1. Impact of ASEAN to member economies
Impact of ASEAN to member economiesThe success of Asian continent in the expansion of
its economies and the considerable progress in integrating them as well as the
establishment of infinite linkages with the global economy can be considered to be among
the greatest achievements of the region in the past few decades. The market oriented
integration that is being propelled by national efforts and regional collective actions has
resulted to the shared success between Asia and pacific. Currently, there is a force operating
in Asian continent that is calling for Asian integration and this is seen through enhanced
cooperation among governments, firms and people (Tavares, 2010: 78). The region has
experienced rapid growth and this is indicated by enormous cross-border trade, capital
flows and movement of people. The Asian continent, besides integrating with itself it has
also integrated with the rest of the world. Nonetheless, the road to full integration is not
that smooth for it is very long and with full of obstacles.The Asia continent approach to
integration has been very practical and flexible and because of this, it has followed a
bottom-up approach. The process which reflects the diversity and heterogeneity of the
region entails supporting sub-regional cooperation initiatives through what is known as
multi-track and multi- speed approach (Singh, 2009: 45). The bottom-up approach is
gradual but allows the participation of both the developing and developed economies
towards building a broader and regional structure. The integration of Asia region is under
the support of a dense web of overlapping regional and sub-regional institutions that are
intergovernmental oriented with the aim of achieving specific functional goals. The Asia
continent has diverse economies and societies which are bound to create a lot of challenges
in the formation of regional structures (Axline, 1994: 65).The formation of Asian
regionalism can considered as a powerful historical force that will facilitate the building of
peace and prosperity within the region as well as outside the region. The implementation of
the correct institutional framework for Asian integration is very important for the region. It
does not only help in eradicating poverty and sustaining growth momentum in the region
but is also important to the rest of the world as the region increases its input in the global
economy (Acharya, 2009). This purpose of this paper is to evaluate the influence of regional
integration within the Association of Southeast Asian Nations (ASEAN) member states and
the effects it has on the firms that operate within the region, and identify the potential for
further integration beyond the current ASEAN membership and the trends in the coming
years.Background information of ASEANASEAN is a regionally-based international
organization that consists of ten South East Asian countries. During its inception in 1967,
2. ASEAN had only five members and these include Thailand, Singapore, Malaysia, Indonesia
and the Philippines. ASEAN organization was formed for the purpose of promoting of peace
and security in addition to promoting economic growth of the region economies. Prior to
the formation of ASEAN, the South East Asian region was characterized by division that
came as a result of Cold War and warfare threatened nations such as Vietnam, Cambodia
and Laos (Tanvanich, 1988: 70). ASEAN, since its inception, it is functioning under the
principle of non-interference, for the governments of its members are considered to be both
different and hostile towards one another. The principle of non-interference adopted by
ASEAN is such that no member of ASEAN is allowed to criticize in public the activities the
other member engages in its own territory.The other five countries that make up ASEAN
organization besides the five original members are Brunei which became a member in
1984, Vietnam in 1995, the other two Laos and Myanmar (Burma) joined the same year that
was in 1997 while Cambodia in 1999. The ten members of ASEAN have a total population of
about a half billion people and their GDP combine approximates to $700 billion (Alexander,
1999). The majority of people living in this region are poor, however there is quite a
number of people, in millions considered being in wealthy status.AchievementsASEAN
organization has achieved a lot, one being that it has managed to maintain an environment
of peace and stability which has facilitated member countries to concentrate in the
promotion of speedy and continuous economic growth and transformation (Pomfret, 2010).
The flexibility that is characterizing the South Asian economies is something that many
nations in the world would yearn to achieve for themselves. For two and half decades
starting from 1970 to 1995, there was rapid growth in ASEAN’ s GDP which grew at
average rate of 7%. The region at the moment has a total market of approximately half a
million people with total GDP of about $ 700 billion.The overall trade in ASEAN region has
grown. During its beginning in 1967, trade was at $ 10 billion while in 1970 it grew to $134
billion, in 1980 to $302 billion and 1995 to $650 billion. The region is ranked fourth in
terms of trading value globally after European Union, USA and China.ASEAN is part of the
wider East Asia which is on the road to achieving economic status that equals that of North
American region and the EU. In 1960, the total GDP of East Asian nations stood at 4% of the
global GNP. In 1992, it increased to 25% and was projected to hit 33% in 2010. Currently,
the East Asian central banks hold more than 46% of the global foreign reserves.The
modernization efforts undertaken by ASEAN organization has resulted to significant
changes in the structure of production in the region. In the period between 1970 and 1993,
there was a drop in the share of primary sector, from 27 percent to 20 percent (Lee, 2011:
120). On the other hand, there was increase in the share of secondary sector, from 26
percent to 33 percent but the tertiary sector maintained its share of 47 percent. The same
trend was also observed in the composition of workforce in ASEAN region. The percentage
of workforce in agriculture reduced, from 61 percent in the middle of 1970s to 53 percent
in 1990. The region’ s industrial and service sector have increasingly created employment
opportunities to the people. These developments have helped the ASEAN member countries
to achieve a newly industrialized economic status (Rana, 2006).The 1992 Singapore Summit
Declaration elevated the ASEAN economic cooperation to a higher level and this prompted
the approval of Agreement on the Common Effective Preferential Tariff (CEPT) by ASEAN
3. economic ministers for the organization Free Trade Area (AFTA) (Bureau of Public Affairs,
1994). The implementation of the free trade area was considered as a qualitative in the
history of the organization economic cooperation. The CEPT agreement was limited to
manufactured products only, capital goods and agricultural products that had been
processed. However, it was later modified to cover agricultural products that are not
processed. After two years of its implementation, ASEAN made a decision to accelerate
AFTA’ s time frame from 15 years to 10 years. Besides reducing tariffs and eliminating non-
tariff barriers, ASEAN organization has adopted various trade facilitation measures that
include ASEAN Agreement on Customs, customs nomenclature and synchronization of
standards.ASEAN has enhanced cooperation of member states in the finance and banking
sector. This cooperation has the intention of promoting the expansion of capital markets, in
addition to liberal movement of capital and further monetary resources that include
legalizing the usage of ASEAN currencies in trading and investments.ASEAN is pursuing
cooperation in energy and minerals under agreed framework and program of action with
the intention of supporting industrialization of member countries as well as meeting the
increased demands of both manufacturing and construction sectors (Johnson and Langley,
2002). It has developed Minerals Information System which is a database to facilitate
information sharing and dissemination to policymakers and other stakeholders. The ASEAN
– EC Energy Management Training and Research is funded and provided technical support
by European Union. It was established in 1988 and serves as a center of quality for
combined energy studies and cooperation project between the member countries and the
European Union.Impact on member statesThe bilateral trade between ASEAN member
countries has indicated that there is an increase in the absolute number in export and in the
share of the world’ s total trade (Orakhelashvili, 2011). However, there are impacts on the
ASEAN region including the disparities that have existed between the member states. The
differences are in fields like health, where there has been increase in child mortality rates
especially in Cambodia. In addition, there are the differences in GDP per capita to labor
productivity. For instance, the GDP of Singapore is at par with other developed nations but
more than three times of the other ASEAN states.ASEAN has recognized that its
interconnections in the political and economic realm among the member states necessitates
the need for a comprehensive principle for security and thus, should be committed to
addressing the wider political, economic and socio-cultural aspects in enhancing a dynamic
ASEAN region. There are also responses that acknowledge that the area is under threat of
lack of adequate security, poverty has remained to the high levels, and other threats include
lack of adequate medication and the outbreak of infectious diseases (Amer and Zou, 2011).
In addition, there are also other threats that include environmental degradation and natural
calamities, as well as transitional crime such as the terrorist attacks. Transitional health
threats in the region include HIV/AIDS and tuberculosis.The region has also experienced
environmental degradation due to deforestation and overexploitation of natural resources
for economic development. The rapid increase in urbanization and industrialization has
resulted into problems such as pollution. Threats that are associated to natural calamities
include flood, droughts, and other natural disasters such as forest fires that are triggered by
haze. Other threats identified in the region includes drug trafficking, human trafficking,
4. terrorism, money laundering, sea piracy and smuggling of war weapons that poses a lot of
threat to the security of the region (Amitav, 2001).Impact on foreign and domestic
businessResearch carried out by IMF and World Bank, shows that despite of the presence of
a wide range of measure to minimize trade barriers within the region, trade within the
ASEAN member countries still remain low and face restrictions to other peripheral sectors
(Tavares, 2010). A better example is the relationship between business organizations and
governments which are the cause of the failures experienced, thus resulting into economic
ineffectiveness.In order to understand the relationship, the economic cooperation between
the ASEAN member states has discounted the domestic conditions that tend to maintain the
obstacles to free trade.There has been an increase in economic welfare because the
resources that had been previously put under costly domestic production are allocated in
an efficient way to areas where the member nations face competitive advantage and this
will have the impact of generating efficient trade and enhance a greater productivity
(Wortzel, 1996).A regional market that is extensive has been obtained in nations outside
the region and this has led to the increase in trade and other opportunities in the region.The
elimination of trade barriers among the ASEAN member states has made trading to be more
efficient with non member states. This has encouraged diversification to states that are less
efficient. In addition, integration has caused investment diversification effect in a situation
where investment resources are diverted.The ASEAN economic integration is manipulated
by politics instead of economics. The attempt to promote free trade in the ASEAN region has
faced negative implications from governments under the influence of national
interest.Challenges before ASEAN Member StatesThe ASEAN organization is facing a lot of
challenges which are increasingly taking regional dimension. To start with, the disparities
with respect to economic development between the member countries are considerably
significant. In 2006, Singapore’ s GDP per capita in 2000 purchasing power parity in dollars
was 28, 305, almost equivalent to that of France (Tavares, 2010: 40). The gap between
Singapore and other ASEAN member states is very high. In fact, the GDP per capita of
Malaysia and Thailand countries, which are next after Singapore is approximated to be 36%
and 28% of Singapore’ s respectively.The enlargement of ASEAN organization has
increased its degree and complexity and this might result to weakening and breaking up.
Nonetheless, whether ASEAN is available or not, the diversities that define South Asia
region will continue to exist. The real problem is the maintenance of peace and developing
mutual confidence because the region has more than 10 different nations with a total
population of about 500 million (Fry and Kahn, 2008: 113). ASEAN has a big challenge of
building confidence and maintaining a meaningful regional cooperation.Western countries,
view the ASEAN organization as being ineffective and inefficient. The “ outward looking” of
the ASEAN has been flawed because of its non-interference principle, for one country is not
allowed to interfere with the internal affairs of other member nations (Eckes, 2011). This
principle of non-interference has negative repercussions in that in some member countries
there are allegations of violation of human rights. The violation of human rights according
to the eyes of the western world amounts to serious international concerns.ASEAN has a
major challenge in that the member countries territorial sizes are different and some
markets in the region are complex. Besides that, finance ministers of the member countries
5. lack control of certain important issues such as tax, custom, legal reforms as well as
currency controls (Wesley, 2003). ASEAN organization has a challenge of achieving
outcomes in that the member countries have the right to either support or not support
initiatives. The organization risks not achieving meaningful outcomes and because of this it
has to coordinate its activities with other regional organizations which are involved in
developing same programs.Through the creation of AFAT, there has been significant
progress towards economic integration. However, the big challenge is to determine the
appropriate form of the economic community of the ASEAN region that will need to address
the associated effects of the increased number of FTA’ S that have been negotiated by the
member countries.These FTA’ s have strict rules that are liable for increases in
administrative expenses. The FTA’ s should work carefully to review and ensure that it is
compatible with other FTA’ s. The ASEAN has adopted tools to identify how far or close it
works towards achieving its vision 2020 by using the ACPMS and AEC Scorecard. However,
these tools are not yet finalized but have a challenge in imposing an incomplete monitoring
tool.Potential Development of the ASEANGlobalization has made ASEAN economies to
change the pace and patterns of their economic interaction with other economies including
large firms within and across interdependent nations. Integration is important because it
leads to the intensification of knowledge in production and marketing of goods and services
(Than, 2005). In addition, competition has been enhanced between businesses while the
demand for goods and services is becoming more sophisticated.The liberalization across
borders is always augmented with demanding commitments and has tended to be legalistic
in practice. As a major vehicle for change and development in this region in terms of
integrating ASEAN into the world community, there is tremendous scope for improvement
and emancipation of poverty through wealth sharing between richer nations like Brunei
Darussalam, Malaysia, Singapore and Thailand and poorer countries like Myanmar, Vietnam
and Cambodia through aid packages, economic assistances during human and natural
calamities and crises (Roberts and Satow, 2010).The region has had significant economic
growth coupled with a consistent rise in per capita income over the past few years.
However, poverty and unequal distribution of income has been a major obstacle. The
ASEAN member states have considered development al regionalism to be an important
component to the existing ASEAN economic integration initiative that is the extent to which
the implementation to such initiatives reflects the developmental needs to people within
the region (Hirono, 2003).ConclusionRegional integration has positive effects on bilateral
imports, hence makes trade between industries to increase the regional trade among the
member countries and assist in further economic integration in the region. ASEAN is one of
the most successful regional economic communities in the world, after the EU. The
establishment of the ASEAN market, through AFTA, which comprises more than 576 million
people, provides enormous potential for market expansion for ASEAN companies. The
ASEAN experience demonstrates that intraregional trade barriers are largely policy-
induced (Business International Asia, 1979).ASEAN countries are trade-oriented, and
overcoming these barriers has necessitated changes in their trade and commercial policies.
Most important, ASEAN has made considerable progress in dismantling tariff and other
obstacles to trade.The ASEAN community has been instrumental in increasing its member
6. nations’ bargaining power with their trading partners, European Union and USA, giving
them the benefit of the combined force of their ASEAN partnership in their trade
negotiations with the outside world.RecommendationsBased on the findings of the study,
there is a need for a proper regional integration that requires all member states to have
minimum standards to foster economic and social developments. When such developments
are not in place, then the member states will either be winners or losers. This may include
inequality and poverty levels between and within member states. Areas that should be
accorded more attention by the ASEAN members’ states in order to narrow the
development gaps and fulfill the aspirations for ASEAN integration include governance
which should be effective to achieve adequate decision making process in governance
(Tongzon, 2002). This should also take into account the civil society, as well as, the private
sector on political, social, and environmental issues that need minimum standards to
governance. Most important is transparency in governance that should make people obtain
reliable information and appropriate data (Acharya and Stubbs, 1995).The cohesion policy
embodies the ASEAN vision of the freedom of movement that should be possible and
sustainable if only supported by a cohesion policy, which aims at reducing the development
gas between winners and losers to the integration process. The policy should state financial
transfers for social, economic and environmental developments. The other aspect involves
the Trans-ASEAN networks forming the backbone of the freedom of movement within the
region, adequate network of infrastructure, transportation services, Information
Technology, water, energy that should aim at reflecting the regional rather than a national
perspective. Trans-ASEAN networks are essentially important because to wide inter-
country disparities in development outcomes. It is also necessary to develop a balance
between ASEAN, s desire to adopt a principle to open regionalism and the organizations
imperative to improve the living standards to people from poverty. Member countries
should provide the necessary political and economic commitments such as adequate safety
net to ensure a full implementation to the socio-economic initiatives in order to minimize
impacts to economic globalization and regionalization.Other measures should include
reforming the outdated principle to non-interference which is an obstacle to economic
advancement to the region in order to achieve the economic development goals. The
organization should develop ways to empower the marginalized economic groups through
involving the recognition to economic groups by involving the recognition to non-
professional migrants hired for the majority to interstate employment in the region, thus,
encourage the emergence to economic solidarity through the development to economic
complementarities among the region’ s economies and to ensure a common regional
policies and positions in a wider multilateral forum (Severino, 2006). Finally, it is important
to democratize the economic-policy making process through improving the quantity and
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