The BIMP-EAGA and ASEAN Regional Integration and their Relevance to the ARMM

Atty. Zainudin S. Malang*
(I.M.R.I, LL.M., J.D.)

Regional Integration in General:

In order to understand the relevance of regional integration to the Autonomous Region in Muslim Mindanao (ARMM), one must understand what “regional integration” means. This phrase refers to an initiative where a group of countries forming a geographical region in the globe seek to integrate their economies. Thus, the phrase does not speak of regions within countries but regions composed of countries. Thus, we have the European Union or the EU (formerly comprised of Western European countries but now also includes Central Europeans), the North American Free Trade Agreement or the NAFTA (comprised of North American countries), the Mercado Cumon Sur (comprised of South American countries), and in our own backyard, the ASEAN Free Trade Area or AFTA (comprised of countries in Southeast Asia).

Although this sort of multi-governmental initiative is increasingly assuming political and social aspects, it was and is primarily conceived as an economic initiative. It proceeds on the premise that national economies of countries forming a geographical region may benefit from the removal of trade barriers to those economies. By opening up trade to one’s neighbors, suppliers and consumers alike can benefit from being able to buy from and sell to a bigger market – a market that is regional and not just national. This idea, of course, also drives trade liberalization initiatives under the World Trade Organization (WTO) regime, differing only in their geographical scope since the WTO is a global initiative. However, regional integration offers more liberal trade concessions than those under the WTO usually in the form of lower, if not zero, tariff rates.

Regional integration may assume various models depending on the degree by which countries would like their economies to be integrated or, to use a layman’s term, unified. It is also dependent on how much concessions the members are willing to grant to their neighbors. These models are commonly classified as follows:

1. Free Trade Areas – member countries remove tariff barriers to each other’s goods but retaining the prerogative to fix their tariff rates vis-à-vis non-member;
2. Customs Union - member countries remove tariff barriers to each other and adopt a common external trade policy by, for instance, fixing common tariffs with respect to non-member countries;
3. Common Market – this is a customs union that also allows free movement of services, labor, and capital among the members’ territories;
4. Economic Union – this is a common market that also decided to unify their fiscal and monetary policies such as the adoption of a single currency among the members
5. Political Union – highest form of regional integration where countries decide to integrate not just economically but also politically (certain measures of the European Union may indicate a step in this direction such as the adoption of common foreign policy).

The NAFTA and AFTA may be considered as examples of the first. A group of Persian gulf countries may be considered as an example of the second. The European Union, depending on which stage of its evolution is referred to, may be cited as an example of the third and fourth. It remains to be seen whether it will become an example of the fifth. Presently, however, the most obvious example of the fifth is the United States.

Regional Integration in Southeast Asia Under AFTA

Among all the regional integration schemes existing in the world today, the one to which the Philippines belongs to is the ASEAN Free Trade Area or AFTA.1 This was the result of an agreement signed in the early 1990s by the Philippines together with the other ASEAN member-countries now numbering 10.2 Pursuant to this agreement and its many subsequent amendments, a free trade area will be established in Southeast Asia through a scheduled removal of tariff and non-tariff barriers to trade. By 2010, tariff rates of the six old members of the ASEAN3 for goods originating from another ASEAN member would be zero. By 2015, the remaining four relatively new members would follow suit.4 In accordance with the schedule of tariff reduction, however, the members have already implemented a maximum of 5% on intra-ASEAN goods to 99% of their product lines.

One of the premises of regional integration is geographical proximity. Thus, economic logic supports trade among countries that are close to each other. But among countries that decide to adopt regional integration, there are members and territories that are more proximate to each other than others. Hence, the emergence of subregional initiatives. In the ASEAN there are two: the BIMP-EAGA subregion which refers to the easternmost territories of Brunei, Indonesia, Malaysia, and the Philippines.5 On the other hand, the Mekong Subregion refers to the riparian states of the Mekong River Basin.6

Current Status of ASEAN Regional Integration

The framework agreement establishing the AFTA was signed on January 28, 1992 by ASEAN member states who were previously reluctant to transform their regional grouping into a vehicle for regional economic integration. But events outside the region caused them to abandon that reluctance. Specifically, two of the region’s major markets were themselves moving deeper into integrating their own regions. The Maastricht Treaty was about to bring countries of Western Europe even closer and more economically integrated than before, including the adoption of a single currency. North American countries had just adopted the NAFTA. Thus, there was the real possibility that the European and North American markets would increasingly buy from among themselves thereby taking a bite off ASEAN members’ historical market share. To offset the impact of such possibility, the members decided to look at each other as an export destination to absorb what was expected to be the loss of export market share. Thus, the decision to buy and export more to the ASEAN region was prompted by developments outside the region.

From the very beginning, however, concerns were raised about the viability of regional economic integration in the ASEAN. Foremost of these were the low level of economic development of many of its members which limits their capacity to absorb export goods that are normally intended for the industrialized countries of Western Europe and North America.

In addition, their economies lacked complementarity which meant that they were exporting similar or identical products thereby reducing the need for the countries to buy from their neighbors. Thus, studies noted that there was minimal discernible, if not negligible, increase in the value of intra-ASEAN trade vis-à-vis extra-ASEAN even after adoption of the AFTA.

Thus, a decade after the signing of the AFTA agreement, suggestions were made to rethink the premises of ASEAN regional integration. Whereas before the premise was to be inward-looking, the new thrust is for the region to be external oriented. For instance, they may lack complementarity in the sense that they have limited capacity to buy goods from each other for domestic consumption. However, they may possess complementarity in their capability to produce goods intended for countries outside the region. Thus, one key phrase now often used is the creation of a “regional production base” or network. Intra-regional trade would still be a focus but this time, the countries hope that increased trade among, particularly on industrial inputs for goods that will be eventually exported to non-ASEAN countries, will increase the competitiveness of their products.

This shift in outlook brings about at least two benefits: First, it relieves the member countries of the burden to absorb goods that are otherwise intended for industrialized countries; Second, a regional production network makes the region more attractive for foreign direct investments.

To formally recognize this change of outlook, the ASEAN members agreed in 2003 to transform the region into a single market and production base by 2020.7

The Autonomous Region in Muslim Mindanao and ASEAN Regional Integration: Mutual Relevance

Free trade with close ASEAN neighbors is not something new to Muslim Mindanao. During colonial and pre-colonial times, Moro traders were trading freely in Johore and Ternate as if they were trading in their own backyard. Thus, the Sulu and Simouay trading zones of the Sulu and Maguindanao Sultanates became important hubs in Southeast Asia, as part of a region-wide network of entrepots that served the China-Europe trade.

However, after most of the countries in the region gained their independence in post-WW II, free trading as a traditional economic livelihood had to stop owing to the increasingly strict observance by the Philippines and its neighbors of the exclusivity of their respective economic domains. Trading by Muslim Mindanaons with their neighbors in Malaysia and Indonesia still occurs to this day but mostly at an informal level and not at a substantial volume.

The revival of free trading, this time with governmental sanction under the AFTA regime, offers Muslim Mindanao a chance to renew their historical role of being literally at the frontiers of the Philippines participation in regional integration. After all, the territories of the Philippines closest to the ASEAN are those within the ARMM.

ARMM Participation in ASEAN Regional Integration: Issues and Concerns

Just like other parts of the Philippines, ASEAN’s regional economic integration offers the potential to contribute to the development of the ARMM. ASEAN can provide Muslim Mindanao with either access to a wider market for its products or as a source of foreign direct investments. However, for this potential to be realized, the following issues need to be addressed:

First, there is a need to identify and prepare a short-list of industries that are viable for development under the aegis of the AFTA. The industries in this list may be classified into two: industries whose products are intended to be consumed within ASEAN and those whose products are intended to be processed in another ASEAN country for eventual re-export outside the ASEAN. Various factors will have to be considered to prepare the list (e.g. materials and resources which the ARMM can supply but are lacking in the neighboring countries, comparative prices, etc.). Once so identified and short-listed, efforts should be focus on marketing these industries for governmental and private-sector partnerships with other ASEAN countries.

An obvious example would be the seaweeds industry. The island provinces produce the bulk of the Philippines total raw seaweeds. However, to be in exportable state (carageenan), this has to be transported to Cebu where it is processed and eventually exported. Given the distance and the prohibitive domestic shipping rates in the Philippines, this leads to a substantial addition to production cost making the end-product less competitive.

On the other hand, bearing in mind that the island provinces are just a few kilometers away from Sabah, it may be more cost-effective to export it from there, with the processing into carageenan performed either there or in the island provinces. Besides the seaweeds industry, other obvious examples are halal foods, fruit production, and palm oil industries.

Second, the ARMM enjoys in comparison with other parts of the Philippines enjoys the strategic advantage of being both closest to traditional trading partners Malaysia, Brunei and Indonesia. However, for the ARMM to become viable either as an entry point or exit point of intra-ASEAN goods, it must first be provided with the necessary infrastructure to perform that role. As of now, there exists no major port of entry in the island provinces even though they are closest to Malaysia, Brunei, and Indonesia. Thus, at least one major port of entry is required in the island provinces, which will then be supported by existing ones that will serve as feeder ports.

A major port of entry does exist in the mainland Mindanao province of the ARMM (Polloc Port) but this has been suffering from underutilization by shippers and shipping companies. Even the ARMM’s banana exports are shipped out through ports outside the ARMM and the irony is that these ports are already clogged. A carefully considered marketing plan should be prepared and carried out to convince shippers and shipping companies to ship their goods through the Polloc Port. It goes without saying that assistance be given to the port management in the handling of the increase in shipping volume.

Third, the ARMM has thus far benefited little from its much-touted agri and marine resources simply because the value-added processing thereof is performed outside. Fish resources (sardines and tuna) caught inside the waters of the ARMM are processed and canned outside (Zamboanga or Gen. Santos cities). Seaweeds, as earlier discussed, is processed into Carageenan in Cebu. This situation is definitely brought about by the lack of investments in the region.

Thus, one strategy worth considering is to market the processing of these resources as investments ideas, particularly those included in the short-listed industries. Private investors can serve both as funders as well as buyers of the processed goods thereby giving life to the AFTA’s goals of creating a regional production network.

To facilitate the setting up and increase the viability of industrial or production centers in the ARMM, the regional government can easily provide incentives under the law creating the Regional Economic Zone Authority or REZA.

Fourth, given that the Philippines has already entered into a free trade agreement with its ASEAN neighbors, and given further that the ARMM is the most proximate to the ASEAN, the setting up of ASEAN trading zones in the ARMM is worth considering. Moreso since the REZA law enacted by the ARMM’s legislature allows it to establish free ports. One port in the ARMM (Polloc Port) is large enough to become a major free port.

Fifth, there is a need to mainstream and even strengthen the informal trading sector in the island provinces. If a constituency in support of regional integration is to be generated at the grassroots level, it must be shown to economic sectors at that level that they are just as likely to benefit from free trade as the larger economic sectors. Thus, to pave the way for their formalization, it may be worth considering the establishment of relatively small ASEAN trading centers in the island provinces. It should be noted that the cost of basic commodities to the communities in these islands are sometimes half of what they cost if they were to purchase it in the neighboring countries than the much farther Zamboanga.

The issues raised above are not intended to be a comprehensive delineation of concerns that affect the ARMM’s participation in ASEAN regional integration. However, they may point to the major strategic areas which have a strategic impact on how successful Muslim Mindanao can be in its participation in the ASEAN.

(comments may be sent to morolaw@yahoo.com)

* The author obtained his Masters in Regional Integration from the Universidad Autonoma de Madrid (Spain) and Asia-Europe Institute, Universiti Malaya (Malaysia). He also holds a Master of Laws in International Economic and Business Law from Kyushu University (Japan). He is the director of the Bangsamoro Center for Law and Policy. Comments may be sent to morolaw@yahoo.com

1. There are many other examples of regional integration. Those which are often cited are the European Union (EU), the North American Free Trade Area (NAFTA), the Mercado Cumon del Sur (MERCUSOR).
2. However, the ASEAN itself was established much earlier in 1967 through a document now known as the “Bangkok Declaration”. Its original founding members were Indonesia, Malaysia, Philippines, Singapore, and Thailand.
3. Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand.
4. Vietnam, Cambodia, Laos, and Myanmar.
5. This includes the entire territory of Brunei. In Indonesia: East and West Kalimantan, Central Kalimantan, Southeast Kalimantan, North Sulawesi, Central Sulawesi, South Sulawesi, Southeast Sulawesi, Maluka, and Irian Jaya. In Malaysia: Sabah and Sarawak states, and the Federal Territory of Labuan. In the Philippines: Mindanao and Palawan.
6. The five ASEAN member countries where the Mekong River passes through are Cambodia, Laos, Myanmar, Vietnam, and Thailand. However, the Greater Mekong Subregion initiative also closely involves China, South Korea, and Japan as partners.
7. Bali Concord II, October 7, 2003.