide ASEAN in the development of bilateral arrangements with other East Asian countries. This ensures that the regional environment continues to be characterized by open regionalism, which has been responsible for the region’s economic dynamism. However, this is only one of the elements that ASEAN must introduce in its endeavour.

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13 INSTITUTIONS AND PROCESSES Dilemmas and Possibilities Simon S. C. Tay

INTRODUCTION: ASEAN IN CRISIS AND CHANGE Before the economic and financial crisis that began in mid-1997, ASEAN was acknowledged as one of the most successful regional groupings, outside the European Union (EU). Many of its member states were part of what the World Bank called the “Asian miracle”. In foreign policy too, ASEAN showed a level of influence that belied the fact that its member states were only smallto medium-sized powers. In this mood of confidence and congratulation, ASEAN undertook the project of enlargement to include all ten states of the region. It also undertook to engage the broader region and international community, initiating new international fora, such as the Asia-Pacific Economic Co-operation (APEC) forum and, in the field of security, the ASEAN Regional Forum (ARF), and the Asia-Europe Meeting (ASEM). While there was criticism even during the period before the crisis, both ASEAN and the newer undertakings have come under increased scrutiny and questioning since 1997. Critics say that it is little more than a talk shop, and has been ineffective in the face of the crisis. There were concerns in 2000, after the worst of the crisis had receded, that the region may be left behind in the increasingly competitive global environment. Global economic competition from Latin America and Northeast Asia has increased and foreign direct investment no longer seems to give as much attention to ASEAN as it did 243 © 2001 Institute of Southeast Asian Studies, Singapore

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previously. There are doubts about the willingness of ASEAN members, such as Vietnam and Laos, to proceed with reform to become more open economies. In terms of security too, Southeast Asia as a region is beset with more problems than ever before, with a rise in intra-state conflicts and terrorism. There are also questions over the political legitimacy of some of its members, such as Myanmar. Most notably, the critics have included a number of ASEAN ministers. The Thai Foreign Minister during the crisis period, Surin Pitsuwan, has been associated with efforts to change how ASEAN member states interact, to move them from the principle of non-intervention to one of “flexible engagement”. At the ASEAN Ministerial Meeting held in Bangkok in July 2000, Singapore Foreign Minister S. Jayakumar was perhaps the clearest advocate of reform, calling on ASEAN to “reinvent itself”. These concerns and criticisms relate not so much to the direction and goals set by ASEAN. After all, ASEAN has announced an ambitious and farreaching ASEAN Vision 2020 and, amidst the crisis, undertook to proceed with its implementation of the Hanoi Plan of Action (HPA). ASEAN had also undertaken to speed up the implementation of the ASEAN Free Trade Area (AFTA), and proposed a “raft of bold measures” to give more assistance and incentives to investors during the crisis. Rather, the concerns and criticisms relate to the implementation of these various action plans. There are those who question the Association’s ability to ensure that its members comply with their undertakings. There is criticism that ASEAN plans of action remain more plans than action. How do ASEAN member states co-operate in economics, security, and other matters of common concern, such as environmental interdependence? How do they try to remain united and cohesive in the face of a vast economic and increasingly political divide between different members? How should the ASEAN member states interact among themselves and with other nonASEAN states and regions? What is the balance between nation, region, and the international community in a globalized world? Such questions have brought increasing focus on the strengths and limits of ASEAN as an institution, and on its processes and norms. There have, in this regard, been unkind comparisons with the example of European integration and the accusation that ASEAN lacks vision and effective unity. ASEAN supporters have traditionally replied that such views misunderstand the nature of the enterprises. They reject the goal of integration and espouse the “ASEAN way”. Such defences continue in the wake of the crisis. In this debate, there has been a tendency to oversimplify positions. One side stands for the status quo: that ASEAN will always be what it is today and nothing needs to be

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changed. The other side stands for radical change: that ASEAN needs wholly new principles and centralized institutions now. The answers to these and other challenges facing ASEAN are not simple. They are dilemmas that concern how ASEAN member states interact among themselves and the mode of interaction that has come to be known as the “ASEAN way”. The dilemmas also relate to ASEAN’s foreign policy towards non-ASEAN members and the very rationale of the Association. More broadly, the dilemmas relate to questions about regionalism: ways of organizing sovereign states, fostering their co-operation towards commonly agreed goals, and creating communities. This chapter argues that the facts of history and the needs of the future stand somewhere between the polarities of the status quo and radical change. It suggests that ASEAN has undergone changes in its approach and institutions and that it is still changing. These changes are accelerating especially now, in response to the crisis and to new ambitions that have been set. Yet, such changes are neither wholesale nor across all sectors of activity, and therefore have not been widely recognized. They are, rather, piecemeal and often unacknowledged. In making these arguments, the chapter is divided into four main parts. First, the chapter considers the different ways in which the term “institution” or “institutionalism” is used, and the different effects and implications that should flow from such usages. The section also reviews some of the thinking on how the international system seeks to foster compliance by states. Secondly, there is a brief survey of the “ASEAN way” and the evolution of ASEAN as an institution. It looks at ASEAN’s growth over the last three decades, to characterize the institutional changes that have occurred in this period. Thirdly, the chapter considers cases in which the “ASEAN way” has been tested. This includes the broad debate about “non-intervention”, “flexible engagement”, and “enhanced interaction”. The chapter also considers cases in which the norms have been applied, or have failed to be applied. Recent ASEAN undertakings in meeting new challenges in different sectors are also considered, such as in economic co-operation, and efforts to address the issue of the Indonesian fires and haze. This is not so much for the details of the plans themselves but in order to point out normative and institutional changes that are revealed in these undertakings. From this, the chapter sees neither the evidence of the ossification of the status quo nor radical change stemming from a grand, programmatic approach to building institutions. There is nothing evolutionary or incremental about such change, in the sense that little of it has been planned, or fated. This

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chapter sees, instead, changes that result from necessity and a pragmatic stepby-step approach. In this sense, it is believed that the changes have come about not as a consequence of new principles adopted, but have come into practice despite existing principles being ostensibly reaffirmed. This may be the most pragmatic solution in the present political situation where there is no agreement on the answers for all the ASEAN member states. However, insofar as contradictions between statements of principle and practice still exist, the dilemmas for ASEAN policy remain unresolved. They instead become part of the inconsistencies and contradictions that we live with. Against this context, the chapter seeks to identify and elaborate on the principles that some in ASEAN are considering in order to make the organization more effective in facing its new challenges, and helping the region go forward economically and politically, while remaining united. Through such principles, it is hoped that the dilemmas in ASEAN cooperation and the foreign policies of member states can be lessened, if not resolved. For while the chapter sees that ASEAN is changing in response to various needs and challenges, it is important to encourage further change. There is otherwise a danger that such a process of change may not be fast or strong enough to effectively react to the new challenges facing ASEAN.

THE MEANING AND EFFECT OF INSTITUTIONS The international community is anarchic. Based on the premise of equal and sovereign states, there is no world government that can command compliance. Rather, states are only bound insofar as they consent, either explicitly by treaty or other binding undertaking, or tacitly, by the acceptance of custom and norms. Traditionally, international and regional institutions have generally been weak. States have instead been the cornerstone and locus of power in the international system. This has remained very much the case despite growing interdependence in economics and other fields, such as environmental protection, and the concern over human rights. Those who have predicted the demise of the nation-state have been confounded. This may comfort many for whom the state is the most immediate and accountable level of power. However, a system of states has difficulties in meeting the challenges of interdependence. This basic nature of the international system has led to divided opinion over the meaning and effect of interstate institutions. When some use the term “institutions”, they mean only to identify a form of arrangement between states. “Institutionalization” then refers only to greater or lesser forms of such

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arrangements. Realists, in particular, take such a limited view of institutions. More often than not, they also seek to limit institutions between states. This stems from the realist belief that each state makes decisions solely on the calculus of power and its national interest. Therefore, the role of the interstate institution is merely an aggregation of such interests and a reflection of close combat by states with different interests for control over such institutions. The institution, in this way of thinking, is a thin cloak for national interests, to be captured or abandoned by one or another state as a matter of power, interest, or indifference. To others, the meaning of “institutions” or “institutionalism” indicates much more. The institutionalist holds that institutions can and do develop norms and modalities that both guide and restrain the action of states. Interstate institutions become actors in their own right, with the ability to both influence and be influenced by states. Such international institutions fall far short of world government and do not have strong powers to ensure compliance by states, which remain sovereign. There is, however, a subtle but strong process of influence, norm-building, peer pressure, and law-making at work. By such a process, the institution, in this view, takes on a life of its own and affects state behaviour. This phenomenon is noticeable and (arguably) emergent in today’s international law and policy. It is especially so in newer fields of international concern, such as the protection of the environment and of human rights. The idea of “institutionalism” is also at work, some analysts believe, in efforts to build relations in ASEAN and across the Asia-Pacific. This does not mean, however, that states in ASEAN and the Asia-Pacific have agreed to build strong, central institutions above the state, or with strong and independent powers. Quite the opposite. For some time now, ASEAN has rejected such an institution-building idea in their relations. They expressly distance themselves from any idea of integration, such as in the European Union. This is both for itself, among its members, and in the recent initiatives in the Asia-Pacific. Rather, it espouses a different set of modalities for interstate co-operation, known as the “ASEAN way”. The “ASEAN way” emphasizes consensus, non-intervention, and minimal institutions. There is a preference for non-binding plans and guidelines, rather than treaties and binding obligations; and a minimal or “soft” secretariat with few powers of initiative, and circumscribed authority. The state members instead remain the main (some would say only) locus of decision-making. The emphasis in ASEAN has therefore been on “national resilience”, giving primacy to national interests. Accordingly, the “ASEAN way” has always

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emphasized consensus decision-making, with the understanding that if a single state (small or large) should strongly object, the differences will be accommodated. The “ASEAN way” has sometimes been justified as a set of modalities that are practical, given the constraints in the region and past conflicts between states. Going further, some have suggested that the “ASEAN way” should be the preferred model. They point to the “ASEAN way” as the main reason for the relative success of the Association in bringing about peace and stability in the region. In this imagination, the present modalities and institutions of ASEAN are not just serviceable for the present, but are all that can be. Some suggest that if the “ASEAN way” is abandoned, the Association will not survive. The reality is perhaps somewhere in between. ASEAN has worked so far because it has satisfied the member states’ self-interest. The states fulfil the promises to refrain from interference and to respect each other, as practised in consultation and decision by consensus, because ASEAN unites them in a higher common interest of maintaining a powerful and stable environment in which they can pursue economic development and nation-building. If we look back at ASEAN since its founding, we can trace both continuity and change in ASEAN’s institutional development. It has been suggested that three different phases1 can be identified: 1. From 1967 to 1976: ASEAN’s regional co-operation was facilitated by a loose, highly decentralized institutional structure, and its functional programmes were driven largely by the respective national ASEAN secretariats; 2. From 1976 to 1992: when ASEAN was a “travelling circus”, with an increasing level of activity in different fields, but with only a minimal and largely administrative ASEAN Secretariat; and 3. From 1992 onwards: with the Singapore declaration and the first real economic undertakings, requiring more co-ordination on issues and policies, and a greater institutionalization of ASEAN. Throughout these three periods, there has been a constant reiteration of the “ASEAN way”. More areas of co-operation have been added, and there have been increases in the level and number by the ASEAN Secretariat. However, these have been seen as incremental, and try consciously to avoid the “Brussels” example. The characteristics of the “ASEAN way” are often (and too starkly) counterpoised with what is said to be the legalism and formalism of the “Brussels way”. They emphasize that ASEAN is an “association” as denoted in its name, and not a union like the European

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Union. There are of course differences, but perhaps not as much as some may believe. Concurrent with these developments within ASEAN, there has been a growth in institutions in the early 1990s. Most notable of these have been the APEC forum and the ARF. The ASEM too has shown some progress, although not as much as some might have hoped when ASEM began, in the pre-crisis euphoria. It is true that the APEC, ARF, and ASEM do not conform to institutions that some might think should be their equivalent. Just as ASEAN is not the EU, APEC is not the World Trade Organization (WTO); the ARF is not the North Atlantic Treaty Organization (NATO); and ASEM is not the Lome Convention. Instead of seeking to model themselves on these institutions, there has been a deliberate differentiation in the approach to these interregional interactions. However, there are increasing signs that the “ASEAN way” is not of itself sufficient and appropriate to these institutions. Their memberships, after all, include many more countries than ASEAN. These institutions have also come under increasing criticism during the years of the Asian crisis. There have been, accordingly, calls to strengthen these institutions and to change their modes of co-operation. Within ASEAN too, some have noted a growing institutionalization since 1992, with the Association’s first real undertaking in economic co-operation. The post-Cold War era has brought about significant progress in the institutionalization of ASEAN. Especially prior to the economic crisis that engulfed the whole region in 1998, the institutionalization process had appeared on track. Institutionalists were optimistic that the prospects of an ASEAN community had gathered speed, and challenged the realist vision of regional order. ASEAN has been under pressure to change its modus operandi: from being a mechanism or forum simply for confidence-building, to an institution with a problem-solving role. Indeed, in the few years just before the crisis, and especially since then, ASEAN has responded with new approaches to cope with these ambitions and demands that have implications for institutionalization. Therefore, while some preach the “ASEAN way” as an immutable orthodoxy, the reality is also that ASEAN and the “ASEAN way” have evolved and will continue to do so. In fact, the continued success of ASEAN will depend on members’ ability and willingness to change and adapt. There is no doubt that self-interest is a powerful motivating factor. However, self-interest comes in many forms: short-term and long-term; narrow and broad. In many

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areas of international law, there is an emergent normative order, and an international ethics, or morality. This can be seen (whether there is consistent ethical behaviour or otherwise) in movements such as those against land mines, the pressure for an international criminal court, and efforts for the protection of the global environment and human rights. In this regard, some have asked whether ASEAN is truly a regional community of nations and peoples, or merely an assembly of convenience. Perhaps the answer in ASEAN is that the two are inseparable where the region has no clear and pre-existing sense of community and civilization, of shared beliefs, practices, and history. The challenge can therefore be seen as proceeding from pragmatic co-operation and confidence-building measures among the political élites and government bureaucracies in each country. This may then be the basis to deepen and widen the Association. In deepening, co-operation can progress to include economic, political, and social areas. In widening, more people can be added to the ASEAN “community”, embracing experts who are outside the government, non-government organizations, and civil society in the different member states, making the ordinary citizens more connected to and concerned about ASEAN. This view can be said to be the basis for the ASEAN Vision 2020, recently adopted by the governments, which forsees, inter alia, “a community of caring societies”. From such goals, we must understand that ASEAN is not a completed project. In order to achieve those goals, therefore, the way in which ASEAN member states co-operate and interrelate — the ASEAN way — is not static. However, while there have been attempts to prioritize the goals through the Hanoi Plan of Action (HPA), adopted in 1998, there is no agreed road map on how to evolve and change the modes of co-operation. This lack of agreement is evident in the recent controversy over the principle of non-interference.

NON-INTERFERENCE AND THE ALTERNATIVES IN ASEAN The concept of non-interference, or non-intervention, in the internal affairs of a state by another state (or other states jointly) is an established norm of the international order. It is the corollary to the rise of the nation-state and the anarchic and equal nature of the interstate community, as marked by the Peace of Westphalia in 1648. It is enshrined in Article 2(7) of the United Nations Charter. The principle has come under pressure in a globalized world, and by international movements, such as those for the protection of the environment and human rights, that emphasize the interdependence between nations and therefore the right and duty of states to legitimately

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examine and intervene in the affairs of another state which violates norms. There has, therefore, been ongoing debate and controversy about how to reconcile the norms in these emerging fields of the environment and human rights with the older norm of non-intervention. ASEAN’s acceptance of the principle of non-intervention, or noninterference, can be discerned in a number of its constitutive documents. In the founding 1967 Bangkok Declaration, regional co-operation was to be in the spirit of equality and partnership. In the 1971 Declaration on the Zone of Peace, Freedom and Neutrality (ZOPFAN), ASEAN members recognized the right for every state, large or small, to lead its national existence free from outside interference. In the ASEAN Concord and the Treaty of Amity and Co-operation (TAC) of 1976, the principle is specifically outlined as one of the six in the list of fundamental principles that guide interstate relations. The TAC states that “no state shall interfere in the internal affairs of one another”. However, while the principle of non-interference did not originate in ASEAN, nor is it unique to it, regional norms and practices have gone beyond the practices of the international norm. There is a sense that, while the ASEAN countries have come late to non-intervention, they continue to affirm it more strongly than do states in other regions. There is substantial reason for this perception. In political statements and in their policies, the governments in ASEAN have been notably sensitive to what they perceive to be interference. They have protested against comments on their domestic politics by political leaders of other countries, such as those concerning the protection of ethnic minorities within their borders, and political contests between and within parties. The ASEAN emphasis on this principle can be seen against the background of its historical development: the colonial history of the region; continuing interventions by the great powers during the Cold War; the relatively fragile nation-states that emerged, with disputed boundaries and cross-border ethnicities; the internal problems of different states, such as communist insurgencies and separatist tendencies; the lack of a uniting principle of internal governance, such as democracy, and the co-existence of regimes with differing bases and levels of legitimacy; and the need to unite to apply pressure against Vietnam’s invasion of Cambodia. However, while the principle of non-intervention may have a special significance for ASEAN, this does not mean that ASEAN members do not or have not become involved in each other’s affairs. There are several examples to prove that ASEAN has, in fact, been involved in each other’s affairs. ASEAN’s involvement in the resolution of the Cambodian conflict is a case in point.

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From the start of the Cambodian conflict in 1979 until the country’s formal admission as ASEAN’s tenth member in 1999, ASEAN was engaged deeply in Cambodian affairs. Although it did not intervene against the Pol Pot regime, ASEAN and its member states, consistently and in concert, protested the subsequent Vietnamese occupation of Cambodia and demanded its immediate withdrawal. This presents a strong argument against the misperception that ASEAN has strictly adopted a hands-off policy with its neighbours. ASEAN supported the Coalition Government of Democratic Kampuchea (CGDK) in 1983 as well as the Paris Peace Accords. In 1997, when intra-factional conflict again arose within Cambodia, ASEAN sent a troika of three foreign ministers to mediate between the parties (with their consent, obtained under diplomatic pressure), and refused to admit Cambodia as a full member until arrangements were made to ensure domestic stability. These arrangements included, among other things, the holding of free and fair elections and the establishment of a Senate — matters clearly relating to Cambodia’s domestic politics. ASEAN’s adherence to its non-interference policy has also been bent in the case of Myanmar/Burma. There, in the face of mounting reports of human rights abuses and international approbation over the ruling regime’s treatment of Aung San Suu Kyi, ASEAN came up with the policy of “constructive engagement”. This was a condition attached to Myanmar’s admission into ASEAN in 1997. This policy has been strongly criticized by others who have preferred one of sanctions and isolation, advocated by the United States and the European Union. Neither ASEAN nor the proponents of sanctions and isolation have been successful in inducing improvements in Myanmar/Burma, and there have been tragic economic and human consequences. For the purpose of this chapter, however, it is notable that ASEAN did not simply shelter Myanmar/ Burma under the norm of non-intervention. It instead undertook to “intervene”, albeit through trade, investment, and forms of co-operation, and political dialogue. As a follow-through on this stated policy, the ASEAN leaders have, during their private meetings with their Myanmar counterparts, offered advice on the political situation and have encouraged the ruling regime to open a dialogue with the pro-democracy opposition. In June 1997, then Malaysian Foreign Minister Abdullah Badawi, in his capacity as ASEAN’s envoy, tried to encourage the regime to establish dialogue with the prodemocracy groups. Moreover, during this period the Malaysian and Philippine foreign ministers met with pro-democracy leader Aung San Suu Kyi in

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October 1997 and March 1998, respectively. There is no strong indication, however, that these instances have since been developed consistently and comprehensively into a full political dialogue. Nor, since the crisis, has there been continued investment and trade with Myanmar. In this sense, the problem of “constructive engagement” is not that ASEAN adhered to nonintervention but that it has not, to date, fully or constructively engaged. In both cases, ASEAN has not allowed the principle of non-interference to stop it or its member countries from becoming involved in the internal affairs of others. These instances of practice have led to some reconsideration of the principles. The former Malaysian Deputy Prime Minister Anwar Ibrahim mooted the term “constructive involvement” in 1997 as a reaction to the events in Cambodia of July that year. As an alternative to non-intervention, “constructive intervention” was proposed as a proactive policy of involvement and assistance to Southeast Asia’s weaker nations in order to prevent their internal collapse. The specific measures suggested included: (1) direct assistance to firm up electoral processes; (2) an increased commitment to legal and administrative reforms; (3) the development of human capital; and (4) the general strengthening of civil society and the rule of law. “Constructive engagement” was never a formal proposal by the Malaysian Government and the idea must be judged to have suffered the same fate as its proponent. The questioning of non-intervention is, however, not over. Before the annual ASEAN Ministerial Meeting (AMM) was held in Manila in July 1998, there were reports that Thailand would pursue a “constructive intervention” policy. Thai newspaper articles quoted the then Thai Foreign Minister Surin Pitsuwan as saying that “it was time to modify the principle of non-intervention in ASEAN, or at least to reach a new understanding on the principle which is too strict”.2 He added that “we (Thailand) will now pursue a policy of constructive intervention”.3 A month later, and perhaps as a consequence of the reaction from other ASEAN members to the reports, Surin’s proposal of “constructive intervention” was renamed “flexible engagement”. A statement issued by the Thai Foreign Ministry clarified Surin’s proposal as saying that: “He (Surin) still considers the core of the ASEAN principle of non-interference in domestic affairs as important. But what he wants to achieve is more flexibility for members to express views and, if necessary, provide advice on policies pursued in each country so that ASEAN as a whole can be seen in a better light.”4 Surin’s broad proposal seemed to suggest a marked difference in the way ASEAN should practise non-interference. According to the Thai Non-Paper on the Flexible Engagement Approach:

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many “domestic” affairs have obvious external or transnational dimensions, adversely affecting neighbours, the region and the region’s relations with others. In such cases, the affected countries should be able to express their opinions and concerns in an open, frank and constructive manner, which is not, and should not be, considered “interference in fellow-members” domestic affairs ... ASEAN countries should have sufficient self-confidence in one another, both to discuss all issues once considered “taboos” with one another with candour and sincerity, and to speak out on such issues in good faith when necessary and appropriate.5 Essentially, the Thai proposal reflected two fundamental differences in ASEAN’s current practice. First is the manner in which communication and diplomacy are conducted. While the “ASEAN way” advocates quiet diplomacy, characterized by private discussions and the use of oblique language, the proposal calls for open and frank discussion. Secondly, the proposal seemed to set out a broad set of domestic issues where “interference” is justified when they impact on bilateral, regional, and extraregional relations. Among the ASEAN members, it was only the Philippines that openly supported the Thai proposal. The formal debate on “flexible engagement” ended at the ASEAN Ministerial Meeting in Manila in July 1998 with an announcement that ASEAN would instead practise “enhanced interaction”. What does this term mean? The then Indonesian Foreign Minister Ali Alatas more or less summed up ASEAN’s position when he said: If the proposition is to replace the principle of non-intervention or in any way to tinker with it, then Indonesia won’t accept. However, if the proposition is that ASEAN ... taking into account all the changes in the world, should be more active in dealing with one another on problems that may originate in one country but may have an impact on the other ASEAN countries, then by all means let us talk about it.6 The latest turn in the debate has been the setting up of an ASEAN Troika of three ministers. This, while agreed to by the ASEAN Ministerial Meeting in Bangkok in July 2000, has been the subject of some controversy. There was suspicion that the Troika would be the vehicle for flexible engagement and increased acts of intervention. This was particularly because the idea originated in government circles, from the Thai Government, and Minister Surin. As finally agreed, the Troika has no special and prior mandate from the AMM. With the enlargement of ASEAN to ten members, the Troika of

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ASEAN ministers is to facilitate decision-making. The role of such a Troika might possibly include limited initiatives as a response to problems of security and crisis. On the whole, however, the Troika is at best a focal point for first reaction and initiative, but one that must turn to the AMM for authority to proceed further. What, if anything, does the Troika or, more broadly, this debate in ASEAN on the various terms of “non-intervention” and its alternatives signify?

PATCHWORK INSTITUTIONALIZATION The scope of what ASEAN member states agree “originate in one country but may impact on the other(s)”, can be clarified by looking at recent developments in two areas of ASEAN activity: (1) macroeconomic policy, investment, and trade; and (2) environmental protection and efforts to combat the haze pollution. Macroeconomic Policy, Investment, and Trade One of the major criticisms of ASEAN was its poor response to the financial crisis because of its inability to work solidly and come up with a concerted response to it. However, analyses of ASEAN responses to the economic crisis reveal certain facts which may have been lost in the debate on non-interference. Firstly, months before the fall of the Thai baht, the ASEAN finance ministers met and one of the initiatives taken during this meeting was to exchange views on macroeconomic policies and improve transparency of financial policies and regulations. This was in the light of the growing concerns in the region over the volatility of regional currencies. Meanwhile, ASEAN central banks were working behind the scenes to increase co-operation to strengthen the region’s capacity to combat currency volatility. Note also that the banks had provided large-scale support for the Thai baht in May 1997 when it was being attacked aggressively by speculators. However, given the capacity of speculators to shake the currency, the banks found themselves defenceless.7 Secondly, when the crisis started to break out in July 1997, several meetings at three levels (heads of state/government, ASEAN economic/finance ministers, and the private sectors) were held to work out ASEAN’s response. The meetings, particularly those held in November and December 1997, came out with concrete measures, the key elements of which included: (1) joint calls for international support to address problems in international currency trading and international finance; (2) joint appeals to the large

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economies — the United States, Japan, and the European Union — to help resolve the crisis; (3) efforts to promote trade within Southeast Asia and East Asia, using local currencies where possible; and (4) agreement to establish regional surveillance mechanisms within ASEAN that, among other things, would act as a peer review process. Institutional changes to ASEAN are also implied by the new efforts on macroeconomic policy. In the wake of the crisis, ASEAN members have agreed to exchange information on macroeconomic indicators and to discuss the underlying policies. This surveillance process is voluntary, although there has been unanimous acceptance at its initial meeting (in March 1999). There is a need to study these indicators and their implications, in preparation for future meetings. A small unit has already been set up in the ASEAN Secretariat for this purpose. This may well be a significant step and it is one that will require follow up if ASEAN is to foresee and prevent another economic crisis. It is notable that, in 2000, the surveillance mechanisms began to operate, with meetings to exchange and review information between countries. This has also been enlarged by the Chiang Mai initiative, whereby ASEAN and the East Asian countries of China, Japan, and Korea agree on currency swaps in the event of short-term currency imbalances. Beyond finance, ASEAN economic co-operation is being furthered through initiatives such as the ASEAN Free Trade Area, ASEAN Investment Area, and “e-ASEAN”. Taken together, they promise that businesses will be better able to treat the entire region of ten countries as a single destination for investment, trade, and products. These have been proceeding despite the crisis. Yet while the ASEAN member states have promised earlier deadlines for the completion of AFTA, some states have backtracked or slowed their commitment to liberalize in some sectors, such as the automobile industry. There are also real or potential economic, infrastructural, and political obstacles to freer investment regimes and to enhanced e-connectivity among the ASEAN member states. Efforts to Combat the Indonesian Fires and Haze Pollution ASEAN has had environmental strategic and action plans for many years. These have been formulated by the ASEAN senior officials on the environment (ASOEN). A review of ASEAN’s environmental record is beyond the scope of this chapter, and has been attempted elsewhere by this author.8 An outline may, however, provide an idea of the steps that ASEAN has taken in the 1990s in response to the Indonesian fires and haze pollution. ASEAN took its first step towards environmental protection in 1978,

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when the grouping convened its first meeting of ASEAN experts on the environment.9 Its first ministerial level declaration on co-operation on environmental issues followed, in 1981. It has, however, become better known for taking a pro-developing country stand, as at the 1992 Earth Summit in Rio de Janeiro. Malaysian Prime Minister Dr Mahathir Mohamad spoke for many ASEAN members when he said: [n]ow the developed countries have sacrificed their own forests in the race for higher standards of living, they want to preserve other countries’ rain forests — citing a global heritage — which could indirectly keep countries like Malaysia from achieving the same levels of development.10 ASEAN countries also rallied to lobby successfully against Austrian eco-labels on tropical timber.11 Most recently, ASEAN countries have played a central role in the WTO challenge of U.S. laws prohibiting shrimp imports from nations that do not mandate the use of production methods that safeguard against the killing of sea turtles.12 More positively, ASEAN members have taken some steps towards improving environmental co-operation among themselves and with nonASEAN states. Such steps include environmental programmes that evolved through three phases to form an ASEAN Strategic Plan of Action (1994– 98).13 The strategies cover a broad range of environmental concerns and adopt many of the approaches recommended in Agenda 21. Broadly, the ASEAN strategy seeks to integrate environmental and developmental concerns in the decision-making process of governments through such mechanisms.14 The Strategic Plan also recognizes the need to foster government and private sector interactions;15 strengthen institutional and legal capacities;16 establish a regional framework on biological diversity conservation and sustainable use;17 promote the protection of coastal zones and marine resources;18 encourage environmentally sound management of toxic chemicals and hazardous wastes;19 and establish a system for promoting environmentally sound technologies.20 The effectiveness of such measures, however, suffers from weaknesses in monitoring, assisting, and ensuring state compliance. These weaknesses are endemic to the “ASEAN way” and its preference for non-interference in the domestic affairs of member states; for non-binding plans, instead of treaties;21 and for central institutions with relatively little independent initiative or resources. As such, the ASEAN environmental undertakings may be characterized as plans for co-operation between national institutions, rather

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than as the creation or strengthening of any regional institutions as a central hub for policy-making or implementation.22 This limits the stability and certainty of ASEAN co-operation. Environmental undertakings, whether in Action Plans or elsewhere, no matter how solemn and well-meant, are left to the individual states to implement or to delay, as they decide for themselves. The nature and limit of ASEAN cooperation on environmental matters can be seen in the fate of the ASEAN Agreement on the Conservation of Nature and Natural Resources. The 1985 Agreement was notable for a number of innovative principles and forwardlooking approaches. Despite this, while the Agreement was initially signed by the ASEAN members, it has failed to achieve the required number of ratifications to come into force. In 1997 and early 1998, Southeast Asia suffered outbreaks of fires and smoke haze of great human and environmental consequence. Centred in the Indonesian provinces of Kalimantan and Sumatra, the fires spread as smoke haze across borders to affect the region, especially Malaysia, Brunei, and Singapore, and forcing some 20 million people to breathe potentially harmful air for prolonged periods.23 The chief of the United Nations Environment Programme (UNEP), Dr Klaus Toepfer, declared the fires “a global disaster”.24 The fires and regional haze pollution are the most important and prominent challenge to ASEAN co-operation on the environment. What has been done? ASEAN environment ministers agreed to a Co-operation Plan on Transboundary Pollution in June 1995.25 This was followed by an Regional Haze Action Plan in 1997. These will be briefly described and assessed for their effectiveness. The Co-operation Plan set out broad policies and strategies to deal with atmospheric and other forms of transboundary pollution and outlined efforts to be made at both national and regional levels to deal with the 1994 haze. Each country agreed to establish focal points and enhance its national capability to deal with forest fires. Countries also agreed to share knowledge and technology on the prevention and mitigation of forest fires and to establish a mechanism for co-operation in combating forest fires.26 In the Co-operation Plan, ASEAN ministers also agreed to develop a common air quality index and a regional fire danger rating system for the region. ASEAN institutions such as the Specialized Meteorological Centre were asked to develop ways of predicting the tracts and spread of smoke haze. The Co-operation Plan also envisaged support from countries outside the region with expertise in fire management systems, such as New Zealand and the United States, as well as from institutions such as the Japan-based International Tropical Timber Organization (ITTO).

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The Co-operation Plan is less formal than comparable treaties in other regions, such as Europe, that deal with long distance transboundary harm.27 Its principles and approach, however, might seem workable and even commendable28 at a regional level. However, implementation of the Cooperation Plan has, in large part, failed. Very few of the steps envisaged were actually taken. The outbreak of fires in 1997 demonstrated the lack of followup to the Co-operation Plan in almost all areas. Singapore’s assistance to Indonesia — providing satellite imaging of fires and “hot spots” — was the lone exception. Instead of working within an agreed system of co-operation, countries were left to make bilateral arrangements and hold emergency discussions, especially between Indonesia and Malaysia, and between Indonesia and Singapore. Following the 1997 fires, the ASEAN environment ministers agreed in December 1997 to a Regional Haze Action Plan to provide further commitments and detail.29 Upon review in April 1998, the Action Plan agreed to create two subregional fire-fighting arrangements for Kalimantan and for the Sumatra/Riau provinces in Indonesia.30 Indonesia also announced that it would lay the framework for an ASEAN Research and Training Centre for Land and Forest Fire Management in Central Kalimantan.31 However, discussion of joint funding within the region has so far yielded no agreement. Clearly, the Action Plan is a welcome attempt to kick-start the stalled work of the earlier and more general Co-operation Plan. Doubt remains, however, as to the ability of ASEAN to fill in the omissions of the Indonesian national system, primarily because of the ASEAN norm for non-intervention in the domestic affairs of member states and the dominant role that Indonesia plays in the grouping. The ineffectiveness of the Plan can also be traced to the lack of sufficient institutional support to prioritize environmental law and policy-making in ASEAN. This relates to the ASEAN aversion to stronger regional institutions. In the face of these obstacles, ASEAN has to date failed to supplement failures by Indonesia to address the Southeast Asian fires. While efforts continue, the recurrence of the fires in 1998, 1999, and 2000 suggest that they have yet to be effective. The lack of long periods of high-level regional haze has not been because of any ASEAN actions to prevent fires, but because of weather. Unusually wet weather, especially in 1999, has dampened the fires that have been started and stopped them from spreading. Various means and methods have been suggested for an effective response to the Indonesian fires and regional haze pollution. These are too many and detailed to canvass fully here.32 For the purposes of this chapter, it is sufficient that some suggestions be outlined insofar as they relate to the broader

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questions of ASEAN co-operation and institutions. For while the steps taken so far have yet to prove effective, they do represent a shift in the “ASEAN way”. Three developments stand out. The first is the fact that regular and frequent meetings have been held to review progress. The meetings of senior environment officials have taken place as often as once a month, with some exceptions because of disruptions caused by Indonesia’s political transition. The second is that these meetings have gone beyond the exchange of formalities to a more open and frank discussion of the problems underlying the fires and the lack of sufficient action to address them. It is notable in this regard that ASEAN officials on the environment have officially referred to Indonesia’s forestry and land use policies; such issues are literally a matter of sovereign territorial rights. Attempts by the international community to address similar issues with regard to the conservation of tropical rainforests have been repeatedly rebuffed, and no internationally binding treaty on forests and land use has been agreed upon. Despite this, the ASEAN norm of non-intervention has thus far not intruded or been used as a shield to this increasingly candid review of Indonesia’s policies on this sensitive issue. The third development that is notable in current practices in addressing the issue of the fires is that ASEAN has increasingly opened its proceedings to international institutions and even to non-government organizations (NGOs). The Asian Development Bank and the United Nations Environment Programme have been regularly included in ASEAN discussions on the issue. Their offers of assistance and advice to the ASEAN Secretariat have also largely been accepted by Indonesia and the other member states. As for the NGOs, ASEAN environment ministers have taken the step — unusual in state-centric ASEAN — of inviting them to support efforts to deal with the fires. In June 1998, the Singapore Environment Council made a presentation to the ASEAN senior officials for the environment on the fires, after an international dialogue on the subject had issued a statement on means to address the problem.33 This was perhaps the first occasion at which an NGO formally met and made representations to ASEAN environmental officials. Other NGOs have since made similar interventions. These three developments have not, as admitted, solved the problem of the fires. Nor are these developments by any means revolutionary. In toto, however, they point to an increasing institutionalization of ASEAN in dealing with this environmental challenge. They may also be significant when we review how environmental institutions in the international sphere and in other regions foster compliance. For in the international community and in other regions, including Europe, environmental laws and policies are not enforced by world government or (largely) by sanctions and courts that

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legalistically hold one state responsible and accountable to another. Instead, studies show that environmental institutions foster compliance through more co-operative means such as regular and close review of country reports on their progress; providing technical and other assistance; and offering financial assistance from pooled resources.34 More can and should be done to deal with the problem of the fires and haze pollution. However, what has been done to date, more relevant to this chapter, shows a growing institutionalization of ASEAN in the field of the environment. More broadly, these developments, seen in tandem with developments in the field of economic co-operation, may be seen to point to a change in the way that ASEAN member states interact and co-operate where there is a recognized interdependence. In this, we may identify the possible beginnings of a new norm or principle, whatever we call it, that may significantly differ from and be an exception to the norm of non-intervention. These developments may also signal a nascent trend towards a greater institutionalization of ASEAN.

NEW NEEDS, NEW PRINCIPLES? Economic and financial co-operation, and efforts to combat the Indonesian fires and haze pollution are among the most important challenges facing ASEAN. They are, however, not the only ones in the region today. There are problems of intra-state conflicts, often along ethnic lines, as well as acts of terrorism. There is a rise in cross-border crimes, especially those involving organized crime, and concerning drugs, the trade in human beings, and the illegal flows of small arms. In economic and human development, special attention is needed to address the two-tier division between older and newer ASEAN member states. There is also a perceptible difference among members as regards their acceptance of democracy and civil society. Goals and plans have been formulated to address many of these issues and for the longer term vision of the region. In particular, the development of the ASEAN Regional Forum and the implementation of the Hanoi Plan of Action are significant to the questions of co-operation, foreign policy, and institutionalization addressed in this chapter. The ASEAN Regional Forum The ARF can and should be celebrated as the premier multilateral forum for security in the Asia-Pacific. The very fact of its existence and continuance is

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noteworthy. Its particular genesis and architecture are quite unique, especially given the special role that ASEAN member states have played and are playing as chairman. Its promise is considerable, given the several points of tension in the region and the lack of any other regional institution in which to address them. Its modes and processes too are intriguing. The ARF promises co-operation among very diverse countries, rather than Cold War-style confrontation. It seeks (to some) to adapt and adopt the “ASEAN way” to a much larger and more difficult range of countries, including the major powers. It has therefore sought to avoid many of the structures and approaches in security arrangements in Europe and elsewhere. Yet the test of the ARF must not, in the end, be ruled by nativist urges of “Asian” difference. It will be judged by whether its modes and processes are ultimately helpful and effective to the maintenance of security and peacebuilding in the region. In the ARF, the challenge is to address the current problems in some meaningful way and to move the forum as a whole to the next stage of preventive diplomacy. It remains questionable if the “ASEAN way” can be effectively adopted in larger and more diverse new institutions such as the ARF. This is especially with regard to the practice of preventive diplomacy. These doubts arise from a number of sources. First is the ASEAN norm against interference in the internal affairs of another member. Second is the grouping’s caution against elaborate, fixed institutions and rigid rule-based procedures. It may seem to some that the line between preventive diplomacy and “interference” may often be vague. The practice of preventive diplomacy may require a greater degree of institutionalization for the ARF. There are a range of suggestions on how the ARF can be brought into operation. Some Asian countries in the ARF, including China, show concern that preventive diplomacy might be a pretext for interference in their domestic affairs.35 Progress in the ARF towards preventive diplomacy has been slower than many would wish and yet is a source of concern to others. The ARF’s development may be in danger of being captive to the lowest and slowest denominator. The ARF has not demonstrated its usefulness in responding to regional crisis. Towards the end of 1999, difficulties arose over the issue of East Timor. This followed the inability and unwillingness of the Indonesian military to prevent widespread violence in the territory after a United Nationssponsored vote favoured independence from Indonesia. Further violence was prevented by Australia’s willingness to dispatch a military force to the territory within a relatively short span of two weeks. The Australian initiative was, however, resented strongly by Indonesia, and has been replaced by a United Nations authority, the United Nations Transitional Administration in East

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Timor (UNTAET), in which some ASEAN member states and multinational participants feature more prominently. In this issue again, the ARF played no apparent role. Instead, the APEC summit served innovatively but incongruously to allow concerned leaders to discuss the issue at the sidelines of their meeting on economic matters. Similarly, the ARF has played little or no role in dealing with the cross-straits tensions that have risen again in the run up to and aftermath of elections in Taiwan. Against this background, there has been a resurgence in bilateral tensions and security arrangements in the region. Examples of this trend include the United States–Japan agreement, and the United States–Philippine agreement. Additionally, Malaysia’s recent activities in disputed territories in the South China Sea as a defection from the ASEAN and multilateral approach to conduct in the region. There are those who interpret this move by the Malaysians as being a sign of tacit agreement with China that the dispute can be resolved on a bilateral basis. There is tension between such bilateralism and the ARF. This is not merely a difference between the bilateral and multilateral frameworks. The tension arises from the nature of these arrangements. The ARF is based on the concept of co-operative and comprehensive security. These concepts emphasize that peace and security are interdependent. The emphasis is on building a community of shared norms and institutions, in which no one is singled out and isolated as an enemy. In contrast, the bilateral arrangements that have been resurgent are focused on more traditional military and security matters. Their form of bilateralism suggests an alliance against an “other”. They can, therefore, be seen as having quite a different emphasis from the co-operative security framework in which the ARF and preventive diplomacy are situated. They are realist undertakings, set in the narrow and potent calculations of armed forces. By contrast, the ARF and its move towards preventive diplomacy is, at its core, an enterprise in norms and noncoercive measures. The bilateral agreements may have their own reasons and justifications, and it is not within the ambit of this chapter to discuss them at any length. The recent events in East Timor and Taiwan–China tensions have in fact suggested to some observers that realist calculations of force and counterforce are ever more important in the region. There have also been notable weaknesses in the response of the region in a multilateral framework to recent tensions and problems. Worldwide, there has been a current that has moved away from the earlier enthusiasm for preventive diplomacy and peace-building efforts. The resurgence in bilateral security arrangements points to an uncertainty about the efficacy and sufficiency of multilateral efforts and co-

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operative security. Bilateral efforts were needed because multilateralism did not work, and did not want to work. The ARF process runs the risk of being distracted by resurgent bilateral security arrangements. These pose the danger of reducing the belief and reliance on the ARF as a workable enterprise that is worthy of real enthusiasm and support. It may well be that the ARF has only a peripheral existence — a normative enterprise undertaken by realists. How can the ARF continue to demonstrate its relevance? How can preventive diplomacy develop in the ARF? To what degree will ASEAN norms against interference in internal affairs, or its preference for informal and non-legalistic methods, allow for the effective exercise of preventive diplomacy? The ARF concept chapter produced by ASEAN (Annexes A and B)36 makes some suggestions on how preventive diplomacy can be instituted. These include: (1) developing a set of guidelines for the peaceful settlement of disputes, taking into account the principles of the United Nations Charter and the Treaty of Amity and Co-operation; (2) seeking the endorsement by other countries of the ASEAN Declaration on the South China Sea; (3) exploring ways of preventing conflict, including the appointment of Special Representatives to undertake fact-finding missions, at the request of the parties involved, and offer their good offices; and (4) exploring the idea of establishing a Regional Risk Reduction Centre to serve as a database for the exchange of information. At Track Two, these and additional suggestions have been put forward on how preventive diplomacy might be shaped and supported in the ARF.37 If and when these steps are taken, there will be an impact on the norms and practices in ASEAN. Some practices of preventive diplomacy, such as the use of fact-finding missions and the offer of good offices may be said by some to amount to an interference in the internal affairs of a state. This is especially when the scope of preventive diplomacy may extend beyond more traditional security concerns, such as the build-up of armed forces in border areas or an escalating dispute over territory. If the concept of comprehensive security is used, then newer, non-traditional conceptions of conflict and crisis, like human rights, the treatment of minorities, and the environment, would come increasingly into focus. In such cases, the potential clash with the norm of non-interference is accentuated. What can be done? First, there is a need to closely define preventive diplomacy as applied in the ARF. Given the norm of non-interference, definitions that some give to preventive diplomacy, which include coercive measures, sanctions and military deployment, or even the threat of these

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things, should be ruled out. The ARF may more readily accept preventive diplomacy if it is limited to its core meaning of using only diplomatic measures. Even so, there are likely to be concerns that the ARF should be consistent and fair in its application of such measures. Principles that will guide the ARF practice of preventive diplomacy may need to be discussed and mutually accepted by ARF members and by ASEAN member states as the core and rotating chairmen of the ARF. This will occupy the ARF for some time to come, and will have a shaping hand in the development of this new institution and its practices. In this way, preparing for the practice of preventive diplomacy is not just another new undertaking by the ARF or by ASEAN. Rather, it is an exercise that can potentially shape the practices among ARF member states and the very institution of the ARF itself. Given the role of ASEAN in the ARF, the practices are also likely to affect ASEAN interaction and foreign policy. Indeed, there has been suggestion that ASEAN should lead by example and begin to practise forms of preventive diplomacy among its own members in advance of the changes in the ARF. The ambition of ASEAN to drive the ARF may, in this regard, lead to ASEAN driving itself to change. ASEAN Vision 2020 and the Hanoi Plan of Action A similar possibility attaches to the ASEAN Vision 2020 and the Hanoi Plan of Action. Amidst the most serious crisis that has faced the region, ASEAN declared its Vision 2020 on 15 December 1997. This broad vision aims to see ASEAN as a concert of nations, outward looking, living in peace, stability and prosperity, bonded together in partnership in dynamic development, and in a community of caring societies. In December 1998, the sixth informal ASEAN summit was followed by the Hanoi Declaration and the HPA. The HPA set out specific and concrete steps and goals to be implemented in the six years from 1998 to 2004. The HPA tries to set realistic goals. Yet, it is both ambitious and wide in scope, covering diverse and complex areas of policy-making: macroeconomic and financial co-operation; economic integration; science, technology, and information technology; social development and the social impact of the crisis; human resource development; the environment and the promotion of sustainable development; regional peace and security; ASEAN’s role in the world and the Asia-Pacific region; and the structures and institutions within ASEAN. The HPA is an attempt to spell out how the broad ASEAN 2020 Vision

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can be implemented. In this, there is a role for a regional institution — such as the ASEAN Secretariat — to co-ordinate and review government actions on the plan, and to point out shortcomings. This would enhance the impartial review of national efforts to further the HPA. The process for review has begun, albeit somewhat inauspiciously with the mere listing of various meetings held and plans drawn up. There will have to be increased scope for a central institution to review more strictly and evaluate national plans. Otherwise, the HPA is likely to remain more a plan than action. The ASEAN Secretariat could serve as such a central institution, if it is given the mandate and sufficient resources. There are lingering suspicions among some ASEAN member states, however, against having stronger regional institutions. As such, perhaps a Council of Ministers with special powers to oversee implementation might be more acceptable. It is essential, however, that such a Council should have strong powers to review, analyse, and cajole. The model should not be the usual meetings where general statements are issued, but along the lines of the peer review process in the area of financial co-operation. How does the ARF and the HPA impact on ASEAN as an institution? The impact at present should not be overstated. As acknowledged, much more remains to be done. The plans have generated expectations of implementation. It can therefore be argued that some forms of increased institutionalization is needed and must come about. If not, ASEAN may continue in the old “ASEAN way”, and face the danger of becoming increasingly irrelevant. These brief discussions of the ARF and the HPA point to a need for ASEAN to review and strengthen its forms of co-operation and interaction, and its modes for making and implementing foreign policy. This arises from functional needs and ambitions. If ASEAN wants to lead the ARF to the next stage, it must itself move to a next stage. If ASEAN wants to implement the HPA as a source of unity and strengthened co-operation, it must ensure timely review and implementation of the HPA. In so doing, institutions and processes in ASEAN will need to be strengthened. Given the preference for working within the framework of co-operation rather than confrontation, how can ASEAN proceed meaningfully? Given the negative sentiment against the model of union and the Brussels bureaucracy, how can ASEAN be united and institutionalized? There are some priorities and principles that can be suggested. Firstly, there would be the need for members to agree to certain rules of behaviour and commitment to principles of justice and the rule of law. Ideally, this would require the members to commit to putting their houses in order and to bring about greater transparency and accountability where

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necessary in their respective governments. The financial crisis has exposed certain fundamental weaknesses in the economic and political systems of member states which made them vulnerable to external forces, and which also accelerated and exacerbated the devastating effects of the crisis. Secondly, areas of co-operation have to be clearly identified. In this regard there are already several suggestions on how co-operation in ASEAN can be enhanced. Many of these suggestions are reflected in the HPA, which has detailed the areas of co-operation, particularly in strengthening macroeconomic and financial co-operation, and in enhancing economic integration.38 The problem of ensuring compliance by member states to economic measures adopted can be approached by putting in place the right institutions to monitor the implementation of these measures. For example, ASEAN should institutionalize regular meetings among its finance ministers, and governors and officials of central banks and financial bodies. These meetings will facilitate consensus on concrete measures to be taken and agreement on the types of information to be exchanged. Frank discussions can take place during these meetings and in the process, peer pressure is generated for members to comply, and commitment is reinforced. Decision-making can also be hastened. In this regard, the proposal for ASEAN to adopt a majority rule instead of consensus can be considered since this practice has been applied to less fundamental issues. Thirdly, and closely related to the point above is the need to strengthen the ASEAN Secretariat and improve its capabilities to take on various tasks. Against increasing demands, the Secretariat’s role cannot be minimal. The Secretariat has to have sufficient professional and competent staff to support and monitor the various initiatives introduced by ASEAN’s top officials, otherwise these initiatives may never be implemented. Having regional experts in specific issue areas within the Secretariat also facilitates its role as a coordinating body in the region. Moreover, it enables the Secretariat to effectively work with various regional institutions which have been set up to deal with regional problems such as the haze, migration, etc., and to assist in monitoring the progress of the programmes as well as assess the performance of these bodies. Finally, the efforts at strengthening the Secretariat can be complemented by greater participation and involvement of non-government organizations, think-tank groups, and academics. Their expert and impartial participation in the review process can be one way of strengthening the central institutions without making the ASEAN Secretariat large, expensive and unwieldly. Moreover, if ASEAN ultimately aims to be a community in and of Southeast

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Asia, as envisioned in the ASEAN 2020 document, then grass-roots participation and people-to-people relations are essential. ASEAN can no longer remain a regional body based on state-to-state relations.39 Getting non-officials involved in regional issues also facilitates co-operative measures to deal with problems that can only be solved on a regional scale, such as environmental degradation and pollution, illegal migration, and some transnational crimes like trafficking of drugs, arms, women, and children. Their participation and inputs are valuable and they play the meaningful role of being conduits between the people and the state. Moreover, nongovernmental meetings are excellent forums where sensitive issues can be openly debated which in a way puts pressure on states to respond to urgent problems. These possibilities point to ways to evolve ASEAN co-operation on the environment, and to develop the necessary institutions for such co-operation. The range of suggestions set out in this chapter may seem too little for some and too much for others. What is politically possible in ASEAN and what might be effective in addressing issues are matters of judgement, and individual judgements might differ. Some essential characteristics of these suggestions can, however, be offered in closing. Three principles that may be evolving in ASEAN, and perhaps should be encouraged, may be summarized as follows: 1. From co-existence to co-operation: While ASEAN’s original mission was to build confidence and ensure peaceful co-existence among its members, the emerging need is to foster co-operation. Such co-operation is needed in different spheres, such as economics, environment, security, and other issues. The nature of co-operation is also changing to one that is not simply between states because it increasingly affects domestic policies. 2. From national resilience to regional resilience: While ASEAN has long emphasized national resilience, it must be increasingly seen that regionalism is not a contradiction of nationalism. Instead, it is a way of managing globalization and the increased interdependence between economies, ecologies, and peoples. 3. From unanimity and consensus to coalition of the willing: While ASEAN unity and consensus continues to be important, there is an increased need to emphasize the legitimacy of some member states to pioneer new initiatives and/or proceed at a faster pace than others. This is necessary, given the divergence among the ASEAN members in their capacity and their inclinations. These “coalitions of the willing” should not be a source of disagreement in ASEAN, provided that the general direction of such initiatives is welcome and the coalitions remain open for all to join.

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ASEAN, and the “ASEAN way” too, is not really old or fixed. While the Association is now more than thirty-three years old, many of its members and initiatives are very recent. There is therefore a real prospect and a need for ASEAN, its norms, and institutions to change to be relevant to the times and needs. The mode of ASEAN co-operation, known as the “ASEAN way”, does not serve well in dealing with many of the challenges it now faces. Yet, efforts to foist international approaches and principles onto ASEAN have so far failed. As such, perhaps the best hope is that the “ASEAN way”, without either being ossified or abandoned, can be evolved and changed. Such evolution and change has implications not only for the environment, but also for the future shape of ASEAN. ASEAN has not been static and inward-looking. It has instead been dynamic and outwardly engaged with Asia, the Asia-Pacific, and other regions. In these engagements, it has not blindly adopted European or other ways and institutions. It has espoused an “ASEAN way”. Yet this “ASEAN way” is itself not static. It has responded and is still responding to new needs, recognizing that something must be done. This has impacts on institutions, institutionalization, and indeed on institutionalism. The questions of how much, speed, and sufficiency remain unresolved. No end point is in sight. There is no final vision of integration or another goal. What is more certain is that ASEAN is evolving and that more can and will have to be developed in terms of institutions both within the Association and in its dealings with others in Asia and the Asia-Pacific.

Notes 1. Chin Kin Wah, “ASEAN Institution Building”, in ASEAN Towards 2020: Strategic Goals and Future Directions, edited by Stephen Leong (Kuala Lumpur: ISIS, 1998). 2. “Thailand to pursue ‘constructive intervention’ policy”, Straits Times, 8 June 1998. 3. Ibid. 4. “Surin wants a more flexible ASEAN stand”, Straits Times Interactive, 3 July 1998, . 5. See Thailand’s Non-Paper on the Flexible Engagement Approach, Press Release 743/2541, Thai Ministry of Foreign Affairs, 27 July 1998, . 6. “ASEAN Ministers Converge in Manila for Yearly Meeting”, Asian Wall Street Journal, 27 July 1998. 7. There have been numerous accounts on ASEAN’s concerted response to the currency crisis. See, for example, Hadi Soesastro, “ASEAN during the Crisis”, ASEAN Economic Bulletin 15, no. 3 (December 1998); John Funston, “ASEAN:

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8.

9.

10.

11.

12. 13.

14. 15. 16. 17. 18.

Out of its Depths”, Contemporary Southeast Asia 20, no. 3 (April 1998); and Michael Wesley, “The Asian Crisis and the Adequacy of Regional Institutions”, Contemporary Southeast Asia 21, no. 1 (April 1999). See Simon Tay, “The Southeast Asian Fires: The Challenge to International Law and Development”, Georgetown International Environmental Law Review (Winter 1999). For a compilation of ASEAN documents, see K. L. Koh, ed., Selected ASEAN Documents on the Environment (1996). There has not been, to date, a definitive study of ASEAN’s environmental record. Shorter studies of interest include: Ben Boer et al., International Environmental Law in the Asia Pacific (London: Kluwer Law International, 1998), which considers the ASEAN region in Chapter 12, from p. 225; and Somphong Sucharitkul, “ASEAN Activities with Respect to the Environment”, Asian Year Book of International Law 3, edited by Ko Swan Sik et al. (Kluwer Academic Press, 1994), p. 317. See Ko Swan Sik et al., eds., Asian Year Book of International Law 1, Chronicle Section (1991), p. 295 (citing Far Eastern Economic Review, 1 August 1991, p. 20). For a discussion of the issue of sovereignty and global environmental concerns, see S. H. Bragdon, “National Sovereignty and Global Environmental Responsibility: Can the Tension Be Reconciled for the Conservation of Biological Diversity?”, Harvest International Law Journal 33 (1992): 381, 387. On Malaysia’s influence on UNCED and international environmental policy, see Fauziah Mohd Taib, Malaysia and UNCED: An Analysis of A Diplomatic Process 1989– 1992 (1997). For a description and analysis of the Austrian trade measures on tropical timber, the ASEAN reaction, and the likely outcome in light of GATT rules, see Brian Chase, “Tropical Forests and Trade Policy: The Legality of Unilateral Attempts to Promote Sustainable Development under the GATT”, Hastings International Comparative Law Review 17 (1994): 349, 374–79 . On attitudes of ASEAN and Asia-Pacific countries to trade and environment issues, see Simon S. C. Tay, “Trade and Environment: Perspectives from the Asia-Pacific”, World Bulletin 13 (1997): 1. See also Alexander Gillespie, “The Malaysian Agenda and Influence on the International Tropical Deforestation Debate”, Asia Pacific Journal of Environmental Law 25 (1996): 40–44. See World Trade Organization Report of the Panel on United States Import Prohibition of Certain Shrimp and Shrimp Products, 37 I.L.M. (1998), p. 832. See Koh, ed., Selected ASEAN Documents on the Environment, note 80, p. 181. See also Boer et al., International Environmental Law in the Asia Pacific, p. 225 (for an outline on the ASEAN region). See Koh, ed., Selected ASEAN Documents on the Environment, note 80, p. 183. Ibid., p. 184. Ibid., p. 185. Ibid. Ibid., p. 186.

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19. Ibid., p. 187. 20. Ibid., p. 188. 21. The one treaty that was negotiated among ASEAN members, the Agreement on the Conservation of Natural Resources, has not been ratified by a sufficient number of members and, as such, is not in force. The Agreement was signed by all six of the then ASEAN members in Kuala Lumpur, Malaysia, on 9 July 1985. Only three countries have, however, ratified the agreement, one less than is required to bring it into force. See Koh, ed., Selected ASEAN Documents on the Environment, note 80, p. 27. For a comparison of the ASEAN Agreement and other biodiversity treaties, see Robin Churchill, “The Contribution of Existing Agreements for the Conservation of Terrestrial Species and Habitats to the Maintenance of Biodiversity”, in International Law and the Conservation of Biological Diversity, edited by Bowman and Redgwell (Kluwer, 1995). 22. An example of this institutional weakness is that the first ASEAN State of the Environment Report was produced largely by the UN Environment Programme, with minimal input from ASEAN. 23. Nigel Dudley, The Year the World Caught Fire (Gland, Switzerland: World Wide Fund for Nature, December 1997). 24. See, “The Fires are Back”, Asiaweek, 18 March 1998, p. 46. 25. The introduction of the ASEAN Co-operation Plan traces its development to ASEAN resolutions, meetings, and strategic plans on transboundary pollution, starting from 1990. “ASEAN Co-operation Plan on Transboundary Pollution” (accessed 30 January 1999). Notably, immediately prior to the adoption of the Co-operation Plan, the Informal Ministerial Meeting on the Environment held in Kuching, Malaysia, on 21 October 1994, recognized the need to control transboundary pollution within the region by treating it as “one ecosystem.” 26. Initiated by the 1997 fires, Malaysia and Indonesia concluded a bilateral memorandum of understanding for joint operations to deal with disasters of mutual concern, including fires. In 1997, significant numbers of Malaysian firefighters were deployed on Indonesian territory. It was, however, reported that they were underutilized. No similar deployment was arranged in response to the 1998 fires. 27. For a comparison of the ASEAN plans to European and other documents concerning transboundary pollution, see Simon Tay, “The Southeast Asian Fires”. 28. First, the Co-operation Plan recognizes that the region is a single ecosystem. Additionally, it emphasizes the need to build on both national and regional efforts so that one complements the other and incorporates principles of prevention and of mutual assistance and co-operation. It also recognizes that, although all states have a common interest in reducing or avoiding a recurrence of the haze, they have different abilities and responsibilities in working towards a solution. In this respect, the Co-operation Plan expresses the principle of

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29.

30. 31. 32. 33. 34.

35. 36. 37.

38. 39.

common and differentiated responsibility, recognized in the Rio Declaration, Principle 7. Association of Southeast Asian Nations, “Regional Haze Action Plan”, December 1997. Again, the Action Plan sets commendable objectives: prevent land and forest fires; establish operational mechanisms to monitor fires; and strengthen regional fire-fighting capabilities. The Action Plan reiterates the need for regional monitoring and for identification of sources of technical assistance from within ASEAN, from non-ASEAN countries, and from international organizations, such as the Asian Development Bank and United Nations Environmental Programme (UNEP). The Action Plan continues primarily to emphasize national plans and capabilities. However, the Action Plan calls for the establishment of a procedure for pooling fire-fighting resources for regional fire-fighting operations. Joint Press Statement, “Third ASEAN Ministerial Meeting on Haze”, 4 April 1998 (Brunei) at para. 8, . Ibid. For a discussion of the possible means, see Simon Tay, “The Southeast Asian Fires”. For a reprint of the NGO statement, see ibid. The author chaired the international dialogue for NGOs and made the presentation to the ASOEN. The reviews in a number of cases are sharpened by having sufficient and independent expertise in the Secretariat to assess and query country reports and/ or by opening the proceedings or their outcomes to NGOs and to the public. Compliance with environmental law and policy in this respect depends more on the “sunshine” methods of transparency and “carrots” of assistance, rather than the hard sticks of sanctions and penalties. On environmental institutions and means of fostering compliance, see Edith Brown Weiss, ed., International Compliance with Nonbinding Accords (American Society of International Law, 1997); Edith Brown Weiss and Harold K. Jacobson, eds., Engaging Countries: Strengthening Compliance with International Accords (MIT Press, 1998). See Simon Tay, “The Southeast Asian Fires”. Second ARF Chairman’s statement, supra. Simon S. C. Tay, “Preventive Diplomacy and Security: Principles and Possibilities in the ARF”, reprinted in the Next Stage; and Simon S. C. Tay and Obood Talib, “The ASEAN Regional Forum: Preparing for Preventive Diplomacy”, Contemporary Southeast Asia 19, no. 3 (December 1997): 252. See Hanoi Plan of Action, . This point has been strongly argued by ASEAN scholars. See, for example, Jusuf Wanandi’s article “Rethinking ASEAN”, Newsweek, 30 April 1998.

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14 ASEAN IN 2030 The Long View Hadi Soesastro

INTRODUCTION In 2030 ASEAN will be sixty-three years old. For human beings, this is near retirement age. Some will begin to slow down, others remain as vigorous as ever, if not more so. The official retirement age is being raised in many societies as aged persons continue to be productive. With age, a person is also supposed to become wiser. However, old age brings with it its own idiosyncrasies. A great deal has been written on the subject of aging. A booming industry has arisen in response to the growing demand by an everincreasing number of aged population worldwide for revitalization, physically and mentally, as the biological clock continues to tick. What about organizations, institutions, or regimes? Do they evolve along similar lifecycles as human beings do? There are views suggesting that after more than fifty years the so-called Bretton Woods institutions (the International Monetary Fund and the World Bank) need revitalization. The European Union has gone through continuous evolution, from initially being a sector-specific (coal and steel) arrangement to becoming a Common Market, and then a Community before it formed a single market and subsequently transforming itself into a full-fledged (economic and political) Union, eventually having a common currency for all its members. The ultimate objective of forming a 273 © 2001 Institute of Southeast Asian Studies, Singapore

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political union was the vision for the organization at the time of the signing of the Treaty of Rome. This chapter will not address the big question about how organizations evolve. To be able to draw conclusions about the life-cycle of organizations or institutions, one has to study a large number of organizations and their individual settings. The sole interest of this chapter is in regard to one particular organization, namely, the Association of Southeast Asian Nations (ASEAN), that was established on 8 August 1967. This chapter has been inspired by a question posed by Jesus Estanislao, one of the co-editors of this book, about what is likely to happen to ASEAN in the year 2030. There was no particular reason for Estanislao to pick that year apart from the fact that by then ASEAN would have been around for twice as long as it has existed thus far. In a sense, it is perhaps based on an interest to speculate on how ASEAN might evolve in the second thirty years. This interesting question provided the impetus to examine ASEAN from the perspective of the “long view”. How useful is it to take such a long-term view? In fact, ASEAN officials have already produced a long-term vision for ASEAN in 2020. The vision is meant to give ASEAN a sense of direction in its further development. It was developed in response to the growing concern that ASEAN might have lost its direction. The vision is a comprehensive one, but it reads almost like a wish list. ASEAN officials have formulated a plan of action towards achieving the vision. The long view is not an exercise in producing visions. As proposed by Schwartz (1991), it is about making choices today with an understanding of how they might turn out. The long view does not prescribe a formal methodology. Rather, it offers a disciplined way of thinking. The “art of the long view”, thus, is an engagement in “convergent thinking about divergent futures”. Indeed, one can think of divergent futures for ASEAN. There are thirty years ahead of us to the year 2030. In the next thirty years, many things can happen to the organization as they have happened over the past thirty years. The exercise of looking into ASEAN’s next thirty years will have to take as a starting point the fact that, as an organization, ASEAN in 2000 appears to have been weakened rather than strengthened. There is less cohesion and weaker solidarity among the members. ASEAN seems to have lost its sense of purpose, diplomatic clout, and support of the people. Observers have regarded ASEAN today as being in disarray, if not in a crisis. Others have made a harsher judgement and concluded that ASEAN is a failure. The variety of perceptions regarding ASEAN today is discussed in Funston (1999). He has argued that much of the negative judgments and criticisms of ASEAN has

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been based on a misunderstanding of what ASEAN represents and of its modus vivendi. At issue today is the question of whether ASEAN can remain the way it is and whether it can stick to the “ASEAN way” of doing things (Soesastro 1999a, 1999b). There is a great deal of denial in ASEAN officialdom that ASEAN has a serious problem. Some officials admit this, but are quick to state that they are addressing the problem. The other important issue is the way in which problems are being tackled by ASEAN. There is a growing view that challenges confronting ASEAN have become too complex to be left to officialdom alone to deal with them. Kobsak Chutikul (2000), a director-general at the Thai Foreign Ministry, cited the following anecdote that was heard at the thirtythird ASEAN Ministerial Meeting (AMM) in Bangkok in July 2000, that illustrates the prevailing cynicism about ASEAN’s way of dealing with problems and challenges: Prior to the AMM: How many secretariat officials does it take to change a light bulb? Ten, to form a committee to study the problem of why light bulbs burn out. At the AMM: How many senior officials does it take to change a light bulb? Ten, to reach a consensus that the room is dark. After the AMM: How many ministers did it take to change a light bulb? None, they just redefined darkness as an ASEAN core principle. Can ASEAN survive this way? Will there still be an ASEAN in 2030? Perhaps it will survive, because organizations do not die easily. However, inertia may set in. Governmental organizations, in particular, can continue to exist even without having a clear purpose.

THE ASEAN PARADOX Over the last thirty years, as an organization ASEAN has not remained static. Much has changed, but at the same time much remains the same. This is the “ASEAN paradox”: ASEAN’s agenda has become much more complex but the process continues to be dominated by foreign ministers. ASEAN has expanded its membership but it tends to become more narrow-minded because it is being drawn by a lower common denominator. Most ASEAN societies have become more open and interconnected but the regional vehicle remains incestuously intergovernmental and interstate in nature. Can this paradox be allowed to exist in a future environment? In other words, can an

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ASEAN that cannot resolve this paradox meet the challenges of the future? In fact, can this paradox ever be resolved? The long view involves scenario-planning to help order perceptions about alternative future environments in which decisions might be played out. The first step in this exercise is to identify the focal issue or decision. This is followed by a listing of the key factors influencing the success or failure of the decision. The next step is to list the driving trends in the environment that influence the key factors identified earlier. Subsequently comes the ranking of key factors and driving trends on the basis of two criteria: first, the degree of importance for the success of the focal issue or decision identified in the first step; second, the degree of uncertainty surrounding those factors and trends. This exercise should help identify the two or three factors or trends that are most important and most uncertain. From then on, scenarios can be built, fleshed out, and their implications assessed (Schwartz 1991). The focal issue or decision for ASEAN is to put to an end the ASEAN paradox. The key factors that would influence the success or failure of that decision are essentially the political will to resolve the paradox and the commitment to maintain open economic policies as a basis for ASEAN cooperation. The political will on the part of ASEAN members will determine whether the Association remains one that is based on the notion of sovereignty enhancement or one that moves towards institutional integration. If there continues to be wide gaps in economic capacity among the ASEAN members, economic co-operation will largely be driven by resource-pooling activities and will be oriented towards the integration of markets through marketdriven processes. Political will and commitment to economic openness are in turn influenced by external developments, globally and in the wider region, as well as by internal developments within individual ASEAN members. Three main trends have been identified as having a significant influence on ASEAN, namely, globalization (and the role played by international finance), the nature of post-Cold War international relations, and the strengthening of civil society in many ASEAN member states (Funston 1999). We will begin with a discussion of the evolution of ASEAN’s institutional identity to examine developments that influence members’ political will towards institutional change. This will be followed by a discussion on the changing nature of ASEAN economic co-operation to understand the main factors that have driven the process. The subsequent section presents possible future scenarios for ASEAN and a discussion of what it would take to realize the best outcome or to prevent developments that would produce the worst outcome.

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SOVEREIGNTY ENHANCEMENT VERSUS INSTITUTIONAL INTEGRATION1 Having reached thirty, ASEAN may have matured as an organization. There are two possibilities for this organization. As it matures, it should be more ready to progress towards institutional deepening. However, having matured, it may be resistant to change. There is no denying that ASEAN has survived the test of time. It has been able to maintain some degree of cohesion and a sense of solidarity among its members with minimal institutional development. ASEAN’s experience at institution-building has been a modest one. Attempts at institutionalization have been carried out in a cautious and incremental fashion. Accompanying that cautious approach to institutional change has been the consensus-based principle of decision-making. Taken together, these features of ASEAN’s institutionalization and decision-making constitute the hallmark of ASEAN co-operation and form the basis for the Association’s mixed image. On the one hand, ASEAN has been hailed for its role as a regional arrangement that has been able to forge a “diplomatic community” with a shared identity in Southeast Asia. ASEAN has been described as a success story for turning a region that was once predicted to become the Balkan of Asia into a region of peace and progress. On the other hand, it has been that very success that has led to criticisms about ASEAN’s inability to match its political-diplomatic success with substantive co-operation in the economic and social fields, that is ASEAN’s declaratory objective. This inability has been attributed to the deficiencies in the organizational structures and the slow pace of institutionalization. Several attempts have been made to restructure ASEAN’s institutional framework, but they have produced only limited changes. When it was established in 1967, ASEAN did not set for itself an ambitious task of becoming a regional organization equipped with complex institutional structures and machinery in order to function effectively and immediately. Nor did it pretend to be an organization that aspired to accomplish a set of concrete objectives in the short and medium terms. It also did not stipulate the need for a summitry. The ASEAN enterprise was given a modest objective. As stated in the Bangkok Declaration, ASEAN’s primary objective was to accelerate the economic growth, social progress, and cultural development in the region through joint endeavours in the spirit of equality and partnership. Political co-operation, albeit not explicitly stated, was understood to be of critical importance as a foundation for co-operation in the other areas.

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From the outset ASEAN has displayed a deep commitment to preserving the sanctity of national sovereignty, hence its reluctance to move towards “integration”. The ASEAN states have been unwilling to surrender their national sovereignty to a regional institution of a supranational type. ASEAN’s institutional development has been greatly influenced by this major constraint. It should perhaps be recognized that ASEAN’s survival has been partly due to the reluctance to transform the organization into a supranational body. Institutional Evolution The slow evolution of ASEAN’s institutional structures reflects the modest undertaking and the political nature of the Association as a loose form of intergovernmental co-operation that accords highest priority to the preservation of national sovereignty. In fact, ASEAN is often seen and used by its members as a project to enhance national sovereignty through regional diplomacy and co-operation. ASEAN was founded and formulated by foreign ministers, and the meeting of foreign ministers, known as the AMM, was designed to become the central institution of ASEAN. The day-to-day work of the AMM is carried out by a Standing Committee, headed by a foreign minister from a member country on a rotational basis, and not by a regional body. The first summit was not convened until 1976 in Bali, only after the ASEAN leaders recognized the need to strengthen and expand the Association’s machinery in order to meet new challenges from both within and outside the organization in the aftermath of the U.S. defeat in the Vietnam War. This summit marked a new page in the history of ASEAN’s institutionalization. It issued two important documents concerning the strengthening of the ASEAN machinery. First was the Declaration of ASEAN Concord (DAC), which stipulated that meetings of heads of government would be the supreme organ of ASEAN. Following this summit, an ASEAN Economic Ministers Meeting (AEMM) was also institutionalized. In addition, there have been regular meetings of other ASEAN ministers since then. All these ministerial meetings are, however, not considered a part of the formal organization of ASEAN. Second was the Agreement on the Establishment of the ASEAN Secretariat. This restructuring did not alter greatly the basic feature of ASEAN’s institutional framework that gives the AMM a central role. Despite the fact that the first summit was followed by a second one the next year, it did not lead to an institutionalization of the meeting of ASEAN heads of government. The ASEAN Secretary-General served as the secretary-general of the ASEAN Secretariat rather than of ASEAN, suggesting the low status accorded to the office. De facto, the AMM remained the highest decision-making body in

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ASEAN. On economic matters, the AEMM gradually asserted its role, but the AMM retained its central role in formulating guidelines and co-ordinating all ASEAN activities. This political function makes the AMM the primary organ of ASEAN below the heads of government. It is the primus inter pares among all ASEAN’s institutions. The dominant role played by foreign ministers in carrying out ASEAN’s political functions has led critics to describe the Association as “a club of foreign ministers”. Subsequent developments in the process of institution-building and decision-making have somewhat moderated such an impression. Firstly, the growing emphasis on the need to intensify economic co-operation has elevated the role of non-AMM bodies. The AEMM which was previously overshadowed by the AMM has begun to play a more active role in formulating new proposals for greater economic co-operation, culminating in the agreement in 1992 to establish an ASEAN Free Trade Area (AFTA). Secondly, as a consequence of the above, there was the realization of the need to streamline the mechanism for economic co-operation. The Senior Economic Officials Meeting (SEOM) that was established to serve a similar function as that of the Senior Officials Meeting (SOM) was also made responsible to oversee economic co-operation activities that had previously been under the purview of the abolished five ASEAN economic committees. A ministerial council was established to oversee the implementation of AFTA. An AFTA Unit was created within the ASEAN Secretariat to provide technical support for its implementation. Thirdly, ASEAN’s external relations conducted through meetings with the dialogue partners eventually developed into the Post-Ministerial Conference (PMC) following the annual AMM. ASEAN’s dialogues began with its early dealings on trade matters with Japan and the European Community from the early 1970s. Since 1976, each ASEAN member has been assigned to coordinate the relationship with a particular dialogue partner. The fact that this task was not entrusted upon the ASEAN Secretariat again reflects the nature of the Association. However, it is through these dialogue relations that ASEAN has displayed a degree of importance as a regional player. The fourth development is the growing role played by heads of government in shaping the direction of ASEAN. At the third ASEAN Summit in 1987, it was agreed to hold summits every three to five years, and established a Joint Ministerial Meeting. A major restructuring took place only in the early 1990s when the larger regional and global environment within which ASEAN operates underwent dramatic changes. The increasingly more complex challenges, problems, and issues facing ASEAN, as it began to encounter the uncertainties of post-Cold War international relations, forced member countries

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to seek to strengthen ASEAN. A decision was made in 1992 to institutionalize the meetings of heads of government on a regular basis. The agreement was to hold a summit every three years, with annual informal meetings in between. The fifth development was the decision to strengthen the role and elevate the position of the Secretary-General of the ASEAN Secretariat. The office has been redesignated as the Secretary-General of ASEAN and given a ministerial status, and the appointee is now recruited on a competitive basis rather than on a rotational basis. Yet, the change in the status of the SecretaryGeneral does not signify a fundamental change in the nature of ASEAN as a loose intergovernmental form of co-operation that continues to accord priority to the primacy of national sovereignty and to the central role played by foreign ministers. The sixth development was the expansion of ASEAN to include all the remaining Southeast Asian states. After “the great divide” for about three decades, the One Southeast Asia project was completed with the acceptance of Cambodia as ASEAN’s tenth member. This expansion of membership creates new challenges to the process of institutionalization as the new members appear to be even more sensitive to any moves that are seen as undermining the principle of national sovereignty. This constitutes an additional, and now perhaps the main, constraining factor towards greater institutionalization and integration. The seventh development, often not duly recognized, has been the role and contribution of “second track” networks and processes in the “broader” ASEAN. They involve non-governmental participants engaged in people-topeople co-operation and diplomacy. These activities have given a new impetus to ASEAN’s existence and strengthened ASEAN as an organization. The ASEAN Institutes of Strategic and International Studies (ASEAN ISIS), established in 1984, perform this second-track role by generating ideas and proposals through research, studies, and exchanges within the network and beyond on how to promote greater regional co-operation. It is felt that the elusive nature of intergovernmental political and security co-operation in ASEAN has made it imperative for the region to make maximum use of the second track process as a forum within which politically sensitive issues can be discussed more freely and openly (Wanandi 1994). The activities of the second track can also facilitate and help intensify people-to-people diplomacy and co-operation and to socialize the importance of regional co-operation. The idea of an ASEAN People’s Assembly has been taken up by the ASEAN ISIS to further promote this development.

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The ASEAN Way In addition to these institutional developments, ASEAN has also relied on conventions and customs. The main feature in the functioning of ASEAN institutional structures is that decisions are arrived at through consensus. This practice has been so institutionalized as to make it the core element of the socalled “ASEAN way” in decision-making. ASEAN’s experience in the conduct of co-operation and decision-making has also demonstrated the presence of three basic principles which guide behaviour, namely, restraint, respect, and responsibility. The principle of restraint obliges the ASEAN countries not to interfere in the domestic affairs of other member countries. The principle of respect is demonstrated in communication and the habit of consultation where states can discuss problems and air grievances. As a manifestation of responsibility, the ASEAN member states are expected to consider each other’s interests and sensitivities. These conventions and customs have sustained ASEAN co-operation for the first thirty years. They have proved useful in solving differences, harmonizing diverging interests, and managing conflicts among member states. However, the habit of dialogues and consultation to reach a consensus is also seen as a major factor leading to a protracted and time-consuming process of decision-making. Now with ten members that are even more diverse in various respects, this process will become even more time-consuming. The above discussion on ASEAN’s institutional evolution shows that the minimal institutionalization over the past thirty years has resulted from a complex interaction of preferences and goals, the sanctity of sovereignty, conventions, and customs, as well as changes in the external environment. ASEAN’s experience demonstrates that, at the beginning, institutions were the product of preference and goals. However, once in place, institutions set parameters to further action. This is reflected in ASEAN’s institutional developments in the first two decades of its existence. The modest preferences and goals reflected the founding fathers’ realistic understanding of the prevailing geopolitical condition. This forms the basis for ASEAN’s state-to-state structure. Having established its basic institutional architecture, ASEAN was trapped into a situation where it prefers “to stay with the tried and true”. Political Co-operation It has been argued that ASEAN’s success has generally been in the political field. Despite its declared objective to be a vehicle for regional economic, social, and cultural co-operation, ASEAN has been a prisoner of intra-

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ASEAN political problems and, then, of geopolitical developments in the region. The birth of ASEAN itself was made possible by dramatic changes that took place in the domestic politics of one of the largest countries in the region, Indonesia, that led to the ending of konfrontasi with Malaysia and a re-orientation of its foreign policy. ASEAN emerged out of the pains of that konfrontasi. The establishment of ASEAN had been motivated by a strong desire and political commitment to promote a sense of regional identity as the basis for a prosperous and peaceful community of Southeast Asian nations. ASEAN’s immediate achievement was to sustain a condition for peace following the restoration of relations between Indonesia, Malaysia, and the Philippines. This clearly demonstrates that ASEAN was initially formed to promote regional reconciliation and to manage intramural disputes. The main catalysts for the establishment of ASEAN was regime insecurity and domestic vulnerability. The desire to promote a peaceful community of Southeast Asian nations was based on the paramount objective of creating a regional order that would allow member countries to devote their attention and resources to the pressing task of internal consolidation and development. Such an objective necessitated a friendly relationship among regional countries, which was sought through the adherence to the principle of non-interference. This principle was then seen as a significant factor which made it possible for member countries to avoid conflicts, thus allowing their governments to concentrate on the primary task of putting one’s house in order as a basis of regime legitimacy. The need to ensure a stable and friendly relationship among ASEAN members has been the primary political function of the AMM. That function has been carried out through a number of roles. Firstly, the AMM serves as a useful vehicle by which ASEAN high officials become more acquainted with one another, recognize one another’s problems better, become more sensitive to one another’s interests, and promote greater mutual understanding. Secondly, the AMM constitutes a forum for the institutionalization of a habit of dialogues among member states. Thirdly, the AMM provides a venue for consultation and exchange of views over bilateral and regional problems whenever they arise. Fourthly, and more importantly, the AMM plays a central role as a forum for regional confidence-building measures in Southeast Asia. All these functions have, in turn, contributed greatly to the institution of a regional mechanism for conflict management and reduction among its member states. It is through these functions that ASEAN has gradually come to develop the notion of an “ASEAN spirit” as the primary basis of solidarity and unity-building.

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These four functions of the AMM reflect a degree of modesty in the preferences and goals in the establishment of ASEAN. It was this modesty that then set the parameters that impede ASEAN’s further actions in promoting greater co-operation beyond the political arena. If institutional stagnation during the first decade of ASEAN’s existence reflected the modesty in preferences and goals, by the second half of the 1970s ASEAN was facing an entirely new political reality attendant on changes in the strategic environment in Southeast Asia and initial success in undertaking the process of cautious intraregional confidence-building. The political functions of the AMM, for example, were then expanded further following strategic changes in the regional environment, especially after the withdrawal of American troops from Vietnam and then the outbreak of the Cambodian conflict. Vietnam’s invasion of Cambodia in 1978 forced ASEAN to play a more active role in seeking a peaceful solution to the conflict. Vietnam’s action constituted a threat to an ASEAN member, Thailand, and was, therefore, seen as a factor that jeopardized the stability and security of Southeast Asia in general. In this regard, the fact that the Cambodian conflict was also entangled with great power politics prompted ASEAN to step up its activities in trying to deny extra-regional powers the opportunity for greater interference in regional affairs. In this regard, the AMM served as the main vehicle through which ASEAN’s external relations were exercised with the main purpose of securing wider international support in forming an “antiVietnam coalition”. The extension of the AMM’s role once again demonstrated how forces in the larger environment outside an organization shape and determine the role and actions that it has to take. If, during the period prior to the Cambodian conflict, the AMM had focused its efforts on promoting harmony in intraASEAN political relations, the emergence of new challenges from a wider environment threatening that very harmony forced ASEAN to redefine its regional role in order to solve the conflict. Here, ASEAN’s objectives were no longer limited to an attempt at maintaining stability within its own group, but included efforts to guarantee a wider regional order which was more benign and friendly to ASEAN. In other words, changes in the larger environment prompted ASEAN, largely still through the AMM, to play both intramural and extramural roles. They have also been instrumental in forcing ASEAN to renew its commitments that in part required institutional restructuring. In 1982, ASEAN established a Task Force to review the working machinery of ASEAN. The Task Force submitted its report and recommendations for reform to the sixteenth AMM in 1983. It was known that the ASEAN governments were

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not receptive to the far-reaching recommendations of the Task Force report. In 1986, the ASEAN Chambers of Commerce and Industry (ASEAN-CCI) established the Group of Fourteen with the endorsement of the ASEAN foreign ministers. In its report, entitled ASEAN: The Way Forward, the Group proposed a number of recommendations regarding the restructuring of the ASEAN machinery, of which the following five are of particular importance (ASEAN-CCI 1986): 1. The institutionalization of the ASEAN Heads of Government Meeting (AHGM) on an annual basis so that leaders can foster economic cooperation by providing the necessary political commitment and direction, and overseeing the process of implementation. 2. The ASEAN Economic Ministers Meeting (AEMM) should be made responsible only for trade, industry, and investment, and accordingly it should be redesignated the ASEAN Trade and Industry Ministers Meeting (ATIMM). 3. The responsibilities of the ASEAN Foreign Ministers should now converge on the task of developing ASEAN’s political, diplomatic, and sociocultural relations. 4. The upgrading of the status of Secretary-General and the strengthening of the ASEAN Secretariat so that it can play a more active role. 5. The adoption of greater flexibility in the ASEAN decision-making process through the ASEAN-minus-X formula. Some of these suggestions have been taken up by ASEAN. However, the second decade of ASEAN co-operation remained largely a period of consolidation as a political community in the face of external security challenges, notwithstanding the louder statements on promoting and initiating bolder economic co-operation activities. Proposals for reform were made again in the early 1990s in the form of a set of recommendations by the Group of Five (G-5) to the twenty-fourth AMM in Kuala Lumpur in July 1991. In its report entitled Strengthening the Structure and Mechanism of ASEAN, with Special Reference to the ASEAN Secretariat, the Group maintained that ASEAN was heading towards a “crisis” with regard to its command and control structures. To rectify the existing deficiencies, they proposed, among other things, the following measures to be considered by the ASEAN heads of government: 1. The adoption of one of two options on the decision-making process. Firstly, the need to establish a Supreme Council of ASEAN (SCA). This body, comprising the heads of government, should play a clear role in

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making decisions and in monitoring their implementation. Secondly, if the first option is not feasible, then there is the need to strengthen the AMM. This option constitutes a reiteration of the role of the AMM by unequivocally stating that a decision is an ASEAN decision only if it is endorsed by the AMM. 2. The redesignation of the post of Secretary-General to that of ASEAN instead of the ASEAN Secretariat, coupled with the enlargement of its effective mandate to include, among other things: (i) the presentation of the Annual Report of ASEAN to the SCA; (ii) the preparation of a draft ASEAN Plan for Co-operation (APC); and (iii) an active role in dialogue relations with third countries or organizations. Both the Group of 14 and the G-5 appeared to be concerned that on the basis of existing structures ASEAN would move too slowly. Mounting pressures posed by internal developments within ASEAN itself and dramatic changes in the regional and global environment forced ASEAN to undertake institutional changes in 1992. As Chin (1994) has argued, the imperatives for institutional changes were (1) the removal of political and ideological walls between the six ASEAN members and the Indochinese states, leading to the need for co-operation within an enlarged regional community; (2) the need to address new regional security challenges; (3) the need to cope with more intense economic competitiveness in a global economic system; (4) the need to cope with new post-Cold War issues, such as democracy, human rights, and environment; and (5) the need to engage the growing role of nongovernment organizations (NGOs) in fostering regional co-operation. However, the decision to convene a summit every three years with informal summits in the intervening years, as well as strengthening the role of the ASEAN Secretariat were felt to remain inadequate. The ASEAN foreign policy community would have liked to see formal summits on an annual basis. One argument was that APEC had already instituted annual summits, and if ASEAN were to play an important role in APEC it should also have its summit prior to an APEC summit. Similarly, the elevation of the position of the Secretary-General of ASEAN had not increased its authority. The most significant change was the decision in 1992 to formally declare that the Association was ready to address security and military issues. Reflecting this departure in ASEAN’s thinking on the nature of its co-operation, a new institution known as the Special SOM was instituted. The Special SOM constitutes a forum where representatives of the foreign ministry and defence establishments of the ASEAN countries meet to discuss security issues and promote intra-ASEAN dialogue on ASEAN security co-operation. This led

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to the initiative to establish the ASEAN Regional Forum (ARF) for multilateral security and political consultations with the major regional powers. Through the ARF, ASEAN attempts to advance its regional security interests in the face of uncertainties attendant on the end of the Cold War. This explains ASEAN’s insistence on being in the driver’s seat of the ARF process. Since ASEAN sees the main function of the ARF as a forum to promote stable relations between regional powers, its role in making the process meaningful would depend on how it enhances its own credibility by transforming itself into a more unified, effective, institutionalized, and cohesive organization. This is necessary for ASEAN’s leadership in managing the region-wide ARF process: from initial confidence-building measures (CBMs), through preventive diplomacy, to the elaboration of approaches to conflict resolution. Yet ASEAN has not made substantial progress in the institutionalization of an ASEAN conflict resolution mechanism. ASEAN has been well known for its “sweeping under the carpet” strategy as a way of coping with intraASEAN conflicts. This strategy is no longer adequate and, if continued, will run counter to its role as a manager of regional order. Thus, there may be a need to operationalize the related provisions contained in the Treaty of Amity and Co-operation (TAC), such as the role and function of the ASEAN High Council. More importantly, as problems and challenges facing ASEAN are increasingly becoming more complex, cultural approaches to conflict resolution are no longer applicable to all kinds of conflicts and at all times. The ASEAN members have not yet put the TAC into effective use. Members continue to prefer settlement of disputes outside the ASEAN framework. For example, the dispute between Indonesia and Malaysia over the Sipadan and Ligitan islands has been brought to the International Court of Justice (ICJ). Even after thirty years of existence, ASEAN is not yet about formal dispute settlement or conflict resolution. As Leifer (1996, 1997) put it, it is rather about creating a regional milieu in which problems can be readily managed or contained. A New ASEAN? In the past few years there has been a growing perception that ASEAN cannot be relied upon to resolve the region’s own problems. There is the perception of a helpless ASEAN, an ASEAN that cannot move decisively, an ASEAN that is trapped under its organizational and bureaucratic inertia, and an ASEAN that fails to respond to real, current problems and challenges. This public perception has been influenced mainly by ASEAN’s failure in 1996 and 1997 to do something tangible about the severe regional haze problems

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that affected the health of the people in many ASEAN countries. The expansion of ASEAN membership to include a “problem country” such as Myanmar has also hampered ASEAN’s ability to act swiftly. It has also weakened ASEAN’s diplomatic clout that it would need to effectively mobilize international support in dealing with the financial crisis. There has been some soul-searching in ASEAN during the years of the financial crisis. Until then, ASEAN was still in a state of euphoria because of the region’s remarkable record of rapid economic growth, the near completion of the One Southeast Asia enterprise, and its role in the creation and strengthening of the wider regional co-operative structures, such as APEC and the ARF. This position crumbled almost overnight with the financial meltdown. ASEAN’s future relevance to its members and to the region has suddenly become a question, even within ASEAN officialdom. There have been suggestions that ASEAN needs to be brought back to the drawing board. It cannot maintain its relevance if it continues to be inhibited by the principle of non-intervention. ASEAN will have to be reengineered on the basis of a new principle of “constructive involvement”, according to Malaysia’s then Deputy Prime Minister, Anwar Ibrahim, or “flexible engagement” according to Thailand’s Foreign Minister, Surin Pitsuwan. Under this new principle, members could check domestic developments in an ASEAN member that would affect other members’ security and well-being, ASEAN’s cohesiveness, or the security of the wider region. At the AMM in the Philippines in 1998, this issue was brought to the discussion table by the host government which favoured the adoption of the new principle. The ASEAN members could not reach an agreement, and the consensus was to keep non-intervention as ASEAN’s cardinal principle but to adopt a flexible engagement approach when dealing with particular issues. Some have coined the term “enhanced interaction” for this. The test of the institution’s resolve to apply this new approach will be in its future dealing with internal developments in Myanmar. ASEAN has already failed once, namely, in regard to developments in East Timor leading to its destruction by the military-backed militias following its separation from Indonesia. ASEAN will also be tested when there is a new outbreak of forest fires in Indonesia and Malaysia. In view of the fact that contagion was partly responsible for the spreading of the recent financial crisis, can ASEAN also help prevent a future crisis in the region? ASEAN’s institutional evolution has been slow. It has taken one small step at a time. It is likely to continue this way unless it is confronted with a very serious problem that would force its members to change their mindset

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and political will to abandon the institutional status quo. The Myanmar problem cannot do this. Similarly, the haze problem has not been grave enough to do that. Has the financial crisis produced the necessary shake-up? In the early 1990s, there was the belief that economic challenges would force ASEAN to move into institutional integration. AFTA was ASEAN’s bold initiative to meet that challenge. Has it achieved its proponents’ expectations?

RESOURCE-POOLING VERSUS MARKET INTEGRATION It is perhaps correct to state that ASEAN is an economic association that is politically driven. It is aimed at developing a kind of regional solidarity among neighbours for the purpose of creating regional peace and stability through economic co-operation. The founding fathers of ASEAN made it clear that regional economic integration is not the objective of ASEAN. ASEAN economic co-operation (AEC) is supposed to be ASEAN’s core co-operation agenda. In the late 1980s, there was widespread recognition that the performance of AEC had been very poor. The history of AEC is that of a continuous search for direction and new initiatives to make it successful. This search has been confronted with the following choices for AEC’s focus: between intra-ASEAN co-operation and developing an external economic diplomacy agenda in dealing with ASEAN’s major trading and economic partners; between trade and investment co-operation and sectoral (industrial) projects; between public sector-oriented projects and private sector-driven activities; or between a loose, non-binding co-operation arrangement or economic integration, including the creation of a trading bloc. The choices have often been described as those between resource-pooling activities and market-sharing schemes. In the course of this search, a series of major initiatives have been taken: the ASEAN Industrial Project (AIP) in 1976, the ASEAN Preferential Trading Arrangement (PTA) in 1977, the ASEAN Industrial Complementation Scheme (AIC) in 1981, later modified into the ASEAN Brand-to-Brand Complementation (BBC), as well as the ASEAN Industrial Joint Ventures (AIJV) in 1983. In addition, there had been proposals for an ASEAN Small and Medium Industries Scheme (ASMIS) and an ASEAN Small and Medium Industries Centre (ASMIC) that did not get off the ground. Many other co-operation projects were launched and implemented by the various ASEAN economic committees, on Finance and Banking (COFAB), on Food, Agriculture and Forestry (COFAF), on Industry, Minerals and Energy (COIME), on Transport and Communications (COTAC), and on Trade and Tourism (COTT). Furthermore, ASEAN developed a number of

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co-operation activities with its trading partners, the so-called Dialogue Partners and Sectoral Dialogue Partners. Some of these have involved the search for a more formal framework for co-operation, such as the ASEAN-U.S. Initiative (AUI). The remarkable economic performance of the ASEAN countries could not be attributed to any or all of the above AEC schemes. It resulted mainly from ASEAN’s trade and investment links with the outside world. One could argue, however, that the various schemes and projects have contributed to creating the habit of co-operation, which is the key to ASEAN’s success. Perhaps it was the disappointment, the embarrassment, and the frustration with these AEC schemes that led the ASEAN leaders to decide in 1992 to embark on AFTA, the “bold” decision that was considered necessary to maintain ASEAN’s vitality and relevance. The journey to AFTA has been a long one. The creation of a free trade area was not considered at the establishment of ASEAN. As stated in the Bangkok Declaration, ASEAN’s central objective is to accelerate economic growth through joint endeavours. The agenda of AEC in the late 1960s was focused on sectoral co-operation. In the second AMM in Jakarta in 1968, a work programme was approved in each of the following priority areas of cooperation: food production, communication, shipping, civil aviation, and tourism. The modesty in initiating projects was only short-lived. By the time of the fourth AMM in Manila in 1971, a total of 121 projects had been submitted, but only 48 had been approved for implementation. The proliferation of project proposals appears to be a common phenomenon in co-operative structures that are based on committees. This leads to regular attempts at rationalizing the projects, which has been the case with ASEAN as well. In addition, the implementation of projects was very slow. At the 1972 AMM in Singapore, Indonesia submitted a paper entitled “A Reflection”, and invited ASEAN members to undertake an evaluation of AEC. This led to the formulation of a set of criteria for determining the feasibility of AEC projects: they should be quick-yielding with benefits accruing to all members equally, require modest financing, and meet the ASEAN objectives as embodied in the Bangkok Declaration. This guideline revealed ASEAN’s preference for small projects. Efforts to rationalize projects may require an overarching framework for co-operation. In its search for such a framework, ASEAN made use of the recommendations of the UN-sponsored Kansu-Robinson Report. This report was prepared at the request of the AMM in 1969 and was presented at the fifth AMM in 1972. The Report’s main thrust is on ASEAN co-operation to increase economic productivity through industrialization. It pointed out the

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limited size of ASEAN’s national markets, its low per capita income, and the enormous obstacles to expanding manufactured goods exports. Therefore, it argued that AEC should foster import substitution through the development of infant industries on a regional basis. Three main instruments for promoting AEC were identified; these were: (a) negotiated trade liberalization for selected commodities; (b) industrial complementarity agreements to be negotiated through the initiatives of the private sector; and (c) package deal arrangements in the form of joint industrial projects. Furthermore, the Report suggested other areas for co-operation, including research, co-ordination of national economic plans, provision of services in finance and clearing arrangements, and financing of development and insurance facilities. Initially, the recommendations of the Kansu-Robinson Report did not receive any formal endorsement. The seventh AMM in 1974 simply acknowledged that the three proposed instruments of co-operation might be useful for AEC. Disappointment with the slow implementation of AEC projects led the seventh AMM to propose a meeting of ASEAN ministers in charge of economic planning. In the lead-up to the planned ASEAN Summit in Bali in 1976, the ASEAN economic ministers met for the first time in 1975 in Jakarta with a sense of urgency to produce broad recommendations for AEC. The economic ministers quickly created their own machinery, the SEOM. The recommendations that were produced for the Bali Summit drew heavily on the Kansu-Robinson Report. Indeed, major ASEAN initiatives that were launched in later years can be directly traced to the recommendations of that Report. Co-operation in Trade The ASEAN PTA was introduced in 1977 at the tenth AMM and marked the first commitment of the ASEAN countries to undertake trade liberalization. The scheme proposes to liberalize trade through the implementation of five measures: (a) the granting of tariff preferences; (b) long-term quantity contracts; (c) preferential terms for the financing of imports; (d) preferential procurement by government agencies; and (e) the liberalization of non-tariff barriers in intra-regional trade. Of these five measures, only the granting of tariff preferences was implemented widely. As it was not aimed at the achievement of a free trade area, the PTA was a modest undertaking. It is also important to note that the PTA was designed as a mechanism whereby intra-ASEAN trade could be liberalized at a pace that was acceptable to all member countries.

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The margin of preferences (MOP) was initially set at a low 10 per cent. In 1981 it was raised to 20–25 per cent, and later on to 40 per cent or more. Until April 1980, preferences were negotiated on a voluntary, product-byproduct basis, either multilaterally or bilaterally, and were extended on an MFN (most-favoured-nation) basis. After April 1980, tariff preferences were complemented by across-the-board tariff reductions for imports of certain values. Initially, items with an annual import value of less than US$50,000 in 1978 trade statistics qualified for tariff reductions of 20 per cent across the board. Subsequently, the cut-off ceiling was raised to US$500,000 in May 1981 and to US$1 million in January 1982. In November 1982, the ceiling was further raised to US$10 million, a cut-off limit which represents a significant proportion of trade volume, or about 10 per cent of all intraASEAN trade. However, with the adoption of across-the-board tariff cuts, member countries also introduced an exclusion list of “sensitive items” as a means to protect certain industries. As can be expected, the exclusion list tended to undermine efforts to broaden the coverage of items. In 1985, member countries agreed to review their exclusion list and classify the items into three categories, namely, non-sensitive items that should be voluntarily withdrawn from the list, semi-sensitive items that were subject to negotiation, and sensitive items that were not subject to negotiation. By March 1986, a total of 18,907 items had been placed under the PTA. However, the impact on intra-regional trade was minimal. This was due to the fact that the MOP offered on most of the items traded was too low to provide ASEAN exporters with a strong competitive edge over non-ASEAN exporters. The limited effect of the PTA could also be traced to the fact that: (a) high tariff countries remained reluctant to cut tariffs because of perceived inadequate reciprocity from low-tariff countries; (b) there was a tendency to include irrelevant items (such as snow ploughs and nuclear reactors) and to disaggregate one item into detailed variants (for example, different types of brushes), each one being offered as a single commodity; (c) the rules of origin requirement was an inhibiting factor since products had to contain at least 50 per cent ASEAN content to qualify for preferences; and (d) the long exclusion lists maintained by member countries. The third ASEAN Summit in Manila in 1987 agreed to retain the PTA as a principal instrument to promote intra-regional trade, but a few changes were made. They included a shortening of the exclusion lists, deepening of the MOP, reduction of the ASEAN content requirements, and a “standstill” of non-tariff barriers (NTBs) that was accompanied by a “rollback” of such NTBs. These new measures were to be implemented within five years, with

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annual reviews being undertaken to monitor the progress. This was the first time that ASEAN set for itself a definite timetable. The changes were also meant to introduce greater transparency and predictability of the PTA scheme and to accommodate the differences in tariff levels and development stages. As it turned out, these changes did not appear to have any noticeable effect on the PTA’s contribution to intra-regional trade. By 1992, the PTA scheme was overtaken by the decision to form AFTA. Co-operation in Industry ASEAN industrial co-operation schemes include the AIP, AIC (and BBC), and AIJV. Their performance has been equally disappointing. The AIP scheme was agreed upon at the Bali Summit in 1976. It was based on the recommendations of the Kansu-Robinson Report. The AIPs are large-scale government-initiated projects oriented towards the regional market, with an investment of US$300–US$400 million. The output of the projects is granted access under the PTA. According to the Basic Agreement establishing the AIP, the host country could take up 60 per cent of the total equity (1 per cent in the case of Singapore) and the remaining 40 per cent was to be shared out equally among the other members. The private sector in the host country could take up equity participation of up to 40 per cent. It was also agreed that up to 70 per cent of the infrastructure costs of the project could be financed by foreign loans. The first “package” of five industrial projects included: urea for Indonesia and Malaysia, superphosphate for the Philippines, diesel engine for Singapore, and soda-ash for Thailand. The original idea was that one type of plant would be built in each country to serve the regional market. Ultimately, only two of the five projects were implemented, one of which — the Aceh fertilizer project in Indonesia — was a national project that was turned into an AIP. A second package of AIPs had also been identified for pre-feasibility study. They included: heavy-duty rubber tyres for Indonesia, metal working machine tools for Malaysia, newsprint and electrolytic tin-plating for the Philippines, TV picture tubes for Singapore, and potash and fisheries for Thailand. Singapore originally contemplated a Hepatitis B vaccine project, which was cancelled because of economic reasons. None of these AIPs came off the ground. Many reasons have been given for the failure of the AIP scheme. One reason is that governments were not willing to relinquish their freedom to invest. The AIP is also characteristic of a planned economy, which the ASEAN countries are not. Moreover, the AIP scheme involves market-sharing

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which ASEAN members were not ready to accept. In addition, no other incentives were given apart from PTA concessions. Finally, the private sector was not given any substantive role. With the problems and difficulties of implementing the AIP scheme, the focus of ASEAN industrial co-operation shifted to industrial complementation. The AIC scheme was established in 1981 with the aim of allocating different production stages of an industry among ASEAN members. The Basic Agreement establishing the AIC stipulates that: (a) an AIC package must be participated in by at least four member countries; (b) identification of products for inclusion in an AIC package shall be done by the ASEAN Chambers of Commerce and Industry (ASEAN-CCI); and (c) the products in the AIC package shall receive “exclusivity privileges”, lasting for two years for existing products, or three years for new products. In total, about thirty AIC proposals made by various regional clubs of the ASEAN-CCI were submitted for consideration, most of which involved new products. However, only two AIC packages, both in the automotive industry, went through the whole exercise and received the approval of the ASEAN economic ministers. The first package, involving existing products, was launched in 1983 and included the production and distribution of automotive parts and components. See Table 14.1 The other package in the automotive industry was contemplated and was to have the following allocations: steering systems for Indonesia; headlights for motor vehicles for Malaysia; heavy-duty rear axles for commercial vehicles for the Philippines; fuel injection pumps for Singapore, and carburettor for Thailand. However, this package was never agreed upon. The result of the TABLE 14.1 Automotive Parts and Components Production Country

Parts

Indonesia

Diesel engines (80–135 horsepower), motor-cycle axles, wheel rims for motor-cycles; Spokes, nipples, drive chains for motor-cycles, timing chains for motor vehicles, crown wheels and pinions, seat belts; Body panels for passenger cars, transmission/transaxles, rear axles; Universal joints, oil seals, and v-belts. Body panels for commercial vehicles of one ton and above, brake drums for truck, heavy duty shock absorber, stabilizers, bumpers, and trunion brackets.

Malaysia Philippines Singapore Thailand

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first package was poor, largely because of a lack of compatibility of production facilities in the ASEAN countries, and the different plants were geared to make different brands and types of vehicles. Its effect on intra-regional trade was found to be negligible, and the cost incurred for realizing this project might have exceeded the benefits. To improve on the scheme, the second AIC, which was based on BBC, involving the production of particular brands, was approved in 1988. A 50 per cent MOP was given to BBC products, and the private sector was free to determine the location of production across countries. The BBC provided incentives for Japanese multinational corporations (MNCs) to relocate their production capacity to lower-cost ASEAN centres. The scheme incorporated an explicit reciprocal element, in the sense that components were to be exchanged between countries, all benefiting from preferential access. The major drawback of this BBC scheme was Indonesia’s decision not to participate out of a concern to protect its own automotive industry and market. Singapore and Brunei also opted out. In 1991 the scheme was extended to include nonautomotive products. In 1983, another scheme for ASEAN industrial co-operation was introduced. This so-called AIJV was aimed at promoting industrial joint ventures among ASEAN investors. It was designed to be more flexible and decentralized than both the AIP and AIC. The basic rules of the AIJV underwent significant modifications over the years with a number of restrictions removed and greater incentives (tariff preferences) given. By the early 1990s, they contained the following guidelines: (a) participation by at least two ASEAN countries; (b) non-ASEAN equity of up to 60 per cent; (c) satisfy the PTA’s rules of origin in order to qualify for tariff preferences; (d) a 90 per cent MOP granted by participating countries for a period of up to eight years. An exclusivity privilege that prohibited the establishment of production capacity for similar products to those made under AIJVs in participating countries was withdrawn in 1990. From 1983 to 1993, a total of twenty-six products were granted AIJV status, of which about half involved the participation of two ASEAN countries and only one (Nestle processed food) was an ASEAN-wide project involving five ASEAN countries. The impact of the AIJV scheme on intra-regional trade and investment has been negligible. Although on paper the procedure for getting approval was simplified at the third Summit in Manila, among other things, by establishing a list of pre-approved AIJV products, in practice many difficulties were still encountered. For instance, many projects could not obtain the 90 per cent MOP from participating countries. On the whole, ASEAN investors seem to prefer joint ventures with partners from outside the region, and most of the

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joint venture projects among ASEAN investors are outside the AIJV system. Another area of AEC that supports industrial co-operation is the ASEAN Finance Corporation (AFC), which provides financing facilities for regional co-operation projects, or other ASEAN-based enterprises. The AFC was incorporated in Singapore in 1981 and its issued capital of S$100 million is owned by a commercial bank from the ASEAN countries. The AFC provides a number of services. Its direct financial services fall into three categories, namely: (a) project finance; (b) debt/equity participation; and (c) treasury services, which include the provision of short- and medium-term credit to ASEAN financial institutions, provision of intra-ASEAN trade finance, and foreign exchange dealings. The AFC also serves as a conduit through which international financial resources outside the region are channelled into the region. Problems in ASEAN industrial co-operation appear to have resulted from the fact that the schemes put too much emphasis on regional import substitution. The schemes also suffered from problems related to project identification and allocation as well as financing. This clearly suggests the deficiency of a bureaucratically-determined resource-pooling and marketsharing scheme. Other Areas of Co-operation Co-operation in other areas has been promoted and implemented by a host of committees and sub-committees within the ASEAN structure. A comprehensive assessment of these co-operation programmes had never been undertaken. In the field of energy, for instance, Sharma (1992) concluded that the impact of the various committees had been limited. This was caused either by ASEAN’s organizational structure or insufficient attention given to those issues at the high official levels. This issue certainly deserves ASEAN’s serious attention. ASEAN’s extra-regional co-operation activities may suffer from a similar deficiency in structure. The activities, often referred to as the ASEAN Dialogue Partner System (ADPS), appear to lack coherence. This has perhaps led to the search for a framework of co-operation between ASEAN and the United States. The ASEAN-U.S. Initiative (AUI), however, produced a framework that failed to be translated into concrete co-operation programmes. An ASEAN-EC (later ASEAN-EU) framework agreement also existed but was moribund for many years because of Portugal’s refusal to co-operate with Indonesia, even in an inter-regional relationship, as a result of the East Timor problem.

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The ADPS mainly rests on the Post-Ministerial Conference (PMC), held after the annual AMM. One major and recurrent issue in these dialogues has been the improvement of market access. Perceptions about the outcome of this exercise have been mixed. Some have argued that this system has contributed to raising ASEAN’s profile and status in the international arena. Others view the utility of this system as providing a forum for discussion between ASEAN members and their major trading partners. However, there is also the view that this function has been overtaken by the wider regional forum of APEC. Concerns had been raised from the outset about the possibility that APEC would dilute ASEAN in the area of economic co-operation. This need not be the case if ASEAN instituted a mechanism of co-operation that reflects its strategy of concentric circles of co-operation. In terms of trade co-operation, ASEAN is engaged in various co-operation schemes that are aimed at strengthening a rules-based multilateral trading system. Although ASEAN trade co-operation involves the granting of preferences among its members, it has always been stressed that ASEAN should be outward oriented. Indeed, the different schemes of ASEAN intra- and extra-regional co-operation should ideally reinforce each other. Excessive preoccupation with facilitating intraregional economic links could divert attention away from developing the more important global economic links. Each of the different schemes of ASEAN’s extra-regional co-operation, APEC and the EAEC, should complement each other. APEC and the EAEC can also be seen as an insurance policy in case the global multilateral system fails, and in anticipation of the uncertain developments in the world economy. AFTA and Beyond The third ASEAN Summit in Manila in December 1987 perhaps marked the beginning of a new era for ASEAN. It has helped ASEAN to take a hard look at itself. The Summit received various proposals from the Group of 14, ASEAN business groups, scholars, and academics, as well as those based on studies commissioned by different ASEAN economic committees. Among the proposals was the formation of a hybrid system that recognizes the existence of varying tariff structures and differing levels of development among the ASEAN members. This system combines the formation of a customs union among Indonesia, Malaysia, the Philippines, and Thailand, and a free trade area to link this union with Singapore and Brunei. The ASEAN-CCI supported a proposal for an “ASEAN Market Liberalization Initiative”. It proposed a 50 per cent minimum MOP on an across-the-board

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basis for non-agricultural products and the elimination of the exclusion list. A product-by-product approach was suggested for the liberalization of agriculture. A COTT-commissioned study recommended some quantifiable targets to achieve an “ASEAN Trade Area” by the year 2000. Under this proposal, by the year 2000 preferences would be given to 90 per cent of total ASEAN trade and the exclusion list would be reduced to 20 per cent of import value. In addition, greater co-operation in industrial joint ventures and the establishment of an ASEAN Development Bank were proposed as complementary measures for trade liberalization. The Manila Summit itself did not produce the “big bang”. The idea of a free trade area was still unacceptable but discussions in anticipation of it went quite far in formulating and formalizing different concepts. In fact, the Manila Summit could be seen as the last stop in ASEAN’s long journey to AFTA (Soesastro 1995a). Developments in 1990 provided the impetus for ASEAN to hasten its move forward towards strengthening AEC and to take new and “bold” initiatives. The idea of AFTA no longer appeared to be a remote possibility. This idea was first aired in 1971 at the fourth AMM when discussions led to suggestions that a limited free trade area or a customs union might be the ultimate goal of ASEAN. In 1975, the then Singapore Prime Minister Lee Kuan Yew proposed the creation of an ASEAN free trade area, but it was immediately shelved for the simple reason that other ASEAN countries were not ready to take it up. Renewed support for the free trade area idea began in 1991 when the then Thai Prime Minister Anand Panyarachun revived it and received endorsement from Prime Minister Goh Chok Tong of Singapore. In October 1991, the AEMM recommended the establishment of an AFTA after receiving a clear signal from Indonesia that it was ready to take part. In January 1992, at the fourth ASEAN summit in Singapore, ASEAN heads of government signed the Singapore Declaration and the Framework Agreement on Enhancing ASEAN Economic Co-operation, which provided the basis for the establishment of AFTA. This was a major political decision because AFTA represents a marked departure from earlier AEC schemes. Why was this possible? The changing global economic environment has forced many countries to strengthen their position by developing “economic alliances” with others. Bilateral and regional free trade areas (FTAs) are seen as one form of such alliance. Regionalism, in fact, becomes a complement rather than a substitute to globalism. This is the essence of ASEAN’s strategy of concentric circles of co-operation and ASEAN’s understanding of open regionalism. Within ASEAN itself, there was growing dissatisfaction with the

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various AEC schemes. This diminished confidence within ASEAN in its own capacity and relevance. Thus, there was the strong belief that if ASEAN did not embark on a new, bold, and credible initiative it would no longer be an attractive and effective regional economic and diplomatic force. The AFTA agreement is to phase down intra-regional tariffs to 0–5 per cent, initially over a period of fifteen years starting 1 January 1993. It also agrees to eliminate non-tariff barriers for a wide range of manufactured products. The mechanism for achieving it is the Common Effective Preferential Tariff (CEPT) scheme. Under this scheme, member countries would set out comprehensive timetables for the phased reduction of intra-ASEAN tariffs on nominated goods. The main difference between the PTA and the CEPT is that the PTA was granted only by the nominating country and there was no reciprocity, whereas under the CEPT there is reciprocity in that once the good is accepted under the CEPT, all countries must give the preferential tariff. Unprocessed agricultural products and services have been explicitly excluded from AFTA, but some ASEAN members have voluntarily included some unprocessed agricultural goods in their tariff reduction lists. In implementing the CEPT, goods can be placed on the “fast track” or “normal track” timetables. A total of fifteen products were originally earmarked for fast track reductions. The CEPT scheme makes allowance for the exclusion of sensitive products. Apart from those restrictions for the protection of national security, health, and cultural traditions, all exclusions are to be temporary in nature and subject to review. Allowance is also made for member countries to provisionally suspend CEPT preferences in cases when an import surge causes damage to a domestic industry. The CEPT scheme also includes an ASEAN content requirement of 40 per cent. AFTA was not launched on the original date of 1 January 1993 because, administratively, members were not ready. It was “relaunched” on 1 January 1994. Soon the ASEAN governments realized that the AFTA programme appeared to have been overtaken by events, particularly by ASEAN members’ own commitments to reducing trade barriers under the Uruguay Round Agreement. At the AEMM in September 1994 in Chiang Mai, Thailand, an agreement was reached to accelerate AFTA’s implementation from fifteen years to ten years. In addition, AFTA has been expanded to cover unprocessed agricultural products, and all products in the temporary list will have to be taken out within five years by annually removing 20 per cent of the items from the list. AFTA’s acceleration could increase its attractiveness to investors. From the outset, AFTA aimed at enhancing ASEAN’s attractiveness as an investment location, and a production and export platform for the global markets. It can

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also be seen as a training ground for the ASEAN members in their efforts to integrate more fully into the world economy (Soesastro 1995b). However, AFTA’s scope is much more limited than that of other regional arrangements, such as NAFTA (North American Free Trade Agreement). Some have argued that the AFTA scheme is archaic in nature and the target date for its completion set too far into the future. The target date has now been brought forward to 2002 from 2008. Prime Minister Goh Chok Tong stated that to be an effective player within the broader fora, ASEAN has to move faster to bring down its tariffs and to offer itself as one united region with uniformly low tariffs (Straits Times, 15 December 1995). ASEAN has repeatedly brought forward the completion date of AFTA, but it has been slow in implementation. It is important, therefore, to maintain a sense of urgency in implementing AFTA. There are many factors that tend to slow down the process. Indonesia did backtrack on the liberalization of some agricultural products. Malaysia remains hesitant to open up its automotive sector. ASEAN does not as yet have the mechanism to deal with such backtracking apart from threats of retaliation by other members. A compensation formula is also being discussed. Can one expect that, despite these problems, AFTA could be fully in place by 2010? According to the agreement, the new members of ASEAN will have completed the implementation of their AFTA commitments by then. It should be noted that this process will largely be driven by external developments. If by 2010 AFTA is fully in place, it is likely that it will exist for no more than another ten years, that is, to the year 2020 when the wider APEC region is supposed to have become one of free and open trade and investment. Subregional trade preferences will be overtaken by region-wide trade liberalization. AFTA’s life-cycle will not be long. From the time it was initiated in 1992, its life span will be twenty-eight years at the most. This is not a reason for concern. In fact, AFTA would have achieved its objective if it is no longer needed (Soesastro 1997). As stated earlier, AFTA is essentially a training ground, an intermediate phase in the efforts of the ASEAN members to integrate themselves into the world economy. Each time individual ASEAN countries expand their unilateral trade liberalization or multilateralize their AFTA concessions, they are moving further away from the AFTA playground to step into the global arena. It should also be noted that ASEAN is much more than AFTA. AFTA is neither a regional import substitution scheme nor is its ultimate objective to increase intra-regional trade. AFTA is about global competitiveness. The elimination of intra-regional tariff and non-tariff barriers is only one aspect of ASEAN’s efforts to continuously sharpen its competitive advantages. Therefore,

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ASEAN should expand the AFTA framework. In doing so, it may or may not extend AFTA’s life span, but it definitely will make AFTA more effective during its lifetime. “AFTA Plus” refers to such an expanded AFTA framework. The Bangkok Summit Declaration of 1995 has adopted an Agenda for Greater Economic Integration that includes a number of areas of co-operation which could come under AFTA Plus. AFTA Plus should begin with an extension of the elimination of tariff and non-tariff barriers to areas and items beyond those originally covered under the CEPT scheme. Agricultural products and services are excluded from the CEPT scheme. Originally, agricultural products did not include processed agricultural products. In 1994, the AEM agreed to bring in all unprocessed agricultural products into the CEPT scheme. Later on, Indonesia indicated that it might have difficulties implementing this and requested that it be allowed to withdraw fifteen items from its temporary exclusion list which were to be placed on the sensitive list. Thailand threatened to withdraw forty-four items of agricultural products from its temporary exclusion list if Indonesia was allowed to do so. In resolving this problem, the AFTA Council proposed a solution by inventing a new category, a Temporary Exclusion List for Unprocessed Agricultural Products, and agreed to allow Indonesia to “laterally” transfer the products from the temporary exclusion list to this new list. Those products will be reviewed in 2003 and cannot be excluded from tariff cuts beyond 2010. In the area of services, the Bangkok Summit Declaration agreed to enhance co-operation and freer trade in services through the implementation of the ASEAN Framework Agreement on Services. This agreement specifically aims at improving the efficiency and competitiveness of ASEAN service suppliers, substantially eliminating restrictions to trade in services among ASEAN members, and liberalizing trade in services by expanding the depth and scope of liberalization beyond those undertaken under the GATS (General Agreement on Trade in Services) with the aim of realizing a free trade area in services. This being the case, services should become an integral part of AFTA Plus. In January 1996, ASEAN began the first round of negotiations for specific commitments on market access, and national treatment, and additional commitments covering all services sectors and all modes of supply. The areas included were financial services, maritime transport, telecommunications, air transport, tourism, construction, and business services. A host of other efforts, such as in the areas of standards and conformance, and harmonization of tariff nomenclature, are essential ingredients of AFTA Plus. In October 1997, at the AEM, the results of the negotiations were announced. The first package

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of offers covers air transport (3 countries), business services (1 country), maritime transport (4 countries), telecommunications (1 country), and tourism (7 countries). The ratification of the protocol to implement the agreement was completed within one year and countries were to begin to implement their commitments from October 1998 on. This was followed by a second package, and an agreement to launch a new round of negotiations to cover all services and all modes of supply. Other important areas of co-operation that could be seen as an integral part of AFTA Plus include the ASEAN Investment Area (AIA) and the ASEAN Industrial Co-operative (AICO) scheme, as well as the ASEAN Framework Agreement on Intellectual Property Co-operation. The challenge to ASEAN in these areas is to undertake efforts that are at least on par with efforts at the global or wider regional levels. ASEAN’s efforts should be built on agreements such as the GATT/WTO TRIMs (trade-related investment measures) and TRIPs (trade-related aspects of intellectual property rights), the GATS, as well as the APEC Non-binding Investment Principles. They should attempt to influence further developments of the international and wider regional agreements. In anticipation of the emerging new international agenda, ASEAN should hasten to begin with its deliberation on such issues as competition policy, an anti-dumping system for ASEAN, trade and environment, and even trade and labour. These are difficult areas as they touch on sensitive domestic political issues. However, these issues will stay with the global community for a long time to come. It should be of interest to ASEAN to be at the forefront on these issues. The idea of co-operation between AFTA and CER (Closer Economic Relations), namely, with Australia and New Zealand, has been considered desirable from the perspective of developing ASEAN’s AFTA Plus agenda. It is unfortunate that the idea was prematurely raised for the creation of a free trade area involving the two subregions. The meeting of ASEAN economic ministers with their counterparts from Australia and New Zealand, following the AEM in 2000 in Chiang Mai, failed to agree on launching negotiations for an AFTA-CER FTA but agreed to develop co-operation under a Closer Economic Partnership (CEP) scheme between AFTA and CER. It should be in the interest of both sides to develop an agenda that could help them to participate effectively in the international and wider regional fora in dealing with these new issues. Impact of Membership Expansion The expansion of ASEAN membership, namely, the “widening” of ASEAN co-operation, is essentially a political agenda. The “deepening” of co-operation

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through AFTA Plus is an economic necessity. Can these two go hand in hand? On the eve of the Bangkok Summit in 1995 that brought together for the first time leaders of all ten Southeast Asian nations, the then Prime Minister Banharn of Thailand argued that the expansion of ASEAN would inject new vigour into the organization. With an ASEAN-10, the voice of the grouping would be heard louder and ASEAN’s views would be increasingly sought and its collective action would be widely recognized. However, he admitted that “there will inevitably be a slowdown of co-operation” (Bangkok Post, 12 December 1995). As part of its commitment to join AFTA, Vietnam was requested to submit a list of items and their schedules under the CEPT scheme. In December 1995, it submitted a list of tariff reductions in which about half of all tariff lines were included in the CEPT and more than 40 per cent of all tariff lines were placed in the temporary exclusion list. Laos, Myanmar, and Cambodia were also required to submit their AFTA commitments when joining ASEAN. ASEAN was determined not to compromise AFTA when it expanded its membership. It objected to the idea of allowing new members to join AFTA later. While new members are expected to immediately implement their AFTA commitments they are given a longer time to complete the process. The slower implementation by the new members should not necessarily retard the implementation of AFTA by the older members. The CEPT scheme is essentially reciprocal in nature and does not provide much room for free-riding. A member country is automatically eligible for concession if the product is included in its CEPT and if the tariff rate for that product is at or below 20 per cent. If the tariff rate is above 20 per cent, it is eligible for concessions only in other member countries that also impose a CEPT rate higher than 20 per cent. This provision should help speed up the implementation by new members. Perhaps this 20 per cent cut-off rate should be progressively reduced in the process. It should be noted that the CEPT mechanism in effect does allow for a two-track AFTA to develop. A two-track ASEAN is perhaps inevitable. This should be duly recognized by ASEAN in its agenda setting. Nevertheless, it should be in the interest of ASEAN to see that its new members catch up faster. In 2010, when AFTA should be fully in place, ASEAN will still be an economic region of stark differences. The ASEAN region in 2010, and even in 2030, will resemble the economically diverse APEC region today. As in the case of APEC, ASEAN will have to adopt an agenda in which development co-operation will go hand in hand with trade and investment liberalization and facilitation. The meeting of leaders in Bangkok in 1995 set the stage for ASEAN

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development co-operation. Prime Minister Goh Chok Tong proposed a framework for helping the new members through the creation of a Commercial Infrastructure Fund. The idea is to apply the Growth Triangle concept to the Mekong Basin. It aims at involving primarily the private sector. As such, it is distinct from the Greater Mekong Subregional Economic Co-operation scheme promoted by the Asian Development Bank. The idea of developing the Mekong Basin received ASEAN’s support, which in turn solicited co-operation from Japan, Korea, and China. In fact, Japan had already shown great interest in co-operating with ASEAN to assist the new ASEAN members. An ASEAN– Japan expert group was set up in 1994 and submitted a report to the SEOM in December 1995. It recommended that assistance be focused on helping the new members in such areas as accounting system, legal system, corporate and investment law, and tax legislation. These are also essential ingredients of an AFTA Plus. Financial Co-operation As if guided by some kind of premonition about the coming of a financial crisis, ASEAN finance ministers held their first ever meeting on 1 March 1997 in Phuket, Thailand. The aim of the meeting was to promote ASEAN co-operation in the area of finance. It produced a Ministerial Understanding that provides a framework to enhance co-operation and facilitation in several areas of finance within the existing institutional arrangement. An ASEAN Finance Ministers’ Meeting (AFMM) was to be conducted regularly and assisted by the ASEAN Senior Finance Officials Meeting (ASFOM). The activities were to include exchanging views on macroeconomic policies, improving transparency of policies, regulations and rules affecting the financial sector, promoting ASEAN as an efficient and attractive financial and investment region, promoting public–private sector linkages in the area of finance, and developing ASEAN human resources in the area of finance. The meeting emphasized three particular issues: the importance of strengthening the supervisory and regulatory framework of the banking sector; the need to liberalize the financial services sector further in a gradual fashion, including through the WTO; and the utility of the ASEAN swap arrangement in view of the dramatic changes in the global financial environment. When the crisis hit, ASEAN was not in a position to do anything for its members. The swap arrangement was far from adequate. An informal proposal from Japan to establish an Asian Monetary Fund was shot down. The crisishit countries had to resort to the International Monetary Fund (IMF). On 1 December 1997, a Special ASEAN Finance Ministers Meeting took place in

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Kuala Lumpur to discuss the causes of the crisis and the policy responses. They agreed to renew the swap arrangement that was due to lapse in August 1999, but no other concrete initiatives were taken. The finance ministers began to toy with the idea of co-operative efforts to redefine the criteria for sound economic policies. This would be an important step forward in developing regional surveillance. Indeed, the crisis has opened up a window of opportunity for the region to become more receptive to collective monitoring and review of policies. The ASEAN finance ministers appear to be a few steps ahead of their colleagues in other areas on this matter. The finance ministers were also of the view that, to a large extent, efforts to improve the transparency of financial markets must be undertaken on a global basis. In their view, the IMF, together with other international financial institutions, should develop a global framework to collect, analyse, and disseminate information on developments in the financial area. In their call for international support, the finance ministers, at their second meeting in February 1998 in Jakarta, urged the international community to recognize the structural and financial reforms undertaken by the ASEAN countries and to respond favourably to these initiatives. The most concrete step taken by the finance ministers concerned the regional surveillance mechanism within ASEAN. This mechanism was to be developed within the general framework of the IMF, with the assistance of the Asian Development Bank (ADB). Their view is that the contagion and systemic risks facing the region make it necessary for ASEAN to develop such a mechanism. The finance ministers suggested that an ASEAN Select Committee comprising members of the ASEAN Central Bank Forum, which was established in November 1997, and finance officials would form the core of the mutual surveillance. They also decided to set up a Permanent Secretariat (subsequently placed within the ASEAN Secretariat) to facilitate this initiative, with the assistance of the ADB. The idea of a surveillance mechanism was subsequently watered down to a surveillance process. The process is supposed to work on the basis of peer review, and the process should aim at “providing recommendations on possible actions that could be taken at the country and/or regional level”. If this can be successfully implemented it will definitely transform ASEAN into a different association from what it is now. It is still unclear whether the process can achieve its objectives. The process has been slow and reports by insiders suggest that the monitoring and review have been very superficial because of the lack of transparency. In addition, the surveillance reports prepared for the meeting were not made available to the public. The inauguration of this initiative was made with some fanfare that raised great expectations but it

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may result in a flop that would further demoralize ASEAN. What this may suggest is that, indeed, ASEAN members are not ready to move in the direction of institutional integration. The crisis has made financial co-operation a necessity, but for such co-operation to work there should be a willingness by participating countries to give up some of its sovereignty. It remains to be seen whether financial co-operation can become a new important pillar for AEC. Other Responses to the Crisis In responding to the crisis, the AFTA Council pledged to maintain open economic policies by reaffirming the commitment to realize AFTA by 2003, and subsequently accelerated to 2002. In December 1998, the ASEAN governments agreed to achieve a minimum of 90 per cent of their total tariff lines with a maximum 5 per cent tariff by 2000, and 100 per cent of items in the inclusion list with a maximum 5 per cent tariff by 2002. In March 1999, ASEAN economic ministers discussed a proposal to agree on achieving a 0 per cent tariff for at least 60 per cent of items in the inclusion list by 2003. AFTA members have submitted individual acceleration plans. The average tariff rates for products under AFTA will be reduced from 5.4 per cent in 1998 (compared to 12.8 per cent in 1993) to 2.7 per cent in 2003. The firm implementation of AFTA is perhaps more important than announcements of earlier completion dates. ASEAN’s credibility depends on the firmness with which individual ASEAN members implement their AFTA commitments. Malaysia’s backtracking on its automotive sector liberalization will affect AFTA’s credibility. Other schemes have received some boost as a result of the crisis. The AICO, which was implemented on 1 November 1996, has not really taken off although fourteen applications have been approved. In its attempt to enhance the attractiveness of AICO, the AEM agreed to provide AICO status to companies planning to invest in ASEAN and not just to existing companies. This is meant to encourage companies that have been affected by the crisis to look for partners from within the region to engage in AICO schemes as part of their restructuring efforts. It should be noted, however, that AICO’s attractiveness will soon be reduced for many industries as AICO products enjoy preferential tariff rates in the range of 0–5 per cent, which represents the final CEPT rate to be reached by 2003 (or 2002) for most products. The automotive industry is one exception, and here AICO will remain attractive for some time to come. The AIA also received a boost with the signing of the Framework

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Agreement on ASEAN Investment Area in October 1998. The objective of the AIA is to make ASEAN a competitive, open, and liberal investment area through a binding agreement. It is not clear as yet whether the agreement will have an immediate effect on investments into ASEAN. The agreement opens all industries (with exceptions specified in the temporary exclusion list and the sensitive list) for investment by ASEAN investors only by 2010, and by all investors by 2020. It also grants national treatment, with the same exception as above, to ASEAN investors by 2010, and to all investors by 2020. As a binding agreement, the AIA is a more progressive document than the APEC Non-binding Investment principles. However, considering that AFTA’s completion is scheduled for 2003, the timetable for the AIA appears to be too far into the future. It would make sense to accelerate the AIA’s implementation by at least five years. A review of the evolution of AEC clearly shows that over the past thirty years it has moved in the direction of more outward-oriented co-operation schemes. AFTA is bound to be outward-oriented. It is a means to integrate the region with the rest of the world. AEC schemes have also moved away from government-led schemes to private sector-oriented programmes. Regional economic integration has been largely market-driven. AFTA Plus should be designed to facilitate this market-driven process. Perhaps, the dichotomy between resource-pooling and market-sharing should no longer be made. AEC should involve both. Finally, the AEC agenda should be well balanced. There should be something for each member of ASEAN. With such an agenda, it should not be a problem to have a two-tier ASEAN or to apply the “10 minus X” principle in all aspects of AEC.

THE LONG VIEW ASEAN has gone through an interesting evolution in the past thirty years. There have been many changes, but much remains the same. There has been no institutional and philosophical break-through. Regional co-operation in Southeast Asia remains a venture to enhance national sovereignty. ASEAN has not become an adventure in regional integration. There is much rhetoric about integration. The decision to form AFTA looks like an attempt at regional integration, but it is really not so. It is driven by the need of each member to enhance economic competitiveness. This is to be achieved by some kind of co-operation. Reducing tariffs is the main focus of AFTA, but other forces are bringing down member economies’ MFN tariffs. If AFTA can help accelerate this process of unilateral liberalization then it performs a useful role. In fact, this should be the main purpose of AFTA (Estanislao

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1997). In a sense, this should also be the objective of APEC’s trade liberalization agenda. However, AFTA’s role is gradually being directed towards becoming a justification for selective industrial protection. The case of the automotive industry clearly shows this danger. If indeed ASEAN accepts the proposal to institute some arrangement to compensate for backsliding by individual members, then AFTA will become an obstacle to enhancing regional economic competitiveness. Economic integration in the region will nonetheless continue. This process will be driven largely by market forces, not by AFTA. The need to go beyond AFTA, to formulate and implement various measures to facilitate regional economic transactions, efforts that constitute AFTA Plus, becomes all the more urgent. AFTA involves negotiating tariff reductions. The political economy in many countries, and in the ASEAN setting, is such that a free trade arrangement becomes a convenient vehicle for protecting certain industries. AFTA Plus deals mainly with capacity- and institution-building. These efforts would help members to enhance their economic interactions. Many of these activities are more appropriately undertaken within the framework of ASEAN Plus Three. Indeed, there is much talk about introducing “ASEAN minus plus” schemes, meaning to say that not all ASEAN countries might be ready to participate but other non-ASEAN (East Asian or Western Pacific countries) can be included. A more workable surveillance mechanism may have to be an “ASEAN minus plus” arrangement. However, many ASEAN Plus issues are of a non-border type that may be politically sensitive. It is important to address them in today’s globalized world. Policies and institutions need to adjust to this new reality. The wider regional setting allows for instituting a development co-operation agenda for capacity- and institution-building. This is also where APEC is seen to be most useful. The original AFTA-CER initiative was meant to focus on this important agenda. The premature move to transform this into a free trade area initiative may have been damaging, but the compromise to promote Closer Economic Partnership could well provide a renewed stimulus to adopting a more elaborate trade and investment facilitation agenda. Three conclusions can be drawn from this discussion. First, many important areas of economic co-operation in dealing with globalization are better undertaken within the wider regional arrangement than within ASEAN. This does not necessarily mean a dilution of ASEAN if it can organize itself to become the core of such undertaking. ASEAN should become the core of ASEAN Plus Three, as the name suggests. Secondly, all these initiatives and efforts have a chance of success if there is a political will to deepen cooperation. This implies a willingness to surrender some national sovereignty

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in promoting regional interest. Globalization forces countries to promote enhanced regional co-operation. Thirdly, the main underpinning of economic co-operation is essentially political co-operation. ASEAN has had a successful track record in political co-operation. This was the story of ASEAN co-operation in its first twenty-five years. The main drivers of this political co-operation were the external political challenges: the Vietnam War, the withdrawal of British forces from East of the Suez, the fall of Saigon, and the Cambodian conflict. The ASEAN foreign ministers were very much in action and performed well on the regional and international stage. However, ASEAN political co-operation has been largely one of pooling of political resources. It has never been motivated by a desire for political integration. Economic integration can be driven by the market but only to some extent, although this can go quite far, but it can only be sustained by moves towards political integration. It is perhaps unfortunate that initiatives towards greater political integration in ASEAN has been coined in terms of intervention, albeit being called “constructive intervention”. Essentially, political integration requires a mature attitude to accept comments on internal matters from neighbouring countries as coming from within the wider community. In some member countries that lack democratic practices, accepting such comments is felt by the regime as undermining its political legitimacy. Unless there is political development within member countries, ASEAN cannot become a mature organization, an organization that aims at creating a political community. At the age of thirty plus, ASEAN is neither an economic community nor a political community. It has become a diplomatic community, but this too has been weakening in recent years. ASEAN has lost its diplomatic clout. At its height, it was able to gather support from the major powers within and outside the region to engage in a region-wide political and security dialogue, the ASEAN Regional Forum. As developments within the ASEAN region itself no longer provide an impetus to mobilize political resources and to promote political co-operation, the focus has been shifting towards the wider region and the need to build a regional political and security order. The ARF’s objective is to create a new regional political and security architecture. Its foundation rests on confidence-building measures (CBMs). ASEAN was in the fortunate position to act as the core of the ARF. It did play that role in the first few years. Yet the process appears to have been bogged down by protracted CBMs and failed to show signs of progress towards preventive diplomacy and conflict resolution. Here too, it seems, the problems lie with ASEAN’s lack of

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readiness to deepen political co-operation. Preventive diplomacy requires openness to “comments” from other members of the political community. ASEAN does not have the vigour to be in the ARF’s driver’s seat. The ARF is all that ASEAN has in the political field. If it cannot reinvigorate the ARF, it will also cease to be a diplomatic community. The completion of the One Southeast Asia project has turned out to be an anti-climax. The new ASEAN suffers from its own increasing weight. The expectation was that a bigger ASEAN, the ASEAN-10, would have greater diplomatic clout and would become a stronger diplomatic community. ASEAN’s expansion has made it more difficult to transform it into an economic community, let alone a political community. The clock cannot and should not be turned back, however. ASEAN-10 still has the potential to become a major regional player. By 2030 it will become a region with a population of 720 million. Its mere existence may be sufficient to provide a carpet for regional problems to be swept under it, but its continued existence is not assured. Future ASEAN leaders may not take for granted that ASEAN should be the cornerstone of their foreign policy. Some of today’s leaders are already questioning this. Having given birth to wider regional arrangements, the ARF and the ASEAN Plus Three, ASEAN can be diluted by them if they are “hijacked” from ASEAN. If ASEAN cannot remain at the core of the ARF and, through AFTA Plus, become the core of ASEAN Plus Three, that possibility is not unlikely to happen. Perhaps there is no longer an ASEAN common interest to provide a basis for maintaining ASEAN as the core of wider regional cooperation. The civil society in the region definitely thinks that this is indeed the case. A new ASEAN must be invented. Although ASEAN must start anew because with the incorporation of the new members it has been taken many steps back, but it has the ARF and the ASEAN Plus Three as the basic platform to launch ASEAN’s journey into the new millennium. A mature ASEAN is a prerequisite. Members must open up. This is where the ASEAN civil society can contribute greatly. They have to be incorporated into the agenda setting of the new ASEAN, otherwise, people will have a totally wrong idea about what ASEAN is all about. ASEAN’s core institutions and initiatives should not be remembered by the ASEAN peoples in 2030 as that which Chutikul (2000) had noted: ARF

: what Lassie said to Tigger.

AFTA : Tigger’s reply.

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ASEAN is, perhaps, really a matter of life and death for the ASEAN peoples. It is a serious matter. We should not wait until 2030 to prove this proposition right. Note 1. This section draws heavily on an unpublished, draft paper that has been prepared with Rizal Sukma.

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SELECTED BIBLIOGRAPHY AND REFERENCES Books, Articles, and Papers Acharya, Amitav. “Realism, Institutionalism, and the Asian Economic Crisis”. Contemporary Southeast Asia 21, no. 1 (1999). Almonte, Jose T. “The Transition to Democracy in ASEAN”. Mimeographed. Manila, 2000. Antolik, Michael. “ASEAN and the Diplomacy of Accommodation”. (1990). Ariff, Mohamed. “AFTA: Another Futile Trade Area?”. Inaugural Lecture, University of Malaya, Kuala Lumpur, 3 February 1994a. ———. “Open Regionalism à la ASEAN”. Journal of Asian Economics 5, no. 1 (Spring 1994b). ———. “Trade, Investment and Interdependence”. In A New ASEAN in a New Millennium, edited by Simon S.C. Tay, Jesus Estanislao, and Hadi Soesastro. pp. 45–65. Jakarta: Centre for Strategic and International Studies, 2000. ASEAN-CCI. ASEAN: The Way Forward. The Report of the Group of Fourteen on ASEAN Economic Co-operation and Integration. Kuala Lumpur: ISIS Malaysia, 1986. ASEAN Economic Forum. “Perspective Papers from the Philippines”. Mimeographed. Manila, 2000. ASEAN Eminent Persons Group on Vision 2020. “Proposed Recommendations from the Philippine Representative”. Mimeographed. Manila, 2000. ASEAN Leaders. ASEAN Vision 2020. Jakarta: ASEAN Secretariat, 1997. ASEAN Plus 3 Leaders. “Joint Statement on East Asia Co-operation”. Mimeographed. Manila, 1999. ASEAN Secretariat. Hanoi Plan of Action. Jakarta: ASEAN Secretariat, 1998. ———. ASEAN into the Next Millennium. Jakarta: ASEAN Secretariat, 1999. ———. The Angkor Agenda: Report on the High-Level Task Force on AFTA-CER Free Trade Area. Jakarta: ASEAN Secretariat, 2000. ———. AFTA Reader. Various issues. Chen Tet Yung. “ASEAN EPG-Vision 2020-Version 1”. Mimeographed. Singapore, 2000. Chia Siow Yue. “The Asian Financial Crisis: Singapore’s Experience and Response”. ASEAN Economic Bulletin 15, no. 3 (December 1998): 297–308. 311 © 2001 Institute of Southeast Asian Studies, Singapore

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Chia Siow Yue. “The ASEAN Free Trade Area”. Pacific Review 11, no. 2 (1998b): 213–32. ———. “Trade, Foreign Direct Investment and Economic Development in Southeast Asia”. Pacific Review 12, no. 2 (1999). ———. “Southeast Asian Economic Miracle and Crisis: Upside and Downside of Globalization”. In Developing Economies in the Twenty-First Century: The Challenges of Globalization, edited by Ippei Yamazawa. Tokyo: Institute of Developing Economies, Japan External Trade Organization, 2000. Chin Kin Wah. “Consolidation and Institution-building in ASEAN”. Paper presented at the ASEAN ISIS Colloquium on New Directions for ASEAN, Singapore, 12– 14 September 1994. ———. “ASEAN Institution Building”. In ASEAN Towards 2020: Strategic Goals and Future Directions, edited by Stephen Leong. Kuala Lumpur: ISIS, 1998. Chutikul, Kobsak. “Sunny Side up: Rolling into the 21st Century”. Bangkok Post, 29 July 2000. de Brouwer, Gordon. “Does a Formal Common Basket Peg in East Asia Make Economic Sense?”. Canberra: Australia-Japan Research Centre, Australian National University, 2000. Estanislao, Jesus. “Internal Dynamics of One Southeast Asia: Economic and Social Aspects”. In One Southeast Asia in a New Regional and International Setting, edited by Hadi Soesastro, pp. 79–82. Jakarta: Centre for Strategic and International Studies, 1997. ———. “Proposal for Framework and the Regional Stability Forum”. Mimeographed. Manila, 1999a. ———. “New Co-operation in East Asia: Peer Assistance and Review”. In Working with Peers for Financial Reforms in East Asia. Manila: Foundation for CommunityBuilding in the Asia-Pacific, 1999b. ———. “Southeast Asia: Development, Finance and Trade”. In A New ASEAN in a New Millennium, edited by Simon S.C. Tay, Jesus Estanislao, and Hadi Soesastro, pp. 66–104. Jakarta: Centre for Strategic and International Studies, 2000. Estrada, Joseph. “Address to the Pacific Economic Cooperation Council General Meeting”. Mimeographed. Manila, 1999. Funston, John. “Challenges Facing ASEAN in a More Complex Age”. Contemporary Southeast Asia 21, no. 2 (1999): 205–19. Haas, Michael. The Asian Way to Peace. New York: Praeger, 1989. Harding, Donald. “International Capital Flows, Exchange Rates and Macroeconomic Policy”. In Working with Peers for Financial Reforms in East Asia. Manila: Foundation for Community-Building in the Asia-Pacific, 1999. Higgott, Richard. “ASEM and the Evolving Global Order”. In The Seoul 2000 Summit: The Way Ahead for the Asia-Europe Partnership, edited by Chong-wha Lee, pp. 11–47. Seoul: Korea Institute for International Economic Policy, 2000. Institute of Management Development (IMD). The World Competitiveness Yearbook 2000. Lausanne: Institute for Management Development, 2000.

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Ito, Takatoshi. “Regional Co-operation in Asia: Theoretical Framework, Recent Movements, and Prospects”. Presentation at the East Asian Economic Association Conference, Singapore, August 2000. Jayasuriya, Kanishka. “Asia-Pacific Regionalism in the Form of ‘Minilateralism’”. Straits Times, 18 November 2000. Lee Kyung-Tae. “Economic Co-operation in the East-Asian Region”. Paper prepared for the First East Asia Vision Group Meeting, Seoul, 21–22 October 1999. Lee Tsao Yuan. “The ASEAN Free Trade Area: The Search for a Common Prosperity”. Asian-Pacific Economic Literature 8, no. 1 (May 1994): 1–7. Leifer, Michael. The ASEAN Regional Forum. Adelphi Paper No. 302. London: IISS, 1996. ———. “International Dynamics of One Southeast Asia: Political and Security Context”. In One Southeast Asia in a New Regional and International Setting, edited by Hadi Soesastro, pp. 191–99. Jakarta: Centre for Strategic and International Studies, 1997. Luhulima, C.P.F. “ASEAN’s Security Outlook: A Re-evaluation against the Background of the Financial and Economic Crisis”. Mimeographed. Jakarta, 1999. Menon, Jayant. “The Expansion of AFTA: Widening and Deepening?”. Asian-Pacific Economic Literature12, no. 2 (November 1998): 10–22. Nischalke, Tobias Ingo. “Insights from ASEAN’s Foreign Policy Co-operation”. Contemporary Southeast Asia 22, no. 1 (2000). OECD. A New Economy? The Changing Role of Innovation and Information Technology in Growth. Paris: Organization for Co-operation and Development, 2001. ———. Understanding the Digital Divide. Paris: Organization for Co-operation and Development, 2001. Pangestu, Mari. “ASEAN Free Trade Area (AFTA): An Indonesian Perspective”. Indonesian Quarterly 23, no. 1 (1995): 38–53. PECC Peer Assistance and Review Network. “Convenor’s Statement”. In Working with Peers for Financial Reforms in East Asia. Manila: Foundation for CommunityBuilding in the Asia-Pacific, 1999. Piei, Mohd. Haflah, and Tan Tiang Chye. “Steps Towards Economic Integration: The ASEAN Free Trade Area”. Panorama 2, pp. 35–61. Manila: Konrad Adenauer Stiftung, 1999. Rajan, Ramkishen S., Rahul Sen, and Reza Siregar. Singapore and Free Trade Agreements: Economic Relations with Japan and the United States. Singapore: Institute of Southeast Asian Studies, 2001. Ramcharan, Robin. “ASEAN and Non-interference: A Principle Maintained”. Contemporary Southeast Asia 22, no. 1 (April 2000). Regional Co-operation Division, METI (Ministry of Economy, Trade and Industry), Japan. “Places Trading”. Look Japan, February 2001. Schwartz, Peter. The Art of the Long View. New York: Doubleday,1991. Sen, Amartya. Beyond the Crisis: Development Strategies in Asia. Singapore: Institute of Southeast Asian Studies, 1999.

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Shahid Yusof. Globalization and the Challenge for Developing Countries. World Bank, June 2001. Sharma, Shankar. “Structural Change and Energy Policy in ASEAN: Towards Regional Cooperation”. In The ASEAN Reader, edited by K. S. Sandhu et al. Singapore: Institute of Southeast Asian Studies, 1992. Siazon, Domingo L., Jr. “Remarks at the 3rd Meeting of the ASEAN Eminent Persons Group on Vision 2020”. Mimeographed. Manila, 2000. Smith, Anthony L. “The AFTA-CER Dialogue: A New Zealand Perspective on an Emerging Trade Area Linkage”. ASEAN Economic Bulletin 14, no. 3 (March 1998): 238–52. Soesastro, Hadi. “ASEAN Economic Co-operation: The Long Journey to AFTA”. Indonesian Quarterly 23, no. 1 (First Quarter 1995a): 25–37. ———. “ASEAN Economic Co-operation in a Changed Regional and International Political Economy”. In ASEAN in a Changed Regional and International Political Economy, edited by Hadi Soesastro, pp. 1–40. Jakarta: Centre for Strategic and International Studies, 1995b. ———. “Challenges to AFTA in the 21st Century”. In One Southeast Asia in a New Regional and International Setting, edited by Hadi Soesastro, pp. 83–92. Jakarta: Centre for Strategic and International Studies, 1997. ———. “Domestic Adjustments in Four ASEAN Economies”. In Domestic Adjustments to Globalization, edited by Charles E. Morrison and Hadi Soesastro, pp. 24–36. Tokyo: Japan Center for International Exchange, 1998. ———. “ASEAN at Thirty: Challenges to a Loosely-Knit Association”. In Asia, Europe and the Challenges of Globalization: Lectures from the First ASEF Summer School 1998, edited by Joachim Krause, Bernhard May, and Ulrich Niemann, pp. 67–100. Berlin: Research Institute of the German Society for Foreign Affairs, 1999a. ———. “ASEAN during the Crisis”. In Southeast Asia’s Economic Crisis: Origins, Lessons, and the Way Forward, edited by H. W. Arndt and Hal Hill, pp. 158–69. Singapore: Institute of Southeast Asian Studies, 1999b. ———. “ASEAN 2030: The Long View”. In A New ASEAN in a New Millennium, edited by Simon S. C. Tay, Jesus Estanislao, and Hadi Soesastro, pp. 187–227. Jakarta: Centre for Strategic and International Studies, 2000. Sorpong Peou. Conflict Neutralization in the Cambodian War: From Battlefield to Ballot Box. New York: Oxford University Press, 1997. Tay, Simon S. C. “Preventive Diplomacy in the ASEAN Regional Forum: Principles and Possibilities”. In The Next Stage, edited by D. Ball and A. Archarya. Canberra Papers and IDSS, 1999. ———. “The Southeast Asian Fires: The Challenge to International Law and Sustainable Development”. Georgetown International Environmental Law Review (Winter 1999a). ———. “Asian Co-operation for the Environment”. In Regional Co-operation in the Asia Pacific”. Tokyo and New York: Japan Centre for International Exchange, 2000.

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Tay, Simon S. C. “ASEAN and East Asia: A New Regionalism”. In A New ASEAN in a New Millennium, edited by Simon S. C. Tay, Jesus Estanislao, and Hadi Soesastro. pp. 228–39. Jakarta: Centre for Strategic and International Studies, 2000b. Tay, Simon S. C. and Chang Li Lin. “Preventive Diplomacy in the ASEAN Regional Forum: Possibilities For Good Offices And Special Envoys”. Paper prepared for the CSCAP Working Group on CSBMs Meeting, Singapore, April 2000. Tay, Simon S. C. and Goh Chien Yen. “ASEAN-EU Relations: The Question of Myanmar”. Panorama 3/1999. Konrad Adenauer Stiftung, 1999b. Tay, Simon S. C. with Obood Talib. “The ASEAN Regional Forum: Preparing for Preventive Diplomacy”. Contemporary Southeast Asia 19, no. 3 (1997): 252– 68. Teh, Robert R. “Completing the CEPT Scheme for AFTA”. Paper submitted for the Seminar-Workshop on “Beyond AFTA and Towards an ASEAN Common Market”, Manila, 18–20 October 1999. Thayer, Carlyle A. “ASEAN Ten Plus Three: An Evolving East Asian Community?”. Pacific Forum CSIS Comparative Connections, an e-journal on East Asian bilateral relations, 4th quarter 2000. United Nations Development Programme (UNDP). Human Development Report 1999. New York: Oxford University Press, for the United Nations Development Programme, 1999. ———. Human Development Report 2001. New York: Oxford University Press, for the United Nations Development Programme, 2001. Wain, Barry. “ASEAN’s Credibility Crisis”. Asian Wall Street Journal, 4–5 August 2000. Wanandi, Jusuf. “ASEAN’s Informal Networking”. Paper presented at the ASEANISIS Colloquium on New Directions for ASEAN, Singapore, 12–14 September 1994. World Economic Forum (WEF). The Global Competitiveness Report 2000. Geneva: World Economic Forum, 2000. Wong Poh Kam. “Leveraging the Global Information Revolution for Economic Development: Singapore’s Evolving Information Industry Strategy”. Information Systems Research 9, no. 4 (1998). Yamazawa, Ippei. “APEC’s Achievements and Tasks for Shanghai 2001”. Paper presented at the APEC Roundtable and Apian Workshop, “APEC at the Dawn of the 21st Century”, Institute of Southeast Asian Studies, Singapore, 8–9 June 2001.

Downloads from the ASEAN Secretariat Website e-ASEAN Framework Agreement, 24 November 2000, Singapore. Joint Communique of the 34th ASEAN Ministerial Meeting, 23–24 July 2001, Hanoi.

© 2001 Institute of Southeast Asian Studies, Singapore

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Selected Bibliography and References

Joint Press Statement of the First ASEAN Telecommunications Ministers Meeting, 13–14 July 2001, Kuala Lumpur. Press Statement of the Fourth ASEAN Informal Summit, 22–25 November 2000, Singapore.

Download from the e-ASEAN Task Force Website Overview.

© 2001 Institute of Southeast Asian Studies, Singapore