The 4th World Social Science Forumin Fukuoka 9/25/2018

ASEAN Economic Integrationin the World Economy

-Its Significance and Issues-

Kazushi Shimizu (Kyushu University)shimizu@econ.kyushu-u.ac.jp

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Structure of This Report Long-term study conducted on ASEAN economic integration and

the AEC within the world economy ASEAN economic integration and the automobile industry East Asian Economic Integration including RCEP

The following are covered in this report: 1. Introduction 2. ASEAN Economic Integration and AEC

in the world economy 3. Establishment of AEC in 2015 4. AEC2025 Looking toward 2025 5. Conclusion

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1. Introduction ASEAN was established in 1967

Indonesia, Malaysia, Philippines, Singapore, Thailand:ASEAN5 ASEAN began intra-economic cooperation in 1976 Brunei joined ASEAN in 1984: ASEAN6 ASEAN agreed on the ASEAN Free Trade Area (AFTA) in 1992 CLMV joined ASEAN in the late 1990s: ASEAN10 ASEAN agreed on the ASEAN Economic Community (AEC)

in 2003 ASEAN moved to Economic Integration and established AEC in

2015 Moving toward AEC2025

ASEAN is the oldest and most advanced Economic Integration in Asia.

ASおうｒせ

Source: ASEAN Secretariat HP

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Source: ASEAN-Japan Centre, ASEAN Information MAP.

6Source: ASEAN-Japan Centre, ASEAN Information MAP.

7Source: ASEAN-Japan Centre, ASEAN Information MAP.

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Source: ASEAN-Japan Centre, ASEAN Information MAP.

ASEAN is comprised of 10 Different countries

ASEAN is comprised of 10 Different Countries Populations: Largest Indonesia (267million),

Smallest Brunei (0.43million) in 2017 GDP: Largest Indonesia (1.016trillionUS$),

Smallest Brunei (12billionUS$) in 2017 GDPPC: Largest Singapore (57,714US$),

Smallest Myanmar (1,299US$) in 2017 ASEAN moved to Economic Integration with

these Differences.

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Source: ASEAN-Japan Centre, ASEAN Information MAP.

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Source: ASEAN-Japan Centre, ASEAN Information MAP.

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Source: ASEAN-Japan Centre, ASEAN Information MAP.

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Source: ASEAN-Japan Centre, ASEAN Information MAP.

ASEAN’s Trade Percentage to GDP is bigger than other Economies.

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2. ASEAN Economic Integration and AECin the world economy: Summary

50years of ASEAN Integration and AEC

Improved Economic Integration in the structural changes of the world economy the Changes: ①the Plaza Accord, ②the Cold War, ③the

Asian Economic Crisis, ④the World Financial Crisis BBC(1988), AICO(1996), AFTA(1992), AEC(2003)

Establishment of AEC in 2015 Establishment of AFTA: Free Flow of Goods Elimination of Tariffs 95.99% Tariff Lines at 0% ⇔Japan’s EPA(FTA)’s rate

Movement towards Free Flow of Service, Investment and Skilled Labor. And Infrastructure Building and Narrowing the Gap, etc.

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ASEAN Economic Integration: 1976-2003 Established in 1967 Economic cooperation began in 1976

“ASEAN’s Strategy for CISI (Collective Import Substituting Industrialization)”: AIP, AIC and PTA

Change to the Economic Cooperation Strategy in 1987 due to the changes after the Plaza Accord Change to “ASEAN’s Strategy for CFEI (Collective FDI-led and

Export-oriented Industrialization)” BBC (Brand-to-Brand Complementation) Scheme (1988)

Agreed on AFTA (ASEAN Free Trade Area) in 1992 Membership has expanded to Indochina since 1995 due to

the changes of the cold war Vietnam in 1995, Laos and Myanmar in 1997, Cambodia in 1999

Economic integration has been deepening due to changes since the Asian Economic crisis

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Toward the ASEAN Economic Community (AEC) Oct 2003: “ASEAN Concord Ⅱ” and AEC

AEC: structuring single market/production base by 2020 Inviting foreign investment

Jan 2007: front-loading AEC up to 2015 Nov 2007: “AEC Blueprint” A. Single Market and Production Base Free flow of (1) goods, (2) services, (3) investment,

(4) capital and (5) skilled labor B. Competitive Economic Region C. Equitable Economic Development D. Integration into the Global Economy

Since 2008: AEC Scorecard and Monitoring Oct 2010: “Master Plan on ASEAN Connectivity” Steadily moved toward

establishment of AEC in 2015

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Results of ASEAN Economic Integration (1)Tariff Reductions through AFTA

Steady results obtained thus far through ASEAN economic integration

Tariff reductions since 1993 through AFTA In January 2010, tariffs were eliminated in 6

original member states, thus realizing AFTA Simultaneously, tariffs on almost all items (98.96

％) were reduced to 0-5％ in CLMV as well Increase in AFTA utilization rate by individual

states For example, 61.3% of exports from Thailand

to Indonesia in 2010 used AFTA

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Results of ASEAN Economic Integration (2)Support for Production Networks Japanese corporations have been expanding their

production networks throughout ASEAN ASEAN policies support these production networks

The automotive industry is a typical example. Japanese automotive manufacturers hold a large share in ASEAN: 85% currently

Toyota: Supported by ASEAN policies (BBC, AICO, AFTA) since the 1990s, with major components mutually complemented in the ASEAN region

Toyota IMV (since 2004) Parts procurement, production and export of 1-ton pickup trucks in

various areas Multi-layered production network is being expanded to include

primary parts makers such as Denso, secondary and tertiary makers as well as material suppliers

AFTA provides support Matching of ASEAN integration policy and corporate

production network structuring

Schematic of Main Car and Parts Complementation at Toyota IMV

◎PUs ◎SUVs(Mother plants)

Thailand

◎Mini-vans(Mother plants)○SUVs

●Gasoline engines

IndonesiaIndia

○PUs ○SUVs○Mini-vans

Malaysia

Philippines

○Mini-vans○ SUVs

Viet Nam

☆OHQ(Sales / marketing)

Singapore

●Diesel engines●Gasoline engines

☆OHQ(procurement, logistics,

QC, development)

○Mini-vans

●Manual transmissions

○ Mini-vans○ SUVs

●Manualtransmissions

ASEAN

PUSUV

Mini-van

Diesel enginesGasoline engines

Manual transmissions

World m

arkets

(Source) Shimizu (2010).

(Note) Prepared by author based on interviews.

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Mem

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Results of ASEAN Economic Integration (3)ASEAN led East Asian Economic Integration East Asia regional cooperation: developed in the

wake of the Asian financial crisis Key player is ASEAN ASEAN, ASEAN＋3, EAS, etc. are deployed in multiple

layers Structuring of FTA networks as ASEAN+1 FTAs ACFTA (ASEAN-China) AJCEP (ASEAN-Japan) AKFTA (ASEAN-Korea) AIFTA (ASEAN-India) ASEANCER (ASEAN-Australia / New Zealand) Completed in January 2010

However, FTAs for East Asia as a whole and CJK were not established

ASEAN proposed the RCEP in 2011

３Brunei

MalaysiaSingaporeVietnam

Cambodia

Laos

Myanmar

Japan China Korea

Australia New Zealand

India

US Russia

EU

Papua New Guinea East Timor Mongolia PakistanNorth Korea BangladeshSri Lanka

ＡＰＥＣ （ＦＴＡＡＰ）

PeruMexicoChile

RCEP

ＡＳＥＡＮ（ＡＦＴＡ）

ARF

Framework of East Asian Regional Cooperation Centering on ASEAN

ＥＡＳ

CanadaPMC

Hong KongTaiwan

ＴＰＰ11

Indonesia

Philippines

Thailand

ASEAN+3

Source) Prepared by authorNotes) ( ) indicates free trade region (including conception) ASEAN: Association of Southeast Asian Nations, AFTA: ASEAN Free Trade Area,RCEP: East Asia Regional Comprehensive Economic Partnership,PMC: ASEAN Post Ministerial Conference, ARF: ASEAN Regional Forum, TPP11 (CPTPP): Comprehensive and Progressive Agreement for Trans-Pacific Partnership, APEC: Asia-Pacific Economic Cooperation, FTAAP: Free Trade Area of Asia-Pacific

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Changes after Global Financial Crisis and East Asia (1)

ASEAN and East Asia Becoming the most important growth area in the world

economy Major production bases for the world economy Huge markets for the world economy

United States “Plan to double exports” Participating in TPP, aiming to export to East Asia

Realization of Mega-FTAs: TPP and RCEP TPP: Mega-FTA in Asia Pacific

12 states: Malaysia, Singapore, Brunei, Vietnam, Japan, Australia, New Zealand, US, Canada, Peru, Mexico and Chile

RCEP: Mega-FTA in East Asia 16 states: 10 ASEAN states, Japan, China, Korea, Australia, New

Zealand and India

Changes after Global Financial Crisis and East Asia (2):

Realization of Mega-FTAs Realization of mega-FTAs: TPP and RCEP Mar 2010: TPP negotiations began Nov 2011: ASEAN Summit ASEAN proposed East Asia Regional Comprehensive Economic

Partnership (RCEP) August 2012: First Economic Ministers Plus ASEAN FTA Partners

Consultations Nov 2012: Agreement on beginning RCEP negotiations in early 2013 Agreement on beginning CJK FTA negotiations

May 2013: First Meeting of Trade Negotiating Committee (RCEP) July 2013: Japan joined TPP negotiations

TPP and Japan’s participation in TPP accelerated RCEP and CJK FTA negotiations

TPP and RCEP negotiations accelerated the realization of AEC

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3.Establishment of AEC in 2015 (1) A. Single Market and Production Base

1. Free Flow of Goods Elimination of Tariffs (A): 10 ASEAN member

states: 96% Tariff Lines at 0% ⇔Japan’s EPA’s rate But CLMV extended duties with flexibility of 7% of tariff

lines up to Jan 2018 Improved Rules of Origin, ASEAN Single Window Elimination of NTBs (D)

2. Free Flow of Services (B) 3. Free Flow of Investment (B) 4. Free Flow of Capital (B) 5. Free Flow of Skilled Labor (C)

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Establishment of AEC in 2015 (2) B. Competitive Economic Region (B) Competition Policy, IPR, Infrastructure

C. Equitable Economic Development (B) Narrowing the Gap

D. Integration into the Global Economy (A) RCEP, ASEAN+1 FTAs

Next AEC Goal is 2025 Nov 2015: “AEC Blueprint 2025” Dec 31, 2015: the Great Milestone

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4. AEC2025 Looking toward 2025The New Goal of AEC: “AEC Blueprint 2025” in Nov 2015A. A Highly Integrated and Cohesive Economy 1.Trade in Goods, 2.Trade in Services, 3.Investment Environment,

4.Financial Integration, Financial Inclusion, and Financial Stability, 5.Facilitating Movement of Skilled Labor and Business Visitors, 6.Enahancing Participation in Global Value Chains

B. A Competitive, Innovative and Dynamic ASEANC. An Enhanced Connectivity and Sectoral Cooperation D. Resilient, Inclusive and People-Oriented, People-Centered

ASEANE. Global ASEAN

Highly Integrated Economy, Infra-structure Building, Narrowing the Gap and New Objectives for 2025,in the extension of AEC2015

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Progress of AEC2025 ”AEC2025 Consolidated Strategic Action Plan (CSAP)

in Feb.2017 (updated in Aug. 2018) Action Plan of AEC2025 from 2016 to 2025

“Master Plan on ASEAN Connectivity (MPAC) 2025” “Initiative for ASEAN Integration (IAI) Work Plan Ⅲ”

CLMV removed the extended tariffs for 7% of tariff lines in Jan 2018: Final Establishment of AFTA Vietnam removed Car Tariffs (But Vietnam adopted NTMs)

Progress of the ASEAN Single Window (ASW)

To Further Economic Integration for 2025 in the Protectionism of the World Economy

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5. Conclusion Steadily moved to Economic Integration and

Established AEC in 2015 Great results of Economic Integration and AEC

①Solid results obtained: tariff reduction and others ②Support for production networks③Key player in East Asian Economic Integration：RCEP

ASEAN is one of the most important cases of Economic Integration in the world Establishment of AEC in the structural changing of

the world economy Leading the Economic Integration in the Growth

Center of the World

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Challenges Facing ASEAN Economic Integration

ASEAN must improve and deepen AEC to develop in the World Economy

ASEAN must maintain the Initiative in East Asian Economic Integration

ASEAN and Japan must cooperate against the Protectionism after the Trump Administration in today’s World

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【References】 Shimizu, K. (2016), “ASEAN Economic Integration in the

World Economy,” in Ishikawa, K., Shimizu, K. and Sukegawa, S. (eds.) (2016) The Establishment of AEC and Japan, Bunshindo, Tokyo.

Shimizu, K. (2017a) “The Trump Shock and ASEAN Economic Integration,” World Economic Review , Vol.61 No.5.

Shimizu, K. (2017b), “ASEAN Economic Integration and the ASEAN Centrality,” International Affairs, 665, JIIA, Tokyo.

Thank you very much for your attention!

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References ASEAN-Japan Centre (2017), ASEAN Information Map, Tokyo. ASEAN Secretariat (2008), ASEAN Economic Community Blueprint, Jakarta. ASEAN Secretariat (2015a), ASEAN Economic Community 2015: Progress and Key Achievements, Jakarta. ASEAN Secretariat (2015b), ASEAN Integration Report, Jakarta. ASEAN Secretariat (2015c), ASEAN 2025: Forging Ahead Together, Jakarta. ASEAN Secretariat (2017), AEC2025 Consolidated Strategic Action Plan (CSAP), Jakarta. ASEAN Secretariat (2018), AEC2025 Consolidated Strategic Action Plan (CSAP) (updated), Jakarta. Intal, P., Fukunaga, Y., Kimura, F. et.al (2014), ASEAN Rising: ASEAN and AEC beyond 2015, ERIA,

Jakarta. Ishikawa, K., Shimizu, K. and Sukegawa, S. (eds.) (2009), ASEAN Economic Community (AEC), JETRO,

Tokyo. Ishikawa, K., Shimizu, K. and Sukegawa, S. (eds.) (2013), ASEAN Economic Community (AEC) and Japan,

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Press. Urata, S., Ushiyama, R. and Kabu, S. (eds.) (2015), ASEAN Economic Integration, Bunshindo, Tokyo. Umada, K., Urata, S. and Kimura, F. (eds.) (2016), Expectation and Issues of TPP, Bunshindo, Tokyo. Severino, R. C. (2006), Southeast Asia in Search of an ASEAN Community, ISEAS. Shimizu, K. (1998), Political Economy of Intra-ASEAN Economic Cooperation, Minerva Shobo, Kyoto. Shimizu. K. (2009), “East Asian Regional Economic Cooperation and FTA,” in Nakamura (2009). Shimizu, K. (2010), “ASEAN Economic Cooperation and Production Network: ASEAN Auto Parts

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Shimizu, K. (2016), “ASEAN Economic Integration in the World Economy,” in Ishikawa, Shimizu and Sukegawa (2016).

Shimizu, K. (2017a), “ASEAN Economic Integration and the Trump Shock,” World Economic Review, 632, ITI, Tokyo.

Shimizu, K. (2017b), “ASEAN Economic Integration and the ASEAN Centrality,” International Affairs, 665, JIIA, Tokyo.

Shimizu, K.(2018), “Prospects for the RCEP Negotiations, Discuss Japan (MOFA of JAPAN), 16 August.