Paper no.1184	10. 12. 2004
ASEAN ECONOMY-Dominated by China ?  by C. S. Kuppuswamy The 10th ASEAN Summit in the Laotian capital Vientiane from 29-30 November 2004 can be considered a milestone in view of the agreements entered into by this grouping with China and India.  By the accord entered into with China, the world’s biggest free trade area has been created removing all tariffs for 2 billion people.  This trade block is likely to be expanded further if India, Japan and Korea join in the near future.  This trade block will eventually match the economic might of EU and the North American Free Trade Area (NAFTA) . Mr. Chao Chien-Min, a China watcher from Taiwan, states that “China’s initiative has put both the US and Japan on the defensive”.  In fact this accord seems to be the harbinger of the much touted East Asian Community.  ASEAN-China Accord          The ASEAN-China accord aims to remove all tariffs by 2010 drawing ASEAN’s combined economies of $ 1 trillion closer to China’s $ 1.4 trillion.  The two way trade is expected to surpass $ 100 billion this year.  The outline agreement indicates removal of tariffs on manufactured goods and farm produce and create a “plan of action” for closer cooperation in services such as transportation, information, technology and tourism.  The tariff cuts will begin in 2005.  ASEAN is still china’s fifth largest trading partner and there is much scope for expansion.  China’s Prime Minister Wen Jiabao while speaking at the summit about the accord said that it was “a strategic choice made in the interest of China’s own development and in the common interests of the region”.  Wen also demanded for a summit independent of ASEAN, which has been agreed to in principle.  Allan Boyd, a reporter from Sydney, comments, “The bloc in essence accepted the centre of gravity has shifted to the north.  ASEAN may still have a role as a buffer among the conflicting interests of China, India and Japan, but as a bloc, is well on the way to becoming an economic subjugate of Beijing”.  ASEAN-India Partnership for Peace, Progress and Shared Prosperity   On 30 November 2004 at the 3rd ASEAN-India Summit in Vientiane (Laos), the ASEAN-India partnership agreement was signed. At the 2nd ASEAN-India Summit in Bali in October 2003, India had signed the India-ASEAN FTA agreement which will be operational from 2006.  With these two agreements, the India-ASEAN cooperation has reached a new high in its  “Look East” policy.  A target has been set for raising India’s trade with ASEAN from the current level of US $ 13 billion to US $ 15 billion by 2005 and to US $ 30 billion by 2007.  At this summit India has proposed these initiatives:  ·        The offer of concessional lines of credit up to $ 200 million for collaborative projects within the ASEAN countries. ·        An Indian high speed optical fibre link ·        Development of a net portal through with ASEAN members would be able to utilise a system called “Shruti-Drishti” which India has developed for visually impaired persons to use the Internet. ·        Joint R&D of medicines and cross border disease control.. ·        Cooperation in the field of agriculture and exchange of germ plasm and harmonization of regulatory mechanisms. ·        Hosting a workshop to evolve a concept paper on Asian Economic Community  which would encompass India, ASEAN, China, Japan and Korea.  With these agreements India and ASEAN are coming together on a number of issues such as regional trade and investment cooperation, regional security, Science and Technology and services.  To realize the objectives of the ASEAN-India partnership and for its implementation, a Plan of Action has also been worked out for the institutional and funding arrangements.  The progress made in the implementation of the ASEAN-India Partnership and the Plan of Action will be reviewed periodically by the senior officials and the Foreign Ministers of ASEAN and India.  Mr. Natwar Singh, the External Affairs Minister, said that this partnership agreement will be paving the way “for more intensive cooperation on political, security and cultural areas”.  The ASEAN countries have also realized the need for an alternative market as they are being overwhelmed by China and fear the risk of being economically stifled by Beijing at any time.  Thus India’s overtures have been welcomed by ASEAN and was keen on expanding its relations with India.  Asian Economic Community   The idea for such a grouping was mooted as early as in 1991 by Dr. Mahathir Mohammed of Malaysia which was termed as East Asian Economic Caucus.  However under pressure from US and for lack of support from some Asian nations such as Japan, the proposal was dropped. The idea has now been revived by China and the other nations like India are joining the bandwagon.  The US with its preoccupations elsewhere in the world has not reacted this time and China wants to take advantage of the situation and ensure its dominance in the region.  Jusuf Wanandi, an analyst from Jakarta, enumerates three main strategic objectives in the formation of an Asian Community. They are:  First, to create a regional institution that can accommodate a rising China as a constructive member of the region and to enable China to develop into a full status-quo power.  Second, to assist in the normalization between China and Japan, the two major powers in the region and the two potential leaders of the East Asian Community.  Third, to assist in alleviating the possibility of future confrontation between the US and China when China becomes an economic-military superpower in its own right during the next few decades.  China’s Dominance     For the past five years China has successfully projected itself as a dynamic and benign influence on Asia forging diplomatic ties with neighbours and weaving trade links that have started fundamentally shifting Asia’s centre of gravity (FEER-June 17, 2004)  The economic deals entered into by China separately with most of the ASEAN countries such as Burma, Cambodia and Thailand are unduly in its favour, which has generated fears of economic dependence and political domination.  The two way trade between ASEAN and China is growing by 20 % per year and is expected to surpass $ 100 billion this year  ASEAN is China’s fifth largest trading partner for the last 11 years.  China had invested more than $ 1 billion in June this year which was mostly by state enterprises involved in strategic farming, mining and construction sectors.  The ASEAN countries had cumulative investments totaling  $ 34 billion in China.  Conclusion  China’s increasing dominance of this region and its long term intentions have been aptly summed up by Assistant. Secretary of State James Kelly in a testimony to the US Congress- “China’s bilateral agreements mean little in economic terms but they serve notice of how China is using its newly won economic power to expand its presence and political influence among its Southern neighbours.” ASEAN has come to realize that strengthening of intra regional co-operation alone will not help them and that there is need for greater integration with the two emerging economic powers of this region - China and India.  India, the proverbial late starter, is finally coming to grips to take advantage of the economic potential of ASEAN. The Indian record for implementation of such accords has been rather poor as seen from the follow up of the Indo-Thai FTA and Comprehensive Economic Cooperation Agreement with Singapore.   Indrajit Basu, an analyst from Calcutta, has identified the factors for the delay in implementation of such pacts as “ one, the Indian industry is not yet sure about its competitive efficiency,  second, many sectors say  they do not want competition on their home turf which is still protected to a great extent and finally there is a large fear from India Inc, that such pacts will be misused as a staging ground for cheaper exports to India.  With the current pace of economic activity in this region, The Asian Economic Community may be established before the end of this decade.
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