ASEAN integration

is my Trade Tripper column in this weekend issue of BusinessWorld:

Out of curiosity or concern, the matter of ASEAN integration in 2015 is a common topic of discussion among many businessmen and the academe. Interestingly enough, one sees people getting all worked up or bracing themselves for it without actually understanding what the thing is about. The truth about ASEAN integration, however, is more mundane than most realize.

ASEAN, while intriguing and looks good on paper, particularly in the area of trade and policy, has in reality been quite disappointing. As Joshua Kurlantzick (ASEAN’s Future and Asian Integration, November 2012) puts it: "ASEAN lags far behind its full potential. Most Western leaders and even many of Southeast Asia’s own top officials do not consider the organization capable of handling any serious economic or security challenges, including the current dispute in the South China Sea. In previous times of severe economic downturn, ASEAN members have looked to lenders outside the group for assistance."

This leads Mr. Kurlantzick to conclude: "with its current limitations in working style, staffing, and mandate, as well as the enormous political and economic disparities among its members, ASEAN is unlikely to move beyond its current status." He then goes on to enumerate seven major challenges faced by ASEAN: evading dominance by regional powers, integrating a revived and powerful Indonesia, consensus decision making, integrating new members, balancing economic disparities, strengthening the Secretariat, and becoming the center of Asian institutions.

Mr. Kurlantzick does recommend a "common ASEAN vision for future East Asian trade and economic integration." But, those looking for an European Community pattern are mistaken. As pointed out by Coraline Goron (Building an ASEAN Community by 2015, July 2011): "The ASEAN Economic Blueprint presents two main objectives: to transform ASEAN into a single market and production base and make it a competitive economic region. One should be aware, however, that despite the bold language, the ideas put forward in this document remain significantly lower than the economic integration in the EU. Notably, no custom union and no single currency are envisaged."

The truth is many of the provisions of the ASEAN integration plans are already in place: from the lowered tariffs, to increased free trade agreement (FTA) activity, to the smoothening of customs procedures. The question really is not the dangers that ASEAN integration can bring (if there are any) but rather if the Philippines itself is ready to take advantage of the same or be left again in the dust.

Your Trade Tripper has continuously pointed to one study to determine the readiness of the Philippines and that is with regard to our utilization rate of the AFTA, a trade arrangement in place since 1992. In a 2010 working paper released by the ADBI ("FTAs and Philippine Business: Evidence from Transport, Food, and Electronics Firms"), it was found that only around 20% of the companies surveyed here in the Philippines have taken advantage of the AFTA preferential rates.

This low utilization rate has never been resolved. As discussed by the ADB working paper, a lot of Philippine firms are still baffled by the mechanics of FTAs. Other reasons have to do with "delays and administrative costs and the use of export incentives other than FTA preferences."

To put it in even blunter terms, what is the point of opened markets if we don’t have the capacity to satisfy those markets? And what is the point of opening up the country for investments if the environment does not make it attractive for investors?

Looking at 2012 export numbers, for example, we shipped a volume that is less than half of Vietnam’s, less than a fourth of Malaysia’s, and less than an eight’s of Hong Kong’s. For FDI’s, the Philippines is celebrating its 3.86 (in billions US$) showing for 2013, even though the same is spectacularly short of Malaysia’s (11.7), Indonesia’s (22), Thailand’s (13), and Singapore’s (56).

We are nearly last in terms of competitiveness and ease of doing business compared to other ASEAN countries; our power, transport, productivity, and infrastructure are nothing to brag about; and the rule of law and protection of property are a concern in most major studies. Then there is traffic, with JICA (also cited by my fellow columnist Benjamin Diokno) reporting that Metro Manila traffic in 2012 cost the country an amount equal to 7% of the GDP.

Finally, what benefit could the opening up of borders be when our borders have consistently been punched through with impunity by smuggling? BizNewsAsia (March 2014) reported that the country may have suffered a possible revenue loss (in 2002-2007) of P127.075 billion due to smuggling. Bobi Tiglao (writing for another paper) estimates smuggling in 2010-2012 to have reached $19.6 billion per year.

The point is that there’s nothing to be worried about when it comes to ASEAN integration. The real issue is our readiness to take advantage of it. Which is ironic considering that the idea to accelerate integration from 2020 to 2015 came about during the ASEAN 2007 meeting in Cebu.