Introduction
There are several international alliances and organizations that countries may opt to be a member of. One of which is the ASEAN or Association of South East Asian Nations. The objective of this paper is to cover and discuss different key topics about the ASEAN and its member countries.
How does it operate as an international organization recognized by different countries? How do its member countries interact? What ties these countries together? Do the member countries actively participate in the discussions, forums, meetings and different projects and agenda of the organization? These are some of the questions that will be covered in the discussion part of the paper. The paper also aims to discover the economic ties and relations among the ASEAN member countries.
Brief Background about the Association of South East Asian Nations
ASEAN is an international organization founded on the 8th of August year 1967 by its founding members: Philippines, Malaysia, Indonesia, Thailand and Singapore. The total membership of the organization is composed of 10 countries geographically located in the South Eastern portion of the world’s biggest continent, Asia. Brunei, Burma, Laos, Cambodia and Vietnam plus the founding members are the current members of the organization. One of the main objectives of this organization is to serve as a channel of economic growth, social progress and cultural development; promote and maintain peace and stability through mutual respect and justice and by following the international laws mandated by the United Nations Charter; promote trade, mutual assistance and active collaboration within the region (Sai, 8).
One could tell that the Association of South East Asian Nations is not just an association by name. It is actually more of an economic, geo-political & cultural, and research organization formed by ten independent countries. Majority of the ASEAN member countries are third world countries. Some member countries’ economy is actually in an unstable state due to the effects of the past global financial crises. So far, Singapore is the only ASEAN country that has been proven to be an economically and environmentally successful country (Ong, 3). Economic prosperity and stability as wells as health and the environment are some of the major advocacies of the ASEAN.
International Trade among ASEAN Member Countries
Trade is an important key factor in determining a nation’s economic prosperity (Lane 144). Trade giants such as China and the United States are two of the best evidences that could prove such theory. Because of the possible gains that countries may acquire through imports and exports, a lot of countries have already started mobilizing their resources and have them ready for export to another country or to the world market.
International trade among member countries of the ASEAN is not an uncommon thing. In fact, its member countries were already strengthening each other’s economy through trade long before the Association of South East Asian Nations was established. The founding of the ASEAN further strengthened the ties and already existing trade practices and treaties between its ten member countries which is actually a good thing considering the fact that most of its member states are third world countries. The ASEAN could definitely benefit from opening up more trade routes and trading partnerships with other countries.
Since the establishment of the organization, the ASEAN has done a lot of steps and has also spent a lot of resources to firmly accomplish its goal of improving and strengthening the economy of the countries within the region. One significant milestone for that goal was the creation of the ASEAN Economic Community Blueprint. This blueprint is simply a framework of plans and projects, all for the realization of the ASEAN’s vision and mission, and more importantly, for the future establishment of the ASEAN Economic Community. The ASEAN Economic Community Blueprint was first adopted at the 12th ASEAN Summit. The goal is to be able to accomplish all of requirements so that the AEC or the ASEAN Economic Community can be achieved by the year 2015.
The South East Asian Region was actually declared as an ASEAN Free Trade Area in 1992. AFTA enables ASEAN and non ASEAN member countries to practice international trade. This could actually be considered a great benefit for ASEAN member countries because AFTA enables them to have more access to other countries and vice versa which would most likely result into new trade partnership. AFTA also enables them to interact, import and export a wide range of resources and commodities to and fro the world market. The ASEAN Economic Community as well as the ASEAN Free Trade Area is indeed very vital steps that have greatly boosted the economic stability within the South East Asian Region despite the past global financial crises.
Trades, Exports and Policies
A wide range of resources, commodities and at some point, technological developments are being imported and exported to and fro ASEAN member countries. Since conducting trade activities within the South East Asian region is not prohibited, it could be asserted that all ASEAN members have an established trade route—connecting one ASEAN country to another economically (ASEAN Affairs 1).
One trading partner common to all ASEAN member countries is China. According to a study conducted by Devadason (19), it has been discovered—and there are computational evidences that could back this statement that the ASEAN (all member countries combined) has replaced Japan as the largest trading partner of China. This could be partly because all ASEAN member countries have existing trade partnerships with China. China is a large country with over a billion people to feed and take care of. China is a country that demands a lot of organic imports because of its current agricultural deficits (Ofreneo, 5). Aside from food, china also imports a wide range of goods and services from ASEAN member countries. China has been one of the biggest trading partners of the ASEAN and its member countries. In fact, on the year 2003, the ASEAN Trade and Statistics Database (1) was able to audit the ASEAN-China total trade value which amounts to some 55.2 Billion USD. What ASEAN countries receive in return from their giant trading partner are mostly technology line goods and gadgets, automobiles and other inorganic commodities. It is important to take note of the fact that without the declaration of the Southeast Asian Region as a free trade area, China as well as other major and minor trading partner of the ASEAN may not be able to enjoy and conduct unrestricted trading activities. The FTA declaration is indeed a vital step for the attainment of the ASEAN’s economic goals and objectives.
Effects of International Trade on the ASEAN Economy
International Trade has been long known to have positive effects on the economy of the parties involved. Trade is actually an integral part of a country’s economic and even technological growth and development. International Trade between ASEAN member countries and other nearby and also faraway countries has been further reinforced ever since the Southeast Asian Region has been declared as a Free Trade Area. Countries and unions are given more opportunities to develop their economy by simply participating in the global market. Globalization easily enables any country to participate in international trade projects and agreements at will. As long as they have the freedom to trade and are not restricted or banned by international governing bodies (e.g. United Nations, European Union), countries may start or continue to reap the benefits of international trade.
Economic Growth
International Trade could significantly affect a country’s degree and pacing of economic growth. Through international trade, a country may boost its economic growth rate, perhaps by a couple of percentage. The degree of economic growth boost that a country may receive actually depends on several factors (e.g. degree and frequency of trade activity, total worth of imported and exported goods, etc.). The more involved and dedicated a country to international trade, the higher the boost in economic growth rate would be (Afonso 20).
Negative Effects of Trade
According to an American and International Trade Analysis from the website Americans and the World (1), while trade may have already been proven itself as an effective tool in boosting economic growth and prosperity, one could still not argue that there are also negative effects of free trade—the kind of trade policy employed in the trading activities between the ASEAN nations and their trade partners (e.g. China, U.S., India, etc.).
Most trading activities today are still being pushed through despite the fact that it poses a threat to the environmental. In fact, the World Trade Organization favors this kind of agreement because it kind of guarantees a more secure and profitable trading activity in the future. Such types of trade agreements are still being practiced by traders even under the supervision of the World Trade Organization.
Fairness is another issue that could serve as a key factor whether a country would continue to engage in trading activities or otherwise. More often than not, it is the bigger country that receives more profit than the poorer country in a bilateral trade agreement (Autume 33). As a result, the gap between bigger and more economically powerful countries and the smaller and poorer countries become bigger the more these two groups engage in trading activities.
Can developing countries compete fairly with highly developed ones?
In a free trade environment, any country regardless of its size or purchasing power is enabled to trade with another country regardless of the size and purchasing power. As an example, there is no particular rule or agreement that prohibits a country as tiny and as economically stable as Thailand, an ASEAN member country, from conducting trading activities with a country as big and as economically stable as China. Both parties involved in such activities should however be aware of the possible implications of trading with a smaller and poorer or a bigger and richer country. It is basically their prerogative whether they will still engage in such activities or not.
It is very possible for smaller countries to be able to compete for trading rights with bigger or richer countries. They could, for example, do what the ASEAN member countries did in an effort to win China’s favor to establish a trade agreement and economic integration program with 10 smaller and collectively poorer countries which are all members of one organization. What the ASEAN member countries try to do is to act as a group. Now, they can all trade with China. In fact, the ASEAN member countries as a whole were able to overthrow Japan and become the largest trading partner of China (Chew 141). Majority of the ASEAN member countries are developing countries except for Singapore yet they were able to compete with Japan, a developed country for trade rights with China.
Ricardian Model and International Trade
The Ricardian Model is perhaps one of the oldest but still most commonly used models in international trade. The Ricardian Model primarily focuses on comparative advantages rather than factor endowments of a country that is about to engage in an international trading activity. In this case, it would be best to give out an example using the Ricardian model. Suppose Philippines, an ASEAN member country has existing trade agreements with China, a relatively larger and richer partner. Now for the Philippines to benefit more from such trade, it has to obtain a higher degree of comparative advantage. The Ricardian Model assumes that the best way to do this would be to focus or specialize in manufacturing a particular resource or commodity that a country can most efficiently produce rather than build a wide range of product under a tight deadline. Suppose that that commodity is rice. Following the Ricardian Model, the Philippines would export rice to its large trading partner, China. There are other assumptions which are also a part of the Ricardian Model. The remaining assumption under the Ricardian model talks about labor as an ultimate source of value, Constant Marginal Product of Labor, limited labor resources, the mobile characteristic of labors and perfect competition.
International Trade Basis
Based solely on the Ricardian Model, the primary basis of international trade is Labor. Labor is described as the ultimate source of value (Samuelson 1). It has also been described as the primary input to the production of a commodity, resource, or service. A country with only a limited amount of labor will not thrive in the international market trading with other countries because it will surely run out of export products due to its limited amount of labor. Based on that model, it can be concluded that a country with a high labor value will have a significantly higher chance of success in international trade than a country with fewer labor value.
International Trade Documents
Any commodity meant to be shipped to a foreign territory or another country is required to undergo necessary documentation processes. Examples of such documents are license, import and export permit, the contract, and the documentation of payments (Voon 273). Some ASEAN member and other countries may have their own documentation requirements for international trade. Documentations are basically done to ensure that every import and export goods are accurately audited, monitored and taxed. In a way, documentation also helps in tracking the identity of a trader, a company or an organization involved in a fraudulent activity.
International Factor Movement
Different types of resources may be moved from one country to another. Labor or manpower as well as services may also be traded internationally. Labor migration is usually regarded as one of the most complicated parts of international trade. Each country has their own labor code and their employees are governed, treated and protected in a way different from other countries. Standard wages may also differ from region to region. This is why according to Americans and the World (1-3), international trade, may cause negative effects in the labor migration standards of a country. Majority of the ASEAN members are third world countries. One typical characteristic of third world countries is their low labor costs; developed countries on the other hand often have a more complicated labor system and labor costs are typically higher compared with developing countries (Moran 1-2). Now, if an economically rich country such as the U.S. or China will engage in international labor trade with the ASEAN member countries, it is very likely that companies from these big countries will prefer people from ASEAN member countries, especially if they are planning to cut their labor expenses. Disturbance in a country’s labor system is one of the possible negative effects of international factor movement.
It is also important to know that aside from labor, the term “international factor movements” can also be used to describe the movement or transfer of other resources such as capital and other production inputs (Sullivan 4). These resources can be transferred through the process of immigration, foreign direct investment, international borrowing and lending, and resource transfers (Paul 1).
Foreign Direct Investment and Public Policy
Since ASEAN member countries promote a free market type of environment, there had been so much room for investment and economic growth. Foreign Direct Investment is an international feature that allows investors from other countries to invest on other countries given that they are permitted to do so legally, financially and ethically (Dunning 1-21). ASEAN member countries are actually major patrons of Foreign Direct Investments. Typically, investors from richer countries are the ones that decide whether they will invest in a particular country or not. There are several factors that may influence such investors’ decisions. Investors usually opt to direct their investments in developing countries (Moran 33). Labor costs in developing countries are relatively lower compared to developed countries and that is actually one of the decisive factors that investors consider. Even though foreign investors relatively have the freedom to invest in foreign countries, they are still subject to public policies. It is important to take note that this is another factor that investors consider. An unusually tight public policy for foreign investors will usually lead to fewer investment offers and vice versa.
Exchange Rates
There are numerous independent and government-owned organizations and departments in charge of monitoring the changes in currency. Reviewing and predicting the behavior of a particular currency is important for international traders because a slight miscalculated change in currency could only mean two things: loss or gain more trade profits. Some ASEAN members and sometimes, the world market use a standard currency for international transactions. The USD currency is the most commonly used currency in international trades aside from the national currency of the import and export companies.
Economic Integration
It is the vision of the ASEAN that the member countries will soon enjoy an integrated economy. The ASEAN member countries, after several summits and meetings were actually able to come up with more than one plan of action in order for them to attain this goal. Economic Integration will surely result to deeper economic ties in terms of trade and commerce between the ASEAN member countries and their trade partners. After accomplishing the target of making the Southeast Asian Region a Free Trade Area in 2002, the ASEAN is again aiming for a deeper integration of economies of member countries. According to (ASEANONE 1-2) there are several factors that motivate the ASEAN member countries to push through another plan that would result into a deeper Economic Integration: Market-led Process, Institution-led process and private-lead process. Notice that they all have something to do with trade and industry. If the ASEAN member countries will be able to attain a higher degree of economic integration, they will be able to eliminate more investment and trade barriers. Industrialization will also be an easier and speedy process since more advanced and develop ASEAN member countries will be able to help the developing countries increase the amount of labor in their economy and produce their specialized goods with greater efficiency. Economic Integration will also enable the ASEAN member countries to use a collective comparative advantage or exploit benefits from other member countries. As a result, more investors will be attracted to invest their resources on the developing and even in the developed member countries. There are simply a lot of things that could be done after the economic process kicks in by 2020.
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