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Driving Toward ASEAN Economic Community: Assessment and Implications

Driving Toward ASEAN Economic Community: Assessment and Implications

PARK Bun-Soon

Nov. 27, 2012

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In the wake of the global financial crisis, ASEAN (Association of Southeast Asian Nations) leaders agreed to hasten the formation of an economic community by 2015. ASEAN already is the second-largest market for Korea's exports and when the ASEAN Economic Community (AEC) is fully operational, its impact on the Korean economy is expected to be significant.

The main objectives of AEC are to create a single market and production base; a highly competitive economic region; a region of equitable economic development; and a region fully integrated into the global economy.

ASEAN, founded in 1967 to foster political cooperation, began to pursue economic cooperation in the second half of 1970s, primarily through its Preferential Trading Arrangements and industrial cooperation programs. In 1992, the ASEAN Free Trade Area (AFTA) was established amid changes in the international economic environment stemming from China's rise. A few years later, in the aftermath of the 1997-98 Asian currency crisis, ASEAN began to discuss the formation of an economic community.

Despite the single-market foundation for free trade and economic integration, the workings have fallen short of expectations so far. Items remain excluded from tariff liberalization and the utilization rate of AFTA's preferential tariffs remains low. The formation of a single production base also has been led by multinational corporations (MNCs), rather than by ASEAN companies. Meanwhile, wide gaps in income and quality of life continue in the 10-nation regional bloc, indicating that ASEAN's collective push for equitable economic development has been insufficient. Financial sector cooperation to solve foreign currency liquidity problems has been led by East Asian countries, namely China, Japan and Korea, and free movement of labor, the most important element of economic integration, is extremely limited among ASEAN members.

Although the progress toward an economic community still lacks enough traction, ASEAN is well aware that amid a rapidly changing external environment, its member countries should bond together for the sake of the interest of ASEAN as a whole. ASEAN will henceforth continue to stress “ASEAN Centrality” in building a new regional order. For Korea, ASEAN is a key region for economic cooperation. Therefore it is necessary to reinforce cooperation with ASEAN and support its ongoing AEC quest. To this end, Korea will have to manage its excessive trade surplus with ASEAN and provide leadership in international assistance to reduce intra-ASEAN development gaps. Korean companies also should pursue business opportunities arising from ASEAN's attempt to mitigate its regional disparities and further expand investment in the less developed ASEAN states.

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