Asean Leaders Push for Integration Amid Rising Protectionism

March 1 (Bloomberg) -- The Association of Southeast Asian Nations will lay out today the region’s plan to become a European Union-modeled economic community by 2015 even as the bloc struggles to overcome a global recession that has eroded export demand and boosted protectionist sentiment.

Economic ministers from the 10 member nations this week agreed to reduce trade tariffs and open up more services industries to boost investment and integration within the region. Still, as a worldwide economic downturn threatens jobs and hurts manufacturing, leaders meeting in Cha-am, Thailand, are warning of the dangers of measures aimed at shielding domestic industries and goods from overseas competition.

“We need to accelerate the development of an attractive single market and production base that will help attract foreign trade and investment,” Thai Prime Minister Abhisit Vejjajiva said. “If we start going down the route of protectionism, everybody will go down. It doesn’t help anybody at the end.”

Southeast Asian nations have agreed to open up their markets further in a bid to create an economic zone modeled after the European Union, without a common currency, by 2015. The group has said it needs to improve its competitiveness as China and India, the world’s two fastest-growing major economies, attract an increasing chunk of global investment.

Asean includes Indonesia, Thailand, Malaysia, Singapore, Brunei, the Philippines, Cambodia, Laos, Myanmar and Vietnam. Formed in 1967, it has a combined gross domestic product of more than $1.1 trillion and a population of about 570 million.

Commodities, Chips, Cars

Asia’s export-dependent nations are reeling from the global slowdown, which has slashed demand for the region’s computer chips, cars and commodities. The region is almost twice as reliant on exports as the rest of the world.

Growth in Indonesia, Southeast Asia’s largest economy, was the least in two years last quarter, and Thailand is expected to enter its first recession in a decade. Singapore is in its deepest downturn ever, while Malaysia’s economy grew at the slowest pace in seven years last quarter.

“Regional cooperation becomes even more important as we seek to pursue joint approaches and pool our resources to cope with difficulties that we all face,” Asian Development Bank President Haruhiko Kuroda told leaders in Cha-am yesterday.

Asean together with Japan, China and South Korea last week agreed to form a $120 billion pool of foreign-exchange reserves that can be used by countries to defend their currencies to battle fallout from the global financial crisis.

Australia, New Zealand Deals

The grouping on Feb. 27 also signed a free-trade pact with Australia and New Zealand that covers trade in goods, investment and services. It will implement one with India in the next few months after years of negotiations.

“All of this standard Asean procedure amounts to very little in the current context of the global financial crisis and rising protectionism around the world,” said Razeen Sally, a director of the European Centre for International Policy, a Brussels research group that backs free trade. “These FTAs, bilateral or collective, are not anywhere near strong enough to limit or arrest these protectionist trends.”

Amid the free-trade agreements, some countries are putting in place policies to help domestic businesses that may come at the expense of overseas ones.

Indonesia’s Trade Ministry issued a decree ordering civil servants to use local products, Jakarta Globe reported Feb. 16, citing Trade Minister Mari Pangestu. The decree is aimed at boosting domestic demand and helping local industries including food, beverages, footwear, clothing and music, the report said.

It is a “normal reaction” for countries to resort to protectionist measures in a slowdown, Malaysian Prime Minister Abdullah Ahmad Badawi told the Bangkok Post in an interview published Feb. 27.

“If we are not supportive of our own industries, and do not buy our own products and services we will have a serious problem,” Abdullah said. “As it is we are told that countries which have been importing our products before are not going to be importing the same amount anymore. We have to protect our people.”