Benefits of ASEAN to Member Countries

Introduction

ASEAN is a geo-political and economic organization of 10 countries in Southeast Asia. This was established with two major objectives. Firstly, it was established to increase economic growth, social progress, and cultural development. Secondly, ASEAN was established to promote regional peace and stability by adhering to justice and the principles set by the United Nations (ASEAN Secretariat, 2009). This paper will discuss the benefits that the member countries have gotten as a result of the formation of this geopolitical organization.

This paper will touch upon how the ten member countries of ASEAN have benefited as a result of the establishment of ASEAN. For this, we will look at the country’s situation before and after the formation of ASEAN. However, before we move on, it is important to understand the structure and composition of ASEAN. Therefore this will be discussed before anything else. As we move on, we will start discussing each benefit divided into broad categories. We will see with the help of examples and statistics how this establishment of ASEAN has benefited the countries. Towards the end, the conclusion will summarize all that was discussed and will add a few more points to close the paper.

Background

The Association of Southeast Asian Nations, also known as ASEAN, was established on 8 August 1967 in Bangkok by the five original Member Countries, namely, Indonesia, Malaysia, Philippines, Singapore, and Thailand. With time, more and more countries kept joining this association and as of now, 10 countries are a part of ASEAN. These include Malaysia, Singapore, Indonesia, Philippines, Thailand, Brunei, Cambodia, Laos, Myanmar, and Vietnam (ASEAN Secretariat, 2009). This organization has benefited its member nations to a great extent. These benefits will be discussed in this paper.

In 2006, the ASEAN region had a population of approximately 560 million, a total area of 4.5 million square kilometers, a combined gross domestic product (GDP) of almost US$ 1,100 billion, and a total trade of about US$ 1,400 billion (ASEAN Secretariat, 2009).

Benefits of formation of asean to member countries

In this world of globalization, no one country can ignore the existence of other countries around them. As a result, countries all over the world are developing trade alliances and geo-political organizations like ASEAN. Since this is happening, there must be some benefits that the member countries enjoy. These benefits will be discussed in full detail. They are as follows:

Economic Development

There are many benefits that the countries enjoy from such geopolitical organization. First of all and also most importantly, the countries develop economically. All the ten members of ASEAN are relatively smaller nations in terms of size and economic power. The GDP of all the ASEAN nations combined in 2005 was only $884 billion. If we compare this to China’s GDP of $2.2 trillion, Japan’s $4.6 trillion, the United States’ $12.5 trillion, and the European Union’s $13.5 trillion, it seems very small. However, their GDP growth rate as forecasted by the International Monetary Fund is to be in the 5-6% range for 2007, as compared to 2-3% for the U.S (Amadeo, K., n.d).

The ASEAN Free Trade Area (AFTA) was developed on 1 January 1993 (Singapore Government, 2009). This allows free trade to be carried out between ASEAN member countries. These countries can trade with each other and hence the organizations have a larger market to cater to. Since the competition for companies in these countries increases, these countries have also become more competitive. The standards of living of people increase as they now have a large range of goods and services available to them. The member countries can also take benefit from the theory of competitive advantage. This means that they can concentrate on the goods and services they specialize in and trade these goods and services for those they do not specialize in. This benefits them on the whole.

For example, ASEAN countries signed a free trade agreement with China and this can be used to demonstrate how ASEAN countries benefit according to the theory of comparative advantage. China and the ASEAN countries have their endowments. For instance, there are tropical resources in Southeast Asia, maize, oil, cake from rapeseeds, colza seeds, pear, and apple. The Philippines has coconut, banana, and pineapple while Thailand has an abundance of civet durian and tapioca. Vietnam is popular for its guavas. All these products are heavily imported by China. Other products like Chinese cereal, vegetables, and mineral products like zinc, lead, etc are what ASEAN countries need. China can concentrate on what it’s good at while ASEAN countries can concentrate on its specialties. They know that because of free trade, they will always be able to exchange their specialized products with those of other countries (Saw, S., 2007). This allows them to enjoy economies of scale and efficiency.

Reduced Tariffs

The ASEAN member countries also signed an agreement on the Common Effective Preferential Tariff (CEPT) Scheme on 28 January 1992 to eliminate tariffs and non-tariff barriers in the region (Singapore Government, 2009). This means that the trade taxes that are levied on trade between the member countries is also reduced or finished which allows the trade to increase. The balance of trade of these countries improves and imported goods and services are available at lower prices.

Increased Understanding and Focus

ASEAN and the meetings between the leaders of the member countries allow the communication among these countries to increase. These countries were once on really poor terms but since ASEAN, the communications have allowed these countries to realize the significance of economic prosperity for all, and have left behind ancient grudges and even democratic principles. With one focus on each country’s mind and foreign policy, each country will prosper in the long term (Amadeo, K., n.d). Various cultural, social, and educational programs are also carried out to increase understanding between these countries (Albano, 2009).

Solve Issues and Maintain Peace

This was one of the initial objectives of ASEAN at the time of its establishment. It was decided that this organization of countries will ensure peace and tranquility between them. This is, therefore, a benefit because these countries have now begun to understand each other better and hence their relationships have improved. The members of the country are also able to share their issues as a whole. They can resolve their issues peacefully while following the law and justice. This allows the weaker nations like Vietnam and Myanmar to have some support from a group of other nations.

Collective Bargaining

It is known to everyone that two heads make more noise. Similarly, when a group of countries gets together, they are more likely to be in a strong position to bargain on different matters. Together, the ten nations in ASEAN have a stronger position on the world map than individual nations. ASEAN has become a strong trade unit and hence has more importance in the international arena. These countries know that together they are more likely to maintain their international competitiveness with an integrated market (Hew, D., 2005). The world has realized the importance and power of this region and hence each member country of ASEAN has become stronger by just being associated with ASEAN.

Free Trade Agreements with other Countries

The free trade network of different members of ASEAN has increased because several free trade agreements have been signed with different countries. For example, since Singapore has signed its first FTA under the ASEAN Free Trade Area (AFTA) in 1993, Singapore’s network of FTAs has expanded to cover 13 regional and bilateral Free Trade Agreements with 23 trading partners. More specifically, ASEAN has signed free trade agreements with Australia, New Zealand, China, Japan, and Korea (Singapore Government, 2009). It is also on the verge of signing such agreements with India and the European Union (ASEAN Affairs, 2009). At present, it is negotiating with India on various issues (Sidhu, B.K., 2008). Such agreements allow the member countries of ASEAN to strengthen and enhance economic, trade, and investment opportunities between these countries. It gives organizations in these countries greater access to markets in other countries. This puts them in a strong position because if one market fails, they always have a fallback option. In addition to market and customers, such an agreement allows the organizations to have suppliers in other countries as well. They can make use of abundant natural resources in other countries and benefit in the long term.

With free trade agreement with China, both China and the members of ASEAN have benefited a lot. China has removed or decreased its import duties on goods that are coming from ASEAN countries (Loh, B., 2009). The imports of China have increased over the years if you compared them to previous years. This creates a very viable opportunity for the members of ASEAN countries because the goods that China imports are natural resources and electrical and electronic products and luckily, the ASEAN member countries are rich in these products. In addition to this, a second advantage that the member countries of ASEAN got with a free trade agreement with China is that they are now able to invest in each other’s markets. This creates opportunities for businesses in these member countries and when China invests in these countries, it develops their economies. The Chinese government is also encouraging the ‘going out strategy according to which the Chinese enterprises are supported indirect investment in other countries. The members of ASEAN, especially the new members, will benefit because of their closeness to China geographically and similarities between the culture. Therefore, this direct investment by Chinese enterprises has become a very important source of foreign investment in Asia (Saw, S., 2007).

Increased Investment Prospects

ASEAN has allowed the prospects of investments to improve in the member countries. Before these countries were members of ASEAN, investors were hesitant to invest in these countries because they did not play a very significant in the international market (Chau, P.S., 2005). However, with time, as these countries came together, their significance as a trade unit increased and these countries are now viable investment options. Since the markets have been integrated, the level of uncertainty and market risk has become low. This also attracts companies from the United States of America, Japan, China, and the European Union to invest here. With the integration of markets, the competition has become intense, there is increased investment and economies of scale, and hence, the investors will be more inclined to locate in the integrated region (Cordenillo, R.L., 2005).

As mentioned above, ASEAN has also signed free trade agreements with other countries like China, Australia, etc and as a result, these countries are easily able to invest as the restrictions between the countries have been minimized. Since all economies of the ASEAN member countries are developing, the potential in these countries is immense. This again makes these markets very attractive to investors from other developed countries. All in all, as a result of the formation of ASEAN, the foreign investments from other prominent economies of the world have increased and this foreign investment will help the economies of the ASEAN countries to develop (Cordenillo, R.L., 2005).

Cultural Progress

In addition to this, the culture of these countries is also promoted. This is because the interaction between the countries increases because of many reasons. For example, the Southeast Asian Games are held regularly over some time and these games allow people from different ASEAN member countries to come together and interact with one another. Sporting events like Southeast Asian games also benefit the host country. The resources of the country develop as these games require proper infrastructure.

The benefit to the Weaker Nations

Another advantage that weaker or countries with a poor reputation like Cambodia would get is that being associated with other countries and by getting membership in ASEAN, the confidence that other countries have in the weak nation will increase. For example, Cambodia had a poor economic and political future. Many stay away from Cambodia because of its uncertain environment and unstable political climate. However, if Cambodia has gotten membership in ASEAN, other countries will see that if the ASEAN countries have enough confidence to make it a part of them, the future of Cambodia might not be that bleak. This will increase investor confidence in the country. It is now able to attract foreign investment and this would not have been possible if it were alone (Than, M., & Carolyn L. Gates, 2001).

The best part about ASEAN is that it treats each member country as equal no matter what their size or power is. ASEAN is known as the only regional organization that has made a formal commitment to achieving social justice at the regional level (Sandhu, K.S., 1992). This is again good for countries like Vietnam and Cambodia as they will have equal rights no other neighboring country would interfere in their internal matters, as this is a core value of the ASEAN way. They will also have higher and stronger bargaining power because of their association with a very strong trade unit (Than, M., & Carolyn L. Gates, 2001).

Conclusion

Throughout this paper, we have understood the benefits of the formation of ASEAN for its member countries. We have managed to establish the fact that it was beneficial to every member and as well as the international market. First and most importantly, the formation of ASEAN has helped the member countries develop economically. This is because of several reasons. Firstly, the trade between these countries has increased. This integration of markets has made competition intense and has left more opportunities for the organizations operating in these countries. Besides economic development, another aspect of ASEAN is the reduction or removal of tariffs between countries. This again increases free trade between countries. The consumers have a wider range of goods and services to choose from and since there are no taxes levied on these goods, the price of imported goods is often less. Another benefit is that as the interaction between the member countries of ASEAN increases, they can leave behind their differences and ancient grudges. They also realize that they need to focus on economic prosperity and for that, they need to remain peaceful with each other. The formation of ASEAN has also allowed them to exist peacefully. Free trade agreements with other countries have helped them develop economically further. Another benefit of ASEAN is that it has helped the member countries achieve a stronger position in the international market because it is now a significant trade unit. The establishment of ASEAN has also helped these countries develop their culture which is yet again another benefit. And lastly, the establishment of ASEAN has helped the weaker member nations like Cambodia or Vietnam become stronger.

All these benefits are very important for the member countries as this has changed how the world sees them. Some say that ASEAN evokes only pessimism. But they do not realize that ASEAN has been one of the most durable examples of regional multilateralism. It is very important when it comes to regional multilateral forums for East Asia. One can say ASEAN still matters by taking note of the fact that the region’s most powerful players including China, India, and the United States show deference, respect, and admiration to ASEAN by participating in these forums (Acharya, A., 2007). Therefore we can conclude that the establishment of ASEAN is beneficial to the member countries to a great extent.

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