DEPARTMENT OF BUSINESS ADMINISTRATION

UnIVERSITY OF LUCKNOW

YEAR 2016-17

INTERNATRIONAL BUSINESS MANAGEMENT

TERM PAPER ON

REGIONAL ECONOMIC INTEGRATION OF ASEAN

SUBMITTED TO- SUBMITTED BY -

Asst. prof. Ambrish Singh Shiv Sagar Verma

MBA (IB) 3RD SEM.

ROLL NO. 16001115043

Acknowledgement

On the very outset of this report, I would like to extend my sincere & heartfelt

obligation towards all the personages who have helped me in this endeavor.

Without their active guidance, help, cooperation & encouragement, I would not

have made headway in the project.

I have taken efforts in this project. I would like to take this opportunity to express

my sincere thanks to my teacher Ambrish Singh for all the guidance & support & it

would not have been possible without the kind support and help of my friends &

family. I would like to extend my sincere thanks to all of them.

Any omission in this brief acknowledgement does not mean lack of gratitude.

Thanking You

Shiv Sagar Verma

MBA (IB)

REGIONAL ECONOMIC INTEGRATION OF “ASEAN”

The Association of Southeast Asian Nations is a regional organization comprising ten Southeast Asian states which promotes intergovernmental cooperation and facilitates economic integration amongst its members. Since its formation on August 8, 1967 by Indonesia, Malaysia, the Philippines, Singapore, and Thailand, the organization’s membership has expanded to include Brunei, Cambodia, Laos, Myanmar (Burma), and Vietnam. Its principal aims include accelerating economic growth, social progress, and sociocultural evolution among its members, alongside the protection of regional stability and the provision of a mechanism for member countries to resolve differences peacefully.

ASEAN covers a land area of 4.4 million square kilometers, 3% of the total land area of Earth. ASEAN territorial waters cover an area about three times larger than its land counterpart. Member countries have a combined population of approximately 625 million people, 8.8% of the world's population. In 2015, the organization’s combined nominal GDP had grown to more than US$2.8 trillion. If ASEAN were a single entity, it would rank as the sixth largest economy in the world, behind the USA, China, Japan, Germany and the UK. ASEAN shares land borders with India, China, Bangladesh, East Timor, and Papua New Guinea, and maritime borders with India, China, and Australia. Both East Timor and Papua New Guinea are backed by certain ASEAN members for their membership in the organization.

Foundation

ASEAN was preceded by an organization formed in 1961 called the Association of Southeast Asia (ASA), a group consisting of the Philippines, Malaysia, and Thailand. ASEAN itself was created on 8 August 1967, when the foreign ministers of five countries: Indonesia, Malaysia, the Philippines, Singapore, and Thailand, signed the ASEAN Declaration, more commonly known as the Bangkok Declaration.

The creation of ASEAN was motivated by a common fear of communism, and a thirst for economic development.

ASEAN grew when Brunei Darussalam became its sixth member on 7 January 1984, barely a week after gaining independence.

“The Association of Southeast Asian Nations (ASEAN) was formed in 1967 by Indonesia, Malaysia, the Philippines, Singapore, and Thailand to promote political and economic cooperation and regional stability. Brunei joined in 1984, shortly after its independence from the United Kingdom, and Vietnam joined ASEAN as its seventh member in 1995. Laos and Burma were admitted into full membership in July 1997 as ASEAN celebrated its 30th anniversary. Cambodia became ASEAN’s tenth member in 1999.

The ASEAN Declaration in 1967, considered ASEAN’s founding document, formalized the principles of peace and cooperation to which ASEAN is dedicated. The ASEAN Charter entered into force on 15 December 2008. With the entry into force of the ASEAN Charter, ASEAN established its legal identity as an international organization and took a major step in its community-building process.

The ASEAN Community is comprised of three pillars, the Political-Security Community, Economic Community and Socio-Cultural Community. Each pillar has its own Blueprint approved at the summit level, and, together with the Initiative for ASEAN Integration (IAI) Strategic Framework and IAI Work Plan Phase II (2009-2015), they form the Roadmap for and ASEAN Community 2009-2015.

ASEAN commands far greater influence on Asia-Pacific trade, political, and security issues than its members could achieve individually. This has driven ASEAN’s community building efforts. This work is based largely on consultation, consensus, and cooperation.

U.S. relations with ASEAN have been excellent since its inception. The United States became a Dialogue Partner country of ASEAN in 1977. Dialogue partners meet regularly with ASEAN at the working and senior levels to guide the development of our regional relations. In July 2009, Secretary Clinton signed the

Treaty of Amity and Cooperation in Southeast Asia (TAC) which has greatly enhanced U.S. political relations with ASEAN.

Every year following the ASEAN Ministerial Meeting, ASEAN holds its Post-Ministerial Conference (PMC) to which the Secretary of State is invited. In 1994, ASEAN took the lead in establishing the ASEAN Regional Forum (ARF), which now has 27 members and meets each year at the ministerial level just after the PMC.

On November 15, 2009, President Obama met with ASEAN leaders in Singapore. This was the first meeting ever between a U.S. President and all ten ASEAN leaders. The President’s meeting has greatly advanced U.S. relations with ASEAN and the East Asia region. Nina Hachigian is the U.S. Ambassador to ASEAN.”

PURPOSE OF ASEAN

As set out in the ASEAN Declaration, the aims and purposes of ASEAN are:

1. To accelerate the economic growth, social progress and cultural development in the region through joint endeavors in the spirit of equality and partnership in order to strengthen the foundation for a prosperous and peaceful community of Southeast Asian Nations;

2. To promote regional peace and stability through abiding respect for justice and the rule of law in the relationship among countries of the region and adherence to the principles of the United Nations Charter;

3. To promote active collaboration and mutual assistance on matters of common interest in the economic, social, cultural, technical, scientific and administrative fields;

4. To provide assistance to each other in the form of training and research facilities in the educational, professional, technical and administrative spheres;

5. To collaborate more effectively for the greater utilization of their agriculture and industries, the expansion of their trade, including the study of the problems of international commodity trade, the improvement of their transportation and communications facilities and the raising of the living standards of their peoples;

6. To promote Southeast Asian studies; and 7. To maintain close and beneficial cooperation with existing international and

regional organizations with similar aims and purposes, and explore all avenues for even closer cooperation among themselves.

FUNDAMENTAL PRINCIPLES

In their relations with one another, the ASEAN Member States have adopted the following fundamental principles, as contained in the Treaty of Amity and Cooperation in Southeast Asia (TAC) of 1976:

1. Mutual respect for the independence, sovereignty, equality, territorial integrity, and national identity of all nations;

2. The right of every State to lead its national existence free from external interference, subversion or coercion;

3. Non-interference in the internal affairs of one another; 4. Settlement of differences or disputes by peaceful manner; 5. Renunciation of the threat or use of force; and 6. Effective cooperation among themselves.

ASEAN COMMUNITY

The ASEAN Vision 2020, adopted by the ASEAN Leaders on the 30th Anniversary of ASEAN, agreed on a shared vision 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.

At the 9th ASEAN Summit in 2003, the ASEAN Leaders resolved that an ASEAN Community shall be established.

At the 12th ASEAN Summit in January 2007, the Leaders affirmed their strong commitment to accelerate the establishment of an ASEAN Community by 2015 and signed the Cebu Declaration on the Acceleration of the Establishment of an ASEAN Community by 2015.

The ASEAN Community is comprised of three pillars, namely the ASEAN Political-Security Community, ASEAN Economic Community and ASEAN Socio-Cultural Community. Each pillar has its own Blueprint, and, together with the Initiative for ASEAN Integration (IAI) Strategic Framework and IAI Work Plan Phase II (2009-2015), they form the Roadmap for an ASEAN Community 2009-2015.

ASEAN CHARTER

The ASEAN Charter serves as a firm foundation in achieving the ASEAN Community by providing legal status and institutional framework for ASEAN. It also codifies ASEAN norms, rules and values; sets clear targets for ASEAN; and presents accountability and compliance.

The ASEAN Charter entered into force on 15 December 2008. A gathering of the ASEAN Foreign Ministers was held at the ASEAN Secretariat in Jakarta to mark this very historic occasion for ASEAN.

With the entry into force of the ASEAN Charter, ASEAN will henceforth operate under a new legal framework and establish a number of new organs to boost its community-building process.

In effect, the ASEAN Charter has become a legally binding agreement among the 10 ASEAN Member States.

The importance of the ASEAN Charter can be seen in the following contexts:

New political commitment at the top level New and enhanced commitments New legal framework, legal personality New ASEAN bodies Two new openly-recruited DSGs More ASEAN meetings More roles of ASEAN Foreign Ministers New and enhanced role of the Secretary-General of ASEAN Other new initiatives and changes

ASEAN Economic Integration: Opportunities and Challenges that Lie Ahead The Association of Southeast Asian (ASEAN) leaders adopted the ASEAN Vision 2020 hoping to strengthen the foundation for a prosperous and peaceful community of Southeast Asian nations while creating a community that lived in shared stability and prosperity. The purpose of establishing an integrated economic community is to accelerate economic growth, enhance trade development in the region, and allow the freer movement of goods, services, skilled labor, and capital.

There are approximately 600 million people across the ten ASEAN member countries (Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) that will be affected by this regional partnership. Thus, it is critical to highlight some high level opportunities as well as challenges surrounding the impending economic integration.

Background

The 1997 Asian financial crisis generated substantial macroeconomic fundamental effects, including a collapse of Asian stock markets, devaluations of domestic currencies, and a reduction in asset prices throughout Asian countries. Many businesses collapsed which in turn condensed per capita income for millions of people in the region.

Some experts argue that the Asian financial crisis exposed many issues such as banks’ structural inefficiencies, weak financial infrastructures, lack of transparency and weak governance and regulation involving the banking sector. Others argue that moral hazard, asymmetric information, short-sighted government policies, weak institutions, and ineffective regulation also made the region vulnerable to the crisis.

In the years that followed the Asian Financial crisis, ASEAN leaders discussed creating economic policies that would both support economic growth and protect the region from any potential future economic shocks. Consequently, the ASEAN Economic Community emerged as an apparatus for meeting these needs.

Opportunities As a region, ASEAN has dramatically outpaced the rest of the world in growth of GDP per capita since the late 1970s. Income growth has remained strong since 2000, with average annual real gains of more than 5 percent. According to a study by McKinsey, in the year 2000, 14 percent of the region’s population was living below the international poverty line of $1.25 a day (calculated in purchasing-power-parity terms), but by 2013, that share had fallen to just 3 percent.

Already several million households in ASEAN countries have incomes that allow them to make significant discretionary purchases. That number could reach 125 million households by 2025, making ASEAN an important consumer market.

There is a substantial list of opportunities associated with AEC integration. For instance, economic integration provides opportunities to boost economic stability in the region. Another benefit is that integration would turn ASEAN into a more competitive region within the world economy. A stronger regional economy will help to improve the living standards of the ASEAN population by reducing poverty through economic development.

ASEAN member countries expect to achieve greater economic cooperation in the areas of financial policies, trade, and human capital. AEC integration will also serve to promote goods and services, investment, labor mobilization, and mobilization of capital. The ASEAN region could potentially become a highly competitive economic union operating as a single market. ASEAN also intends to improve regional agricultural and industrial utilization, as well as expand trade, and improve transportation and infrastructure.

Labor-force expansion and productivity improvements have driven GDP growth in the ASEAN region. ASEAN has the third-largest labor force in the globe, behind China and India. The ASEAN region is projected to rank as the fourth-largest economy in the world by the year 2050.

Economic growth and expansion in trade have yielded tangible benefits to Southeast Asia’s people. In 2012, ASEAN’s GDP per capita reached $3,748, more than double the year 2000 figure of $1,172. Over the last ten years, poverty levels across the region have decreased. The Nation reported that in Cambodia, Laos, Myanmar, and Vietnam, the proportion of the population living on less than $1.25 a day fell to 16 percent in 2010, from 45 percent in 2000. However, it is important to highlight that there are structural and institutional differences across the 10 member ASEAN countries, and consequently, these countries can be expected to have different levels of economic growth and subsequent economic development.

Challenges Economic integration could potentially combine to produce opportunities to ASEAN countries; however, it could also generate challenges, namely higher costs related to implementing economic integration across such economically and culturally diverse countries.

ASEAN is an economic region which has diverse patterns of economic development. The majority of ASEAN countries are categorized as low middle income countries, whereas a few are positioned better economically. The existing

income inequality gap among some of the ASEAN countries could become even wider post AEC integration.

There is the possibility of witnessing highly disparate levels of economic

development, interest rates, and exchange rates across member countries. As a

result, governments could face some challenges in stabilizing macroeconomic

and financial conditions under an integrated economic system.

In order to take full advantage of economic growth, the region must develop its

human capital and workforce skills, while addressing income inequality and

gender inequality. In order for ASEAN to become more globally competitive in a

wide range of sectors and industries, it must invest in institutions, infrastructure,

education, on the-job-training, and in allowing women to participate more in the

regional economy.

The ASEAN region sits at the intersection of global flows. Intraregional trade in

goods is likely to increase with the implementation of AEC as is overall economic

growth. To realize the full potential of the AEC, better management of structural

and institutional change is needed, in addition to ensuring that economic gains

lead to shared prosperity among the population. The success of ASEAN

economic integration will depend on how it influences the labor market – and

consequently on how it improves the quality of life of women and men in the

region.

Some ASEAN countries have high inflation rates. This could result in dissimilar

price levels and unequal purchasing power across ASEAN member countries,

giving some countries the ability to purchase more goods of another member

country. Also, different levels of inflation could result in different levels of

investment. Many of the ASEAN economies are currently in vastly different

stages of development, with large differences between high-saving economies,

such as Brunei, Malaysia, and Singapore, and low-saving economies, such as

Cambodia, Laos, and the Philippines.

There are opportunities and challenges that surround AEC, including managing labor migration, boosting productivity and wages, and improving job quality. These items in turn will produce effects on job skills development, wages and productivity, and labor migration. However, it is important to emphasize that unless managed properly, the AEC may not be able to capitalize on all of the foreseeable economic opportunities, and instead it could witness an increase in income inequality across the region which would certainly affect the poorest.

The politics of the Asean economic integration

The inevitable coming of the Asean economic integration will do more harm than good to our local economy. Many are hopelessly optimistic, thinking of a possible boom for the local economy in terms of an expanded or extended market without any basis, relying on mere perception of progress and development as though this economic integration would be “manna” from heaven.

Although the local labor force may be a beneficiary of this trade treaty, it is a figment of the imagination that the entire labor force will benefit. For instance, professional jobs are listed as the priority and not the blue-collar workers of which the country has an oversupply. We always brag about the multitude of people we have locally, expecting to augment our domestic income by way of sending workers overseas, but how many of these people have the skills and technological know-how to qualify for overseas employment? The economic integration will be a melting pot of Asean development and technological advancement, not a dumping ground for unskilled individuals.

Though the intention of this modern day treaty is to promote progressive economies among the Asean members, the economic well-being of each country will determine how it will fare in the competitive world. Despite the many accolades the Philippines has received in terms of investment rating upgrades, all of which were earned on the basis only of perception (e.g., the significant elimination of graft and corruption), as far as industrial competitiveness is concerned, we have yet to see the Philippines join the elite group of leading economies.

In more concrete terms, like products and services that can compete with our Asean counterparts, a lot more need to be done and improved upon. Our agricultural sector, for instance, which we have always been proud of because of our rich natural resources, has remained stagnant thanks to the failed agrarian reform program in the country. Unless the land owners as well as the government submit themselves to the real intentions a genuine land reform program, our country and our agricultural workers, who comprise about 60 percent of our labor force, will forever be mired in poverty and hunger.

The failure and insincerity of our land reform program is a testament to why poverty and hunger will linger and will be here to stay. It should have been an opportunity for the government to equip our people to become self-sufficient and not rely on the government for their subsistence. It could have been an armor to escape the wrath of hunger and abject poverty. It could have saved the government more than P50 billion in conditional cash transfer (CCT) funds or

dole-outs, but the government lost the opportunity to improve the living standards of its people not because it could not afford to fully implement the Agrarian Reform Law, but because of some political and personal concerns.

Varying economic and political interests

Though Asean economic cooperation has been in existence since the decade of the 60s, as started by Maphilindo (Malaysia, Philippines and Indonesia), the regional bloc has failed to make its mark in terms of worldwide significance. Despite the regional cooperation that was initiated by the group, it failed to establish its regional identity among the community of nations. A study conducted by the Centre for Public Policy Studies (CPPS) notes that “The issue of regional identity or the lack of which has been linked to states making decisions out of national interest rather than considering the implications on the community as a whole. No clear Southeast Asian identity exists, with people sharing little by way of culture, common history or language.”

Implicitly, common interests still prevail among the Asean members but not full economic benefit. And this forthcoming integration will in no way be different from the existing Asean accord. Although a more comprehensive trade barrier is bound to be removed, product competition and identity will still prevail.

While the Asean economic integration is a positive step towards full regional and global cooperation, apprehensions about technological transfer and common interests will always be there. Political and economic protectionism will still tacitly prevail. This is natural for any political or geographical unit and reflected by any governmental organization; just like the failure of our Agrarian Reform Law, which is a microcosm of the protection of personal and political interests.

CURRENT LEADERS OF ASEAN

Brunei Cambodia Indonesia

Sultan Hassanal Bolkiah Prime Minister Hun Sen President Joko Widodo

Laos Malaysia Myanmar

President Bounnhang Vorachith Prime Minister Najib Razak State Counselor Aung San suu kyi

Philippines Singapore Thailand

President Rodrigo Duterte Prime Minister Lee Hsien Loong Prime Minister Prayuth chan- ocha

Vietnam

Prime Minister Nguyễn Xuân Phúc

ECONOMY: ASEAN

ASEAN is built on three pillars: the ASEAN Political-Security Community

(APSC), the ASEAN Economic Community (AEC), and the ASEAN Socio-

Cultural Community (ASCC).

ASEAN sought economic integration by creating the AEC by the end of 2015.

This established a common market. The average economic growth of ASEAN's

member nations during 1989–2009 was between 3.8% and 7%. This economic

growth was greater than the average growth of the Asia-Pacific Economic

Cooperation (APEC), which was 2.8%.

The ASEAN Free Trade Area (AFTA), which was established on 28 January

1992, includes a Common Effective Preferential Tariff (CEPT) to promote the

free flow of goods between member states. When the AFTA agreement was

originally signed, ASEAN had only six members: Brunei, Indonesia, Malaysia, the

Philippines, Singapore, and Thailand. Vietnam joined in 1995, Laos and Burma in

1997, and Cambodia in 1999. The newcomers have not fully met AFTA's

obligations, but they are officially considered part of the AFTA as they were

required to sign the agreement upon entry into ASEAN, and were given longer

time frames in which to meet AFTA's tariff reduction obligations.

The next steps are to create a: single market and production base, a competitive

economic region, a region of equitable economic development, and a region that

is fully integrated into the global economy.

Since 2007, ASEAN countries have gradually lowered their import duties to

member nations. The target is zero import duties by 2016.

In February 2016, President Obama initiated the inaugural US-ASEAN Summit

at Sunny lands for closer engagement with ASEAN, as China's economic and

trade growth have dimmed. The territorial disputes in the South China Sea were

also discussed. However, in a final joint statement, the Sunny lands Declaration

did not allude to the South China Sea by name, instead calling for: "respect for

each nation's sovereignty and for international law". Analysts believe the wording

indicated divides within the group on how to respond to China's maritime

strategy.

Internal market

By the end of 2015, ASEAN plans to establish a common market based upon the four freedoms. The single market will ensure the free flow of goods, services, skilled labour, and capital.

Until the end of 2010, intra-ASEAN trade was still low. Trade involved mainly exports to countries outside the region, with the exception of Laos and Myanmar, whose foreign trade was ASEAN-oriented, with 80% and 50% respectively of their exports going to other ASEAN countries.

In 2009, realised foreign direct investment (FDI) was US$37.9 billion and increased two-fold in 2010 to US$75.8 billion. 22% of FDI came from the European Union, followed by ASEAN countries (16%), and by Japan and the USA.

The ASEAN Framework Agreement on Trade in Services (AFAS) was adopted at the ASEAN Summit in Bangkok in December 1995. Under AFAS, ASEAN member states enter into successive rounds of negotiations to liberalise trade in services with the aim of submitting increasingly higher levels of commitment. At present, ASEAN has concluded seven packages of commitments under AFAS.

Free flow of skilled labour

Mutual Recognition Agreements (MRAs) have been agreed upon by ASEAN for eight professions: physicians, dentists, nurses, architects, engineers, accountants, surveyors, and tourism professionals. Individuals in these professions will be free to work in any ASEAN nation after the AEC goes into effect on 31 December 2015. Applicants must be licensed and recognised professionals in these fields in their home countries. They can move to other ASEAN countries to practice, but they must pass that country's licensing test. In Thailand, licensing tests will be in the Thai language. In addition, one cannot be an independent practitioner. Any foreign professional intending to work must collaborate with a local business. Given these hurdles, it is unlikely that there will be significant migrations of professionals in the near-term. A Chulalongkorn University study predicts that more developed countries stand to benefit the most from the free flow of professionals.

Free trade

Free trade initiatives in ASEAN are spearheaded by the implementation of the ASEAN Trade in Goods Agreement (ATIGA) and the Agreement on Customs. These agreements are supported by work done by several sector bodies to plan and to execute free trade measures, guided by the provisions and the requirements of ATIGA and the Agreement on Customs. The progress being made by these sector bodies forms a backbone for achieving the targets of the AEC Blueprint and establishing the ASEAN Economic Community by the end of 2015.

The year 2007 was the 40th anniversary of ASEAN's formation. It also marked 30 years of diplomatic relations with the USA. On 26 August 2007, ASEAN stated that it aims to complete all of its free trade agreements with China, Japan, South Korea, India, Australia, and New Zealand by 2013. This is in line with the start of the ASEAN Economic Community by 2015. In November 2007, ASEAN members signed the ASEAN Charter, a constitution governing relations among ASEAN members and establishing ASEAN itself as an international legal entity. During the same year, the Cebu Declaration on East Asian Energy Security was signed (15 January 2007) by ASEAN and the other members of the EAS (Australia, The People's Republic of China, India, Japan, New Zealand, South Korea), which pursues energy security by finding energy alternatives to conventional fuels.

On 27 February 2009, a free trade agreement (FTA) with the ASEAN regional bloc of ten countries and Australia, and its close partner New Zealand was signed. It is believed that this FTA would boost combined GDP across the twelve countries by more than US$48 billion over the period between 2000 and 2020. ASEAN members, together with the group's six major trading partners (Australia, China, India, Japan, New Zealand, South Korea), began the first round of negotiations on 26–28 February 2013, in Bali, Indonesia on the establishment of the Regional Comprehensive Economic Partnership

ASEAN six majors Six majors refers to the six largest economies in the area that are many times

larger than the remaining four ASEAN countries:

Country

Population (in

millions)

GDP (Nominal

2016) (billions of

US dollars)[61]

GDP (Nominal

Per Capita) (US

dollars)

GDP (PPP 2016)

(billions of US

dollars) [62]

GDP (PPP Per Capita)

(US dollars)

Indonesia 260.6 $940,953 $3,610 $3,027,827 $11,618

Thailand 68.1 $390,592 $5,777 $1,152,421 $16,922

Philippines 103.3 $311,687 $3,017 $793,193 $7,678

Malaysia 30.8 $302,748 $9,890 $859,881 $27,918

Singapore 5.6 $292,642 $53,209 $484,951 $86,598

Vietnam 95.3 $200,493 $2,103 $592,848 $6,220

ASEAN Capital Markets Forum (ACMF)

The ACMF is a collaboration among the seven stock exchanges of Malaysia, Vietnam (2 exchanges), Indonesia, Philippines, Thailand, and Singapore. It includes 70% of the transaction values of the seven ASEAN stock exchanges. Its objective is the integration of ASEAN stock exchanges so as to compete with international exchanges.

Development gap

When Vietnam, Laos, Myanmar, and Cambodia joined ASEAN in the late 1990s, concerns were raised about a gap in average per capita GDP between older and newer members. In response, the Initiative for ASEAN Integration (IAI) was formed by ASEAN as a regional integration policy with the goal of bridging this developmental divide, which, in addition to disparities in per capita GDP, is manifested by disparities in dimensions of human development such as life expectancy and literacy rates. Other than the IAI, other programmers for the development of the Mekong Basin—where all four newer ASEAN members are located—that tend to focus on infrastructure development were enacted. In general, ASEAN (with the notable exception of Singapore) does not have the financial resources to extend substantial grants or loans to the new members. Therefore, it usually leaves the financing of these infrastructure projects to international financial institutions and to developed countries. Nevertheless, it mobilized funding from these institutions and countries, and from the ASEAN-6 (Indonesia, Malaysia, Philippines, Brunei Darussalam, Singapore, and Thailand) themselves, for areas where the development gap needs to be bridged through the IAI programmer. Other programmers intended for the development of the

ASEAN-4 take advantage of the geographical proximity of the CLMV (Cambodia-Laos-Myanmar-Vietnam) countries and tend to focus on infrastructure development in areas like transport, tourism, and power transmission.

ASEAN members by Human Development Index[64]:160–162CountryHDI (2014 ) Singapore0.912very high

Brunei0.856very high Malaysia0.779high Thailand0.726high

Indonesia0.684medium ASEAN0.673medium Philippines0.668medium

Vietnam0.666medium Laos0.575medium Cambodia0.555medium

Myanmar0.536low

Monetary union

The concept of an Asian Currency Unit (ACU) started in the middle of the nineties, prior to the 1997 Asian financial crisis. It is a proposed basket of Asian currencies, similar to the European Currency Unit, which was the precursor of the Euro. The Asian Development Bank is responsible for exploring the feasibility and construction of the basket.

Since the ACU is being considered to be a precursor to a common currency in the future, it has a dynamic outlook of the region. The overall goal of a common currency is to contribute to the financial stability of a regional economy, including price stability. It means lower cost of cross-border business through the elimination of currency risk for the members of the monetary union. Greater flows of intra-regional trade would put pressure on prices, resulting in cheaper goods and services. Individuals benefit not only from the lowering of prices, they save by not having to change money when travelling within the union, by being able to compare prices more readily, and by the reduced cost of transferring money across borders. However, there are conditions for a common currency: the intensity of intra-regional trade and the convergence of macroeconomic conditions. Substantial intra-ASEAN trade and economic integration is an incentive for a monetary union. Intra-ASEAN trade is growing, partly as a result of the ASEAN Free Trade Area (AFTA) and the ASEAN Economic Community.

Free-trade agreements

ASEAN has concluded free trade agreements with China (expecting bilateral trade of $500 billion by 2015), Korea, Japan, Australia, New Zealand, and India. ASEAN-India bilateral trade crossed the US$70 billion target in 2012 (target was to reach the level only by 2015). The agreement with People's Republic of China created the ASEAN–China Free Trade Area (ACFTA), which went into full effect on 1 January 2010. In addition, ASEAN is currently negotiating a free trade agreement with the European Union. The Republic of China (Taiwan) has also expressed interest in an agreement with ASEAN but needs to overcome diplomatic objections from China.

ASEAN–India Free Trade Area

The ASEAN–India Free Trade Area (AIFTA) is a free trade area among the ten member states of the Association of Southeast Asian Nations (ASEAN) and India. The initial framework agreement was signed on 8 October 2003 in Bali, Indonesia. And the final agreement was on 13th August 2009. The free trade area came into effect on 1 January 2010. India hosted the latest ASEAN-India Commemorative Summit in New Delhi on 20–21 December 2012. As of 2011-12, two-way trade between India & ASEAN stood at US$79.86 billion surpassing the US$70 billion target.

TARIFFS

he signing of the ASEAN-India Trade in Goods Agreement paves the way for the creation of one of the world’s largest FTAs – a market of almost 1.8 billion people with a combined GDP of US$2.8 trillion. The ASEAN-India FTA will see tariff liberalization of over 90 percent of products traded between the two dynamic regions, including the so-called “special products,” such as palm oil (crude and refined), coffee, black tea and pepper. Tariffs on over 4,000 product lines will be eliminated by 2016, at the earliest.

CRITICISM

While there are many benefits to the ASEAN-India FTA, there is concern in India that the agreement will have several negative impacts on the economy. As previously stated, the two regions aim to reduce their tariffs on a majority of their traded goods. This will allow them to increase the market access of their products. It is criticized, however, that India will not experience as great an increase in market access to ASEAN countries as ASEAN will in India. The economies of the ASEAN countries are largely export-driven, maintaining high export-to-GDP ratios (in 2007, Malaysia had a ratio of over 100%) Considering this, as well as the global financial crisis and India's expansive domestic market, the ASEAN countries will look eagerly towards India as a home for its exports.

Since the early 2000s, India has had an increasing trade deficit with ASEAN, with imports exceeding exports by more than US$6 billion in 2007-2008. It is feared that a gradual liberalization of tariffs and a rise in imported goods into India will threaten several sectors of the economy, specifically the plantation sector, some manufacturing industries, and the marine products industry. As a dominant exporter of light manufacturing products, ASEAN has competitive tariff rates that make it difficult for India to gain access to the industry market in ASEAN countries.

Before the agreement was signed, the Chief Minister of Kerala, V.S. Achuthanandan, led a delegation to the Indian Prime Minister protesting against the FTA. The state of Kerala is an important exporter in the national export of

plantation products. It fears that cheap imports of rubber, coffee, and fish would lower domestic production, adversely affecting farmers and ultimately its economy. Kerala has already experienced a flooding of its market with inexpensive imports under the South Asia Free Trade Agreement of 2006. Cheap coconuts from Sri Lanka and palm oil from Malaysia has since hindered Kerala's coconut cultivation.

To alleviate the losses that arise from the initial stages of trade, the Government of India must be able to effectively redistribute some of the wealth to those industries who suffer from the increased competition with ASEAN markets. This way, total welfare gains in India would increase and India would ultimately benefit from trade with ASEAN.