INTEGRATING DIVERSITY: ASEAN Economies At a Glance

Transcription

1 Asia Competitiveness Institute Working Paper Series INTEGRATING DIVERSITY: ASEAN Economies At a Glance Dr. Ana Duek Research Fellow anaduek@nus.edu.sg DID: Fax: C Bukit Timah Road, Level 3 Singapore May 2008 The views expressed in the ACI Working Paper Series are those of the authors(s) and do not necessarily reflect those of the institute, Lee Kuan Yew School of Public Policy or National University of Singapore. Copyright belongs to the author(s). Papers may be downloaded for personal use only.

2 Abstract This paper focuses on the ASEAN economic and social situation in recent years. Based on quantitative data published by national and international organizations, this work provides an initial understanding of the ASEAN extensive and complex situation, potentials, and problems; thus, it offers an idea of macroeconomic situations, priority sectors, national and regional economic potential, institutional conditions and reforms, and also the most common public concerns about the economic integration process. In particular, this paper is a collection of measures and indicators covering a wide range of economic ideas on both ASEAN as a region and as single country members. Moreover, it is a starting point for further analysis and theoretical assumptions of the ASEAN region. Accordingly, the diversity among members is highlighted as a distinctive feature of the region. Keywords: ASEAN region; diversity; integration; ASEAN macroeconomic, trade, and institutional fundamentals JEL Code: A10, F01, F14, F15.

3 Author s Note Records here presented provide a general idea of some current economic, and economic-related, features on ASEAN. It is not intended as a formal macroeconomic analysis to forecast economic conditions and/or socioeconomic implications of policies and laws. It also is not intended to, or capable of, discussing ASEAN institutions and the implementation of their mechanisms. Further it is intended only as a simple overview a general portrait of ASEAN country members including macroeconomics, trade, governance, geographical and human statistics, just to mention a few subjects. This report is not supported by a model. It is instead a static outlook at what has been reported recently by some national and international organizations. Thus, it is a static summary in terms of both time and structure. As an economic snapshot, however, this report provides a broad understanding of the current economic conditions of each ASEAN country and the diverse composition of the region.

4 INTEGRATING DIVERSITY: ASEAN Economies At a Glance 1. ASEAN: A BRIEF HISTORY The Association of Southeast Asia Nations (ASEAN) is an international organization created to accelerate economic growth, social progress, and cultural development and to promote peace and security in Southeast Asia. It was established by the governments of Indonesia, Malaysia, the Philippines, Singapore, and Thailand in 1967, and Brunei (1984), Vietnam (1995), Laos and Myanmar (1997), and Cambodia (1999) joined later. Under the banner of cooperative peace and shared prosperity, ASEAN s chief projects focus on economic cooperation, the promotion of trade among ASEAN countries and between ASEAN members and the rest of the world, and programs for joint research and technical cooperation among member governments. The ASEAN Declaration states that the aims and purposes of the association are to: (1) Accelerate economic growth, social progress, and cultural development in the region (2) Promote regional peace and stability through a biding respect for justice and the rule of law in the relationship among countries in the region and adherence to the principles of the Charter of United Nations (ASEAN Secretariat Online). 2. ASEAN: MEMBERS SNAPSHOT 1 Brunei Darussalam Total Land Area (Km 2 ): 5,765 Total Population (in thousands, 2006): 383 High income (non OECD) GDP growth rate (2005/2006): 5.01% Lending category: N/A Domestic Politics: autocratic power exercised by the sultan. Cambodia Total Land Area (Km 2 ): 181,035 Total Population (in thousands, 2006): 14,167 Low income GDP growth rate (2005/2006): 10.3% Lending category: IDA Domestic Politics: Democratic (constitutional) monarchy formally operated as a parliamentary representative democracy in which Prime Minister of Cambodia is the head of government and Cambodian People s Party maintains its lead. although the situation in the next general election is uncertain. 4

5 Indonesia Total Land Area (Km 2 ): 1,890,754 Total of Population (in thousands, 2006): 222,192 Lower middle income GDP growth rate (2005/2006): 5.3% Lending category: BLEND Domestic Politics: presidential system with a unitary state in which power is concentrated in the national government. Current president enjoys strong public support, but faces many inherit bureaucratic problems of the past that have not been solved. Malaysia Total Land Area (Km 2 ): 330,252 Total of Population (in thousands, 2006): 26,640 Upper middle income GDP growth rate (2005/2006): 5.7% Lending category: IBRD Domestic Politics: it is a federal constitutional elective monarchy, governed since 1957 by a multi-party coalition known as the Barisan Nasional, and despite the coalition s poor performance it is expected that it will remain in power throughout Philippines Total Land Area (Km 2 ): 300,000 Total of Population (in thousands, 2006): 87,099 Lower middle income GDP growth rate (2005/2006): 5.3% Lending category: IBRD Domestic Politics: current president is expected to remain in power until the end of presidential term (2010) supported by the army and despite electorate s fragile support due to corruption accusations. Thailand Total Land Area (Km 2 ): 513,120 Total of Population (in thousands, 2006): 62,829 Lower middle income GDP growth rate (2005/2006): 4.9% Lending category: IBRD Domestic Politics: constitutional monarchy and, despite the successful restoration of democratic rule, political scene remains unpredictable due to People Power Party coalition government instability. Lao PDR Total Land Area (Km 2 ): 236,800 Total of Population (in thousands, 2006): 5,747 Low income GDP growth rate (2005/2006): 7.3% Lending category: IDA Domestic Politics: the form of state is one-party rule. Lao People s Revolutionary Party, which has monopolized political power since 1975, maintains its authority with little possibility that an opposition party will emerge. Myanmar Total Land Area (Km 2 ): 676,577 Total of Population (in thousands, 2006): 57,289 Low income GDP growth rate (2004/2005): 5.0% Lending category: IDA Domestic Politics: it remains under the tight control of the State Peace and Development Council, the military led government, which is planning to push ahead its reforms to democracy. Singapore Total Land Area (Km 2 ): 704 Total of Population (in thousands, 2006): 4,484 High income (non OECD) GDP growth rate (2005/2006): 7.6% Lending category: N/A Domestic Politics: parliamentary democracy in which People s Action Party retains the confidence of much of the electorate and has the majority of seats in parliament. Vietnam Total Land Area (Km 2 ): 329,315 Total of Population (in thousands, 2006): 84,156 Low income GDP growth rate (2005/2006): 7.9% Lending category: IDA Domestic Politics: single-party state, Communist Party, which remains indifferent to calls for political pluralism, but is concentrating its efforts on social welfare and stability to maintain party s control. Consistent with the above countries profiles and according to ASEAN Secretariat, in 2006, the ASEAN region has: An overall population of almost 565 million, which since 1970 represents about the 8 percent of the total world population. A total area of 4.5 million square kilometers with an average density of 127 person/km 2. It is noteworthy that Singapore, which is the smallest country (total land area of 704 km 2 ), has a 5

6 singular amount of density of around 6,300 person/km 2 and also has the highest rate of annual population growth of the region (3.3 percent in 2006). The Philippines has the second highest density in the region (about 290 person/km 2 ), but it has a total land area 420 times bigger than Singapore with an annual population growth rate of 2.1 percent. According to the World Bank Country Classification, five countries of ASEAN are eligible for IDA. This lending category is for those countries that, in 2006, had a nominal per capita income of less than US$1,065 and lack the financial ability to borrow from IBRD. IDA loans are deeply concessional interest-free loans and grants for programs aimed to boost economic growth and improve living conditions. IBRD loans are non-concessional and serve middle-income countries with capital investment and advisory services. Thus, IDA complements IBRD. In this way, five countries in the Region are not only relatively poor, but also not creditworthy for IBRD and other financial aid. 3. ASEAN: MACRO FRAMEWORK Table 1 presents further fundamental facts concerning ASEAN macroeconomics. This table along with the above-mentioned facts provides basic but crucial information about the region s macroeconomics and the region itself within the global context. Table 1. Selected key ASEAN basic macroeconomic indicators 2006 (Source: ASEAN Secretariat Statistics Online) Country Gross domestic product GDP at current prices Growth rate of GDP at constant prices Inflation rate (year on year growth of CPI at end of period) Unemployment rate US$ million percent percent percent / / /2006 Brunei Darussalam 11, Cambodia 7, Indonesia 364, Lao PDR 3, Malaysia 156, Myanmar 11, The Philippines 118, Singapore 132, Thailand 206, Viet Nam 60, ASEAN 1,073, n.a. The total gross domestic product of ASEAN was almost US$1,100 billion in 2006 (See Table 1). This represents 2.19 percent of world GDP, while in 1990 ASEAN s share of world GDP was 1.54 percent. 6

7 A regional average GDP growth rate in of 6 percent with Thailand s minimum rate of 5 percent and Cambodia s maximum one of almost 11 percent (See Table 1). A wider picture is show in both Table 2 and Figure 1. Table 2 contains the average growth rate before and after the Asian Financial Crisis, while Figure 1 shows that most of ASEAN members were affected not only by the 1997 financial crisis, but also by Dot.Com Crash in Table 2. Pre- and Post-Asian Financial Crisis ASEAN GDP Growth Rate (Source: World Development Indicators Online) Country Growth Rate ( ) Growth Rate ( ) Growth Rate ( ) Growth Rate ( ) Brunei Darussalam 2.7% 0.9% 1.8% 2.5% Cambodia 5.1% 7.5% 6.3% 9.1% Indonesia 7.4% 1.0% 3.2% 4.7% Lao PDR 6.8% 5.8% 6.3% 6.3% Malaysia 9.3% 3.5% 6.4% 4.5% Philippines 4.2% 3.4% 3.8% 4.5% Singapore 9.3% 5.8% 7.6% 4.5% Thailand 7.8% 0.9% 3.5% 4.9% Vietnam 8.6% 6.2% 7.4% 7.3% Figure 1. ASEAN s GDP Growth Rate (Source: World Development Indicators Online) Indonesia Malaysia Philippines Singapore Vietnam Thailand Lao PDR Figure 2. ASEAN s Members GDP CAGR ( ) Vietnam Thailandia Singapore Philippines Malaysia Laos Indonesia Cambodia Brunei 0.0% 5.0% 10.0% 15.0% 20.0% GDP CAGR GDP CAGR GDP Compound Annual Growth Rate GDP CAGR 2 ( and ). If one considers the Asian Financial Crisis as a dividing point between two periods, this rate differs in most of the countries from one period to the other. Within the region, Singapore seems to have been the most affected having the higher rate of 14.2 percent before the crisis and the lower one of 5.4 percent after it, while countries like Indonesia and Vietnam increased their rates considerably in the period

8 In terms of purchasing power parity (PPP), and as shown in Table 3, the ASEAN 9 s (i.e., excluding Myanmar) share of world GDP-PPP was 3.83 percent. In 1990, ASEAN-9 s (i.e., excluding Cambodia) world share GDP- PPP was 2.91 percent. Table 3. ASEAN s GDP-PPP share according with ICP (Source: 2005 ICP Regional Summary and 2005 International Comparison Program Tables of final results Online and World Development Indicators Online) Country World share of GDP PPP (%) ASEAN Brunei Darussalam 0.03 Indonesia 1.29 Thailand 0.81 Malaysia 0.54 Philippines 0.45 Vietnam 0.32 Cambodia 0.04 Lao PDR 0.02 Singapore 0.33 Also in PPP terms, there are significant differences between GDP (in current billions of US$) and GDP-PPP (in current billions of US$) for almost all of the country members, excluding Singapore that has only small differences over time.3 (See Figures 3a to 3h.) Figures 3(a h). ASEAN GDP and GDP-PPP (Source: World Development Indicators Online) GDP (current US$) GDP, PPP (current international $) (a) Cambodia 1, GDP (current US$) GDP, PPP (current international $) (b) Indonesia GDP (current US$) GDP, PPP (current international $) GDP (current US$) GDP, PPP (current international $) (c) Lao PRD (d) Malaysia 8

9 GDP (current US$) GDP, PPP (current international $) (e) Philippines GDP (current US$) GDP, PPP (current international $) (f) Singapore GDP (current US$) GDP, PPP (current international $) GDP (current US$) GDP, PPP (current international $) (g) Thailand (h) Vietnam In 2006, the GNI per capita of 70 percent of ASEAN economies (i.e., seven countries) was lower than US$3, Thus, 70 percent of the members are either lower or lower-middle income economies. 5 However, the same GNI distribution in terms of population shows severe disparities with the distribution of income (See Figure 3). According to the ASEAN Secretariat, the total population in 2006 was 564,986 thousand people (with a total GDP of US$1,073,570.5 million). Therefore, in actuality, 94 percent of the population has either lower or lower-middle income economies. In other words, less than 6 percent of the population has a GNI higher than US$3,596 and less than 1 percent of the population has a high income. Figure 3. ASEAN GNI distribution (Source: World Development Indicator Online) 4.72% 0.86% 20% 28.56% Lower Income 10% 40% Lower Middle Income Upper Middle Income 65.86% Higher Income 30% 9

10 Indeed, the Gini Coefficient varies between 30 and 50 over ASEAN countries (See Table 4). 6 In most cases, richer ASEAN countries exhibit higher coefficients than the poorer countries. Lao PDR, for example, has a lower value coefficient than Singapore. The inequality in this example might be explained in terms of homogeneity of labor (e.g., unskilled and skilled labor), but also in terms of the distribution of wage and property income (e.g., agriculture-based economies and some less-diversified economies have high shares of overall labor made up of unskilled workers who are paid less). Nevertheless, it is noteworthy that distribution data often may not be comparable across countries because each country s survey differs in the method and type of data collected. Moreover, and looking at the HDI rank, it is possible to assert that there are three groups of countries among ASEAN members: (1) ones ranked among the first 30 countries (i.e., Singapore and Brunei), (2) those ranked between 50 and 100 (i.e., Malaysia, Thailand, and Philippines), and (3) those ranked above 100 (i.e., Vietnam, Indonesia, Lao PRD, Cambodia, and Myanmar). See also Table 5 that shows the share of income or consumption of the poorest 10 percent and the richest 10 percent. Table 4. Gini Index (Source: Inequality in income or expenditure data in Human Development Report 2007/2008 Online) HDI Rank Country Gini index 2 Norway Australia Sweden 25 7 Switzerland Japan United States Denmark United Kingdom New Zealand Hong Kong, China (SAR) Germany Singapore Brunei Darussalam.. 63 Malaysia Thailand China Philippines Viet Nam Indonesia India Lao PDR Cambodia Myanmar Bangladesh Sierra Leone 62.9 Table 5. Inequality measures (Source: Inequality in income or expenditure data in Human Development Report 2007/2008 Online) HDI Rank Country Share of income or consumption, poorest 10% (%) Share of income or consumption, richest 10% (%) 2 Norway Australia Sweden Switzerland Japan United States Denmark United Kingdom New Zealand Hong Kong, China Germany Singapore Brunei Darussalam Malaysia Thailand China Philippines Viet Nam Indonesia India Lao PDR Cambodia Myanmar Bangladesh Sierra Leone Referring to Table 1, there is a moderate inflation rate between 2 5 percent in almost all the countries, which compares with the inflation rates of many western European countries (e.g., England, Germany, Portugal, and Spain) and the U.S. and Canada. Exceptions are Indonesia and Vietnam with inflation rates of 6.6 percent and Brunei with a negative inflation rate of -0.7 percent. ASEAN s unemployment rate is less than 5 percent in almost all the ASEAN countries. This rate is comparable with the U.S., Norway, and Sweden and better than the rest of the Americas and almost all western and eastern European countries, which have unemployment rates of 5 10 percent. 10

11 Although the unemployment rate of almost all the country members is less than 5 percent, the Philippines and Indonesia have rates of about 8 percent and more than 10 percent, respectively. The value creation by sectors (as a share of GDP) varies among the countries, as shown in Figures 4(a c). Cambodia, Lao PDR, and Myanmar have the highest agriculture value-added (as a share of GDP). Brunei has lower value added in agriculture, and Myanmar has a lower industrial value added. Singapore has higher value-added services as a share of GDP. Figure 4a. ASEAN Agriculture Value Added (% of GDP) (Source: World Development Indicators Online) brunei cambodia indonesia laos malaysia myanmar philippines singapore thailand vietnam Figure 4b. ASEAN Industry Value Added (% of GDP) (Source: World Development Indicators Online) brunei cambodia indonesia laos malaysia myanmar philippines singapore thailand vietnam 11

12 Figure 4c. ASEAN Services Value Added (% of GDP) (Source: World Development Indicators Online brunei cambodia indonesia laos malaysia myanmar philippines singapore thailand vietnam Table 6 shows ASEAN trade basic indicators for each country member and for the whole region. In 2006, ASEAN regional total trade was about US$1,400 billion with a growth of nominal value of almost 15 percent. However, compared with other regions (or blocs), ASEAN has not performed as well. MERCOSUR regional total trade in 2006 was about US$325 billion with a growth of nominal value of about 64 percent, while NAFTA was about US$4,040 billion with a growth of 46 percent. 7 Besides, 75 percent of ASEAN trade is outside the region. A more detailed picture about trade is presented in the following section. Table 6. ASEAN basic trade indicators 2006 (Source: ASEAN Secretariat Statistics Online) Country Exports Growth of nominal value of exports Merchandise Trade Imports Growth of nominal value of imports Total trade Growth of nominal value of total trade US$ million percent US$ million percent US$ million percent Brunei Darussalam 7, ,488.9 (0.9) 9, Cambodia 3, , , Indonesia 100, , , Lao PDR (16.3) Malaysia 157, , , Myanmar 3, , , The Philippines 47, , , Singapore 271, , , Thailand 121, , , Viet Nam 37, , , ASEAN 750, , ,404, According to the ASEAN Secretariat, the regional total FDI inflow was of US$52.38 billion in 2006 with a year-on-year change ( ) of 27.5 percent. 8 Tables 7a and 7b show the recent year s evolution of Foreign Direct Investment Inward and also Foreign Direct Investment Outward for ASEAN-5, respectively (see also Figure 5). It is noteworthy that the direct investment inflow of ASEAN-5 represents about 92 percent of total ASEAN net inflow in Singapore accounts for 12

13 about 46 percent of ASEAN total net inflow and 50 percent of ASEAN-5 total net inflow. However, Singapore was the one country in the region with the lowest growth rate of FDI inward (about 55 percent) from and a significant reduction of FDI outward (about 57 percent less) in the same period. Singapore also has the lowest FDI stock abroad growth rate of 63 percent during The rest of the ASEAN-5 countries considerably improved their foreign investment flows inward and outward as well as their direct investment stock abroad (about 80 percent on average). Table 7a. ASEAN-5 Foreign Direct Investment Inward (Source: World Competitiveness Yearbook Online and UN World Investment Database Online) Countries Direct investment flows inward US$ Billions Direct investment flows inward Percentage GDP Direct investment stocks inward US$ Billions Indonesia Malaysia Philippines Singapore Thailand Tables 7b. ASEAN-5 Foreign Direct Investment Outward (Source: World Competitiveness Yearbook Online and UN World Investment Database Online) Countries Direct investment flows abroad US$ Billions Direct investment flows abroad Percentage GDP Direct investment stocks abroad US$ Billions Indonesia Malaysia Philippines Singapore Thailand Figure 5. ASEAN-5 (Indonesia, Malaysia, Philippines, Singapore, and Thailand) Direct Investment Stock Inward and Outward (Source: World Competitiveness Online) ASEAN 5 Direct Investment Stock Inward (US$ Billions) ASEAN 5 Direct Investment stock Abroad (US$ Billions) 3.679E E E E E E Moreover, as shown in Table 8, about 67 percent of net ASEAN FDI inward in 2006 came from five region/countries partners: EU-25, Japan, ASEAN, U.S., and China. In particular, about 25 percent of total FDI arrived from EU-25 and 21 percent from Japan. 13

14 Table 8. ASEAN foreign direct investments net inflow from selected partner countries/regions (Source: ASEAN Secretariat Statistics Online) Partner country/region Value (US$ millions) Share to total net inflow (%) Year on year change (%) ASEAN 2, , , USA 5, , , Japan 5, , , European Union EU 25 10, , , China Other Partner countries/regions 1, , , (1.70) (36.60) Total selected partner countries/regions 26, , , Total of other partners 8, , , Total 35, , , In recent years, there has been a surge in cross-border mergers and acquisition in the region. As the purchases/sales ratio shows (see Table 9), during 2005 and 2006, all the ASEAN countries considered were net buyers. Countries such as Singapore and Malaysia have been net buyers since In particular, 2004 represents the peak of acquisitions for Singapore, about 1,550 percent more than previous years and 3.06 percent of total world purchases. China (excluding 2006) and developing countries were net sellers. Table 9. Purchases/Sales Ratio (Source: UNCTAD, World Investment Report 2007 Online) PURCHASES/SALES Country Singapore Philippines Vietnam 3.00 n.a. n.a Malaysia China SE Asia Asia & Oceania Developing Countries ASEAN overall FDI performance in recent years ( ) was not as good as in the previous period ( ), although most of the countries are front runners. 9 In particular, most of the countries remain as attractive as before except the Philippines (under-performer) and Vietnam (above potential), which have become less attractive for direct investment inward (see Table 10). Table 10. ASEAN comparative performance and potential (Source: UNCTAD Inward FDI Indices Online) High FDI potential Low FDI potential High FDI Performance Brunei Darussalam, Malaysia, Singapore, Viet Nam Low FDI performance Phillipines, Thailand Indonesia, Myanmar High FDI potential Low FDI potential High FDI Performance Brunei Darussalam, Malaysia, Singapore, Thailand Viet Nam Low FDI performance Indonesia, Myanmar, Phillipines 14

15 The above results (see Table 10) are complemented with the country rankings presented in Table 11. These ranking are by inward and outward FDI Performance Index and inward Potential Index considering 141 countries. Regarding both inward FDI Performance and Potential Indexes, most ASEAN countries from 2005 to 2006 were ranked in worse positions, while only two countries (Indonesia and Singapore) moved up. In contrast, country rankings by outward FDI Performance show that most of the countries improved their ranking position, confirming the results of Table 10. Table 11. Country rankings by Inward FDI Performance Index, Inward FDI Potential Index, and Outward FDI Performance Index (Source: UNCTAD, World Investment Report 2007 Online) Inward FDI Performance Index Inward FDI Potential Index Outward FDI Performance Index Country Brunei Darussalam Indonesia Maylasia Myanmar n.a n.a Philippines Singapore Thailand Vietnam A further concern about the countries macroeconomics, especially among ASEAN countries, is corruption. For almost all the ASEAN s members, the Corruption Perception Index (CPI) is very low (See Table 12 and Figure 6). 10 This means that a high degree of corruption is perceived to exist among public officials and politicians in almost all ASEAN member countries. Singapore is the only country in the region in which there is almost no corruption perceived in the public and political sectors. Moreover, Singapore is one of the highest ranked countries out of 179 countries surveyed. Nevertheless, control of corruption is only one of the measures used to indicate the quality of governance of countries. Table 12 and Figure 6. ASEAN Corruption Perceptions Index 2007 (Source: Transparency International Online) Country Rank Country 2007 CPI Score Confidence Range 4 Singapore Malaysia Thailand Vietnam Philippines Indonesia Cambodia Laos Myanmar Myanmar Laos Cambodia Indonesia Philippines Vietnam Thailand Malaysia Singapore 2007 CPI Score Governance is the process of decision making; the process by which decisions are or are not implemented, and it is measured in terms of accountability, political stability and lack of violence, government effectiveness, regulatory quality, and rule of law. Comparing the years 2006, 2002, and 1998 (top to bottom order in the chart below) and considering six governance dimensions 15

16 (Voice and Accountability, Political Stability and Lack of Violence/Terrorism, Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption), Figures 7 shows the percentile rank of each ASEAN country on each of the above-mentioned indicators. 11 As shown in these figures, there is a vastly varied governance situation among ASEAN s members. Yet, the first dimension voice and accountability has been ranked below the 50th percentile in 2006 in all ASEAN countries, including Singapore. Figure 7. ASEAN Governance Indicators (World Bank Governance Matters 2007 Online). 16

17 Further macroeconomic facts are related to infrastructure and environmental quality. The former ones are especially of interest for those factors relating to country competitiveness (see the next section). Tables 13 and 14 and Figures 8, 9, and 19 show some indicators regarding the above-mentioned aspects. Delivery of ASEAN s public infrastructure services (i.e., electricity, water, and roads, see Table 13) is inadequate. Only four countries are almost completely electrified, and there are countries such as Indonesia where only 55 percent of the population had electricity in In addition, only four countries have sources of improved water, while a significant share of the population in the rest of the countries do not have improved water sources. This is the case for countries such as Lao PDR and Cambodia where 49 and 59 percent, respectively, of the population does not have an improved water source. In terms of connectivity between places, which is indicated by the percentage of paved roads in Table 13, countries such as Cambodia, Lao PDR, and the Philippines do not allow easy travel. 12 In spite of the large differences among countries revealed by the Human Development Index (HDI), 13 there is a high literacy rate in almost all the countries in the region (more than 90 percent of adults are literate). This is shown in Table 14. Public expenditures on public services (in terms of education and health) among the countries during varied. Paradoxically, the public expenditures in health and education was lower in the countries that tended to promote a communist/socialist socioeconomic organization, such as Laos PDR, Myanmar, and Vietnam (see Table 14). 17

18 Moreover, and as shown in Table 14, ASEAN s military public expenditures vary from less than 1 percent to almost 5 percent among the countries. Brunei and Singapore have the highest share of these expenses in terms of GDP. Nevertheless, there is a diminishing tendency for military expenditures in all of the member countries. In the period , the expenditures for debt service (interest and principal payments due) expressed as a percentage of GDP declined in most of the countries, except Thailand, Philippines, and Lao PDR. However, ASEAN s debt service is moderate when compared with other emergent economies (e.g., Latin America). See Table 14. Table 13. Public Services Delivery (Sources: (Source: UNDP Human Development Report 2007/2008 Online). Population not using HDI rank Country Population without electricity Electrification rate an improved water source Roads, Paved (millions) (%) (%) (% of roads) Singapore Brunei Darussalam n.a Malaysia Thailand Philippines Viet Nam n.a 107 Indonesia Lao PDR n.a n.a Cambodia Myanmar n.a Table 14. Priorities in public expending (Source: UNDP Human Development Report 2007/2008 Online). Adult literacy rate (% aged 15 and above) Public expenditure on health Public expenditure on education Military expenditure Total debt service HDI rank Country (% of GDP) (% of GDP) (% of GDP) (% of GDP) Singapore n.a n.a 30 Brunei Darussalam n.a n.a n.a 63 Malaysia Thailand Philippines Viet Nam n.a n.a n.a Indonesia Lao PDR n.a 2.3 na Cambodia n.a Myanmar n.a 1.3 n.a n.a n.a n.a ASEAN environmental conditions can be observed by examining its biodiversity status. 14 Figure 8 shows the biodiversity status in 2000, and it also shows four possible scenarios in All scenarios show that the regions will continue to experience declines in terrestrial biodiversity. The greatest losses are for market-first scenarios followed by security-first, policies-first, and environmental-first scenarios. According to these scenarios, Asia the Pacific region, in general is the third most affected region on earth (after Africa and Latin America). ASEAN, in particular, is affected mostly under the first two scenarios, while the losses are less than 10 percent for the last two 18

19 scenarios. However, the biodiversity problem is affected by a number of other factors (e.g., climate change that according to GEO4/UNEP is likely to play an increasing role in driving changes in biodiversity) and thus the above-mentioned scenarios provide only a rough idea. A World Wildlife Fund for Nature (WWF) study identified 200 priority terrestrial ecoregions. 16 These 200 ecoregions were ranked based on their current and future threats and conservation status, as shown in Figure 9. According to this study, 47 percent of the terrestrial ecoregions condition is critical or endangered, 29 percent is classified as vulnerable, and only 24 percent as intact or stable. All ASEAN countries are part of the first two groups with the exception of an eastern area in Indonesia, which is among the 24 percent of intact or stable ecoregions. UNEP (2002) published a report, The Great Apes the road ahead, about the rapid decline in the number of great apes (including the chimpanzee, gorilla, and orangutan). They are threatened with extinction, although they live in protected areas. This report assesses the impact of infrastructure development on great ape populations (using the GLOBIO modeling approach). 17 The mentioned model estimates the extent of land area with a reduced abundance and diversity of living organisms, and it shows the results of infrastructure development, which indicate that more than 64 percent of the habitat of the orangutan has been negatively affected by infrastructure development. In particular, one of the most affected worldwide ecosystems is Borneo and Sumatra (and the orangutan). This is mostly because of fire, which is a major contributor to climate change. 18 Figure 8. Biodiversity loss according to four different scenarios (Source: Ahlenius, 2007 on UNEP/GRID-Arendal Online). 19

20 Figure 9. Status of terrestrial ecoregions - threats and vulnerabilities (Source: Ahlenius, 2007 on UNEP/GRID-Arendal Online) Figure 10a status of infrastructural development in South East Asia according to GLOBIO analyses (Source: Nellemann and Newton, 2002) Figure 10b. Future impact of infrastructural development in Southeast Asia according to GLOBIO scenarios for the year 2030 (Source: Nellemann and Newton, 2002) Summarizing the above, the features have provided references that reveal significant differences among integrated countries. Deep differences in the region were identified from diverse sources of data, ranging from basic quantitative macroeconomic indicators (e.g., GDP-PPP, income distribution, value of trade, FDI share, etc.) to other kinds of qualitative aggregate indicators that combine the views of a large number of enterprises, citizens, and expert survey respondents (e.g.,. situations with regard to democracy, CPI, governance indicators, etc.). Naturally, since ASEAN consists of countries at varying stages of development and competitiveness, the above facts are not intended to be a country comparison. ASEAN members, in fact, are not really comparable, although some of them can be compared (e.g., Malaysia and Thailand, Lao PRD and Myanmar, etc.). Moreover, the benchmarks of each of the countries are different. While one ASEAN country uses another more developed ASEAN country as a benchmark (such as Singapore), the most developed countries within the region could choose a rich OECD country as a benchmark. 20

21 Economic integration should benefit each single ASEAN economy. In this way, considering the huge differences among ASEAN members, the less-developed members could receive assistance from other members so they would be able to successfully implement the integration program across ASEAN. However, targeting assistance and building capabilities for an effective integration (in particular, for the effective implementation of the ASEAN Free Trade Agreement from which further socioeconomic benefits would be created) should lead to many efforts. Most of these efforts would consist of each member s internal reforms in terms of taxation, customs, tariffs and non-tariff barriers, legal support (including certifications and standards) and mutual recognition, infrastructure, and so forth. The economic integration of ASEAN requires considerable multidimensional efforts to fill the gap between socioeconomic and developmental status over the region. The following sections focus on general indicators of trade and recent legal/institutional issues. The trade section is comprised of indicators related to signatory ASEAN country members on international organizations and regional trade agreements, the biggest partners of the region as well as more trade sectors. The last section summarizes a number of ASEAN Charter public concerns and institutional needs. 4. ASEAN: TRADE FUNDAMENTALS a. Organizations and Agreements Most of the ASEAN members were GATT signatories, and all ASEAN countries except Laos are WTO members. The list of countries is shown in Table 18. Table 18. ASEAN WTO/GATT Members (Source: WTO Online) ASEAN countries that had signed GATT by 1994 ASEAN countries that are WTO Members by 2008 * Brunei Darussalam (1993) Brunei Darussalam (1993) Indonesia (1950) Cambodia (2004) Malaysia (1957) Indonesia (1950) Myanmar (1948) Malaysia (1957) Philippines (1979) Myanmar (1948) Singapore (1973) Philippines (1979) Thailand (1982) Singapore (1973) Thailand (1982) Vietnam (2007) (*) Laos is an observer country. The Common Effective Preferential Tariff (CEPT) scheme is a cooperation among ASEAN countries to reduce intraregional tariffs and eliminate non-tariff barriers. CEPT establishes the tariff rates for products under the ASEAN Free Trade Area (AFTA); in particular, it establishes the effective tariffs, preferential to ASEAN member states, to be applied to goods originating from ASEAN members. The rules of origin and tariff rates are defined in the inclusion list of the CEPT Scheme (available online at the ASEAN Secretariat). The origin of products eligible for the CEPT Scheme is determined by eight rules articulated in Rules of Origin for the CEPT Scheme for ASEAN. The products are eligible for preferential concessions if they fall under any one of the following conditions: 21

22 (1) products wholly produced or obtained in the exporting Member State, 19 or (2) products not wholly produced or obtained in the exporting Member State. The reduction from existing tariff rates to 20 percent shall be done within a time frame of five to eight years, from 1 January 1993, subject to a reduction program to be decided by each Member State (and which should be announced at the start of the program). Member States are encouraged to adopt the following rate of reduction when the number of years is equal to five or eight: Annual rate of reduction = (existing tariff rate 20%) / number of years b. On Sectors and Partners According to McKinsey s (2003) ASEAN competitiveness study, ASEAN controls 40 percent of the oil and gas resources in the Asia-Pacific Region, and it is attractive because of its electronics manufacturing sectors. ASEAN principal export sectors for each of the country member are: Brunei Darussalam Natural Gas Myanmar Teak/Hardwoods Cambodia Apparel The Philippines Electronic Equipment Indonesia Petroleum Singapore Petroleum Laos Wood Products Thailand Computer/Related Parts Malaysia Electronic Equipment Viet Nam Crude Oil Similarly, the ASEAN Secretariat identified the above sectors. Six commodity groups in particular have more than 65 percent of the total trade share in 2005, as shown in Table 13. Above all, the biggest commodity groups are Machinery/Electrical (HS Codes 84 85) and Mineral Products (HS codes 25 27) including Chemicals and Allied Industries (HS codes 28 38, such as refineries and hydrocarbons). Table 14 shows in more detail some of the 2,000 key export sectors by country (indicated in the highlighted rows). These sectors represent, except for Laos, 20 more than 50 percent of the exports for each of the countries. Exports in both Brunei and Cambodia are concentrated in only one sector. The export basket of the Brunei is composed predominantly of natural resources, while Cambodia s is predominantly garment manufacturing. The export basket of the rest of the countries is more diversified, making their economies less vulnerable to both endogenous and exogenous shocks. Highlighted industries are those that McKinsey (2003) identified as the most attractive sectors (at the two-digit level) in the region. These sectors in countries such as Malaysia, Philippines, and Singapore represent percent of total exports in key sectors. In contrast, Laos and Myanmar have none of these attractive sectors as a part of their export baskets. 22

23 Table ASEAN high-share trade commodity group (Source: ASEAN Secretariat Statistic Online). Commodity Group Share to total trade % Electric machinery, equipment and parts; sound equipment; television equipment 27.6 Mineral fuels, mineral oils & products of their distillation; bitumin substances; mineral wax 16.0 Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof 15.1 Plastics and articles thereof 2.7 Organic chemicals 2.6 Vehicles, (not railway, tramway, rolling stock); parts and accessories 2.4 Table Exports Key Sectors share by ASEAN country (Source: McKinsey, 2003) SITC code Exports in key sector (%) 2000 Brunei Cambodia Indonesia Laos* Malaysia Myanmar Philippines Singapore Thailand Vietnam 3 Marine products Cereals, Vegetables, Fruits, Coffee, Tea and others Wood Petroleum, Petroleum Products and related materials Gas, Natural and Manufactured Textiles & Textile Yarns Articles of apparel Office Machines Telecommunications Electrical Machinery Total export share in key sctors (%) Share of exports on ASEAN's critical sectors (%) (*) The main export sector of Laos is Electricity, which represents 33.3 percent. The following tables (Tables 15a j) show the average top 10 export sectors for the period for each of the ASEAN countries. The top 10 sectors in most of the countries are composed of common industries. One of these industries is petroleum and petroleum products (33 SITC 2-Digit), which is one of the top 10 export sectors in six ASEAN countries. Other common industries for most of the countries are: cork and wood manufacturing (63 SITC 2 Digit), textiles (65 SITC 2-Digit), road vehicles (78 SITC 2-Digit), to mention a few. However, the most important export sectors for most of the countries are those related to specialized sectors in producing components and other high-tech intermediate inputs, such as general industry machinery, office and data processing machines, telecommunications and sound equipment, and electrical machinery (i.e., 74, 75, 76 and 77 SITC 2-Digit, respectively). 23

24 Table 15 (a j). ASEAN countries top-10 export industries (Source: UN COMTRADE Database) SITC 2 Digits TOP 10 Export Industries 33 PETROLEUM & PRODUCTS 34 GAS, NATURAL & MANUFACTURED 65 TEXTILE YARN, FABRICS, MADE UP ARTICLES, N.E.S 67 IRON & STEEL 71 POWER GENERATING MACHINERY & EQUIPMENT 74 GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, N.E.S 77 ELECTRICAL MACHINERY, N.E.S 78 ROAD VEHICLES 79 TRANSPORT EQUIPMENT, N.E.S. 84 ARTICLES OF APPAREL AND CLOTHING ACCESSORIES (a) Brunei SITC 2 Digits TOP 10 Export Industries 03 FISH, CRUSTACEANS, OTHERS 24 CORK AND WOOD 63 CORK AND WOOD MANUFACTURES 65 TEXTILE YARN, FABRICS, MADE UP ARTICLES, N.E.S 78 ROAD VEHICLES 79 TRANSPORT EQUIPMENT, N.E.S. 84 ARTICLES OF APPAREL AND CLOTHING ACCESSORIES 85 FOOTWEAR 89 MISCELLANEOUS MANUFACTURED ARTICLES, N.E.S. 97 GOLD, NON MONETARY (EX. GOLD ORES) (b) Cambodia SITC 2 Digits TOP 10 Export Industries 28 METALLIFEROUS ORES & METAL SCRAP 33 PETROLEUM & PRODUCTS 34 GAS, NATURAL & MANUFACTURED 42 FIXED VEGETABLE FATS & OILS 63 CORK AND WOOD MANUFACTURES 65 TEXTILE YARN, FABRICS, MADE UP ARTICLES, N.E.S 75 OFFICE MACHINES & AUTOMATIC DATA PROCESSING 76 TELECOMMUNICATIONS 77 ELECTRICAL MACHINERY, N.E.S 84 ARTICLES OF APPAREL AND CLOTHING ACCESSORIES (c) Indonesia SITC 2 Digits TOP 10 Export Industries 33 PETROLEUM & PRODUCTS 34 GAS, NATURAL & MANUFACTURED 42 FIXED VEGETABLE FATS & OILS 51 ORGANIC CHEMICALS 63 CORK AND WOOD MANUFACTURES 75 OFFICE MACHINES & AUTOMATIC DATA PROCESSING 76 TELECOMMUNICATIONS 77 ELECTRICAL MACHINERY, N.E.S 84 ARTICLES OF APPAREL AND CLOTHING ACCESSORIES 89 MISCELLANEOUS MANUFACTURED ARTICLES, N.E.S. (d) Malaysia SITC 2 Digits TOP 10 Export Industries 00 LIVE ANIMALS OTHER THAN FISH 05 VEGETABLES & FRUITS 24 CORK AND WOOD 28 METALLIFEROUS ORES & METAL SCRAP 35 ELECTRIC CURRENT 63 CORK AND WOOD MANUFACTURES 68 NONFERROUS METALS 78 ROAD VEHICLES 84 ARTICLES OF APPAREL AND CLOTHING ACCESSORIES 85 FOOTWEAR (e) Laos SITC 2 Digits TOP 10 Export Industries 03 FISH, CRUSTACEANS, OTHERS 04 CEREALS & PREPARATIONS 05 VEGETABLES & FRUITS 23 CRUDE RUBBER 24 CORK AND WOOD 33 PETROLEUM & PRODUCTS 34 GAS, NATURAL & MANUFACTURED 66 NONMETALLIC MINERAL MANUFACTURES, N.E.S. 68 NONFERROUS METALS 84 ARTICLES OF APPAREL AND CLOTHING ACCESSORIES (f) Myanmar SITC 2 Digits TOP 10 Export Industries 05 VEGETABLES & FRUITS 33 PETROLEUM & PRODUCTS 42 FIXED VEGETABLE FATS & OILS 75 OFFICE MACHINES & AUTOMATIC DATA PROCESSING 76 TELECOMMUNICATIONS 77 ELECTRICAL MACHINERY, N.E.S 78 ROAD VEHICLES 84 ARTICLES OF APPAREL AND CLOTHING ACCESSORIES 88 PHOTOGRAPHIC APPARATUS, WATCHES & CLOCKS, OTHERS, N.E.S. 89 MISCELLANEOUS MANUFACTURED ARTICLES, N.E.S. (g) Philippines SITC 2 Digits TOP 10 Export Industries 33 PETROLEUM & PRODUCTS 51 ORGANIC CHEMICALS 57 PLASTICS IN PRIMARY FORMS 72 SPECIALIZED MACHINERY 74 GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, N.E.S 75 OFFICE MACHINES & AUTOMATIC DATA PROCESSING 76 TELECOMMUNICATIONS 77 ELECTRICAL MACHINERY, N.E.S 87 PROFESSIONAL, SCIENTIFIC, etc. INSTRUMENTS, N.E.S. 89 MISCELLANEOUS MANUFACTURED ARTICLES, N.E.S. (h) Singapore SITC 2 Digits TOP 10 Export Industries 03 FISH, CRUSTACEANS, OTHERS 33 PETROLEUM & PRODUCTS 57 PLASTICS IN PRIMARY FORMS 74 GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, N.E.S 75 OFFICE MACHINES & AUTOMATIC DATA PROCESSING 76 TELECOMMUNICATIONS 77 ELECTRICAL MACHINERY, N.E.S 78 ROAD VEHICLES 84 ARTICLES OF APPAREL AND CLOTHING ACCESSORIES 89 MISCELLANEOUS MANUFACTURED ARTICLES, N.E.S. (i) Thailand SITC 2 Digits TOP 10 Export Industries 03 FISH, CRUSTACEANS, OTHERS 05 VEGETABLES & FRUITS 33 PETROLEUM & PRODUCTS 65 TEXTILE YARN, FABRICS, MADE UP ARTICLES, N.E.S 75 OFFICE MACHINES & AUTOMATIC DATA PROCESSING 76 TELECOMMUNICATIONS 82 FURNITURE & PARTS; BEDDING, MATTRESSES & OTHER FURNISHINGS 84 ARTICLES OF APPAREL AND CLOTHING ACCESSORIES 85 FOOTWEAR 89 MISCELLANEOUS MANUFACTURED ARTICLES, N.E.S. (j) Vietnam 24

25 Moreover, and according to McKinsey (2003), electronics is the most important export sector of the region because it accounts for about 50 percent of ASEAN s exports. However, and as observed in Tables 15(a j), there are only five electronics exporting countries: Indonesia, Malaysia, Philippines, Singapore, and Thailand. In other words, half of ASEAN members are producing half of the exports of the region. For most ASEAN countries, the origin of their imports is usually extra-asean countries (except for Lao PDR and Myanmar). A similar trend is observed for ASEAN export destinations. The origin and destination of ASEAN s imports and exports, respectively (intra- and extra-asean trade) is shown in Figures 11(a) and 11(b). Figures 11(a) intra- and extra-asean Imports (Source: ASEAN Secretariat Statistics Online) Figures 11(b) intra- and extra-asean Exports (Source: ASEAN Secretariat Statistics Online) 25