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. Last Updated: 07/27/2016

ASEAN Nations Struggle to Integrate

MANILA, Philippines -- An ambitious plan to turn Southeast Asia into a European-style economic community that can counter China and India will be difficult unless the region shelves its protectionism and speeds up the liberalization of trade in services, analysts said Wednesday.

Trade ministers from the 10-member Association of Southeast Asian Nations, or ASEAN, agreed Tuesday at the end of their two-day meeting in Manila, Philippines, to accelerate plans to turn the region into a single market. The ASEAN Economic Community, slated for 2020, will allow the free flow of goods, services and people across the region but does not call for a single currency.

The 39-year-old grouping's renewed push to become a unified economic bloc comes amid concerns the region may be dwarfed by giants China and India as East Asian integration gathers momentum.

But the actual economic assimilation in ASEAN -- which includes two communist states and a military junta -- has been sluggish, analysts say.

Although tariffs for most products have been cut under a regional free trade pact, the region has not been successful in wooing foreign investors, who flock largely to China. In 2004, foreign investment in ASEAN amounted to $25.7 billion, down from $34 billion in 1997. China has received more than $50 billion in foreign investment in recent years.

"The reason for this, of course, is that tariff-cutting alone is not enough to integrate a regional economy," said Rodolfo Severino, a former ASEAN secretary-general and currently a research fellow at the Institute of Southeast Asian Studies in Singapore.

Other non-tariff barriers such as restrictive regulations and technical measures have not been removed, customs procedures are only now being coordinated and standardization of products traded within ASEAN is progressing too slowly, he said. That has created transport bottlenecks in the flow of goods within ASEAN.

At the same time, negotiations to free up trade in services are moving slowly, there are still too many restrictions on cross-border financial operations and there is no coordination of monetary policy, he said.

"ASEAN needs to accelerate its integration measures," Severino said. "They have to move fast; the competition is not standing still."

It has a market of 530 million people but, in reality, the region remains a chain of disparate markets and accounts for only 6 percent of global exports. Intra-regional trade makes up only about one-quarter of ASEAN's total trade volume, compared to more than 70 percent in Europe.

Furthermore, a wide economic chasm divides ASEAN's six more developed nations --Malaysia, Indonesia, Singapore, Brunei, Thailand and the Philippines -- and its four newer members, communist Vietnam and Laos, military-ruled Myanmar and Cambodia.

Most ASEAN countries still keep a tight grip over key industries such as banking, health care and transport, which is hindering economic integration, according to analysts.