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ASEAN - Single market like EU?

Rohantha Athukorala

NEW ALLIANCES: Whilst Sri Lanka is getting side tracked in resolving the internal conflicts like in the Tea and Tourism sectors, our neighboring nations - ASEAN, are making plans by 2015 to have an explosive European style single market to drive a stronger economic growth and capture a greater chunk of world trade.

The single market can result in a further surge, to the current foreign direct investment of $ 38 billion captured by the Asean region in 2005. Even though this performance is yet below India and China, which reflects how strong the group of counties are working to beat the economic giants in the future.

Sri Lanka

It is commendable that Sri Lanka has registered a 7.4 per cent growth in the first nine months of 2006, with all the issues in the country in the peace front and the surging oil prices we witnessed. The engine of the growth was the private sector, with the agricultural sector growing by 7.2 per cent, the industrial sector growing by 8 percent and services by 7.2 per cent.

However it must be noted that this performance is below the GDP growth of South Asia of 8.2 per cent recorded this year.

South Asia

For South Asia, India leads the way at 8.7 per cent with a strong non agricultural sector performance excess of ten percent, Pakistan has rebounded to deliver a 6.6 per cent, Bangladesh expanding to 6.7 per cent mainly due to high remittances and vibrant service sector. Nepal is staggering at a 1.9 per cent due to the intense conflicts in country.

For Sri Lanka-Fish production was up by 20.7 per cent and live stock production by 7.5 per cent. Vegetable and highland crops production increased by 8.4 per cent. Agricultural exports are up by 15.9 per cent whist the total exports have grown by 11.7 per cent.

The heavy rains had a positive impact of a 44 per cent increase total generation of power. The inflationary rate based on the GDP Implicit Deflator indicated a 11.5 per cent for quarter three.

We need to build on the performance todate and now drive towards a 8 percent plus growth in the year to come even though the predictions are that the South Asian GDP growth will taper off to a seven per cent growth in the years to come.

Asean

Asean consisting of original members like Malaysia, Indonesia, Singapore, Brunei and its new communistic members like Vietnam, Laos, Myanmar and Cambodia. This common market will house 560 million people but accounts for only 6 per cent of global exports.

Intra -regional trade makes up of only about a quarter of bloc's total trade volume, compared to more than 70 percent in Europe. Exports from Sri Lanka to these country is below four per cent, but has the potential to increase given the need for products like rubber, which is fuelled by the economic growth in ones own country. Sri Lanka needs to embark on a detail study in these markets and determine the opportunities we can pursue.

The Asean bloc after years of hard work and cleaning up the first hurdle in cutting tariffs on merchandise, the ten member nation is now focusing on intense discussions to tearing down the protectionists' policies, whilst resolving ones domestic political stability issues like in Thailand. The goal does not call for a single currency system however.

Asean strategy and Sri Lanka

The Asean bloc having secured a pact with the United States in August this year, is now working towards a free trade zone with Australia and New Zealand as well as China and South Korea.

This is in spite of the differences in human rights of Myanmar which demonstrates the respect the bloc is earning in the economic muscles of the world. This presents an opportunity for Sri Lanka to drive exports indirectly by way of value addition.

As most of the countries are into the manufacture of automobiles we can focus of developing products like rubber beeding, rubber bushes and tyres to name a few.

We also need to be cognisant that, whilst there is a strong cohesiveness by the counterparts there is also a strong nationalistic spirit that leads to non tariff barriers between members.

A recent study by PricewaterhouseCoopers revealed that unless the nationalistic tendencies are shed cross boarder trade will suffer significantly.

Sri Lanka needs to take a que from this spirit as we also must preserve the unique identity we have of our culture and should not become a mini India just for the sake of economic growth.

Whilst we should get the benefits of lower priced automobiles and transfer of human capital, the Sri Lankan identity should be preserved by us setting up our own set of non tariff barriers and policy restrictions.

The best case in point is Malaysia which stipulates that in any investment from its regional counterparts, Malays must own 30 per cent.

Another case in point is where Thailand has banned all import of rice into the country. India practices the same on us in 2005 where India curtailed Sri Lanka's export of tea into the country even though the FTA stipulated a quota of 15,000 kg's of tea. The quota utilisation was only 2.6 per cent at the end of 2005, which demonstrates the shutters which are put up even by a large economy.

Developments with China

At the recent summit in January 2007 a new development was the ASEAN -China Cooperative Partnership for common Development called the 'Beijing Declaration'.

This will include setting up of a ASEAN-China super highway by 2008 which will include a movement from the traditional communication to Next Generation Network(NGN), Next Generation Internet(NGI), High speed Internet Exchange Paths(Peering Link), Spectrum management(Rado) and R&D on center for telecommunication equipment.

The best agreement arrived at the summit was the ASEAN-China Telecom Universal Service Forum which will be the key place where the best practices are shared on investment, compensation, technology and managerial skills.

The world can also pick up how China accelerated the development and diffusion of communication in the rural areas of the country.

An area that captured my attention was China's reccomendation to train mid and high level managers and technicians within the region which explains the approach and attitude of China to regional growth. Another area that attracted my attention was the joint agreement on network and information security.

Implications to Sri Lanka

Sri Lanka needs to identify the industries which are vulnerable to international competition and build safety nets. No government in the world is a free trader that ignores its own constituents back home.

They will loose elections in no time. So its time that Sri Lanka wakes up and drives homes competitive advantage with non tariff barriers so that we can also claim an identity in the economic stage whilst being part of organizations like SAFTA and CEPA.

I strongly feel there is nothing called 100 per cent free trade. We must have a built in flexibility but, we should be sensitive to the realities of the domestic market and lay down our rules very clearly.

Export performance by regions 2004 % Share 2005 % Share % Growth

NAFTA 1974.89 34.30 2101.36 33.12 6.40

EU 1760.69 30.58 1808.43 28.51 2.71

SAARC 498.52 8.66 642.56 10.13 28.89

Middle East 383.54 6.66 327.63 5.16 -14.57