Distinguished Speaker Seminar: Michael G. Plummer – Integration Strategies for ASEAN: Alone, Together, or Together with Neighbors?

Michael G. Plummer, Professor of International Economics, Johns Hopkins University, SAIS-Bologna as well as Editor-in-Chief of the Journal of Asian Economics and Director, American Committee for Asian Economic Studies (ACAES) gave a seminar on integration strategies for ASEAN countries at a distinguished speaker seminar on 19 March 2008.

Professor Plummer first reviewed real-sector integration in the ASEAN region. He pointed out that ASEAN integration in any real sense began in 1992 with the ASEAN Free-Trade Area (AFTA). But beginning in November 2002, ASEAN committed itself to creating an ASEAN Economic Community (AEC) by 2020, which was later advanced to 2015. The AEC envisions free flow of capital and skilled labor. Another salient aspect of regionalism in ASEAN relates to the many bilateral free trade agreements (FTAs) that its member countries have already concluded and negotiated. The reasons for regionalism movement in ASEAN are many, including, among others, defensive response to the proliferation of regional trading blocks elsewhere and dissatisfaction with the slow progress at global trade talks.

In his study, Professor Plummer has applied computable equilibrium (CGE) model to assess an optimal real sector integration scenario. Four alternative trade policies has been evaluated: (i) pursue current strategy of bilateralism, under which the region is fragmented by a number of bilateral or small regional FTAs; (ii) form alliance of ASEAN plus the People’s Republic of China, Japan and Korea (ASEAN+3); (iii) form a free-trade area of the Asia-Pacific (FTAAP), including all APEC member countries; (iv) and solely rely on global trade liberalization. Although, at the country level there was no dominant strategy, for most countries the current course appeared to be better than the more aggregate units. For ASEAN as a whole, ASEAN+3 appeared to be better than the fragmented scenario and FTAAP (given that global scenario is not obtainable).

With respect to financial and monetary cooperation, Professor Plummer pointed out that these issues have been treated in tandem with real sector initiatives, with increasing attention over time. He enumerated major initiatives for greater monetary and financial cooperation in East Asia such as the ASEAN Surveillance Process, the ASEAN+3 Economic Review and Policy Dialogue, Chiang Mai Initiative, and the Asian Bond Market Initiative. With respect to prospects for monetary union in the region, he argued that from a practical point of view, the ASEAN+3 is the more likely unit for monetary union. This was supported by a clear increase in correlations of business cycles of ASEAN+3 countries over time, as well as gradual increase of intra-regional trade shares. He argued that despite existence of political challenges, trade integration and good-will could help set the stage for a future monetary union.

This presentation created a lively discussion on various important issues of economic integration in Asia, like economic and institutional diversity in the region, leadership role of bigger countries, absence of clearly defined monitoring indicators and goals. In response to these questions, Professor Plummer pointed out that in order to close the developmental gap not only across, but also within countries, it is important to allow low-income countries to be a part of integration process. With regard to leadership role of big countries, he argued that although leadership is very important, even without having a leader, as it is in the case of ASEAN, it is still possible to come together and create some consensus among members. With regard to setting some development goals, it was agreed that it is difficult to define particular goal at present stage of development. However, it is possible to start with setting a benchmark and progress further by monitoring the self-evaluation indicators.

Finally, Professor Plummer optimistically stated that although there is a long way to policy harmonization among member-countries, but moving ahead and getting the trend, as well as having political relations and good-will are very important in the integration process in Asia.