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Monday, June 30, 2014

The Impact of ASEAN Integration-It’s all in the numbers!

The Association of Southeast Asian Nations (ASEAN) decided in 1997 to transform ASEAN into a stable, prosperous, and highly competitive region with equitable economic development, and reduce poverty and socio-economic disparities by the year 2020. In 2007, ASEAN decided integration should be complete by 2015 instead.[1]

To reach this goal, ASEAN created a list of objectives called “blueprints” for the ASEAN Political Security Community (APSC), ASEAN Socio-Cultural Community (ASCC) and the ASEAN Economic Community (AEC). Each blueprint contained action points ASEAN felt necessary to complete in order to consider ASEAN properly integrated. Anything not mentioned in the blueprints is not an objective of ASEAN integration. However, it does not mean it will not be integrated in the future. It’s only not part of the current list of objectives.

In the case of the AEC, a timeline was also included to gradually easy the individual economies into a state of integration. Moving too quickly or all at once could have shocked some of the weaker economies and created a crisis that separated economies even more rather than integrate them.

The AEC timeline was divided into 4 phases and during each phase specific action points were implemented. The phases were as follows: Phase 1: 2008-2009, Phase 2: 2010-2011, Phase 3: 2012-2013 and Phase 4: 2014-2015. Currently, ASEAN is in Phase 4 of the AEC integration process.

The AEC consists of 4 pillars of integration. (1) Single Market and Production Base; (2) Competitive Economic Region; (3) Equitable Economic Development; (4) Integration into the Global Economy.  During each phase of the integration process, various levels of integration of these pillars took place.

To ensure a timely implementation of the AEC initiatives, ASEAN has established a monitoring mechanism called the AEC Scorecard. As a compliance tool, the AEC Scorecard reports the progress of implementing the various AEC measures, identifies implementation gaps and challenges, and tracks the realization of the AEC by 2015.[2] In short, it only looks at the AEC Blueprint objectives.

While the scorecard is important to monitor the success of the ASEAN objectives, more important are the impacts across the region. Various international organizations routinely assess countries around the world for various reasons. The data collected can be used to show impacts of decisions by governments as well as organizations such as ASEAN.  

For example, following the 1997 announcements from the ASEAN Declaration of ASEAN Concord II and the ASEAN 2020 Vision, higher than normal increases of GDP[3] across several GMS states occurred. From 1997 to 2012, annual GDP increases averaged around 10% for Cambodia, 9% for Laos, almost 5% for Thailand and around 8% for Vietnam. During this same time period the United States only averaged around 4% increases in annual GDP.

GDP/Capita (PPP) during this time period also experienced average annual increases that possibly increased standards of living. Thailand GDP/Capita (PPP) average annual increase from 1998-2012 was 5% while Vietnam and Laos both had increases of 7% with Cambodia the highest average annual increase in GDP/Capita of 8%. Meanwhile, in the United States, increases in GDP/Capita only averaged 3%.

Other areas that might indicate improvements in standards of living is the Poverty Gap assessment by the World Bank. This indication of extreme poverty measures how many people are living on less than US $1.25 per day. In 1992, it was estimated 730,000 Lao citizens were living on less than $1.25 per day. By 2008, this number was reduced to about 550,000. This was a reduction of 25%. In 1994, Cambodia had 1.2 million citizens living on less than $1.25 per day. By 2009, this number was reduced 60% to almost 500,000 people. Thailand’s population of 56 million in 1990 had approximately 1.3 million people living on less than $1.25 per day. By 2010, this number was reduced 98% to around 26,500 people. In 1993, Vietnam had almost 16.5 million people living on less than $1.25 per day. By 2008, this number was reduced 81% to almost 3.2 million people. Also keep in mind, according to the US Census Bureau, there are 46.2 million Americans living in poverty in the US in 2010.

Another factor that helps to improve the lives of people is the ability to find work. Foreign Direct Investment (FDI) is when a person or business from one country invest in another country by either equity capital, reinvestment of earnings, other long term capital, or short term capital as shown in the balance of payments. FDI has many benefits for a country.

For example, in order to run the business, you need employees. The employees earn wages which they spend on the local economy. The increased demand of the local citizens prompts producers to produce more of what is being bought. Higher labor demand labor increases wages and encourages innovation to reduce costs. Also, with the ASEAN Free Trade Area (FTA), 98% tariff elimination on intra ASEAN trade opens up new markets for the new FDI created business to compete in.

Thailand and Vietnam, average annual increase in FDI was 15% from 1998 to 2012. Myanmar and Cambodia annual average was 21% and 25% respectively. Laos had the largest average annual FDI with 57%. Total FDI net inflows from 1998 to 2012 was more than 188 billion dollars in the 4 GMS countries.[4]

There are literally hundreds of various indicators that could be examined to assess standard of living in the GMS states to see how the ASEAN FTA has impacted the region. While there may be other factors that added to positive results, chances are the ASEAN FTA is providing the most positive impact. For a clearer indication of the success of the AEC integration, don’t only look at the AEC Scorecard. The real impact is in the numbers!

[1]  ASEAN Economic Community Blueprint (2008)
[2] ASEAN Economic Community Scorecard-2nd Reprint (2013)
[3] GDP, PPP (current international $) World Development Indicators from the World Bank
[4] The World Bank-World Development Indicators 2014