Within Southeast Asia, regionalism is now a familiar concept. There are various regional bodies within Asia that have been formed, including the Association of Southeast Asian Nations (ASEAN), South East Asia Treaty Organization (SEATO), Association for Southeast Asia (ASA), MAPHILINDO, and Asian and Pacific Council (ASPAC). However, regionalism has not always been present within the region. In 1979, Wong argued that there were a number of barriers preventing the formation of a regional unity in Southeast Asia. These factors included a strong presence of nationalism amongst states, a lack of regional trust and identity, territorial conflict, and differences in political perceptions between countries. These obstacles prevented unification until ASEAN was finally established.
In his session, Professor Tri Widodo discussed issues relating to the economy and welfare within Southeast Asia. Professor Tri Widodo gave an introduction about the history of the Association of Southeast Asia Nations (ASEAN), the development of economic conditions in Southeast Asia, the theory of the establishment of ASEAN Economic Community (AEC), and outlined some of ASEAN’s economic challenges in the future. According to Prof. Tri Widodo, there are several macroeconomic challenges faced by Southeast Asia such as unemployment, balance of payments, fiscal expansion, and monetary policy.
It has been argued that the early establishment of ASEAN was motivated by political rather than economic factors. The formation of ASEAN was based around the reconciliation of ASEAN initiating countries. Furthermore, the motivations and objectives of ASEAN were initially focused on the integration of international politics. It has only been since 1970, that ASEAN has prioritized the evolution of its regional economic structure. This shift towards economics is demonstrated by an increased presence of economic elements within the ASEAN structure, in addition to a widespread campaign on economic integration.
The economic development of ASEAN can now be observed by its positioning as one of the largest economies in the world. In 2012, ASEAN had a Gross Domestic Product (GDP) of US $2.3 billion, establishing ASEAN as the world’s seventh largest economy behind the US, China, Japan, Germany, France and the UK. The average economic growth of ASEAN between 1989 to 1989 ranged from 3.8% to 7%. To strengthen its international economic repuation, ASEAN launched the ASEAN Economic Community (AEC) in 2016. The AEC’s main objectives include the unity of markets and production bases, enhancing regional economic competitiveness, equitable regional economic growth, and comprehensive regional economic integration with the world economy.
AEC is one form of regional economic integration. However, according to Prof. Tri Widodo, the AEC has not met the requirements of the theory put forward by Balassa (1965) relating to economic integration. Balassa argues that to facilitate complete economic integration in a region, there are five stages that should be achieved by a nations’ economy, namely, (1) free trade (2) custom union, (3) common market, (4) economic union; and (5) complete integration. These five stages must be achieved in order to establish an integrated economy.
In practice, the ASEAN Economic Community (AEC) is a common market form, but certain trade tarrifs exist for countries outside the ASEAN. The implication is that countries outside ASEAN can take advantage of this by entering the countries that provide the lowest rates, and trade from those countries without having to be exposed to tariffs.
The common market launched in the AEC results in the freedom of production to flow freely between countries, such as capital and labor. Despite the inconsistency with this theory, ASEAN countries have their own way of integrating the economy, and refer to this as the “ASEAN Way”. Questions arise regarding AEC’s ability to operate as a sufficient common market without tariff uniformity for countries outside ASEAN. However, Prof. Tri Widodo believes that Balassa’s theory has been well-tested, and uses the European Union (EU) as an example. The EU does not go through a single step in the theory. The outcome of ASEAN’s economic policy can only be answered by time.
Overall, there has been significant progress made since the establishment of ASEAN, and the creation of the AEC. Although there are inconsistencies with Balassa’s theory, the AEC will continue to operate in the ‘ASEAN Way’. The legitimacy of the theory of Balassa’s economic integration theory and its relationship with the ‘Asean Way’, can only be proved by its future development, and thus will be answered in time.
This article was written by Ruspratama Yudhawirawan (in Indonesian), an economics student, Faculty of Business and Economics, Universitas Gadjah Mada, while working as an intern at Center for Southeast Asian Social Studies (CESASS).