Narrowing the Development Gap in ASEAN

Drivers and Policy Options

Mark McGillivray, David Carpenter, Mark McGillivray, David Carpenter

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781136662935
• Edition: 1
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

An important part of the vision of the Association of Southeast Asian Nations (ASEAN) is to ensure that the benefits of development and economic integration are equitably shared by all member states and their citizens. ASEAN's work therefore aims to narrow the development gap between ASEAN member states (Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei Darussalam, Myanmar, Cambodia, Laos and Vietnam) and between sub-regions within ASEAN. Written by a team of internationally recognised experts in development economics, this book communicates the latest findings on narrowing the development gap in a practical, policy-relevant way, in a format that can influence decision makers within ASEAN member states and international donors.

There have been significant development achievements in many ASEAN countries over the last 20 years, but the ASEAN region continues to be characterised by significant development gaps, particularly in income. Gaps in development achievement are also seen at the regional and sub-national levels. This book offers a better understanding of development gaps, as they exist in 2012, and provides important context that can inform the strategic needs of decision makers in the ASEAN region.

Due to improvements in conceptualising and measuring well-being, including through the use of multidimensional indicators, this book gives policy makers and scholars in development economics, development policy and Asian studies well-grounded insights into the nature of the development gaps within and between ASEAN countries as well as high-level policy advice on those interventions that can contribute to a narrowing of the development gap.

1 Narrowing the Development Gap in ASEAN

Context and Approach

David Carpenter, Izyani Zulkifli and Mark McGillivray

Introduction

The Association of Southeast Asian Nations (ASEAN) is a regional intergovernmental body comprised of ten member countries at various stages of development that seek to achieve ‘one vision, one identity, one community’—an ASEAN Community. There are three foundations of that community as outlined in the Roadmap for an ASEAN Community (2009–2015) (ASEAN Secretariat, 2009a). The priorities for deeper regional economic integration are laid out in the ASEAN Economic Community (AEC) Blueprint. These include the development of a single market and production base that is competitive, equitable and integrated into the global economy. The ASEAN Political-Security Community Blueprint (APSC) seeks to create a cohesive and peaceful, rules-based community with shared values and norms, while the ASEAN Socio-Cultural Community Blueprint (ASCC) seeks to enhance human development and social welfare while promoting social justice and human rights.

An important aspect of the broader ASEAN vision is to ensure that development and the benefits of economic integration are equitably shared by all member states and their citizens. This concept of ‘equitable economic development’ is considered a key pillar of the AEC. In line with this focus on equitable development, there is recognition that concerted efforts are required to narrow the development gap between ASEAN countries to ensure that the region can move forward in a more unified manner towards the achievement of the various outcomes contained in the abovementioned blueprints. The priorities of the ‘narrowing the development gap’ agenda are laid out in the Initiative for ASEAN Integration (IAI). This initiative outlines a large number of activities that are designed to assist Cambodia, Lao PDR, Myanmar and Viet Nam (CLMV) in particular, achieve deeper regional economic integration, while supporting national development priorities and the promotion of inclusive development. This is a highly ambitious task considering the variance in development achievements between the richest and poorest ASEAN countries. This task is made all the more difficult as, up until now, there has been little attention paid to defining and measuring the development gap that ASEAN seeks to narrow.

This ASEAN development gap is significant indeed. While there has been considerable improvement in multidimensional development achievements in many ASEAN countries (including in CLMV countries) over the last 20 years, the ASEAN region continues to be characterised by significant variance in development achievements. For example, in 2010 the richest country in ASEAN, Singapore, had a per capita annual income that was almost 45 times higher than the poorest ASEAN country, Myanmar. In the same year, the proportion of people living on under $1 per day was 33.9 per cent in Lao PDR and 28.3 per cent in Cambodia while there were practically no people in Singapore or Brunei Darussalam living on under $1 per day.

The gaps are wide not only in achievements in income but also in education and health outcomes. The latest United Nations Development Program Human Development Report (UNDP, 2012), contains the well-known Human Development Index (HDI), which is a summary indicator of each country's achievements in income, health and education. According to this report, Singapore is the highest ranked ASEAN country in terms of HDI scores. At 26 out of 187 countries, its ranking is similar and in some cases higher than many rich, mainly western, nations in the ‘very high human development’ category. Indeed, it is ranked higher on this index than the United Kingdom, which provides significant amounts of Official Development Assistance (ODA) to ASEAN member states. At the other end of the scale Myanmar, which is ranked at 149 in terms of HDI scores, shares the ‘low human development’ category with mostly sub-Saharan African countries. Six ASEAN nations are located in the ‘medium human development’ category. It follows that ASEAN's membership transcends the entire spectrum of human development as conceived by the UNDP, from ‘very high’ to ‘low’.

Clearly ASEAN faces many challenges if it is to achieve its goal of narrowing the gap between such disparate member countries. In some respects, its goal is not dissimilar to that of donor countries, which seek to narrow the development gap between themselves and the world's poorest countries through the provision of ODA and other efforts. The difference between these donors and ASEAN lies in the fact that aid from rich countries to poor countries is primarily in the form of bilateral funding that seeks to contribute to development outcomes at the national level. ASEAN does not play such a direct role in the achievement of development outcomes, although richer ASEAN countries do provide aid directly to CLMV countries through their development cooperation programs, as will be discussed in Chapter Five. ASEAN is not a big donor in this sense; rather it is a regional cooperation body that coordinates economic integration and development efforts across the region, with limited funding and with no supra-national coercive power. This raises questions about the role ASEAN can play in narrowing the development gap.

This book seeks to provide greater understanding and more informed responses to narrowing the ASEAN development gap. It will define the term ‘development gap’, measure the gap between ASEAN countries as it stands in 2012, discuss the drivers of this gap and suggest policies that directly target the drivers that can narrow the gap between ASEAN countries.

While the primary audience of this book will be ASEAN officials and those with an existing knowledge of ASEAN policies and structures, a large number of readers will be students of international development and policy makers from donor agencies with an interest in regional approaches to development. As such, this introductory chapter provides some important context by reviewing the history of ASEAN and its policies with regards to regional economic integration and the narrowing of the development gap agenda. These historical issues and a broader discussion of regional approaches to development cooperation will be further considered in Chapters Five and Six. This introductory chapter also provides some background regarding the structure and function of ASEAN as a regional intergovernmental institution, including providing details of the sub-regional groupings within ASEAN. This discussion will also provide important context for discussions later in the book. The final section of this chapter provides an outline of the book, with specific details of each chapter.

Background to ASEAN, Regional Economic Integration and Narrowing the Development Gap

ASEAN was formed by a concord of five Southeast Asian nations in 1967 (Indonesia, Malaysia, Philippines, Singapore and Thailand). At the outset it focused on economic, social and cultural association, purposefully disavowing a focus on politics and security that may have seen it categorised as a defence alliance or as a tool of American foreign policy (Severino, 2011). ASEAN followed on from two relatively unsuccessful attempts at regionalism in the early 1960s, the Association of Southeast Asia (ASA), which was comprised of Philippines, Malaysia and Thailand; and MAPHILINDO, which comprised Malaysia, Philippines and Indonesia. The latter broke apart after a geopolitical dispute between the parties over the territorial boundaries of Malaysia (Tarling, 2010), while the former existed in a somewhat nascent state from 1961 onwards and was subsumed into ASEAN in 1967.

Prior to the formation of ASEAN, many countries in Southeast Asia were under the direct or indirect control of foreign countries and/or engaged in debilitating conflicts that focused attention and resources towards national issues such as political freedom, security and economic development. It was only after the end of these conflicts and the collapse of the various colonial administrations that some Southeast Asian countries started to conceive of a Southeast Asian ‘region’. The independent states of Southeast Asia increasingly saw regionalism as a way to reduce the differences between them at the same time as pursuing their national objectives on the post-colonial international stage (Tarling, 2001).

According to Cockerham (2010), Southeast Asia demonstrated little common identity before the formation of ASEAN, and the repeated interactions of ASEAN countries over the years have helped create a Southeast Asian identity. This form of interaction has been referred to as the ‘ASEAN way’. The ASEAN way is a socio-cultural norm that emphasises informal interactions, minimal institutional development and the peaceful settlement of disputes (Severino, 2006). It is also characterised by non-interference and decision making by consensus (Sutherland, 2009). This mode of interaction persists in ASEAN today and has developed over time as a mechanism for ASEAN countries with often divergent national and geopolitical interests, to enter into dialogue on regional issues of mutual interest.

ASEAN existed in a relatively nascent state for almost a decade and it was not until 1976 that the first ASEAN Summit was held and the leaders of the five nation states signed the Declaration of ASEAN Concord, which was later to become known as the Bali Concord. This concord included an action plan that encompassed economic, social, cultural, information and political areas for cooperation (Severino, 2011). Political cooperation was an important component of this concord. Through its promotion of noninterference by outside powers, ASEAN contributed to the security of its members' borders by according respect to those borders. Through this consolidation, national policies of security and territorial integrity were successfully pursued through the regional body (Tarling, 2001).

While political cooperation was important, it was clear from the outset that economic cooperation was going to be the primary driver for cooperation among the five nations. Economic cooperation became a formal part of the ASEAN agenda in 1976.¹ Against the backdrop of an energy crisis and food security issues, the attention focused mainly on the implementation of various cooperative industrial and trade projects. Various industrial cooperation initiatives were pursued, including the ASEAN Industrial Projects (AIPs) in 1976, the ASEAN Preferential Trading Arrangement (PTA) in 1977, the ASEAN Industrial Complementation (AIC) in 1981, the ASEAN Industrial Joint Ventures (AIJVs) in 1983 and the Brand-to-Brand Complementation (BBC) in 1988. The PTA was ASEAN's early attempt at promoting intra-ASEAN trade through institutional integration and regional trade preferences. In contrast, the AIPs were designed to establish large-scale, intergovernmental projects in each member country; whereas the AIC, the AIJVs and the BBC were meant to promote specialisation in complementary products and to facilitate resource pooling.

These industrial cooperation efforts, however, were largely unsuccessful and had no impact on regional economic relations (Imada and Naya, 1992). Only two out of the five AIPs were implemented due to the lack of commitment by member states, frequent changes in the projects, clashes of national interests and inadequate financial and technical support.² Even the PTA failed as the tariff cuts were not implemented across the board, but on a product-by-product basis. All this reflects the protectionist spirit and import-substitution policies of the time. Moreover, the notion of industrial infancy was still prevalent among policy makers and the private sector, and as such ASEAN members were not ready or willing to pursue any form of trade liberalisation or regional integration during this stage due to domestic economic concerns.

While the industrial projects largely foundered for reasons of national self-interest (Severino, 2011), the desire to form a more cohesive trading block persisted, and as ASEAN economies adopted more outward-looking economic policies in the 1980s and early 1990s the momentum behind economic integration hastened. As globalisation emerged and most nations around the world began to dismantle their economic barriers, ASEAN members realised that the best way for them to cooperate for their economic development would be to open up their economies to one another, and to ultimately integrate them.

The most significant move towards regional economic integration was the establishment of the ASEAN Free Trade Area (AFTA) in 1992 at the Fourth ASEAN Summit. The primary goal of AFTA was to increase ASEAN's position as a competitive production base for the global market. This was to be achieved in two ways: (1) by expanding intra-ASEAN trade, and (2) by increasing the inflows of Foreign Direct Investment (FDI) that would be attracted by the emergence of a single ASEAN market.

To facilitate the AFTA, the Common Effective Preferential Tariff (CEPT) scheme was launched as its main instrument. The CEPT is a cooperative agreement among ASEAN members to gradually reduce their tariff rates on intra-ASEAN trade in manufactured and processed agricultural products to 0.5 per cent over a revised period of ten years. Likewise, quantitative restrictions and other non-tariff barriers were set to be eliminated. In 2003, the ASEAN Economic Ministers adopted a target of zero tariffs by 2010 for Singapore, Malaysia, Thailand, Indonesia, Brunei Darussalam and Philippines (the so-called ASEAN-6), and 2012 for the CLMV countries, with some ...