The ASEAN countries--Brunei, Indonesia, Malaysia, the Philippines, Singapore,
and Thailand--have achieved robust economic performance during the past 25 years.
How the ASEAN economic arrangements have contributed to this performance has
been of longstanding interest to policymakers in other developing regions. Economists
and political thinkers are today analyzing ways and means of using the ASEAN
miracle model to help third world countries achieve similar rapid growth rates.
With the exception of Singapore, the ASEAN countries are mainly low- and middle-income
developing countries whose economies share many similarities related to their
geographic location as well as common aspects of their culture, history, and
economic and social development. Given their high population levels, compared
with not only the major industrial countries but also most countries in Africa,
Latin America, and the Middle East, the ASEAN countries have a comparative advantage
in the production and international trade of many labor- intensive manufactured
goods. Despite the steady pace of their industrialization and some significant
reserves of mineral fuels and ores, however, Indonesia, Malaysia, the Philippines,
and Thailand (the so-called ASEAN-4) are still heavily agrarian-based economies,
with cultivation and exports devoted in large measure to tropical agricultural
commodities and related products.
As these natural endowments are very similar to that of India, it is natural
to see if India can replicate their economic success.
In addition to the pursuit of relatively stable monetary and fiscal policies,
the prime reason for the economic success of the ASEAN countries lies in their
steadily increasing openness compared with other developing countries--a policy
that has been termed "open regionalism."
Benefits of Having a Trade Pact with ASEAN
The FTA with Thailand, to be followed by similar ones with other ASEAN countries,
will open up new opportunities as well as challenges. Along with competition
from cheaper goods from other Asian countries, Indian industry will have unhindered
access to much bigger Asian markets. And the Indian consumer will undoubtedly
benefit through lower prices and a great variety of goods.
In fact India is pursuing a policy of “look east” wherein duties
on 80 commodities will be eliminated completely by 2005.
Another reason for getting into a bloc is that the success of the South East
countries is that this was due to the success of the American economy. the decline
of US economic power, as evidenced by its massive current account deficit and
the steadily falling value of dollar against euro and several other major currencies.
Investors, both foreign and American, are no longer willing to pump in money
at an ever increasing rate to finance US trade deficit and prop up the value
of the dollar.
Asian governments and private investors would now like to invest more in countries
other than the US through bilateral and regional investment agreements.
The continuing slowdown in the US economy has also made it necessary for others
to reduce the dependence on US and diversify their markets and sources of supply.
Third, the perception that 21st Century will be that of Asia with China at
the centrestage. Most Asian countries, including Japan, are facing strong competition
from Chinese goods in their export markets.
China is attracting more FDI than all the other Asian countries combined. Possibly
the most important incentive behind the declaration by the 10-nation Asean to
complete an EU-type economic integration by 2020 is to counter the threat of
competition from China.
They believe that by clubbing their economic strength they can withstand the
competitive pressure from China. Moreover, China will provide them the much-needed
market for their goods. Asean nations feel confident enough to let China join
the giant Asean Free Trade Area in 2010, India in 2011 and Japan in 2012.
Along with competition from cheaper goods from other Asian countries, Indian
industry will have unhindered access to much bigger Asian markets.
There will be scope for cost reduction through economies of scale, sourcing
materials and components from the cheapest Asian market and learning by direct
contact about how to produce and sell in the competitive international markets.
As tariff rates come down, Indian exporters will gain from access to world-class
inputs at world prices. Indian companies will also find it easier and profitable
to set up factories in other Asian countries to cater to local customers, especially
if they can make use of the better infrastructure available in some of those
countries.
The Indian consumer will undoubtedly benefit through lower prices and a great
variety of goods. Once India becomes part of the Asian trading bloc, more foreign
investment may come to India if it proves to be a low-cost production location
in Asia.
In today's world a lot of criss-crossing of foreign investment takes place
across countries. FDI is more industry or product specific than country-specific.
To get more FDI, India needs to make significant improvements in its infrastructure,
labour productivity, tax regimes and administration.
The chances of such things happening will increase as a result of greater exposure
to better standards and the pressure to improve things for survival.
Also, one must remember that despite the grave apprehensions about globalisation,
Indian industry has so far withstood increasing global competition fairly successfully.
Many Indian companies are prospering by working out strategic alliances with
foreign companies and by networking with global supply chains and marketing
channels.
No doubt, imports will increase as import duties crash. But that is no problem
so long as Indian exports also go up.
Trade balanced at a higher level benefits all trading partners. Moreover, unlike
1991, today we have the cushion of over $90 billion of forex reserves. A look
at the experience of EU may be relevant.
A lot of intra-industry specialisation has taken place in the EU.
For example, instead of producing a car from start to finish, the automobile
industry in most EU countries have specialised in some components production
or assembly operations, thereby achieving economies of scale and cost reduction.
Intra-EU trade increased.
In no European country has the automobile industry suffered a major decline.
Their specialisation patterns have changed. For the same reason, there has been
no significant job loss for autoworkers in any EU country.
To the extent such intra-industry specialisation takes place in Asia too, the
adjustment cost for industries and workers will be correspondingly less.
At Cancun, developing countries were generally against having a uniform set
of rules governing FDI for countries at different stages of development.
But they do not face the same problem when they are thinking of liberalising
investment rules among countries at similar stage of development such as the
Asean and other Asian countries.
Thus, the integration may be deeper through regional arrangements among similar
countries than can be accomplished through the WTO.
The option of coming out of a regional arrangement in case of difficulty is
also less costly than coming out of the WTO.
So, liberalisation through the FTAs in Asia may well be a more attractive option
than trying to do it through WTO.
SUBMITTED BY:
ABHINAV BEHARI, MANSHU VERMA, NISHIT SABNIS , PARIKSHIT VAID, SANDEEP KHANDELWAL,
PAVAN AGNI, ASHISH ARORA
