Publications
Executive Summary
Expanding ASEAN to include Vietnam in 1995, and Burma, Cambodia and Laos in
July 1997 unites politically, economically and commercially all ten South East
Asian nations for the first time. This is an important development for the
region. Until recently, the Cold War divided ASEAN from former Indochina,
while Burma isolated itself regionally and internationally pursuing strict
non-alignment. Now, growing cooperation and integration among South East Asian
nations is increasing the region's political and economic weight and
commercial attractiveness. This presents significant opportunities and
challenges for government and business in Australia.
This report examines the economic, political, administrative and legal
transformation underway in ASEAN's four newest members. It considers the
implications of ASEAN membership for the four, for ASEAN and for Australia.
The report also assesses progress in developing a 'business friendly'
commercial environment in each of the new ASEANs, with practical insights
based on incountry surveys of Australian and other foreign investors.
Unattributed quotes in chapters 3, 9 and 12 are comments by companies
participating in the surveys. No such survey was conducted for Burma.
POLITICAL AND ECONOMIC TRANSITION
The four new ASEANs attained independence from European colonial powers
after World War II. Political instability, turmoil and civil war ensued,
eventually producing socialist, centrally planned, one party states. National
economies inevitably faltered. Facing stagnation or crisis, governments
introduced economic reforms, at first hesitantly, then more boldly, abandoning
central planning and embracing the market.
Political and economic transition now is occurring in the new ASEANs,
although the nature and pace of change is different in each case. Cambodia and
Burma formally discarded socialism; Cambodia now has a functioning multi-party
democracy of sorts and Burma's military regime has started a process to
restore civilian government, albeit under military control, in the future.
Only Vietnam and Laos remain one party states committed to building socialism,
although no longer based on central planning.
The military in Burma and communist parties in Vietnam and Laos pursue
economic reform while safeguarding their political monopolies. Sections of the
political leadership in these countries see some reforms, such as reducing the
state sector's economic role, as potentially undermining their own leading
role, so they resist them. However, leaders also recognise their continued
political supremacy depends substantially on raising living standards. This
dilemma underscores continuing leadership debate and tension, alternately
accelerating then constraining economic reform. Only Cambodia's leaders seem
at ease with market-oriented economic reforms, although in the political
sphere they show strong authoritarian tendencies and appear uncomfortable with
the concept of a political opposition.
In Burma, the military is entrenched in politics and business; in the other
three new ASEANs, the military is a major economic player and wields
considerable political power, albeit as subordinate to the Government in
Cambodia and the Party in each of Vietnam and Laos. Military representation
and influence in the Vietnamese and Lao political leadershiips is growing.
The new ASEANs except Burma are restructuring and strengthening the
institutions of government and expanding laws to support economic reform, as
they strive to become modern states. In Vietnam and Laos, more efficiently
managing the State also enhances the capacity of the Party to rule. Burma's
legal base is being modernised but institutional reform will need to await a
new civilian government.
Mobilising substantial domestic and foreign private investment is central
to new ASEAN economic growth strategies. New market opportunities, strong
comparative advantage in resources and labour, and liberal foreign investment
laws and incentives attract significant foreign investor interest. However,
economic systems, regulatory regimes and the institutions of government are in
transition, making the business environments challenging.
VIETNAM
After more than ten years of reform and opening under doi moi (renewal),
Vietnam's economy is sustaining strong growth of 8 per cent per year and its
society is generally more 'open' and freewheeling. However, the Vietnam
Communist Party's political monopoly is not threatened. Vietnam's one party
state is stable.
Politics
Applying the lessons from the socialist collapse of Eastern Europe and the
Soviet Union in the late 1980s and early 1990s, the Vietnam Communist Party
favours economic liberalisation without democratising or risking stability. To
consolidate its position as the long term leader of the State, the Party is
strengthening its organisational network in state and government institutions
and even extending it into the private sector, including foreign joint
ventures. However, the Party faces a major challenge to reverse its own
diminishing relevance and capacity to provide visionary leadership in a
modernising Vietnam. The Party also must stem the increasing corruption
undermining its legitimacy and effective government.
Reform Outlook
Debate within the party leadership over the scope and pace of economic
reform focuses on negative by-products such as growing wealth disparities,
corruption, 'social evils' and the influx of foreign influences threatening to
undermine Vietnamese socialism. This creates a dilemma which the leadership
has attempted to resolve by confirming the state sector will maintain a
central economic role. However, this hampers reforms, private sector
development and economic growth.
Administrative and Legal Reform
'Political reform' in Vietnam essentially means administrative
reform-strengthening the institutions of government and laws to become an
effective management framework through which the Party leads the State.
Reforms to curtail bureaucratic abuse unleashed by doi moi, streamline the
bureaucracy, reduce red tape, build an effective public service, and
recentralise state authority under party control have only partly succeeded.
Corruption remains a 'national plague'; bureaucratic procedures and arbitrary
interference still create long delays; public servants lack skills to manage a
market economy; and vested interests continue to resist party and government
directives.
Vietnam has progressed considerably in creating a new legal framework for a
modern market economy. The National Assembly has enacted a series of
commercial laws and established a liberal foreign investment regime. However,
bureaucratic processing of investment applications is slow and cumbersome.
Resolving commercial disputes in Vietnam is problematic for foreign investors,
although recent cases indicate Vietnamese courts are prepared to rule in a
foreign investor's favour, even where the other party is a Vietnamese
state-owned enterprise (SOE).
Economy
Vietnam's economy has taken off since doi moi economic reforms, adopted by
the Party in 1986, formally began Vietnam's transition from central planning
to a market oriented economy. Since 1990, annual economic growth has jumped to
8 per cent and 6 per cent per capita. Non-state output is now 66 per cent of
the total; foreign trade and foreign investment regimes are relatively open;
and 95 per cent of prices are market determined. Agriculture is essentially
privatised. The authorities have reduced inflation from annual rates
approaching 900 per cent in the mid 1980s to less than 2 per cent in early
1997 by reining in the government deficit, financing the deficit via bonds
rather than printing money and tightening bank credit policy.
However, Vietnam is still very poor; per capita income is only US$260 in
exchange rate terms and $1 000 in purchasing power parity terms, half China's
level of $2 000. Growing rural-urban income disparities mean rural incomes
average only $100 per capita.
While growth is expected to remain strong if reform momentum is maintained,
several major potential constraints to foreign investor interest include
corruption, low administrative efficiency and the underdeveloped legal system.
While the ratio of savings to GDP, now 27 per cent, is rising rapidly, the
banking system remains weak and bank penetration is low. The trade deficit
grew rapidly to $4 billion in 1996, almost 20 per cent of GDP, stimulated by
high foreign capital inflows. Skilled labour and infrastructure shortages
further constrain potential growth. Slow progress in equitising SOEs and
policies promoting large SOE conglomerates create uncertainty regarding
government commitment to treating equally domestic and foreign non-state
enterprises in Vietnam.
Australia-Vietnam Trade and Investment
Over 100 Australian companies currently are engaged in business in Vietnam.
However, up to 80 per cent of them sell products or services to other
foreigners in Vietnam or outside, rather than to Vietnamese. This leaves
Australian companies vulnerable to significant downturns in foreign direct
investment to Vietnam.
Australia's trade with Vietnam expanded rapidly in the 1990s from a low
base. Australia's merchandise exports to Vietnam increased at an annual trend
rate of 45 per cent, five times faster than Australia's overall exports.
Australia's merchandise imports from Vietnam increased even faster, also from
a low base, at an annual trend rate of 65 per cent. The trade balance is in
Vietnam's favour.
By the end of August 1996, Australia was Vietnam's eleventh largest foreign
investor with cumulative approved foreign direct investment of $700 million in
50 projects.
Business Environment
Vietnam is one of the most complex and difficult Asian locations for
foreign investors. Bureaucratic inefficiency, corruption and lack of adequate
skills seriously constrain business. However, the business environment is
fluid as the economy continues its transition from centrally planning to a
uniquely Vietnamese marketoriented system. Business conditions gradually are
improving but progress is unlikely to be either smooth or rapid. The sources
of Vietnam's attractiveness to foreign investors remain, and most foreign
companies are confident about Vietnam's medium to long term prospects. Vietnam
requires a long term commitment, deep pockets, flexibility, patience and
persistence. Foreign investors need to be cautious about overly optimistic
expectations or overly pessimistic forecasts.
BURMA
Burma's economy grew strongly in the early 1990s but recent signs are of
growth tapering or declining. The political impasse that sets Burma's military
regime against the civilian opposition, much of the populace and the broad
international community clouds the country's economic and commercial
prospects.
Politics
Burma's military has monopolised political power for more than 35 years. It
has promised to restore civilian rule but will only do so when the country
adopts a new constitution borrowing from Indonesia's dwifungsi model that
formalises the military's central political role. This is still some time
away. The military faces a major challenge to persuade Burma's ethnic minority
insurgent armies, who seek autonomy from Rangoon, to accept its constitutional
plan. The civilian opposition, led by the charismatic General Secretary of the
National League for Democracy, Aung San Suu Kyi, opposes the military's
continued political monopoly but at present, can do little to unseat it. The
military is strong, united, determined and for the time being, appears firmly
in command. However, the military's widespread unpopularity and its tight
control of virtually every facet of Burmese life create a situation of
inherent instability.
Administrative and Legal Reform
The military has left Burma's creaky administrative machinery largely
untouched, apart from inserting military personnel at senior and middle levels
in all ministries. The military has revived Burma's pre-independence, British
common law based commercial laws. These provide the fundamentals, albeit
somewhat outdated, for a market economy. Burma adopted a liberal foreign
investment regime in 1988.
Economy
Since abandoning socialism and central planning in 1988, Burma's economy
has recovered from its poor performance for most of the post World War 11
period; growth has averaged around 7 per cent per year since 1992. By 1997,
per capita income reached $1 000 in purchasing power parity terms, similar to
Vietnam's. Inflation is still stubbornly high with official figures well over
20 per cent, and unofficial estimates over 30 per cent. The high government
deficit, financed mainly by printing money, drives inflation.
The extreme, almost 30 fold overvaluation of the kyat has generated high
levels of smuggling and poor trade performance. Since 1990, trade regime
reforms have allowed traders to retain foreign exchange earnings and private
firms to engage in trade, stimulating formal trade. However, imports are
growing much faster than exports; in 1997, the trade deficit is expected to
reach US$700 million, over 40 per cent of annual exports. Foreign exchange
reserves are sufficient for only a few weeks of imports and the Government
regularly defaults on loan repayments. The balance of payments deficit is
lower at just under US$400 million, mainly due to foreign direct investment
inflows, which totalled about US$200 million per year in recent years. The
bulk of foreign investment is coming from the UK, Japan, ASEAN, USA and other
European Union countries.
Savings and investment also have fallen to only about 12 per cent of GDP,
due mainly to a significant drop in government investment. While the banking
system has seen some reforms, including establishing private domestic and
representative offices of foreign banks, the system remains weak. Loans
generally are for less than a year and interest rates are below market levels.
Most people still borrow from money lenders while some banks launder drug and
other 'black' money. Transport, energy and telecommunications infrastructure
remain extremely poor throughout the country, although China provides some aid
to improve road links. While Burma had a high proportion of educated people
pre-World War II, the stock of human capital has been depleted steadily
through years of neglect and isolation.
Agricultural pricing, trade and production have been liberalised,
stimulating output growth. Fisheries and mining offer good opportunities for
foreign and domestic investment. Industrial development has been heavily
constrained by shortages of foreign exchange, but now labour intensive
manufacturing for export is increasing. To date, planned SOE privatisation has
failed, as vested interests in the government and military are reluctant to
relinquish control over these assets. The military plays an extremely
important role in the economy through companies like the Union of Myanmar
Economic Holdings Limited, which controls 10 per cent of Burma's GDP and is
prominent as a joint venture partner with foreign investors. Drug trafficking
and black marketeering also are rife; commentators believe the black economy
may equal the size of the legal economy.
Future prospects for Burma's economy depend crucially on the political
environment and commitment to reforms that are often opposed by military
vested interests.
Australia-Burma Trade and Investment
Both Australia's trade with and investment in Burma are negligible. This is
partly a consequence of the Australian Government's explicit policy of neither
encouraging nor discouraging commercial ties with Burma.
Business Environment
Politics overshadow Burma's commercial landscape. Many difficulties foreign
investors face in Burma, such as the dual exchange rate and poor
infrastructure, are common to other developing economies, although more
extreme in Burma. The key difference is the high degree of political risk
while the military, which is increasing its economic role, remains in power.
Foreign traders and investors face the prospect of economic sanctions,
consumer boycotts and shareholder revolts. As a result, a number of major
international companies have withdrawn from Burma.
CAMBODIA
Cambodia is seeking to recover from decades of intemal conflict that
destroyed much of the country's educated elite, economic base, political and
administrative institutions. This is a major challenge. However, the economy
is responding well to international donor assistance and foreign investment.
Recent growth, particularly in Phnom Penh's private sector, has been robust,
averaging 6 per cent per year in the 1990s.
Politics
The 1991 Paris Peace Accords and subsequent elections under the United
Nations Transitional Authority in Cambodia (UNTAC) brought significant gains
to Cambodia. The country no longer is the military focus for international and
regional rivalries; democratic institutions and an elected government replaced
the one party state; the Khmer Rouge suffered a substantial and rapid decline;
and human rights conditions have improved. However, democratic government is
fragile. Cambodia's current Coalition Government is unstable as it brings
together parties formerly at war with one another. The arrangement is becoming
increasingly unworkable with the approach of national elections in 1998.
Interrelated corruption and other criminal activities, violations of human
rights and political and criminal violence are widespread. The recreation of a
stable polity in Cambodia will not occur soon.
Administrative and Legal Reform
The Government with World Bank assistance is attempting to build a smaller,
considerably streamlined, more skilled public service. Currently, the
bureaucracy is bloated, lacks adequate skills, performs poorly and cleaves
along party lines. Foreign investors need to be aware of the party
affiliations of officials, but to avoid aligning themselves with either side.
The Government is rebuilding the legal infrastructure with new laws combining
both civil and common law traditions, but covers legislative gaps by issuing
decrees. The National Assembly has adopted several laws supporting Cambodia's
market economy. The foreign investment regime is liberal and the regulation of
business flexible. Foreign investors normally prefer to resolve commercial
disputes offshore.
Economy
Reforms and generous international assistance have helped Cambodia's
economy recover from the long civil war, the Khmer Rouge's disastrous economic
experiment, and socialist central planning. GDP growth averaged 6 per cent in
the 1990s; inflation fell sharply from 140 per cent in the early 1990s to 7.4
per cent in 1996. However, the government deficit has increased as expenditure
continues to grow faster than revenue. Large amounts of foreign aid, reaching
7.5 per cent of GDP in 1995, replaced budget deficit financing by printing
money, easing inflationary pressures.
Since 1994, the official exchange rate has been set daily to keep the
national currency (riel) within 1 per cent of the informal market rate.
Official transfers, a stable external environment, improved export performance
and increased foreign direct investment have improved Cambodia's balance of
payments. In September 1996, official reserves equalled three and a half
months of imports. Realised foreign direct investment, mainly from ASEAN
countries, rose sharply from US$10 million per year to US$171 million per year
in 1996. Reforms have successfully stimulated Cambodia's private sector. The
country now has a highly competitive domestic market and one of the region's
most liberal retailing regimes.
Despite recent economic gains, Cambodia remains one of the world's poorest
countries with a per capita income of US$260 on an exchange rate basis.
Economic and social indicators generally are much lower than those of
neighbouring countries and sub-Saharan Africa. They are also lower that those
of East Asia's newly industrialised counties 25 years ago.
Cambodia faces serious challenges to continuing economic development and
growth. The high level of dependence on foreign aid, the rapid depletion of
the country's forestry resources (often for personal rather than national
gain) and the heavy reliance on import taxes for revenue are unsustainable.
Above all, Cambodia needs good governance.
Australia-Cambodia Trade and Investment
Australia is a major aid donor. Trade and investment are small but rising.
Business Environment
Cambodia's Government is keen to encourage foreign investment. The level of
government and bureaucratic interference in business matters is low once
initial approvals are granted. The business environment is unregulated and
freewheeling, attracting 'fringe' foreign investors as well as mainstream
ones. Corruption is widespread and transparent. Lawlessness and violence in
the capital and the countryside add to the risk of doing business.
LAOS
The Lao People's Revolutionary Party introduced market-oriented economic
reforms in 1986. In the 1990s, the economy has enjoyed healthy average annual
growth of 6.5 per cent. However, while encouraging economic openness, the
Party rejects political pluralism.
Politics
The Lao leadership does not fully understand free market reform. However,
as in Vietnam, it recognises the market can improve living standards without
which the Party's political monopoly could be increasingly questioned. The
Party is for the moment unchallenged. However it needs to rejuvenate its
leadership and ensure Laos' majority rural dwellers and its ethnic minorities
can participate more fully in the political process and share in the gains of
economic growth.
Reform Outlook
As in Vietnam, elements in the party leadership are uncomfortable with some
of the negative social by-products of economic reform. They insist on the
state sector's central economic role.
Administrative and Legal Reform
In the late 1970s and early 1980s, most of Laos' educated elite left the
country. As a result, the bureaucracy lacks skills to manage the complexities
of a market economy including processing foreign investment applications. The
Government is endeavouring to streamline and re-skill the public service. It
also restructured and reorganised ministries to make them more efficient.
However, decision making power is concentrated in the Prime Minister's Office,
clogging the approvals process.
Laos' legal system is still in its infancy; in 1996, the entire body of Lao
legislation consisted of just 34 laws. The Government is developing gradually
a body of commercial laws but covers the gaps by issuing decrees. Laos'
foreign investment regime is one of the most liberal in the region. Foreign
investors prefer to resolve commercial disputes through foreign arbitration.
Economy
Laos has a 'dual' economy; commerce is concentrated in the capital,
Vientiane, but most of the population engages in subsistence agriculture.
Despite several years of impressive economic growth, Laos remains one of the
world's least developed countries, with a per capita GDP of US$350 on an
exchange rate basis. Conditions in Laos are similar to those elsewhere in
South East Asia 30 years ago. Poverty is widespread and often extreme, and
health indicators are among the poorest in Asia.
A distinctive feature of economic reform in Laos is the speed and intensity
with which the New Economic Mechanism reforms were implemented after 1986.
Bold and rapid restructuring of Laos' economy has been helped by four main
factors: the small. undedeveloped nature of the economy; the primarily
subsistence agrarian base that could be reoriented fairly easily to market
demands; the limited role of SOEs; and the lack of an entrenched,
reform-resistant bureaucracy.
Reforms have lifted economic performance. Agriculture's share of production
is declining while industry's share is expanding, helping stabilise growth.
Inflation is broadly under control, mainly as a result of sound fiscal and
monetary policies. Exports, mainly based on natural resources (forestry and
hydro-electricity) have grown strongly, as have imports. Between 1988 and
1996, the Government issued over 600 new investment licences worth more than
US$7 billion. Hydro-electric projects account for three quarters of this. The
exchange rate is pegged to the informal market rate under a managed floating
system. The private sector's share of production is expanding.
Growth constraints in Laos include a lack of skilled labour, weak
institutional capacity and inadequate infrastructure.
Australia-Laos Trade and Investment
Australia-Laos trade is limited and fluctuating. However, Australian
investment is considerable and growing. By June 1996, Australian companies
held 42 investment licences for projects worth US$303 million. Australia is
one of Laos' largest bilateral aid donors. Aid projects attracted many
Australian companies to Laos.
Business Environment
While Laos' Government is business friendly, the bureaucracy is slow and
underskilled. Legal uncertainty concerns larger investors more than smaller
ones. Corruption is not serious but is rising. Personal security is generally
good.
ASEAN INTEGRATION
The four new ASEANs are at a roughly similar stage of development in
transition from centrally planned to market-oriented economies. They are at a
lower level of development than other ASEAN members but are growing strongly,
equalling or exceeding average ASEAN growth.
Enriching ASEAN
ASEAN's expansion has important implications for both the group's
established and new members. Expansion enriches ASEAN economically, but marked
political and economic dissimilarities between old and new members could
strain cohesion. Expanded ASEAN's GDP equals nine tenths that of China's. Its
population, encompassing all of South East Asia, is almost 500 million.
Economic Integration
Trade among ASEAN's older members is growing substantially faster than
their trade to the world. Trade between ASEAN's older and new members also is
growing rapidly. The new members increase trade complementarity within ASEAN
and enhance the regional division of labour based on comparative advantage.
This increases opportunities for trade and investment, and should lead to
expanding economic interaction within ASEAN and between ASEAN and the world.
Better coordination of economic and investment policies in South East Asia
should improve ASEAN's attractiveness to non-ASEAN investors.
Other benefits of ASEAN economic integration include the stimulus provided
to economic reform, greater economic weight and access to world markets and
cooperation in upgrading infrastructure.
ASEAN Free Trade Area (AFTA)
New ASEAN members' capacity and willingness to meet the obligations of
ASEAN membership, particularly to adhere to the AFTA timetable of intra-ASEAN
tariff reductions, is open to doubt. Institutional capacity in each of the
four members is not yet well developed and AFTA requirements may clash with
domestic economic objectives, such as nurturing infant industries.
Like Vietnam, ASEAN's newest members will be granted longer than
established members to reduce their intra-ASEAN tariffs to 0 to 5 per cent.
However, if new ASEANs feel unable to keep up with the agreed pace of tariff
reductions, and can resist pressure from older ASEANs to comply, a multi-track
process will develop. The new ASEANs also could retard ASEAN's customs
harmonisation and standards conformance programs.
Straining Cohesion
New members may test ASEAN's consensus decision making. Burma's membership
may strain cohesion, solidarity and ASEAN's relations with the rest of the
world, particularly the USA and European Union, both of which have instituted
economic sanctions against Burma's military regime. However, ASEAN integration
also may provide a framework for increasing positive influence on Burma.
Greater Mekong Subregion
ASEAN's four new members participate actively in initiatives to make the
Mekong subregion, consisting of Burma, Thailand, Vietnam, Laos, Cambodia and
China's Yunnan province, a 'corridor of commerce'. The Asian Development Bank
supported Greater Mekong Subregion is the major initiative. Australia is among
bilateral donors supporting the subregion's development. Priority sectors such
as transport, tourism, water resources management, energy, trade and
investment and human resources have been identified for development as part of
a subregional master plan. Many projects already are underway. US$40 billion
is required over the next 25 years for infrastructure alone. This is well
beyond the funding capacity of governments and aid donors and will require
commercial investment, suggesting that implementing many infrastructure
projects may be slower than envisaged unless significant policy reform is
achieved.
AUSTRALIA ENGAGING AN EXPANDED ASEAN
Continuing economic transformation in Vietnam, Burma, Cambodia and Laos and
ASEAN's and AFTA's expansion create significant opportunities and challenges
for Australian business. These are based on stronger GDP growth, likely
increased market access, faster trade growth, increased investor confidence,
promotion of large scale infrastructure projects, development of natural
resources and rapid growth in legal, financial and education services.
Business Opportunities in the Mekong Subregion
Developing the Mekong subregion opens up a range of commercial
opportunities,particularly major infrastructure projects. Many business
opportunities are directly related to the activities of international aid
agencies. The subregion also constitutes a large potential market and
possesses substantial human resources offering development potential based on
unskilled or semi-skilled, low cost labour. However, the nature of many
opportunities in the Mekong, particularly those involving aid funds for
infrastructure projects or resource projects, require long term commitment.
International competition for major aid funded infrastructure projects is
intense. To secure these projects, Australian companies will need to be highly
competitive and offer skills in emerging areas such as infrastructure
management reform.
Subregional Corporate Strategies
A number of foreign companies are adopting subregional strategies by
establishing operations in two or more countries. This is because a successful
project in one country, winning the trust and support of the national
government, can be an important advantage in bidding in a neighbouring
country. Moreover, as the new ASEAN economies become more open and
market-oriented, experiences gained and techniques developed in one market can
be applied successfully to others. The needs of each market also are broadly
similar for both goods and services. Improvements in transport and
communications links and harmonisation of documentation and controls on
crossborder movements create opportunities for integrating distribution
networks in the subregion. This suggests that treating the subregion as a
whole may prove more profitable than operating in separate markets.
New Partnerships
New partnership opportunities are emerging; for example, ASEAN companies
are increasingly active in all Mekong subregion countries. This can be
expected to gain momentum with Laos, Cambodia and Burma as members of ASEAN.
The emerging private sectors in each country in the subregion also offer
opportunities to develop new partnerships, particularly in supplying expanding
domestic markets.
AFTA-A Single Large Market
Increasingly, AFTA will be promoted as a single, large market. Expanding
AFTA increases the scope and breadth of tariff reductions and economic
cooperation in South East Asia. Commercial opportunities should increase from
improved access (as tariffs and non-tariff barriers fall), standards
conformance and customs harmonisation, and an enlarged market, causing
business costs across the region to fall and increasing the scope to
rationalise operations and regional strategies.
Linking Markets
With support from governments, business is spearheading efforts to forge a
single large market by linking the ASEAN Free Trade Area (AFTA) with the
Australia New Zealand Closer Economic Relations Trade Agreement (CER). The two
areas are diverse and complementary; trade between them doubled between 1990
and 1995, from US$7.9 billion to $15.9 billion.
Australian Business and AFTA
AFTA trade and investment liberalisation benefits companies operating
within its boundaries, but could disadvantage Australian exporters. However,
many AFTA tariff reductions are on a non-discriminatory most favoured nation
(MFN) basis.
Strategic Alliances
Expanding ASEAN to include low cost, new ASEAN economies provides
Australian companies with opportunities to establish an ASEAN base alone or
allied with an ASEAN company. Australian companies forming strategic
partnerships or consortia with ASEAN companies can maximise the competitive
advantage of each participant and receive favourable treatment in ASEAN.
Future Opportunities
The new ASEANs are South East Asia's least developed economies. While
success is not assured, integrating with the more advanced economies of the
region provides their best opportunity to improve economic and administrative
frameworks, overcome poverty and move up the development scale to become
modern and prosperous nations of the twenty first century. The new ASEANs will
remain difficult business environments for the forseeable future; however,
conditions will improve gradually as the transition process in each country
proceeds. Australian companies therefore should continue to seek opportunities
in these emerging economies and make an important contribution to their
economic advancement and to Australia's developing, mutually beneficial
partnership with the region.