Regional connectivity and economic integration in EU and ASEAN

Posted : 31 Aug, 2015 00:00:00

Azmina Azad

Freedom of movement and ease of trade amongst EU-28 countries and within the Association of Southeast Asian Nations (ASEAN) have shown substantial progress since the 1980s, leading to a greater economic integration amongst member countries. Regional economic integration creates scope for greater cooperation between countries by creating an open environment for trade and investment. Such integration may involve easing of movement of people and goods, such as under the Association of Southeast Asian Nations (ASEAN) Framework Agreement on the Facilitation of Goods in Transit (AFAFGIT), or complete abolition of borders under the Schengen Agreement of the European Union (EU).

The Schengen Agreement in 1985 was termed as a break-through where multiple state governments came to common terms and abolished interstate border controls. This allowed EU citizens to move and reside freely within the territory of member states and established an internal market that ensured free movements of goods, services and passengers. In addition to the Schengen Agreement, the Convention of International Road Transport (TIR) has also accelerated the movement of goods across borders. The 1975 TIR Convention was a multilateral treaty that simplified the administrative formalities of international road transport. The system is currently operational in 58 countries and is based on a common customs document, known as the TIR Carnet.

As can be seen in Table 1, extra-EU trade (EU trade with rest of the world) in goods and services has been increasing since 2004 underlining the growing economy of the Member States. EU’s ability to create jobs and maintain trade relations with the greater world highlights the strong foundation built by the single market regime. Traditionally, the EU as a whole has traded goods more within the Member States than with countries outside the EU. Intra-EU trade, which was at 62 per cent of EU global trade in 2013, reached as high as 80 per cent of the total trade for members like Luxembourg, Slovakia and the Czech Republic. In contrast, the largest players in extra-EU trade in 2013 included Germany, France and Italy respectively. Table 2 indicates minor changes in cross border passengers and goods traffic of EU. Although intra-EU distance travelled per passenger has increased over the years, a fall in the movement of goods within the Member States was also observed between 2004 and 2013. The fall in cargo traffic could be attributed to the Global Financial Crisis that occurred in late 2007, and its aftermath.
Regional connectivity and economic integration in EU and ASEAN

The AFAFGIT, beginning in December 1998 in Hanoi, Vietnam, also aimed at simplifying and harmonising the structure of the transport system of the ASEAN community. Similar to the TIR, the agreement follows a mutually recognised vehicle inspection certificate, curbing administrative procedures involved in holding separate transit certificates for each trading partner. As shown in Table 3, ASEAN experienced an impressive growth in total exports and imports of cargo by road over the years. The share of intra-ASEAN trade in overall ASEAN trade has been on an increasing trend starting from 22.0 per cent in 2000 to 24.2 per cent in 2013. The agreement also brought about significant rise in the movement of people within the ASEAN community.
Regional connectivity and economic integration in EU and ASEAN

However, unrestricted flow of people across borders brings about issues relating to illegal immigration, ethnic conflicts and cross-border criminal activities such as money laundering and terrorism. The risks associated with minimum or no tariff restrictions and differing enforcement abilities can also deteriorate the competitiveness of the local producers by making imports cheaper. Free movement of goods therefore requires constant monitoring of trading partners’ behaviour in order to curb unfair trade practices.

Drawing on the experience of EU and ASEAN, implementing a similar regional integration may benefit the South Asian region as well. Although a transformation into a structure exactly similar to that of the European Union (EU) might not be considered to be pragmatic but an appropriate policy mix and a deep structural reform can help strengthen the economies of the South Asian community by boosting competitiveness, trade and tourism. By maintaining cohesion between economic, political and social environment, these countries can benefit from each other’s strengths and progress towards a stable and prosperous community.

(The writer is a Senior Research Associate at [email protected])