Economic and Political Trends in Southeast Asia 9789814414388

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The Institute of Southeast Asian Studies.

Established as an autonomous corporation in May, 1968, the Institute of Southeast Asian Studies is a regional research centre for scholars and other speciali~ts concerned with modem Southeast Asia. The Institute's (esearch interest is focussed on the many-faceted problems of modernization and social change in Southeast Asia. The Institute is governed by a 24-member Board of Trustees on which are represented the University of Singapore and Nanyang University, appointees from the Government, a~ well as representatives {(om a broad range of professional and civic organizations aod groups. A ten-man Executive Committee oversees day-to-day operations; it is ex officio chaired by the director, the Institute's chief academic and administrative officer.

"Copyright subsists in this publication under the United Kingdom Copyright Act. 1911 and the Singapore Copyright Act (Cap. 187). No person shall reproduce a copy of this publication, or extracts therefrom, without the written permission of the Institute of Southeast Asian Studies, Singapore."

ECONOMIC AND POLITICAL TRENDS IN SOUTHEAST ASIA

Papers and Proaeedings of a Seminar organ i zed by the Institute of Sout heast Asian Studies in Singapo re 23 Marah 19 ?3

CURRENT ISSUES SEMINAR SERIES NO . 2 Institute of Southeast Asian Studies Pr1ce: S$6 . 00

PREFACE As part of its programme to impart and disseminate accurate information and knowledge about modern Southeast Asla to all legitimate and interested parties, the Institute is prepared to assist and advise private firms, professional groups and other similar bodies to organize seminars and meet~ngs which would lead to a better understanding and appreciation of the region and its problems and prospects. On March 23rd, the Institute organized a seminar on "Economic and Political Trends in Southeast Asia" for the benef1t of journalists and other representatives of the maJor magazines and papers of the world press. They were v~siting Singapore in connection with the International Press Conference sponsored by Rollei-Werke. The seminar was generally well received, and the papers and comments are reproduced herewith. The Institute would l 1ke to take this opportunity of congratulating Rollei-Werke f o r a successful Press Conference and also to express its grat~tude to the participants in the seminar for their c o ntr~butions and cooperation. In wishing them all the b e st, ~t ~s clearly understood that responsibility for fa c ts and op~nions expressed in the material that follows r esLs exclusively with the authors, and their interpretations do not necessarily reflect the views or policy of the Inst~tute ~tself or its supporters. 8 June 19 7 3

Kernial S~ngh Sandhu Director

CONTENTS Page Preface Contents 1

Chairman's Opening Remarks Economic Trends in Southeast Asia Questions of Security and Stability in Southeast Asia: Nature of Threats

V" Kanapathy

3

Lau Teik Soon

16

Gerald Tan

25

Tommy Koh

39

V. Kanapat.hy, Economic Problems

of Regional Integration Within ASEAN: A Comment Lau Teik Soon, Questions of Security and Stability in Southeast ~sia , Nature of Threats: A Comment Discussion Note on Contributors

45

CHAIRMAN'S OPENING REMARKS

Distinguishe d Delegates, Ladies and Gentlemen, Let me first of all welcome you to Southeast Asia and say how much we look forward to your participatio n in this morning's discussion on economic and political trends in Southeast Asia . Today we take the term "Southeast Asia" for granted and it would be difficult to us to imagine that it is only since the last World War that the term has come into general usage for the countries stretching from Burma to Vietnam and from the Philippines to Indonesia . Prior to th~s, appelations such as Further India, East Indies and Far Eastern Tropics were the common terms for this region of ours. Changing nomenclature s apart, Southeast Asia has continued to be an area of tremendous contrast and vitality " Thus we have a Southeast Asia that is ancient yet modern: a region that is sufficiently urbanized yet essentially rustic: forward looking yet traditional: politically independent yet seemingly dependent: and, finally, only partially developed yet already a producer of some 90% of the world's natural rubber, 75% of its copra, and 60% of its palm oil and tin, in addition to substantial quantities of pineapples, timber and oil . With regard to the last item, if some of the earlier estimates are to be believed, Southeast Asia could well be sitting on a substantial off-shore oil reservior. In short, Southeast Asia is a complex but extremely exciting region with a considerable development potential . Indeed it could be one of the fastest growing regions of the world in the 1980's and 1990's. Such prospects, of course, have to be set agains~ a rapidly changing political environment in the wake of the American withdrawal from Indochina, a general thawing of old Cold War positions and local Southeast Asian aspirations and movements for radical reforms and, what is frequently being termed, Southeast Asian solutions to Southeast Asian problems. In practical terms, however, what are these Southeast Asian solutions? How relevant and realistic are they in the context of local needs and Big Power politics? Do they spell the ushering in of an era of relative peace and quiet in the reg1on or merely a lull between one turbulent phase and another? It is hoped that before this morning is over we would have had some insights at least into such

- 2 questions as these as well as others, including those associated with the structure of Southeast Asian economies and their likely areas of competition and cooperation.

ECONOMIC TRENDS IN SOUTHEAST ASIA * by V. Kanapathy

"Men and nations behave wisely: after all other alternatives have been exhausted . " Intorduction Asia is not unified by poverty or revolution. Different areas have their own distinctive past and their own differing present . In this context there are many "Asias." There are the bounding economies of Asia concentrated on the Pacific front with an average growth rate of 8-10% in real terms, and there are the struggling ones flanking the Indian Ocean with an average growth rate of 3-4%. And, in between lies Southeast Asia . .whose average growth rate is in the region of 6-8%. Discussion in this paper will be confined to the modernization process that is taking place in Southeast Asia and an attempt will be made to examine possible ways of accelerating this process . What factors, one might ask, gave the Southeast Asian count ries a l ift into economic orbit? An optimist looking back over the twelve years of warfare in Vietnam would argue that just as the Korean War had a booster effect on the Japanese and Hong Kong economies, so the American spending - first. through aid programmes and then by direct involvement 1n Vietnam - brought economic prosperity to Singapore, Malaysia, Thailand and South Korea as well as to the chief beneficiaries of the earlier war. A closer look at t he Southeast Asian countries which had galvanized their economic life would reveal reasons other than the Vietnam War to explain for the progress made . Southeast Asia is rich in resources producing a sizeable proporti on of the world's output of rubber, palm oil, timber,

Revised t ext of the paper presented at the seminar organized by the Institute of Southeast Asian Studies, Singapore, on 23 March 1973 in connectl.on with the Inten1.ational Press Conference SfOnsored by Rolle i -Werke, Singapore .

- 4 tin, petroleum, sugar and coffee . A stable investment climate has been created and the governments are committed by experience and instinct to the free enterprise syst.em " They have not resorted to political extremism to achieve their economic and social goals . As a peo~le, Sout heast Asians have shown that mil it ancy does not pay, and that responsibility, moderation and commonsense will prevail . The basic ingredients that work for a secure and comfortable nati onal identity are found in good measure, unlike some other developing countrie·s where religion and language have acted as a stifling influence on economic development . The business community is aggressive and dynamic and there is total . absence of xenophobic attitudes towards foreign enterprise " Compan i es operating in this region have not been caught in the grips of gal l oping cost inflation as experienced by some Asian and Latin American countries . This is manifested by the remarkable stability in wages and priqes, and he absence of successive currency devaluation . These favourable circumstances contributed to the situation where the average growth of ·the Sou heast Asian countries i s almost double that of the other developing countries of the world. Present Problems Despite the above favourable situation Southeast Asia i s ye t bedevil l ed by t he unholy trinity of unemployment , income ine qua lity and popu lati on prob lems . Development has not permeated to grass-root l eve s . Expectati ons we re aroused but the fruits of progress were n o t evenly d i stributed . Policies pursued hitherto were designed to maximize economic growth resulting in the concentration of weal t h in the hands of a few. Another phenome non of past policies was the fact t hat a substantia l percentage of the ownership and control of investments ten ded to be concentrated in foreign hands wit h emphas i s i n extractive and pr i ma ryproduct ind u st ries, creating enclaves of "modern ity" and high technology industries sur rounded by poor and primitive agriculture from which more than 60% of the local peop l e draw their sustenance , Indus trial policies and strategies pursued during the early years of the post-independence period were has t ily co nceived and implemented, resulting in the establ ishment . of a hodge-podge of import -s ub st i tuting industries mainly of the assemb l y o r the packag ing type (screwdriver · industries) geared to the existing market s i ze . Almost all of them were bound by export restrictive clauses thus prevent i ng e xpansion of p roduction other than to take a g r eater share

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of t he local market . Consequently, even after two decades of heavy import -subst i tut ing policies, most Sout heast Asian economies are showing an unsatisfactory re c ord of industrial deve l opment . Industrial planners had no noti on of techno l ogy t ransfer problems and issues. There was indiscrimi nate transfer of techno l ogy without taking into consideration the needs and aspirations of the peop l e . In an environment of growing unemployment and l ow income we need a techno l ogy involving more of muscle and mechanics and less of automation, but even the l aw as i t then stood (up to 2- 3 years ago ) encouraged ca~ i ta l int ensive techno l ogy . Te c hno l o~ t ransfer problems were not treated with caution and d i scretion , and consequent l y no opport un it y was created to develop an indigenous te c hno l ogy . Of l ate, however, there has been some changes i n the governments ' industr i a l policies . National and mu l t .inat iona l compani es ' proposals for investment are now dire cted t owards confo r mi t y t o an overal l patt ern of ind u st ri a l development . Over the years many Southeast As i an count r ,i es have l earnt a great dea l from t he first inrush of projects and they a r e now s ligh tly mor e s el ective i n their treatmen t of inves t ors . A q u es ti o n mi ght be pose d as t o why t h i s r eg i on which is p r edomi nantly ag ricultura l should vent u re into manufa c t u r ing i nd u s t r i es . Why shoul d , some may as k , this r eg ion not spec i a l ize in t he p r odu c t i on of agr i cultur al p ro d uct s and trade t hem fo r manu f a ct ured commod ities p r o duced by t he de v e l oped coun tr ies . To s uch peop l e I would like to s a y t hat t he cl ass ic a l comparat i ve cost t he ory do es not work i n t .he p r esent day world " We hav e f a il ed t o ena ct t he g r ound r ules fo r t he growth of orderly i n t ern a tional t rade desp ite severa l y ears of effort by GATT . Then , we a r e a l so confronted with the prob l ems of synthetics and s ubst i tut es . Probably h e r e , t he ecolog i s t s and t he ra p i d l y g r owing i nf l a t .i on i n t he deve l oped countries may come t o o ur r escue . Another point that has got to be unders t ood i s t ha t one of the bes t esta b l ished generalizations of e conomic h i s to ry i s t h at with i mp r ov eme nt s i n t echnology a n d ri s e i n r ea l income pe r head , there is a cont inued r educti on i n the p r opo rtion of t he l abour f orce employed in ag r icu ltur e , though I mus t emphas i ze that agricu lture cont r i b ut es e xte n s ive l y t o t he init ial t hrus t a n d provides pe r mane n t s u ppo r t t o our e c o n omies . It i s becau se of this fa ct t hat I emphas i ze that i ndu s t r i a li zati on has t o be the corner s tone o f thi s reg i on 1 s f u ture e c onomic s t r ucture as it p rovi des un limited oppo rt un it ies for abso r b i ng the s ur p l us · manpowe r . The r e can be l itt l e doub t t hat t he kind of e c onomic g r owt h wh ich i nvo lves t he sp r ead of mo dern t echn o l ogy, a nd wh ich even tua tes i n high re a l i n c ome pe r head ,

- 6 is conceivable without indust r ial i zation . In that broad sense there are no a lternative roads to economic development . It is no accident th a t all advanced countries with re l atively high incomes pe r head have a l arge manufact uring industry p and in mo s t cases , are also large exporters of manufactured goods , Dome s tic market limit a tions may, however, ac t as an i mped i ment t o u n limit ed industr i al and even agricultural expansion , Whi l e ma rkets are i mportant, creating them i s diff icult, though with success in taking deve l opment to grass-root level s the creat i on of a larger l oca l mar ket shou ld be p ossible n However suc cessful t his effort may be (ges tation period i s quite long ) , foreign markets are essential to make industrialization suc c essful . This effo rt is, however , made difficult because of growing Japanese me rcantilism, European economic nationa li sm and Amer ican protectioni sm . The primary concern of almost a ll d eveloped nations appears to be the safeg uarding. and t he maximizing of their national interests . The prot ectioni s t t e n de ncies marking the turning away f r om the wh ole proce ss of wo rld economic cooperation enshrined in t he sp i ri t of Bre tton Woods, have promp t ed l eaders to express anx i ety about the wor l d becoming divided into regional protectionist b locs . It leaks as t hough we have to live for s ome time in a po l ycentri c wor l d much against the wishes of t h o se who are working towards g l o ba l cooperation . Th e 'I'ask Ahead It is i mposs1b l e at the p resent time to envis age a situat i on where a ll t he difficu l t world trade and economic prob l e ms wou l d be r eso lved overnigh t " Some suspect that t he EEC with whom Sout heast Asian countries have long historica l and trade re l ations would not be as outwa rd l ook i ng as the l atter would wish it to be . In t he next fe w years 1 even Brit ain which has substant ial investments in Ma lay s ia, will b e preoccupied with her entry into Europe . As a matter of fact, s ome fear th at. she may liquidate part of her assets here for re-i nves tment in E uro pe . Many a l so ho l d the v iew that th e unending moral , physica l and financial drain imposed on the Americans by Vietnam has a lready brought a p o licy of withdrawal t o the fore i n t he u.s . Au s trali a 1 s new approac h to internati onal re l ations may b ring her closer to So ut h eas t As ia but it i s diffi cult to p re d ict at t his stage as to whethe r this wi ll be ref l ected in increased f l ow of inv estment s . With the rapid g rowth of Ja p an's lntern atlonal payments surp l us, some suspect that the f l ow of investme nt s from Jap an t o t h is regi on may be

- 7 on the increase. But market limitations may act as a stumbling block even if the Japanese decide to come in a. big way to invest in this region, excepting in the case of those activities which will contribute to the continued supply or raw materials to their manufacturing industries ("trade-oriented" investment), or because of environmental problems in Japan. In the light of this situation what should the Southeast Asian nations do? National efforts to solve problems of unemployment and low living standards, more successful in some countries than in others, have not been adequate to make a fundamental or permanent impression on most Southeast Asian countries. Among other reasons, the smallness of the individual markets has placed sharp limitations on the visibility of some industrial and agricultural projects that have been established, or precluded the establishment of others on a scale sufficient to absorb the g ·r owing working population or labour force . The first priority objective of the leaders of this region in these circumstances is to find a solution to such problems through improved national economic management It has to and by a strong rise in productive investment . external to be realized that growth responding exclusively demand is precarious . To attain maturity a country must internalize its engine of growth, form its own cadre of entrepreneurs and managers, develop its own source of sav i ngs, respond more to its wants and its own innovations, and acquire greater economic flexibility and adaptability. This calls for changes in the social structure, education, b irth rates, the role of government and so on , Rapid economic growth can take place on peripheral basis without the great instituional changes that used to be considered its prerequisite, but self-sustaining growth is more exact ing . This calls for strong and more business like governments, and institutional changes. Southeast Asian countries invest about 15% of their national income for the purpose of capital formation Industry and agriwhereas Japan invests about 35-40%. culture have to be developed at a more rapid rate but at a certain point they wil l be hamstrung by domestic market limitations . As I said earlier, while markets are important, I had also creati ng them on a domestic basii is difficult . earl i er mentioned about ' the repressive trade barriers against the exports of developing nations by the industrialized countries though the latter could help by opening their markets le ss grudgingly to new categories of e x ports from

- 8 It is also too early to expect the industrialize d the former. nations to concentrate on high-technolo gy, capitalintensive industries leaving the less-sophist icated labour-inten sive ones to the developing countries. To s u pplement national efforts to attain maturity regiona l ec o nom i c cooperation would certainly be helpful . Southeas t Asian countries can no longe~ rely on their traditional exports to developed countries, the demand for which grows too slowly to support a 6-10% growth rate wh ich has been projected from this region. This growth rate is faster than that projected from many developed countries, which means there will be a widening gap betwe en their need for imports and their potential An obvious solution to this exports to developed countries. situation i s that Southeast Asian countries must cut their i mport of food and light manufactures from developed countries and do more trade with each other . They require a new network of trading relationship s not only between themselves but also between them and other developing countries, and a new set of institutions for financing this trade network . Let it be understood that regional cooperation is not subli me my sti ci sm and nonsense but strictly practical Here, stuff that has brought r ich rewards to other nations. the Southeast Asian countries can benefit from all lessons le ar ned by the me mbe rs of the EEC and that of the Latin American Free Trade Area and the Central American Common Market . Probabl y, th ese nations could even benefit from what s ome African nation s had gained through regional economic If the Southeast Asian countries could agree coope r a tion . on some form of partial integration and a harmonizatio n of prod uction pat t erns, a ready-made market many times larger than any s in gle domestic market is made almost immeUnfortunatel y, because of the absence d 1ately a va 1lable . of any co-ordinated endeavour almost every Southeast Asian country is at temp t1ng or has already started to establish every co nceiv able type of i mport-substi tuting industries with t h e aid o f he a vy protective tariffs and other ·devices. Even on the agricultur al front they are vigorously pursuing policies to achi eve self-sufficie ncy in rice and other staple c rops , much to the detriment of their neighbours The who ha v e been traditional exporters to this region. on qualify not do industries these of many of ex1stence such of pursuance the With grounds. economic ional rat e conom1c strategies, possible f uture economic collaboratio n

- 9 is made more difficult as the respective countries are commi tted to protest those industries that they are hur r iedly helping t o establish . With the early pursuit of rational industrial policies, Southeast Asian countries could have a big enough small industries base to feed heavy industry. But because of the absence of any cooperative arrangement most countries do not have such a base . Further, this situat ion, i.e. absence of cooperative arrangement, has . deprived this region of its quota of heavy industries . On the other hand , with combined policy planning and rational distribution of resources or restraints, this region could have been propel l ed into the modern age of industrialization at a much quicker pace . Large scale industrial units could be established with decentralized specialist firms distributed throughout the region . (In Europe, no one has set up, for instance, a components plant for a parent factory which is usually a heavy industry. There are many component factories and they can buy wherever they like. This i s the "big enough sma l l industries base'' I was referring to ear l ier. ) In this way the parent company need not make every little thing which would mean in each case, it would have to gain the experience from sc r a t ch which would indeed be a formidab l e task . By Adopting t he above strategy o f regional cooperation the nations of this region could also help to spread . out indus t ries providing an opportunity for t he different countries to share fair l y equitably the fruits of indus t rial ization. Fore i gn investments which has always been welcomed could p l ay a useful r ole to help achieve the above industrial strat egy . Multinational companies like Ford and General Motors have a l ready put forward proposals, which if accepted by the Southeast Asian countries, cou l d help achieve the above strat egy . ( Inc i dentally , it would be interesting to note that each coun t ry has at present many assembly plants assoc i ated with numerou s makes of cars and assembling dozens of models for markets consuming only about 15,000-20,000 veh icl es a year . This is indeed uneconomic . ) It must also be understood that multinational corporations can make a contribution to t he process of regiona l and global cooperation by the very structure of thei r act ivi ti es and executive transfe r programmes . We wou l d and should continue to we l c ome fore i gn inves t ment s but in the future l ess encouragement has t o be given to those i nvestments which do not ensure t he generat ion of secondary and t ert i a r y industrial activities . Or , s uch investment s should ensure that t hey are directed t owa r ds export-orient .ed, or agr o-based, o r l abour-intensive

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industries, or those which would in the long run contribute to the development of technology. Encouragement should also be given to those which manifest more openness to engage in joint ventures involving local producers and the governments. Despite the comparatively attractive investment climate, the count.ries in this region should be prepared for the possibilities of foreign investors shying away because of the evolution of rigid protectionist blocs, balance of payments problems, physical market limitations and other factors ,. Whilst our attempts to attract genuine foreign investors should not wane ; failure in our wooing efforts shou l d not mean pruning of our development programme. If, as said earlier, ASEAN could agree to some form of integrat.ion and harmonization of industrial policies, a market of about 250 million people is made immediately available " One of the reasons for the flow of American investments to Western .Europe was the gradual loosening of restrictions on the free movement of capital, technology and people with the formation of the European Common Market. While the sheltering of the national markets by tariffs provides an incentive for foreign firms to locate in an individual country, regional economic cooperation may have the double effect ot discriminating against foreign exports and enlarging the markets for the individual pioneer . This would also give an opportunity for ASEAN industry and entrepreneurship to develop, and for the initiation of ASEAN joint ventures " With the coming of peace in Vietnam reconstruction work on a large scale has to commence . Individually, ASEAN business organizations may not have the physical and financial capabilities to compete with large commercial and industrial organizations of the developed world. But, with the formation of ASEAN multinationa l s the possibilities of participating directly in large scale industrialization and in the profitable ~conomic reconstruction of Vietnam can be made possible. Harmonization of regional economic policies would also minimize what at present amounts to "bribing" foreign investors, and the "competitive concessions war" that is now being wages in the ASEAN region " It would also minimize wasteful competitive industrialization within the region . A common strategy could be formula.t ed vis-a-vis foreign investments which will avoid only minute benefits accruing to ASEAN member nations in comparison to the gains made by the outside investors. To continue with our efforts to promote large-scale industrialization it therefore becomes imperative for industrial development to be promoted on a regional basis .

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Despite the fact that some hold the view that the p r edominant forces are diversifying rather than unifying, the c u ltura l and social affinity and the gradually .growing appr e ci a ti on of the l eaders of ASEAN of the fact that only t hrough cooperation could progress be ensured may help to make reg i ona l ism a reality in the not too distant future . (Oft e n the break-up of the Ma l aysia-Singapore Airlines i s quoted as an example by some peopl e to emphasize the d ivers i fying r a ther than the unifying element . To such pessimist s I wou ld draw their attent ion to the French p rove r b:

" De u x pas en a vant un pa s e n arri ere" (f o r eve r y t wo steps fo r ward one step backward ). Attempts a r e be i ng made by ASEAN governments to deal with each other on a r eg i ona l basis , and the ground rules are being laid down ,. The pa c e, however , c oul d be much faster . I n so far as t he creation of ASEAN jo i nt-ventures are concerned , I do not see any reason why the- governments o f t h i s region shou l d not also be i nvolved . In Malaysia and Singapore part icularly, there is a l arge amount of p rivat e v e nt u r e capital which would come forward if governme nt a l s u pport i s available . State participat i on gives them t he c o n f i den ce t hat in t i mes of init i a l d i ff i cu l ties the mi gh t of t he s t ate woul d be behind them , t hat t heir products woul d en j oy s t a t e patronage , and so on . Some form of co ll a bor ative ag r eemen t could be e v olved if t he po l itical wi ll to c ooperate i s e stab l ished . For examp l e, Ma l aysia a nd Singapo r e have huge fo r e i gn r eserves- over $6 , 0 00 mi l lion - some of which c ou l d be vlithclravm and activated l o c ally . A j u d ici ous u se of externa l r eserves for development need n o t o cc as i on any con c e r n . Th i s shou l d be constituted as a le g itimate u se of mone t ary reser v es . The Ma l aysian and S i ng a p ore p ub li c should be made aware t hat c u rrency cover a nd s i ze of r ese rves pe r se a r e of le s s s i gn i f ic ance t han t he rea l p ro d u c tivi t y and basi c bal a n ce o f payment s position . During the pe ri od when r ap i d de v e l opment is essenti a l it i s i mp ort a n t t hat we c ease regarding o ur c u rren cies as n a tion a l vi r il i t y symbo l s . P:o li t i cal Tren d s In an a dd r ess o f th is nat u r e one c annot res i st maki ng some ment ion a bout the po liti cal aspect s o f r egion al economic coopera ti on . Rel a ti o n s amon g n ati ons are changi ng with th e wo r ld movi ng f rom c on fr ont a tion to g r ea t power

- 12 Great e r partnerships and direct relationships equilibrium . are be i ng forged i nvolving the United Stat es, Western European countries , Russ i a , China and Japan to meet t he cha l l enges and the shifting power ba l ances of the years ahead . The . rapproa h emen ~ with China, the changing pol itical scene in So ut h Asia may br i ng the ASEAN nations closer than originally anti ci pated c Then the withdrawa l of British and Australian milit ary from the Singapore-Ma l aysia region , t he Amer ic an disengagement from the Indochina area and the g rowi ng economic power of Japan and her increasing - i nterest in the reg i on beyond q uestions of trade only , are paving t he way for emergence of new equations with the familiar one s f ading aw ay ., The new pattern of relationship may need further adjustment when China's long-term intentions are made c l ear er o Almost all ASEAN nations are sufficiently realistic to appreciate the fac t that alone as each nat ion t hey are a ti ny speck on the global landscape, but, united they become a factor to be reckoned wi t .h . ASEAN nations have t o avoid be i ng sucked i n to the camps of t he great powers , and t .hey also hav e to ensure t hat their interests are taken i n to consideration when the great powers reach th e ir comprom is es o This calls for i ntense diplomatic In eff ort and negotiations from a position of s trength . this res p ect , Malaysia's p roposa l to neut r alize this regi on mer it s serious c ons i derati on Some hold t .he view t hat po liti ca l forces may p lay in stages a much mo r e i mportant role i n bringing early the i es close r together t han economic factors , countr ASEAN the to prove t hat the degree of cooper ation dence evi is There aL~ed se rvices of some of the countries the n e twe e b ng i st i ex and again possib l y for t he same ordial c and a r e c l ose 1 , political e x ped i ency may cut appears therefore It reason . th e ASEAN nati ons together . bring o t as a s tro ng stimulus it may be interesting to no t e that PanIncidentall y , Europeans l ike Jean Monet for instance, were anxious to a c h ie v e a un .i on b y any means partly because of external threat . Conc l u s i on In conclusion , I would lik e to urge intellectuals, businessmen and government l eaders i n the ASEAN region to insti l l into t he minds of the ASEAN pub lic t he r ich rewards t hat have accrued to the European and Lat i n Ame ri can, and eve n Afr ican nation s, as a consequ ence of regional economic Cooperation is not difficult provided the cooper ation . wi ll t o coope rat e is t here .

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Developed countries could facilitate this process by using the instrument of public foreign aid less for prestige, propaganda or other purposes and more as a leverage to promote regional integration. Foreign aid till very recently grew for the wrong reasons and therefore rather inefficiently from the economic standpoint. The purpose of aid is now more clearly defined as being to help countries to attain economi c independence at a high rate of growth . In the Southeast Asian context this is best achieved if aid monies are d1rected on a much l arger scale than at present to regional projects. It has also been suggested by some authorities that the costs of integration may, n part, be exported by making ava1lable additional outside resources for internal d1stribution. Private philanthropic organizations, like the Ford Foundation, have already taken steps to concentrate in regional development projects and we would like more governments of the developed nations emulating Ford's pract1ces . The time has come for countries to be more outward looking rather than fencing themselves with tariff walls. But the time does not appear to be propitious for the initiation of common market or customs union type arrangements . Probably what appears immediately feasible is the exp l orat1on of possibilities of establishing some loose form of ASEAN economic community to scale down protective tariffs, which itself is going to be a difficult t .ask in vi ew of t he different tariff structure that prevails 1n the AS EAN countr1es . Concentration should initially be in areas whi c h offer in the least amount of friction among member nat i ons. At a later stage, more complex collaborat 1ve arr a ngements such as clearing unions and reserves banks coul d be examined . Adopt1on of such a strategy will l ay the foundation for the strengthening of the unity of the econom i es of the member nations and also paves the way for their harmonious development . The magn1 t ude o f the prob l ems that will be generated by the population explosion wi ll be such that they require l arge-scal e solutions, i . e . large scale manufa c turing i ndustries, agricultural activities and financial and trad i ng organizat1ons, and these are not possible at the nat i onal l eve l because of market, manpower and capital limitat i ons . The ex i gencies of the s1tuat i on demand regional1sm and "regional arrangements are, therefore, no longer a ma tter of c hoice . They are i mposed by the requirements of technology, s c ience and econom i cs" of the presentday world .

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Academic economists have alwavs damned regional organization as an inferior alternative to world-wide organization. This view is however not confined to them only. It is also shared by those who would like to see an orderly wor l d development. Those who conceived the idea of the United Nations for instance, had this in mind. Bretton Woods marked the historic change from the crudities of economic nationalism which in the 1930's condemned the wor l d to years of political extremism and economic misery . Unfortunately, as Mr. Robert McNamara, President of the World Bank , said at the last UNCTAD meeting in Santiago, it is painful to notice after twenty years of providing development assistance, for the wealthy nations to negate their efforts by high tariffs against "third world" goods . Mr . McNamara said that tariffs in the United States on manufactured goods imported from the rich countries were on an average of 7% compared with 12% on those from n oo r nations , For Britain , the figures were 9 % and 14 % respectively , while for the EEC they were 7% and 9 %. It was not just the tariffs which discriminated against the poor countries, but also their structure o For tariffs rose with increased fabrication . This meant that even the simple processing of primary commodities could price the developing countries out of their most suitable markets. The restrictive non-tar i ff barriers erected by industrialized nations are equa l ly damaging to the export promotional efforts of the third \vor l d . Incidentally, exports play a vital role in t he g r owth process of the developing countries, and according to Mr , McNamara if the expansion of their exports of manufacturing is to be maintained they would have to quadruple to US$28,000 million by 1980. The discriminato r y measures of the industrialized world are stalling the efforts of those working towards greater internationa l cooperation - cooperation between the surplus countries and the deficit countries, as well as between the developed a nd t he developing to bring about a rational allocation of globa l resources . Pursuance of such policies limits the capacit y of de v eloping economies having a comparative advantage in any one product to increase exports of such product and consequently increase income, which could be spent on a global basis. To expect any c hange in the status quo would be too much, e spe c ia l l y in the prevailing world economic situation . Under t hese c ir c umstances regional cooperation appears to be one o f the best ways out . Regional organization shou l d not only be considered as a step towards the broader objective of global. cooperation, but a part and parcel of a "structured"

- 15 world organization, relieving world-wide institutions such as the IMF, of whatever tasks can be solved just as efficiently, and often more efficiently indeed among a smaller number of countries better prepared to understand and trust each other. The promotion of the objectives of liberalization of world trade appears possible at present only in a regional sense . It is the hope of those who are thinking in terms of a world order that the evolution of regional trading areas will help in ensuring progress towards meeting the needs of the world economy and beyond it, of a future world policy . The ultimate objective of those involved with the idea of regional cooperation should also be the building of a world order and the deeper realization of a world community . And, this is inevitable at a later stage of world economic development. At present, the world is not prepared for such an arrangement. The heterogeneity of the world community, the continued existence of economies of scale within existing trading blocs and the beneficial selfreinforcing effects, the preservation of the rich nations of their apparent affluence, and the consequent fear of weaker nations that they may be used as mere pawns and not as co-partners on entering an international system may stand as obstacles . The immediate concern of the leaders of this region should be the creation of an atmosphere which will generate rnutuar trust and goodwill. With the corning of peace in the Indochina region the possibilities of greater political and economic cooperation will be cre ated. With the establishment of a large market we could look into the possibilities of working in collaboration with other members of the ASEAN nations to challenge t .he transnational giants in the fields of oil, basic chemicals, iron and steel, shipping, airlines, automobiles, and in many other areas of industrial activity. We could also look into the possibilities of ASEAN multinationals collaborating with transnational giants to the mutual benefit of both parties. The more we delay their formation the more difficult it would be for ASEAN entrepreneurship to play its legitimate role.

QUESTIONS OF SECURITY AND STABILITY IN SOUTHEAST ASIA : NATURE OF THREATS by Lau Teik Soon

This presentat.ion attempts to raise certain questions relating to the security and stability of Southeast Asia . To what extent are foreign or external sources of direct threat to the states of Southeast Asia? What links do these sources have with local dissidents? How serious are t he ambitions of certain states for hegemony and do they present a threat to other states and what internal issues exist to disrupt the stability of the states? At the back of such questions is another and more fundamental one: whether these problems of security and stability and how they are reso lved are not dependent on how they are managed by the leaders of these states " Such issues are mainly political in nature but related ones on the economic situation and the cultural policies of these states would hav e effects on security and stability as well. Thus, there are many questions to be raised and there can be no clear cut answers to them e However , it may be possible to indicate the nature of threats to the security and stability of Southeast Asia, and in particular, to raise questions regarding the states' ability to achieve a certain degree of s t ability in their respective areas . As regards the external threats, there would seem to be two main sources: the great powers including the United States and China, and the regional powers, viz. Indonesia and North Vietnam . To communist aspirations in Southeast Asia, the United States presents the major t hreat, while to the non-communist and anti-communist forces, China would seem to be the main problem . Moreover, the smaller states of Sout.heast Asia have been apprehensive of what they perce i ve as the ambitions of North Vietnam in Indochina and of Indonesia in the rest of Southeast Asia: there was talk of a Peking-Hanoi-Jakarta axis at one time, or a division of Southeast Asia into two sub-regions under the hegemony of Hanoi and Jakarta and with the whole area within China's sphere of influence. However, under the present circumstances, with latent Chinese-Vietnamese antagonism and an anti-communist regime in Jakarta, there would be less agreement on the division of Southeast Asia. But the basic fear of external hegemonies still exists among Southeast Asian states .

- 17 For too long, China has been the convenient bogey for the non-communis t and anti-communi st states alike in order for them to rationalize both their internal and foreign policies . For example, there has been the tendency of a mil i tary regime or authoritarian government to accuse China of being the source of the internal threats they face. But has China been a direct threat to Southeast Asia? It is becoming clear that the China-United States has upset the assumptions of many Southeast Asian states . Cnina is now regarded no longer a threat, on the contrary, she seems to want a friend l y Southeast Asia from wh1ch she has more to gain not only in terms of extending her diplomatic presence in Southeast Asia but also in offsetting any Russian advance in the region . Moreover, China seems extt·emely cautious in her relations with Southeast Asia, particularly with those countries wh1ch have substant1al Ch1nese minorities. Aside from the fact that China has never been a direct expansionist power, most Southeast Asian states no longer now see China as a threat . Even the staunchest of anti-commun ist states l1ke Ma l aysia qu1ckly recognized th1s and even proposed to exped1te the establishmen t of official relations w1th Peklng. de ~ en te

It has often been stated that China wants to have Southeast Asia as her sphere of influence and thereby impose her notions of limited sovereignty and a defence umbrel l a under China. Related to this are memories of China's tr1butary relationship s with Southeast Asia of old . But it 1s often forgotten that these states went to Pek i ng and pa1d tribute for very pragmat1c reasons: protection and trade . Only in the case of V1etnam was China's expansion evident. Precisely because of this and more recent developments , Qu..iJ.e se-·\-ietnamese relations in the future could be considerably strained " W1th her present preoccupat1o n with the detente w1th t he United States and her conflict with the Soviet Onion, China sees Southeast As i a as an area of low prior1ty in terms of her nat1ona interests. From the geo-pol1t1ca l perspe ct 1ve, Chi~a can sit still and wait it out, that is, wait for the withdrawal of fore1gn troops from the area and for Southeast Asian states to establ1sh relaLions WlLh her . Is this the same as establ1shing a sphere of 1nfluence or can one believe that Ch1na has denounced great power hegemony as an element i n the internationa l po l itics of the Asian reg1on?

- 18 The perception of Peking as a threat is really re l ated to the question of the indigenous communists and the Chinese minorities in Southeast Asia . On the first question, 1t is clear now that China can be selective in its support of its ideological allies, and even where support i s given, it would not be to the extent that it would jeopardize the China-United States detente. In th1s regardf it could be that, China will eschew outr i ght assistance to say, the Malayan Communist Party, the New People ' s Army of the Philippines and the Indonesian Commun i st Party, in favour of state to state relations with the exist i ng governments of these states . It is realized that it is not China that will initiate diplomatic relations nor for Southeast Asia to set the terms; it is merely that recognition of China is due to the changed international power structure in this region. The China-United States deten t e has opened up a number of possibilities for Southeast Asia, all of which will take into account the status of China as a legitimate great power in Asia. What this means is that there will be diplomatic relations with China in due course , but w1th the simultaneous recognition that this will not reduce tension between the Southeast Asian governments and their local communists . At the present juncture, however, it would appear that aside from Indochina where a precarious situation exists, the other Southeast Asian communists lack the resources and support to wage serious guerilla wars against their own governments. The Red and White Flags in Burma, the Thai Communist Party, the Malayan Communist Party , t he Clandestine Communist Organization of Sarawak, the Indones i an Communist Party and the New People's Army of the Philippines, while able to harass the governments have not been able to do extensive damage . At the political level, the communist parties themselves seem to be in shambles. More relevant of course, the governments themselves have often shown their capability in handling their local communists , The sensitivity of such governments, as for example f Thailand and Malaysia, to any suggestion that the i r countries are on the verge of a Vietnam-type situation merely illustrates this point. If in fact the communists in non-communist Southeast Asia do not present a threat to the stability of the governments, then communism can be relegated to the level of a minor menace wh i ch rears i ts head now and then . A more serious problem in the wake of the emergence of Ch1na as a great power is a resurgence of Chinese ch auvinism in the stat es of Southeast Asia o Essentially

- 19 th e problem is related to the issue of national integration, specifically the presence of Chinese minorities. Often the real or imagined threats of these Chinese minorities extend to the image of China as the source of instability and trouble. Yet China seems to have done little to alleviate the grievances of the overseas Chinese. China's policy here could be viewed as being that where the overseas Chinese identify with the local nationalism it is not prepared to accept any responsibility for them. It may be useful to quote Chou En-lai on this: As regards the overseas Chinese in South Asian countries, we urged upon them to respect their laws and customs of the country of their residence, work for closer friendship with the people among whom they have come to live and strive for still more cordial relations between China and the country in which they reside.

Quotat io ns from Cho u En-Lai p.

(Melbourne:

P. Flesch, 1969),

39.

This is not to say that China will not express opposition to anti-Chinese policies, whether against China or the Chinese minorities, especially if the latter are accused of being fifth columnists. Nevertheless the problem here would seem to be an internal matter which is almost entirely within the dispensation of the governments concerned. Another real or imagined threat to the security of Southeast Asia is derived from the perceived regional polic ies of certain Southeast Asian states themselves, in particular North Vietnam and Indonesia. It has often been stated that North Vietnam seeks to establish hegemony in Indochina and that Indonesia not only aspires likewise with respect to the Malay world but further seeks leadership of the whole region. In concrete terms of territorial expansion or annexation, this would appear to be inconceivable or impossible even for North Vi etnam under the present circumstances. Laotians and Cambodians, and many South Vietnamese do want to be independent of the North Vietnamese, and the sense of independence is just as strong among Indonesia's neighbours. However, at the diplomatic level, it could be that North Vietnam and Indonesia aspire to medium power status in the international community, that is, they hope to assume the leadership of

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th e regiona l bloc in international forums " A problem a r 1 s es of c ourse when policy makers in some of the states do not see t he necessity of even conceding token recognit i on of the desires of the self-proclaimed leaders: this i s often ref l ected i n the bilateral relations between North Vietnam or I ndonesia and the dissenting state . However , such differences have not been so serious as to cause regiona l instability, though t hey are likely to con ti nue , There is a l ieady an i nd i cat i on of this in the regional organizations that have been formed, particular l v i n the case of the Association of Sout heas t Asian Nat1~ns (ASEAN ., The slow pace of progress in cooperative ventur es and the reluctance to admit new members reflect bo t h th e d i fferen c es of the member states and the uncert ain t y of t he l eadership question in regional cooperation. Whi l e some Southeast Asian states insist on equality, it wo u l d seem that other sta t es want to have the s t atus of g r eat er equality " Par t of the question is, to what e xte nt have s uch powers discarded t he ir aspirat ion s to resurrect t he grande ur of their anc i ent past? Is there such a clear division of So ut heast Asia into say, a Buddh1s t South east Asla and a Mus lim Southeast Asia? Maybe 1t wou l d be nearer the tru t h to say that Southeast As1a will continue t o be a heterogeneous region, comprising separate states, each s tro ngly independent, nationalistic and sov ereign but a ll attempt i ng to coexist with one anot her . If the aspirants to regiona l leadership would accept this, and r ea l i ze that any a tt empt by t hem at establishing hegemony c8uld be f utile, and if persisted in could e v en result in instability in the region , then t he chances of regional s t abi lit y are bright , reg ~ o na l

Besides regional leadership problems, conflicts ar1se be t ween states over certain territorial claims, il l defined boundaries, offshore mineral rights and dema rcati on of territorial waters . For instance, does th e Phi j_ i pp i nes believe t hat it can cont i nue drawing polit 1c a l returns out of the Sabah claim without damaging her long term relations with Malaysia? Can Malaysia co ntinue t o i gnore the possibility of going before the Wo r d Co ur t j1st to deny the Philippines a ~ ace saving dev ice? Or is it that both see the - Sabah 1ssue as a convenient device for political gain? Between Malaysia a n d Tha1 l and and be t ween Thai l and and Burma there are also prob l ems of i ll def i ned boundar i es , which have p reven t ed these c ountries c ooperat i ng on matters

- 21 concerning communist guerillas, smuggling and illegal immigration . And the Straits of Malacca controversy has as much to do with mineral wealth in the Straits as with the question of oil pollution and congestion. All these matters could be related to the question of power politics in Southeast Asia, as each involves the question of the subordination of one party's interests to another in Southeast Asia. At the same time, there is the attitude of pride and the determination not to succumb to the aspirations of other states. Malaysia's refusal to take the Sabah claim to the World Court, Indonesia ' s confrontation with Malaysia, Singapore's execution of the Indonesian marines and the Philippines' "annexation" of Sabah, all reflect both the nationalism of these . states and t .he absence of goodwill among neighbours in Southeast Asia. The question here is whether an order of states in terms of power status is a necessary condition for stability and security in Southeast Asia" If so, who should order the states? It would seem that such an order would be impossible and pressures toward such an order could only lead to instability in the region. Any arrangement which is associated with such concepts as hegemony or regional leadership must presume that the aspirants possess the pre-requisites of power, both in terms of physical power - such as resources in men and materials - and influence over the other states . In the present situation of Southeast Asia, to accord medium power status to certain states without these states having the pre-requisites of power, and acceptance as such either within regional blocs or in bilateral relations, can only lead to insecurity in Southeast Asia. In the present situation, where there is need to deter great power or external interference in the affairs of Southeast Asian states, it may be pertinent to question whether in fact, the absence of external involvement would ensure the stability of Southeast Asia . Such a question is basic to whatever new arrangement~ are evolved at the international level, be it neutralization or a new Asian and Pacific regional organization " As always, it is internal politics that will decide the stability of the individual states. There are many potential sources of internal stability and it is here intended to mention briefly three main ones; national minorities, forms of government and the national leadership. A national mino r ity is ofte n a major source of instability in Southeast Asia as is evident by the stresses

-

22 -

the rebellions that certain states show from time to time: by the Shans and the Karens in Burma, the Patani Malays in Thailand, the Mindanao Malays in the Philippines and the The fundamental issue relate "West Irlanese" in Indonesia. to the bases of nation building and the methods of achieving Often, it is the culture and norms of the major this aim , ethnic group that determine the national symbols and the imposition of these on the other communities that creates This problem of integrating minority groups instability . is not peculiar to Southeast Asia but the severity of the problem is compounded by the great disparity between the minorities and the dominant group in political, economic and social terms o The persistence of such a situation in Southeast Asia can be attributed to a number of factors, including forces Religion and of traditionalism, feudalism and patronage . a hierarchy of social order among the indigenous people still play an extremely important role in the societies of While this is often cited as necessary Southeast Asia. for the maintenance of the social order, yet, paradoxically, rising expectations, improved communications and external influences create extreme stress and instability is often In such a situation the political system of the result . the state comes into question o Parliamentary democracy seems to be at a low premium The problem here lies less in the in Southeast Asia today. nature of parliamentary instltutions than in the malntenance Granted that in of power of certain vested-interest groups . a s~tuation of great disparity, lack of education and poor · understanding of the democratic process, one man one vote becomes a liability, yet the continuance of "guided democracy" can lead to a chaotic situation if the leadership is ineffiIt has often been cient and not sufficiently enllghtened . stated that eastern cultures are inherently authoritarian in nature, yet such rationalization to justify authoritarian Have military regimes, or rule can lead to immense abuse. to fulfill the basic served democracy guided or law martial functions of these governments, particularly with regard to economic and social development of their countries? Can a system of chosen leaders with Parliament meeting once in five years serve to remedy the ills of that society and If mart:i,al law is uti.lized alleviate the people's suffering? to correct the imbalances in land distribution and ownership of wealth and Five Year Plans are aimed at restructuring society - all under the directorship of one and the same leader - then what is the use of parliamentary institutions? But ~hen, parliamentary opposition, if abused, often obstructs What then is the alternative the business of governments .

- 23 -

political system that would ensure the stability and efficient functioning of the states? Maybe a new political system which has been termed a consencracy should be adopted - that is, once the mandate to govern has been given through elections to the chosen leaders, the authority of such governments should be upheld . The central focus of security and stability in Southeast Asia must surely rest on the q uality of the nat i onal leadership . Is i t not basic that unless the national leaders seek to serve the people's welfare instability must ensue and persist? When leaders resort to diplomatic manoeuvres to resolve internal problems, do they seriously believe that stab1lity can be assured? It has been stated that Malaysia's proposal for the neutralization of Southeast Asia will deter great power interference in Southeast Asia and result in improved diplornat1c relations with China; and that the latter development will undermine both the local communist appeal and Chinese chauvinism. This presupposes that the grievances of the Chinese in Malaysia and the appeal of communism have more to do with China than with the prevailing internal situation. Recognizing the fact that Ch i na's foreign policy is based on her national interests and not the interests of the overseas Chinese, will not the Malaysian Chinese accept the need for integration within the Malaysian polity if they can seek fulfilment econorn1cally and culturally in the Malaysian political milieu? Likewise the Mindanao Malays will have no need of Mus lim support from the Middle East i f they feel less discrirn1nated and fear less the loss of their cultural ident1ty; so too the Patani Malays' call for a Patani Republic or integration with Malaysia will have less meaning if they have a horne they can call their own . Why then do national leaders persist in neglecting such problems? It co ul d be that the i mmensity of such internal problems, such as the integration of the minority groups and of economic development, has so overwhelmed the leadership that they seek the easy way out: they seek personal gain and they maintain the position of the elite groups through force and patronage. It 1s diff1cult to believe that Malays1a so lacks talent among its own people to implement the Five Year Plan that it has to seek outside expertise and that Indonesia cannot be se l f sufficient i n food and consumer goods . Something is basically wrong: and one of the d i rect i ons of change could be the recogn i t ion by the leadership that in the long run, it is what they can do for the people and not what they can do for themselves that w1l l determine their place i n the h i story of the1r people , Sukarno is

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24 -

remembered less for his grandiose plans for Indonesia in 1nternationa l affairs than for the ruin he brought to the country's economy. But the question is still being asked: has the lot of the peasants improved? Likewise, will the restructuring of society in Malaysia and the New Order in the Philippines enhance the peasants' livelihood? It may be a cliche but it still holds good: Southeast Asian states need dedicated, honest and genuine leaders. Finally, now that the internationa l political situation has comparativel y stabilized, Southeast Asian leaders could devote more time to resolving the problems of security and stability of their respective countries. Great power det e nt e , neutralizati on, the establishmen t of permanent relations between Southeast Asia and China c o uld lead to a decrease in the external threats to the region, wh1le the maintenance of authoritaria n governments internally could be accepted 1f they lead to determined solution of basic internal problems . Thus, when the great powers are preoccup1ed with their own domestic and national problems, the t1me seems oppo rtune for the leaders of Southeast As1a to put their houses in order so that Southeast Asia could become a regi on of stability .

v.

Kanapathy, "Economic problems or regional integration within ASEAN"

A COMMENT by Gerald Tan

Intorduction The main argument in Dr. Kanapathy's paper is that the maJor constraint on economic growth through industrial deve lopment in ASEAN countries is the limited size of the domest1c market in each country . He then suggests that if these countries "could agree on some form of partial integration and a harmonizatio n of production patterns, a ready-made market many times larger than any s1ngle domestic market is almost 1nuned1ately available . " This would then enable the ASEAN countr i es to accelerate their industrial development . The form of regional integration he recommends 1s the establishmen t of a free trade area within ASEAN. Wh1le I am in agreement with the view that regional integrat1on i n ASEAN is a desirable goal towards which we ought t o str1ve, I fear that conditions for successful integration at the present time do not exist. Under these c1rc umstances, it is likely that regional integration, if undertaken, will have to accompanied by major adjustments in economic policy on the part of each ASEAN member-count ry. The possibility of the emergence of the problems of regional 1nteg ration must be considered carefully, for unless the p olit1cal will required for their resolution exists, the viab1lity of economic integration i n ASEAN will be in Jeopardy. The main reason for th1s is that regional 1ntegra~1on is attract1ve because it appears to serve the nation a l i nterests of each member-count ry. The possibility that this m1ght not be the case for some member-coun tries, perhaps for quite-a lon g t1me after integration, suggests that reg1onal integration should be approached with some caut1on . The reason for this is that it is likely that the benefits of integration will not be evenly distributed among the member-co untries. Unless the member-coun tries are will1ng to ac c ommodate each other in t he resolution of the post-1ntegra tion problems which arise from this, the continued success of regional integration i n ASEAN will be fraught with d1fficulties .

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Economic Problems of Integration One of the basic conditions for successful integration is that the member-countries be "highly-interdependent, keenly conscious of this interdependence and relatively well prepared for such co-ordinated action by geographical proximit y, a common historical and cultural background, fnd a relatively homogeneous stage of economic development." Under these conditions, it is highly likely that economic integration involving · the reduction of tariff barriers between member-countries will lead to increased intraregiona l trade and specialization without the overwhelming domination of one, or a few, partners . Due largely t .o historical factors, the economies of the countries in ASEAN are mainly competitive rather than complementary and t heir degree of interdependence is rather low. With the exception of Singapore, the other ASEAN countries have large agricultural sectors . These account for between one-third (Malaysia, Philippines and Thailand) to half ( Indonesia) of the GDP. The main products of . these agricultural sectors (rubber, palm oil and coconut) are competitive in world markets . Malaysia and Indonesia account for 70% of the world .·product.ion of natural rubber and 32% of the world production of palm oil. Malaysia and Tha il and accoutnt for 61% of the world production of tin, whi l e Malaysia, Indonesia and the Philippines account for 65% of the world production of coconuts. With the exception of Singapore,. ASEAN countries are also important producers of timber . One of the benefits of regional integration is the possibility of closer co-ordination in the supply and marketing of these primary products . This cou~d result in better terms of trade for the ASEAN countries. This is important because with the exception of Singapore, the ASEAN countries will have to rely mainly on their primary exports to finance the imports of machinery and raw materials which

1 H. Ki tamura, "Econanic Developrrent and Regional Coq::eration in Southeast Asia", Economic BuUeti n for Asia and the Fa:t' East, vol. 20. no. 2, September 1969. 2 Another alleged benefit is that regional integration could result in an increase in foreign investnent . The experience of US foreign investrrent in the EEC does not support this . There is little difference in the growth of US foreign invest:Irent in EEC and nonEEC European countries. See A. Scaperlanda, "The EEC and US Foreign Invest.me."'lt: Sorre Errpirical Evidence", Economi c Journal, March 1967.

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However, are essential to their industrialization efforts. the importance of co-ordination within ASEAN to obtain better prices for the1r primary products must not be overASEAN primary product exports make up a very emphasized. small percentage of the total imports of the developed Furthermore, important suppliers of rubber, countries . tin and palm oil are to be found outside ASEAN (in Latin The prospects for improved prices America and Africa). may therefore be less bright products primary for ASEAN than expected.3 With respect to industry, most of the ASEAN countries have small industrial sectors, though there are important Table 1 differences in the degree of industrial development. as manufacturing in value-added of below shows that in terms industrial a percentage of GDP, Indonesia has the smallest sector (6.7%) while the Philippines and Singapore have the In terms of valuelargest (17.3% and 16.3%) respectively. added in manufacturing per head of population, Singapore comes out at the top of the list (US$104) while Indonesia Table 1 also shows that the is at the bottom ( US$4) . growth rate of value-added in manufacturing for the period 1960-1968 was h1ghest in Singapore tl7.1% p.a .) and lowest Thus the picture is one of in Indonesia (-2.9% p.a.). relatively small industria l sectors, some of which are growing rapidly while others are virtually stagnant. Table 1:

Value-Added in Manufact\J!.in9" (1966 Prices)

% GDP

1960 Indonesia W, Malaysia Philippines SL"'lgapore Thailand Source:

3

1968

US$ Per Head 1968

6.7

4

16.2

11.6 17.3

7.9 11.7

16 , 3 15 . 5

33 25 104 23

8 .. 1 8.6

Grcwth % p.a.

1960-68

-

2.9 7.1 2.0

17. 1 13.1

As1an Developrent Bank ,So•_.,the asr; Asia 1 s Econ omy 1-n th e 1910 's (London: Longman, 1971),

Buu Hoan, "Regionalism:

Limitat ions and Possibi lities",

MaLayan Eecr