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ASEAN economic integration  

(Article published in the Dec 13, 2006 issue of Manila Standard Today)

            It is just as well that the 12th ASEAN Summit which was scheduled for this week was, as lawyers say, reset to, probably the second week of January next year.  Whether the postponement, which was an embarrassing admission of our inability to cope with the predictable eventuality of bad weather, political turmoil, or security disturbances, the respite gives us time to assess what our estate planning options are in the face of what the Asean states, particularly our own,  are planning to do with our part of the world.

We were told that the theme of the Summit, as “chosen” by the still President Gloria Macapagal-Arroyo was to be to develop the region into “One Caring and Sharing Community”.  Central to this shibboleth is the idea of the economic integration of the countries of the Asean which the leaders attending the summit are to be encouraged to move forward.  Unfortunately, as the originally scheduled start of the summit approached,  we heard many discordant notes on whether we, in the Philippines, ought to go any further than we already have, if at all.         

       On the one hand, DHL Express-Asia Pacific CEO Scott Price apparently was gung ho and was quoted to have said that economic integration of the Asean countries was the only way to counter the “great sucking sound in Asia as China corners the bulk of investment flows the region every year.”  On the other hand, Asean Business Advisory Council Chairman Jose Concepcion, Jr., under whom Gloria Macapagal Arroyo worked when the Joe Con was Secretary of Trade and Industry, was not optimistic.  He maintained that the Philippines itself is not ready for economic integration. 

Joe Con maintained that “most of the Asean peoples cannot live under full integration” for lack of safety nets in place that would cushion the impact on local sectors and sub-sectors that can be expected to be adversely affected by free trade.  His word of caution is seconded by the incumbent of Joe Con’s former position, Peter B. Favila, who admitted that “while we are reducing market diversity within the region, we need close cooperation to also close the development gaps among members.”

        Indeed, as Economist Intelligence Unit editorial director Charles Goddard summarizes, “Economic integration is a daunting task for Asean countries.” 

        For state planners of the Asean to get an detached appreciation and for estate planners in the region to assess their options while living in a region seeking to integrate economically, I recommend the scholarly and empirically loaded work of Beverly May Carl entitled “Economic Integration Among Developing Nations, Law and Policy” published by Praeger Publishers. 

        Beverly May Carl, a Professor of Law at Southern Methodist University, Dallas, Texas, has published widely in the specialized area of international law and development.  She has written for many legal publications, such as the Harvard International Law Journal, the Columbia Journal of Transnational Law, the Virginia Journal of International Law.  She sent me a copy of her book two years after we met in Taiwan at the Academy of Internal Taxation of 1984 conducted by the Public Finance Training Institute of the Ministry of Finance. I had previously made arrangements so to attend only her part of the course on tax incentives and as only a participant, but ended up being part of the faculty, using some of her hours to give a lecture on the international aspects of Philippine tax law.

       Her book, “Economic Integration Among Developing Nations, Law and Policy,” is relevant to us for two reasons, aside from the expected scholarly treatment and empirically supported conclusions born of 15 years study.  The first is that it was published in 1986, at a time when economic integration was considered the magic bullet that would enable the developing nations, then called the South, to break away from the trade and other economic bondage with the more advanced countries, then called the North.  The second is, on account of Beverly’s personal background and expertise, that the work is more replete with the early experiences of attempts at economic integration in South America and Africa than in the Asean.  Thus distant in time and space, it gives no reason for us “face-sensitive” Aseans to hesitate to adopt whatever we might find useful of her conclusions and recommendations.

        The study should be read in its entirety to be fully appreciated, but here follow some of her findings.  On the objective of trade integration, the different approaches to tariff reduction, such as product by product negotiation, agreements to agree, and strict treaty requirements for across the board cuts according to rigid schedules, Beverly observes, appear inadequate.  “Perhaps the best approach” she claims, “is to use linear cuts and fixed schedules, but to place those requirements not in an international treaty, but in legislation of the integration unit.”  And since transborder flow of goods  is not merely a question of tariff rates, she also points to the need to dismantle non-tariff barriers, such as, by simplifying customs regulations and reduction inspection for regional goods to a minimum.

        Of interest to Finance Secretary Gary Teves might be the verdict on tax incentives.  They are not effective.  She says, “Since the effectiveness of tax incentives is dubious and their cost to the limited treasures of developing nations significant, it might be best to eliminate them altogether. Politically, however, such a course may be impossible…If then tax incentives cannot be terminated, at least the amount of their drain on the national treasuries could be limited by capping them to eliminate competition among developing nations.”

        Investments, of course, will not necessarily flow into the region simply because of tariff reduction and tax harmonization.  Beverly suggests that “Integration associations need to find ways to encourage two different kinds of regional private investment.  First, joint ventures among companies or individuals who are nationals of more than one country within the association should be promoted…Secondly, domestic companies, wholly owned by nationals, must be persuaded to begin thinking in terms, not only of the larger market, but also of the bigger production and resource base.  National and intraregional laws should be reshaped to induce local entrepreneurs to move their various factors of production around the entire region, rather than plotting factor allocation merely on the basis of a single country.”

        Aside from these and other suggestions central to the objective of economic integration, Beverly makes three more recommendations which, from where I sit, current political leaders would profit from.  First, the need for public information.  She points out that “most integration efforts are doomed to failure unless their schemes are understood and implemented by the business community and the government agencies.  The integration associations need to embark on intensive campaigns to educate journalists, industrialists, and other individuals who can affect the functioning of the regional market.”

        The second, first enunciated by Dr. Sunaryati Hortono of Indonesia about the ASEAN itself, was for the creation of uniform laws on corporations, foreign investments and trade.  Dr. Hortono, Beverly notes, pointed out that the legal systems of Asean members “represent a mélange of Dutch civil law, Adat laws (ethnic groups norms), Islamic law, Spanish civil law, German civil law (Thailand), and British common law, as well as recent legal influence from the United States.”  The result is confusion and conflicts, e.g. the term “public corporation” means one thing in some countries and another thing in other members, all in the Asean.

       Finally, there is need for legal education.  Judges, practicing lawyers, bureaucrats, internal counsels, legislators, and others involved in rule-making and rule implementation need to be informed and convinced that economic integration is necessary for the region to go forward.

        Economic Integration Among Developing Nations, Law and Policy concludes with the expectation that new forms of integration are developed to address the issues raised since the book was written. Estate planners in the ASEAN certainly hope so and joins Beverly in hoping that by now “integration models (particularly the form that ASEAN will take) will have evolved to offer the world renewed prospects …[of] providing greater access to material well-being for all.”