7 - Possible Benefits of FTAs for Southeast Asia

Summary

The preceding chapters have indicated a clear and emerging trend towards bilateralism in Southeast Asia. It is also observed that on a bilateral basis, these FTA initiatives are likely to be beneficial for its members in terms of greater market access in goods and services due to reduction in trade barriers, increased investment opportunities in overseas markets, and reduction of business costs arising from the dismantling of tariffs and non-tariff barriers. However, given that the economies of ASEAN are highly interdependent among themselves, it is important to analyse whether the proliferation of such bilateral FTAs would benefit the grouping and the Southeast Asian region as a whole and the possible adjustments it may require in order to reap those benefits.

The spate of bilateral FTAs in ASEAN raises the concern as to the extent to which such FTAs could complement the ongoing economic integration process in ASEAN that was initiated through AFTA in 1992. This concern is particularly pertinent given that prevailing economic diversity among ASEAN members calls for a concerted approach towards economic integration. The economic integration process is supposed to culminate towards an ASEAN Economic Community by the year 2020. A Concept Paper on the ASEAN Economic Community prepared by the Institute of Southeast Asian Studies in Singapore envisages free movement of goods, services, capital, and labour among ASEAN members.

The economic crisis of 1997–98 has made this task of economic integration difficult, with resultant slow progress in liberalization of their economies in both goods and services through AFTA and the ASEAN Framework Agreement on Services (AFAS) respectively. Although AFTA has been implemented for the ASEAN-6, tariff barriers on all goods are still not dismantled, while AFAS has not been able to significantly increase the pace of service sector liberalization.

Therefore, one of the principal challenges for economic integration among ASEAN members is to increase the pace of liberalization and undertake necessary structural and institutional reforms in member countries, wherever required. This would help them to enhance and sustain competitiveness in the global market.