The Political Economy Of Interregional Relations Asean Eu

THE POLITICAL ECONOMY OF INTERREGIONAL RELATIONS: ASEAN AND THE ECIsis Quinones

2009535001

4th Semester International Business

CHAPTER 3 PROMOTING DEVELOPMENT IN SOUTHEAST ASIAThe Political Economy of Interregional Relations

PROMOTING DEVELOPMENT IN SOUTHEAST ASIA

EC playing important role in the assisting Development of ASEAN.

Access to European Markets and European development assistance are significant contributions.

Building Social Relationships between the European Community and Civil Society in Southeast Asia.

Contradictions: EC Policies of integrating developing countries into de world economy, on the one hand, and those of poverty reduction and strengthening civil society participation.

DEVELOPMENT ASSISTANCE AS AN INTERSTATE COMPROMISE

• ASEAN a factor of stability and balance that contributes to the maintenance of peace in Southeast Asia (e.g. Vietnamese occupation of Cambodia)

• EC recognition of ASEAN as a developing region into practical actions required some negotiations.

• ASEAN adopted a export-oriented industrial polices and was needed trade preferences. • In the first few years of the GSP on ASEAN trade with EC countries’ agricultural exports

actually qualified for more preferences than manufactured products. • The impact of GSP on ASEAN trade with the EC seems to have been limited. • In the short run, the constraints on the EC’ development policy and the Common

Agricultural Policy prevented substantial modifications of the GSP to meet ASEAN trade demands.

• ‘Globalist’ justified extending the EC’ development policy.


INDONESIA THAILAND MALAYSIA PHILIPPINES SINGAPORE0

10203040506070 62.42

8.55 8.1 4.29 3.35

1973 AID FROM EC

Southeast Asian Countries

Table 1: 1973 Aid from the EC to Southeast Asian Countries.


Table 2: EC Financial Commitments in Asia and Latin America 1976-1998

MAIN CONSTRAINTS OF DEVELOPMENT ASSISTANCE

The main constraints were inherent in the European Policy:

1. The preferential treatment accorded to the Africa Caribbean and Pacific (ACP) countries: The funds amounted to approximately US$26 millions while for the Asia and Latin America treatment was disproportionate of US$ 20 millions to their demographic weight.

2. Occasional lack of Coherence between EC policies, particularly between the Common Agricultural Policy and Development Cooperation.

3. Lack of Coherence between development policy and other EC policies notably in the Common Agricultural Policy.

EC PROJECTS CYCLE

Identification

Preparation

Appraisal

Implementation

Evaluation

WAS INTERREGIONAL RELATIONSHIP A DECISIVE FACTOR IN THE ECONOMIC DEVELOPMENT EXPERIENCED BY MOST ASEAN MEMBER COUNTRIES IN THE 1970S AND 1980S?

From the outsiders observer, It is difficult to form an accurate impression of the impact of EC development projects, due to lack of access to monitoring and evaluations documents.

What can be highlighted is that development cooperation, which has so far been described as a relationship between the EC on the one hand, and the ASEAN as an organization in the other hand, also creates an important Social Relations between the EC and Civil Society (farmers, churches, organizations, groups among the community) .

PROMOTING DEVELOPMENT IN SOUTHEAST ASIA

LIST OF PROJECTS Indonesia Soya Pilot Project Sumatra 1976-83 Indonesia Pilot Project on Soya and Galawija Development 1976-1979 Thailand Pig Breeding Pilot Project 1977 Indonesia Baturraden Dairy Project Study 1978 Indonesia Bank of Indonesia Small Credit Programme Thailand Seed Centre Study 1978 Thailand Crop Diversification Study 1978 Preliminary Crop Development 1979 Thailand Winged Bean Development 1979 Indonesia Talungagung Drainage Project 1979-83 Philippines Porgramme of Riverside Development along the Rio Bicol 1979-86 Indonesia Irrigation Studies 1979-83 Philippines Crop Protection Programme 1980-86 Thailand Huai Mong Irrigation and Drainage Project (1980-85) Thailand Seed Production Centre 1981-85 Thailand Agricultural and Rural Credit 1983-85

WHY WILL DEVELOPMENT COOPERATION CONTINUE GROWING IN THE SOUTHEAST

ASIA REGION? First, economic growth has not yet eliminated

poverty in sectors and subnational regions of two of the most populous countries in this region, Indonesia and the Philippines.

Second, ASEAN enlargement since 1995 has added four new members-Vietnam, Laos, Cambodia, and Burma- where poverty is more widespread than in the original member countries.

In another sense, EC development cooperation is once more compensating for the structural limitations of Southeast Asian regionalism referred to in the previous presentations, notably the- unwillingness to ensure regional funding to regional projects.

MAASTRICHT TREATY AND DEVELOPMENT COOPERATION

In this central treaty were the European Union was formed, it were declared sustainable economic development and social development, integration of developing countries into the world economy and campaign against poverty as objectives of development cooperation for the following years.

The goals were specified as: Protection of the

environment and Natural Resources, the Combat against Drugs, The Promotion of Women’s participation in development, The Protection of Children and Ethnic Minorities, Demographic Questions, The Spread of Democracy, Good Governance and Human Rights, Strengthening of the capacity of national institutions, and the improvement of the economic, legal and social environment for the private sector.

KEY ISSUES TO BE CONSIDERED IN THIS TOPIC OF EC DEVELOPMENT COOPERATION

Relationship between Development Cooperation (DC) and other EC Policies (problem of COHERENCE).

Efficiency of DC assistance.

Tensions created with the Civil Society involvement in the DC projects.

Efforts to reduce poverty could be undermine by other EC Policies. (e.g. Common Agricultural Policies).

The concept of Regionalism (in order to facilitate developing countries integration to participate in World’s Economy might contradict the goal of Poverty Reduction.

CHAPTER 4 CONSTRUCTING INTERREGIONAL FREMEWORKS FOR FIRMS: TRADEThe Political Economy of Interregional Relations

IMPORTANT FIGURES TO EVALUATE TRADE BETWEEN EC AND ASEAN COUNTRIES. The Political Economy of Interregional Relations

BIG PICTURE OF INTERREGIONAL RELATION BETWEEN EC-ASEAN 2010

CONSTRUCTING INTERREGIONAL FRAMEWORK FOR FIRMS: TRADE

Trade not remain just to the relationship between States and Regional Organizations, but also FIRMS.

Interregional Relationship can be forge by FIRMS to the extent that their strategies and actions treat the member countries of the two organizations as constituting a Region.

In this chapter we are going to analyze the subsequent actions of the ASEAN and the EC on behalf of firms and the way in which conditions and contradictions deriving from global and regional levels have influenced both the actions of firms and the two organizations.

CONSTRUCTING INTERREGIONAL FRAMEWORK FOR FIRMS: TRADE

In 1980s : Food and Beverages, Crude Materials, and other Primary Commodities accounted for nearly half of ASEAN’s export to the EC.

Table 3: ASEAN Export to the EC by Sector

ASEAN / GSP: FROM (LESS) PREFERENTIAL TREATMENT TO GRADUATION

Key Topic in regionalism: Discrimination between member and non-member countries in access to European Markets.

The GSP’s aim was to promote Third World industrialization by providing market access to developing countries’ exports. Preferential treatment would be non-reciprocal, that is the Developing countries were not expected to grant similar preferences to developed countries.

The EC/GSP, covering both agricultural and manufactured products was adopted in 1971 for a 10 years period and subsequently revised in 1981, 1991, and 1995, with minor improvements being introduced every year.

Lobbying for GSP concessions opened up a new area of relations between the EC and ASEAN, which hoped to obtain additional concessions on behalf of its members. The relationship was and continue Asymmetrical.

RESTRICTIONS OF THE EC GSP SCHEMES Minimum Import Price: goods entering the EC at prices (including insurance and freight)

below the minimum may be charged a duty or level equal to the difference between the two.

Tariff Quota: fixes the amount of goods for which a special, reduced tariff is charged. All imports in excess of this amount must pay the normal common external tariff.

Tariff Ceiling: was similar to the tariff quota, with the difference that the normal tariff is not automatically reemployed once the ceiling is exceeded but is subject to negotiations between EC member states.

Member State Share: fixes amount of the tariff quota that a single member state may use. When imports to the member state exceed this share, it must impose the normal duty on further imports, though imports to other member states may continue at the reduced GSP rate.

Butoir: fixes the amount of tariff quota or ceiling that any single country exporting to the EC may use. All exports in excess of this amount must pay the full duty.

Quantitative Restriction: fixes amount of a product that can be imported irrespective of the tariff charged. Imports in excess of this amount are not allowed.

Rules of Origin: to ensure that imports enjoying preferential treatment originate from a developing country.

RESTRICTIONS OF THE EC GSP SCHEMES

EC/GSP its professed objective was to stimulate industrialization of developing countries but it sought to protect the competitiveness of European producers through all sorts of restrictions (De Lotto,1993)

The rapid increase of exports to Europe from several ASEAN ensured that they would be severely affected by restrictions on products.

The restrictions adversely affected all ASEAN countries except Thailand in plywood, Malaysia in Shoes, and Singapore in Radios, TV sets and Diodes.

By 1981, 44 products exported by ASEAN member states were affected by butoirs, tariff quotas, tariff ceiling and special surveillance.

BENEFITS FROM EC GSP TO ASEAN COUNTRIES

Southeast Asia firms successful in exporting to Europe. Asian Countries are the major GSP beneficiaries. During the first decade on the 9 countries that accounted for the three-fourths

of imports under the GSP-The Philippines and Thailand, were ASEAN members. 1971-89 Singapore was one of the 4 counties for whom the terms of trade

benefits under the GSP were the largest. ASEAN firms success using GSP preferences system could be reflected in the

doubled of exports goods covered between 1978-1985

COMMON AGRICULTURAL POLICY AND ITS RESTRICTIONS FOR ASEAN COUNTRIES

EXPORTS CAP was the structural obstacle to expansion of coverage in agricultural

productions, Although ASEAN occasionally obtained piece meal concessions from the EC.

1973 GSP list of Agricultural Products just included:

-Tobacco (Indonesia)-Preserved Pineapple, Palm Oil (Indonesia and Malaysia)-Coconut Oil (Malaysia and Philippines)-Shrimps and Prawns (Indonesia) -Underground Pepper (Indonesia-Orchids (Indonesia and Thailand)

BENEFITS FROM EC GSP TO ASEAN COUNTRIES

In the period 1990-92, exports from Indonesia, Singapore, and Malaysia that received GSP benefits grew by at least 70% and exports from Thailand rose by 37%.

1995 4 ASEAN countries were among the top seven beneficiaries of the GSP.

1991 Annual tariff preference on Thai exports under the GSP was worth more than 200 million ECU, a figure that exceeded EC development assistance.

The ASEAN-EC discussions on the GSP reform are a graphic illustration of the inequality in the relationship and the limits of ASEAN’s bargaining power vis-à-vis the EC in trade, in the face of determined EC Action.

ASEAN’S BARGAINING POWER

Was too limited as a result we have :

The New GSP benefits for all products. Agricultural Products European Council

Regulation.

Very Sensitive Products (Canned Pineapple, Textiles, Garments, etc) 15% tariff reduction.

Sensitive Products (Timber, Timber Products, Palm, Vegetable Oil, Electrical, Electronics Products) 30% tariff reduction.

Countries and territories whose per capita income was higher than that of an EC member states ($8210) were to be excluded from the GSP.

ANTIDUMPING: TOWARDS AN INTERREGIONAL PROBLEMATIC

Dumping: Export Price is less than a comparable price for the like product, in the ordinary course of trade.

Purpose of Dumping: To unload overstock or to eliminate competition in the foreign market, or to realize maximum economies of scales.

Conditions if Dumping Exercise is to be Proven: 1. The existence of a Dumping Margin. 2. Injury to a branch of National Industry 3.A Cause-and-Effect relationship between the

alleged dumping and the injury.

Objective : Eliminate price Difference.

WHY ANTIDUMPING LEGISLATIONS?

They merely serve to protect Domestic Industries, particularly since tariff barriers have been largely dismantled and non tariff barriers are increasingly subject to regulation.

Antidumping in the view contradicts the ideology of trade liberalization advocated by the EC. In ASEA-EC relations, this contradiction is generated by the increase in ASEAN trade with the EC and the declining importance of tariff barriers.

According to an independent study commissioned by the European Parliament in 1993: 4/5 of imports to antidumping duties come From Japan. 7.4% from ASEAN NICs. Cases in Antidumping rose from 10% (1981-1985) to 30% from (1986-

1991)

ANTIDUMPING CASES DETAILS

CHAPTER 5 CONSTRUCTING INTERREGIONAL FREMEWORKS FOR FIRMS: INVESTMENTThe Political Economy of Interregional Relations

REGIONALIZATION IN EUROPE AS AN OBSTACLE TO EC FDI IN ASEAN

1980 Investment is identify as a Priority by ASEAN-EC: Strengthening economic links between the two regions by promoting trade and transfer technology.

Investment is the weakest area of Interregional Relations between ASEAN-EC. Not attractive region for EC Not great importance to the region.

1980s-1990s Southeast Asia Region was the most attractive region for investment among Emerging Economies.

Regionalization of ASEAN, constitution of a regional market required to compensated the risks associated with European FDI.

THE PROBLEMATIC OF EC’S FDI Quantitative terms formulated (insufficient in Volume) During the Colonial Period FDI was dominant, after the Independence had fallen to

14.2%. 1980-1993 European FD more than quadrupled in volume, from $4.183 billion to

$23.312 billion. EC’s FDI account for 20% of total FDI in ASEAN 5. Japan’s FDI account for 25% of total FDI in ASEAN 5. USA’s FDI account for 14.5% of total FDI in ASEAN 5. 1982/1992 EC total FDI amounted just 1% for ASEAN. Since 1970s ASEAN has been less attractive than other developing regions for

European Firms. ASEAN interested in EC is not to depended merely from JAPAN. ASEAN sees EC’s FDI as “accelerating and diversifying their industrial capacities”

mainly in labor intensive industry to adopt an export-oriented strategy and abandoned imports.

TABLE 4: EC FOREIGN DIRECT INVESTMENT.

EC FDI IN ASEAN

Chee (1980) “ASEAN wished to attract skill-intensive and knowledge-based industries to move from Europe to Southeast Asia”

Post War Period: European FDI in the region was concentrated in

Post War Period: Raw Materials (Petroleum/Rubber)

Colonial Pattern: Local Market (Food, Simple Chemicals, Pharmaceuticals)

MALAYSIA EC FDI INDUSTRIES Rubber Industry: British Subsidiary had succeeded in acquiring the capacity to

design and develop rubber processing machinery locally and export the machinery.

Telecommunication Industry: 50/50 Joint Venture, set up in 1969 with the Dutch from Phillips for the assembly of television sets, purchase local materials or parts. Starting local manufacturing of VHF, radios-telecommunications equipment, followed by printed wiring boards.

! Technology Transfer was successful in this industry, after three years foreign experts were not needed on permanent

basis!

Chemical Industry: Very little transfer of Technology to Malaysia from EC firms. Chemicals firms producing hairdressing cream and talcum powder were limited mostly to mixing of mineral oil, perfume and wax.

Motor-Vehicle Industry: Merely assembled vehicles from Completed Knocked Out kits containing 90% imported components.

The little Research and Development that was done in Malaysia focused on product quality maintenance or minor modifications of products and processes for the Local Market

! The lack of components from local suppliers was a difficulty for European Firms and the behavior reflected the fact that investment was undertaken primarily to supply the LOCAL MARKET, circumventing protectionist policies associated

with Import Substitution!

MALAYSIA EC FDI INDUSTRIES

THAILAND DETAILS OF EC FDI- 99 EC Firms benefiting from Government Incentives

- 23 Firms in Agriculture. - 17 Minerals, Metals and Ceramics.- 10 Chemicals.- 10 Mechanical and Electrical Equipment. - 10 Plastics, Medical Supplies, Component Parts, Natural or Synthetic Fiber

Products.

!Most of the Investment were oriented toward production for the LOCAL MARKET!

Relative low of investment were oriented to labor-intensive sectors such as textiles, garments, electric and electronic goods and plastic goods.

WHY PRODUCTION FOR THE LOCAL MARKET?

Logical Response to import Substitution Strategies.

The problem from the ASEAN perspective was that well after import substitution had been abandoned by most of their member in favor of EXPORT-ORIENTED strategies, EC investment continued to be concentrated in raw materials and in production for the Local Market. Surveys showed that EC firms consider ASEAN region as primarily a FINAL GOOD market and not as a location for production for the European or World Markets.

EC PERCEPTION OF ASEAN FOR FDI

High Transportation Cost. Japan’s competitiveness could be attributed to production and marketing cost

advantages rather than to lower transport costs (Langhmmer,1987) European has pointed out, Capitalist Economies, states and regional organizations

lack the power to coerce firms and can only provide incentives to them. This difference in perception, is illustrate in the issue that initiatives to create an interregional framework for firms were proposed by ASEAN.

EC did not seen the Interregional Framework as a mechanism for encouraging European firms to invest in Southeast Asia.

Unfavorable Investment Climate in the Region. State Regulation were Excessive and Inadequate.: Intellectual Property and

Investment Protection. 100% of Ownership: Requiring setting up of Joint Ventures. Restrictions of FDI in certain Industries and Regions, Restrictions on Capital

Repatriation. Investment Conditions not Harmonized.

EC SEEKING FDI CONDITIONS AS:

Fiscal incentives and Investment Guarantees. Tax exemptions. Accelerated depreciation allowances. Exemption from Import Duties on Equipments and Raw Materials. Tariff Protection for the Domestic Market. Incentives to Export. Guarantees regarding expropriation.

Europeans firms argued that Southeast Asia regionalization was going in an very slow pace: Often cited the existence of 5 separate markets, instead of a SINGLE MARKET, this is one of the most important disincentive to

invest in the Southeast Region.

WHAT IS HAPPENING IN THE EC DURING ASEAN INTERREGIONAL RELATIONS.

Treaty of Maastricht: Accomplishment of a new momentum for the Single Market including a Single Currency and strengthening the three pillars of EC: The European Parliament, The Council of Ministers, The European Commission.

German Economist Hiemenz and his colleagues believed that Regional Development Policy was probably more than sufficient to attract investment that would otherwise have gone to Developing Countries.

Development Policy, also influenced the orientation of FDI towards certain developing countries and regions.

SINGLE EUROPEAN MARKET (SEM)

Fears among Developing Countries that investment would be diverted away from them in favor of the EC members, whether developed or less developed.

Little doubt that the SEM stimulated intra-EC investment. Between 1984 and 1988, the latter more than quintupled. Europeans firms increased their intra-EC FDI, primarily in the form of Merges and Acquisitions, the goal of which was to consolidate their competitive position in preparation for the SEM.

1987 REGIONAL INVESTMENT ADVISERS

Warned that investments in Southeast Asia were being reoriented towards production for exportation to the World Market, thus potentially threatening European firms’ export markets. The warning was followed by another 1989 that added Taiwanese and South Korean firms to the Japanese firms investing in Southeast Asia and pointed to the danger that products from Southeast Asia would compete with European products in Europe itself. (Bassetti, 1898,p.3)

REGIONALIZATION IN SOUTHEAST ASIA AS AN INCENTIVE TO EC FDI

In the 1990s Southeast Asia as a region became one

of the primary destinations of European FDI in the

developing world. In 1992 European investment in

Malaysia, Thailand and the Philippines already

exceeded those made in the African Countries

belonging to the ACP, reaching a peak in Southeast

Asia in 1994, after that year, Latin America became

more attractive as an investment site (See table 5)

WHERE GOES THE EC INVESTMENT IN ASEAN?

1993 DATA INFO.

Singapore

Chemicals and Petroleum

Machinery

Singapore


Machinery

Series1

NaN

NaN

NaNSeries2

Series3

Series4

Thailand

Singapore


Machinery

Singapore


Machinery

Series1

NaN

NaN

NaNSeries2

Philippines

Singapore


Machinery

0.083 0.085 0.087 0.089 0.091 0.093 0.095 0.097 0.099Singapore Chemicals and Petroleum Machinery

Series1 NaN 0.0990000000000001 0.088

Singapore

Malaysia

Raw Materials (Petroleum and Coal)

Rubber

Food, Beverages, Tabacco

Electrical and Electroniccs

0.025 0.075 0.125 0.175 0.225 0.275 0.325Malaysia Raw Materi-

als (Petroleum

and Coal)

Rubber Food, Bever-ages, Tabacco

Electrical and Electroniccs

Series1 NaN 0.305 0.067 0.202 0.121

Malaysia

WHY FDI IN SOUTHEAST ASIA IS ENHANCE BY ASEAN

Enhance their capacity to export not only to Europe, but also to the rest of the World.

ASEAN-EC cooperation should seek to apply technology to Industrial Activities and to Promote Innovations in Technologies that ASEAN countries acquired.

Mobilize Financial Resources to support Joint projects between firms. SME’s should be given priority access to capital, appropriate technology and

markets. Cheaper but high quality manufactured products in ASEAN are predicted to benefit

European consumers by adding variety and choice while stimulating competition among manufacturers.

European FDI in Southeast Asia would not substitute trade, but would instead intensify trade between the two regions.

Potential Imitation effect in the home country, encouraging other companies to engage in Production Overseas.

Increase the parent company’s international competitiveness.

EC-ASEAN INTERREGIONAL RELATIONS OUTCOMES

1993 : European Business Information Center (EBIC) established in Manila, Philippines, followed by others in ASEAN regions.

Functions: Provide or facilitate information to European and Southeast

Asian firms on trade, infrastructure, firms, factors costs, and regulations and standards.

Organize Seminars, workshops and Conduct other trade promotion events.

European Investment Bank (EIB) financing in ASEAN:

Founding on investment projects. Facilitate Joint private sector investment projects. Financing to Technology-Transfer Projects, Capital Investment, and

Projects implemented by Joint Ventures between EC and Asian or Latin America.

Undoubtedly EIB operations have facilitated the conclusion of Joint Ventures involving European firms in several ASEAN countries. The beneficial consequences on industrial activity of energy or water

supply projects are evident.


European Community Investment Partners (ECIP):

Programme to assist in creating or developing Joint Ventures, Privatization or Private Infrastructure Projects in all developing countries outside the ACP.

Complete Cycle of Investment Process Consultancy. Creation of ASEAN-EC Partenariat which arranges business

meeting and set a target of 500 strategic alliances between EC-ASEAN with a 45 million budget for a 5 year period.


CONCLUSIONS AND RECOMMENDATIONS

European SMEs employ more than large transnational companies are a KEY partnership in order to enlarge the Interregional Relations between EC-ASEAN.

In the Short and Medium-Term , the progress of regionalization in Europe and Southeast Asia will continue to determine European firms’ tendency to invest in Southeast Asia.

The enlargement of EC to the Central and East European Countries (CEEC), will expand the coverage of EC regional development policy and broaden the group of countries that can compete with developing regions for EC FDI.

Risk: The strategic position of the CEEC is more favorable than that of the ASEAN and other developing regions.

ASEAN efforts to create and sustain an interregional relationship in the field of investment bore fruit in the 1990s, in the form of ASEAN-EC investment promotion activities.

ECONOMIC INTEGRATION IS CHANGING THE WORLD

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The Political Economy Of Interregional Relations Asean Eu