Posts Tagged ‘NAFTA’

The Effects of Regional Integration

August 16, 2009

The ASEAN trading bloc was created in 1967 by five founding member countries: Thailand, Malaysia, Indonesia, Singapore, and the Philippines. As of today, ASEAN also has five other member countries – Brunei, Laos, Cambodia, Vietnam, and Burma. All countries part of the ASEAN alliance are vastly different in culture, demographics, economic resources, and political systems. These ten countries can meet together and establish a mutually beneficial economic partnership despite their diversity. In part, this partnership has been helped by regional integration. (Tan, M.; May 2007).

In the following analysis, this author will describe regional integration. By taking a look at regional integration, we will discuss both the advantages and disadvantages as demonstrated by various global trading blocs. This author will analyze the economic development stages of several countries in the ASEAN bloc. Lastly, the overall economic development of ASEAN has an effect upon global business, and this author will describe these ramifications.

Advantages and Disadvantages of Trading Blocs

When the North American Free Trade Agreement (NAFTA) was established on January 1, 1994, citizens of the United States, Mexico, and Canada were merged into one continental trading bloc. One disadvantage to NAFTA is its ability to displace individual countries’ workers and resources due to market integration. (Foreign Agricultural Service; n.d.).

For example, livestock and agricultural farmers in the United States now compete with products from Mexico. Due to inexpensive labor costs and inexpensive agricultural land, Mexico has a clear advantage when exporting their goods to the U.S. As a result, farmers and ranchers in the U.S. are forced to continuously search for ways to make their operations less expensive, in order to compete. (Knutson, R.D. & Ochoa, R.; Jan. 2004)

However, advantages are also brought forth by trading blocs. For example, after the Korean and Vietnam Wars of the 1950s, 60s, and 70s, much of Southeast Asia was left economically decrepit, with very little ability to exert market influence on the global economy. Since the creation of the ASEAN trading bloc, however, Southeastern Asia has successfully negotiated profitable trade agreements, therefore allowing the ASEAN countries to individually improve their economic progress. For example, luxury hardwoods, such as teak and bamboo, are now exported on a massive scale to industrialized nations, helping to manufacture flooring and furniture. These hardwoods are largely harvested from ASEAN countries such as Thailand.

Economic Development Stages

Thailand, one of the countries part of the ASEAN trading bloc, seems to be in the middle of the economic development stages. While the country has experienced fairly high growth rates (6.7% per annum), Thailand still seems unable to control internal market forces and anticipate external changes, in order to create a stable, functioning, dynamic economy. In particular, Thailand is internally held back by several factors. First, its financial, metropolitan, and trading center resides in the capitol city of Bangkok. This does not allow the country to diversify its economic center. If Bangkok isn’t doing well infrastructurally, then Thailand’s economic forecast will soon become gloomy. Second, Thailand still bears an unfortunate illiteracy rate. The majority of the population is employed in production (blue-collar) jobs, and this demographic does not lend itself to economic development. (Jitsuchon, S.; July 1991).

Another ASEAN country with a very different economic development stage is the nation of Brunei.

“The economy is a mixture of foreign and domestic entrepreneurship, government regulation and welfare measures, and village tradition. It is almost totally supported by exports of crude oil and natural gas, with revenues from the petroleum sector accounting for more than 50% of GDP Per capita GDP is $8,800, and substantial income from overseas investment supplements domestic production. The government provides for all medical services and subsidizes food and housing “ (ASEAN Association for Planning and Housing; n.d. Pg. 1 ¶ 4)

Brunei has succeeded in using its wealthy resources to improve the nation economically. Unlike other oil-producing nations in the middle east, Brunei, also a Muslim state, invests its earnings in both other, diversified economic development and in the improvement of the state. Brunei is at a significantly higher economic stage than its ASEAN counterpart, Thailand.

Global Effects of ASEAN Economic Development

ASEAN countries were once the most impoverished nations of the world. However, due to increasingly successful trading agreements and leveraged tariffs, the countries are quickly improving economically, despite their history of wars, internal strife, and political unrest. With the developed strength of the ASEAN bloc, other nearby trading blocs such as APEC may be affected. While APEC has several wealthy, industrialized nations as members, this may be a disadvantage to the trading bloc. On the other hand, ASEAN countries fall somewhere on the lower to mid-range scale of economic development. Due to their relative lack of development, ASEAN countries may be able to negotiate incredibly low bids for labor, and thus attract foreign companies interested in new production facilities.

Another global effect of ASEAN economic development revolves around the timber industry. At this time, many furniture and flooring manufacturers avoid using luxury hardwoods from the South American rainforests. ASEAN countries are providing an alternative, and many lumber countries in Sri Lanka, Thailand, and Laos are engaging in environmentally sustainable logging practices – a clear enticement to western interests. As a result of this developing industry, ASEAN countries could soon have a successful monopoly on luxury hardwood materials.

Conclusion

The ASEAN countries are not the most impoverished in the world, but are still seeking growth and improvement to begin a sound economic foundation. Through further work with trade agreements, tariffs, and diplomatic partnerships with industrialized nations, ASEAN countries can expect external forces to help them improve economically.

Resources

ASEAN Association for Planning and Housing (n.d.). “Planning & Development (Brunei)”. Retrieved online September 17, 2007 from http://aaph.net/planning-development/brunei/.

Foreign Agricultural Service (n.d.). “North American Free Trade Agreement”. Retrieved online September 16, 2007.

Jitsuchon, S. (July 1991). “Retrospect’s and Prospects of Thailand’s Economic Development”. Retrieved online September 17, 2007 from http://www.esri.go.jp/en/archive/wor/abstract/wor02-e.html

Knutson, R.D. & Ochoa, R. (Jan. 2004). “Achieving Market Integration – North American Free Trade Agreement”. Retrieved online September 17, 2007 from http://findarticles.com/p/articles/mi_m3723/is_1_16/ai_114328140.

Soomer, J. (2003). “Why Regional Integration Benefits”. Retrieved online September 16, 2007 from http://www.eccb-centralbank.org/PDF/newspaper3.pdf.

Tan, M.(May 2007). “Asean Plus”. Retrieved online from Michael Tan’s weblog Pinoy Kasi, part of the Philippine Daily Inquirer opinion column. Retrieved online September 15, 2007 from http://michaeltanpinoykasi.blogspot.com/2007/05/asean-plus.html