No Free Lunch

Who’s afraid of Asean 2015?

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I often hear the lament that we Filipinos are not as mindful as our neighbors appear to be of the impending closer integration of the Southeast Asian economies into the Asean Economic Community (AEC), to culminate less than two years from now. I have heard none of our candidates for national office in the coming elections address the topic, for example, in the way it figures in public discussions within our neighboring countries. And yet, this move of the 10 nations that make up the Association of Southeast Asian Nations (Asean) promises to have profound implications within and across their respective economies.

A bit of a background is in order for those of us who have not followed this issue closely, if at all (and that probably means more than nine out of every 10 Filipinos). The Asean leaders adopted the AEC Blueprint in November 2007, with the vision to “establish by 2015 a highly competitive single market and production base for its ten member economies, that promotes their equitable economic development and facilitates their integration with the global community.”

The following are the blueprint’s key elements: First, free flow of goods by reducing or eliminating import tariffs, facilitating trade, and enhancing key trade agreements already in place. Second, free flow of services across member-countries, particularly business and professional services, construction, distribution, education, environmental services, health care, maritime transport, telecommunication and tourism. Third, free flow of investment, by consolidating various investment agreements already in place into the Asean Comprehensive Investment Agreement. Fourth, freer flow of capital by moving faster toward an integrated Asean capital market, and by expanding a regional foreign exchange reserve pool, now amounting to $240 billion, established to deal with financial crises. Fifth, freer flow of skilled labor through mutual recognition agreements initially on seven professions, namely medical, dental, nursing, accountancy, engineering and architectural services, and surveying. Other measures further supplement the above, such as strengthened competition policy and consumer protection, trans-Asean infrastructure development, and small and medium enterprise development.

These various initiatives promise to affect the member economies in differing ways. The reality is that there are and will always be differential impacts across countries arising from these various moves to promote integration of our economies. Numerous studies have already shown that overall impacts will be positive. But the same studies consistently find that some economies stand to gain more than others, and in certain cases, some economies may be hurt. Furthermore, there will be winners and losers within individual economies from certain policy reforms that closer regional economic integration requires.

These winners and losers must be clearly and deliberately identified, for our countries to properly gear up for Asean 2015. As differential impacts are inevitable, the premise and rationale for pursuing these measures is that the winners will ultimately outweigh the losers. Asean as a group, and its member-countries individually, must develop creative mechanisms that will permit losers to be effectively compensated by the winners. This could be effected, for example, through the governments’ tax and expenditure systems or through creative transfer schemes, in ways that could achieve win-win outcomes for all.

In the Philippines, we need to do this exercise now. A useful start would be to identify what types of goods, services, and professionals we are already importing from and exporting to our neighbors. I took a quick look at our trade statistics with major Asean trading partners and found the following: Our top imports from Thailand are motor vehicles, electronics, petroleum and chemicals; our top exports to them are motor vehicle parts, electronics and electricals, and minerals. From Singapore, we mostly import electronics, machinery and petroleum; we mostly export to them electronics and electricals, machinery, and petroleum as well. Our top imports from Malaysia are electronics, petroleum and chemicals. Unlike Thailand and Singapore, Malaysia is not among our top 10 export destinations, so I couldn’t readily find data on our exports to that country.

What do the above tell us? Our trade with major Asean trade partners is largely intraindustry in nature; that is, we are exchanging products belonging to the same industries. For electronics, which is the biggest item in both directions (except for Thailand), we are exporting intermediate components but importing the finished products. The same is true in our trade with Thailand on transport equipment; we sell them motor vehicle parts, and we in turn import from them motor vehicles. While we would do well to aspire to produce more of the finished products ourselves, one can see that our trade relationships in Asean are largely complementary rather than competitive in nature. There are many opportunities out there, then, and we shouldn’t be inordinately focused on perceived threats.

There would be even more opportunities to tap as movement of workers is further freed up in 2015. And we, as a labor surplus country, stand to gain more than lose under such circumstances. We need to do a similar exercise as above to find where our best gains could be. Same holds for the other areas of the agreement.

In any case, the time to do all these analyses is now—actually, Monday. From what I can see, there may be more to get excited about than to fear about Asean 2015.

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E-mail: cielito.habito@gmail.com

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