ASEAN economic community blueprint. 9789812309150, 9812309152, 9789812309327, 9812309322

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Reproduced from ASEAN Economic Community Blueprint (Singapore: Institute of Southeast Asian Studies, 2009). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at

ASEAN ECONOMIC COMMUNITY BLUEPRINT

The Institute of Southeast Asian Studies (ISEAS) was established as an autonomous organization in 1968. It is a regional centre dedicated to the study of socio-political, security and economic trends and developments in Southeast Asia and its wider geostrategic and economic environment. 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). ISEAS Publishing, an established academic press, has issued almost 2,000 books and journals. It is the largest scholarly publisher of research about Southeast Asia from within the region. ISEAS Publishing works with many other academic and trade publishers and distributors to disseminate important research and analyses from and about Southeast Asia to the rest of the world.

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Report No. 4

ASEAN ECONOMIC COMMUNITY BLUEPRINT

INSTITUTE OF SOUTHEAST ASIAN STUDIES Singapore

First published in Singapore in 2009 by ISEAS Publishing Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 E-mail: [email protected] Website: bookshop.iseas.edu.sg 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. © 2009 Institute of Southeast Asian Studies, Singapore The responsibility for facts and opinions in this publication rests exclusively with the contributors and their interpretations do not necessarily reflect the views or the policy of the publisher or its supporters. ISEAS Library Cataloguing-in-Publication Data ASEAN Economic Community blueprint. (ASEAN Studies Centre report, no. 4) 1. ASEAN. 2. Regionalism—Southeast Asia. 3. Southeast Asia—Economic integration. I. Institute of Southeast Asian Studies. ASEAN Studies Centre. II. Series JZ5333.5 A9A85 no. 4 2009 ISBN 978-981-230-932-7 (soft cover) ISBN 978-981-230-915-0 (PDF) Typeset by Superskill Graphics Pte Ltd Printed in Singapore by Seng Lee Press Pte Ltd

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CONTENTS

Introduction

vii

I. ASEAN Roundtable 2008: ASEAN Economic Community Blueprint • Background of the Roundtable • The AEC Blueprint • Observations from the Roundtable Discussion • Recommendations from the Roundtable Discussion • Questions and Answers • Conclusion

1 3 4 4 7 9 11

II. Background Papers 1. Tackling Non-Tariff Barriers in ASEAN Myrna S. Austria

13 15

2. Regional Framework for Competition Policy and AEC Soy Martua Pardede

30

3. Achieving an Integrated ASEAN Economic Community: The Role of Infrastructure Development? Biswa N. Bhattacharyay 4. How Less Developed Economies in Southeast Asia Can Participate in Production Networks: Industrial Policy in the WTO and FTA Era Ikuo Kuroiwa

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Contents

Annex I: Programme of the ASEAN Roundtable 2008

87

Annex II: List of Participants

90

Annex III: List of NTBs Affecting the ASEAN Priority Sectors for Integration

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INTRODUCTION

On 28 July 2008, the ASEAN Studies Centre and the Regional Economic Studies Programme, both of the Institute of Southeast Asian Studies, and the Konrad Adenauer Stiftung organized a roundtable on “The ASEAN Economic Community Blueprint”. The brainstorming session gathered Southeast Asian experts from the region to discuss the AEC Blueprint, which ASEAN’s leaders had adopted at their summit meeting in November 2007, and the prospects of any obstacles to its implementation by the target year, 2015. The roundtable started with a progress report on the AEC Blueprint given by S. Pushpanathan, Principal Director of Economic Integration and Finance, ASEAN Secretariat, Jakarta. Thereafter, the sessions examined the various aspects of the Blueprint — tackling the non-tariff barriers, designing a comprehensive ASEAN Investment Agreement, a regional framework for competition policy, the role of infrastructure development in economic integration, the importance of international production networks in economic integration, etc. The roundtable concluded that ASEAN had made progress on the road to an ASEAN Economic Community (AEC). However, ASEAN still has to overcome a number of obstacles, and individual member countries will have to implement difficult domestic and regional measures to facilitate freer movement of goods and services. These measures involve eliminating non-tariff barriers (NTBs) to intra-ASEAN trade. Other important issues include the participation of ASEAN business in regional economic integration,

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Introduction

national investment regimes, competition policy, infrastructure development, and international production networks. The roundtable’s programme and a list of the names and contact data of the participants are at the end of this book. The book begins with a brief background and summarizes the important observations made during the discussions. It includes the recommendations made. This is followed by short papers by Myrna S. Austria, Soy Martua Pardede, Biswa N. Bhattacharyay and Ikuo Kuroiwa. We hope that the summary and the chapters will help both policy-makers and the interested public in understanding the blueprint adopted for the ASEAN Economic Community.

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I ASEAN ROUNDTABLE 2008: ASEAN ECONOMIC COMMUNITY BLUEPRINT

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ASEAN ROUNDTABLE 2008: ASEAN ECONOMIC COMMUNITY BLUEPRINT

Background of the Roundtable ASEAN has made progress on the road to an ASEAN Economic Community (AEC). However, it has to overcome a number of obstacles, and individual member countries have to take difficult domestic as well as regional measures for ASEAN to do so. The obstacles and measures have to do with non-tariff barriers (NTBs) to intra-ASEAN trade, involvement of ASEAN business in regional economic integration, national investment regimes, competition policy, infrastructure development, and international production networks. This was the conclusion that emerged from the ASEAN Roundtable 2008 on the “ASEAN Economic Community Blueprint”, which was jointly organized by the ASEAN Studies Centre (ASC), the Regional Economic Studies (RES) Programme of the Institute of Southeast Asian Studies (ISEAS), and the Konrad Adenauer Stiftung (KAS) on 28 July 2008 in ISEAS, Singapore. The programme is presented in Annex I. The brainstorming session discussed the realities of the AEC Blueprint and the prospects of and obstacles to its implementation. Taking part were knowledgeable personalities from government, the private sector, and academia. Some of the leading participants were S. Pushpanathan of the ASEAN Secretariat, Myrna Austria of the Philippines’ De La Salle University, David Parsons of Indonesia’s Chamber of Commerce and Industry,

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ASEAN Economic Community Blueprint

M. Sornarajah of the National University of Singapore, Kaushik Das and Adam Schwarz of McKinsey & Co., Soy Martua Pardede of the ASEAN Competition Institute in Jakarta, Biswa Nath Bhattachartyay of the Asian Development Bank Institute, and Ikuo Kuroiwa of IDE-JETRO, Japan. The complete list of participants is presented in Annex II.

The AEC Blueprint In 2003, ASEAN embarked on a bold project to accelerate the integration of the regional economy and establish an ASEAN Economic Community (AEC) by 2020. Later, that deadline was brought forward to 2015. The AEC envisages ASEAN as a single market and production base with free flow of goods, services, investments, capital and skilled labour. To achieve this, a number of initiatives were introduced, which eventually led to the adoption of the AEC Blueprint in November 2007. This includes action plans, targets and timelines for implementing economic integration measures to move the AEC process forward. In the AEC Blueprint, ASEAN aims to be: i. ii. iii. iv.

a single market and production base; a highly competitive economic region; a region of equitable economic development; and a region that is fully integrated into the global economy.

The highlights of the blueprint are depicted on the next page. The blueprint envisions ASEAN as internationally competitive and integrated in the global economy, with benefits for all ten ASEAN member countries.

Observations from the Roundtable Discussion The roundtable recognized what ASEAN had done in integrating the regional economy, notably in practically eliminating tariffs on

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Main Highlights from the AEC Blueprint I. Single Market and Production Base Five core elements: Liberalization – Tariff and NTB elimination – Synchronized external tariff alignment – Full market access and national treatment – Remove substantially all restrictions on trade in services – All industries and services incidental to these industries for ASEAN investors

Free flow of goods Free flow of services

Free flow of investment

Free flow of capital

Free flow of skilled labour

– –

Facilitation – Customs integration – Standards and technical barriers to trade – MRAs on professional services; professional exchange

– Transparency – Streamlined procedures, avoidance of double taxation – Joint promotion – Relax capital control measures – Harmonize capital market on intra-ASEAN portfolio standards investment – Facilitate market driven efforts to establish exchange and debt market linkages – Remove discrimination in – Harmonization of standards employment in education and training – MRA on vocational training

Priority Integration Sectors (PIS) Conduct a biannual review to monitor the status, progress and effectiveness of the PIS roadmaps to ensure timely implementation Identify sector-specific projects or initiatives through regular dialogues or consultation with stakeholders, particularly the private sector

–

Food, Agriculture and Forestry Enhance trade and long-term competitiveness of ASEAN food, agriculture, and forestry products Promote cooperation with international, regional organizations and private sector

II. – – – – – –

Competitive Economic Region Develop a competition policy Strengthen consumer protection Regional cooperation in Intellectual Property Rights (IPRs) Regional cooperation in infrastructure development Complete network of bilateral agreements on avoidance of double taxation Promote electronic commerce (e-commerce)

–

III. Equitable Economic Development – Accelerate the development of small and medium sized enterprises (SMEs) – Enhance the Initiative for ASEAN Integration (IAI) to narrow the development gap IV. Integration into the Global Economy – Achieve a coherent approach towards external economic relations, including its negotiations for FTAs and comprehensive economic partnerships (CEP) – Enhance participation in global supply networks

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intra-ASEAN trade and laying the foundations for economic integration through measures pertaining to investments, customs, harmonized tariff nomenclatures, product standards, services, and infrastructure. It stressed the benefits of regional economic integration with respect to economic growth, lower costs, reduced prices, international standing, and regional cohesion, as well as competitiveness with such rising economies as China and India. However, it noted several obstacles in the way of carrying out the integration measures already agreed upon. Among these obstacles are the so-called non-tariff barriers (NTBs) to trade. While some such barriers are necessary — for example, to protect the environment or the health of humans, animals, and plants — others unnecessarily distort trade flows and restrict competition. Surveys of business firms operating in the region reveal that a problem common to several, but not all, ASEAN countries is corruption in the form of bribery to facilitate import clearances, licence applications and renewals, testing, customs inspections, and work permits. The length of time required for customs refunds and the declaration of goods was cited as a serious impediment to trade. Deterring investments into most countries in the region are national policies against the entry of foreign investments in certain sectors of the economy. The result is the lack of a common investment regime in the region. This creates uncertainty in the minds of investors. The roundtable noted that, while competition policy was necessary for the efficient functioning of the market, only four ASEAN countries had comprehensive competition laws, and, of these, only Indonesia claimed to have a fully independent competition authority.

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While ASEAN has adopted regional infrastructure networks — the ASEAN Power Grid, the ASEAN Gas Pipeline, the ASEAN Highway Network, and the Singapore-Kunming Rail Link — these cannot be completed because of lack of funding. Thus, the costs of trade and logistics in ASEAN remain high. While it is business firms that will ultimately make regional economic integration operational, the ASEAN business sector is not sufficiently involved in the building of the ASEAN Economic Community. It has not been sufficiently kept informed of developments and is not effectively consulted in policy-making. In other words, ASEAN businesses are not fully engaged in the process of economic integration. They are not sufficiently organized for this purpose. ASEAN firms often think nationally and defensively about competition from the region or elsewhere. The multinational corporations, the large ASEAN companies, and the small and medium enterprises (SMEs) view integration in different ways. The firms appointed by governments for consultation are often not the same as those elected to represent their sectors. The needs of small and medium enterprises with respect to regional integration are not sufficiently taken into account. ASEAN countries trade among themselves largely in intermediate goods, with minimal importation of consumer goods from one another. Local content has not increased much in traded goods, and even declined in the electronics sector.

Recommendations from the Roundtable Discussion Several recommendations emerged from the roundtable: The AEC is an ambitious project that can be implemented only with strong political will and the support of both government

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and business. Key factors for its success are sufficient resources and the empowerment of the necessary mechanisms (AEC Council, AEC Committee, ASEAN permanent representatives, ASEAN national secretariats, enhanced ASEAN Secretariat) for better coordination and implementation of commitments. Pervasive and extensive use of NTBs undermines the integration process. It is necessary to create and maintain a database on NTBs to trade on the basis of surveys of relevant firms. If some NTBs are necessary, ASEAN must (i) develop regional standards and subject the NTBs to them; (ii) streamline and regionally harmonize licensing and customs procedures; and (iii) develop common approaches to testing methods and conformity assessments. Moreover, the issue of corruption needs to be addressed. In general, regulatory expropriation depreciates the value of foreign investments. But it should not, if it is done in the interest of the public. There should be exceptions for measures that promote health, morals, and welfare and also measures taken out of economic necessity. In designing a new investment treaty, one has to take all these into account and bring about a regime that strikes a balance between the need for the protection of foreign investments and necessary exceptions, if any. ASEAN needs to develop a comprehensive regional framework for competition policy within the AEC. This should be harmonized with national competition policies and laws. An independent competition authority is a prerequisite to domestic competition policy. To raise financing for ASEAN’s infrastructure projects, the region needs to generate “bankable” infrastructure projects. It should improve the financial intermediation functions to mobilize its massive savings for such projects. ASEAN could establish a regional infrastructure financing mechanism. A regional

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collaborative effort in the form of an ASEAN Infrastructure Bond Fund (AIBF) would be useful in this respect. Business has to be the core player in establishing the AEC. Participation of the sector is needed in the qualitative, as well as quantitative, monitoring and assessment of the implementation of integration measures. In addition, the respective roles of government and business and hence the mandates of ASEANrelated private-sector bodies (ASEAN-CCI and BAC) need to be clarified. The linkage between domestic and foreign businesses needs to be developed and the flow of information to the business sector needs to be deepened. The roundtable also recommended strengthening the capacities of the secretariats of business groups and the establishment of a business centre in the ASEAN Secretariat. ASEAN should unlock the potential of SMEs, as they account for 40–70 per cent of most of the economies. It should educate and energize the sector so that SMEs are aware of how to take advantage of regional economic integration. They should know whom to talk to when undertaking cross-border business in ASEAN. There should also be proper investment and trade development networks, which can provide assistance in setting up an office, simplifying the forms or providing some guarantees that improve investor’s confidence. ASEAN should improve infrastructure, logistics, and supplychain management. This would reduce the cost of transportation and inventory and facilitate the development of production networks in East Asia, including in the electronics sector.

Questions and Answers S. Pushpanathan stressed that the blueprint was a master plan and faced several complex challenges. The Dispute Settlement Mechanism (DSM) faces some problems (for example, the

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appellate body is not independent and many times it is politically influenced). The ASEAN Secretariat is looking at the protocol and process. It is, for example, considering a shortened duration for the work of the appellate body/panel. He also said that compliance reviews must be undertaken by the secretariat, institutions, and businesses, etc. Engagement of the business community is crucial, so that information is more balanced and comes from sources other than the ministries. On the schedule of four implementation periods (2008–09, 2010–11, 2012–13, and 2014–15), Pushpanathan said the targets were sequential so that countries could achieve certain targets first. They provide checkpoints for technical support. However, the countries are short of funds and resources, so there should be a programme budget and not just an operational budget to support the capacity building needs. In the meantime, for equitability, ASEAN-6 must help the CLMV countries, or else the latter’s cooperation will decrease. Income distribution is still a problem, but has been improved, in terms of the poverty gap, etc. More must be done to help improve human resource development in the CLMV countries. On implementation of Mutual Recognition Arrangements (MRAs), Myrna S. Austria’s said that it was taking a long time because countries needs to decide on whose regulation should prevail. More developed ASEAN countries are likely to have higher standards than less developed ones. On the licensing and regulation issues, apart from updating the database, ASEAN needs to define what are NTBs, what is legitimate and justified and therefore can be imposed. David Parsons reiterated that ASEAN integration was becoming more difficult in the light of the mixed signals from

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businesses and the governments. ASEAN needs to improve its capacity so that it can help the businesses to think regionally. Business organizations cannot solve all the problems but can serve to narrow them down to make sure that the measures taken are in line with the requirements of both the businesses’ and the nation’s interests. M. Sornarajah suggested the adoption of a new investment treaty, which balanced the protection of foreign investment and the interest of the state. However, it would be a difficult political exercise to bring about such a new investment treaty. Soy Martua Pardede said that transparency and accountability were fundamental elements of competition policy. Competition agencies must (i) enforce the law amongst business players; and (ii) review the government policies and regulate business activities. Ikuo Kuroiwa said that logistics, transportation, and infrastructure were crucial to building efficient production networks. In addition, a favourable investment climate and good governance are a must. In this regard, Special Economic Zones (SEZs) assume importance, as in many cases it is too difficult to improve the investment climate of an entire country.

Conclusion The AEC Blueprint is a coherent master plan which provides a short- to medium-term roadmap towards 2015. ASEAN is making slow but steady progress in the implementation process. It is working towards eliminating tariffs on intra-ASEAN trade and laying the foundations for economic integration through measures pertaining to investments, customs, harmonized tariff nomenclatures, product standards, services, and infrastructure. But there are several issues and challenges that need to be

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addressed. The ASEAN DSM should be improved and an effective scorecard should be developed so as to facilitate the monitoring of the implementation of measures prescribed in the blueprint. The roundtable also identified a number of obstacles to forming an economic community. These have to do with nontariff barriers to intra-ASEAN trade, involvement of ASEAN business in regional economic integration, national investment regimes, competition policy, infrastructure development, and international production networks. Finally, AEC is going to be a long drawn-out process. It is going to be a real uphill battle to ensure that all the economic measures are being implemented. In this regard, it was acknowledged that all this would involve strong policy decisions at the national level and would require strong political will on the part of the leaderships of the ASEAN member-states.

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II BACKGROUND PAPERS

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1 TACKLING NON-TARIFF BARRIERS IN ASEAN Myrna S. Austria

Introduction The commitment to reduce barriers to intra-regional trade has always been an integral element to the goal of achieving economic integration in the ASEAN region. It dates back to 1977 under the Preferential Trade Agreement (PTA). In 1992, a more definite target for trade liberalization was laid down under the ASEAN Free Trade Area (AFTA). The target date was set at 2003. Over the years, however, the ASEAN took serious steps to deepen economic integration. During the ASEAN Summit in 2003, the ASEAN leaders resolved to establish an ASEAN Economic Community (AEC) by 2020.1 The time-line was later accelerated to 2015 during the ASEAN Summit in January 2007. The AEC is characterized as a single market and production base, with free flow of goods, services, investment, capital, and skilled labour. As an initial step towards the goal, the ASEAN leaders signed the Framework Agreement for the Integration of Priority Sectors during the ASEAN Summit in 2004. The framework agreement outlined the steps to be taken to accelerate the integration of eight priority goods sectors and three services sector.2 During the ASEAN Summit in November 2007, the ASEAN Leaders signed the Declaration on the AEC Blueprint, the master plan that guides the ASEAN towards achieving an AEC by 2015.

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Soesastro (2008) made clear what AEC means when he said, “the idea of a single market and production base is essentially about providing consumers in the region with an expanded market from which they can fulfill their consumption needs and producers in the region with an expanded space in which they can undertake their production activities without having to worry about national (administrative) boundaries within the region”. This calls for the free flow of goods among the ASEAN members, which in turn requires the elimination of both border and across-the-border policies and regulations in the region. This means zero tariffs and elimination of NTBs; and once across a border, the good should be accorded the same treatment as any other domestic good. ASEAN has achieved significant progress in tariff liberalization, with the average tariff rate now at less than 5 per cent. However, this achievement has been countered by non-tariff barriers (NTBs) that are persistent and on the rise, and for some, in even more complex forms. The AEC Blueprint clearly states that “the main focus of ASEAN towards 2015 will be placed on the full elimination of NTBs.” Why NTBs are a concern for ASEAN economic integration? The region is host to the global production networks (GPN) of multinational companies (MNCs) from the United States, Japan, Europe, and other developed countries.3 The presence of these GPNs creates an incentive for ASEAN to reduce the transaction costs through reduced trade barriers, progressive elimination of rules of origin requirements, and greater mobility of capital and labour. Otherwise, an increase in the production and administrative costs of these MNCs will force them to move out of the region. The objectives of this paper are as follows: (i) to examine how significant non-tariff barriers (NTBs) are in ASEAN; (ii) to determine whether NTBs will undermine the economic integration

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process; and (iii) to analyse if enough is being done under the AEC Blueprint to eliminate NTBs. The paper is organized as follows. The next section discusses the issues surrounding the application of NTBs as protective measures for domestic industries. This is followed by analyses of ASEAN’s trade performance, particularly the priority sectors for integration. Further, the paper discusses ASEAN’s commitments to eliminating NTBs. The paper also presents the NTBs in ASEAN. The final section discusses the remaining issues and recommendations to tackling NTBs in ASEAN.

Understanding Non-Tariff Barriers With the widespread reduction in tariffs, especially with the proliferation of bilateral and regional trading arrangements, NTBs have replaced tariffs as protective measures for domestic industries. By definition, NTBs are a set of all measures imposed under specific conditions that restrict trade flows. They come in various form: quantitative restrictions, outright import bans, licensing, technical regulations, sanitary and phytosanitary measures (SPS), price controls, customs and administrative procedures, para-tariff measures, among others. The use of NTBs, however, has been increasingly a subject of debate because of the legitimacy of their application. Some NTBs may serve legitimate purposes as when they are designed to overcome market failures such as protection for the environment, or plant, animal, and human health (Wilson 2005; Eddy and Owen 2007). Examples of this nature are technical regulations and standards which are intended to reduce health risks. Other NTBs may also operate directly to restrain competition as when they discriminate against foreign suppliers, or when they support outright monopolies.

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However, while there are legitimate reasons for regulation, in some instances their application can be so stringent as to inhibit trade especially from developing countries who may lack the capability to comply with the requirements. The experience of some countries shows that the application of technical regulations and standards in some instances is stricter than is required by relevant international certifying bodies (Wilson 2005). Worse, in the absence of internationally accepted standards or non-adoption of common international standards, differing standards among countries can impose exorbitant compliance costs and hence, could discourage exports. It is very hard to evaluate the importance of NTBs to trade. NTBs and their effects on trade are more difficult to measure and quantify than tariff. Their application is often not transparent and hence, provides opportunity for discretionary application. While they restrict trade flows, it is difficult to conclude that the outcome is inefficiency; or when they result to some efficiency gains, whether these are adequate enough to offset losses from weaker social protection (Eddy and Owen 2007). Finally, where a situation calls for some form of intervention, the question is whether an NTB is the appropriate measure and whether it is applied in a discriminatory manner. Some NTBs may be stronger than is necessary to achieve a particular level of social protection, imposing extra costs to consumers and industries. There are also problems concerning approaches for capturing NTBs. There are no widely accepted methodologies for measuring NTBs. Thus far, the UNCTAD Coding System on Trade Control Measures provides the most comprehensive definition and classification of NTBs. For most developing countries, data or information on NTBs could be extremely limited.

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Intra-ASEAN Trade Performance The past two decades saw the expansion of intra-regional trade in the region. Total intra-ASEAN trade increased from US$63.3 billion in 1991 to US$306.1 billion in 2005, representing 18.07 per cent and 25.51 per cent, respectively, of total ASEAN trade (see Figure 1.1). In terms of individual country performance, the share of the region in a country’s total exports and total imports also went up (see Table 1.1 and Table 1.2). This shows that the region is becoming an important export market and source of imports for each member country.

FIGURE 1.1 Intra-ASEAN Trade Share, 1991–2005

350,000

30.00

300,000

25.00

250,000 200,000 15.00 150,000 10.00

(% share)

(US$ million)

20.00

100,000 5.00

50,000

04

03

02

01

00

05 20

20

20

20

20

99

value (US$ million)

20

97

96

98

19

19

19

94

93

95

19

19

19

19

19

19

92

0.00 91

0

% share

Source: IMF Direction of Trade Statistics.

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TABLE 1.1 Share of ASEAN in Country’s Total Exports, 1991, 1995, 2000 & 2005 (%) Reporter

1991

1995

2000

2005

Brunei Darussalam Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Vietnam

19.81 44.30 11.48 55.95 29.44 19.01 7.21 23.64 12.03 23.96

22.20 63.12 14.25 54.98 27.56 30.27 13.59 30.33 20.30 19.79

23.17 6.78 17.52 42.72 26.56 21.30 15.65 27.36 19.34 18.09

25.25 2.77 18.48 43.46 26.08 51.41 17.34 34.72 21.77 15.10

Source: ADB Regional Indicators Database.

TABLE 1.2 Share of ASEAN in Country’s Total Imports, 1991, 1995, 2000 & 2005 (%) Reporter

1991

1995

2000

2005

Brunei Darussalam Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Vietnam

36.16 32.25 9.85 57.30 20.01 35.68 10.07 19.29 12.80 32.67

50.30 75.97 14.88 56.08 17.40 43.63 10.58 22.27 12.00 28.45

57.65 38.92 19.35 77.71 24.02 45.31 15.55 24.72 16.66 28.45

63.87 29.93 29.53 76.94 24.87 50.92 18.72 27.48 18.30 26.21

Source: ADB Regional Indicators Database.

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In terms of the priority sectors for integration, less than 32 per cent of each country’s exports are intra-ASEAN (see Table 1.3). For Cambodia and Laos, the figure is less than 2 per cent. Brunei and Indonesia registered the largest intra-ASEAN exports of the sectors. Individual country’s intra-ASEAN imports of the priority sectors are also less than one-third, except for Myanmar where ASEAN accounted for almost 90 per cent of the country’s total exports. Intra-ASEAN imports of priority sectors are higher than intraASEAN exports. This implies that ASEAN are more dependent on each other as sources of their imports of priority sectors than they are as destinations of their exports of those products. Myanmar (90 per cent) and Brunei (33 per cent) are the most dependent on ASEAN for their imports of priority sectors.

TABLE 1.3 Share of ASEAN in the Country’s Total Exports and Imports of the Priority Sectors for Integration, 2005 (%) Countries

Exports

Imports

Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam

31.3 1.8 23.4 0.6 28.3 16.2 20.2 27.2 20.0 12.7

33.2 18.9 20.9 23.3 28.9 89.6 19.4 32.6 26.5 31.3

Source: Oktaviani, Rifin, and Reinhardt (2007).

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ASEAN’s Commitments on Eliminating NTBs The ASEAN’s commitment to eliminate NTBs in the priority sectors for integration permeates ASEAN’s official documents. Specific recommendations were first outlined in 2004 by the High Level Task Force (HLTF) on ASEAN Economic Integration. To ensure transparency on NTMs and eliminate those that are barriers to trade, the HLTF recommended the following (HLTF on ASEAN Economic Integration 2004): • • • •

Establish ASEAN Database of NTMs by mid-2004; Set clear criteria to identify measures that are classified as barriers to trade by mid-2005; Set a clear definitive work programme for the removal of the barriers by 2005; and Adopt the WTO agreements on Technical Barriers to Trade; Sanitary and Phyto-Sanitary and Import Licensing Procedures and develop implementation guidelines appropriate for ASEAN by the end of 2004.

The above recommendations were achieved as planned. The ASEAN database on NTMs was completed in June 2004. It was based on the official notifications of the members. The criteria for identifying NTMs were established by the 19th AFTA Council on 27 September 2005: •

•

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Red Box — NTMs that are not transparent, discriminatory, without scientific basis, and where an alternative less restrictive measure is available, would require immediate elimination. Amber box — NTMs that are transparent but discriminatory, that affect highly traded products in the region or under the nine priority goods sectors that cannot be clearly justified or identified as barriers would be subject to negotiation.

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Green box — NTMs that are transparent, nondiscriminatory, have no alternative measure, have scientific basis, are imposed for public health or safety or religious or national security reasons, are WTO-consistent and reasonable such as sanitary and phyto-sanitary and environmental regulations, are justified and could be maintained.

In August 2006, the roadmap for the integration of the priority sectors was established by the 20th AFTA Council. In addition to the recommendations of the HLTF, the roadmap set a definite work programme for the assessment of existing NTBs and identification of NTBs. The elimination of NTBs comes in three packages with the following timelines: • • •

First package: by 1 January 2008 for ASEAN-5; 1 January 2010 for the Philippines; and 1 January 2013 for CLMV; Second package: by 1 January 2009 for ASEAN-5; 1 January 2011 for the Philippines; and 1 January 2014 for CLMV; Third package: by 1 January 2010 for ASEAN-5; 1 January 2012 for the Philippines; and 1 January 2015 with flexibility up to 2018 for CLMV.

In addition, there will be regular review and assessment of NTBs based on the criteria set by the AFTA Council beginning January 2008. Finally, the AEC Blueprint for the elimination of NTBs was signed by the ASEAN leaders in November 2007: •

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Enhance transparency by abiding to the Protocol on Notification procedure and setting up an effective surveillance mechanism;

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• •

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Abide by the commitment of a standstill and roll-back on NTBs; Remove all NTBs by 2010 for ASEAN-5, by 2012 for the Philippines, and by 2015 with flexibilities to 2018 for CLMV, in accordance with the agreed work programme on NTBs elimination; Enhance transparency of NTBs; and Where possible work towards having regional rules and regulations consistent with international best practices.

Measuring NTBs in ASEAN There are two common approaches used to measure NTBs, namely, frequency estimates from existing databases and primary survey of exporters. Frequency estimation is nothing but counting the number of tariff lines on which an NTB is imposed. The primary databases on NTBs are the UNCTAD Trade Analysis Information System (TRAINS) and the ASEAN NTM Database. The more recent studies on NTBs in ASEAN show that these measures still abound in the region and are preventing the free movement of the priority goods sectors for integration across the national borders. These studies include de Dios (2006), Eddy and Owen (2007), Parsons (2007), and James, Minor, and Dourng (2007). While there are variations in the main findings because of differences in data sources and approaches, certain categories of NTBs have consistently been identified as a source of concern. De Dios (2006) found twenty-four types of NTBs affecting the priority sectors for integration using the ASEAN NTM Database; and ninety types using UNCTAD TRAINS (see Annex III). Using the ASEAN Database, she found that prevalent and extensive NTMs pervade the priority sectors for integration. She defined

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Source: de Dios (2006).

Rubber-based Wood-based, textiles & apparel

Healthcare

Prevalent & extensive

Fisheries, agro-based, automotive, automotive, ICT Electronics

Prevalent but not extensive Extensive but not prevalent

Prevalent & extensive

Prevalent & extensive

Incidence

Sectors Non-automatic licensing Technical regulations Non-automatic licensing Prohibitions Technical regulations Non-automatic licensing Prohibitions Technical regulations Labelling Testing & inspection Technical regulations Additional taxes & charges Non-automatic licensing Quota linked with export performance Single channel for exports

NTBs

TABLE 1.4 Summary of Incidence of NTBs in the Priority Goods Sectors for Integration

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prevalent as being geographically widespread or applied by several members; and extensive as being affecting the majority of the tariff lines in the priority sectors. A summary of her findings is shown in Table 1.4. The incidence of NTBs has not changed as shown by a comparison of de Dios (2004) using the 2004 ASEAN Database. This was expected as no updates or revisions to their notifications have been made by the ASEAN members since the establishment of the database in 2004. Using the UNCTAD TRAINS database, the same study of de Dios (2006) found that in general, NTBs of all types are pervasive in all the sectors, especially in the fisheries and agro-based sectors. The findings of de Dios (2006) are confirmed by Eddy and Owen (2007) based on the ASEAN Regionwide Business Survey. The survey shows that the customs clearance process is the primary concern of the business sector. In particular, the complexity of the refund process is perceived as having a serious impact on trade compared to other measures; and the declaration of goods is considered lengthy. In addition, para-tariff and price control measures are considered to restrict trade, particularly in the Philippines and Cambodia. Of the priority sectors, the automotive sector is the most severely affected by these measures. Unofficial fees hinder trade as these are requested at least occasionally to facilitate customs clearance and license application and renewal, and to expedite testing and inspection process in customs. The unofficial fees not only increase the costs of doing business in the region but it also lengthens the import process itself.

Issues and Next Steps Given the reduction in tariff rates in the region, NTBs have increasingly replaced tariff as protective measures for domestic

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industries. They continue to hamper trade flows across national borders in the region; thus, undermining the economic integration process and the realization of the ASEAN Economic Community by 2015. The elimination of the NTBs in the ASEAN rests entirely on the seriousness of members to implement their commitments in the AEC Blueprint for the elimination of NTBs. The deadlines set in the blueprint should be observed and not be missed as in previous commitments on NTBs. Specific steps and actions need to be implemented to realize the blueprint. Where NTBs are necessary in order to protect human, plant and animal life, and the environment, (i) regional standards consistent with international standards have to be developed; (ii) streamline and harmonize licensing and customs procedures; (iii) mutual recognition of testing and conformity assessments; and (iv) application should be transparent for easy monitoring, non-discriminatory and should not create unnecessary obstacles or minimize possible distortions to trade. Transparency will be enhanced by regularly updating the ASEAN NTB Database. Furthermore, the NTBs identified in the ASEAN Regionwide Survey and the ASEAN NTB Database should be reconciled. The survey shows that there are other challenges to market access beyond the traditional NTBs. Unofficial fees, transport costs and other regulations, for example, are not included in the ASEAN database. Finally, a regulatory review process must be established (i) to review the significance of new NTBs prior to inclusion in the database; and (ii) to eliminate from the database those that are no longer effective in achieving their stated objectives.

Acknowledgement The author would like to thank Angelica Torres for the excellent research assistance.

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Notes 1.

2.

3.

The AEC is one of the three pillars of an ASEAN Community embodied in the Declaration of ASEAN Concord II (or the Bali Concord II) adopted during the 2003 summit. The other pillars are ASEAN Security Community and ASEAN Sociocultural Community. The goods sectors include: agro-based products, fisheries, healthcare products, rubber-based products, wood-based products, textiles and garments, electronics and information and communication technology, and automotive, while the services sector include e-ASEAN, healthcare, and air travel and tourism. Global production network (GPN) is a production scheme where the labour-intensive segments of technologically complex production are separated from the capital- and skill-intensive segments and are located in developing countries, linked through international subcontracting or outsourcing arrangements.

References De Dios, Loreli. “Non-tariff Barriers to Trade in the ASEAN Priority Goods Sectors”. In Brick by Brick: The Building of an ASEAN Economic Community, edited by Denis Hew. Singapore: Institute of Southeast Asian Studies, 2007. Eddy, Catherine and Rowena Owen. An Investigation into the Measures Affecting the Integration of ASEAN’s Priority Sectors (Phase 2): Region-wide Business Survey. REPSF Project no. 06/001e, May 2007. James, William, Peter Minor, and Kakada Dourng. An Investigation into the Measures Affecting the Integration of ASEAN’s Priority Sectors (Phase 2): The Case of Textiles and Apparel. REPSF Project no. 06/001c, April 2007. Oktaviani, R., A. Rifin, and H. Reinhardt. “A Review of Regional Tariffs and Trade in the ASEAN Priority Goods Sectors”. In Brick by Brick: The Building of an ASEAN Economic Community, edited

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by Denis Hew. Singapore: Institute of Southeast Asian Studies, 2007. Parsons, David. An Investigation into the Measures Affecting the Integration of ASEAN’s Priority Sectors (Phase 2): The Case of Electronics. REPSF Project no. 06/001b, June 2007. Soesastro, Hadi. “Implementing the ASEAN Economic Community Blueprint”. In ASEAN Studies Centre Report No. 1, The ASEAN Community: Unblocking the Roadblocks. Singapore: Institute for Southeast Asian Studies, 2008. Wilson, Norbert. “Analysis of Non-tariff Barriers of Concern to Developing Countries”. Paper presented during the Regional Meeting on Agriculture Trade and Development in Southeast Asian Countries. ADB Headquarters, Manila, 24–26 October 2005.

Myrna S. Austria is the Dean of College of Business and Economics at De La Salle University-Manila. She is also a Full Professor of the Economies Department at the same college.

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2 REGIONAL FRAMEWORK FOR COMPETITION POLICY AND AEC Soy Martua Pardede

The interaction of competition policies of different countries is, to some extent, affecting the international business environment. The integration of different countries under one single market will face the problem of unequal playing fields within the market created by such different policy arrangements. In addition, the formation of a single market implies the need to supervise more complex and broad economic activities, along with the increasing probability of growing anti-competitive activities at the international level. These reasons raise the question of whether anti-competitive activities within the market can be tackled. This paper elaborates on the basic wisdom of having a single market within the ASEAN region and the need to institutionalize a framework to ensure the efficient functioning of the market. It also explains the option of a competition policy framework that could be implemented in the AEC, and the challenges to establish a well-functioning regime of competition.

Role of Competition in Economic Development The benefits of a competitive regime within countries are many and subtle. The rewards from adopting competitive principles to foster economic performance will eventually help to narrow the

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economic development gap between nations. Although result may vary among nations, the effect can be easily seen in how it directly affects consumer welfare by increasing the amount of choices for consumers in goods and services. Despite cultural differences, the basic attitudes that make a market work exist in all countries. Competition principles of the market call for the efficient use of resources and thus allocates resources to their utmost utilization. From the consumer’s standpoint, this would be a great achievement since they would have more choices of goods and services at more affordable prices. The ongoing competition that would benefit consumers is the one that, as the time goes by, provides consumers with more innovative and usable goods and services at more affordable prices. This is true as competitive products are compelled to improve over time. Typical consumers and producers from different countries would eventually have identical perspectives regarding welfare improvement as the basis of measuring the benefit of competition over time. The distributional consequences of open competition among firms are not the direct concern of competition policy. That is because it is expected that through a competitive process, economic growth will occur and this growth will trickle down and hence it is argued that there is no need for government intervention. Economic growth through open competition is superior to a government-led growth process because it uses resources more efficiently. By the appropriate allocation of domestic resources, a country would eventually be able to identify suitable areas of specialization over a wide range of goods and services. Domestic consumers would then benefit from such efficient resource allocation since they would gain access to the best products and services through the competitive

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process, and would be better off compared to a monopolistic market. Indeed, the above illustration is encouraged both theoretically and empirically by many scholars. A distinguished research conducted by Dutz and Hayri (1999) suggests that the effect of competition on growth goes beyond that of trade liberalization, institutional quality, and a generally favourable policy environment. Moreover, adding certainty to the business environment through a sound competition policy is a promising feature of a country to attract more investment since there is a guarantee that all businesses would be treated equally and be given a common chance in doing business. Put in the contrary, in the absence of competition, firms are likely to become less efficient. In a competitive market, if costs rise because workers do not work hard enough, the firm will lose business to its rivals who are more efficient and have lower cost and lower price. The nation loses because the inefficient monopoly uses more resources to produce a smaller amount of products. Whereas crony capitalism tends to benefit only a few favoured large producers, competition provides benefits to individual consumers and all buyers, large and small, of industrial products. For the same reason, lack of competition also reduces the incentives to increase service, quality, and innovation. Customers therefore pay more than they need to and get less for what they pay. But it is not just the consumers that get less, it is the nation as a whole that loses from the inefficiency of monopoly. Competition is the way businesses learn how to become good and how to become better at doing what they do. Not every nation is going to be as good as every other nation in making every product. Some will have natural advantages because they have more demanding local customers. Others will have

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advantages because of traditions or resources. Still others will have advantages because they were the first to see the possibility of a new product or new kind of product. But to keep an international advantage, the country will have to be competitive enough to continue to compete with all producers and potential producers of the products. The businesses of every nation must make choices about what they can successfully sell domestically and internationally. They will be aided in international competition if their government adopts a strong domestic competition policy, including a strong competition law and an effective competition agency.

Progress of Competition Policy in ASEAN Currently ASEAN countries are reflecting the same situation as other nations faced when they were initially adopting competition as a basic principle of the economy. The ASEAN countries have however been undergoing a process of change from a “growth with distribution strategy” to a market-oriented economic strategy. The role of the government had been dominant in the “growth with distribution” strategy and as a consequence, the transition to a market economy has been marked by tensions between the market and the government. Not all countries in ASEAN have similar economic systems but they have several features in common, that is, opening up to foreign trade, being more responsive to deeper integration with the global economy, liberalizing their investment regime to compete for foreign direct investment, closing of strategic sectors of the economy to foreign competition, and reducing tariff barriers consistent with the demands of the ASEAN Free Trade Area (AFTA) arrangements. Some ASEAN countries have tended to use the Japanese model of competition law as an example of anti-competitive

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legislation that seems workable. The origins of the Japanese Antimonopoly Act (1947) can be traced back to the American occupation of Japan. As a consequence, it has been influenced by the American anti-trust law and is focused on ensuring free and fair competition (Matsusita 1990). Malaysia has been discussing using the Japanese model to enact its anti-competitive legislation, which is currently in the draft legislation stage. At present, only four out of the ten ASEAN countries have enacted Competition Acts or Anti-monopoly Acts. These include Thailand, Indonesia, Singapore and Vietnam. Indonesia is the only Competition Authority in ASEAN that has full independent status. It seems that providing the competition authority such status is quite challenging for the majority of ASEAN countries, not to mention other various obstacles that slow down the progress of competition agency in ASEAN to be fully functional. Budget and human resource are two instances that hinder the competition agency from fully taking its mandate. Several ASEAN countries have sectoral competition regulation, but need to have a comprehensive competition law for supervising all business activities. Economic sectors have been regulated primarily at the sectoral level, where the government exerts control over entry and in some cases, price. At the ASEAN level, initiative started when KPPU of Indonesia together with the ASEAN Secretariat organized the First ASEAN Conference on Competition Law and Policy in Bali in March 2003, six months ahead of the ASEAN Summit in the same island, which agreed, among others, on the framework of the ASEAN Economic Community. On the recommendation of the conference, ASEAN Consultative Forum on Competition (ACFC) was formed in October 2004, at the ASEAN Secretariat in Jakarta. Recent progress could be seen on the establishment of the ASEAN Expert Group

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on Competition in 2007. Upcoming progress scheduled to come from the capacity-building programme to formulate the initial draft of competition principles within AEC (the programme is led by Malaysia) which is to be finalized on March 2009; development of ASEAN regional competition policy guideline (Working Group led by Singapore) for final draft by August/September 2009 and to be approved at the ASEAN Summit 2010; and Competition Policy handbook for business actors (Working Group led by Vietnam), follows the same timetable as for the guideline. In addition, networking among Competition Agencies and other relevant authorities is encouraged.

Competition Policy and ASEAN Economic Community (AEC) The AEC objectives which are to increase competitiveness, narrow development gaps, sustain economic development and integrate the ASEAN economy closer with the world economy, shows the need to structure a competition policy that would reap the benefit of competition was fully acknowledged. Clearly it implies that greater competition among ASEAN business will results in technological progress, innovation and efficient production. Consequently, it implies a great need for the creation of an equal playing field in the region through a harmonized competition policy. It calls for synchronized strategic connections and partnerships among ASEAN business players as well as governments to achieve better synergy that leads to more efficiency. Competition policy is undeniably concerned with the realization of economic efficiency, encompassing allocative, productive and dynamic efficiency. Trade liberalization also contributes to these efficiencies by eliminating barriers that may thwart foreign firms from competing effectively in national

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markets. This in turn would be reflected in the quality of products or services and competitive prices that the consumers would ultimately pay. The root of the relationship between trade and competition policy is that, in an environment where firms are increasingly organizing their operations on a global scale and where trade barriers between nations are falling, firms are more exposed to the regulatory systems and business practices that exist in the economies of their main trading partners. Thus, there is obviously a stronger need for a coherence of policies to ensure fair and healthy competition. In the context of economic integration, a policy of competition would eventually foster regional economic growth and diminish welfare loss from inefficient usage of domestic resources. Trade policy alone is not sufficient to deal with the conflict between the economic interests of different countries that increases the hype to find an appropriate approach. By incorporating the application of competition principles to the fraternity policy balance, favourable and desirable outcomes can be achieved. Standardized principles regarding competition should be made and is taken as mandatory for developing domestic competition policy. Since every country experiences different stages of economic development and has its own development agenda, negotiation to reach consensus on how to advance a well-functioning regional competition standard and regime should be taken seriously. The model for developing the framework for a regional competition regime is very clear. Examples of framing competition policy into the economic community are found in the NAFTA economic community and the EU Economic Community. These two models offer useful approaches on how to integrate competition policy into a basic economic community agreement. The American form of extraterritorial competition enforcement

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mechanism, which is also adopted by many countries, introduces the so-called positive and negative comity to deal with across-theborder anti-competitive activities. For this approach, the basic requirement is that the competition agency from different countries undertakes cooperation to promote competition within each economic territory. Moreover, this approach is very loose in the sense that respective countries are still able to arrive at different conclusions regarding the same allegedly anti-competitive activities, in accordance with the domestic economic development agenda. The EU approach, on the other hand, is formally integrated into a basic regional economic community framework that does not allow much by way of domestic considerations. Any anti-competitive issue is handled directly through the common competition agency whose function is to resolve concerns at the regional level. Both approaches have similar characteristics, that is taking the domestic concern to be as important as the region’s, the only difference being in the operational mechanism in subsuming domestic interests to the regional economic community’s in anticompetitive cases.

Challenges to Face One of the many constraints in promoting competition comes from the cultural aspect of doing business. Social values that inherited by the ASEAN business actor is primarily altering the well function of the market into seemingly competitive market but with no innovation and efficiency. Conspiracy exists everywhere and is a handicap to promoting competition. Nevertheless the benefits of competition is factual where people would slowly realize something that they never think previously, that is the social values that would change the way they see others in competitive environment.

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There is a belief that applying competition policy unnecessarily constrains the ability of governments to achieve other “genuine” policy objectives. This is sad if true since the policy objective should eventually be to achieve democracy through a market mechanism that gives every citizen in all countries the opportunity to take part in all economic sectors and is the root of innovation for a better society. In some instances, people may see the most economical way to achieve the national goal is to grant exclusive rights to individuals or certain parties who are willing to invest in achieving the national objective. Resistance to competition within ASEAN countries seem to surface from both business firms and politicians. Opening up borders to competition is seen as dangerous for the survival of national firms. It is understandable that change is uncomfortable or even threatening; as a result, business would definitely try to avoid competition as far as possible and favouritism may appear by governments granting other benefits annd privileges to the businesses in their own country. By protecting an industry, it reduces the investment risk for the investor and it may reduce the risks for the employees of the company. In fact, for employees of some companies, the employees may enjoy not only greater job security but also higher wages if the company shares some of its monopoly profits with all or part of its labour force. The vested interests and pervasive inferiority complex of the parties who are given special treatment by the government are hindering the progress of the domestic competition policy within ASEAN. Governments provide concentrated benefits to a small favoured organized group of the population through business lobbying. In the process, the widely dispersed and unorganized groups, for example, consumers, forfeit the benefits of competition. The politics-business relations are exacerbated by the attitude of

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people in power, who make decisions based on their personal preference and connection, rather than on the merits. Every country engages, to some degree, in this kind of favouritism to achieve national objectives. For most countries, in the initial stage the special privileges do not always lead to problems associated with crony capitalism. However, the anticompetitive favours become a fundamental national economic problem when the favouritism to a few investors begins to feed upon itself and the power of the few becomes greater and greater in relation to the rest of the economy. At first, the favoured few have only a little more capital than others, but as a result of government favours they increase their capital, so that they can offer the government more capital for the next national project, which generates more monopoly profits and the projects of the few make them increasingly richer compared to the rest of the population. This kind of crony capitalism creates many bad consequences for a nation. The most obvious result is that it creates a class of super-rich people who are almost always resented by the vast majority of the nation. Whether or not this results in physical confrontations against the rich, the disparity of income and opportunity contributes to domestic disharmony. The main benefit of having a comprehensive competition regime is, ultimately, affecting consumer welfare. It is for this reason that consumer awareness regarding the benefit of competition should be amplified, since without consumers support, it would be even harder to fully implement a competition regime. Competition should be the consumers’ best friend, and so consumers should be a part of competition advocacy in signalling that the lack of competition hinders welfare improvement. The lack of consumer awareness also makes it difficult to increase pressure on competition, since some sophisticated industries need

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more consumers’ wise purchasing decisions that would force competition. Other challenges relating to competition from outside the ASEAN region should also be scrutinized as they affect both the regional as well as individual countries’ economic condition. This should mean that any anti-competitive activities from outside the ASEAN region should be deemed to be as important to handle as regional anti-trust cases. From all the reasons above, it is fair to say that increasing competition from outside the region as well as within the region induces a greater need to create an equal playing field in the region through sound competition policy.

Recommendations Considering ASEAN strategic position and market potential, it is fruitful to integrate ASEAN members’ economy into single economic community that would increase both domestic and regionwide competitiveness. Through market liberalization, hopefully it will improve the performance of domestic economies and narrow the development gap among ASEAN members’ economy. In addition, through market liberalization and the establishment of effective competition authorities, ASEAN countries would give certainty to the investment climate that would be a stimulus to attract more FDIs from outside the region. The AEC would need to establish a comprehensive framework of agreement in the field of competition policy in order to establish a mechanism to handle anti-competitive activities across the border of national economic territory. Without a comprehensive framework of competition policy scheme within AEC, it would undermine the efficient functioning of the AEC market. In supporting the progress of regional competition policy there should

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be enough fortitude from domestic competition policy. It is for this reason, independent status of competition authority is a prerequisite to advance the progress of domestic competition policy. Through a comprehensive framework of competition policy agreement, members of the AEC should eventually be consistent in developing national law and policy that would create a synchronized policy design among ASEAN members. One of the critical issues in this regard is about the clear separation of regulators from business operations. It would demand ASEAN governments to give up some of its national companies or to take its role fully as a regulator in all economic sectors.

References Anderson, Robert and Frédéric Jenny. “Competition Policy, Economic Development and the Role of a Possible Multilateral Framework on Competition Policy: Insights from the WTO Working Group on Trade and Competition Policy”. In Competition Policy in East Asia, edited by Erlinda Medalla. Forthcoming. Davidson, Kenneth M. “Culture and Competition”. Opening speech at the ASEAN Conference on Competition on Law and Policy in the ASEAN Free Trade Area (AFTA), Bali, 5–7 March 2003. Du Plessis, Louise and Charles Mabuza. “Free Trade and Competition Policy in Africa”. Paper presented at the Economic Society of South Africa Biennial Conference, Durban, 7–9 September 2005. Dutz, Mark and Hayri Aydin. “Does more Intense Competition Lead to Higher Growth?” CEPR Discussion Paper, no. 2249, 1999. Henderson, Jeffrey. “Globalization on The Ground: Global Production Networks, Competition, Regulation and Economic Development”. Centre on Regulation and Competition Working Paper no. 38. University of Manchester, December 2002. Hill, Hal. “ASEAN Economic Development: An Analytical Survey — The

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State of the Field”. The Journal of Asian Studies 53, no. 3 (August 1994): 832–66. Kim, Cassey Lee Hong. “Implementing Competition Policy in Malaysia”. Trends in Southeast Asia Series 14. Singapore: Institute of Southeast Asian Studies, 2003. Kerr, I.A. and M. Wood. “Globalization and Competition Policy: Policies for the Developing and Transitional Economies of Asia”. Paper presented at the EAMSA Conference on Globalization and the Uniqueness of Asia. INSEAD Campus, Singapore, 23–25 November 2000. Noland, M. “Competition Policy and FDI: A Solution in Search of a Problem?” Institute for International Economics, Working Paper no. 99-3, 1999. OECD. The Relationship between Regional Trade Agreements and the Multilateral Trading System: Competition. Paris: OECD, 2002. Pardede, Soy M. “Prospect of Developing Regional Competition Law along with ASEAN Economic Integration”. Paper presented at the Competition Law Conference of 2007 in Hong Kong, 10–11 December 2007. S. Pushpanathan. “ASEAN Economic Community (AEC): Benefits and Implications to the Business Community”. Paper presented at Breakfast Meeting Singapore Chamber and Globe Asia, 28 February 2008. Yasuda, N. “ASEAN Competition Laws: Current Status and Future Perspectives”. Graduate School of International Development, Nagoya University. Paper presented at ASEAN Workshop: Making Markets Work, hosted by the Australian Competition and Consumer Commission, Bangkok, 6 March 2000.

Soy Martua Pardede is the Chairman of ASEAN Competition Institute, Jakarta.

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3 ACHIEVING AN INTEGRATED ASEAN ECONOMIC COMMUNITY: THE ROLE OF INFRASTRUCTURE DEVELOPMENT?1 Biswa N. Bhattacharyay

Introduction One of the key goals of the Asia-Pacific region is to eradicate poverty. Regional cooperation and integration (RCI) among Asian countries is an important platform to complement efforts at the country level. By working together, countries in Asia and the Pacific can unlock their vast economic potential, achieve sustained, rapid growth, and reduce poverty. Infrastructure development is playing an important role in the realization of the goal of Asian trade and economic integration and thus supports sustainable economic growth. The development of appropriate infrastructure, particularly rural infrastructure, can assist in reducing poverty through inclusive growth. However, it is also important to take note that the recent ongoing global financial crisis originating from the U.S. financial markets have unleashed a wave of uncertainty and this is expected to have implications on Asian economies. The fallout from the global market turbulence shows how closely linked they are to the global markets. At this juncture, infrastructure, particularly cross-border infrastructure, is going to play an important role in addressing expected falling growth in Asian — including ASEAN — economies

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through further enhancing physical connectivity and the sharing of resources, such as energy, water, capital, services. The future of Asia’s success depends on infrastructure development and maintenance in a cost-effective manner. Association for Southeast Asian Nations (ASEAN) is composed of Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. It was formed in 1967 with the objective of accelerating economic growth, social progress and cultural development as well as to promote regional peace and stability through abiding respect for justice and rule of law in the relationship among countries in the region, and adherence to the principles of the United Nations Charter. In 1992 the ASEAN Free Trade Area (AFTA) was established. The ASEAN Vision 2020 was adopted in 1997 which agreed on a shared vision of ASEAN as a group 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. Its goal is to change ASEAN into a stable, prosperous, and highly competitive region with equitable economic development, and reduced poverty and socioeconomic disparities (ASEAN Overview 2008). In order to pursue this vision, regional cooperation and integration is an important platform to complement efforts at the country level. By working together, it is envisioned that countries can unlock their vast economic potential, achieve sustained rapid growth and reduce poverty. In 2003, the ASEAN Economic Community (AEC) was declared as one of the main pillars of the ASEAN Community. The AEC is the realization of the end-goal of economic integration which is based on a convergence of interests of ASEAN member countries to deepen and broaden economic integration through

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existing and new initiatives with clear time-lines. On 20 November 2007, at the 13th ASEAN Summit, the ASEAN leaders signed the AEC Blueprint to accelerate AEC establishment by 2015. Furthermore, the Roadmap on Integration of ASEAN in Finance highlights the four goals which are (i) to develop deep financial markets and achieve cross-border collaboration among ASEAN capital markets; (ii) to have free flow of financial services; (iii) to have a more free flow of capital and; (iv) to have closer currency cooperation through deeper regional economic and financial integration. The ASEAN Economic Community Blueprint 2015 envisions ASEAN to have a single market production based, to be a highly competitive economic region, to be a region of equitable economic development and to operate as a region fully integrated into the global economy (Goh 2008). The focus of this paper is to discuss the role of infrastructure development in ASEAN economic integration. Sections 2 and 3 present the role of infrastructure in regional cooperation and integration as well as an overview of ASEAN infrastructure. Section 4 examines issues and challenges of infrastructure development. The next section addresses infrastructure financing requirement. The last section presents the role of multilateral development banks (MDB) and concluding remarks.

Role of Infrastructure in Regional Cooperation and Integration Asia as well as ASEAN economies have witnessed market-driven trade and economic integration. Outward-oriented policies and development of infrastructure supported large trade and FDI flows to ASEAN countries and formation of production networks and supply chains by global multinational corporations and Asian firms. Regional cooperation of ASEAN countries has been through

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flexible and pragmatic adaptation to the changing global conditions, encouraging public-private coordination and partnership and putting aside political issues and differences. Infrastructure can be categorized into hard infrastructure and soft infrastructure. The former refers to the physical aspect, such as ports, roads, railways, telecommunications centres and power gridlines. The latter is considered to be the non-tangibles which supports the development and operation of the hard infrastructure, such as policy, regulatory and institutional frameworks; governance mechanisms, social networks, transparency and accountability of the financing and procurement systems; and other related systems and procedures among others (Bhattacharyay 2008). The significant role played by infrastructure in facilitating trade, sustaining growth and reducing poverty has been emphasized in many studies. For instance, the quality of physical infrastructure could be an essential consideration for location choices for export-oriented foreign direct investment (FDI) flows (Kumar and De 2008) and that the provisions of an adequate infrastructure base is an effective tool for stimulating FDI inflows as shown in the case of examining the determinants of FDI inflows in Malaysia (Ang 2007). In the Philippines, a study found that rural roads generate the largest impact in terms of income growth and that rural households’ production (income-generation) potential is also optimized with the availability of an accessibility network that alleviates their isolation (Barrios 2008). With a population of 600 million, ASEAN is a significant region among the fastestgrowing regions in the world (Razak 2008). Given this existing population and its future rise as well as high economic growth, the demand for infrastructure in ASEAN economies will be huge and infrastructure growth needs to match the economic and population growth.

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Table 3.1 presents GDP growth of ASEAN economies for 1999–2013. The average GDP growth increased significantly in Vietnam, Lao PDR and Myanmar after joining ASEAN in the late 1990s compared to that of the ASEAN region and of the world real GDP growth. As seen in the table, average growth of ASEAN is higher in the period of 2000–07 compared to the period of 1990– 99. High economic growth in several ASEAN countries has created tremendous pressure on their infrastructure. In view of the ongoing global financial crisis, the future growth of ASEAN countries will be lower as projected by IMF but still high compared to the world average. In its recent growth update, ASEAN-5 growth is projected TABLE 3.1 Real GDP Growth of ASEAN, Developing Asia and the World Average Growth

Projected Growth

Country 1990–99

2000–07

2008

2009

2013

— 4.1 6.4 7.1 6.0 2.8 7.5 5.1 7.4 4.6 2.9 7.2

9.5 5.1 6.6 5.6 12.0 5.1 6.0 5.0 7.6 5.4 4.1 8.1

7.2 6.1 7.9 5.0 4.0 5.8 4.0 5.3 7.3 4.1 3.7 8.2

7.0 6.3 8.2 5.3 4.0 5.8 4.5 5.6 7.3 4.3 3.8 8.4

6.6 6.7 6.2 6.0 4.0 6.2 5.5 6.0 8.0 4.6 4.9 8.9

Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Vietnam ASEAN World Developing Asia

Note: Developing Asia includes ASEAN-5 (Indonesia, Malaysia, Philippines, Singapore, and Thailand), India and China. Source: IMF World Economic Outlook (2008).

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to be 5.4 per cent in 2008 and 4.2 per cent in 2009 (WEO 2008). This growth reduction may affect investment initiatives. However, at this juncture, ASEAN countries need to enhance infrastructure investment to arrest the faltering economic growth. Regional cooperation is crucial in ASEAN economic integration through supporting the future need for infrastructure of ASEAN countries, particularly cross-border infrastructure. It can help harness shared resources, such as capital, energy, services and technology; harmonize cross-border rules and regulations, and learn from good practices in institutions and policies. Such cooperation can potentially follow a two-track approach, namely, (i) cooperation in building cross-border infrastructure; and (ii) cooperation in financing infrastructure development. Thus, the roles of cross-border infrastructure in ASEAN are: (i) to enhance the sharing of resources and efficiency; (ii) to build connectivity and enlarge markets; (iii) to reduce transportation/trade costs; (iv) to link with regional and global supply chains; and (v) to facilitate further regional economic cooperation and integration through physical connectivity. Basic needs of people by improving access to primary services (that is, transport, electricity, water, and information, communication and technology or ICT) as well as sustaining high economic growth in ASEAN member countries is of primary importance. In particular, enhance physical connectivity in the region through various modes such as road, rail, air, and maritime transportation, cross-border infrastructure is envisioned to promote cross-border trade and investment and improve competitiveness through reduced trade costs and trade-related infrastructure, especially transport and ICT. It is also projected to narrow the development gap among ASEAN economies by allowing poor countries access to larger

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regional markets, forming industrial clusters/zones as can be seen in Lao PDR, Cambodia, Myanmar, and Vietnam. Infrastructure is very crucial for industrial clusters. It will play a key role to the economic success of poorer countries and areas within a country where infrastructure is a major constraint on economic opportunities. By joining poorer, small and land-locked countries to regional/global production network and supply chain, benefits can be shared. In particular, within the context of power shortage in ASEAN, meeting energy demand by transporting/exporting energy from energy-surplus countries to energy-deficient ones could help enhance regional cooperation in achieving energy security.

An Overview of ASEAN Infrastructure Since the ASEAN region is geographically diverse and its economies are at different levels of development, integrating a regional infrastructure is one of ASEAN’s toughest goals. Despite these difficulties, development of infrastructure linkages remains one of its primary aims. To build up infrastructure, ASEAN members must depend on their own national resources and the role of ASEAN is to ensure cooperation and coordination of its members’ infrastructure projects and their linkages, and to lift economic and political barriers to such cooperation (ASEAN Infrastructure 2008). At present there are four long-term cross-border flagship projects for integrating ASEAN’s infrastructure, mainly in energy and transport sectors. There are two major energy projects and two transport projects: (i) the ASEAN Power Grid consisting of fourteen interconnection projects; (ii) the Trans-ASEAN Gas Pipeline and two major transport projects; (iii) the ASEAN Highway Network; and (iv) the Singapore-Kunming Rail Link Projects.

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In the energy sector, the ASEAN Cooperation Project on Interconnection aimed at linking up the power systems of neighbouring ASEAN countries started as early as 1982. In 1986, the ASEAN members signed an Agreement on ASEAN Energy Cooperation by which cooperation on the efficient development and use of all forms of energy, whether commercial and noncommercial, renewable or non-renewable, in modalities that they may design. In the 17th ASEAN Energy Minister’s Meeting (1999), the ASEAN Plan of Action for Energy Cooperation, 1999–2004 was adopted. This led to the establishment of the ASEAN Power Grid as one of its major goals (ASEAN Infrastructure 2008). In order to initiate the ASEAN power grid system, the Heads of ASEAN Power Utilities/Authorities (HAPUA) is working on fourteen interconnection projects. Two of these have been carried out and are presently operating. These are: (i) Peninsular MalaysiaThailand Interconnection; and (ii) The Peninsular MalaysiaSingapore Interconnection. Interconnections have optimized the power systems’ production costs. Encouraged by its experience of these two projects, ASEAN was able to identify criteria for future connections. The eleven other interconnection projects which would complete the ASEAN Power Grid still require feasibility studies or identification of funding sources. These projects are as follows: interconnections between Singapore and Batam Island in Indonesia; Sarawak and West Kalimantan; Southern Philippines and Sabah; Sarawak, Sabah and Brunei Darussalam; Thailand and the Lao PDR; Lao PDR and Vietnam; Thailand and Myanmar; Vietnam and Cambodia; Lao PDR and Cambodia and Thailand and Cambodia. In July 1999, the plan of action for the Trans-ASEAN Gas Pipeline was approved. This is one of ASEAN’s most important infrastructure projects and its objectives are: (i) to ensure the

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reliability of gas supply for ASEAN member countries; (ii) to encourage the use of environment-friendly fuel; (iii) to attract multinational companies; and (iv) to invest in gas exploration and to reduce the region’s reliance on crude oil (ASEAN Projects 2008). In the transport sector, the ASEAN Highway Network Project was signed in 1999. The network consists of twenty-three designated routes totalling 38,400 kilometres. The target is to complete in 2020 the upgrading to at least Class I of all designated national routes, though Class II standards would be acceptable for low-traffic non-arterial routes. The other project is the Singapore-Kunming Rail Link Project which is under the ASEAN Mekong Basin Development Cooperation Initiative (ASEAN Infrastructure 2008). The railway line of 7,000 kilometres is expected to link major cities in eight countries including Singapore, Malaysia, Thailand, Cambodia, Vietnam, Laos PDR, Myanmar and People’s Republic of China (Asian Economic News 2008). Moreover, other transport initiatives to integrate its member countries’ other transport systems were also done such as the framework agreement on the facilitation of goods in transit, the ASEAN Framework Agreement on Multimodal Transport; ASEAN Framework Agreement on the Facilitation of Inter-State Transport and the adoption of the ASEAN-wide network of fifty-one designated airports and forty-six designated ports to form integral parts of the trans-ASEAN transportation networks. ASEAN is also working on cooperative programmes to develop telecommunications and information technology (IT) specifically in the following areas: ASEAN information infrastructure, facilitation of intra-ASEAN trade and investment, coordination and harmonization of policies and programmes, promotion and development of indigenous content, promotion of

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private-sector participation and bridging digital divide within ASEAN by encouraging capacity building and human resource development and enhancing access to and use of telecommunications and IT (ASEAN Infrastructure 2008). Features of ASEAN’s regional cooperation and integration show there is market-driven integration as exemplified by large trade and foreign direct investment (FDI) flows due to outwardoriented policies and infrastructure, and with the formation of production networks and supply chains by global multinational corporations (MNCs) and Asian firms, as well as some financial integration. It is also characterized by flexibility and pragmatism as countries adapt to the changing global conditions, presence of public-private coordination and putting aside political issues and differences. As shown in Table 3.2, ASEAN remain stagnant in terms of trade integration from 1995. Therefore, there is great potential to enhance integration through improved regional infrastructure (hardware and software). Basically, there are four main reasons on the need to improve the infrastructure in Asia. First, the growth of infrastructure lags behind ASEAN’s economic growth and behind international standards in terms of quantity and quality. Second, rapid economic growth in several ASEAN developing countries such as Indonesia, Philippines, and Thailand, has caused huge/visible pressure on infrastructure and, as previously mentioned, the lack of adequate infrastructure can hinder potential growth of ASEAN countries, weaken their international competitiveness and adversely affect their poverty reduction efforts. There is a need for high economic growth for poverty reduction by creating more employment. Finally, there is an increasing need to invest in cross-border infrastructure projects due to continuous widening and deepening

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34.6 22.1 6.4 17.9 33.8 60.7

East Asia (including Japan) Emerging East Asia Asian NIES ASEAN NAFTA European Union-15 37.1 27.5 6.5 20.3 38.7 59.8

1985 43.0 32.8 11.9 18.8 37.9 66.2

1990 51.7 39.0 15.5 23.9 43.1 64.2

1995 51.9 40.4 15.5 24.5 48.8 62.3

2000 51.5 40.7 14.9 23.9 49.1 62.2

2001 53.4 43.0 15.5 24.3 48.4 62.5

2002 54.5 43.7 15.0 23.8 47.3 63.0

55.1 44.1 14.4 23.8 46.4 62.2

2003 2004

54.5 44.7 13.5 24.0 45.0 60.1

2005

Note: East Asia = Japan and emerging East Asia; Emerging East Asia = Asian NIEs and ASEAN; Asian NIEs = newly industrialized economies; ASEAN = Association of Southeast Asian Nations; NAFTA = North American Free Trade Agreement. Source: Computed from IMF, Direction of Trade Statistics, CEIC Databases (Table 1 in Kawai 2007).

1980

Region

TABLE 3.2 Inter-regional Trade Share by Region, 1980–2005 (percentage of total trade)

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of regional and global production chains/networks resulting in increasing integration of Asian economies. The current momentum of the economic integration in ASEAN may probably be an irreversible phenomenon, as the majority of ASEAN countries unanimously pledged themselves to maintain open market principles. Intra-regional relations can be enhanced further by the development and efficient management of transnational networks of regional infrastructure. The openingup of frontier borders will provide the remote areas with great opportunities to take part in the mainstream of national development.

Issues and Challenges of Infrastructure Development The effective development of cross-border infrastructure is crucial for achieving the ASEAN Economic Community. The cross-border infrastructure has several important benefits. One, it can increase regional trade and the international competitiveness of regional economies through reduced production and trade costs. Two, it can narrow the development gap among ASEAN economies by providing poorer countries (particularly small and landlocked) with access to a larger regional market and regional production networks and supply chains. Three, it can ensure “win-win” situations for participating countries in terms of costs and benefits through effective designing, planning and implementation, financing and operations. Four, it can satisfy basic needs by sharing scarce resources and last, it can sustain high economic growth. However, ASEAN infrastructure development faces many challenges. The major challenges and issues include: (i) geographical diversity and different levels of economic and infrastructure development; (ii) asymmetric distribution on costs

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and benefits of regional infrastructure across participating countries; (iii) synchronization of nation and sub-regional planning and financing of infrastructure; and (iv) meeting huge funding needs. It is relevant to note that the infrastructure of newer members of ASEAN is relatively underdeveloped. On the other hand, other ASEAN countries may have better developed infrastructures but they are separated by deep seas, making linkages between them more expensive. With respect to cross-border infrastructure, the following issues and challenges need to be addressed: (i) how to create enabling environment for cross-border infrastructure investment; (ii) how to effectively coordinate among multiple stakeholders (central government, local government, private sector and civil society) for cross-border infrastructure development; (iii) how to identify, develop, prioritize and prepare “bankable” or commercially-viable projects; (iv) how to mobilize ASEAN member countries’ private savings to finance the region’s “bankable” infrastructure; (v) how to evaluate capital intensive projects in terms of symmetric distribution of cost and benefits; and (vi) what are the limitations of traditional infrastructure financing? Regional economic cooperation and integration in ASEAN is not meant to end at policy measures, cutting tariffs, removing non-tariff barriers, reducing obstacles to investment and easing restrictions on trade and services. It must bind ASEAN’s members through infrastructure in energy, transport and communications, considered as the life-blood and the nervous system of an integrated regional economy to make capital flows and trade in goods and services possible. Infrastructure availability and efficiency encourage entrepreneurship and investment. Constructing and operating ASEAN infrastructure would therefore

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stimulate economic activity, connecting with other sub-regions in Asia and the rest of the world (ASEAN Overview 2008).

Meeting Infrastructure Financing Requirement Infrastructure investment has played an important part in ASEAN growth, but the increasing demands related to growth have also highlighted shortfalls in the quantity and quality of infrastructure and this is increasingly seen as a binding constraint on accelerating further growth. Infrastructure poses in particular, policy challenges because of its economic characteristics, and these are central to an understanding of the policy options and ways to attract sustainable investment. As previously shown in Table 3.1, ASEAN countries have been growing at a rapid rate of 5.4 per cent during 2000–07 and are expected to grow at a little slower rate of around 4.5 per cent during 2008–13. As a result of high economic growth and population growth, there will be an increase in demand for infrastructure services for both consumption and production purposes — not meeting this increased demand will cause bottlenecks to grow and hamper poverty alleviation efforts. As shown in Table 3.3, ASEAN countries require US$596 billion to be invested in infrastructure during 2006–15 with an average investment of US$60 billion per year. Of this, around US$395.6 billion (or 66 per cent) is needed for investment in new projects and US$200.5 billion (or 34 per cent) is required for maintenance. Demand for financing infrastructure is huge and the public sector alone cannot meet the demand, so the private sector needs to play a bigger role. To respond to the demand, the use of Public Private Partnership (PPP) in infrastructure development needs to be

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TABLE 3.3 Projected Infrastructure Requirements in ASEAN 2006–15 (Base case, US$ Billion)

Power Transport Water and Sanitation Telecom Total

New Capacity

Maintenance

Total

170.3 95.6 98.8 30.9 395.6

46.0 61.2 60.6 32.7 200.5

216.3 156.8 159.4 63.6 596.1

Source: Goh (2008) and Nangia (2008).

enhanced. The role of the public sector is to set the right enabling environment for private sector participation and catalyse private sector funding. There is a need to develop “bankable” projects with proper consideration of various associated risks. Asia also needs to improve financial intermediation functions through more efficient banking sectors and Asian bond markets to mobilize its massive savings for these projects. As shown in Table 3.4 Asia needs to explore the uses of huge foreign exchange reserves and savings for regional infrastructure. ASEAN-5 countries have savings worth US$457 billion and foreign exchange reserves amounting to US$409 billion. Given the high savings and reserves of many ASEAN and neighbouring countries, innovative and highly liquid instruments and methods are required to channel a portion of the surplus savings as well as foreign exchange reserve into productive investment, particularly infrastructure development. Initially, an infrastructure fund can be created utilizing the savings and reserves of ASEAN-5 and Brunei. There is a need to integrate financial markets for effective intermediation of ASEAN savings. A regional

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TABLE 3.4 Domestic Savings and Foreign Exchange Reserves in Asia 2007 (US$ billion) Country/region PRC Japan East Asia-5 ASEAN-5 India ASIA-11

GDP

Saving

Reserves

3,239 4,403 9,173 1,091 1,085 11,349

1,384 1,311 3,207 457 329 3,992

1,434 923 3,034 409 267 3,710

Note: East Asia-5 = China, Hong Kong, PRC (People Republic of China), Japan, Korea, Taiwan; ASEAN-5 = Indonesia, Malaysia, Philippines, Singapore, Thailand; ASIA-11 = East Asia-5, ASEAN-5, and India. Sources: ADB (2007, 2008); IMF (2007); and World Bank (2008).

collaborative effort in the form of an ASEAN Infrastructure Bond Fund would be critical. Likewise, strengthening capital markets, particularly local currency bond markets, is important. There is an urgent need to establishing a regional infrastructure financing mechanism as well as appropriate financing instruments to address the under-investment in ASEAN infrastructure projects. Creation of an “ASEAN Infrastructure Financing Fund” for developing and financing bankable ASEAN projects, particularly cross-border projects can intermediate ASEAN savings for its infrastructure development.

Role of Multilateral Development Banks (MDBs) In financing and sustaining infrastructure activities in ASEAN, Multilateral Development Banks (MDBs) such as Asian

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Development Bank (ADB) and the World Bank have been playing an important role. In view of the ongoing global financial crisis, MDBs need to play a much bigger and crucial role. MDBs such as ADB and bilateral organizations such as Japan Bank for International Cooperation (JBIC), have an important role to reduce the gap if private sector’s funds are inadequate. At present, MDBs such as the ADB are already playing important role in infrastructure development by creating bankable projects and mobilizing long-term funds through capital markets and arranging co-financing. Moreover, MDBs can promote further integration and enhancement of ASEAN financial markets’ efficiency, liquidity and depth with adherence to international/ regional standards/best practices. This will enhance cross-border flow of capitals and promote efficient infrastructure investment utilizing huge savings. In summary, MDBs especially the ADB, the regional development bank of Asia, should continue to support ASEAN infrastructure development by playing the roles of a (i) money bank through providing loans, guarantees and catalysing private sector financing (for example, raising funds in international capital maker at AAA ratings and lending funds with small spread); (ii) knowledge bank by providing policy and technical advice; (iii) capacity-builder or capacity-building for “software” such as legal regulatory, policy and procedural components; and (iv) honest broker in coordinating multiple stakeholders. Indirectly, it can support infrastructure development though its assistance to improve the overall investment climate and bond markets, particularly local currency bonds. ADB can also provide long-term local currency loans through long-term swap arrangements to eliminate currency and maturing risks. It can strengthen local-currency infrastructure bond markets

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though issuing local currency bonds with long-term maturities for long-term needs of infrastructure. Moreover, it can create and administer an “ASEAN Infrastructure Financing Fund” to intermediate official and private funds into infrastructure and other priority regional projects, including the use of sophisticated financial market products and concessionary finance. ASEAN needs to recycle its massive savings and foreign reserves for bankable infrastructure projects through the development of appropriate instruments and mechanisms, such as PPP and bond market development. MDBs should continue to play an important role in developing the ASEAN bond market to improve regional financial intermediation by providing technical/ research assistance to Asian Bond Market (ABM) Initiative Working Groups, stimulating market activities by issuing prime name credit papers and local currency bonds, promoting transparency/ information dissemination, and contributing to policy dialogue.

Conclusion ASEAN countries’ economies are very diverse and heterogeneous, so the current global crisis will particularly affect low-income countries. While the nature and depth of the global financial crisis is still evolving, preserving financial stability and setting up multilateral financial resource for infrastructure for ASEAN are important tasks to consider. Therefore, there is a need to enhance regional cooperation in providing regional financing in enhancing cross-border investment and infrastructure development. Pushing for cross-border infrastructure will be essential to support growth and promote cross-border trade and investment within as well as outside the region. For ASEAN to sustain its growth, meeting the infrastructure gap created through fast economic growth, is necessary. The

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returns from cross-border infrastructure projects are likely to create value to society over the long term that far exceeds the cost of domestic projects, with help from MDBs like ADB and World Bank towards effective maintenance and development of the infrastructure. In order to witness a strong economic integration and achieve the goals of an ASEAN Economic Community in 2015, ASEAN economies need to enhance regional cooperation to mobilize domestic savings for infrastructure development through more integrated and stable financial markets, creation of innovative financial instruments and sound macroeconomic policies and business environment to attract private sector funding.

Note 1.

An earlier version of this paper was presented at the conference on “ASEAN Roundtable 2008: ASEAN Economic Community Blueprint” at Institute of Southeast Asian Studies in Singapore on 28 July 2008. The views expressed in this paper are those of the author and do not reflect the views or policies of Asian Development Bank (ADB), ADB Institute, its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.

References Ang, J. “Determinants of Foreign Direct Investment in Malaysia”. Journal of Policy Modeling 30, no. 1 (2008): 185–89. Aschauer, D.A. “Is Public Expenditure Productive?” Journal of Monetary Economics 23 (1989a): 177–200. ———. “Public Investment and Productivity Growth in the Group of Seven”. Journal of Economic Perspectives 13 (1989b): 17–25.

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Asian Development Bank. ADB’s Infrastructure Operations: Responding to Client Needs. Manila: ADB, 2007. Association of Southeast Asian Nations (ASEAN). ASEAN Infrastructure, 2008. Available at . ———. ASEAN Projects, 2008. Available at . ———. ASEAN Overview, 2008. Available at . ———. “Approach to Development Gaps in ASEAN: A Vietnamese Perspective”. ASEAN Economic Bulletin, 2007. Baird, Mark. “Resource Mobilization: Public and Private Sector Roles”. Presentation made at the Asia-Pacific Infrastructure Forum held in Melbourne, Australia, 1–3 December 2004. Barios, E. “Infrastructure and Rural Development: Household Perceptions on Rural Development”. Progress in Planning 70 (2008): 1–44. Bhattacharyay, Biswa N. “Infrastructure and Regional Cooperation”. Concept paper for ADB/ADBI Flagship Study, 2008. Available at . Estache, A. and M. Fay. “Regional Growth in Argentina and Brazil: Determinants and Policy Options”. Washington, D.C.: World Bank, 1995. Goh Ching Yin. “ASEAN Infrastructure Financing Mechanism: Concepts and Progress”. Paper presented at ASEAN Infrastructure Financing Mechanism Conference 2008, Kuala Lumpur, Malaysia, 10 November 2008. Holtz-Eakin, D. and M. Lovely. “Scale Economies, Returns to Variety, and the Productivity of Public Infrastructure”. Regional Science and Urban Economics 26 (1996): 105–23. International Monetary Fund (IMF). World Economic and Financial Surveys Regional Economic Outlook Asia and Pacific, 2008. Kawai, M. “Evolving Economic Architecture in East Asia”. Kyoto Economic Review 76, no. 1 (June 2007): 9–52.

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Kumar, N. and Prabir De. “East Asian Infrastructure Development in a Comparative Global Perspective: An Analysis of RIS Infrastructure Index”. Research and Information System for Developing Countries (RIS), Discussion Paper no. RIS DP 35, March 2008. Kuroda, H. “Infrastructure and Regional Cooperation”. Paper presented at the Annual Bank Conference on Development Economies, Tokyo, 2006. Martin, P. and C.A. Rogers. “Industrial Location and Public Infrastructure”. Journal of International Economics 39 (1995): 335–51. Munnell, A.H. “Why Has Productivity Declined? Productivity and Public Investment”. New England Economic Review (Federal Reserve Bank of Boston) (January/February 1990): 3–22. Nadiri, M.I., and T.P. Mamuneas. “The Effects of Public Infrastructure and R&D Capital on the Cost Structure and Performance of U.S. Manufacturing Industries”. Review of Economics and Statistics 76 (1994): 22–37. Nataraj, Geethanjali. “Infrastructure Challenges in South Asia: The Role of Public-Private Partnerships”. ADB Institute Discussion Paper no. 80, 2007. Nangia, R. “Overview of Infrastructure Financing in ASEAN”. Asian Development Bank, forthcoming. Razak, Sri Mohd Najib Tun Abd. “ASEAN Infrastructure Financing Mechanism (AIFM): Concepts and Progress”. Speech given at ASEAN Infrastructure Financing Mechanism Conference 2008, Kuala Lumpur, Malaysia, 8 November 2008. Romans, J. Thomas. Capital Exports and Growth Among U.S. Regions. Middletown, Conn.: Wesleyan University Press, 1965. Scott, D.H. and Ivan Weber. “China’s Corporate Bond Market: Creating New Options for Infrastructure Finance”. Mimeographed, June 2004. Soesastro, Hadi. “Developing a Roadmap toward East Asian Economic Integration”. ERIA research project no. 1-1, 2007. Staples, Andrew, ed. “Japanese Foreign Direct Investment and Regional Economic Intergration in East Asia: Theories, Models, Practice”.

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EAMSA 20th Annual Conference, Stockholm University School of Business, 2003. The American Heritage Dictionary of the English Language. 4th edition. Boston, MA.: Houghton Mifflin Company, 2000 (Definition 2). United Nations Economic and Social Commission for Asian and the Pacific (UNESCAP). Enhancing Regional Cooperation in Infrastructure Developing including that related to Disaster Management. New York, 2006. World Bank. Infrastructure for Development. World Development Report 1994. New York: Oxford University Press, 1994.

Biswa N. Bhattacharyay is the Special Adviser to Dean, ADBI, and Task Manager of the ADB/ADBI’s Flagship Project on “Infrastructure and Regional Integration”.

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4 HOW LESS DEVELOPED ECONOMIES IN SOUTHEAST ASIA CAN PARTICIPATE IN PRODUCTION NETWORKS: INDUSTRIAL POLICY IN THE WTO AND FTA ERA Ikuo Kuroiwa

Introduction In view of geographical proximity as well as economic, social and cultural affinity, the experiences of industrial development in the neighbouring Southeast Asian economies, such as Singapore, Thailand, and Malaysia, can provide invaluable lessons to the less developed economies in the region. In the more advanced Southeast Asian economies, a rapid decline in transport and communication costs and diminishing trade and investment barriers have reduced the costs of organizing production networks across borders, so that extensive production networks have been established through the activities of multinational corporations (MNCs). At the same time, local industries have enhanced their capacities by participating in such networks, and the emergence of local suppliers and local workforce with industry-specific skills has become important factors in determining the competitiveness of industries (Kuroiwa and Toh 2008). Less developed economies in Southeast Asia, especially Cambodia, Laos, Myanmar, and Vietnam (CLMV), are northern

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neighbours of Singapore, Malaysia, and Thailand. At the same time, they are southern neighbours of China and other Northeast Asian economies. Such geographical proximity facilitates the movement of goods, services, natural persons, and investment across borders. Moreover, AFTA and other relevant free trade agreements (FTAs), as well as infrastructure development such as the East-West, North-South, and Southern Economic Corridors, are leading to the reconfiguration of corporate activities, so that — as in the NAFTA and EU — regional production networks spread from the high income to low income countries to exploit lower labour costs in the latter countries. In this paper, industrial policies in Southeast Asia are first reviewed. In Southeast Asia, liberalization in trade and investment was crucial in extending production networks into less developed economies. At the same time, constraints on industrial policy, notably shrinking policy space, are examined to consider feasible and appropriate industrial policy in an era of globalization, at a time when participation in the World Trade Organization (WTO) and FTAs are becoming the norms. Industries such as electronics, automotive, and clothing are expected to expand production networks and production networks in these industries are examined with the use of input-output analysis. Finally, industrial policies in less developed Southeast Asia are revisited, with particular reference to policy measures whereby participation in production networks plays a crucial role in industrial development.

Industrial Polices in Southeast Asia Singapore was the only country which switched to an exportoriented industrial (EOI) policy after its independence from Malaysia in 1965. Other larger economies, on the other hand, adopted an import substitution industrial (ISI) policy in the 1950s

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or 1960s and then proceeded to secondary ISI policies. Although Malaysia switched to an EOI policy in the 1970s, its ISI policy was continued simultaneously. In the middle of the 1980s, after Southeast Asian countries were faced with adverse economic conditions, such as declining and fluctuating prices of primary commodities and the limited success of ISI policies, all of these countries started to liberalize trade and investment. As shown below, liberalization in trade and investment was critical in assisting the spread of production networks in Southeast Asia, and similar development is expected to happen in the late-coming countries. Since the mid-1980s, CLMV have been undergoing economic transition in various ways: from central planning to market economies, from inward-looking to outward-looking economic development strategies, and from close economic relations with the Soviet Bloc to closer economic relations with market economies (Chia 2006). Moreover, CLMV adopted trade and investment liberalization policies that had been adopted by the more advanced Southeast Asian economies, that is, removal or relaxation of foreign ownership restrictions and performance requirements and various investment incentives such as tax exemptions, duty drawbacks, and the establishment of export processing zones (EPZs). Vietnam, for example, undertook substantial trade reform during its Doi Moi process in the late 1980s by addressing the anti-export bias in its earlier protective regime and introducing privatization (Chia 2004; Narjoko and Amri 2007).

Shrinking Policy Space Since the late 1990s, economic reform in CLMV has been accelerated by their accession to the WTO and the establishment

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of FTAs. Myanmar, Cambodia and Vietnam joined the WTO in 1994, 2004 and 2007 respectively. Laos applied for WTO membership in 1997 and negotiations are still ongoing. On the other hand, Vietnam, Laos, Myanmar, and Cambodia respectively acceded to ASEAN in 1995, 1997 (Laos and Myanmar), and 1999. Unlike economic reforms undertaken by countries at their own initiative, the forces establishing liberalization under the WTO and FTAs are formal and rule-based. Thus the rules are more stringently enforced and the policy space, which defines a range of policy choices available to member countries for industrial development, is constrained accordingly. In addition to the ban on export promotion and import restrictions, the WTO, for example, does not allow the member countries to support the local suppliers through local content requirements under the TRIMs; reverse engineering and imitation have become less feasible under the TRIPs. Furthermore, many developing countries face strong pressures for market liberalization from the governments of developed countries as well as international organizations such as the World Bank and International Monetary Fund (IMF). Market liberalization has derived policy measures from the government, and hence it becomes increasingly difficult to protect industry through industrial policy. In view of the rising constraints on policy space to be brought about by the WTO and FTAs, some economists, including Lall (2003), argued that if accompanying costs are unduly high for developing countries, their rules must be reviewed or relaxed. However, it is not realistic to expect that such rules will be relieved or relaxed in the foreseeable future. Moreover, as the economic integration of the Southeast Asian economies proceeds from AFTA to ASEAN Economic Community (AEC), the policy space available to each Southeast Asian country will be constrained further.

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In such a context, the traditional debate about efficacy of infantry industry protection has become less relevant, as many of these policies become illegal under the rules of the WTO and FTAs (Bora, Lloyd, and Pangestu 2000; Strugeon and Lester 2004). It is thus more relevant to explore the industrial policies that are effective in the age of market liberalization in trade and investment. In considering the efficacy of industrial policy, the above constraints are becoming increasingly important. In the following sections, the author discusses an industrial development strategy whereby participation in international production networks plays an important role. In this strategy, liberalization in trade and investment, which has been accelerated by the WTO and FTAs, is fully incorporated and even encouraged to seize opportunities provided by the momentum of market liberalization.

Production Fragmentation The production of a final product usually consists of a number of processes that are vertically integrated. Production fragmentation means to divide such vertically integrated production processes into separate production blocks and to locate them at various sites that are most suitable for each activity. Jones and Kierzkowski (1990) present an initial framework for analysing production fragmentation. They formulated an analytical framework in which an increase in the number of production blocks lowers total production costs. On the one hand, lower production costs are realized when a labour-intensive production block is relocated to a lower-wage country. On the other hand, an increase in the number of production blocks incurs higher fixed costs (that is, set-up costs of a new factory in the lower-wage country), and additional service link costs (that is, costs for transporting intermediate inputs and coordinating production activities across

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borders) are required to join up distant production blocks. Therefore, insofar as the set-up costs and service link costs are reduced substantially, previously vertically integrated production processes are fragmented into separate production blocks, and activities of firms are dispersed geographically. It is, however, notable that production fragmentation does not occur in all industries. According to Lall et al. (2004), the intensity of fragmentation differs according to industry, depending on four factors: •

•

•

•

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The technical “divisibility” of production processes: engineering activities like automobiles or electronics have discrete (separable) stages of production and components with differing scale, skill and technological needs whose production can be located at different sites and under different ownership. By contrast, continuous process industries, such as chemicals, are more difficult to break up economically. The factor intensity of the process: it is only economical to relocate processes if they are labour-intensive and reduce production costs significantly by shifting to lower-wage countries. The reduction in production costs must more than offset a rise in transport and coordination costs (that is, service link costs) and a rise in set-up costs. The technological complexity of each process: some labourintensive processes (for example, design and development) cannot be shifted to lower-wage countries with low skills and capabilities; only simpler and more stable ones can be efficiently relocated. The value-to-weight ratio of the product: the scope for fragmentation depends on the weight of the product relative

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to its value. For example, lightweight and high-value products can be shipped long distances to exploit cost differences while heavyweight and low-value ones can only be shipped to nearby countries or remain in the original producing country due to higher transport costs relative to its value. Considering the above factors, Lall (2003) concluded that: (i) in high-technology industries, fragmentation is strong in electronics; (ii) in medium-technology industries, fragmentation is strong in automotives but the weight of the product and its high basic capability requirements mean that it only extends to a few proximate, relatively industrialized locations; and (iii) in lowtechnology industries, production fragmentation is strong in clothing, footwear, sports goods and toys. It is notable that the above four factors are major determinants in industries where production fragmentation occurs. In the electronics industry, for example, many parts and components (semiconductors, magnetic heads, PCBs, etc.) are small and light. At the same time, they have relatively high added value, so that light and high value products can be shipped long distances. Moreover, since export-oriented industries, such as electronics, have been given preferential treatment (for example, unlimited access to imported inputs and exemption from import duties), they can expand production networks without incurring high service link costs. On the other hand, many parts and components in the automotive industry (body parts, engine parts, brakes, suspension assembles, etc.) are bulky and heavy. Therefore, automotive assemblers have strong incentives to save on transport and inventory costs by procuring their parts and components locally. Furthermore, until recent years, many East Asian countries had

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heavily protected automotive parts suppliers through local content requirement. Sewing and assembly of garments accounts for 80 per cent of all labour costs in clothing manufacture (Dicken 2007). Thus, such an extremely labour-intensive process is separated from other processes (design, fabric production, preparation, advertisement, sales, etc.), and relocated to lower-wage countries, particularly through outsourcing. In Southeast Asia, there is a significant difference in labour costs between neighbouring countries (for example, labour costs in Thailand are 4.8–8.0 times higher than that in Laos (Suzuki 2009). Moreover, advancement in technology and infrastructure and liberalization in trade and investment has reduced service link costs. Thus, in Southeast Asia, where the above factors for accelerating production fragmentation are prevalent, production networks are expected to spread extensively. In the following section, the spatial linkages of the electronics, automotive, and apparel industries are examined to explore the trends of production networks in Southeast Asia.

Spatial Linkages in the Five Southeast Asian Countries, 1990–2000 With the acceleration of production fragmentation, a part of production processes that were previously undertaken by domestic industry to relocate to another country, and these different processes of production are linked through intermediate goods trade. In the case of relocation of the (labour-intensive) downstream industry, the upstream intermediate goods that are still produced by the domestic industry are exported to the (labourabundant) partner country for further processing. Thus, with the acceleration of production fragmentation, industrial output in

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one country would be affected by the other country more than in the past. Here, this kind of inducement mechanism on production is called “spatial linkages”. There are two types of spatial linkages — spatial backward and forward linkage effects. Suppose, for example, that inputs produced in Country A are utilized by an industry in Country B. Then, as the output in Country B increases, the demand for the inputs produced in Country A will increase and thus the output of the industry in Country A will be induced both directly and indirectly through the spatial backward linkage effects. On the other hand, an increase in the output in Country A will increase the production capacity of the downstream industry and thereby induce the output of the industry in Country B through the spatial forward linkage effects. As shown above, production fragmentation increases interindustrial dependency across borders. At the same time, the spatial linkages are expected to be strengthened with the acceleration of production fragmentation. The strengths of spatial linkages were calculated using the Asian international input-output tables. Figure 4.1 shows the spatial linkages of the electronics, automotive, and apparel industries in the five Southeast Asian countries — Indonesia, Philippines, Thailand, Malaysia, and Singapore — as well as China, Taiwan, Korea, Japan, and the United States for 1990 and 2000. Figure 4.1 indicates the pairs of strong spatial linkages, with extremely strong spatial linkages indicated by bold lines (for the details of the methodology, see Kuroiwa 2006, 2008a). Figure 4.1 indicates that there was strong interdependency between the industries across borders, and an extensive production network of the electronics industry was already established in 1990. In particular, the electronics sector in

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FIGURE 4.1 Spatial Linkages (backward and forward) of the Electronics, Automotive, and Apparel Industries in the Five Southeast Asian Countries Electronics Sector 1990

Electronics Sector 1990

SIN Basic Metal

USA Service

IND

PHI

THA

MAL

SIN

KOR

TWN

Electronics

Electronics

Electronics

Electronics

Electronics

Electronics

Electronics

JAP

USA

Electronics

Electronics

2000

2000

USA Service

IND

PHI

THA

MAL

SIN

KOR

TWN

Electronics

Electronics

Electronics

Electronics

Electronics

Electronics

Electronics

TWN Precision Machinery

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FIGURE 4.1 — cont’d

Automotive Automotive Sector Sector 1990 1990

IND Motor Vehicles

PHI

THA

MAL

SIN

Motor

Motor

Motor

Motor

JAP Motor Vehicles

20002000 PHI

THA

MAL

TWN

Motor Vehicles

Motor Vehicles

Motor Vehicles

Motor Vehicles

PHI

JAP

USA

Motor Cyleles

Motor Vehicles

Motor Vehicles

THA Rubber Products

MAL Rubber Products

continued on next page

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FIGURE 4.1 — cont’d Wearing Apparel Sector

Wearing Apparel Sector 1990 1990 SIN Spinning Weaving

PHI

MAL

SIN

TWN

Wearing Apparel

Wearing Apparel

Wearing Apparel

Spinning Weaving

JAP Spinning Weaving

2000 2000 SIN Spinning Weaving

PHI

MAL

TWN

Wearing Apparel

Wearing Apparel

Spinning Weaving

MAL

USA

Spinning Weaving

Wearing Apparel

35% ∼

(Downstream) (Upstream)

Backward linkage 25 ∼ 35% (Upstream) (Downstream)

Forward linkage

15 ∼ 25% 8 ∼ 15%

IND: Indonesia

MAL: Malaysia

KOR: Korea

PHI: the Philippines

SIN: Singapore

TWN: Taiwan

THA: Thailand

CHN: China

JAP: Japan

USA: the United States

Source: Asian International Input-Output Table (2000).

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Indonesia, the Philippines, Thailand, and Singapore had strong backward linkage effects on Japan and the United States, while the electronics sector in the Philippines, Malaysian, and Singapore had strong forward linkage effects on U.S. industries. In Southeast Asia, strong linkages can be seen only between Singapore and Thailand and between Singapore and Malaysia, while other linkages were relatively weak; in particular, Indonesia was the least integrated into the system. In 2000, the spatial backward linkage effects on Japan became weaker in several countries, while the spatial forward linkage effects on the United States and Japanese electronics industry were strengthened. Moreover, Southeast Asian economies strengthened the spatial forward linkages with each other, so that the structure of interdependency became more complex and broad-based. As shown above, the spatial linkages of the electronics industry changed significantly during 1990–2000. The role of Japan as a supplier of inputs declined significantly, and the sources of procurement of inputs for Southeast Asia became more diversified, increasing interdependency within the region. At the same time, dependency of Japan and the United States on inputs supplied by Southeast Asia increased and thus resulted in their receiving strong spatial forward linkage effects. In 1990, the automotive industry in the five Southeast Asian countries had strong backward linkage effects on the Japanese automotive industry, and no other industries had such strong spatial linkage effects. Thus, the structure of spatial linkages was quite simple. In 2000, the spatial backward linkage effects on Japan declined drastically, and a new form of interdependency emerged, such as strong spatial forward linkage effects of the Thai and Philippines automotive industry on the Japanese and the U.S. automotive industry; the rubber industry in Thailand and

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Malaysia also had strong forward linkage effects on the Japanese and U.S. automotive industry. In the automotive sector, the onesided dependency on inputs from the Japanese automotive industry declined considerably, and the production network in the automotive industry spread within the neighbouring Southeast Asian countries. This occurred due to trade liberalization within ASEAN, which was accelerated by the AICO Scheme and AFTA. However, the production network in the automotive industry was more geographically confined than in the electronics industry. In 1990, the apparel industry in the Philippines, Malaysia, and Singapore had strong backward linkage effects on the Taiwanese spinning and weaving industry: the strong backward linkage effects on Taiwan imply that Taiwan became a major supplier of fabrics and other materials to the ASEAN countries.1 Unlike the electronics and automotive industries, spatial linkages with Japan and the U.S. were not strong, and the apparel industry in Indonesia and Thailand did not have any strong linkage effects. In 2000, however, these strong linkage effects disappeared except in the Philippines, and the number of strong linkage effects declined. In Southeast Asia only forward linkage effects of the Singapore spinning and weaving industry on the Malaysian apparel industry continued to be strong. As a result, the apparel production network did not expand in the five Southeast Asian countries. This occurred because the apparel industry had lost competitiveness in these Southeast Asian countries, and thus it had already shifted to less developed countries, including CLMV. Moreover, the number of inputs in the apparel industry is much smaller than in the electronics and automotive industries, so that the production network cannot be as dense as the latter industries. Production networks in the five Southeast Asian countries expanded during 1990 and 2000 in the electronics and automotive

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industries. In particular, the electronics industry, which had established a dense production network, became a leading force of economic integration. On the other hand, the apparel production network did not expand in this region.

Industrial Policy Revisited

A. Attracting production blocks — from where? As in the case of more advanced Southeast Asian countries, less developed Southeast Asian countries would have an opportunity for industrial development by participating in production networks: they would obtain access to not only the international market but also technology. Fortunately, they would not need to be engaged in the production networks from scratch; they can instead utilize the existing production networks based in the neighbouring countries. For example, Laos could participate in the production networks based in Thailand due to its geographical proximity as well as cultural and linguistic affinity to Thailand (see Suzuki 2008). Here, it is important to emphasize that production networks in East Asia are becoming increasingly regionalized, while the market for their final products is more globalized, directed mostly at the developed world. As emphasized by Dicken (2007), “simple geographical proximity is, itself, a very powerful stimulus for integrating operations.” Geographical proximity, for example, reduces the time involved in managerial oversight, facilitate rapid resource exchanges, and lower transportation and coordination costs (McKendrick et al. 2000). It is thus important for the less developed Southeast Asian countries to fully utilize these advantages for deeper integration into the regional economy. In recent years, rising labour costs and an appreciation of currencies in neighbouring countries, notably China and Thailand,

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have been pushing up production costs sharply. Moreover, political risk in these countries has become a pull factor of foreign direct investment into CLMV.

B. Attracting production blocks — in which industry? As shown above, in labour intensive industries such as clothing, footwear, sports goods and toys, many Asian NIEs manufacturers have already shifted labour-intensive activities to low-wage countries. On the other hand, production blocks in other prospective industries, such as electronics and automotive, could be attracted to the less developed countries. However, as pointed out by Lall (2003), the automotive industry goes only to a few proximate, relatively industrialized locations. Thus, large countries such as Vietnam, which can offer lucrative domestic market, have a strong advantage in attracting the automotive industry, while it is far more difficult for Cambodia and Laos to participate in the network — with the notable exception of labour-intensive activities in producing automotive parts such as wire harnesses (Suzuki 2008).2 On the other hand, as shown in Figure 4.1, the production network in the electronics industry may spread more extensively. However, it is shown that Cambodia and Laos had yet to be involved in the electronics production network; in a similar vein, Vietnam and Indonesia were not fully involved yet (Kuroiwa 2008b). In view of the vast opportunities provided by the electronics industry, participating in such a network seems critical. The governments of those countries, therefore, need to adopt clear and decisive policies to improve the investment environment, attract more production blocks, and diversify and upgrade the industrial base.

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C. Attracting production blocks — how? To attract production blocks, governments need to adopt appropriate policies to reduce set-up costs, service link costs, and production cost per se in each production block (Kimura 2008). In this context, AFTA and other relevant FTAs, as well as infrastructure development such as the East-West, North-South, and Southern Economic Corridors, are becoming increasingly important in reducing service link costs. Moreover, the establishment of special economic zones (SEZs), in tandem with the development of transport nodes, will contribute to the improvement in the investment environment. SEZs are especially helpful in (i) reducing the tax burden of firms due to the tax holiday, import duty and other tax exemptions; (ii) improving infrastructure, such as transportation, telecommunications, electricity, gas and water supply; and (iii) providing one-stop services for company registration and investment licensing, export/ import and work permits. Such improvements in the investment environment are crucial to reducing the above-mentioned costs; moreover, past experience indicates that the establishment of SEZs was effective in attracting the electronics and other machinery industries, while some light industries (for example, garment industry) are likely to avoid locating factories inside SEZs due to their fear of stiffer competition in recruiting workers and higher wages.3 SEZs and industrial estates are being developed in the less developed Southeast Asian countries. The government of Cambodia, for example, has approved eighteen SEZs and some of them are located in strategically important areas (for example, Phnom Penh, Sihanoukville Port Area, and Vietnam and Thai borders). Such development in Cambodia will increase opportunities to attract more production blocks in more diversified industries.

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Conclusion Since the mid-1980s, the CLMV countries have been undergoing economic transition from central planning to market economies. Moreover, since the late 1990s, economic reforms in these countries have been accelerated by their accession to the WTO and the establishment of FTAs. Such development in the less developed Southeast Asian countries will increase opportunities to attract production blocks especially from the neighbouring countries. It was shown that production networks had expanded geographically in the electronics and automotive industries; in particular, the electronics industry diversified procurement of inputs and became a leading force of economic integration. CLMV are already involved in the apparel production network, but it is becoming crucially important for them to improve the investment environment, attract more production blocks, and diversify and upgrade the industrial base. The shrinking policy space must be considered in exploring the feasible and appropriate industrial policies. Those policy measures that focus on participation in production networks are market-friendly and conform to the constraint of shrinking policy space. AFTA and other relevant FTAs, as well as infrastructure development such as the East-West, North-South, and Southern Economic Corridors, will contribute to reducing service link costs as well as improving the investment environment. Also, the establishment of special economic zones (SEZs) in tandem with the development of transport nodes is effective to attract more production blocks in more diversified industries.

Notes 1.

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(labour shortages, high wages, and high land prices) and external pressures (currency revaluation, tariffs and quotas) led to the outward shift of apparel production by the late 1980s and early 1990s. The strong backward linkage effects on Taiwan imply that Taiwan became an important supplier of fabric and other materials to the ASEAN countries. This, of course, is associated with an outward shift of apparel production from Taiwan. Compared with the automotive industry, the motorcycle industry, for example, requires smaller set-up costs for a new factory, and the economy of scale is less significant. Therefore, the motorcycle industry may seem more accessible and feasible in small countries than the automotive industry. In fact, some motorcycle companies, including major Japanese companies, have already set up assembly plants in Cambodia and Laos. However, such involvement in the production network is fragile, given that (i) there is no competitive local parts supplier; and thus (ii) completely built units (CBU) that are produced in the neighbouring countries, such as Thailand, may become cheaper if the tariff barriers are removed by AFTA and other regional trade agreements. In the end, industrial capability, which is encouraged by industrial clustering, will be crucially important for remaining within the network. Presentation by the Nomura Research Institute, in the Cambodia Investment Seminar organized by the ASEAN-Japan Centre and Council for the Development of Cambodia, Singapore, 5 December 2007.

References Bora, Bijit, Peter J. Lloyd, and Mari Pangestu. “Industrial Policy and The WTO”. Policy Issues in International Trade and Commodities Studies Series no. 6. United Nations Conference on Trade and Development. Geneva, 2000. Chia, Siow Yue. “Integrating East Asia’s Low Income Countries into the Regional and Global Market”. Paper presented at OECD Research Project on The Impact and Coherence of OECD Country Policies on Asian Developing Economies. Paris, 10–11 June 2004.

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———. “Integrating the Mekong Region into ASEAN”. Paper presented at the seminar on Accelerating Development in the Mekong Region: The Role of Economic Integration. Siem Reap, Cambodia, 26–27 June 2006. Dicken, Peter. Global Shift: Mapping the Changing Contours of the World Economy, 5th ed. London: SAGE Publications, 2007. Gereffi, Gary. “International Trade and Industrial Upgrading in the Apparel Commodity Chain”. Journal of International Economics 48 (1999). Jones, Ronald W. and Henryk Kierzkowski. “The Role of Services in Production and International Trade: A Theoretical Framework”. In The Political Economy of International Trade: Essays in Honor of Robert E. Baldwin, edited by Ronald W. Jones and Ann Kruger. Oxford: Basil Blackwell, 1990. Kimura, Fukunari. “The Mechanics of Production Networks in Southeast Asia: The Fragmentation Theory Approach”. In Production Networks and Industrial Clusters: Integrating Economies in Southeast Asia, edited by Ikuo Kuroiwa and Toh Mun Heng. Singapore: Institute of Southeast Asian Studies, 2008. Kuroiwa, Ikuo. “Production Networks and Spatial Linkages in East Asia”. In East Asia’s De Facto Economic Integration, edited by Daisuke Hiratsuka. New York: Palgrave Macmillan, 2006. ———. “Cross-Border Production Networks in Southeast Asia: Application of the International Input-Output Analysis”. In Production Networks and Industrial Clusters: Integrating Economies in Southeast Asia, edited by Ikuo Kuroiwa and Toh Mun Heng. Singapore: Institute of Southeast Asian Studies, 2008a. ———. “Production Networks, Industrial Clustering, and Industrial Policy in Less Developed Southeast Asia”. Mimeographed. Chiba: Institute of Developing Economies (IDE-JETRO), 2008b. ——— and Toh Mun Heng, eds. “Introduction”. In Production Networks and Industrial Clusters: Integrating Economies in Southeast Asia. Singapore: Institute of Southeast Asian Studies, 2008.

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Lall, Sanjaya. “Reviving Industrial Strategy: The Role of Government Policy in Building Industrial Competitiveness”. G-24 Discussion Paper 28, April 2003. ———, M. Albaladejo, and J. Zhang. Mapping Fragmentation: Electronics and Automobiles in Southeast Asia and Latin America. Oxford Development Studies 32, no. 3 (2004): 407–32. McKendrick, David G., Richard F. Donner, and Stephan Haggard. From Silicon Valley to Singapore: Location and Competitive Advantage in the Hard Disk Drive Industry. Stanford: Stanford University Press, 2000. Narjoko, Dionisius A. and Puspa Delima Amri. “The Development Gap between the ASEAN Member Countries: The Perspective of Indonesia”. ASEAN Economic Bulletin 24, no. 1 (2007). Sturgeon, Timothy and Richard Lester. “The New Global Supply-base: New Challenges for Local Suppliers in East Asia”. In Global Production Networking and Technological Change in East Asia, edited by Shahid Yusuf, M. Anjum Altaf, and Kaoru Nabeshima. Oxford University Press, 2004. Suzuki, Motoyoshi. “Industrialization Strategy of Laos: Agglomeration and Fragmentation”. Mimeographed. Chiba: Institute of Developing Economies (IDE-JETRO), 2008.

Ikuo Kuroiwa is the Director of Development Strategy Studies Centre at IDE-JETRO, Chiba, Japan.

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ANNEX I

ASEAN ROUNDTABLE 2008: ASEAN ECONOMIC COMMUNITY BLUEPRINT 28 July 2008 Seminar Rooms I & II Institute of Southeast Asian Studies Singapore

PROGRAMME 8.30 a.m. – 9.00 a.m.

Registration

9.00 a.m. – 9.15 a.m.

Opening Remarks Ambassador K. KESAVAPANY Director, Institute of Southeast Asian Studies, Singapore Dr Colin DUERKOP Regional Representative for Southeast Asia, Konrad Adenauer Stiftung, Singapore Chairperson: Dr Denis HEW Senior Fellow, Institute of Southeast Asian Studies, Singapore

9.15 a.m. – 10.00 a.m.

IMPLEMENTING THE AEC BLUEPRINT Presenter:

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Mr S. PUSHPANATHAN Principal Director, Bureau for Economic Integration and Finance, ASEAN Secretariat, Jakarta

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10.00 a.m. – 10.15 a.m.

Coffee

10.15 a.m. – 11.00 a.m.

TACKLING NON-TARIFF BARRIERS IN ASEAN Presenter:

11.00 a.m. – 11.45 a.m.

STRENGTHENING BUSINESS COOPERATION IN ASEAN Presenter:

11.45 a.m. – 12.30 p.m.

Mr David PARSONS Executive Director, Committee on Investment and International Trade Development, KADIN Indonesia

DESIGNING A COMPREHENSIVE ASEAN INVESTMENT AGREEMENT Presenter:

12.30 p.m. – 1.45 p.m.

Professor Myrna S. AUSTRIA Dean, College of Business and Economics, De La Salle University, Manila

Professor M. SORNARAJAH Faculty of Law, National University of Singapore

Lunch Chairperson: Mr Rodolfo SEVERINO Head, ASEAN Studies Centre, Institute of Southeast Asian Studies, Singapore

1.45 p.m. – 2.30 p.m.

CAN THE AEC MAKE ASEAN MORE COMPETITIVE? Presenters:

Mr Kaushik DAS Partner, McKinsey & Company Singapore Pte. Ltd. Mr Adam SCHWARZ Associate Partner, McKinsey & Company Singapore Pte. Ltd.

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2.30 p.m. – 3.15 p.m.

REGIONAL FRAMEWORK FOR COMPETITION POLICY AND AEC Presenter:

3.15 p.m. – 4.00 p.m.

Mr Soy Martua PARDEDE Chairman, ASEAN Competition Institute (ACI), Jakarta

THE ROLE OF INFRASTRUCTURE DEVELOPMENT IN REGIONAL ECONOMIC INTEGRATION Presenter:

Dr Biswa Nath BHATTACHARTYAY Special Adviser to Dean, Asian Development Bank Institute (ADBI), Tokyo

4.00 p.m. – 4.15 p.m.

Tea

4.15 p.m. – 5.00 p.m.

THE ROLE OF INTERNATIONAL PRODUCTION NETWORKS IN ECONOMIC INTEGRATION Presenter:

5.00 p.m. – 5.15 p.m.

Dr Ikuo KUROIWA Director, Development Strategy Studies Centre, IDE-JETRO, Chiba, Japan

Closing Remarks Mr Rodolfo SEVERINO Head, ASEAN Studies Centre, Institute of Southeast Asian Studies, Singapore Dr Denis HEW Senior Fellow, Institute of Southeast Asian Studies, Singapore

7.30 p.m.

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ANNEX II

ASEAN ROUNDTABLE 2008: ASEAN ECONOMIC COMMUNITY BLUEPRINT

LIST OF PARTICIPANTS

Chairpersons and Presenters 1.

Professor Myrna S. AUSTRIA Dean College of Business and Economics De La Salle University 2401 Taft Avenue Manila Philippines Tel/Fax: (63-2) 536-0261 Email: [email protected]

2.

Dr Biswa Nath BHATTACHARYAY Special Adviser to Dean Asian Development Bank Institute (ADBI) Kasumigaseki Building, 8th floor 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008 Japan Email: [email protected]

3.

Mr Kaushik DAS Partner McKinsey & Company Singapore Pte. Ltd. 3 Temasek Avenue #18-03 Centennial Tower Singapore 039190 Tel: (65) 6586-4900 Fax: (65) 6836-9200 Email: [email protected]

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4.

Dr Denis HEW Senior Fellow Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 Tel: (65) 6870-4505 Fax: (65) 6775-6264 Email: [email protected]

5.

Dr Colin DUERKOP Regional Representative for Southeast Asia Konrad Adenauer Stiftung 34 Bukit Pasoh Road Singapore 089848 Tel: (65) 6227-2001 Fax: (65) 6227-8343 Email: [email protected]

6.

Ambassador K. KESAVAPANY Director Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 Tel: (65) 6778-0955 Fax: (65) 6778-1735 Email: [email protected]

7.

Dr Ikuo KUROIWA Director Development Strategy Studies Group Development Studies Centre Institute of Developing Economies 3-2-2 Wakaba, Mihama-ku Chiba-shi, Chiba 261-8545 Japan Tel: (81-43) 299-9741 Fax: (81-43) 299-9763 Email: [email protected]

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8.

Mr Soy Martua PARDEDE Chairman ASEAN Competition Institute (ACI) Rumah Maduma Jl Dr Saharjo No 52 Jakarta 12970 Indonesia Tel: (62-21) 831-1184 Fax: (62-21) 831-1185 Email: [email protected]

9.

Mr David PARSONS Executive Director Committee on Investment and International Trade development KADIN Indonesia Menara Kadin Indonesia 24th floor Jl Rasuna Said X-5 Kav. 2-3 Jakarta 12950 Indonesia Tel: (62-21) 527-4503/4 Fax: (62-21) 527-4505 Email: [email protected]

10.

Mr S. PUSHPANATHAN Principal Director Bureau for Economic Integration and Finance ASEAN Secretariat 70A Jalan Sisingamangaraja Jakarta 12110 Indonesia Tel: (62-21) 726-2991 Fax: (62-21) 739-8234 Email: [email protected]

11.

Mr Adam SCHWARZ Associate Partner McKinsey & Company Singapore Pte. Ltd. 3 Temasek Avenue #18-03 Centennial Tower Singapore 039190 Email: [email protected]

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12.

Mr Rodolfo SEVERINO Head, ASEAN Studies Centre Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 Tel: (65) 6870-4524 Fax: (65) 6775-6264 Email: [email protected]

13.

Professor M. SORNARAJAH Faculty of Law National University of Singapore Eu Tong Sen Building 469G Bukit Timah Road Singapore 259776 Email: [email protected]

Other Participants 14.

Ms Penny BURTT Deputy High Commissioner Australian High Commission 25 Napier Road Singapore 258507 Email: [email protected]

15.

Dr Mely CABALLERO-ANTHONY Associate Professor S. Rajaratnam Schoo of International Studies (RSIS) Nanyang Technological University South Spine S4, Level B4, Nanyang Avenue Singapore 639798

16.

Ms Mary Elizabeth CHELLIAH Deputy Director Ministry of Trade and Industry 100 High Street #09-01 The Treasury Singapore 179434 Email: [email protected]

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17.

Ms Vivien CHIAM Partnership & Communications Manager International Development Research Centre (IDRC) Regional Office for Southeast and East Asia 22 Cross Street #02-55, South Bridge Court China Square Central Singapore 048421 Tel: (65) 6439-6828 (Dir) Email: [email protected]

18.

Ms Edith CHIU Assistant Executive Director ASEAN, China & North Asia Singapore Business Federation Hoe Chiang Road #22-01, Keppel Towers Singapore 089315

19.

Ms Elly CHIU Senior Officer Resource Development Division Economic Development Board 50 North Bridge Road #28-00 Raffles City Tower Singapore 179101 Email: [email protected]

20.

Ms Kirsty DODSWORTH Third Secretary – Political/Economic Australian High Commission Singapore Tel: (65) 6836-4210 Fax: (65) 6733-7134 Email: [email protected]

21.

Associate Professor Michael EWING-Chow Faculty of Law National University of Singapore Eu Tong Sen Building 469G Bukit Timah Road Singapore 259776 Email: [email protected]

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22.

Ms Juliana GIAM Deputy Director ASEAN Singapore Business Federation 10 Hoe Chiang Road, #22-01, Keppel Towers Singapore 089315

23.

Associate Professor Locknie HSU School of Law Singapore Management University 60 Stamford Road, Level 4 Singapore 178900 Email: [email protected]

24.

Mr JAMIL DERUS AHMAD Counsellor (Economic) High Commission of Malaysia Singapore

25.

Mr Freddy LAM Fong Loi (Member, ISEAS BOT) Vice President Singapore Chinese Chamber of Commerce & Industry C/o Solid Gold Group of Companies 896 Dunearn Road Unit #04-06E Sime Darby Centre Singapore 589472

26.

Ms LOONG Lai Yong Executive ASEAN & South Asia Singapore Business Federation Hoe Chiang Road, #22-01, Keppel Towers Singapore 089315

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27.

Mr Leonard LEE Head, Southeast Asia Global Operations Division Economic Development Board 50 North Bridge Road #28-00 Raffles City Tower Singapore 179101 Email: [email protected]

28.

Dr Hank LIM Research Director Singapore Institute of International Affairs 2 Nassim Road Singapore 258370 Email: [email protected]

29.

Ms Venetta MIRANDA Deputy Director ASEAN Division Ministry of Trade & Industry Singapore Tel: (65) 6332-7857 (Dir) Email: [email protected]

30.

Ms Michiyo MOROHASHI Project Coordinator JICA Singapore Office Room 801 RELC 30 Orange Grove Road Singapore 258352 Email: [email protected]

31.

Ms Jasmine NG Manager (Government Advocacy/Trade Matters) Singapore International Chamber of Commerce 6 Raffles Quay #10-01 Singapore 048580 Tel: (65) 6500-0973 Fax: (65) 6224-2785 Email: [email protected]

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32.

Ms Lorraine Carlos SALAZAR McKinsey & Company Singapore Pte. Ltd. 3 Temasek Avenue #18-03, Centennial Tower Singapore 039190 Tel: (65) 6586-4878 Email: [email protected]

33.

Ms Paulna TAN Executive ASEAN Singapore Business Federation Hoe Chiang Road, #22-01, Keppel Towers Singapore 089315

34.

Dr TAN See Seng Associate Professor S. Rajaratnam Schoo o0f International Studies (RSIS) Nanyang Technological University South Spine S4, Level B4, Nanyang Avenue Singapore 639798

35.

Dr Sarah Yueting TONG Research Fellow East Asian Institute National University of Singapore 469A Bukit Timah Road Tower Block #06-01 Singpaore 259770 Email: [email protected]

36.

Ms Sherly Executive ASEAN & South Asia Singapore Business Federation 10 Hoe Chiang Road, #22-01, Keppel Towers Singapore 089315

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Dr YEO Lay Hwee Senior Research Fellow Singapore Institute of International Affairs 2 Nassim Road Singapore 258370 Email: [email protected]

ISEAS 38.

Dr Aris ANANTA Fellow Email: [email protected]

39.

Dr Jayati BHATTACHARYA Visiting Research Fellow Email: [email protected]

40.

Dr Pavin CHACHAVALPONGPUN Visiting Research Fellow Email: [email protected]

41.

Ms Sanchita Basu DAS Visiting Research Fellow Email: [email protected]

42.

Mr Mark HONG Visiting Research Fellow Email: [email protected]

43.

Assoc Professor LIN Mei Visiting Research Fellow Email: [email protected]

44.

Mr Jorgen Orstrom MOLLER Visiting Senior Research Fellow Email: [email protected]

45.

Mrs Triena ONG Managing Editor, Publications Unit Email: [email protected]

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46.

Dr OOI Kee Beng Fellow Email: [email protected]

47.

Dr Nasir TAMARA Visiting Senior Research Fellow Email: [email protected]

48.

Mr TAN Keng Jin Head, Public Affairs Email: [email protected]

49.

Dr TIN MAUNG MAUNG THAN Senior Fellow Email: [email protected]

50.

Ms Moe THUZAR Visiting Research Fellow Email: [email protected]

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ANNEX III List of NTBs Affecting the ASEAN Priority Sectors for Integration A. ASEAN NTM Database 1400 Tariff quota duties 2200 Additional taxes and charges 2290 Additional charges n.e.s 2300 Internal taxes and charges on imports 3100 Administrative pricing 5100 Automatic licensing 6100 Non-automatic licensing 6110 Licence with no specific ex-ante criteria 6170 Prior authorization for sensitive products 6200 Quotas 6240 Quotas linked with export performance 6270 Quotas for sensitive products 6300 Prohibition 6310 Total prohibition 6710 Selective approval of importers 7100 Single channel for imports 7120 Sole importing agency 8100 Technical regulations 8110 Product characteristic requirements 8120 Marketing requirements 8130 Labelling requirements 8140 Packaging requirements 8150 Testing, inspection, quarantine requirements 8200 Pre-shipment inspection

B. UNCTAD TRAINS 3110 Minimum import price 3190 Administrative pricing n.e.s. 3320 Variable components 3420 Anti-dumping duties 4110 Advance import deposit 4190 Advance payment requirements n.e.s. 4200 Multiple exchange rates

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4320 4500 4900 5200 5271 5274 5275 5279 6100 6100 6120 6130 6140 6160 6170 6171 6172 6173 6174 6175 6176 6177 6178 6179 6180 6190 6210 6270 6274 6290 6310 6360 6371 6372 6373 6374 6376 6377

Bank authorization Regulations on terms of payment for imports Finance measures n.e.s. Import monitoring Prior surveillance to protect human health Prior surveillance to protect the environment Prior surveillance to control drug abuse Prior surveillance n.e.s. Non-automatic licensing Licence with no specific ex-ante criteria Licence for selected purchasers Licence for specified use Licence linked with local production Licence combined with or replaced by special import authorization Prior authorization for sensitive product categories Authorization for human health protection Authorization to protect animal health Authorization for plant health protection Authorization to protect the environment Authorization to protect wildlife Authorization to prevent drug onment Prior authorization to ensure human safely Authorization to ensure national security Authorization n.e.s. Licence for political reasons Non-automatic licensing n.e.s. Global quotas Quotas for sensitive product categories Quotas to protect the environment Quotas n.e.s. Total prohibition Prohibition on the basis of origin (embargo) Prohibition to protect human health Prohibition to protect animal health and life Prohibition to protect plant health Prohibition to protect the environment Prohibition to control drug abuse Prohibition to ensure human safety

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6378 6379 6390 6640 6690 6900 7100 7110 7120 7173 7220 8100 8110 8111 8112 8113 8114 8116 8117 8118 8119 8121 8123 8124 8127 8129 8131 8133 8134 8137 8139 8141 8150 8151 8152 8153 8154

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Prohibition to ensure national security Prohibition for purposes n.e.s. Prohibition n.e.s. Expert restraint arrangements on textiles outside MFA Expert restraint arrangements n.e.s. Quantity control measures n.e.s. Single channel for imports State trading administration Sole importing agency Single channel for imports to protect plant health Compulsory national transport Technical regulations Product characteristic requirements Product characteristics required to protect human health Product characteristics required to protect animal health Product characteristics required to protect plant health Product characteristics required to protect the environment Product characteristics required to control drug abuse Product characteristics required to ensure human safety Product characteristics required to ensure national security Product characteristic requirements n.e.s. Marketing requirements to protect human health Marketing requirements to protect plant health Marketing requirements to protect the environment Marketing requirements to ensure human safety Marketing requirements for purposes n.e.s. Labelling requirements to protect human health Labelling requirements to protect plant health Labelling requirements to protect the environment Labelling requirements to ensure human safety Labelling requirements for purposes n.e.s. Packaging requirements to protect animal health Testing, inspection, and quarantine requirements Testing, inspection, and quarantine for human health Testing, inspection, and quarantine for animal health Testing, inspection, and quarantine for plant health Testing, inspection, and quarantine required to protect the environment

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8157

Testing, inspection, and quarantine required to ensure human safety 8159 Testing, inspection, and quarantine for purposes n.e.s. 8161 Information requirements to protect human health 8162 Information requirements to protect animal health and life 8167 Information requirements to ensure human safety 8169 Information requirements to ensure human safety 8191 Technical regulations necessary to protect human health 8200 Pre-shipment inspection Source: De Dios (2006).

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