The AEC will benefit our country

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The Asean was put together in the sixties and grew out of a sense of solidarity among the ethnically related countries in the region led by the Philippines, Indonesia and Malaysia. The Malays were quite close and have substantial cultural, political and economic ties.

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Going back to history Manila was ruled by Rajah Suleiman of the Bolkiah dynasty, now the governing monarchy of that small rich city state at the tip of Borneo. When the Brunei Sultan’s state was threatened by other Malays, his cousin the Sultan of Sulu sent a few thousand Tausug warriors to repel the invaders. In gratitude the Sultan of Brunei gifted his cousin the sprawling territory now known as Sabah. This is the source of the claim of the Kiram family to this disputed territory, a claim that the Sultanate of Sulu and North Borneo formally ceded to the Philippine government.

While the Federation of Malaysia was being put together by Great Britain which annexed Sarawak, Indonesia which claimed the territory went to war against the Malaysian occupiers in the early sixties. This prompted then President of the Philippines, Diosdado Macapagal, to call for a truce conference, which resulted in the Manila Accord of 1962, where the three countries decided to place in the backburner their territorial claims. Thus the Greater Malayan Confederation or Maphilindo (Malaya, the Philippines and Indonesia) was born.

Maphilindo became the precursor of the Asean which the Americans found useful as a convenient tool for containing the communist advance in Southeast Asia by surrounding Vietnam. The Asean was really designed as a political rather than an economic union.

This explains why it has taken many decades for the intra-regional grouping to form an economic union. It must be borne in mind that because of the colonial moorings of the Asean nations (except Thailand), which were only decoupled from their erstwhile colonizers after the Second World War, they have never been completely delinked from the economies of the respective colonial power that ruled them. To this day the Asean countries have more trade outside the region than among themselves. In brief the extra-regional trade of Asean is much more than their intra-regional trade. For every dollar of Asean trade only a quarter comes from trading among the member countries.

This is understandable. The trade between the developed countries and the less developed Asean economies is complementary, which is to say that the colonizers needed the commodities and minerals – the raison-d-etre of the colonial adventures.

On the other hand the economies of each of the Asean members are mostly competitive with the others. For example, the palm oil exports of Indonesia and Malaysia can compete fiercely with coconut products coming from the Philippines in the world commodity markets. Thai sugar competes with locally produced sugar in our own market while Vietnam rice threatens the local rice industry. Competition prevails in many more commodities and exports, such as in forest and fishery products as well as in mineral resources.

This does not mean, however, that in the Asean Economic Community (AEC) relations will necessarily be a beggar-my-neighbor situation or a zero-sum game. Indeed agro-industrial complementation can be a win-win situation. If for example the proposed East Asean growth area can put together all the palm oil and coconut products from Malaysia, Indonesia and our country, the region could control the lauric market and could become the lauric chemical center of the world. We can then control all the downstream products – soaps, shampoos, toothpaste and other lauric-based consumer items in the world markets. Another example would be the pooling of our cacao which could be processed into chocolates and other cacao-based items to export to the world. These are just a couple of examples to illustrate my case.

Regional vision of development
But all these require first of all the political will to implement a regional vision of development. This done, the transfer of capital from capital-surplus members to those which are capital shy, the free movement of labor from labor surplus to labor deficit countries, the transfer of technologies from more advanced members to less developed ones would be facilitated.

For those who have visions of Armageddon here in the Philippines with the implementation of the AEC, we have to remind ourselves that our country possesses a few comparative advantages such as labor skills, English proficiency, style and artistic qualities etc, which has allowed us a successful Diaspora as our labor force invades all the nooks and crannies of this globe.

I had often wondered what would happen to the Middle East economies, European households and hospitals in the West if the millions of our countrymen there went on strike or decided to come home.

A famous sociologist once observed that the Filipinos are a people of Western taste and Eastern productivity. The good news is that the same people today are not only developing a Western taste, they are on the way to achieve Western productivity. For example the plant of Texas Instrument in the Baguio processing zone has been adjudged the best performer of this worldwide corporation. Indeed this country with the thirteenth biggest population in the world has been projected by reputable observers of the world economic scene to become one of the thirty biggest economies in the world and the top of the heap in the Asean by the middle of this century.

Cost/Benefit analysis
Economic integration is an arrangement whereby nations bind themselves to cooperate in the management of their fiscal, trade and monetary policies in order to derive economic advantages. The bottom line of this arrangement is to increase intra-regional trade by expanding markets.

Economic integration facilitates the flow of goods, capital, services and the transfer of technology within the region. Lower prices result from the removal of trade barriers and tariffs, allowing countries to divert funds paid for duties and taxes to more productive enterprise.

Financially larger markets expand financial intermediation and allows for the faster development of capital markets with all the benefits that this entails, such as increased liquidity and lower costs of money. This in turn reduces risks associated with huge initial capital outlays in smaller markets.

The flow of direct investments intra-regionally is facilitated once capital restrictions on fund transfers are liberalized, which can lead to mergers or joint ventures. More robust regional enterprises have better chances of competing in the world markets.

Moreover, chances of achieving greater productivity increases and more employment opportunities are created in a borderless community with a faster and freer flow of factors of production.

Other less economic considerations that derive from intra-regional cooperation are the greater ease of doing business with the dismantling of non-trade barriers and the briar patch of bureaucratic red tape.

Better than playing winner-take-all
All in all, the proposed AEC can be a win-win situation for member countries of Asean. At the very least this will be an improvement on a beggar-my-neighbor competitive environment or on playing zero-sum games of winner take all.

Today in our country there is some sort of paranoia among traders who look at the cup as half empty. The more bullish elements are successful multinationals in our midst that look at the coming arrangements as half-full.

The greatest fear comes from our underperforming agro-industrial sector – specifically the underproductive agriculture sector whose export oriented commodity trade, long nourished by generous subsidies from the rich markets of former colonizers like sugar and coconut oil, can no longer withstand the strong winds of regional competition. Add to this list a heavily politicized and subsidized rice industry whose producers have indeed cause for concern.

When the ex-factory price of sugar is more expensive than the landed cost of Thai sugar and our coconut oil cannot compete in the domestic market with imported palm oil from Malaysia, there is indeed reason for apprehension among our sugar and coconut producers.

However if imported agriculture technology and the virtues of the Feldas and Felchras of Malaysia and the Kooperasis of Indonesia, are adopted through farming joint ventures and such arrangements, our lagging farm sector will surely surge especially when the collaboration is accompanied by increased capitalization for better infrastructure in farmlands.

It is obvious that the viability of local commodities lie in processing and value-adding. This spells entrepreneurship, sadly deficient in our country, capital, technology and management expertise. The last three items are available here but untapped. Parenthetically, it is a crying shame that a country which hosts the IRRI, the SEASFI and other international research institutes cannot apply the same technologies in the service of increased income, productivity and employment in this country.

Looking at the broader picture the Philippines must not lose sight of the virtues of regionalism and economic integration. True enough trade liberalization can produce efficiency loses through trade diversion but it can also bring about a lot of efficiency gains through trade creation.

As a final word and this is perhaps the most important, the competition that the new trade regime will usher in will change the mindset of businessmen long accustomed to rent derived from imperfect competition – a euphemism for monopolies and oligopolies. As the saying goes – carpe diem!

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1 Comment

  1. majid mohamed on

    Just a note. The precursor of ASEAN was ASA ( Association of SE Asia) founded by Malaya, Philippines and Thailand in 1961. ASEAN was formed in 1967 by the original ASA 3, Indonesia and Singapore.
    Maphilindo was a stillborn concept bandied around to appeal to the ‘common’ Malay heritage of the three countries. It was designed to frustrate the establishment of Malaysia on 16 Sept 1963. INDONESIA’S confrontation against Malaysia and the Philippines’ non-recognition of Malaysia then, consigned the Maphilindo project to the debris of history.