Iseas Working Paper Sanchita Basu Das

1Enhancing Regional and Sub-regional Co-operation and Connectivity in ASEAN

ISEAS Working Paper #3 2013

By: Sanchita Basu Das FellowASEAN Studies CentreInstitute of Southeast Asian Studies

Email: [email protected]

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1INTRODUCTION

The ASEAN Leaders signed the Declaration of ASEAN Concord II in October 2003 aiming at ASEAN Economic Community (AEC)1 as an end goal of its economic integration to be achieved by 2020. The Leaders agreed to accelerate AEC establishment to 2015 during the Summit in January 2007 and adopted the AEC Blueprint in the following Summit in November 2007. The end-goal of the AEC is to create a stable, prosperous and highly competitive ASEAN economic region in which there is a free flow of goods, services, investment and freer flow of capital, equita-ble economic development and reduced poverty and socioeconomic disparities.Since then, ASEAN has taken several other steps to speed up and strengthen the community

building: (a) ratifying the ASEAN Charter, (b) implementing the AEC Blueprint, (c) adopting blue-prints for Socio-Cultural Community and Political -Security Community, (d) endorsing the ASEAN Trade in Goods Agreement (ATIGA) and ASEAN Comprehensive Investment Agreement (ACIA), (e) adopting the Master Plan of ASEAN Connectivity (MPAC), (f) signing the Bali Concord III to strengthen the community building process, and more recently (g) launching the Regional Com-prehensive Economic Partnership (RCEP) negotiations during the 21st ASEAN Summit. Yet, despite the various ASEAN initiatives towards integration, progress needs to be acceler-

ated further (Basu Das, 2010). Other than tariff reduction, non-tariff barriers (NTBs) such as re-strictive regulations and technical measures have not been removed (Austria, 2009). Negotiations to free up trade in services need to be accelerated (Nikomborirak, 2013). Thus, although ASEAN is a market of 600 million people, the region in reality remains a chain of disparate markets. Intra-regional trade currently makes up only about one-quarter of ASEANs total trade volume, compared to more than 70 percent in the European Union. More importantly, a wide economic disparity divides the ASEAN 6 (Malaysia, Indonesia, Singapore, Thailand, Brunei and the Phil-ippines) from its four newer members (Cambodia, Lao PDR, Myanmar and Vietnam), which is a major hindrance to economic integration (Salazar and Basu Das, 2007). Realizing the development gap between the member countries, ASEAN adopted the Master

Plan on ASEAN Connectivity (MPAC) in 2010. It is widely believed that community building through physical, institutional and people-to-people connectivity will not only reduce business transaction cost, time and travel cost, but also connect the core and the periphery in ASEAN, thus distributing the benefits of multifaceted growth wider in the region and reducing the devel-opmental divide in ASEAN (Basu Das, 2013). Moreover, better connectivity within ASEAN is essential for linkages with other regions, such as East and South Asia, which will help ASEAN maintain its centrality in the evolving regional architecture.In addition to ASEANs drive towards regionalism, many of its members are also involved in

smaller regional groups such as Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT), Brunei-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMP-EAGA) and Greater Mekong Sub-region (GMS). Each of these covers less developed parts of Southeast Asia and face unique challenges for fostering developmental cooperation. However, these sub-regional groupings have almost similar objectives of promoting trade and investment across borders, which synergizes well with the ASEAN region. This can be in areas of trade facilitation measures, participation in regional production networks, cultivation of small and medium-sized enterprises, capacity building

1 The AEC, along with two other pillars the ASEAN Security Community and the ASEAN Socio-cultural Commu-nity make up the ASEAN Community.

2exercises and enhancement of soft and hard infrastructure. For example, the GMS agenda has concentrated on the provision of physical infrastructure that has public good characteristics, like the cross-border infrastructure (Menon, 2007). But the sub-regional programmes are relatively less rigid in terms of their cooperation structure vis--vis the Free Trade Areas (FTA), and are thus expected to be more innovative and flexible, which bodes well for the changing needs of investors. Thus, it is important to seek the interrelationship between the regionalism and sub-regionalism

in Southeast Asia. Coordinating and harmonizing the activities of the regional and sub-regional processes can minimize several concerns, including the dilution of the bigger ASEAN integration objectives. As the countries participating in the arrangements are almost the same (Table 1), it is important to consider the ways both can complement each other. This can be in terms of better infrastructure connectivity, which in turn is crucial to narrowing the development gap in the region.

Table 1: Members of ASEAN and Sub-regional Co-operations

ASEAN

GMS

IMT-GT

BIMP-EAGA

Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam

Cambodia, Laos, Myanmar, Thailand, Vietnam and the Peoples Republic of China (specifically) Yunnan Province and Guangxi Zhuang Autonomous Region)

Thailand (14 provinces in Southern Thailand, Malaysia (8 states of Peninsular Malaysia), and Indonesia (10 provinces of Sumatra)

Brunei, Indonesia (the provinces of Kalimantan, Sulawesi, Maluku and West Papua); Malaysia (the states of Sabah and Sarawak and federal territory of Labuan); and the Philippines( Mindanao region and the province of Palawan)

Source: Authors compilation

Given the above, this paper is organized in seven sections. Following an introduction in Section I, Section II provides a brief literature review on the inter-play of regionalism, sub-regionalism and role of connectivity. To showcase the interplay, subsequent sections of the paper will look at the three sub-regional processes - GMS, IMT-GT and BIMP-EAGA - and the ASEAN Free Trade Area (AFTA) to represent regionalism. While IMT-GT and BIMP-EAGA are mentioned both in AEC Blueprint and MPAC, GMS has been promoted by the Asian Development Bank (ADB) since 1992. In Section III, I look at the case of ASEAN, the development divide and the significance of the MPAC. Section IV discusses sub-regional co-operations while Section V examines the areas of linkage between the regional and sub-regional processes. Here, I look at the relationship be-tween ASEAN regionalism and sub-regional co-operations involving ASEAN members, especially in terms of infrastructure development and narrowing the development divide. The section also discusses the additional benefits that sub-regional processes can bring to the ASEAN process. Section VI furnishes some concrete policy recommendations, and is followed by the conclusion (Section VII).

3II. Literature Review

The last two decades have seen a rapid proliferation of regional trading agreements (RTAs). This could be in the form of unilateral liberalization by the governments; or minilateral arrangements like ASEAN, NAFTA, where two or more governments get together to collaborate; or multilateral pro-cesses like the World Trade Organization (WTO) (Ravenhill, 2006). There are both political and economic motives in signing these RTAs. For smaller countries, regional cooperation increases their bargaining power in the international community. It can also be seen as a way to hasten the domestic reform process in order to attract foreign investors (Rodrik 1989, Haggard 1997). Fi-nally, RTAs are essential for creating economies of scale for production and for offering a larger market for consumers. Along with these RTAs, there is also an emergence of less formal arrangements often referred

to as growth triangles or quadrangles or generally as sub-regional cooperation. Developments under these sub-regional processes and state-level RTAs often interlock and in general, work in a mutually reinforcing manner in building a regional community. It is observed that every member of WTO today is also a member of at least one sub-regional or regional co-operation arrangement. Many are members of both, and some are even members of multiples of each (Menon, 2007). This leads to the issue of the spaghetti bowl effect (Bhagwati 1993).The overlapping of membership of a large region and of a few smaller regions within the large

region has initiated a debate, referred to as variable geometry approach2. Some argue that mul-tiple memberships hinder regional integration efforts, particularly by duplication of efforts (Yang and Gupta, 2005 and Gunning, 2001). As an example, in the case of Africa, the Economic Com-mission for Africa (ECA, 2004) puts it as follows:

The overlap among regional economic communities also adds to the burdens of member states. A country belonging to two or more regional economic com-munities not only faces multiple financial obligations, but must copes with dif-ferent meetings, policy decisions, instruments, procedures, and schedules. Customs officials have to deal with different tariff reduction rates, rules of origin, trade documentation, and statistical nomenclatures. The range of requirements multiplies customs procedures and paperwork, counter to trade liberalizations goals of facilitating and simplifying trade.

It is, however, equally possible that multiple membership due to a regional and sub-regional pro-cess offers benefits to countries. These may include economic benefits or economic spillovers from different arrangements. In the case of Southeast Asia, attention is mostly given to a regional integration process that usually occurs at state-level rather than to a sub-region process that is driven by the local governments3. One reason for this could be that sub-regionalism is rarely men-tioned in the literature (Hook and Kearn, 1999). They are often viewed as the same fundamental concept of regionalism, with a focus on a smaller scale and lesser number of issues.

2 In WTO terms, this refers to geographical differentiations. Often it is interchangeably used with enhanced coopera-tion or by concentric circles.3 GMS receives prominence as it is backed by ADB.

4In this paper, I will build my discussion on the positive benefits of the sub-regional processes on the bigger regional ones. Especially in the case of Southeast Asia, regional and sub-regional groupings have almost similar objectives, including building blocks of infrastructure and narrow-ing of the development gap among the members. Moreover, ASEAN has also accepted them in its Blueprints and Charter. Lastly, ADB is also looking for ways to strengthen regional coopera-tion and investing in studies promoting links between BIMP-EAGA, IMT-GT, GMS and ASEAN to help build the needed infrastructure and to aid ASEAN in delivering on its promises by 2015 and beyond.The similar objectives of trade and infrastructure and raising capacity of member countries stem

from the relation of better infrastructure and economic development and integration. Infrastructure can be categorized into hard and soft. While hard infrastructure refers to physical structures like transport (roads, railways, airports, ports), telecommunication (telephone and internet) and en-ergy (gas and electricity pipelines, electrical grids), soft infrastructure refers to the non-tangibles that support the operation of the hard infrastructure (policy, regulatory, institutional framework, governance etc). According to Bhattacharyay (2009), cross-border infrastructure (CBI) may be defined as infrastructure that connects two or more countries. Even national infrastructure that has significant cross-border impact can be considered as regional infrastructure. In other words, national infrastructure connectivity is the building block for cross-border or regional connectivity.There are many empirical studies that have highlighted the importance of physical infrastructure

as a long-run determinant of economic growth (e.g. Aschaur 1989; Gramlich 1994; World Bank 1994, 2002). It has been noted that infrastructure in least developed countries contributes to the hinterlands output, income, employment growth and quality of life (Ghosh and De, 2005). Many studies have also stressed the role of infrastructure in facilitating trade. For example, Ang (2008) found that provision of adequate infrastructure in Malaysia has stimulated FDI inflows. Other em-pirical studies have highlighted the importance of infrastructure in promoting growth and reducing poverty. A UNESCAP (2006) study on infrastructure in developing Asian countries has shown that road transport and electricity, in particular, play a key role in poverty reduction. Bhattacharyay (2008) has identified a number of major roles for infrastructure in regional so-

cio-economic development and integration. First, physical infrastructure promotes movements of goods and services locally and regionally. It facilitates greater access to key inputs to growth in terms of resources, technology and knowledge. Second, infrastructure improves socio-economic and environmental conditions by providing basic needs and utilities such as sanitation, hospitals and schools. Third, soft infrastructure improves logistics, resulting in reduced trade costs and time. Fourth, good infrastructure attracts foreign direct investment (FDI) inflows into a country (Kumar 1998). All these, in turn, help to improve the quality of life of the poor and reduce poverty by increasing economic opportunities and income generating capacity. As for the CBI, Bhattacharyay (2008) states that:

it provides economies with greater access to regional and global markets. It promotes efficient production, trade competitiveness, and trade flows, by al-lowing businesses to join the regional production network and supply chains. This gives small, low-income economies the opportunity to narrow their devel-opment gap with richer ones. Finally, CBI allows regional economies to share scare regional resources such as energy, capital and services.

5III. The Issue of Development Gap in ASEAN and Connectivity

ASEAN currently faces a formidable economic challenge of narrowing the development gap be-tween its more developed (ASEAN-6) and newer members Cambodia, Laos, Myanmar and Vietnam (CLMV). The member-countries of ASEAN are at different stages of economic development and these

development differences are seen in terms of GDP per capita (income per capita), human devel-opment indicators such as the incidence of poverty, life expectancy, literacy, public expenditure on health and education and soft and hard infrastructure. For example, Singapore has a first-world per capita income level (US$49,936), which is 58 times higher than Myanmars per capita income level of US$849. Tables 2 to 4 provide economic, human development and poverty indi-cators that underscore this wide economic and human development divide within ASEAN.

Table 2: ASEAN Macroeconomic Indicators

16.8

0.43

38,801

1 36

67

32

20

75

14.2

15.2

934

23

41

72

54

15

894.8

244.5

3,660

47

38

21

24

33

9.3

6.4

1,453

32

35

32

29

11

307.2

29.0

10,578

44

45

67

81

48*

54.0

63.7

849

16*

35*

14

20

12

240.6

97.7

2,462

33

55

28

21

0

269.7

5.3

49,936

28

72

153

171

12

376.9

64.5

5,848

45

43

66

66

21

137.6

90.4

1,523

41

38

86

78

Brunei Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Vietnam

Population (mn)2012

GDP (USD bn)2012

2012Per Capita GDP (USD)

2012Share of Agriculture in GDP

2010Share of Industry in GDP

2010Share of Services in GDP

2010Imports/ GDP (per cent)

2010Exports/ GDP (per cent)

Note:* share pertains to year 2004Source: World Bank Statistics

6Table 3: ASEAN Human Development Indicators

33

50,526

78

95.3

2

2

139

2,398

63.1

77.6*

2

3

124

4,957

69.4

92.2*

1

3

138

3,004

67.5

72.7^

1

3

61

16,942

74.2

92.5

2

4.1*

149

1,401

65.2

92

0

N.A

112

4,263

68.7

95.4*

1

2.8*

26

60.883

81.1

94.7

1

3

103

10,023

74.1

93.5^

3

4

128

3,545

75.2

92.8

3

5.3*

Brunei Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Vietnam

GDP per capita (PPPUS$)

2012

Human Developement Index (Rank)

2011

2011Life expectancy at birth (years)

2009Adult literacy rate (percent age 15 & above)

2010Public Expenditure on Health (percent of GDP)

2010Public Expenditure on Education (percent of GDP)

*Data for the year 2008; ^ Data for the year 2005 Source: UNDP Human Development Report, 2012

Table 4: Incidence of Poverty in ASEAN

Brunei

Cambodia

Indonesia

Lao PDR

Malaysia

Myanmar

Philippines

Singapore

Thailand

Vietnam

N.A

30.1 (2007)

12.5 (2011)

27.6 (2008)

3.8 (2009)

N.A

26.5 (2009)

N.A

8.1 (2009)

14.5 (2008)

N.A

22.8 (2008)

18.1 (2010)

33.9 (2008)

0 (2009)

N.A

18.4 (2009)

N.A

0.4 (2009)

16.9 (2008)

Poverty Headcount Ratio at National Poverty Line(in percentage)

Poverty Headcount Ratio at $1.25(PPP) a day (in percentage)

The number in the brackets gives the latest yearsSource: World Bank Statistics

One key development gap also lies in the infrastructure sector. The hard physical infrastruc-ture in CLMV countries such as highway and rail networks, power grids, and gas pipelines, is characterized by various structural weaknesses low responsiveness to users, organizational

7inefficiencies, insufficient budgetary funding, heavy dependence on Official Development Assis-tance (ODAs), lack of FDI, and lack of environmental awareness. The CLMV countries also lack the soft infrastructure (information and communications technology), which is an important pre-requisite for the next stage of development (Salazar and Basu Das, 2007). Table 5 presents the digital divide among ASEAN members measured in terms of fixed, mobile and internet users.

Table 5: ICT Infrastructure Indicators, 2011

Brunei

Cambodia

Indonesia

Lao PDR

Malaysia

Myanmar

Philippines

Singapore

Thailand

Vietnam

19.7

3.7

15.9

1.7

14.7

1.1

7.1

38.9

9.7

11.5

109

70

98

87

127

3

92

149

113

143

56

3.1

18

9.0

61

1.0

29

75.1

23.7

35.5

Fixed Line telephone subscriptionper 100 inhabitants

Cellular subscriber perper 100 inhabitants

Internet Userper 100 inhabitants

Source: International Telecommunications Union, http://www.itu.int/ITU-D/ict/statistics/explorer/index.html, World Bank Statistics

Beyond these economic and social gaps, significant disparities in institutional capacity and hu-man resources amongst ASEAN member-countries exist. The current weak human resource ca-pabilities in the CLMV countries, together with weak policies, as well as institutional and legal frameworks, make it difficult for these countries to raise their productive capacities. These further constrain their capacity to make optimum use of foreign aid. Vo (2005) has raised concerns that deeper economic integration can lead to huge social costs

being incurred by the CLMV countries due to structural adjustments and the risk of falling into a low-cost labour trap (where there is little incentive for domestic industries to move up the value chain). Appropriate resources should, therefore, be allocated to these countries to ensure the full participation of all member-countries in the integration process. This would include financial and technical assistance, transfer of technology, education, training facilities, and other capacity-building activities.

8Initiative for ASEAN Integration

To address the development divide, ASEAN launched the Initiative for ASEAN Integration (IAI) in 2001. The IAI is primarily directed at the newer ASEAN members, CLMV. It also encompasses sub-regional groupings, such as the GMS, BIMP-EAGA and IMT-GT. This is expected to assist the CLMV countries to meet ASEAN-wide targets and commitments. Over the years, the IAI has evolved from a platform for mutual assistance between the ASEAN-6 and the CLMV to an ex-panded framework to involve Dialogue Partners and development agencies. Within this policy framework, the first IAI Work Plan, (July 2002-June 2008) was completed.

This Plan covered more than one hundred projects in four areas: infrastructure, human resource development, information and communications technology and regional economic integration. The first IAI Work Plan also involved the development of legal, institutional and regulatory frameworks and the building of technical capabilities and capacities of the CLMV. The second IAI Work Plan (2009-2015), which was endorsed in 2009, during the 14th ASEAN Summit, is based on key programme areas in the ASEAN Political-Security Community Blueprint, the ASEAN Economic Community Blueprint and the ASEAN Socio-Cultural Community Blueprint.In general, the CLMV countries have professed their satisfaction with the usefulness of the

programme and most of its projects. However, the descriptions of the projects reveal their un-even nature in terms of quality and relevance to the IAIs purposes and, therefore, presumably their lack of effectiveness (Severino, 2007). The projects seem to lack coherence partly because of inadequate coordination among national agencies within the CLMV countries, among their representatives in ASEAN sectoral bodies, between the ASEAN-4 and the ASEAN-6, among the ASEAN-6, and between ASEAN and other international programmes focused on the Mekong Basin, where the ASEAN-4 countries are located. The programme seems to suffer also from insufficient participation by the CLMV countries in

the projects design and plan. Moreover, most projects carry no provisions for follow-through, for implementation, or for the effective dissemination of knowledge or skills gained. This suggests that there has to be some improvement in the IAI scheme. Coordination has

to be strengthened among all key stakeholders. The CLMV countries have to be involved at all stages, i.e., in the conception, selection, and design of each project. Each project should include provisions and funding for follow-through, implementation, dissemination and impact assess-ment. The Eminent Persons Group (EPG)s report on the ASEAN Charter noted that ASEANs ability

to achieve its long-term economic goals will depend on the development gap being addressed ef-ficiently. Given the limited financial resources that ASEAN countries are willing to make available for this purpose, innovative ways will be needed to mobilize resources and hence narrow the de-velopment gap in the region. New strategies to narrow the development gap should be designed so as to ensure that the less developed member-countries are in a position to participate in and benefit from the economic integration process.

9Master Plan on ASEAN Connectivity

The 17th ASEAN Summit in Vietnam adopted the MPAC in 2010. The Plan strives to integrate a region of over 600 million people with a combined GDP of about US$2.1 trillion. It identified several priority projects, including the ASEAN Highway Network, a roll-on roll-off network and the ASEAN Broadband Corridor, and reviewed the achievements made and the challenges encoun-tered to build up linkages in ASEAN. It also outlined key strategies and essential actions with clear targets and timelines to address the challenges. The Master Plan has three components: a) physical connectivity, b) institutional connectivity

and c) people-to-people connectivity. According to ADB, the complete realization of ASEAN Connectivity requires around US$ 600

billion of investment during 2010-2020, underscoring the need for cooperation with the ten Dia-logue Partners and public-private partnerships. Core initiatives of the Master Plan are to improve the economic resilience of the region through improved production and distribution networks and to optimise benefits from the free-trade agreements of ASEAN. Moreover, greater connectiv-ity not only results in economies of scale, but also higher interaction among countries, boosting multilateral growth and reducing development gaps. Therefore, connectivity is seen as a way of promoting the economic growth and sustainability of ASEAN as a whole.

IV. Sub-regional Co-operation as Building Blocks for ASEAN Regionalism4

In the 1990s, Southeast Asia saw the emergence of sub-regional cooperation initiatives that cut across cross-national boundaries but might not have involved the entire country. Three impor-tant programmes were: the Greater Mekong Subregion (GMS), the Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT) and the Brunei Darussalam-Indonesia-Malaysia-Philippines East ASE-AN Growth Area (BIMP-EAGA) (Table 6).

4 This section is drawn from a longer paper on Sub-Regional Zones and ASEAN Economic Community, by Richard Pomfret and Sanchita Basu Das, which is a part of the ISEAS-ADB Project on Assessment of Impediments & Ac-tions Required for Achieving AEC by 2015.

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Table 6: Sub-regional Co-operations in Southeast Asia

Date established

Population (million people)

Land Area (million square kms)

1992

326

2.6

July 1993

70

0.6

March 1994

57

1.6

GMS IMT-GT BIMP-EAGA

Source: ADB website at http://beta.adb.org/countries/subregional-programs

Greater Mekong Sub-region

GMS which involved six countries was instituted in 1992 with crucial assistance from the Asian Development Bank (ADB). The members were Cambodia, Lao PDR, Myanmar, Thailand, Vietnam and Yunnan Province and Guangxi Zhuang Autonomous Region in mainland China. As GMS in-volved two big countries China and Thailand, any actions by these two had spillover effects on the smaller countries. GMS has largely been seen as a top-down organization facilitated by ADB. The objective of

the GMS Program was to enhance connectivity, improve competitiveness, and a build a greater sense of community. It covered nine priority sectors: agriculture, energy, environment, human resource development, investment, telecommunications, tourism, transport infrastructure, and transport and trade facilitation. In 1998, GMS cooperation adopted the economic corridor approach and recognized the devel-

opment potentials of specific geographic areas through improvements in infrastructure and trade facilitation measures (ADB, 2009). It designed a holistic strategy to improve and enhance invest-ments in transport, energy, and telecommunications in the sub-region. The first GMS leaders summit endorsed this in 20025. Four key transport corridors have been identified: North-South Corridor from Kunming to Bangkok via Chiang Rai, East-West Corridor, the Southern Corridor and the Northern Corridor from Nanning to Hanoi. Apart from physical connectivity, GMS, in 2002, also adopted the Phnom Penh Plan for De-

velopment Management. This is to build the capacity of GMS senior officials for development management by organizing short-term and in-depth learning programmes. In 2004, the Journal of GMS Development Studies was launched to promote better understanding of development issues in the GMS among all stakeholders. To complement the journal, a research programme was also initiated to help promote a link between knowledge generation and the policy-making process in the sub-region.Despite this, GMS could not achieve much progress. While the North-South Corridor is the

most dynamic, progress on the East-West Corridor, the Southern Corridor and the Northern Cor-ridor has been slower.

5 During the 1990s, activity consisted mainly of piecemeal infrastructure projects managed at national level.

11

GMS, indeed, highlighted the nexus between hard and soft infrastructure. For example, in 1993, when a bridge was built over the Mekong between Vientiane in Laos and Nong Kai in Thailand, the trade-creating value was reduced by requirements that cargoes could only be carried beyond the bridge by national trucks (i.e Thai goods bound for Vientiane had to be transferred to Laotian trucks for the final few kilometers of the journey, and vice-versa).

Indonesia-Malaysia-Thailand Growth Triangle

A second sub-regional cooperation, IMT-GT, was launched in July 1993 with ten provinces from Thailand, Malaysia and Indonesia. Later, it was expanded to fourteen provinces in southern Thai-land, eight northern states of Malaysia and ten provinces of Indonesia. In 2006, ADB came to provide support for the development of this programme. It proposed a

Roadmap for IMT-GT, 2007-2011, which was endorsed during the Second Leaders Summit in Cebu, the Philippines, in 2007.6 The IMT-GT Roadmap identified four economic connectivity cor-ridors as key to strengthening regional infrastructure so as to support increased intra- and extra-regional trade, investment and tourism. These were: (i) the Songkhla-Penang-Medan Economic Corridor, (ii) the Straits of Melaka Economic Corridor, (iii) the Banda Aceh-Medan-Pekanbaru-Palembang Economic Corridor, and (iv) the Melaka-Dumai Economic Corridor. A secretariat for the growth triangle was also established in Putrajaya (Malaysia) in August 2007 to coordinate ac-tivities between private sector, foreign investors and other development partners, including ADB. In 2009, a broader roadmap was launched, identifying eight potential priority projects for IMT-

GT. These were a) Sumatra Ports Development, b) Melaka-Dumai Economic Corridor Multimodal Transport, c) Sumatra Toll Roads Project and d) Melaka-Pekanbaru Power Interconnection in In-donesia, e) Melaka-Pekanbaru Power Interconnection in Malaysia and f) Southern Thailand Ports Development Program, g) Pak Bara Cargo Port and h) Hat Yai-Sadao Toll Road in Thailand. Impact of IMT-GT on member provinces is difficult to ascertain. Such an assessment is ham-

pered by the relative lack of IMT-GT level trade, investment and tourism data.

Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area

BIMP-EAGA, covering Brunei and parts of Indonesia, Malaysia and the Philippines was launched in March 19947 to improve the socio-economic development of certain less developed areas of Southeast Asia. By doing so, the idea was to narrow the development gap between richer and poorer provinces within each country. It should be noted that the poorer or underdeveloped parts have relatively weak infrastructure links to the more economically dynamic parts of their countries, i.e., to Java, the Malay Peninsula and Luzon, respectively.The private sector took special interest in BIMP-EAGA. They saw potential in the sub-regions

natural resources and industrial capability. Key sectors that were identified for the sub-regions

6 Building a Dynamic Future: A Roadmap for Development 2007 2011 (http://www.imtgt.org/Documents/Books/roadmap-development.pdf)7 Both IMT-GT and BIMP-EAGA originally covered smaller areas in the participating countries.

12

future economic development included agro-industries, fisheries, eco-tourism, transportation, shipping and energy resources. Thus, the BIMP-EAGA Business Council (BEBC) was launched in November 1994 that served as an umbrella organization for the private sector in the sub-region. In 1996, the BEBC Secretariat was established in Brunei. Among its activities, BEBC sponsored print publications (EAGA Business Update, Weekend Review) and established a website (www.bimpbc.org), inaugurated business forums in 1998, and established an EAGA Network of Infor-mation. The Secretariat relocated in 2001 to Kuching (Malaysia), and in 2003 undertook a review and restructuring, which shifted authority to centres in the BIMP-EAGA countries. Since the re-structuring, the BEBC has refocused its attention towards development of small and medium-sized enterprises.The impact of BIMP-EAGA has been limited. With little achievement in the first decade after

its establishment in 1994, the sub-regional program, in 2005, formulated a Roadmap for the next five years (2006-10). The December 2008 Midterm Review highlighted the poor institutional setting as a major fac-

tor for disappointing progress in implementing the Roadmap Strategy 2006-10. It was recognized that unofficial trade and migration between the islands was widespread. The limited achievements of BIMP-EAGA were also reflected in constant references to the need for re-inventing and re-invigorating.Following this, during the 8th BIMP-EAGA Summit in Cambodia in 2012, the BIMP-EAGA Im-

plementation Blueprint 2012-2016 was adopted which called for increased project delivery and strengthened institutional. The leaders reiterated their commitments to fast-track the implementa-tion of various Priority Infrastructure Projects in the sub-region, particularly in transport, energy, trade facilitation, and information and communication technology in line with the Master Plan on ASEAN Connectivity.

V. Linking the Regional and Sub-regional Cooperation in ASEAN

From the above, one should note the following:

a. The sub-regional programmes in Southeast Asia involve full or part members for the ASEAN regionalism process.

b. Most of the time, sub-regionalisms have similar objectives of trade and connectivity promo-tions among the members, which interposes well with ASEANs objective. However, the objectives are not aligned to each other or there is a lack of mechanisms to ensure that the activities under each programme conform to the requirements of ASEAN integration.

c. The sub-regional programmes, IMT-GT and BIMP-EAGA, also suffer from the absence of monitoring and enforcement mechanisms to ensure adherence to its objective of increasing

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trade, investment and connectivity or to its more difficult objective of economically raising the laggard provinces of the region.

d. It is also difficult to make an independent assessment of the progress of each of the sub-regionalism (except to a certain extent for GMS) as data availability for the provinces is a big bottleneck. Moreover, the illegal cross-border trade for all sub-regional developments complicate further any quantitative assessment.

e. At the moment, there is no coordination exercise between the three sub-regional processes or between the sub-regions and the region.

f. Finally, for all three of the sub-regional processes, ADB plays a part in providing some forms of assistance.

Given the limited progress in sub-regional programmes individually and given the fact that the cooperation schemes established before ASEAN took its current form (Cambodia joined ASEAN in 1999, and AEC was adopted in 2007), it is important to examine the areas of linkages between the sub-regional processes and the ASEANs regional drive. Moreover, there are substantial over-laps of activities between the regional and the sub-regional programmes (Table 7).

Table 7: Projects under ASEAN and Sub-regional Co-operations

BIMP-EAGAIMT-GTGMSASEAN IAI

Infrastructure; Human Resources Development; Information and Communi-cation Technology (ICT);

Capacity Building; Tourism; Poverty and Quality of life

Agriculture, Energy, Environment, Human

Resource Development, Investment, Telecommuni-

cation, Tourism, Trade, Transport, Multi-sector (Economic Corridors)

Infrastructure and Transport; Trade and Investment; Human

Resource Developemnt; Agriculture; Tourism; Halal Products and

Services

Transport Infrastructure and ICT Development; Tourism Developement;

Natural Resource Development; SME

Development; Customs, Immigration task force

Source: Authors compilation

a. Similar Strategic ObjectivesThe main objective of the AEC was primarily to enhance competitiveness for economic growth and development. The Vientiane Action Program (VAP) 2004-2010 states that the overall strat-egy for realising the AEC involves deepening and broadening economic integration in the product and factor markets, and accelerating the integration process towards creating a single market and production base.

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For BIMP-EAGA cooperation, it aims to increase trade, tourism and investments inside and outside the sub-region by; (a) facilitating the free movement of people, goods, and services, (b) making the best use of common infrastructure and natural resources, and (c) taking the full-est advantage of economic complementation. IMT-GT cooperation aims to accelerate economic transformation in less-developed provinces of Indonesia, Malaysia and Thailand. The GMS pro-gram focuses on the provision of physical cross-border infrastructure and supports a range of measures to facilitate trade and investment in the region. These include improving procedures and transparency for customs clearance and enhancing technical skills to improve the application of various regulatory systems.One can argue that the overall strategic objectives of the regional and the sub-regional ini-

tiatives are the same i.e., that all member countries of ASEAN will be in a position to enjoy the economic benefits of economic integration. While the AEC is envisioned on a much larger scale involving all the ASEAN countries, IMT-GT, GMS and BIMP-EAGA were designed for the eco-nomic development of ASEAN provinces or the Mekong Basin countries.

b. Building Blocks for InfrastructureGiven the development divide in ASEAN, at the sub-regional level, activities such as the GMS and others are needed to assist the integration into ASEAN and its economy of the four CLMV coun-tries. The experience of BIMP-EAGA and IMT-GT can provide lessons on what could be done better, because the two sub-regional programmes aim to address development divides intra- and inter-ASEAN-6.Infrastructure development is a critical element in improving access and the efficiency and

quality of transport and energy infrastructure networks of the less-developed ASEAN countries. This, in turn, helps to enhance their productivity and, hence, regional economic competitiveness. Moreover, for any sub-regional activity or program, the impact can be felt regionally. Regional public goods, such as infrastructure, although built for the sub-region, can improve the physical connectivity in the ASEAN region as a whole.Further, a well-developed physical infrastructure can lead to increased economic activities in

terms of trade and investment, tourism, etc., as long as such developments are not obstructed by a lack of soft infrastructure. In this light GMS, BIMP-EAGA and IMT-GT can, again, provide soft infrastructure that would serve as a prerequisite for the next stage of development. Almost all the sub-regional frameworks include training to build capacity, assistance in policy development, and feasibility studies, to facilitate the development of legal, institutional and regulatory frameworks in regions away from the economic centers. Trade and investment facilitation measures that are non-discriminatory and WTO-consistent

are likely to be promoted in the sub-regional arrangements, which are expected to strengthen the ASEAN Free Trade Area (AFTA) framework at the regional level (Menon, 2007). Thus, not only would the sub-regional activities be consistent with AEC, but the former could also be a catalyst for economic liberalisation and reforms for the latter.

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c) Open RegionalismParticipation in a sub-regional zone also brings benefits for the larger ASEAN region. GMS or BIMP-EAGA involves countries that are strategically located between the fast-rising economies of China and India. This provides opportunities for forging greater economic integration beyond the ASEAN region and offers enormous opportunities to boost trade and investment. The sub-regional programmes can, be therefore, potential building blocks to support greater economic regionalism and to enhance ASEANs overall economic competitiveness.

d) Narrowing the Development DivideThe basic framework of the sub-regional programmes can be essentially seen as one that allows the ASEAN-6 and ASEAN Dialogue Partners to assist the CLMV countries in achieving their eco-nomic development goals and to narrow the economic development divide in the region. Hence, the GMS program and similar sub-regional programmes can potentially be an effective framework for narrowing the development gap in the region. Besides disparity among the members, ASEAN also suffers from economic divides within mem-

ber countries. In Indonesia, for example, the central island of Java is most developed and has a concentration of resources and population, while the regions of Sumatra, Sulawesi and Kaliman-tan lag behind in terms of economic development. The two sub-regional cooperations IMT-GT and BIMP-EAGA that focus on parts of the member-states can provide lessons for narrowing the intra-country development divides and can play a catalytic role in driving up the competitive-ness of the region.

e) ASEAN ConnectivityIn the context of the Master Plan for ASEAN Connectivity, fifteen priority projects have been identified (Table 8). Some of these have a major impact on individual sub-regional cooperation programmes. Infrastructure improvements such as the Melaka-Pekan Baru Interconnection in IMT-GT and the West Kalimantan-Sarawak Interconnection in BIMP-EAGA are expected to improve physical connectivity. Completion of the ASEAN Highway Network and the SingaporeKunming Rail Link are likely to have an impact on the GMS.

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Table 8: List of 15 Priority Projects which will have substantial impact upon implementation

6 Projects under Physical Connectivity

Completion of the ASEAN Highway Network (AHN) missing links and upgrade of Transit Transport

Routes (TTRs);

Completion of the Singapore Kunming Rail Link (SKRL) missing links;

Establishment of an ASEAN Broadband Corridor (ABC);

Melaka-Pekan Baru Interconnection (IMT-GT: Indonesia);

West Kalimantan-Sarawak Interconnection (BIMP-EAGA: Indonesia);

Study on the Roll-on.roll-off (RoRo) network and short-sea shipping;

5 Projects under Insitutional Connectivity

Developing and operationalising mutual recognition arrangements (MRAs) for priotized and

selected industries;

Established common rules for standards and conformity assessment procedures;

Operationalising all National Single Window (NSWs) by 2012;

Options for a framework/modality towards the phased reduction and elimination of schedule

investment restrictions/ impediments;

Operationalising ASEAN Agreements on transposrt facilitation

4 Projects under People-to-People Connectivity

Easing visa requirements for ASEAN nationals;

Development of ASEAN Virtual Learning Resources Centre (AVLRC);

Developement of ICT skill standards; and

ASEAN Community building programme

Source: MPAC, ASEAN Secretariat, June 2011

Overall, the projects and activities on infrastructure linkages and capacity building are expected to lead to better integration. In addition, while the newer members will benefit through the uplifting of their economies, developed members will also enjoy the resulting economies of scale. Indeed, what seems clear is that sub-regional cooperation can potentially support ASEANs efforts to real-ize an AEC by 2015 and beyond.

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VI. Policy Recommendations

ASEAN policy-makers need to seriously address the regions economic divide. This economic di-vide is not only in terms of per capita income, but also in terms of infrastructure and human devel-opment indicators. If this economic divide is not effectively addressed, a two-tier or three-tier ASEAN will clearly slow down the integration process and undermine the AEC initiative moving towards 2030. For ASEAN, the IAI is the main mechanism for narrowing the development gap, which takes a holistic multi-disciplinary approach to NDG.Realising the importance of connectivity in driving the regions growth and economic develop-

ment, ASEAN adopted MPAC. Infrastructural facilities being public goods, their availability assists in mobilizing private investments, raising economic opportunities. Better connectivity through in-frastructure development is also a tool for narrowing the development gaps between more de-veloped and less developed countries. Infrastructure, especially transport and communication, is crucial for regional cooperation and integration. Indeed, in the absence of efficient physical con-nectivity, any initiative taken towards regional trade liberalization will remain ineffective.ASEAN also hosts three important sub-regional arrangements. These have integration as their

main objective and engagement in trade and infrastructure as the principal functional areas. Un-like the GMS, the other two involve parts of bigger nations. All of the three sub-regional processes work to better the quality of life of the members and strives to reduce poverty by increasing eco-nomic opportunities and income generating capacity.Hence, it is advisable to have better coordination between ASEAN and the sub-regional frame-

works. Moreover, as sub-regional initiatives are seen to be progressing slowly, more benefits can be garnered if they are linked to the regional activities. ADB has approved a regional technical assistance (RETA) scheme to strengthen regional cooperation and promote links between BIMP-EAGA, IMT-GT, GMS and ASEAN to help implement MPAC and actualize the AEC by 2015 and beyond.The following points suggest ways to combine the regionalism processes and optimize on the

available scarce resources.

a. Support the NDG element of AECThere may be many points of alignment between sub-regional and regional programmes, but em-phasis should be given to narrowing the development gap (NDG) in the region. ASEAN policy-makers need to seriously address the issue if economic integration is to succeed beyond 2015. Therefore, the sub-regional activities should work with ASEAN initiatives for NDG. For ASEAN, while the IAI may remain the main mechanism for NDG, the initiatives in the sub-

regional frameworks can work with the economic elements of the IAI (see Figure 1). But given the seriousness of the issue, the sub-regional projects have to be designed to be more time-sensitive and consistent with the relevant action plans in the AEC Blueprint. It is important to keep in mind the need to streamline approaches and delineate program responsibilities in light of the many regional and sub-regional initiatives that often have similar or overlapping objectives, strategies and action plans.

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Figure 1: Framework for Including Sub-regional Co-operations in ASEAN Initiatives

ASEAN Community

ASEAN Security Community

ASEAN Socio-CulturalCommunity

AEC (equitable economic developement)

IAI (Narrowing the Development Gap)

GMS, IMT-GT, BIMP

Source: Authors suggestion

b. Identify the projects and activitiesThe sub-regional processes can focus on NDG activities that can play a role in accelerating the economic development of the less-developed ASEAN provinces or countries. Areas of develop-ment and technical cooperation can consist of

Trade and investment the main drivers of economic integration to achieve AEC goals;

Human resource development a core component of NDG to meet the needs of the CLMV in capacity building ; and

Transport infrastructure enhances the physical connectivity in the region and expe-dites economic integration.

c. Coordination and ImplementationThe sub-regional programmes and the IAI Work Plan under ASEAN have similar objectives to narrow the development gap. Programmes and projects therefore, need to be streamlined and to avoid overlap or duplication. Sub-regional programmes and projects have to be formulated on the basis of their identification as key priority areas that address the needs of the CLMV and are consistent with AEC goals. As the IAI is the main ASEAN mechanism to support and meet the CLMVs development needs,

the IAI Unit can have the overall responsibility of identifying the projects, which may vary from one country to another. The IAI unit can also be responsible for monitoring the progress of the

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implementation of its own projects and of sub-regional programmes and projects. They can thus effectively spot the areas of duplication or overlapping between the IAI and sub-regional initia-tives, such as GMS, BIMP-EAGA and IMT-GT.

d. Engaging Dialogue and Development PartnersAll this envisages a more active engagement of donors in the various aspects of the regional and sub-regional programmes. Donor institutions are a rich source of knowledge and development experience that can be brought to bear on sector analysis, program formulation, project design, execution and implementation, and even on impact monitoring and evaluation. Engaging donors at the early stages of the analytical work and program/project design is a factor that can influence funding decisions for projects at a later stage. However, identifying projects solely on the basis of funding availability should be avoided,

especially because most of the hard infrastructure projects will need to depend on external as-sistance. That is why a tight focus on cost-efficient and affordable projects and activities will be essential. While most of these projects will likely be in the software aspect of NDG, they can nevertheless play a role in supporting the infrastructure projects.

e. Alternative Approaches to Resource MobilizationTo meet the financing requirement, regional and sub-regional cooperation should look at both traditional and new ways of resource mobilisation. While funding and loans from international institutions and Dialogue Partners are able to fill part of the total resource needs, the total amount of the resources mobilised from these traditional sources may not be sufficient to implement all initiatives. Thus, the role of private sector participation through approaches like Public-Private Partnership (PPP) should be increased. ASEAN has also come up with new ways of generating funds for its projects under MPAC. The

regional bloc, in collaboration with ADB, established an ASEAN Infrastructure Fund (AIF) in Sep-tember 2011. The objective is to mobilise financial resources within ASEAN to support regional infrastructure development. The fund has a total capital of US$485.2 million, of which ASEAN will contribute US$335.2 million (69 per cent), and ADB will guarantee US$150 million (31 per cent). In addition, the hybrid capital of US$ 162 million, as a financial instrument that has both debt and equity characteristics, will be issued after the third and last tranche of the initial core equity con-tributions. Hence, the total capital structure of the AIF is US$647.2 million. It has been decided that while Malaysia will be the domicile of the AIF, ADB will manage and administer the AIF on behalf of ASEAN. The ASEAN member states and ADB made the first contribution in June 2012.The Eminent Persons Group (EPG)s report on the ASEAN Charter, noted that, given the lim-

ited finance resources available to ASEAN, innovative ways of sourcing development assistance will be needed for NDG. In this regard, the EPG recommended that a Special Fund for NDG be established with voluntary contributions from member-countries. The group suggested that a new innovative funding mechanism should be explored by experts to raise funds for this Special Fund, e.g., through a share of sales or excise taxes, airport taxes or visa fees.

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VII. Conclusion

Thus, going towards 2030, ASEAN leaders must understand the importance of a harmonious approach to realizing regional integration. Strong political consensus will be needed for co-op-eration and building alignments between regional and sub-regional frameworks. More intensified exchange of information among the small and the big integration frameworks will be required. This, if implemented, is expected to narrow discrepancies among the economic communities and participants; overcome to a certain extent the problem of overlapping membership; and ac-celerate the progress towards an ASEAN community. Ultimately, this is mainly to reap the mutual economic benefits from different forms of integration. The sub-regional co-operation initiatives like GMS, IMT-GT and BIMP-EAGA can be viewed as

bite-size models to attract investment and technology as well as be building blocks for ASEAN regionalism. Their looser structure as compared to the ASEAN process can be used according to investor demand. ASEAN policy makers can also look at the sub-regional processes as a learning experience and draw lessons from them for bigger cross-border projects. If organized efficiently with appropriate resources, smaller regions can realize the benefits of

regional integration more easily. And once this is demonstrated, the larger efforts of ASEAN regional integration can proceed with less friction. This will also allow member states to gain competitiveness and enhance their investment climate further. Thus, a push for sub-regional inte-gration as a building block for regional integration is recommended.One crucial strategy to achieve integration is to establish efficient cross-border infrastructure

projects. It should be noted that soft infrastructure projects to facilitate the movement of goods, services, investment and labour are as important as the hard physical infrastructure projects. To realise this, it is important for both the central and the local governments to work together on the 15 projects mentioned in the priority list of MPAC. The infrastructure projects under the sub-regional initiatives also have to be aligned with the regional ones so as to optimise on available resources and extract benefits in the shortest possible time. The experience of key infrastructure projects with benefits resulting in the form of increased investment, economic opportunities and narrowing the income gap can have wider regional implications.Above all, for both sub-regional and regional processes, most of the decisions and agreements

for economic integration are to be implemented at the national level. Hence, strong national mech-anisms are needed to plan, organize, coordinate, and follow up on each countrys or provinces commitments. While some countries have established such a mechanism, including the appoint-ment of specific officers to deal with integration issues, others may be insufficiently equipped with human and financial resources. Addressing all these issues holistically will not only help ASEAN members to meet the goals of integration going towards 2015 and beyond but can also help the organisation maintain its centrality within the broader Asian integration process.

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