Term

paper
ON
WORLD
TRADE OR
ORGANIZATION

TOPIC: THE SHIFTING OF PARADIGM IN REGIONAL

ECONOMIC INTEGERATION WITH ASEAN
PERSECTIVE

Submitted to: submitted by:

MRS RITA KUMARI AVINASH
KUMAR
LECTURER WTO MBA (IB)
LSB (LPU) REG NO:
10901244
DATE OF SUBMISSION: 05/DEC/2009 LSB(LPU)

Index
1. Acknowledgement.....................................

2. Table of content.......................................

3. Abstract AND OBJECTIVE OF STUDY.......

4. Introduction................................................

5. MAIN BODY AND CONTENT OF DISCUSSION.....

6. Recommendations.......................................

7. Annexure.......................................................

8. Bibliography..............................................
 Acknowledgement

This term paper is dedicated to my teachers, my parents and my

friends

Who helped me complete this term paper? I tried my best levels

to

Elaborate on the topic with help of an article.

I pay vote of thanks to the people who helped me to understand

the

The main objective of the term paper.

I am thankful to the gratitude for all those sources who managed

me to

Collect the information and data.

 Table of content

1. Defination of paradigm.

2. Asean perspective view

3. Asean: a) introduction

• HISTORY

• ESTABLISHMENT
• AIMS AND PURPOSES

• FUNDAMENTAL PRINCIPLES
• ASEAN COMMUNITY

b) Economic integration

• ASEAN CHARTER

• The preferential trade arrangements

4. Shifting of paradigm

5. Impact

6. Conclusion

7. Recommendation
 Abstract AND OBJECTIVE OF STUDY

The main objective to study and discuss the history

of economic integration in ASEAN in last 3 years.

• To understand the obstacles and difficulties facing

ASEAN IN its endeavour to create a free economic zone
covering all main provisions of AFTA.

• The main provision of the AFTA, the ASEAN investment

agreement and ASEAN agreement for services from the
angle of economic integration .

• I have discussed current state of ASEAN economic

integration and conclude that the ASEAN vision 2020 is
mere rhetoric.

• Competitive strategy adopted by ASEAN.

To understand all these we must first understand the

meaning of paradigm of economic integration.

For this I have studied on a research paper from SSRN

(social science research network) New York.
 Introduction
Paradigm Shift: Is a change from one way of thinking to another. It's a kind of
revolution, a transformation, a sort of metamorphosis. It just does not happening
normal way, but rather it is driven by agents of change or there may be some other
elements and factors which are responsible for the change.
(http://www.taketheleap.com/define.html)

HISTORY

ASEAN economic integration did not begin until the birth of ASEAN free trade area (AFTA)in
1992.spured by the proliferation of regional trading arrangements elsewhere in the world in the
mid-90s .

Notably NAFTA and EU, and fears that ASEAN would become an outsider in a world increasly
divided into trading blocks, ASEAN leaders created the AFTA to stimulate intra –ASEAN trade.

Unfortunately, AFTA, s performance was dismal in part due o its lengthy scheduled time frame
of 15 years. The liberalization process was fortuitously given a boost in the immediate aftermath
of the 1997 Asian financial crisis.

Overview

ESTABLISHMENT

The Association of Southeast Asian Nations, or ASEAN, 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 had joined on 8 January 1984, Viet Nam on 28 July 1995, Lao PDR and
Myanmar on 23 July 1997, and Cambodia on 30 April 1999, with ten members in ASEAN.

AIMS AND PURPOSES

The majors aims and objectives were as follows:

1. To accelerate the economic growth, social progress and cultural development in the region
through cooperation in terms of equality and partnership to strengthen the base for a
prosperous ,peaceful and friendly community of Southeast Asian Nations;
2. To establish regional peace and stability by abiding respect for justice and the policy of law
in the relationship within countries of the region and adherence to the principles of the
United Nations Charter;
3. To promote active collaboration and mutual guidance to matters of common interest in
economic, social, cultural, technical, scientific and administrative fields;
4. To provide assistance in the form of training and research facilities in the educational,
professional, technical and administrative spheres to their member countries.

5. To manage more effectively for the maximum utilization of their agriculture and industries,
the expansion of the trade, including study of the issues of international commodity trade,
improvement of transportation and communications facilities and increasing the living
standards of their citizen;
6. To boost and promote Southeast Asian studies; and
7. To standardize close and beneficial cooperation present international and regional
organizations with similar kind o objectives, and explore all resources for even closer
cooperation.

FUNDAMENTAL PRINCIPLES

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

• Respect for the independence, sovereignty, equality, territorial integrity, and national
identity among all nations;
• Right to every State to lead its national presence for free from external interference,
subversion.
• Non-interference with internal affairs of each other;
• Settlement of discrimination or disputes in a peaceful manner;
• Renunciation for threat or use of force; and
• Effective cooperation among their members.

ASEAN COMMUNITY

The ASEAN Vision 2020, ASEAN Leaders of ASEAN on the 30th Anniversary, accepted a
vision of ASEAN as a concert of Southeast Asian nations, outward and forward looking, living
with peace, stability along with prosperity, bonded together in partnership for dynamic
development and a community of caring societies.

9th ASEAN Summit in 2003, the ASEAN Leaders resolved to a conclusion that ASEAN
Community shall be established.

And finally at 12th ASEAN Summit in January 2007, the Leaders with their strong commitment
came into movement and planned to establish an ASEAN Community by 2015 and signed the
Cebu Declaration on the Acceleration of the Establishment of an ASEAN Community by 2015.
The ASEAN Community is based on basic three pillars:

• ASEAN Political-Security Community,

• ASEAN Economic Community
• ASEAN Socio-Cultural Community.

Each pillar has a unique Blueprint, and, together on a platform with an Initiative for
ASEAN Integration (IAI) Strategic Framework & IAI Work Plan Phase II (2009-2015),
they form the Roadmap for and ASEAN Community 2009-2015.

Economic integration
ASEAN CHARTER

The ASEAN Charter foundation in the ASEAN Community by guiding legal status and
framework for ASEAN. It defines ASEAN norms, rules and values; set targets for ASEAN; and
represents accountability and compliance.

The ASEAN Charter entered in 15 December 2008. A meeting of ASEAN Foreign Ministers
was held at the ASEAN Secretariat in Jakarta to make important this very historic occasion for
ASEAN.

With the entry of ASEAN Charter, ASEAN will regulate under a new legal framework and
establish a number of new elements to develop its community-building process.

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

ASEAN has came through the regional economic integration by means of sudden globalization
and liberalization in mid of some 2000-2003.pore.

Following the collapse of the non communist activities of Cambodia and Vietnam (south) in
1975 , the rising communist that threaten to spread down to Malaysia and Singapore

This was only the point when ASEAN felt an urgent need to expand activities an co operation
beyond its original standards.

At Bali summit in 1976, ASEAN leaders adopted two landmark treaties which boosted for the
economic integration.

Both the treaties were called for the promotion and co-operation in the field of economic
development.
E.g.: the establishment of ASEAN industrial plants to meet the regional requirements for
essential commodities, the ASEAN preferential trading arrangements and the
“complementation”.

ASEAN INDUSTRIAL PROJECTS SCHEME (AIPS)

 ASEAN INDUSTRIAL COMPLEMENTATION SCHEME(AICS)

 ASEAN INDUSTRIAL JOINT VENTURE

All the objective was encourage the investments into and within the country.

But many these programmes were in operational and however failed due to lack of
established gaols and guidelines for the negotiations over choice of the products, investment,
and market access.

The preferential trade arrangements (PTA) was launched in 1977 to jointly

release the trade barriers .In the beginning the margin was only 10% and were negotiated on
a voluntary, product-by-product basis. The ASEAN government were not too keen to
stimulate and accelerate ASEAN into a free trade area because their economies were not
complementary and they had to protect their domestic markets.

But this also fails because of some political reasons.

New Regionalism in ASEAN

Although the 1987 ASEAN Summit rejected the creation of a regional common market or
free trade area and expressly underlined the role of ASEAN as a facilitator of closer policy
co-ordination and economic co-operation among the member countries, by the early 1990’s
the tide had abruptly changed course.

Growing consternation over the stalemated Uruguay Round and the onslaught of
protectionist trade blocs forming in Europe and North America pushed the ASEAN
governments toward wider and deeper economic integration.

• Firstly, ASEAN feared that it would become an outsider in a world increasingly

divided into trading blocs.

• Secondly, ASEAN sensed the need to create a fallback position should the Uruguay
Round collapse.
 • Thirdly, the members desperately hoped to sustain the high growth rates experienced
by them in the late 1980’s, and thus created the ASEAN Free Trade Area or AFTA in
part to stimulate intra-ASEAN trade.

• Lastly, the ASEAN members also worry that their markets might begin to look less
attractive to foreign investors.

AFTA: the ASEAN Free Trade Area

The Singapore Declaration of 1992 and the Framework Agreement on Enhancing ASEAN
Economic Co-operation, 1992 established AFTA. The primary motive of AFTA is to
“intensify co-operation among the members of ASEAN to increase their international
competitiveness and integration with the world”. In other words, the ultimate objective of
AFTA is to increase ASEAN’s competitive edge as a production base geared for world.

AFTA is implemented through the Common Effective Preferential Tariff (CEPT) Scheme.
Unlike the product-by-product approach of the PTA, CEPT adopts a sect oral approach.
Fifteen product groups were immediately selected for accelerated tariff reductions.

The CEPT covered all manufactured products including capital goods, and agricultural
products. Tariffs reduction was planned along two lines, namely the “normal track” and “fast
track”. Products in the “normal Track” will have tariffs reduced to the 0-5 per cent margin
by January 2003 while those in the “fast track” and will be reduced to the 0-5 per cent
margin by January 2000.

The 1997 Asian financial crisis again accelerated the CEPT scheme by one year to 2002 for
the ASEAN-6 countries; 2003 for Vietnam; 2005 for Laos and Myanmar; and 2010 for
Cambodia.

The fast-changing external environment had precipitated AFTA’s acceleration into a free
trade area.

Under the CEPT, products that are slated for immediate liberalisation through tariff
reduction are put into an “Inclusion List” (IL). The 2001 CEPT Package shows that 92.58
per cent of the ASEAN-6’s tariff lines are in the 0-5 per cent category.

NOTE: Zero tariff rates will be achieved by 2010 for the ASEAN-6 members and 2015 for
the newer members.
Based on the latest data, about 47.86 per cent of the IL of the ASEAN-6 would have zero per
cent tariffs by 2003. ASEAN members have the option of excluding products from the
CEPT in three cases:

• Temporary exclusion;

• Sensitive agricultural products;

• General exception.

The Temporary Exclusion List (TEL) covers products for which members are not
prepared to begin lowering tariffs. Members are, however, required to transfer products
from the TEL to the IL by annual instalments to reach a target of only 8,660 tariff lines
in the TEL (i.e. 13.4 per cent) by 2001.

A Protocol was, however, signed on 23 November 2000 to temporarily delay the transfer of
these TEL products or suspend concessions on those TEL products already transferred into
the IL to give flexibility to countries facing real difficulties in transferring their last tranche
of manufactured TEL products.

The sensitive list (SL) covers unprocessed agricultural goods which are given a longer
period for integration into the free trade area. The commitment to liberalise this sector was
extended to the year 2010. The newer members have up to 2013 (Vietnam), 2015 (Laos and
Myanmar) and 2017 (Cambodia) to meet the targets.

The General Exception List (GEL) refers to products that are permanently excluded from the
CEPT scheme for reasons of national security, moral and health hazards and articles of
artistic & historic

They are vegetable oils, cement, chemicals, pharmaceuticals, fertilisers, plastics, rubber
products, leather products, pulp, textiles, ceramics and glass products, gems and jewellery,
copper cathodes, electronics and wooden and rattan furniture. These products were of
considerable commercial importance and account for roughly US$9.3 billion or 37 per cent
of total intra-ASEAN trade. Protocol in 1995 amended the CEPT to include raw and
 unprocessed agricultural goods. The same 1995 Protocol accelerated AFTA by five years to
be realised on 1 January 2003.

With this in mind, the Fifth ASEAN Summit in December 1995 heralded the creation of the
ASEAN Investment Area.

AIA: the ASEAN Investment Area

The AIA Framework Agreement was signed on 7 October 1998. The declared intent of AIA

can be stated as follows: “Together with the AFTA programme, the AIA will give investors,
existing and new, a framework highly conducive to regional integrated production activities,
procurement, manufacturing and resources based investment activities”.

In tandem with the AIA, ASEAN decided to enhance their industrial competitiveness By
implementing the ASEAN Industrial Co-operation Scheme (AICO) on 1 November 1996. This
scheme is intended to benefit the private sector, particularly vertically integrated multi-national
enterprises that used ASEAN as a production platform.

An AICO arrangement is a co-operative arrangement consisting of a minimum o f two

participating companies from two different countries. The output of the arrangement (referred to
as “approved AICO product have. Unlimited access into the markets of the participating
countries.

As stated above, the AFTA, AIA and AICO are endeavours by ASEAN to create a single
production platform, market and investment area with a freer flow of goods, capital, skilled
labour, professional expertise, technology and services. As such, it is important to ensure that
the future direction of economic integration in ASEAN will be in synch with this imperative. To
fulfil this objective, the economic realities in ASEAN cannot be ignored. We thus turn to look at
the trade and investment patterns in ASEAN

Current status of economic integration

Balassa’s five stages of economic integration are as follows:

• Free Trade Area- tariffs and quotas are eliminated within members of the integration,
but members retain national tariffs (and quotas) against third countries. No positive
integration here.
 • Customs Union- No discrimination among members in products markets, with a
common external tariff structure against non-members. No positive integration n is
present.

• Common Market- a customs union which abolished restrictions in factor movements.

No positive integration here.

• Economic union- a common market that practises some degree of harmonisation of

national economic policies in order to remove discrimination that resulted from
disparities in these policies. Positive integration is introduced here.

• Total economic integration- unification of monetary, fiscal, social and counter

cyclical policies. A supranational authority is set up where decisions are binding for
the member states. A vision of a centralist and unitary state is contemplated here.

Impact
Theories of economic integration are, thus, not useful frameworks to assess ASEAN economic
integration. It would be tantamount to putting the proverbial “new wine in old wineskin”. The
paradigm has shifted. The underlying motives for economic integration in the 50s and 60s are
very different from those in the present day. Unlike in the 50s and 60s, current initiatives
involving developing countries are part of a strategy to liberalise and open their economies to
implement export- and foreign investment-led policies rather than to promote import sub
situation. Current initiatives represent efforts to facilitate their members’ participation in the
world economy rather than their withdrawal from it. In other words, regionalism in the present
day is, by and large, not responses to thwart globalisation. On the contrary, they are attempts to
meet the needs arising from globalisation.

Furthermore, they are not arrangements to exclude outsiders but instead they are inclusive
arrangements to allow outsiders to join them.

In fact, the new wave o f regional integration is viewed less in terms of gains from trade
creation/diversion and more in terms of scale economies, product differentiation, efficiency gains
and policy co -ordination. There is also increasing emphasis on the role of foreign investment in
regional integration and globalisation and a genuine drive towards trade liberalisation with the
ultimate aim of creating free trade areas. Such free trade areas are viewed as a means of
attracting FDI and achieving global competitiveness in trade. This new paradigm fits the pattern
of ASEAN economic integration.

CONCLUSION:
As per the ASEAN is concerned the regional economic integration has brought paradigm in the
trade system. But ASEAN has changed so much of stages to achieve the free trade system among
their member countries by means of AFTA, AIA and AICO which were some not that much
success because of lack of planning and implementation.

RECOMMENDATION.
I as my point of view the ASEAN must first understand the current norms of the globalization
and liberalization and then should make a body to universalise the free trade among the member
of the ASEAN and the most important to understand the paradigm means the ongoing revolution
due to the change in economic integration all around the word and they should make a body who
can have a control over the trading system.

But every failure gives learning for the future, and off course ASEAN as a strong unity as
performing good the vision 2020 and the objectives.

ANNEXURE
ARTICLE 1

The Shifting Paradigm in Regional Economic

Integration: The ASEAN Perspective
Lay Hong Tan
Nan yang Technological University (NTU) - Business Law Series

Anil Samtani
Nan yang Technological University (NTU) - Division of Business Law

August 22, 2002

TLH02/02 Abstract:
ASEAN economic integration did not begin in earnest until the birth of ASEAN Free Trade Area (AFTA) in
1992. Spurred by the proliferation of regional trading arrangements elsewhere in the world in the mid-90's,
notably NAFTA and the EU, and fears that ASEAN would become an outsider in a world increasingly
divided into trading blocs, the ASEAN leaders created the AFTA to stimulate intra-ASEAN trade.
Unfortunately, AFTA's performance was dismal, in part due to its lengthy scheduled time-frame of 15
years. The liberalisation process was fortuitously given a boost in the immediate aftermath of the 1997
Asian financial crisis; and by 2003 the ASEAN region will become a free trade zone with very low tariffs of
zero to five per cent. ASEAN economic integration also expanded to other areas, notably services; and the
ASEAN Vision 2020 was hatched. This paper first outlines the history of economic integration in ASEAN in
the last 30 years. Secondly, it examines the obstacles and difficulties facing ASEAN in its endeavour to
create a free economic zone of goods, services, capital and investments. Thirdly, it discusses the main
provisions of AFTA, the ASEAN Investment Agreement and the ASEAN Agreement for Services from the
angle of economic integration. Fourthly, it assesses the state of ASEAN economic integration and
 concludes that the ASEAN Vision 2020 is mere rhetoric. Lastly, it explores the strategy that ASEAN
adopts to combat stiff competition from its neighbours and how this strategy impacts upon the future
direction of ASEAN economic integration.

JEL Classifications: F-F02

Working Paper Series

Date posted: March 04, 2003 ; Last revised: March 04, 2003

Suggested Citation
Tan, Lay Hong and Samtani, Anil , The Shifting Paradigm in Regional Economic Integration: The ASEAN Perspective
(August 22, 2002). TLH02/02. Available at SSRN: http://ssrn.com/abstract=325484 or doi:10.2139/ssrn.325484

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