By dpa correspondents Oct 20, 2009, 6:10 GMT
Bangkok/Jakarta - The Association of South-East Asian Nations (ASEAN) is scheduled to achieve free trade on goods among six of its 10 member countries as of January 1, but few may recall the deadline.
At the October 23-25 ASEAN Summit in Cha-am, Thailand, one of the contentious sideline issues is likely to be Thailand's request that the Philippines cut its tariffs on rice imports next year, evidence that a real ASEAN Free Trade Area (AFTA) isn't quite there yet.
The Philippines has asked to keep tariffs on rice imports at 35-40 per cent until 2015, instead of dropping them to 0-5 per cent next year as prescribed by the AFTA timetable for the six main ASEAN economies - Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand.
'Rice is a sensitive product,' said Sundram Pushpanathan, ASEAN deputy secretary general for economic community. 'What is important is that they have agreed to remove tariffs through a staged process.'
AFTA was launched in 1993, designed to gradually cut tariffs on trade in the region to 0-5 per cent by 2010 for the six original members. The trade pact will encompass ASEAN newcomers Cambodia, Laos, Myanmar and Vietnam in 2015.
AFTA has arguably been a success, at least in terms of boosting trade within the regional bloc.
From 2004 to 2008, intra-ASEAN trade rose from 260.7 billion dollars to 458.1 billion, a compounded growth rate of 15 per cent.
And the trade pact has not led to a reduction of trade with other countries, according to the World Bank's report on AFTA published in June, 2009.
ASEAN trade with the European Union grew from 131.54 billion dollars in 2004 to 202.36 billion in 2008, while to the US it edged up from 135.86 billion to 181.04 billion during that period.
One reason intra-ASEAN trade has increased as well as trade with major markets is because much of the regional commerce is in parts and components destined for products that are ultimately assembled and re-exported to the area's traditional markets - the EU and US.
So not surprisingly, this year intra-ASEAN trade has crashed almost in tandem with the plummet of exports to the EU and US.
The Thai government has forecast that the country's exports this year to the US will drop 20 per cent, to the EU 18 per cent, Japan 20 per cent and ASEAN a whopping 30 per cent.
'We have been hit by a double whammy in the ASEAN market: the decline in intra-regional manufacturing and also the decline in ASEAN consumption,' said Dusit Nontanakorn, chairman of the Thai Chamber of Commerce.
'If we had developed more of a market between ASEAN countries the drop wouldn't have been this bad,' Dusit said.
ASEAN deputy secretary Sundram agreed. 'We really need to increase our domestic consumption for intra-ASEAN trade to grow,' he said.
After the 1997 Asian financial crisis there was much talk among ASEAN governments of shifting the region's engine of growth away from exports towards more domestic consumption.
It didn't happen. Instead the ASEAN economies, taking advantage of their depreciated currencies against the dollar, became even more export-dependent over the past decade.
And there is little indication that export-bias has been altered by the recent global crisis, even through it has shaken trust in the EU and US.
'If anything, the recent increase in foreign exchange reserves in virtually every country suggests that policymakers are going back to the familiar source of growth for the region, which is exports,' said James McCormack, managing director of the Asia-Pacific region for Fitch Ratings, a sovereign rating agency.
'As long as that approach continues we won't see ASEAN economies driven by consumerism,' he said.
It doesn't help that the ASEAN business community, especially the most protected ones, are still reluctant to open their markets to more competition even from their neighbours as AFTA draws neigh.
'Other ASEAN countries see Indonesia as a big market,' said Toto Dirgantoro, secretary general of Indonesia's Exporters Association. 'Already Malaysian food products are flooding Indonesia and this is hurting local producers. We won't benefit much from ASEAN because we're not ready.'
In the Philippines there are similar worries about AFTA's impact on the agricultural sector, where costs and prices are higher that its neighbours.
Ultimately, it will be up to governments to persuade their private sectors that the overall benefits of AFTA will outweigh the losses.
'Because of the crisis people have started to realize that they need to look at the regional markets,' said Thailand's Dusit. 'If this didn't happen the ASEAN community would never become a reality.'
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