International
Diminishing trade flows between ASEAN nations signal the need for further integration, says new Economist Intelligence Unit report
By Finfacts Team
Nov 22, 2007, 05:01

Singapore Prime Minister Lee Hsien Loong (r) speaking to Indian Prime Minister Manmohan Singh, on Wednesday Nov 21, 2007. Singapore hosted an ASEAN summit that ended today.

ASEAN’s ambitions to create a unified single market in South-east Asia are not being fulfilled, according to Trading up: A new export landscape for ASEAN and Asia, a new report published today by The Economist intelligence Unit and sponsored by DHL Asia-Pacific. Instead, trade between ASEAN countries is decreasing as China becomes an increasingly powerful force in regional and global trade.

Asia’s growth and development to date have been heavily tilted towards trade and the establishment of a vibrant export-focused manufacturing sector. Indeed, the countries that make up the Association of South-east Asian Nations (ASEAN) stand out as among the most trade-dependent parts of the region. Yet the rise of ASEAN’s giant neighbours, notably China and India, has resulted in rapid changes in trade patterns across Asia.

The Association of Southeast Asian Nations or ASEAN was established on 8 August 1967 in Bangkok by the five original Member Countries, namely, Indonesia, Malaysia, Philippines, Singapore, and Thailand.  Brunei Darussalam joined on 8 January 1984, Vietnam on 28 July 1995, Lao PDR and Myanmar (Burma) on 23 July 1997, and Cambodia on 30 April 1999.

Trading up: A new export landscape for ASEAN and Asia examines shifting import and export trends across the region between 2000 and 2007. The report was researched and written by the Economist Intelligence Unit.

The key findings include:

• ASEAN’s trade is becoming more globally integrated. Four of the six ASEAN countries examined in this report—Indonesia, Singapore, Thailand and Vietnam—have become increasingly integrated into the global trading system, with trade growing at a faster rate than GDP. Only Malaysia and the Philippines saw the value of both exports and imports grow more slowly than their economies overall during the period covered by this report.  
• ASEAN has been slow to increase high-value imports and exports. Whereas high-value imports and exports from both China and India grew faster than low-value imports and exports, the picture across ASEAN is mixed. Possibly fuelled by the commodities boom, four of the six ASEAN countries studied saw low-value exports grow faster than high-value exports. All the ASEAN countries except the Philippines imported low-value goods at a faster rate than high-value goods.  
• China has had a profound effect on trade in ASEAN and Asia. China’s staggering growth has had a dramatic impact on trade patterns across the region. In particular, China's importance as a destination for exports from its Asian neighbours (primarily of components for final assembly and re-export) has risen sharply. For example, in just six years China's share of South Korea's exports has risen from 11% to 25%. The picture is the same across the region.  

• Supply chains are increasingly fragmented. A significant trend is the fragmentation of supply chains across Asia, with China often the last step in the manufacturing process. Components produced all over Asia are channelled through China for the final stages of production then shipped on to the US or Europe.  
• India is emerging as an important trading partner. While the total share of Asia’s trade going to India remains small, it is growing at a tremendous rate. Exports from China to India grew by an annual average of 45% during the period under study, but still account for only 1.5% of the value of China's overall exports. This trend is expected to continue, judging by India's rising wealth levels and the emergence of a growing export-oriented manufacturing sector.  
• Japan’s importance as a trading partner has declined. With the exception of the Philippines, ASEAN has seen a general trend towards declining levels of trade with Japan (despite official encouragement for Japanese companies to diversify their overseas production away from China and towards ASEAN). Between 2000 and 2006, Japan's share of ASEAN's exports on a value basis dropped from 15.3% to 13.4%. The value of Japanese exports to ASEAN also declined from 14.3% in 2000 to 11.8% in 2006.  
• Trade between ASEAN countries is decreasing. The total amount of trade between ASEAN countries fell from 22.4% of the bloc's total trade in 2000 to 20.9% in 2006, which presents a potentially concerning trend. The ASEAN organisation has ambitions to create a unified single market in South-east Asia. However, the decline in ASEAN’s share of regional trade suggests there is more that can be done to enhance competitiveness within the region.

"While it’s encouraging that ASEAN has continued to thrive despite China's dominance in the region, this report makes clear that the governments of these nations must redouble their efforts to reduce trade barriers in their own backyard,” says Dan McHugh, CEO of DHL Express, Asia-Pacific. “Intra-ASEAN trade still has great potential to provide economic opportunity and raise living standards."