CHAPTER 1 ECONOMIC INTEGRATION

INTRODUCTION
Economic integration is a process where barriers to trade are reduced or eliminated to facilitate trade between regions or nations. There are varying degrees of economic integration ranging from theoretically completely free trade to the use of preferential trade agreements to stimulate relationships between specific trade partners. Removing trade barriers comes with costs and benefits, depending on the degree of economic integration and the level of cooperation between member regions or nations. Reducing barriers to trade has the tendency to cut costs associated with economic activities. Not having to pay taxes, tariffs, fees, and other expenses can be beneficial for trading partners. This causes the volume of trade to increase, as trading partners actively seek out deals in regions where some degree of economic integration has been achieved. For nations outside integration agreements, however, barriers to trade can be created as they may not be able to compete with preferred trading partners. When economies are strong, economic integration has benefits for all members, and every member of an agreement, union, or treaty can experience economic growth. The same holds true of economic downturns. When individual members of a trade agreement start to be dragged down, their economic problems can spread. This was notably seen in the European Union during the economic crises of the early 2000s, when bad debt in nations like Greece and Portugal caused problems across the EU, including in nations with relatively strong economies, like Germany. As regions and nations embark on economic integration programs, they weigh the costs and benefits of integration carefully to see if it is the right choice for their needs. Some nations may prefer to avoid the risks, even though barriers to trade may pose a problem. Others may be willing to take on the risks in exchange for increased trade and foreign exchange. Growing nations are often particularly eager to engage in economic integration, as trade with foreign nations can contribute to rapid economic growth. They may use incentive programs to attract foreign and investment. Some countries create business opportunities by integrating their economies in order avoid unnecessary competition among the countries. Economic integration results in grouping up of smaller economies into a larger and single economy and market. It minimizes the Economic consequences of politically independent countries and political boundaries. Economic integration among the countries takes several forms. It covers different kinds of arrangements among countries by which two or more countries link their economies closer either in part or total. The different kinds of economic integration are Free Trade Area, customs union, common market and economic union. Economic integration among the world economies varies in degree
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What is Economic Integration?

Economic integration is the unification of economic policies between different states through the partial or full abolition of tariff and non-tariff restrictions on trade taking place among them prior to their integration. This is meant in turn to lead to lower prices for distributors and consumers with the goal of increasing the combined economic productivity of the states. The trade stimulation effects intended by means of economic integration where the best option is free trade, with free competition and no trade barriers whatsoever. Free trade is treated as an idealistic option, and although realized within certain developed states, economic integration has been thought of as the "sec ond best" option for global trade where barriers to full free trade exist. Economic integration, process in which two or more states in a broadly defined geographic area reduce a range of trade barriers to advance or protect a set of economic goals. The level of integration involved in an economic regionalist project can vary enormously from loose association to a sophisticated, deeply integrated, Trans nationalized economic space. It is in its political dimension that economic integration differs from the broader idea of regionalism in general. Although economic decisions go directly to the intrinsically political question of resource allocation, an economic region can be deployed as a technocratic tool by the participating government to advance a clearly defined and limited economic agenda without requiring more than minimal political alignment or erosion of formal state sovereignty. The unifying factor in the different forms of economic regionalism is thus the desire by the participating states to use a wider, Trans nationalized sense of space to advance national economic interests. More specifically, economic integration proceeds by agreements to: Abolish tariffs and import quotas among members (FTAs and sectorial FTAs). Establish common external tariffs and quotas (CUs). Allow free movement of goods, services and workers (Common Market). Harmonize competition, structural, fiscal, monetary and social policies (Economic Union). Unify economic policies and establish supra-national institutions (Economic and Political Union).

FORMS OF ECONOMIC INTEGRATION

1. Preferential Trading ,
A preferential trade area (also preferential trade agreement, PTA) is a trading bloc that gives preferential access to certain products from the particip ating countries. This is done by reducing tariffs but not by abolishing them completely. A PTA can be established through a trade pact. It is the first stage of economic integration. The line between a PTA and a free trade area (FTA) may be blurred, as almost any PTA has a main goal of becoming a FTA in accordance with the General Agreement on Tariffs and Trade. An agreement between two or more countries to lower trade barriers between each other on particular products. Trade barriers may remain on the rest of the products, and on imports from non-member countries. PTAs sometimes involve cooperation between members on labour standards, environmental issues or intellectual property. They include free trade areas (FTAs), customs unions or common markets and they may be bilateral or regional. These tariff preferences have created numerous departures from the normal trade relations principle, namely that World Trade Organization (WTO) members should apply the same tariff to imports from other WTO members.

2. Free Trade Area

A free-trade area is a trade bloc whose member countries have signed a freetrade agreement (FTA), which eliminates tariffs, import quotas, and preferences on most goods and services traded between them. If people are also free to move between the countries, in addition to FTA, it would also be considered an open border. It can be considered the second stage of economic integration. Countries choose this kind of economic integration if their economic structures are complementary. If their economic structures are competitive, it is likely there will be no incentive for a FTA, or only selected areas of goods and services will be covered to fulfil the economic interests between the two signatories of FTA. The aim of a free-trade area is to reduce barriers to exchange so that trade can grow as a result of specialisation, division of labour, and most importantly via comparative advantage. The theory of comparative advantage argues that in an unrestricted marketplace (in equilibrium) each source of production will tend to specialize in that activity where it has comparative (rather than absolute) advantage. The theory argues that the net result will be an increase in income and ultimately wealth and well-being for everyone in the free-trade area. But the theory refers only to aggregate wealth and says nothing about the distribution of wealth; in fact there may be significant losers, in particular among the recently protected industries with a comparative disadvantage. In principle, the overall gains from trade could be used to compensate for the effects of reduced trade barriers by appropriate inter-party transfers.
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To exclude regional exploitation of zero tariffs within the FTA there is a rule of certificate of origin for the goods originating from the territory of a member state of an FTA. Unlike a customs union, members of a free trade area do not have a common external tariff with respect to non-members, meaning different quotas and customs. To avoid evasion through re-exportation the countries use the system of certification of origin most commonly called rules of origin, where there is a requirement for the minimum extent of local material inputs and local transformations adding value to the goods.

3. Customs Union
When two or more countries agree to remove (essentially) all restrictions on mutual trade and set up a common system of tariffs and import quotas vis--vis nonmembers, the result is referred to as a CU. The adoption of a common external tariff (CET) and joint quotas necessitates closer co-operation with respect to the sharing of customs revenues collected on non-member imports. Rules of origin are no longer necessary: when a common external tariff exists, imports into the CUarea face the same tariff in each CU-member country, hence there is no incentive for transhipment of imports between members.

4. Common market
A common market represents a major step towards significant economic integration, eliminating all barriers to trade in goods among the member nations, adopting a common external tariff. In addition, it permits free movement of goods and services within the market. The many benefits of common market would be free full movement of factors for production between the member countries, and factors of production become more efficiently allocated with additional of increasing productivity. Factors of production, such a labour and capital, are free to move within member countries, expanding scale economies and comparative advantages. Thus, a worker in a member country is able to move and work in another member country. 5. Economic and Monetary Union The economic and monetary union is a union in which national, social, taxation, and fiscal policies are harmonized and administrated by supranational institution: an agreement is required to transfer economic sovereignty to a supranational authority. A final degree of economic union by the supranational monetary authority would be the unification of national monetary policies and which administrated the acceptance of the common currency. United States is an example of a monetary union. Political union. Represents the potentially most advanced form of integration with a common government and were the sovereignty of member country is significantly reduced. Only found within nation states, such as federations where there is a central government and regions having a level of autonomy.

NEED FOR ECONOMIC INTEGRATION

1. Progress in trade.
All countries that follow economic integration have extremely wide assortment of goods and services from which they can choose. Introduction of economic integration helps in acquiring goods and services at much low costs. This is because the removal of trade barriers reduces or removes the tariffs entirely. Reduced duties and lowered prices save a lot of spare money with countries which can be used for buying more products and services.

2. Ease of agreement.
When countries enter into regional integration, they easily get into agreements and stick to them for long periods of time.

3. Improved political cooperation.

Countries entering economic integration form groups and have greater political influence as compared to influence created by a single nation. Integration is a vital strategy for addressing the effects of political instability and human conflicts that might affect a region.

4. Opportunities for employment.

The various options available in economic integration help to liberalize and encourage trade. This results in market expansion due to which high amount of capital is invested in an economy. This creates higher opportunities for employment of people from all over the world. They thus move from one country to another in search of jobs or for earning higher pay.

5. Beneficial for financial markets.

Economic integration is extremely beneficial for financial markets as it eases firm to borrow finances at low rate if interest. This is because capital liquidity of larger capital market increases and the resultant diversification effect reduces the risks associated with high investment.

6. Increase in Foreign Direct Investments.

Economic integration helps to increase the amount of money in Foreign Direct Investment (FDI). Once firms start FDI, through new operations or by merger, takeover, and acquisition, it becomes an international enterprise. Thus economic integration is a win-win situation for all the firms, people and the economies involved in the process. Is has become a preferred strategy for most countries of the world.

Economic Integration Effects

Economic integration involves at least two countries to abolish customs tariffs on inner border between the states. This causes a number of effects while the phenomenon itself has specific properties for its successful development. It requires coherence of the policies (customs, tax, financial, social policies etc. and entity registration) applied in integrated states. Economic parameters (domestic savings rate, tax rates, etc.) are striving to one single multitude. Coherence policy finally leads to equal multi-dimensional economic space within integrated area. At the same time, it is very similar to the process of mixing differently coloured liquids in a retort: coherence leads to one final colour in a report. It needs permanency of economic integration stages applied to unified states (free trade area, customs union, economic union, political union). Otherwise integration process stagnates, finally leading to termination of economic unions (Belgium-Luxemburg Union). Economic integration leads to Pareto-reallocation of the factors (labour and capital) which move towards their better exploitation. Labour moves to area of higher wages, while capital - to area with higher returns. It was found that the pair of the value added of sectors and labour disperse within a region in the same way as heat or gas in a space. Domestic saving rates in the member states of economically integrated region strive to the one and same magnitude, described by the coherence policy of economic blocks. At the same time, practical observation shows that this phenomenon is taking place before formal creation of economic unions. Formulation of economic integration theory has been initiated by Jacob Viner who described trade creation and trade diversion effects caused by economic integration. They actually mean a change in direction of interregional trade flows respectively caused by the change of tariffs within and outside economic union. The dynamics of trade creation and diversion effects was mathematically described by R.T.Dalimov. The finding shows that trade flow (an output moving from region to region) may be described by Navier-Stoxes equation, with the goods flow caused by the price difference - quite similar to gas or liquid moving under pressure difference. Economic integration benefits (growth of economy, specifically the GDP; raise of productivity) depend on the level of development as well as a scale of unifying states. For instance, if there are two states being economically integrated, than the larger is the size of economy the less it receives from integration and vice versa (observed empirically). The same principle is observed regarding the level of development of integrating states, although it is not as clear as the firstly mentioned principle. Productivity in the unified area is increased. Remarkably, it is increased more in less developed states, and vice versa, i.e. according to the principle observed in practice.

Among the main benefits for the countries which decided to be unified is a free access to markets of the other member states. Since the stage of the common market, or since supranational bodies of the union are created, specific regional funds are created to reallocate revenues from more developed states to les developed ones. This way development of the member states is equalized, with less developed ones developing faster, leading to an increase of their earnings per capita and thus purchasing more from more developed partner states.

CHAPTER 2 ASEAN

Association of Southeast Asian Nations

One Vision, One Identity, One Community The Association of Southeast Asian Nations, or ASEAN, it was established on 8 August 1967 in Bangkok, Thailand, with the signing of the ASEAN Declaration (Bangkok Declaration) by the Founding Fathers of ASEAN, namely Indonesia, Malaysia, Philippines, Singapore and Thailand. Brunei Darussalam then joined on 7 January 1984, Viet Nam on 28 July 1995, Lao PDR and Myanmar on 23 July 1997, and Cambodia on 30 April 1999, making up what is today the ten Member States of ASEAN. It is a geo-political and economic organisation of ten countries located in Southeast Asia ASEAN covers a land area of 4.46 million km, which is 3% of the total land area of Earth, and has a population of approximately 600 million people, which is 8.8% of the world's population. The sea area of ASEAN is about three times larger than its land counterpart.

HISTORY OF ASEAN
ASEAN was preceded by an organisation called the Association of Southeast Asia, commonly called ASA, an alliance consisting of the Philippines, Malaysia and Thailand that was formed in 1961. The bloc itself, however, was established on 8 August 1967, when foreign ministers of five countries Indonesia, Malaysia, the Philippines, Singapore, and Thailand met at the Thai Department of Foreign Affairs building in Bangkok and signed the ASEAN Declaration, more commonly known as the Bangkok Declaration. The five foreign ministers Adam Malik of Indonesia, Narciso Ramos of the Philippines, Abdul Razak of Malaysia, S. Rajaratnam of Singapore, and Thanat Khoman of Thailand are considered the organisation's Founding Fathers . The motivations for the birth of ASEAN were so that its members governing elite could concentrate on nation building, the common fear of communism, reduced faith in or mistrust of external powers in the 1960s, and a desire for economic development. The bloc grew when Brunei Darussalam became the sixth member on 8 January 1984, barely a week after gaining independence on 1 January

AIMS AND PURPOSES

To accelerate the economic growth, social progress and cultural development in the region through joint endeavours in the spirit of equality and partnership in order to strengthen the foundation for a prosperous and peaceful community of Southeast Asian Nations; 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; To promote active collaboration and mutual assistance on matters of common interest in the economic, social, cultural, technical, scientific and administrative fields; To provide assistance to each other in the form of training and research facilities in the educational, professional, technical and administrative spheres; To collaborate more effectively for the greater utilisation 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; To promote Southeast Asian studies; and To maintain close and beneficial cooperation with existing international and regional organisations with similar aims and purposes, and explore all avenues for even closer cooperation among themselves.

ASEAN Summit
ASEAN Summit is an annual meeting held by the member of the Association of Southeast Asian Nations (ASEAN) in relation to economic, and cultural development of Southeast Asian countries The league of ASEAN is currently connected with other countries who aimed to participate on the missions and visions of the league. Apparently, the league is conducting an annual meetings with other countries in an organization collectively known as the ASEAN dialogue partners. ASEAN +3 adds China, Japan and South Korea. The formal summit are held in three days. The usual itinerary are as follows: - ASEAN leaders hold an internal organization meeting. - ASEAN leaders hold a conference together with foreign ministers of the ASEAN Regional Forum. - Leaders of 3 ASEAN Dialogue Partners (also known as ASEAN+3) namely China, Japan and South Korea hold a meeting with the ASEAN leaders. - And a separate meeting is set for leaders of 2 ASEAN Dialogue Partners (also known as ASEAN+CER) namely Australia and New Zealand.

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. It will also be registered with the Secretariat of the United Nations, pursuant to Article 102, Paragraph 1 of the Charter of the United Nations.

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The importance of the ASEAN Charter 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 Political-Security Community (APSC)

A Rules-based Community of Shared Values and Norms A Cohesive, Peaceful and Resilient Region with Shared Responsibility for Comprehensive Security A Dynamic and Outward-looking Region in An Increasingly Integrated and Interdependent World The APSC aims to ensure that the peoples and Member States of ASEAN live in peace with one another and with the world at large in a just, democratic and harmonious environment. To achieve this, the APSC promotes political development in adherence to the principles of democracy, the rule of law and good governance, and respect for the promotion and protection of human rights and fundamental freedoms as inscribed in the ASEAN Charter. It also subscribes to a comprehensive approach to security. At the same time, the APSC seeks to strengthen the mutually beneficial relations between ASEAN and its Dialogue Partners and friends. The APSC thus envisages the following key characteristics: (a) A rules-based Community of shared values and norms; (b) A cohesive, peaceful, stable and resilient region with shared responsibility for comprehensive security; and (c)A dynamic and outward-looking region in an increasingly integrated and interdependent world.

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ECONOMIC AND FUNCTIONAL COOPERATION

When ASEAN was established, trade among the Member Countries was insignificant. Estimates between 1967 and the early 1970s showed that the share of intra-ASEAN trade from the total trade of the Member Countries was between 12 and 15 percent. Thus, some of the earliest economic cooperation schemes of ASEAN were aimed at addressing this situation. One of these was the Preferential Trading Arrangement of 1977, which accorded tariff preferences for trade among ASEAN economies. Ten years later, an Enhanced PTA Programme was adopted at the Third ASEAN Summit in Manila further increasing intra-ASEAN trade. The Framework Agreement on Enhancing Economic Cooperation was adopted at the Fourth ASEAN Summit in Singapore in 1992, which included the launching of a scheme toward an ASEAN Free Trade Area or AFTA. The strategic objective of AFTA is to increase the ASEAN regions competitive advantage as a single production unit. The elimination of tariff and non-tariff barriers among the member countries is expected to promote greater economic efficiency, productivity, and competitiveness. The Fifth ASEAN Summit held in Bangkok in 1995 adopted the Agenda for Greater Economic Integration, which included the acceleration of the timetable for the realization of AFTA from the original 15-year timeframe to 10 years. In 1997, the ASEAN leaders adopted the ASEAN Vision 2020, which called for ASEAN Partnership in Dynamic Development aimed at forging closer economic integration within the region. The vision statement also resolved to create a stable, prosperous and highly competitive ASEAN Economic Region, in which there is a free flow of goods, services, investments, capital, and equitable economic development and reduced poverty and socio-economic disparities. The Hanoi Plan of Action, adopted in 1998, serves as the first in a series of plans of action leading up to the realization of the ASEAN vision. In addition to trade and investment liberalization, regional economic integration is being pursued through the development of Trans-ASEAN transportation network consisting of major inter-state highway and railway networks, principal ports and sea lanes for maritime traffic, inland waterway transport, and major civil aviation links. ASEAN is promoting the interoperability and interconnectivity of the national telecommunications equipment and services. Building of Trans-ASEAN energy networks, which consist of the ASEAN Power Grid and the Trans-ASEAN Gas Pipeline Projects are also being developed. ASEAN cooperation has resulted in greater regional integration. Within three years from the launching of AFTA, exports among ASEAN countries grew from US$43.26 billion in 1993 to almost US$80 billion in 1996, an average yearly growth rate of 28.3 percent. In the process, the share of intra-regional trade from ASEANs total trade rose from 20 percent to almost 25 percent. Tourists from
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ASEAN countries themselves have been representing an increasingly important share of tourism in the region. In 1996, of the 28.6 million tourist arrivals in ASEAN, 11.2 million or almost 40 percent, came from within ASEAN itself. Today, ASEAN economic cooperation covers the following areas: trade, investment, industry, services, finance, agriculture, forestry, energy, transportation and communication, intellectual property, small and medium enterprises, and tourism. Desiring to build a community of caring societies, the ASEAN leaders resolved in 1995 to elevate functional cooperation to a higher plane to bring shared prosperity to all its members. The Framework for Elevating Functional Cooperation to a Higher Plane was adopted in 1996 with a theme: Shared prosperity through human development, technological competitiveness, and social cohesiveness. Functional cooperation is guided by the following plans: ASEAN Plan of Action on Social Development; ASEAN Plan of Action on Culture and Information; ASEAN Plan of Action on Science and Technology; ASEAN Strategic Plan of Action on the Environment; ASEAN Plan of Action on Drug Abuse Control; and ASEAN Plan of Action in Combating Transnational Crime

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ASEAN Economic Integration: Challenges and Strategies

Southeast Asia is among the important pillars in Asia s economic integration whereby ASEAN is expected to gain solid economic integration from trade and investment. This would mean that ASEAN must have significant and positive relations in her intra-regional trade and intra-regional investments. Yet a previous study finds them to be significant nevertheless having negative relations (Verico, 2012). Given its long-run economic integration objective, ASEAN must turn this relation into one that is significant and positive. This will require an economic convergence by which an equivalent level of playing field within its member states. Economic convergence is a necessary condition for a solid regional economic integration. It will move ASEANs economic integration stage from an intra -regional trade to that of an intra-regional investment. However, ASEAN still faces huge economic gaps between its ASEAN-6 and ASEAN-4 as well as within the groups themselves. This economic divergence becomes a major source of asymmetric information in the ASEAN economy. Among one of the useful tools to prove this divergence is the gravity model of trade (Tinbergen, 1962, Anderson, 1979, Helpman and Krugman, 1985). The model which was inspired by Newtons Law of gravity describes that among the significant factors in economic integration process are economic size (GDP) and economic level (GNI per capita). Utilizing this model, in terms of economic size, ASEAN must deal with economic biases towards Indonesias economy as her nominal GDP is at around 40% of total ASEANs nominal GDP, makin g it too dominant. In 2011, Indonesias nominal economic size (GDP) is around US$ 847 billion, much larger than Thailand at US$ 346 billion, Malaysia at US$ 288 billion, and Singapore at US$ 240 billion. Indonesias nominal GDP size is ranked 16 th in the world, making her the only ASEAN member in the G20 group. On the other hand, in terms of economic level, ASEANs economic gravity direction is biased towards Singapores economy. According to the World Banks atlas method (Gross National Income/GNI per capita per year), the circumstance shows the opposite of the preceding figures. Using 2011 data, among those four countries, the highest income per capita belongs to the lowest economic sized country, which is Singapore. Singapores GNI per capita per year is US$ 42,930 that is much higher than Malaysia at US$ 8,770, Thailand at US$ 4,440, while the lowest level among these countries is the highest economic sized country, which is Indonesia at US$ 2,940.
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These two figures show that within its member states, ASEAN has a large economic sized country Indonesia- that has a low economic level and also has a high economic level country Singapore yet is a low economic size. Hence ASEANs economic power seems to resemble a donut, lacking a country that has the characteristics of having both a large economic size and high economic level. This is in contrast to the EUs experience with Germany, a high income country that also has a large economic size of GDP, population and geographic proportions. This donut -shape is a major challenge for ASEAN in obtaining a solid intra-regional trade and investment.

What does ASEAN need to do to overcome this economic integration disadvantage?

From the market-driven strategy, ASEAN will gain her economic integration advantage when her largest economic-size member attains high-income level. This would mean when Indonesia becomes a developed country. Among the references for this projection is Vision 2030, where Indonesia is predicted to become a developed country in year 2030 with an income per capita per year above US$ 18,000. Given this circumstance, furthermore, using the EUs experience, if the ASEAN Economic Community (AEC) of 2015 is similar to the European Economic Community (EEC) of 1967 then ASEAN is forecasted to complete her comprehensive economic integration in year 2050. The latter is under the assumption that ASEAN will follow EUs time-frame which took around 35 years to move from EEC of 1967 to Euro as a single currency in 2002. As from the government intervention strategy, ASEAN could utilize her wide regionalism strategy to increase its intra regional investment. Different from the Custom Union (CU) in Europe, ASEAN adopts an open and soft regionalism principle. In its open regionalism principle, ASEAN implements the Free Trade Area (FTA) at which the regional economic institution does not regulate external tariff between member state and non-member state enabling each member state to have direct bilateral trade agreements with non-member states. This gives benefits to non-member states as they can still have a free trade relation with the member states of ASEAN without being a member themselves. In its soft regionalism principle, ASEAN implements a non -legal binding principle without a supranational body. Both the open and soft regionalism principles makes ASEAN-wide frameworks such as the ASEAN+1, ASEAN+3 and so on, appropriate for ASEAN.

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In the short-run, the ASEAN Plus frameworks will solve ASEANs major problem in not having a member state with both large economic size and high income level. Intra-regional investment is estimated to come from the new-member states of such regional-wide frameworks. At last, the relation between market-driven and government-led strategy is complementary therefore ASEAN must combine them in order to achieve her comprehensive regional economic integration objective.

ASEAN ECONOMIC COMMUNITY BLUEPRINT TOWARDS 2015

At the 13th ASEAN Summit in November 2007, ASEAN Leaders signed the Declaration on the ASEAN Economic Community (AEC) Blueprint, which serves as a coherent master plan Towards achieving an AEC by 2015 by identifying economic integration measures and timelines for their implementation. The AEC comprises four key pillars: I. II. III. IV. Creating a single market and production base; Enhancing competitive economic environment; Promoting equitable economic development; and Integrating ASEAN into the global economy.

The free flow of goods, services, investment, capital and skilled labour is one of the principal means to achieve a single market and production base. To achieve a free flow of goods, the AEC Blueprint provides for the elimination of substantially all forms of non-tariff measures and market access limitations. The focus is on trade facilitation since tariff liberalisation has achieved substantive levels, with tariffs on 93.67% of the products in the inclusion list being reduced to within 0-5% in 2007. To enhance the production network of ASEAN, the implementation of National Single Windows towards an ASEAN Single Window is essential. This will ensure the expeditious clearance of goods and reduce the cost of doing business in ASEAN. In order to sustain the growth momentum of foreign direct investment inflow into ASEAN and to make the region more attractive to investors, ASEAN will review its investment related agreements to come up with a comprehensive and forward-looking agreement the ASEAN Comprehensive Investment Agreement. Besides the first pillar, efforts are also directed towards building the second pillar which is essential to ASEANs economic progress. These include the newer areas on competition policy, consumer protection, intellectual property rights, taxation
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and e-commerce. Infrastructure development, linking ASEAN with its neighbouring Northeast and South Asian countries and with the rest of the world, is also critical to enhance the attractiveness of the region as a single production base. To achieve economic resilience and equitable development, the AEC Blueprint recognises and addresses the need to narrow the development gap within ASEAN and enhance the competitiveness of small and medium enterprises. ASEAN will also pursue full integration into the global economy and Supply chain in recognition of its dependence on external trade and investment. ASEAN shall work towards maintaining ASEAN Centrality in its external economic relations by establishing a system for enhanced coordination and arriving at common approaches. The necessary institutions or mechanisms, resources, capacity and political will are the essential bricks required to implement the AEC Blueprint successfully. Accordingly, ASEAN Leaders had tasked the ASEAN Economic Ministers to ensure follow up with the commitments of the AEC Blueprint through an AEC scorecard mechanism and designated 2008 as the year of AEC awareness. Trade liberalisation, and a single market and production base Intra-ASEAN trade in goods. Trade within ASEAN has been growing stronger. The value of goods traded within ASEAN and between ASEAN and the rest of the world increased significantly (by 129 and 121 per cent respectively) between 2004 and 2011. During that period intra-ASEAN trade grew from around US$261 billion in 2004 to US$598 billion in 2011. Growth in intra-ASEAN exports of around 132 per cent was strongest, from 2009 particularly, as the impact (within Asia) of the global financial crisis (GFC) started to recede. Price convergence. Overall price variance across the region in terms of a broad basket of products (based on PPP conversion factors) decreased. This trend is consistent with ASEAN markets becoming more integrated. Liberalisation of services and investment Intra-ASEAN Foreign Direct Investment (FDI).Intra-ASEAN inward FDI rose more than 30-fold during the decade, most notably from 2009 onwards, from around US$0.9 billion in 2000 to around US$26.3 billion in 2011. This increase is substantially larger than that of inward FDI from the rest of the world (which increased five-fold).

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 Trade in services. Trade in services has also increased rapidly, especially in priority integration sectors such as Communications, computer & information services; Travel Services; and Business services, royalties & licenses. Trade in Transport services recovered rapidly following a significant decline in 2008 due to the GFC. ASEANs services trade deficit with the rest of the world has declined by 37 per cent from around US$22 billion in 2005 to less than US$9 billion in 2011. Tourism. Intra-ASEAN tourism is becoming more dominant in the region. Growth in intra ASEAN tourist arrivals of 137 per cent between 2000 and 2011 (to 37.7 million arrivals) exceeded growth in arrivals from the rest of the world of 87 per cent during the same period.

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ASEAN CONNECTIVITY PROJECT

Project description
Given the growing regional integration and cooperation in ASEAN, the development of high quality transport infrastructure is a crucial element to building a competitive ASEAN Community with equitable economic development. However, ASEAN with total land area of around 4.4 million sq. Km faces challenges with poor quality of roads and incomplete road networks. The ASEAN Highway Network (AHN) project is a flagship infrastructure project that seeks to bring connectivity across borders and confer many benefits, such as improved competitiveness of regional production networks, better trade and investment flows, and reductions in development gaps. The ASEAN Leaders adopted the Master Plan on ASEAN Connectivity in October 2010 that identified the AHN project as one of the 15 prioritised projects to bridge the connectivity gap within ASEAN.

Main Objectives, Outputs and Activities

The main objective of the AHN project is establishing efficient, integrated, safe and environmentally sustainable regional land transport corridors linking all ASEAN member States and countries beyond. ASEAN member states have been developing and upgrading various sections of the AHN as integral components of their national programmes BENEFICIARIES The ASEAN Highway Network Project will help provide access to an enlarged market, reduce transportation and trade cost, establish linkages with regional and global supply chains, and facilitate greater regional economic cooperation and integration. Both the private and public sectors are indeed beneficiaries of the AHN Project. While the private sectors gains include a reduction of transport costs, more efficient service and increased opportunities from tourism, the public sector has benefitted from encouragement of investment which will increase countrys revenue and provide more jobs. ASEAN will continue to assist and coordinate in the identification of priority investment needs and to promote financing for the development of road as well as supporting the installation of route signal along the AHN.

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ASEAN Tourism Strategic Plan 2011 2015

The countries of ASEAN are now implementing a clear road map to achieve the tourism objectives of the ASEAN Economic Community, due 2015. There will be a new ASEAN for ASEAN campaign and special promotions, along with enhanced strategic cooperation with the growth markets of China, Korea, Japan, India and Australia. ASEAN Secretary-General Dr Surin Pitsuwan and the ASEAN Tourism Ministers have endorsed the plan, which includes a swathe of initiatives such as the creation of a new website and digital promotional campaigns targeting the mass markets of China and India. ASEAN will also go for niche markets such as experiential, creative, adventure, business, and senior, and long stay visitors. Further, there will be special promotions for the cruise market. Our strategy is designed to help build global recognition of Southeast Asia as a competitive, world-class tourism destination, said Dr Surin. Our focus is on drawing visitors to the region and encouraging them to visit more than one country. As each has its own unique attractions, we will capitalize on the sophisticated marketing capacity and resources of our individual national tourism organizations to spread the word. The ASEAN Tourism Strategic Plan 2011-2015 is the foundation of the ASEAN Tourism Marketing Strategy (ATMS) 2012-2015, adopted by ASEAN Tourism Ministers in January 2012. It is the plan with which ASEAN national tourism organisations (NTOs) seek to achieve the objectives of 2015 and maintain double digit tourism growth, an ASEAN hallmark for much of the last 14 years. ASEAN destinations attracted 81.2 million visitors in 2011, an average increase of a million visitors each year for the last two decades. Three out of four visitors to ASEAN come from Asia; 46.5% from within ASEAN and 27.6% from other Asian markets. According to ASEAN NTOs, Europe is the next largest group of visitors to ASEAN at 12.2%, followed by Oceania (including Australia and New Zealand) at 5.3%, and the Americas at 4.4%. Niche and mass market promotions will go hand in hand. ASEAN Tourism Marketing Working Group Chairperson, Mr Sansern Ngaorungsi, who is also Deputy Governor of the Tourism Authority of Thailand said: While ASEANs niche, tactical campaigns will target sectors such as adventure, experiential, business and long stay, and show the diversity of ASEAN, mass tourism demand for mainstream attractions is expected to keep growing and bring important economic benefits to ASEAN destinations.

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One niche sector, cruise is being favoured by ASEAN because riverine and sea cruise ships usually visit more than one destination. To promote cruise ship activity in ASEAN, Singapore is organizing the Cruise Shipping Asia Pacific 2012 forum on 17 September in Singapore. Southeast Asia NTOs will also b e emphasizing the groupings marketing plan at the ASEAN Tourism Forum which will take place in Vientiane, Laos 17-24 January 2013. Over 1,600 delegates will include some 150 ASEAN tourism ministers and officials, 800 ASEAN exhibitors, 400 international buyers, 150 international and local media and 100 tourism trade visitors.

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The ASEAN Free Trade Area (AFTA)

ASEAN Free Trade Area (AFTA) is a trade bloc agreement by the Association of Southeast Asian Nations supporting local manufacturing in all ASEAN countries. The AFTA agreement was signed on 28 January 1992 in Singapore. When the AFTA agreement was originally signed, ASEAN had six members, namely, Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand. Vietnam joined in 1995, Laos and Myanmar in 1997 and Cambodia in 1999. AFTA now comprises the ten countries of ASEAN. All the four latecomers were required to sign the AFTA agreement in order to join ASEAN, but were given longer time frames in which to meet AFTA's tariff reduction obligations. The primary goals of AFTA seek to: Increase ASEAN's competitive edge as a production base in the world market through the elimination, within ASEAN, of tariffs and non-tariff barriers; and Attract more foreign direct investment to ASEAN. The primary mechanism for achieving such goals is the Common Effective Preferential Tariff scheme, which established a phased schedule in 1992 with the goal to increase the regions competitive advantage as a production base geared for the world market.

Administration of AFTA
Administration of AFTA is handled by the national customs and trade authorities in each ASEAN member. The ASEAN Secretariat has authority to monitor and ensure compliance with AFTA measures, but has no legal authority to enforce compliance. This has led to inconsistent rulings by ASEAN national authorities. The ASEAN Charter is intended to bolster the ASEAN Secretar iats ability to ensure consistent application of AFTA measures. ASEAN national authorities have also been traditionally reluctant to share or cede sovereignty to authorities from other ASEAN members (although ASEAN trade ministries routinely make cross-border visits to conduct on-site inspections in anti-dumping investigations). Unlike the EU or NAFTA, joint teams to ensure compliance and investigate non-compliance have not been widely used. Instead, ASEAN national authorities must rely on the review and analysis of other ASEAN national authorities to determine if AFTA measures such as rule of origin are being followed. Disagreements may result between the national authorities. Again, the ASEAN Secretariat may help mediate a dispute but has no legal authority to resolve it.
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ASEAN has attempted to improve customs coordination through the implementation of the ASEAN Single Window project. The ASEAN Single Window would allow importers to submit all information related to the transaction to be entered electronically once. This information would then be shared with all other ASEAN national customs authorities.

The Common Effective Preferential Tariff (CEPT) scheme Unlike the EU, AFTA does not apply a common external tariff on imported goods. Each ASEAN member may impose tariffs on goods entering from outside ASEAN based on its national schedules. However, for goods originating within ASEAN, ASEAN members are to apply a tariff rate of 0-5%(the more recent members of Cambodia, Laos, Myanmar and Vietnam, also known as CMLV countries, were given additional time to implement the reduced tariff rates). This is known as the Common Effective Preferential Tariff (CEPT) scheme. ASEAN members have the option of excluding products from the CEPT in three cases: 1.) Temporary exclusions; 2.) Sensitive agricultural products; 3.) General exceptions. Temporary exclusions refer to products for which tariffs will ultimately be lowered to 0-5%, but which are being protected temporarily by a delay in tariff reductions. Sensitive agricultural products include commodities such as rice. ASEAN members have until 2010 to reduce the tariff levels to 0-5%. General exceptions refer to products which an ASEAN member deems necessary for the protection of national security, public morals, the protection of human, animal or plant life and health, and protection of articles of artistic, historic, or archaeological value. ASEAN members have agreed to enact zero tariff rates on virtually all imports by 2010 for the original signatories, and 2015 for the CMLV countries. ASEAN Member Countries have made significant progress in the lowering of intra-regional tariffs through the (CEPT) Scheme for AFTA. More than 99 percent of the products in the CEPT Inclusion List (IL) of ASEAN-6, comprising Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand, have been brought down to the 0-5 percent tariff range.

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ASEAN Member Countries have also resolved to work on the elimination of non-tariff barriers. A work programme on the elimination of non-tariff barriers, which includes, among others, the process of verification and cross -notification; updating the working definition of Non-Tariff Measures (NTMs)/Non-Tariff Barriers (NTBs) in ASEAN; the setting-up of a database on all NTMs maintained by Member Countries; and the eventual elimination of unnecessary and unjustifiable non-tariff measures, is currently being finalized. In an effort to improve and strengthen the rules governing the implementation of the CEPT Scheme, to make the Scheme more attractive to regional businessmen and prospective investors, the CEPT Rules of Origin and its Operational Certification Procedures have been revised and implemented since 1 January 2004. Among the features of the revised CEPT Rules of Origin and Operational Certification Procedures include: (a) a standardized method of calculating local/ASEAN content; (b) a set of principles for determining the cost of ASEAN origin and the guidelines for costing methodologies; (c) treatment of locallyprocured materials; and (d) improved verification process, including on-site verification.

Direction of Trade
ASEAN's exports had regained its upward trend in the two years following the financial crisis of 1997-1998 reaching its peak in 2000 when total exports was valued US$ 408 billion. After declining to US$ 366.8 billion in 2001, as a result of the economic slowdown in the United States and Europe and the recession in Japan, ASEAN exports recovered in 2002 when it was valued at US$ 380.2 billion. The upward trend for ASEAN-6 continued up to first two quarters of 2003. IntraASEAN trade for the first two quarters of 2003 registered an increase of 4.2 and 1.6 percent for exports and imports respectively. ASEAN Trade with Selected Trading Partners The United States, the European Union and Japan continued to be ASEANs largest export markets. Japan, followed by the U.S. and EU, were the largest sources of ASEAN imports. During the first half of 2002-2003, ASEAN-6 trade with major markets as a whole increased by 11.71 percent for exports and 6.91 percent for imports. However, ASEAN exports to the U.S. and India and imports from Canada and India declined during the same period.

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ASEAN India
India has been following a Look East Policy since 1990s. India became a sectoral dialogue partner of ASEAN in 1992, which was upgraded to full dialogue partnership in 1996. Since 2002, we have had annual Summits with ASEAN. To mark the 20th anniversary of our dialogue-level partnership and the 10th anniversary of our Summit-level partnership with ASEAN, India would be hosting the ASEAN-India Commemorative Summit on the theme ASEAN-India Partnership for Peace and Shared Prosperity in New Delhi on December 20-21, 2012. ASEAN-India functional cooperation is diverse and includes cooperation across a range of sectors, such as trade, science & technology, human resource development, space sciences, agriculture, new and renewable energy, information and communication technology, telecommunications, transport and infrastructure, tourism and culture. At the 7th ASEAN-India Summit in October, 2009, India announced a contribution of USD 50 million to the ASEAN-India Co-operation Fund to support ASEAN-India projects across the range of sectors mentioned above. In addition, India has set up an ASEAN-India Science &Technology Development Fund with an initial corpus fund of USD 1 million and a USD 5 million ASEAN-India Green Fund for pilot projects to promote adaptation and mitigation technologies in the field of climate change. The ASEAN-India Trade-in-Goods Agreement signed in August 2009 at the ASEAN-India Economic Ministerial Meeting held in Bangkok, became fully operational from August 2011 when the process of ratification by all the ASEAN countries was completed. In 2011-12, the total trade between India and ASEAN increased by 37% to reach USD 79.86 billion thereby surpassing the trade target of USD 70 billion by 2012, ahead of time. Negotiations for an ASEAN-India FTA in Services and Investments are currently underway Co-operation between India and ASEAN is being intensified, including in the cultural, educational and academic fields, through the promotion of people-topeople contacts, and initiatives such as Youth Exchange Programmes, Special Training Courses for ASEAN Diplomats, Media Exchange Programmes and the ASEAN-India Network of Think Tanks Meeting. India has established Centres for English Language training (CELT) and Entrepreneurship Development Centres (EDC) in Cambodia, Lao PDR, Myanmar and Vietnam (CLMV countries). An Indian Parliamentary delegation attended the 31st General Assembly of ASEAN Inter Parliamentary Assembly (AIPA) held in Hanoi, Vietnam from 20-25 September, 2010, where India was accorded Observer Status by AIPA. The Indian Parliamentary delegation also attended the 32nd General Assembly of AIPA held in Phnom Penh, Cambodia from 18-24 September 2011 and extended an invitation to an AIPA delegation to visit India. An AIPA delegation led by the President of AIPA and Speaker of Speaker of the House of Representatives of Indonesia, Dr. Marzuki Alie visited India from July 29 to August 1, 2012.
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An ASEAN-India Eminent Persons Group (AIEPG) has been set up to draft a new ASEAN-India Vision 2020 document to be adopted at the Commemorative Summit. Three meetings of the AIEPG have been held in Phnom Penh from 2-3 August, 2011, New Delhi from 20-21 October, 2011 and Kuala Lumpur from 9-10 March, 2012. The fourth and final meeting is scheduled to be held in Kochi from 16-17 September, 2012. Delhi Dialogue IV on the theme India and ASEAN: Partners for Peace, Progress and Stability was held from February 13-14, 2012 in New Delhi which also flagged off ASEAN-India Commemorative Year celebration. The visit of the ASEAN Committee of Permanent Representatives (CPR) s to India from February 12-17, 2012 coincided with Delhi-Dialogue IV. At the 8th ASEAN-India Summit held in Hanoi, Vietnam, in October, 2010, Prime Minister announced the extension of Visa on Arrival facility to Cambodia, Vietnam, Philippines and Laos with effect from January 1, 2011. Visa on arrival facility now stands extended to 7 ASEAN countries (Lao PDR, Cambodia, Vietnam, Myanmar, Singapore, Indonesia and the Philippines). A MoU on Strengthening Tourism Co-operation between India and ASEAN was signed at the ASEAN-India Ministerial Meeting on Tourism on January 12, 2012, in Manado, Indonesia. The 9th ASEAN-India Summit was held in Bali, Indonesia on 19 November, 2011. The Leaders took stock of the progress made in the ASEAN-India relationship and agreed to enhance co-operation on a range of issues, including trade, maritime security, food and energy security, and physical and people-topeople connectivity. They reaffirmed their commitment to further strengthen ASEAN-India cooperation, through the implementation of the Plan of Action 201015, in the run-up to the Commemorative Summit. The 10th ASEAN-India Summit was held in Cambodia on November 19-20, 2012.

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ABBREVATIONS
AEC - ASEAN Economic Community AFTA - ASEAN Free Trade Area AHN - ASEAN Highway Network AIEPG - ASEAN-India Eminent Persons Group AIPA - ASEAN Inter Parliamentary Assembly AIPEG - ASEAN-India Eminent Persons Group APSC - ASEAN Political-Security Community ASEAN - Association of Southeast Asian Nations ATMS - ASEAN Tourism Marketing Strategy CEPT - Common Effective Preferential Tariff CET - Common External Tariff CPR - Committee of Permanent Representatives CU - Customs Union EEC - European Economic Community EU - European Union FDI - Foreign Direct Investment FTA - Free Trade Area GATT - General Agreement on Tariffs and Trade. GDP Gross Domestic Product GNI - Gross National Income PTA - Preferential Trade Agreement USD - US Dollar

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Bibliography / References http://www.wisegeek.com/what-is-economicintegration.htm#didyouknowout http://en.wikipedia.org/wiki/Economic_integration http://www.britannica.com/EBchecked/topic/178433/economicintegration www.scribd.com http://circumspectnews.com/?page_id=3092 http://www.getsmarter.co.za/blog-business/915-economics-economicintegration http://www.adb.org/publications/asean-economic-integration-featuresfulfillments-failures-and-future http://www.britannica.com/EBchecked/topic/147445/customs-union http://en.wikipedia.org/wiki/Free_trade_area http://ocw.unu.edu/programme-for-comparative-regional-integrationstudies/introducing-regional-integration/different-forms-of-integration/ http://www.bukisa.com/articles/319072_various-stages-of-economicintegration http://asiapacific.anu.edu.au/blogs/indonesiaproject/2013/05/03/aseaneconomic-integration-challenges-and-strategies/ http://en.wikipedia.org/wiki/Economic_integration_effects http://asiapacific.anu.edu.au/blogs/indonesiaproject/2013/05/03/aseaneconomic-integration-challenges-and-strategies/

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