With the Doha Round of WTO trade policy negotiations suspended, a logical question is what happens next. The Economic Ministers of the ten members of the Association of Southeast Asian Nations (ASEAN) meeting in Kuala Lumpur, Malaysia gave a clear answer by committing to achieving internal free trade by 2015 rather than the earlier target of 2020. This is partly in response to the growing economic power of their two big neighbors, China and India. Southeast Asia is a likely place for strong economic growth for the foreseeable future, and the free trade actions by the ASEAN Economic Ministers explain why that is true.
ASEAN was created in 1967 with Indonesia, Malaysia, Philippines, Singapore, and Thailand. Brunei joined in 1984, followed by Vietnam in 1995, Laos and Myanmar in 1997, and Cambodia in 1999. The original five plus Brunei are advanced developing countries, while the other four are less developed. The population of the ten countries is 560 million, with GDP of $850 billion per year ($1,500 per capita), merchandise exports of $625 billion per year and imports of $540 billion per year. The countries have a good mix of low skill, low wage factory workers and higher skilled laborers and professionals.
Increased economic integration was an original goal of ASEAN. According to information on their website, in the early 1970s intra-ASEAN trade accounted for 12-15 percent of members’ trade. Today about 25 percent of their total trade is intra-ASEAN. The five original countries plus Brunei have fully implemented the Agreement on the Common Effective Preferential Tariff of the ASEAN Free Trade Area that has reduced tariffs to an average of 3.8 percent. They have tackled trade in services, one of the hardest issues to address. The economic ministers committed to the 2015 deadline for the free flow of all services, including skilled labor and professionals. They also committed to work on trade facilitation to reduce the cost of paperwork and time delays. Customs revisions have reduced the number of tariff-eligible items by 2,500 to 8,300. Despite this progress, harmonizing domestic trade laws will be a formidable task since the countries have a history of tight control of key industries like banking and transportation.
Economic integration efforts of the past 40 years have paid off. Foreign direct investment (FDI) in the ASEAN countries was $38 billion in 2005, up 48 percent from 2004. For comparison, China’s FDI in 2005 was $53 billion.
The members of ASEAN are important to U.S. agriculture. Their 560 million people account for over 8 percent of the world’s population. With a commitment to intra-ASEAN free trade and international competitiveness in goods and services, they will have increasing incomes in the years ahead. The U.S. already has a free trade agreement with Singapore and is negotiating with Thailand and Malaysia. The Enterprise for ASEAN Initiative seeks to further strengthen U.S. trade and investment relationships.
In calendar year 2005 the U.S. had a negative agricultural trade balance with the ASEAN countries with exports of $3.3 billion and imports of $4.5 billion, but that is skewed by $2.8 billion of imports of products that are not produced in the U.S. These included $1.4 billion of rubber and allied products, $600 million of tropical oils and $400 million of cocoa beans, paste and butter. With these items excluded, U.S. agricultural exports to the ASEAN countries exceeded imports by $1.6 billion.
Soybeans and products led the list for U.S. agricultural exports in 2005 at $613 million dollars, followed closely by cotton at $534 million. Wheat exports were $405 million. Fruits and vegetables and products exports totaled $369 million. Dairy product exports were $265 million, and feeds and fodder exports other than coarse grains were $214 million. Agricultural trade is a two way street with the ASEAN countries. While exports of fruits and vegetables and products from the U.S. totaled $369 million in 2005, imports were $587 million. Rice exports were $22 million while imports were $153 million. Tree nut exports were $26 million while imports were $235 million.
Current agricultural trade is an indication of what could happen in the future. Coarse grain exports (mostly corn) by the U.S. were only $16 million in 2005 and have not been higher than $64 million per year since 2001. If China stops exporting corn and ASEAN economies continue to grow, a market for U.S. corn could develop. Poultry meat exports were $33 million in 2005 and were not higher than $41 million per year over the last five years. Red meat exports were $60 million in 2005, the highest in recent years, but insignificant given a population of 560 million people.
The U.S. is not the only country that recognizes the market growth potential of the ASEAN countries. This week Japan proposed a 16 nation free trade area including itself, China, India, Australia, South Korea, New Zealand and the ten ASEAN countries.
The Economic Ministers also called for resumption of the Doha Round of WTO talks, saying, “As a group of developing countries with open economies, ASEAN attaches great importance to the Doha negotiations in contributing towards strengthening the multilateral trading system. It is also critical to the continuing economic growth and development of our Member countries.”
While the EU and some developing countries drag their feet at the Doha Round negotiations, the ASEAN countries know that a freer flow of goods and services among the ten countries and with the rest of world is essential for economic growth and improvements in the standard of living for their citizens. Achieving that freer flow of resources will not be easy, but they have set a standard for the rest of the world to match or exceed.