¹ South-East Asia was a region in tumult in the early 1960s. Singapore, Malaysia, and Brunei were struggling for survival and independence after being ‘de-colonized’ by Great Britain. Diplomatic ties between Malaysia and Philippines were severed between 1962–1966 owing to the Sabah dispute. Then there was the confrontation between Indonesia and Malaysia;the separation of Singapore from Malaysia in August 1965, barely 3 years after merger with Malaysia; the Vietnam War, together with the threat of an expansion of communism to South-East Asia by the Chinese leaders during the Cultural Revolution of 1967, all of which contributed to the birth of ASEAN, see Yew, LKThe Singapore Story-Memoirs of Lee Kuan Yew (SingaporePress Holdings Times Editions 1998) 628–63.Google Scholar

² The ASEAN grouping can be roughly divided into two groups: (a) the original founding members and Brunei, collectively referred to as the ASEAN 6; and (b) the newer members of ASEAN, ie Vietnam, Laos, Myanmar, and Cambodia (VLMC) who share similar history and are emerging economies.Google Scholar

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⁶ Haas above n 3 at 817. The five original projects included two urea projects in Indonesia and Malaysia; soda ash in Thailand; superphosphate fertilizer in the Philippines; and a diesel engine project in Singapore.Google Scholar

⁷ Ibid.

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¹¹ Thongpakde, N above n 8 at 50.Google Scholar

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¹⁵ Ibid. Indonesia and Thailand excluded 54 per cent and 53 per cent respectively of their total items from the across-the-board tariff cuts. The figure for Malaysia was 37 per cent, the Philippines 25 per cent, and Singapore 2 per cent at 39.

¹⁶ Kodama above n 9 at 385.Google Scholar

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¹⁹ Rudner, M ‘Institutional Approaches to Regional Trade and Co-operation in the Asia Pacific Area’ (1994) 4 Transnational Law and Contemporary Problems 180.Google ScholarThe new regionalism movement that swept across the globe in the early to mid-1990s was owed partly to the change in attitude in the United States towards regionalism. The United States, a strong bulwark of the ‘mostfavoured-nation’ non-discriminatory approach to trade liberalization, and the multilateral regime, changed its policy and began pursuing liberalization on a preferential basis. Preferential trading arrangements proliferating elsewhere, particularly in the European Community, were choking off US exports. As a result, it negotiated free trade agreements with Israel, Canada, and later NAFTA. Another reason for the move towards preferential arrangements is the ‘GATT-frustration’ factor. The GATT system was sclerotic prior to the conclusion of the Uruguay Round,Google Scholarsee Palmeter, D ‘Some Inherent Problems with Free Trade Agreements’ (1996) 27 Law and Policy in International Business 991–2Google Scholarand Primo Braga, C ‘Comments on the Proliferation of Regional Integration Arrangements’ (1996) 27 Law and Policy in International Business 963–4.Google Scholar

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²² The ASEAN secretariat has opined that since the implementation of the CEPT scheme, intra-ASEAN trade has grown from US$44.2 billion in 1993 to US$74.4 billion in 1999. This represents an average annual increase of 11.4 per cent, see TRADE <http://www.aseansec.org/economic/ov_trd.htm>. However, it is to be noted that although intra-ASEAN trade may have risen in absolute terms, it has remained fairly constant as a percentage of total trade of the ASEAN members. In 1990 intra-ASEAN trade constituted only 9.65 per cent of total trade of ASEAN members, and this figure climbed to 11.62 per cent in 1993 and finally to 12.35 per cent in 1998..+However,+it+is+to+be+noted+that+although+intra-ASEAN+trade+may+have+risen+in+absolute+terms,+it+has+remained+fairly+constant+as+a+percentage+of+total+trade+of+the+ASEAN+members.+In+1990+intra-ASEAN+trade+constituted+only+9.65+per+cent+of+total+trade+of+ASEAN+members,+and+this+figure+climbed+to+11.62+per+cent+in+1993+and+finally+to+12.35+per+cent+in+1998.>Google Scholar The progress in intra-ASEAN trade was clearly dismal, see Direction of Trade Statistics (By Year) from 1990 to 1998. So far, the bulk of intra-ASEAN trade is accounted for by Singapore and Malaysia, and the driving force behind the growth in intra-ASEAN trade is intra-industry trade propelled by efficiency-seeking, cross-border investment by multinational enterprises, see Athukorala, P-C and Menon, J ‘Foreign Direct Investment in ASEAN: Can AFTA Make a Difference?’ in JLH Tan AFTA In The Changing International Economy (1996) 80.Google Scholar

²³ These products were of considerable commercial importance and account for roughly US$9.3 billion or 37 per cent of total intra-ASEAN trade, see bin Abdul Kareem, MAAFTA=Another Futile Trade Area? (Kuala LumpurUniversiti Malaya 1994) 80.Google Scholar

²⁴ A Protocol in 1995 amended the CEPT to include raw and unprocessed agricultural goods.Google Scholar

²⁵ The same 1995 Protocol accelerated AFTA by 5 years to be realized on 1 Jan 2003.Google Scholar

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²⁷ In the latest trade report from the ASEAN Secretariat, it was reported that Vietnam will have 76.79 per cent of its Inclusion List with tariffs of 0–5 per cent by 2003; Laos and Myanmar will have 86.9 per cent and 83.43 per cent respectively of their Inclusion List at the tariff range of 0–5 per cent in 2005; and Cambodia, who only joined ASEAN in 1999, will reduce tariffs on 91.94 per cent of its Inclusion List to the 0–5 per cent range in 2007. The trade report can be obtained at <http://www.aseansec.org/print.asp?file=/economic/ov_trd.htm>..>Google Scholar

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³² Executive Order No 161. A copy can be obtained from <http://www.aseansec.org/14284.htm>. Singapore and Thailand initiated consultations with Philippines on the matter under AFTA. In August 2003, Singapore and the Philippines reached an amicable agreement in which the Philippines agreed to pay compensatory adjustment measures to Singapore through a programme of tariff reductions of Singapore's exports to Philippines. The adjustment measures due in favour of Singapore would be equivalent to the actual tariff differential collected by the Philippines for year 2003 and 2004 on eleven petrochemical products exported from Singapore to the Philippines. This information is obtained from the Ministry of Trade and Industry of Singapore..+Singapore+and+Thailand+initiated+consultations+with+Philippines+on+the+matter+under+AFTA.+In+August+2003,+Singapore+and+the+Philippines+reached+an+amicable+agreement+in+which+the+Philippines+agreed+to+pay+compensatory+adjustment+measures+to+Singapore+through+a+programme+of+tariff+reductions+of+Singapore's+exports+to+Philippines.+The+adjustment+measures+due+in+favour+of+Singapore+would+be+equivalent+to+the+actual+tariff+differential+collected+by+the+Philippines+for+year+2003+and+2004+on+eleven+petrochemical+products+exported+from+Singapore+to+the+Philippines.+This+information+is+obtained+from+the+Ministry+of+Trade+and+Industry+of+Singapore.>Google Scholar

³³ An approved AICO product may be in the form of finished products, intermediate parts and components, or raw materials. AICO finished products have unlimited access into the markets of the participating countries but not AICO intermediate products or AICO raw materials. The latter products may only be imported and used as inputs in the manufacture of the approved final product in a particular AICO arrangement.Google Scholar

³⁴ Basic Agreement on the ASEAN Industrial Cooperation Scheme can be obtained from the ASEAN Secretariat website at <http://www.aseansec.org/economic/eco_aico.htm>..>Google Scholar

³⁵ ASEAN Annual Report, 2002–2003 above n 27, at 28.Google Scholar

³⁶ The parts and component trade in Asia is staggering. For example, more than 40 per cent of Japan's trade in Asia is trade in parts rather than trade in final products. In the machinery trade sector, East-Asian intra-regional trade as a whole shot up 92 per cent in finished goods from 1990 to 1998, but 179 per cent for parts. The share of intra-ASEAN parts trade rose from 67 per cent to 84 per cent in the same period, see speeches of BG(NS) George Yeo, Singapore Minister for Trade and Industry and Hiroyuki Kato, President Director of JETRO Jakarta at the AFTA 2002 SYPOSIUM, 31 Jan 2002, Jakarta. Copies of the speeches can be found at <http://www.aseansec.org/view.asp?file=/newdata/george_yeo.htm< and <http://www.aseansec.org/print.asp?file=/newdata/jetro.htm<.Google Scholar

³⁷ ASEAN Annual Report above n 27 at 23.Google Scholar

³⁸ ASEAN Economic Into-View (A quarterly bulletin of the Bureau of Economic Co-operation, ASEAN Secretariat) 2, no 1 (Sept 1994), 10.Google Scholar

³⁹ Pelkmans, J ‘European Integration, Methods and Economic Analysis’ New York Financial Times 2001 7–9.Google Scholar

⁴⁰ Balassa's stage approach can be quite easily fitted within the wider analysis of Tinbergen's positive and negative dichotomy.Google Scholar

⁴¹ Lawrence, RZRegionalism, Multilateralism, and deeper Integration (Washington DCThe Brookings Institution 1995) 7–8.Google ScholarFurther see Prima Braga, C ‘Comments on the Proliferation of Regional Integration Arrangements’ (1996) 27 Law and Policy in International Business 963–4.Google Scholar

⁴² Viner, JThe Customs Union Issue (LondonStevens 1950) ch IV.Google Scholar

⁴³ Venables, AJ ‘International Trade: Regional Economic Integration’ prepared for the International Encyclopaedia of Social and Behavourial Sciences (Amsterdam, New York Elsevier 2001).Google Scholar

⁴⁴ Plummer, MG ‘The ASEAN Free-Trade Area: Backwards or Forwards’ Centre for ASEAN Studies Discussion Paper No 5 (1996).Google Scholar

⁴⁵ The following economists have critiqued and expanded work on Viner's paradigm: Meade, JThe Theory of Customs Unions (AmsterdamNorthHolland 1955);Google ScholarGehrels, ‘Customs Unions From a Single Country Viewpoint’ (1950–1957) 24 Review of Economic Studies 61–4;CrossRefGoogle ScholarLipsey, ‘The Theory of Customs Unions: A General Survey’ (1960) 70 The Economic Journal 496–513;CrossRefGoogle ScholarCooper, and Massell, ‘A New Look At Customs Union Theory’ (1965) 75 Economic Journal 742–7;CrossRefGoogle Scholarand Wonnacott, and Wonnacott, ‘Is Unilateral Tariff Reduction Preferable to a Customs Union?’ (1981) 71 American Economic Review 704–14.Google Scholar

⁴⁶ Brada, JC and Mendez, JA ‘An Estimate of the Dynamic Effects of Economic Integration’ (1988) The Review of Economics and Statistics 163–8.CrossRefGoogle Scholar

⁴⁷ Venables above n 43 at 7 and Plummer above n 44 at 12.Google Scholar

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⁴⁹ Levy Yeyati, E, Stein, E, and Daude, C ‘Regional Integration and the Location of FDI’ Inter- American Development Bank et al Working Paper No 492 (2003).Google Scholar

⁵⁰ Palmujoki, above n 17, at 53.Google Scholar

⁵¹ There would be strong objections from the newer members such as Cambodia who derived 56 per cent of its tax revenue from customs duties, see Fukase, E and Martin, W ‘Free Trade Area Membership as a Stepping Stone to Development: The Case of ASEAN’ World Bank Discussion Paper No 421, The World Bank, Washington DC.Google Scholar

⁵² The ASEAN Community Roundtable on ‘Towards Realising An ASEAN Community’ hosted by the Institute of South-East Asian Studies and held on 4–5 June 2004, which this author was invited to attend as an observer.Google Scholar

⁵³ Plummer, above n 44 at 9 and 32–3.Google Scholar

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⁵⁵ But in a study conducted by Soloaga and Winters (1996), it was found that there was little evidence of trade diversion in AFTA between the period from 1980 to 1996, see Trade Blocs, A World Bank Policy Research Report (2000) at 49.Google Scholar

⁵⁶ Fukase, and Martin, above n 51 at 70.Google Scholar

⁵⁷ Fukase, E and Winters, LA ‘Possible Dynamic Effects of AFTA for the New Member Countries’ 26 The World Economy No 4 (2003) 853–71.CrossRefGoogle Scholar

⁵⁸ Palmujoki, above n 17 at 8 and 36.Google Scholar

⁵⁹ Ibid.

⁶⁰ Thongpakde, N above n 8 at 67.Google Scholar

⁶¹ Grigera Naon, HA ‘Sovereignty and Regionalism’ (1996) 27 Law and Poli cy in International Business 1073,1080–1.Google Scholar

⁶² Art 12(1), AIA provides that Member States affirm their existing rights and obligations under the 1987 ASEAN Agreement for the Promotion and Protection of Investments and its 1996 Protocol. In the event that this Agreement provides for better or enhanced provisions over the said Agreement and its Protocol, then such provisions of this Agreement shall prevail.Google Scholar

⁶³ The Straits Times 17 May 2002, H2. There are many areas of contention between Singapore and Malaysia even in the pre-independence days. They range from serious concerns tike the ‘water issue’, ‘tudung issue’ and the reclamation works carried out by Singapore around Pulau Tekong and Tuas, which Malaysia alleged violated their territorial sovereignty, to even trivial matters that Singapore was buying fewer tomatoes from Malaysia.Google Scholar

⁶⁴ Haas, above n 3 at 857–63. Common law forms the basis for the legal systems of Brunei, Malaysia, and Singapore, while Spanish and US laws significantly influence the Philippines’ legal system. Indonesia, on the other hand, follows the construct of the Dutch legal system, and Thailand's legal system derives from an amalgamation of the continental and common law structures.Google Scholar

⁶⁵ Haas, above n 3 at 863.Google Scholar

⁶⁶ World Development Indicators, World Bank, 2002.Google Scholar

⁶⁷ The IMF aid package to Indonesia and Malaysia was rejected as their governments perceived that the measures impinged upon their national sovereignty, see Palmujoki, above n 17 at 135.Google Scholar

⁶⁸ Palmujoki, above n 17 at 135–7.Google Scholar

⁶⁹ The ASEAN plus 3 refers to the ASEAN countries and Japan, China, and South Korea. For a detailed account of the early warning system, see ADB Asia Economic Monitor (2002) at 24. The URL address is <http://www.aric.adb.org>..>Google Scholar

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⁷¹ In absolute figures, intra-ASEAN trade grew at an average annual rate of 18.29 per cent between 1993 (US$44.2 billion) and 2000 (US$100.8 billion). But the extra-ASEAN rate was also growing on par and hence, the intra-ASEAN trade had remained fairly constant despite AFTA, see World Development Indicators, The World Bank (2002).Google Scholar

⁷² Since the establishment of NAFTA, total trade and investment between Canada, Mexico, and the US have steadily increased each year. Canada's merchandise trade with the US reached US$588.7 billion in 2000. Two-way merchandise trade between Canada and Mexico has doubled since 1994 to reach US$14.1 billion in 2000. In terms of Canada's merchandise exports, 86.6 per cent went to the NAFTA partners, see Department of Foreign Affairs and International Trade (2001) <http://www.dfait-maeci.gc.ca/nafta-alena/over-e.asp>..>Google Scholar

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⁷⁵ Thanadsillapakul, L ‘Open Regionalism and deeper Integration: The Implementation of ASEAN Investment Area (AIA) and ASEAN Free Trade Area (AFTA)’<http://www.dundee.ac.uk/cepmlp/journal/html/article6–16a.html> at 16–17.+at+16–17.>Google Scholar

⁷⁶ I have used the term ‘indigenous ASEAN investor or company’ to mean companies that are incorporated locally and wholly owned by nationals of the ASEAN countries. Note that a whollyowned subsidiary of a foreign multinational corporation would not qualify as an ASEAN investor as it would not meet the ASEAN equity requirement.Google Scholar

⁷⁷ Studies by the Japanese EXIM bank, JETRO, the Nomura Research Institute, and the Economist Intelligent Unit on AFTA and AICO support the view that more firms, especially Japanese firms, are undertaking investment strategies or regional operation activities built around the various regional arrangements. These firms capitalize on AFTA and AICO by establishing multiple plants which are strategically located across ASEAN, each with specific integrated products functions to produce parts, components, and finished products that allow optimal integrated operation processes, see the ASEAN Investment Report (1999) at 46.Google Scholar

⁷⁸ Ibid.

⁷⁹ Under NAFTA, a Member State may deny access to an investor of another Member State if the investor is owned or controlled by investors from a non-Member State, and the denying Member State does not maintain diplomatic relations with the non-Member State; or adopts or maintains measures with respect to the non-Member State that prohibit transactions with the investor. Alternatively, a NAFTA Member State may deny access to an investor from a Member State that is owned or controlled by an investor from a non-Member State, if the first mentioned investor does not carry on a substantial business activity in the territory of that Member State. In contrast, the AIA has gone the other way and permitted investors owned by non-ASEAN members to access and invest in ASEAN. A copy of the NAFTA agreement can be obtained from <http://www.sice.oas.org/trade/nafta/chap-l11.asp>..>Google Scholar

⁸⁰ Under this mandate, the ASEAN Coordinating Committee on Investment had conducted joint investment missions to major cities in the US and Japan. The private sectors from both host and source countries have been actively wooed to participate in these programmes, and information has been disseminated to the public through the ASEAN Supporting Industry database and various publications. Detailed discussions on the ASEAN Coordinating Committee's work to implement the AIA can be found in the ASEAN Investment Report (2000). The ASEAN Supporting Industry database contains more than 11,000 entries of parts and component manufacturers and is a valuable resource that investors can tap into. In addition, the Committee has organized regional training workshops for the VLMC countries to help them implement the AIA in their respective countries as well as coordinate the publication of numerous reports on FDI in ASEAN.Google Scholar

⁸¹ Note that unlike the NAFTA agreement, the subsidiary does not even need to prove that it has a substantial business in Singapore.Google Scholar

⁸² Yun-Keung Kwan, F and Qiu, LD ‘The ASEAN+3 Trading Bloc’ Working Paper Series No 198, City University of Hong Kong (2003). In this study, the authors used direct econometric evidence to show that integration among ASEAN countries has led to increased FDI inflows from Japan. In fact, compared with the rest of the world, an ASEAN member will receive an additional 3 per cent increase in Japanese FDI inflows per one percentage point increase in openness.Google Scholar

⁸³ The other types of FDI are the ‘trade-barrier circumventing’ or ‘tariff-jumping’ FDI, ‘market and technology accessing or market-seeking’ FDI and ‘round-tripping’ FDI. A discussion on them can be found in Fukushima, K and Kwan, CH ‘Foreign Direct Investment and Regional Industrial Restructuring in Asia’ in The New Wave of Foreign Direct Investment in Asia (SingaporeInstitute of South-East Asian Studies 1995) 3, 8–10.Google Scholar

⁸⁴ These studies include Balasubramanyan, VN and Greenaway, D ‘Regional Integration Agreements and Foreign Direct Investment’ in Anderson, K and Blackhurst, RRegional Integration and the Global Trading System (New YorkHarvester Wheatsheaf 1993) 147–66;Google ScholarFukushima, K and Kwan, CH above n 82 at 3–39;Google Scholarand Urata, S ‘Japanese Foreign Direct Investment in Asia’ in Kumar, N et al. Globalization, Foreign Direct Investment and Technology Transfers (London and New YorkThe United Nations University INTECH 1998) 146–73.Google Scholar

⁸⁵ For instance, Mitsubishi Corporation launched a brand-to-brand complementation scheme which involved a regional division of labour amongst Malaysia, Thailand, and the Philippines. Malaysia concentrated on the production of door panels and other stamped parts, Thailand specialized in the manufacture of fuel tanks, consoles, bumpers and windshields, while the Philippines focused on the production of transmission parts, see P-C Athukorala and J Meno above n 22, at 81.Google Scholar

⁸⁶ But after the initial euphoria of investing in China, foreign investors are reviewing their China strategy. A survey released by the Japan External Trade Organization (JETRO) found that Japanese automakers will stay put in ASEAN even in the face of intense competition from China because they need to balance against a possible failure of their Chinese operations, see The Straits Times 1 Mar 2003. The recent episode on the severe acute respiratory syndrome pandemic that swept across major cities in China such as Beijing and Guangdong serves as a warning to investors against putting all their eggs in the ‘China’ basket.Google Scholar

⁸⁷ Statistics of Foreign Direct Investment in ASEAN, Comprehensive Data Set (2002).Google Scholar

⁸⁸ The Straits Times 5 Nov 2002. A study commissioned by the ASEAN leaders has found that the costs of doing business in ASEAN had become ‘unnecessarily high’, not to mention the differing product standards and customs red tape that have prevented companies from achieving economies of scale across the region. The study concluded that ASEAN's competitiveness has been seriously eroded and the grouping has failed to capitalize on its strengths.Google Scholar

⁸⁹ A copy of the Declaration can be obtained from <http://iir.nccu.edu.tw/cscap/page_4c/documents/aseanvision2020.h>. The Declaration, inter alia, called for the creation of a stable, prosperous, and highly competitive ASEAN economic region in which there is a free flow of services and investments, a freer flow of capital, equitable economic development, and reduced poverty and socio-economic disparities..+The+Declaration,+inter+alia,+called+for+the+creation+of+a+stable,+prosperous,+and+highly+competitive+ASEAN+economic+region+in+which+there+is+a+free+flow+of+services+and+investments,+a+freer+flow+of+capital,+equitable+economic+development,+and+reduced+poverty+and+socio-economic+disparities.>Google Scholar

⁹⁰ The Straits Times 8 Oct 2003.Google Scholar

⁹¹ Ibid 17 May 2002.

⁹² In January 2003, skirmishes between the Thai and Cambodian governments over insensitive remarks made by a popular Thai actress sparked off rioters who attacked the Thai embassy in Cambodia. A month later, Cambodia closed its borders with Thailand to protest against the unequal trade ties between the two countries, see The Straits Times 7 Feb 2002 and 7 Mar 2003.Google Scholar

⁹³ It should be noted that these sectors are not included under the ASEAN Framework Agreement for Services as they have also been excluded under the General Agreement for Trade in Services. Thus governments are free to impose whatever restrictions they want to protect these sectors.Google Scholar

⁹⁴ The Straits Times 24 Jan 2003. Malaysia has ambitious plans to compete with Singapore in the sea-air transshipment business. It has built the Tanjung Pelapas Port which drew two of Singapore's largest clients (Mearsk and Evergreen) to use its facilities there. It hopes to build another port at Kuantan to intercept transshipment cargo en-route to Singapore.Google Scholar

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