ECONOMIC INTEGRATION AND REGIONAL STABILITY Study Case: ASEAN-CHINA FREE TRADE AGREEMENT

Globalization is one of the factor that opened up so many opportunity such as services or even investment between countries and community. This writing will focus on China and ASEAN’s member states as the study case. State leaders in ASEAN and China agreed to conduct a conference in Singapore in November 2000 to discussed issue about the mechanism of aid, expansion and intensification regarding cooperation in economic sector and integration. In the year of 2001, ASEAN’s countries and China met to discuss about the initiative ASEAN-China Free Trade Area (FTA) which encompass 10 years of time.[1] The results from the conference of both parties was the agreement of Comprehensive Economic Cooperation (FACEC) which was signed in November 2002 at Cambodia. One of the results that were agreed on the conference was the achievement of trade in goods on the year 2004. The conference also resulted in the prediction regarding implementation of FTA between China and six ASEAN’s early member states (or ASEAN-6) in 2010. FTA’s treaty between China and ASEAN-4 (Cambodia, Laos, Myanmar and Vietnam) will be implemented in 2015. [2]This agreement framework will be the series of growth process, integration and economic development in good’s trade, services and investment in Southeast Asia’s countries. This then becomes a question as to how economic cooperation can have an impact on stability for both regions. 

            The cooperation that was formed by China with ASEAN member states which was intended for improving the development of ASEAN-4 states has been realized through the Great Mekong Sub-Region conducted by China, ASEAN-4 states and Thailand in 1992. This cooperation was intended to improve economic development in nine priority sectors such as agriculture, energy, environment, human resources development, investment, telecommunication, tourism, transportation and trading facilities. At the end of 2011, a total of 15 billion US dollars project was built including sub-regional road, airport, railway improvement, etc. GMS states have even prepared a new strategy for 2012-2022 at the GMS Summit in Myanmar last December 2011. [3]

            ASEAN-China FTA was a positive initiative for ASEAN’s member states who were ready to compete like ASEAN-6, but also gave the opportunity to ASEAN-4 to adjust with the economy’s condition.The increasingly open market access gave positive encouragementfor the domestic economies, product diversification, social development and reduction of poverty in the long term. Practically, the Proliferation of Preferential Trade Arrangements (PTA) or Free Trade Area (FTA) was a form of market openness within the state’s area where FTA implemented around 1990. The improving competition between domestic market and third world countries market, structural adjustment and resources reallocation were the consequences of free market implementation. However, this must be done by all parties in order to create an efficient and mutually beneficial collective cooperation. [4]

            The submission of ASEAN-China FTA will give implication towards the trading and economic interaction both globally and regionally in Southeast Asia. There was however an implications such as ASEAN-6’s position that will still be an important potential market share to ASEAN-4 in doing products export and import, but over time waiting for ASEAN-4 readiness, China will be the next new potential market share, the other implication such as intra-ASEAN’s trade is currently improving through the Asia’s countries role as the Newly Industrializing Economies (NIEs), China and several other ASEAN’s member states with trade and economic investment’s improvement, and other economic group, also China’s existence as a country which has broad trading network with developing countries in East Asia and Southeast Asia has given several different impacts for example implication towards Asia’s NIEs and ASEAN-6 which given them trading surplus, but on the other side a supply barrier towards ASEAN-4 and this competition has resulted ASEAN-4 in trading deficit.

            In general, liberalization and deregulation of China’s market regarding goods and services have given benefits to developing countries who have natural resources, tourism potential, high industrial rates and technology innovation. The Chinese market share can be utilized by Asian countries to expand their trade networks. Vice versa, Asia’s market share are also very potential for China’s manufacturing product competition such as textile, clothing, electronic, toys, plastic and shoes. The fact is in 1999, ASEAN’s member states imported Chinese manufacturing product around 70% and far greater compared to ASEAN’s import from other countries. Other than that, China is also an unavoidable competitor in export product competition in third countries markets such as the US, Japan and the EU. In tourism sector, the potential to achieve profits are quite large. Around 10 million Chinese tourists visit especially 1 out 5 tourists total directly visit ASEAN except ASEAN-4. The lack of facilities and tourism infrastructure was one of the obstacle faced by ASEAN-4, therefore investment contribution for ASEAN-6 is the very important investment sources to develop tourism sector. Few factors that must be put in attention to maintain the market share are innovation, development, products diversification and production process.

            Regarding the economic conditions differences in ASEAN countries, the initiative of ASEAN-China FTA will be adapted based on ASEAN-6 and ASEAN-4 condition. Economic condition in the ASEAN-6 already tend to be more stable compared to ASEAN-4 especially Cambodia and Laos which are characterized as Least Developed Countries (LDCs) and Vietnam which economically still in the period of transition. [5] Knowing that the three countries are not WTO members, thereby the Special & Differential Treatment  (S&D) cannot be applied in accordance with the Uruguay Agreement or China’s commitment to the WTO. Regarding this problem, therefore in the submission of the ASEAN-China FTA, China has given Most Favored Nation (MFN) status to ASEAN-4 and articles addition in the agreement framework regarding providing technical support, capacity building and other economic cooperation such as support for the small and medium enterprises (SMEs). [6]

            Therefore, the role of government, non-governmental organization, private parties, SMEs and other economic agents need to complement and support one another to create a conducive, effective and competitive trading environment. The submission of ASEAN-China FTA was an opportunity and great potential for ASEAN’s economic development, structural transformation and social development. Nevertheless, this must be supported by cooperation enhancement and sustainable integration to survive in the middle of an increasingly liberal and competitive economic globalization challenges. ASEAN-China FTA was proof that interdependent and beneficial economic cooperation in achieving economic growth and equitable development help create stability in Asia’s region. Regarding that matter, interdependence theory will be discussed as a basis concept of the case study above.

INTERDEPENDENCE THEORY

            In 1950, regional integration process was ongoing in West Europe which attracted Neoliberal scholars. Integration here is defined as a form of intensive international cooperation, integration scholars used to study how functional activities are carried out across certain boundaries such as trade, investment, etc. This activity offered a long term beneficial cooperation. Neoliberal scholars then studied about how integration can support itself, then cooperation in one transaction area can open the way for cooperation in another region (Haas 1958; Keohane dan Nye 1975).As like the United States did before the war,West Europe and Japan started to develop a mass-consumption welfare states. This development needs higher levels of trade, communication, cultural exchange and relationships also other cross-border transactions. Then, Karl Deutsch argues that these interrelated activities could form a shared values and identities among people from different countries and pave a way for peaceful cooperative relations which make war more expensive and ultimately impossible. [7]This then become one indicator to create stability from the process of interdependence integration. The lack of hierarchy between issues such as military security is no longer used as an instrument of foreign policy and of course other actors besides states start to emerge and violent conflict is no longer the main agenda.

            When there is a high interdependence activity, states tend to form international institutions to deal with problems together. Institutions enhance cooperation across international boundaries by providing information and certainly by reducing costs. These institutions can be Formal International Organizations such as the WTO, EU, ASEAN and so on, which can be in the form of binding agreements or unbinding agreements according to the consensus of all members in the institution. [8]Activities in these institutions include issues from a lots of sectors or aspects such as trades, environmental issue, communication, sea, atmosphere, etc. These activities then often referred as Institutional Neoliberalism.

ANALYSIS

            The states economic relations from the lens of interdependent liberalism under the auspices of institutional instruments (ASEAN) are becoming more cooperative and conducive. This happened because countries were given opportunity to compromise their economic needs and requirements in the regional scope. Member states can maintain their economic stability more effectively because products from the member states are much more preferred to meet the economic needs. In addition, ASEAN-China cooperation in developing economic products is more focused seeing that each member states will further develop products that are considered beneficial and in accordance with the priority agreements of member states in the economic agreements that have been made. This shows that economic welfare and cooperation are an important issue in states relations.

            Interdependence between ASEAN’s member states can be seen clearly in the economic cooperation as well as economic agreements in the Free Trade Area (FTA). In cooperation within the FTA, the ASEAN-China member states collaborate cooperatively to meet the economic needs of the member states. Therefore, states that have superior commodities will develop their superior commodities to satisfy the other member states economic needs. As explained before that developing countries that have natural resources, tourism potential, high

industrial levels and technological innovations that utilize the existence of China to explore more and become better, and so it is with China who is able to take advantage of the ASEAN’s market to sell its manufacturing goods so that the export rate of Chinese products to ASEAN’s states increase. This cooperative relationship then become an interdependent relationship in terms of economies cooperation within ASEAN member states and China. This free trade agreement between ASEAN and China has given both positive and negative impacts for both parties. The free trade agreement has also become the source of investment (FDI), a trigger for economic growth and development in several ASEAN states economic sectors such as Thailand in its agricultural commodities. China’s large market share can be a good economic opportunity and also can reduce dependency towards US, EU and Japan markets. ASEAN in this sphere continues to make concerted efforts to harmonize food safety standards and quality assurance, also standardize trade certification to support economic integration and enhance the competition of ASEAN agricultural and forestry commodities in the international market.

            In the context of liberalism, ASEAN interdependence which is emphasized on economic cooperation that has been proven by several cooperation with developed states such as China and many other states has shown the importance of individual freedom, free trades and democratic values. Liberalists argue that international conflict can be overcome by interdependence between states where they depend onone another in economic sectors to avoid open conflicts between states. Therefore, liberals consider war as irrelevant because it costs a large amount of expenses seen from the lack of conflicts potential between ASEAN states and China right now seeing that the focus is much more into economic cooperation and the issue of violent conflict is not in the top of the two regions cooperation’s agenda, so regional stability can be achieved. Stability here meant no open warfare between cooperating states. Although it can be said that threats still exist regarding the issue of South China Sea, but it is still considered stable because each region does not seek to destroy the status-quo.

INDONESIA’S RECOMMENDATION

            Indonesia and China have become strategic partners as agreed in the joint declaration of Indonesia-China strategic partnership signed by both Indonesia and China’s head of state on 25^th April 2005. Their cooperation priority has been focused on economy and development, defense, socio-cultural and regional & international cooperation. This bilateral relationship is getting stronger and advance in many sectors. Besides cooperation agreement between the government, there were also other agreement cooperation between the government & business sectors (G-to-B) and between business sectors (B-to-B) which include industrial cooperation, infrastructure project and high rates of palm oil.

            Indonesia’s efforts to take advantage of China’s economic growth looks good and diplomacy conducted by Indonesia with the Chinese government is expected to bring Indonesia towards a better direction. In relation to ACFTA, Indonesia became one of the states that has the ability to use ACFTA for domestic interests without ignoring the values of togetherness. Indonesia is expected to be able to implement a diplomacy strategy that can get around China’s diplomacy strategy so that the benefits gained from the cooperation between two states can be equitable to be able to compete in domestic and regional markets, and then how Indonesia could implement this in the intra-ASEAN region, so that it can become a good foundation to strengthen economic cooperation relations especially in the pillars of the ASEAN Economy Community (AEC).

CONCLUSION

            ASEAN member states must be more united in conducting economic diplomacy with China seeing the economic condition differences in each ASEAN states so it will show a united ASEAN and show beneficial mutual dependence cooperation. Diplomacy through renegotiation related to the readiness of competition between domestic products and Chinese products is needed to protect the local economy and create an economic integration. The states expertise in creating good cooperation strategies are needed to protect and prepare domestic markets and products in facing the expansion of Chinese products and how this economic cooperation could be mutually beneficial and interdependent.

            The interrelated activities between China and ASEAN in one economic cooperation can form a shared values and identities among people from different states and open way for more peaceful cooperative relationship, which makes war more expensive and unlikely to happen. It can be seen from the current condition between ASEAN and China where there is no open conflict between two parties and a higher level of interdependence could show that the economic integration can produce a form of regional stability between two cooperating regions.

BIBLIOGRAPHY

·         Robert Jackson & Georg Sorenson, Pengantar Studi Hubungan Internasional, Bab II: Hubungan Internasional, sebagai Subyek Akademik, Neo Liberalisme: Institusi-Institusi dan Interdependensi, Pustaka Pelajar, Yogyakarta, 2005.

·         Kementrian LUAR Negeri: Kerjasama ASEAN dan Mitra Wicara, ASEAN Plus One , http://www.kemlu.go.id/Pages/Asean.aspx?IDP=10&l=id

·         ASEAN-China Free Trade AreaChia Siow Yue, 2004, Singapore Institute of International Affairshttp://www.hiebs.hku.hk/aep/Chia.pdf

·         United Nation ESCAP – Economic Cooperation and Regional Integration in the Greater Mekong Subregionhttp://www.unescap.org/tid/publication/swp208.pdf

·         ASEAN-China Free Trade Area Chia Siow Yue, 2004, Singapore Institute of International Affairs http://www.hiebs.hku.hk/aep/Chia.pdf

·         Economic and Social Commission for Asia and the Pasific – Trader’s manual for least developed countries http://www.unescap.org/tid/publication/tipub2390.pdf

·         WTO: Technical Information on Safeguard Measures,http://www.wto.org/english/tratop_e/safeg_e/safeg_info_e.htm