See related story:
Political power plays cloud East Asian economic community vision
Japan plays a key role in promoting economic integration in Southeast Asia by helping to narrow the gap between developed and less developed countries in the region, scholars from the Association of Southeast Asian Nations told a recent symposium in Tokyo.
For this goal, Japan should put greater emphasis on free trade negotiations with the ASEAN bloc as a whole, rather than seek bilateral agreements with individual members, they told the Dec. 2 Keizai Koho Center symposium.
During the event held at Keidanren Kaikan, scholars from Singapore, the Philippines, Malaysia, Thailand, Indonesia, Vietnam and Japan confirmed the importance of the partnership between Japan and the group as East Asia moves toward greater economic integration.
They also discussed ASEAN’s strategies in enhancing its competitiveness — particularly in light of the rise of China.
In opening remarks to the symposium, Tadashi Okamura, chairman of Toshiba Corp. and vice chairman of the Japan Business Federation (Nippon Keidanren), stressed the importance of Japan concluding an economic partnership agreement with the ASEAN as quickly as possible, in addition to the bilateral EPAs either concluded or roughly agreed on with Singapore, the Philippines, Malaysia and Thailand.
While pursuing free trade with the group and its members, Japan needs to introduce domestic structural reforms, including reviewing protection of the farm sector to make it more competitive, as well as changes in immigration policy to facilitate acceptance of foreign workers.
The Southeast Asian scholars, meanwhile, said priority should be on first narrowing the large gap in economic development among the 10 ASEAN members — particularly between old members Singapore, Thailand, the Philippines, Malaysia, Indonesia and Brunei, and the more recent entrants Vietnam, Cambodia, Laos and Myanmar.
“The ASEAN picture is mixed in terms of international competitiveness, and it might be difficult — although possible — to prescribe uniform policies for all these countries,” said Josef Yap, president of the Philippine Institute for Development Studies.
Yap challenged the popular view that competitiveness of companies in ASEAN countries is lagging because the region’s economies are not sufficiently integrated, saying that this analysis overlooks other determinants of competitiveness, such as technological capabilities and human resources development.
“There are other factors that impede regional economic integration . . . or prevent the benefits of integration from being realized,” Yap said.
One of them, he said, is the large disparity in economic development among ASEAN members.
“Among different regions in the world, Southeast Asia has the largest disparity,” Yap said, warning that the gap may widen even further if the region’s economies are integrated without resolving this problem.
There are also domestic constraints that pose obstacles to integration — lack of social safety nets, poor urban-rural linkages that hamper spillover effects, inadequate human resources development, lack of skilled labor to move up the value-added chain, he said.
In addition, Yap cited an inadequate legal framework, poor respect for property rights, corruption, as well as limited impact of foreign direct investment, particularly technology spillover effects.
One way to resolve these problems is to expand the scope of regionalism, he said, calling for establishment of a regional development fund similar to one offered by the European Union to support development of initially poor new entrants, as well as strengthening the avenues of regional financial cooperation “to use East Asian savings for East Asia.”
Domestic reforms should include improved social insurance policies and better education, he said.
Foreign direct investment should become a source of technology by encouraging multinational corporations to link up with local firms through subcontracting, he said, citing a recent decision by Toyota Motor Corp. to build a research and development facility in Thailand as an encouraging example.
“Before we talk about accelerating integration in ASEAN, which takes a lot of resources, there are many avenues we can explore, which are more effective,” he told the audience.
Muhammad Chatib Basri, director of the Institute for Economic and Social Research at the University of Indonesia, discussed Indonesia’s domestic problems that hamper competitiveness, as well as the country’s position vis-a-vis China.
Competition between ASEAN countries and China intensified following the latter’s accession to the World Trade Organization, he said.
China has become a threat as a competitor, but it is important as a market for Indonesian products, Basri said.
Indonesia’s comparative advantage vis-a-vis China lies in primary products, Basri noted. “We lost our competitiveness in terms of manufactured products, but we do have one in intermediate goods and raw materials,” he said, adding that those sectors may have large potential when China further moves upscale and becomes one of the centers of regional production networks.
Basri said Indonesia’s competitiveness has recently been hurt by the sharp appreciation of the rupiah, rising minimum wages, corruption, falling investment and high logistics costs.
“So before we move forward and talk about regional economic integration, we have to address these issues first,” he said.
And in the medium term, Indonesia has no choice but to engage in regional production networking by integrating its economy with others in East Asia, Basri noted.
Forming free trade agreements will be an option and may serve as a catalyst for politically sensitive domestic reforms, Basri said, although he expressed concern that proliferation of bilateral FTAs might create inconsistencies with regional or multilateral frameworks.
While Basri said Indonesia expects Japan to be a key partner in its drive to boost competitiveness, he noted that Japan’s FTA policy in Southeast Asia is unclear — whether it wants to go individually with each ASEAN member or with the group as a whole.
Sompop Manarungsan, director of the Chinese Studies Center at the Institute of Asian Studies of Chulalongkorn University in Thailand, said Japan can play a crucial role to encourage better economic cooperation in East Asia, particularly in the ASEAN bloc.
Despite the region’s many advantages, several barriers have hindered smooth cooperation among East Asian countries, Sompop said, citing lingering disparities among the region’s economies, different economic systems and mutual historical distrust.
He also pointed to the problem of “competitive” bilateral FTA negotiations and the region’s lack of experience in economic cooperation.
“East Asian countries should find the opportunity to turn their disparities and differences into economic complementarity . . . (and) to turn diversity into assets,” he said.
Sompop urged Japanese companies to implement business and investment strategies that would induce and encourage division of labor and cooperation within the region.
“ASEAN members try to compete with each other to attract foreign investment,” he said. They also compete in exporting to the same markets — the United States, Europe and Japan.
If Japanese firms readjust their business strategies in the region, they can induce better and more sustainable cooperation among ASEAN members, he said.
Vo Tri Thanh, director of the Department of Policy Analysis and Development Research at the Central Institute for Economic Management in Vietnam, noted that the ASEAN’s increased trade and investment ties with China have highlighted the sharp contrast between old ASEAN members and its new and poorer members.
The more advanced ASEAN members enjoy huge trade surpluses with China and benefit from their mutual intraindustry production networks, Thanh said.
The CLMV countries — Cambodia, Laos, Myanmar and Vietnam — export raw materials, primary products to China and import manufactured goods, and suffer huge trade deficits, he said.
“We fear being marginalized in the (regional economic) integration process and staying at the lowest end of the product supply chain. The value added by CLMV countries is very low,” he noted.
To help narrow the gap among ASEAN members, Thanh urged Japan to focus more on cooperation, investment and assistance than on forming bilateral FTAs.
While he recognized the importance of Japan’s official development aid to promote institutional reforms and human resources development in Vietnam, Thanh said efforts should be made to use the aid more efficiently and avoid an overlap with assistance from other ASEAN members.
Thanh also urged Japan to focus more on forming an FTA with the ASEAN as a group, rather than with individual ASEAN members. “My view is that we don’t need bilateral FTAs” even though Japan and Vietnam have launched a feasibility study for one between the two countries.
Mahani Zainal Abidin, an economics professor at the University of Malaya in Malaysia, also said Japan should seek an FTA with the ASEAN as a group because its approach focusing on bilateral FTAs “pits one ASEAN country against another.”
“Each ASEAN country negotiates with Japan, they are going to look at each other, what do you get, what do I get. . . . For example, Malaysia is competing with the Philippines to get access to the banana market in Japan. It should not happen,” she said.
Mahani said Japan can support the ASEAN integration process by refocusing its investment strategy from China to Southeast Asia.
“There must be efforts to close the development gap (within ASEAN), but the only way to close the gap is (for ASEAN to) have robust growth (because) you cannot transfer wealth from one country to another,” she said.
“Unless you have robust growth you cannot have integration, because integration means you have to restructure, there is going to be some relocation and there is going to be some pain. All of these things can be resolved only if there is growth.
“Japan has long played important roles in the growth of the ASEAN . . . and it should continue to do so,” Mahani said. “I think you’re in love with China, and lots of investments are going to China . . . but you must not forget the ASEAN. You must also invest in the ASEAN to support robust growth.”