ASIAN ECONOMIC INTEGRATION

Gentur Widotomo

BACKGROUND
Economic integration is the unification of economic policies between different states
through the partial or full abolition of tariff and non-tariff restrictions on trade taking place
among them prior to their integration. 1 Regional integration is de facto integration of
economies within a geographic region. Regional integration can vary in intensity. Full
economic integration occurs when goods, services, and factors of production can flow freely
and financial markets are unified among countries within a region. Once economic
integration was introduced in 1957 when The Treaty of Rome established among Western
Europe countries and gradually expanding to East Europe. The Community shall have as its
task, by establishing a common market and progressively approximating the economic
policies of Member States, to promote throughout the Community a harmonious development
of economic activities, a continuous and balanced expansion, and an increase in stability, an
accelerated rising of the standard of living and closer relations between the States belonging
to it.2(Art. 2 The 1957 Treaty of Rome)
INTERNATIONAL ECONOMIC LAW
International economic law regulates the international economic order or economic
relations among nations. However, the term international economic law encompasses a large
number of areas. It is often defined broadly to include a vast array of topics ranging from
public international law of trade to private international law of trade to certain aspects of
international commercial law and the law of international finance and investment. The
International Economic Law Interests Group of the American Society of International Law
includes the following non-exhaustive list of topics within the term international economic
law3:
(1) International Trade Law, including both the international law of the World Trade
Organization and GATT and domestic trade laws;
1 See http://www.wikipedia.org/wiki/Economic_integration
2 See http://ec.europa.eu/economy_finance/emu_history/documents/treaties/rometreaty2.pdf
3 Subedi, SP (2006). International Economic Law: Evolution and Principles of International
Economic Law, London, 21-22.

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Gentur Widotomo

(2) International Economic Integration Law, including the law of the European Union,
NAFTA and Mercosur;
(3) Private International Law, including international choice of law, choice of forum,
enforcement of judgments and the law of international commerce;
(4) International Business Regulation, including antitrust or competition law, environmental
regulation and product safety regulation;
(5) International Financial Law, including private transactional law, regulatory law, the law of
foreign direct investment and international monetary law, including the law of the
International Monetary Fund and World Bank;
(6) The role of law in development;
(7) International tax law; and
(8) International intellectual property law.
MAIN

ISSUE:

IMPACT

OF

THE

ASIAN

ECONOMIC

INTEGRATION

ESTABLISHMENT
ASEAN, as the leading regional organization like EU in Southeast Asia, intended to put
economic integration in the region as well. ASEAN Declaration, signed in Bangkok, 8 August
1967, reads, A desire to establish a firm foundation for common action to promote regional
cooperation in Southeast Asia in the spirit of equality and partnership and thereby contribute
towards peace, progress and prosperity in the region. and In an increasingly interdependent
world, the cherished ideals of peace, freedom, social justice, and economic well-being are
best attained by fostering good understanding, good neighborliness, and meaningful
cooperation among the countries of the region already bound together by ties of history and
culture.4 In 1976, Bali Concord declared that Member States shall cooperate in the field of
trade in order to promote development and growth of new production and trade. Then in
Manila, 15 December 1977, theres another declaration reads, Member States shall

4 See http://www.aseansec.org/1212.htm

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Gentur Widotomo

strengthen intra-ASEAN economic cooperation to maximize the realization of the regions

potential in trade and development.5
There werent any much significant effect after these declarations until 1992, where
Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand established the Common
Effective Preferential Tariff (CEPT) scheme and produced ASEAN Free Trade Area (AFTA)
in Singapore.6 CEPT scheme was made to reduce tariff barriers to no more than 5 percent and
completely eliminate quantitative restrictions as well as other non-tariff barriers within
AFTA. The main goals of AFTA seek to Increase ASEAN's competitive edge as a production
base in the world market through the elimination, within ASEAN, of tariff and non-tariff
barriers and attract more foreign direct investment to ASEAN. The reduction of barriers to
intra-regional trade gives ASEAN consumers a wider choice of better quality consumer
products. In 1997, ASEAN took a serious action in making Southeast Asia as an integrated
economic region by established ASEAN Vision 2020. That vision is of ASEAN as a concert
of Southeast Asian nations, outward looking, living in peace, stability and prosperity, bonded
together in partnership in dynamic development and in a community of caring societies.7
While AFTA came into force earlier than originally planned and a target zero-tariff
rate will be achieved by 2010, its impact has thus far proven to be rather disappointing.
Although AFTA is already implemented, costs of complying with the Rules of Origin (ROOs)
to satisfy the criteria for preferential treatment are perceived to be quite high by the
businessmen. The margins of preference between the ASEAN-wide tariff rate (referred to as
the CEPT) and those applied by ASEAN countries to imports from the rest of the world are
rather low. AFTA is narrowly focused on reducing and eventually eliminating intra-ASEAN
tariff barriers on merchandise trade. Non-tariff and other trade hindering barriers have not
been adequately addressed by AFTA. Intra-ASEAN trade has accounted for only about onefifth of ASEANs total trade, this share remained stagnant over the last decade (mostly did by
Singapore), at the expense of its increasing trade linkages with the two Asian giants China
5 See http://www.aseansec.org/5117.htm
6 Rajan, RS. Taking Stock of ASEAN Economic Integration (6 August 2004), Business Times
(Singapore).
7 See http://www.asean.org/news/item/asean-vision-2020.

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and India. Intra-ASEAN trade is also far lower than other regional economic alliances such as
the European Union (two-thirds) or the North American Free Trade Area (one half). Only a
small proportion of the intra-ASEAN trade is conducted under the CEPT, 45 percent of intraASEAN trade is in electrical and electronic parts and components broadly defined.8
At the Bali Summit in October 2003, the 10 ASEAN leaders agreed to the goal of
creating an ASEAN Economic Community (AEC) by 2020, later called Bali Concord II. The
main objective of the AEC is to deepen and accelerate intraregional economic integration by
liberalizing trade, investment and skilled labor flows and addressing behind-the-border
barriers thus creating a single production base and single market. 9 A single market for goods
and services will facilitate the development of production networks in the region and enhance
ASEANs capacity to serve as a global production center and as a part of the global supply
chain. Tariffs will be eliminated and non-tariff barriers will be gradually phased out. Simple,
harmonized and standardized trade and customs are expected to reduce transaction costs.
There will be a free movement of professionals. ASEAN investors will be free to invest in
sectors and the services sectors will be opened up.
In 2004, ASEAN began to cooperate with countries outside ASEAN in the economic
field, the first of China (ASEAN-China FTA) in Goods sector. In 2006, ASEAN-Korea FTA
signed. A year later, in January 2007, Leaders of the States agreed to speed up AEC from
original year in 2020 to 2015. The decision to accelerate establishment of AEC into

8 See Austria, MS (2004). The pattern of Intra-ASEAN trade in priority goods sector, REPSF
Research Project No. 03/006.
9 As seen in http://www.asean.org/news/item/declaration-of-asean-concord-ii-bali-concord-ii. The ASEAN
Economic Community shall establish ASEAN as a single market and production base, turning the diversity that
characterizes the region into opportunities for business complementation making the ASEAN a more dynamic
and stronger segment of the global supply chain. ASEAN's strategy shall consist of the integration of ASEAN
and enhancing ASEAN's economic competitiveness. In moving towards the ASEAN Economic Community,
ASEAN shall, inter alia, institute new mechanisms and measures to strengthen the implementation of its existing
economic initiatives including the ASEAN Free Trade Area (AFTA), ASEAN Framework Agreement on
Services (AFAS) and ASEAN Investment Area (AIA); accelerate regional integration in the priority sectors;
facilitate movement of business persons, skilled labor and talents; and strengthen the institutional mechanisms
of ASEAN, including the improvement of the existing ASEAN Dispute Settlement Mechanism to ensure
expeditious and legally binding resolution of any economic disputes. As a first step towards the realization of
the ASEAN Economic Community, ASEAN shall implement the recommendations of the High Level Task
Force on ASEAN Economic Integration as annexed.

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realization in 2015 in order to strengthen ASEANs competitiveness in the face of global

competition such as with India and China.

CONCLUSION
While ASEAN needs to focus specifically on making the region a seamless and enlarged
production base, there remain a number of skeptics about the effectiveness of ASEAN as an
economic-integrated region. For example, the vast and growing income gap between State
members may well act as a road-block to deeper economic intra-ASEAN integration in the
near term. There are valid concerns that this multi-speed approach taken toward integration
will further stratify ASEAN and undermine its ability to act as a unified hub as they outreach
to the rest of the world. However, this does not rule out the possibility that the AEC in 2015
could be the hope for all of us to make ASEAN, and even Asia, a region which is assures
well-maintained security, social, cultural and economy.
BIBLIOGRAPHY
Rajan, R.S. and Sunil Rongata : Asia in the Global Economy. Finance, Trade and Investment,
Singapore, 2008
Subedi, SP : International Economic Law: Evolution and Principles of International
Economic Law, London, 2006
Guerrero, Rosabel B. : Regional Integration. The ASEAN vision in 2020
http://www.londoninternational.ac.uk
http://www.wikipedia.org
http://www.asean.org
http://ec.europa.eu

ASIAN ECONOMIC INTEGRATION

Gentur Widotomo